                         T.C. Memo. 1997-538



                       UNITED STATES TAX COURT



          CLYDE E. OWENS AND MARIE W. OWENS, Petitioners v.
             COMMISSIONER OF INTERNAL REVENUE, Respondent

                 JANET L. FELTRINELLI, Petitioner v.
            COMMISSIONER OF INTERNAL REVENUE, Respondent



     Docket Nos. 26716-93, 27265-93.    Filed December 4, 1997.



     Clyde E. Owens, Marie W. Owens, and Janet L. Feltrinelli,

pro se.

     Amy A. Campbell and Lawrence B. Austin, for respondent.



               MEMORANDUM FINDINGS OF FACT AND OPINION


     COLVIN, Judge:    Respondent determined that petitioners are

liable for income tax deficiencies and penalties as follows:
                                - 2 -

                 Clyde E. Owens and Marie W. Owens
                                             Accuracy-related
          Year            Deficiency              penalty
          1989              $33,384               $6,677
          1990              41,078                8,216



                         Janet L. Feltrinelli
                                             Accuracy-related
          Year            Deficiency              penalty
          1989              $2,635                 $527
          1990               8,191                1,638


     After concessions we must decide the following issues:

     1.   Whether respondent violated petitioners' Constitutional

rights in these cases.    We hold that respondent did not.

     2.   Whether petitioners' documentary evidence was properly

excluded because petitioners failed to comply with the Court's

orders to identify in writing and exchange that evidence with

respondent.   We hold that it was.

     3.   Whether respondent's determination of petitioners'

income tax deficiency is correct.      We hold that it is, except as

conceded by respondent.

     4.   Whether petitioners are liable for self-employment tax.

We hold that they are.
                                 - 3 -

     5.     Whether petitioners are liable for the accuracy-related

penalty for negligence or intentional disregard of the rules or

regulations for 1989 and 1990.    We hold that they are.

     Section references are to the Internal Revenue Code in

effect in the years in issue.    Rule references are to the Tax

Court Rules of Practice and Procedure.

                        I.   FINDINGS OF FACT

A.   Petitioners

     1.     Mr. and Mrs. Owens

     Petitioners Clyde Eugene Owens (Mr. Owens) and Marie W.

Owens (Mrs. Owens) are married and lived in Tallapoosa, Georgia,

when they filed their petition in these cases.     They have four

children:    Bryan, Dawn, Elaine, and Jason.    Dawn was married and

lived with her husband in 1989 and 1990.

     At the time of trial, Mr. Owens had been in business for 40

years.    He and Mrs. Owens were self-employed in 1989 and 1990.

They operated the Big O Truck Stop and Burger Chick, a fast food

restaurant described further below at paragraph I-B-4.

     Mr. and Mrs. Owens owned the land on which the businesses

were located.    They hoped to build a motel on their land.   They

had a sign that said they would open a motel there in 2001.     In

1989 and 1990, they had grapevines and had on their property what

they called a vineyard master house, not otherwise described in

the record.    The vines began to die in 1990.
                                - 4 -

     Mrs. Owens borrowed $20,000 from Liberty Savings Bank on

June 15, 1989.    The interest on that loan was $2,027.37 in 1990.

     Mr. and Mrs. Owens were required to have life insurance to

get an SBA loan.    During the years in issue, they owned two cars:

a Lincoln and a Pontiac Sunbird.    During those years, they also

owned a 1989 low boy trailer, a 1989 White tractor, and a 1989

tanker truck.

     2.   Ms. Feltrinelli

     Petitioner Janet L. Feltrinelli (Ms. Feltrinelli) lived in

Tallapoosa, Georgia, when she filed her petition in these cases.

In 1989 and 1990, she was a self-employed single parent of a

young child.

B.   Petitioners' Businesses

     1.   Background

     In 1989 and 1990, Mr. Owens operated Big O Truck Stop, Ms.

Feltrinelli operated Big O Barbecue, and Mrs. Owens operated

Burger Chick.    Big O Truck Stop and Big O Barbecue are in the

same building.    Mr. Owens and Ms. Feltrinelli each have an office

in the building in which the Big O businesses are located.    Mrs.

Owens has an office in the Owens' residence.    Mr. and Mrs. Owens

deducted some of their residential utilities expenses as a

business expense.

     Petitioners worked 70 hours a week at the businesses.    They

did everything required to operate the businesses, such as make
                                 - 5 -

sales, keep records, take out the garbage, and clean the

restrooms.

     2.   The Big O Truck Stop

     Mr. Owens bought gasoline and diesel fuel from Murphy Oil,

hauled it to Big O Truck Stop, and sold it to the public.   Mr.

Owens also sold beer and ice at Big O Truck Stop.   Big O Truck

Stop competes with larger establishments like Nobels, Chevron,

and Robinson's.   Mr. Owens made all of the business decisions for

Big O Truck Stop.   He did not receive a salary for managing Big O

Truck Stop.

     The bank account that Mr. Owens used for Big O Truck Stop

was in the name of Mr. Owens, Jason Owens, and Bryan Owens doing

business as "Big-O".   The sign advertising Big O Truck Stop said

"Owens' Big-O Barbecue & Truck Stop".    Telephone calls to Big O

Truck Stop were answered "Owens".

     Mr. and Mrs. Owens reported truck lift and tire change

income as part of the income for Big O Truck Stop on their 1989

and 1990 returns.

     3.   Big O Barbecue

     Big O Barbecue was located with Big O Truck Stop.   Ms.

Feltrinelli sold barbecue and sandwiches at Big O Barbecue.

     4.   Burger Chick

     Mr. and Mrs. Owens owned Burger Chick, a fast food retail

business that operated from a trailer.   In 1989 and 1990, Burger
                                - 6 -

Chick competed with a McDonalds and a Hardees.    Mrs. Owens

employed students to work part time, 10 to 15 hours a week.

     Mrs. Owens wrote checks for utilities in 1989 totaling

$16,346.09 on Burger Chick's account.    Her children wrote two

checks totaling $2,409.83.

     The combined gross income of Big O Truck Stop, Big O

Barbecue, and Burger Chick was between $500,000 and $1 million er

year in the years in issue.

     5.   Petitioners' Supplies

     Most of petitioners' suppliers deliver once a week.    Mr. and

Mrs. Owens do not have much storage room at the businesses.      They

sometimes used their cars to buy supplies and food for their

businesses.    Walker Meat in Carrolton delivers meat to

petitioners once or twice a year.    Petitioners go to Walker Meat

to get meat at other times.    They go to the grocery store to get

items such as cheese and mayonnaise when necessary.    They usually

pay cash for these items.    Ms. Feltrinelli sometimes used her car

to go to Sam's Club to get pork and barbecue for Big O Barbecue.

C.   Petitioners' Income Tax Returns

     Robert H. King (King), a self-employed accountant, prepared

Mr. and Mrs. Owens' and Ms. Feltrinelli's 1989 and 1990 income

tax returns.    The Owens gave King the information he used to

prepare their returns.    On their Schedules C for 1989 and 1990,

Mr. and Mrs. Owens reported that their businesses were "Burger

Chick - Vineyard - Towing Service".     They did not refer to Big O
                               - 7 -

Truck Stop.   Mr. and Mrs. Owens reported as income receipts from

a towing service not otherwise described in the record.    Mr. and

Mrs. Owens deducted $1,820 for 1989 to maintain their grapevines.

They never had a profit from their grapevines.

     On their Schedule C, Mr. and Mrs. Owens deducted payments

totaling $8,200 for 1989 and $8,100 for 1990 to their children

Bryan, Dawn, and Elaine for their college education.    The Owens'

children did some work as needed for their parents' businesses.

Mr. and Mrs. Owens did not keep records of their children's work

in their businesses.

     Mr. and Mrs. Owens reported that they were liable for income

tax of $2,361 for 1989 and $3,878 for 1990.

     Ms. Feltrinelli attached a Schedule C to her 1990 return.

She described the business as "gas, oil, and food (restaurant)",

and reported that the business name was "Big O".

D.   Petitioners' Audit and the Notices of Deficiency

     Revenue Agent Ken McEver (McEver) audited petitioners'

returns for the years in issue.   Respondent determined

deficiencies in part because petitioners were not entitled to or

could not substantiate certain deductions.    Respondent also

determined that the income and expenses attributable to Big O

Truck Stop should be reallocated under section 482 from Ms.
                               - 8 -

Feltrinelli to Mr. and Mrs. Owens.1    Respondent determined that

petitioners' tax returns should be changed as follows:

                         Mr. and Mrs. Owens
  Adjustments to income &
  expenses                          1989              1990
  Dependency exemption             $2,000            $2,050
  Schedule C expenses              75,257            50,570
  Franchise fee income            (5,000)
  Sec. 482 allocation              27,569            32,235
  Truck wash                                         3,330
  Truck lift                                         2,220
  Truck changer                                      1,250
  Sale of alcoholic
  beverages                                          99,662
  Cost of goods sold -
  Alcoholic beverages                               (76,663)
  Self-employment tax
  deduction                                         (6,279)
    Total                         $99,826           $108,375




     1
       On brief, respondent conceded that the adjustments under
sec. 482 do not apply.
                                     - 9 -


                             Ms. Feltrinelli
     Adjustments to income &
     expenses                            1989                1990
     Car and truck expenses             $1,684              $1,782
     Franchise fee income               5,000               5,000
     Sec. 482 allocation                 228                19,010
     Self-employment tax
     deduction                                             (1,822)
       Total                            $6,912             $23,970


       Mr. and Mrs. Owens reported that their cost of goods sold

and business expenses were $284,288 in 1989 and $302,923 in 1990.

Respondent allowed $209,031 for 1989 and $252,353 for 1990 for

those items.

       Ms. Feltrinelli reported that she had gross receipts of

$704,593 in 1989 and $781,212 in 1990.           Respondent determined

that her gross receipts were $161,591 in 1989 and $198,759 in

1990.

       Ms. Feltrinelli claimed that her total cost of goods sold

and business expenses were $686,058 in 1989 and $763,718 in 1990.

Respondent allowed $142,828 in 1989 and $162,255 in 1990.

E.     Partial Trial

        1.     Pretrial Activities

        These cases were calendared for trial at the sessions in

Atlanta, Georgia, beginning on September 26, 1994, for Mr. and

Mrs. Owens and on October 31, 1994, for Ms. Feltrinelli.             The
                               - 10 -

Court's standing pretrial order was attached to the Court's

orders setting the cases for trial.     It provides that any

documents or materials which a party expects to use at trial

(except to impeach), but which are not stipulated, shall be

identified in writing and exchanged by the parties at least 15

days before the first day of the trial session.     The standing

pretrial order also notified the parties that the Court may

refuse to receive in evidence any document or material not

stipulated or exchanged, unless otherwise agreed by the parties

or allowed by the Court for good cause shown.

     Shortly before trial, petitioners moved for a continuance to

give them more time to get records from third parties.

Petitioners' motion was granted.   The Court again served the

standing pretrial order on the parties on November 29, 1994, and

reset these cases for trial at the session beginning May 1, 1995.

On April 21, 1995, petitioners filed a second motion to continue.

Petitioners' motion was granted.   In their second motion to

continue, petitioners alleged that respondent's agents had acted

improperly during the audit.

     The Court again served the Court's standing pretrial order

on August 24, 1995, and reset the cases for trial at the session

beginning on January 29, 1996.   Respondent proposed stipulated

findings of fact to petitioners.   Petitioners did not respond.

Respondent filed a motion for the Court to order petitioners to

show cause why respondent's proposed stipulation of facts should
                               - 11 -

not be deemed admitted.   The Court ordered petitioners to show

cause by December 29, 1995.

     On December 29, 1995, petitioners filed their third motion

to continue.   In it, they again said that they needed more time

to prepare for trial.   On January 2, 1996, the Court denied

petitioners' motion.

     On January 2, 1996, petitioners filed a response to the

Court's order to show cause in which they admitted or denied most

of the stipulations that respondent proposed.    On January 2,

1996, the Court deemed some of the paragraphs to which

petitioners did not respond admitted and others denied.

     On January 19, 1996, petitioners filed their fourth motion

to continue.   In it, they again stated that they needed more time

to prepare and again alleged that respondent's agents' conduct

had been improper.   The Court denied petitioners' motion.

     2.   Partial Trial

     Petitioners filed a pretrial memorandum in which they

criticized McEver, alleged that respondent had a personal

vendetta against them, and alleged that respondent had violated

their rights under the U.S. Constitution and various Civil Rights

Acts.

     Petitioners were present for trial in February 1996 (the

partial trial).    Lawrence B. Austin (Mr. Austin) represented

respondent.    At the partial trial, Mr. Owens repeated the

allegations made in petitioners' pretrial memorandum.
                               - 12 -

     Petitioners brought many documents with them to trial.

However, the documents were disorganized and had not been

exchanged as required by the three standing pretrial orders

previously served on petitioners.    Petitioners testified and

offered into evidence some documents which they had not exchanged

before trial.

     Ms. Feltrinelli had major surgery about a month before the

partial trial.   At the start of the trial, the Court asked Ms.

Feltrinelli if she felt like she could go ahead with the trial.

Ms. Feltrinelli said that she thought that she could.    However,

she became very uncomfortable during the trial.    The Court halted

the trial because it could not be completed in the time available

and because Ms. Feltrinelli did not feel well.    The Court asked

respondent's agent Dorothy Poole (Poole) to meet with Mrs. Owens

and Ms. Feltrinelli later to review petitioners' documents to try

to settle the cases.

     3.     Respondent's Agent's Meeting With Petitioners

     Several months after the partial trial, Poole met with Mrs.

Owens and Ms. Feltrinelli.    They met for 35 hours over 4 days.

Poole reviewed documents that Mrs. Owens and Ms. Feltrinelli

provided.    Poole listed the documents that she saw and gave a

copy of the list to Mr. Owens and Mr. Austin.    The parties agreed

that petitioners would bring the documents to a conference with

Mr. Austin and Appeals Officer Harry Neville where they could be
                               - 13 -

photocopied.   That conference was never held for reasons not

stated in the record.

F.   Further Trial

     1.    Exchange of Documents

     On July 19, 1996, these cases were again set for trial at

the next regular session of the Court in Atlanta, Georgia.    We

again attached the standing pretrial order, as described above.

See paragraph I-E-1.    In an attempt to ensure that the cases were

ready for trial, and to prevent recurrence of the problems just

described, the Court issued orders on July 10, July 19, July 24,

and October 7, 1996, requiring the parties to state their

position on each issue in the notice of deficiency, identify in

writing documents to be used at trial, exchange documents,

stipulate to them, and file pretrial memoranda earlier than

required by the standing pretrial order.

     Respondent complied with the Court's orders.   Petitioners

did not.   Petitioners argued that respondent's agents had

harassed them.   Petitioners attached copies of Court orders;

various motions filed by petitioners; documents related to Ms.

Feltrinelli's January 1996 surgery; petitioners' tax returns for

the years in issue; the notices of deficiency; a campaign

advertisement of Mr. Owens attacking the Internal Revenue Service

(IRS); copies of checks that Mrs. Owens wrote to the IRS in

December 1979, January 1982, September 1983, and 1985 (illegible

month), and that Ms. Feltrinelli wrote in October 1981; copies of
                              - 14 -

quarterly Federal excise tax returns for September 30 and

December 31, 1981; and various documents concerning a levy in

January 1996.   At the time of trial, petitioners had not

identified or exchanged any other documents they would offer into

evidence at trial.

     2.   Trial

     At trial, Mr. Owens continued to criticize respondent's

agents.   He leveled several personal insults against respondent's

agent McEver.

     Petitioners refused several requests from the Court that

they address issues raised by the notices of deficiency.    The

Court advised petitioners that the notices of deficiency are

presumed to be correct and that they should try to meet their

burden of proving that they are not correct.   Mr. Owens said that

he understood the Court's instructions.

     Petitioners contended that respondent violated their rights

under the 1st, 4th, 5th, 7th, 8th, and 14th Amendments to the

U.S. Constitution and various Civil Rights Acts.   Mr. Owens said

that each petitioner should receive $100,000 in damages.

     Petitioners sought to introduce into evidence a large

quantity of documents that petitioners had not exchanged,

identified in writing, or stipulated as required by the Court's

orders described above.   Respondent's counsel did not object to

the admission of documents if Poole had seen them at her meeting

with Mrs. Owens and Ms. Feltrinelli.   Petitioners could not
                                - 15 -

provide those documents at that time because they could not

identify which of the materials they brought to trial Poole had

seen.     Thus, the Court told petitioners that it would admit into

evidence documents that Poole had seen if petitioners served

copies of them on the Court and respondent's counsel within 30

days after the trial.2

                             II.   OPINION

     Respondent's determinations in the notices of deficiency are

presumed to be correct, and petitioners bear the burden of

proving otherwise.     Rule 142(a); Welch v. Helvering, 290 U.S.

111, 115 (1933).

A.   Petitioners' Constitutional and Other Contentions

     Petitioners contend that respondent's agents have been

abusive to petitioners and that respondent has violated several

of petitioners' rights under the U.S. Constitution and Civil

Rights Acts of 1963 and 1964.




     1.      Events Before and During The Audit

     Petitioners contend that respondent's agents were abusive to

them before and during the audit of these cases.     Petitioners

contend that respondent's agents had a personal vendetta against

them.     Mr. Owens testified that he had a confrontation with an

     2
       Respondent did not object to the admission of these
documents under this procedure.
                               - 16 -

IRS agent, for which Mr. Owens was indicted, tried, and acquitted

in 1977.    Mr. Owens also testified that the IRS seized more than

$12,000 from Ms. Feltrinelli on dates not specified in the

record.    Petitioners contend that respondent's agents acted

improperly during the audit.    Petitioners criticized respondent's

original auditor and charged that McEver and McGovern (an

otherwise unidentified person) conspired against Mr. Owens and

Ms. Feltrinelli to deprive them of their records.    Mr. Owens

offered no meaningful details about or corroboration of his

claims.

     Petitioners have not shown that respondent's agents were

abusive to them, acted improperly, or had a vendetta against them

in any way.

     2.     Petitioners' Constitutional and Civil Rights

     Petitioners contend that they are entitled to relief from

liability for the income tax deficiencies and penalties at issue

in these cases because respondent violated their rights under the

1st, 4th, 5th, 7th, 8th, and 14th Amendments to the U.S.

Constitution and various Civil Rights Acts.

     Petitioners contend that respondent violated their rights

under the 1st Amendment of the U.S. Constitution by retaliating

against Mr. Owens because he pledged in his Congressional

campaign to place the burden of proof in tax cases on the IRS.

Petitioners contend that their right to be secure in their papers

and protected against unreasonable search and seizures under the
                               - 17 -

4th Amendment to the U.S. Constitution were violated because

someone trashed the offices at the Big O businesses in 1990 and

1991 and that respondent seized their bank accounts more than 12

times.    Petitioners contend that their 5th Amendment guarantee

against double jeopardy was violated because we had the February

partial trial and the October trial,3 that their 7th Amendment

right to a trial by jury has been violated,4 that their

experiences in this case have been cruel and unusual punishment

in violation of the 8th Amendment, and that respondent deprived

them of life, liberty, or property in violation of the 14th

Amendment.    Petitioners also make vague allegations that

respondent violated their civil rights and contend that each of

them should receive $150,0005 in damages and $91,000 in tax

credits.

     Petitioners offer no reasons or authority to support these

claims.    They have no bona fide basis for their positions.

Petitioners' vague and unsubstantiated allegations do not

persuade us that they are entitled to relief from liability for




     3
       The prohibition against double jeopardy does not apply in
civil cases or bar the procedure we followed. Ianniello v.
Commissioner, 98 T.C. 165, 178-179 (1992).
     4
       Tax Court petitioners have no right to a jury trial.
Mathes v. Commissioner, 576 F.2d 70, 71-72 (5th Cir. 1978), affg.
T.C. Memo. 1977-220.
     5
       Petitioners do not explain why they claimed more damages
on brief than the amount Mr. Owens claimed at trial ($100,000).
                               - 18 -

the income tax deficiencies and penalties at issue in these

cases.

B.   Exclusion of Evidence

     Petitioners offered documents into evidence at the further

trial that they had not exchanged or identified in writing as

required by our standing pretrial orders dated April 22, August

24, and November 29, 1994, and other orders dated July 10, July

19, July 24, and October 7, 1996.    We did not admit the documents

into evidence.    Petitioners contend that it is unfair to exclude

the evidence that they offered.    We disagree.

     Petitioners do not deny receiving any of these orders.      Mr.

Owens testified that he understood that the Court required the

parties to identify the documents in writing and exchange them

before trial.    Petitioners do not claim that they tried to comply

with these orders.   Materials not provided in compliance with our

pretrial orders may be excluded from evidence.    Moretti v.

Commissioner, 77 F.3d 637, 644 (2d Cir. 1996).    Exclusion of

documents because they were not exchanged as required by the

standing pretrial order is particularly justified if they are

complex and voluminous, as here.    See Kodak v. Commissioner, T.C.

Memo. 1991-485, affd. without published opinion 14 F.3d 47 (3d

Cir. 1993).   We conclude that we properly sustained respondent's

objection.

     We admitted the documents into evidence that petitioners had

shown to Poole.   Those documents do not establish that
                               - 19 -

petitioners had less income or more deductions or cost of goods

sold than respondent had allowed as a result of Poole's meetings

with petitioners.   The amounts of deductions and cost of goods

that petitioners substantiated in those documents are less than

respondent allowed, and those documents do not show that

petitioners had less income than respondent determined.

     Petitioners contend that the Court gave respondent the power

to decide what documents were admissible in evidence.    We

disagree.   Although not required to do so, respondent did not

object to the admission of certain documents that petitioners had

failed to exchange and identify in writing before trial as

required by several Court orders.

     Petitioners contend that the Court allowed respondent to be

late many times but repeatedly denied requests by petitioners.

We disagree.   The Court granted two of petitioners' motions to

continue and one of respondent's motions to file a trial

memorandum when respondent substituted counsel in these cases.

     At trial, petitioners questioned whether section 7522 has

any bearing on these cases.    Section 7522 requires that

respondent describe in a notice of deficiency the basis for and

identify the amounts of tax due, interest, and any additional

amounts, additions to tax, and assessable penalties.    Sec.

7522(a) and (b).    The notices of deficiency at issue here

complied with section 7522.    They include a clear written
                               - 20 -

explanation for each adjustment that respondent made, and they

identify the amounts of tax, interest, and penalties due.

     Petitioners have only themselves to blame for their

difficulties in these cases.   They had many opportunities to

exchange evidence with respondent as required by our orders.

Petitioners seemed to think that insulting respondent's agents

would enhance their chance of prevailing and excuse their failure

to take steps necessary to fully present their cases on the

merits.

C.   Whether Respondent's Determination Should be Sustained

     1.   Whether Petitioners Had Less Income Than Determined by
          Respondent

     Petitioners contend that they had less income than

respondent determined.   Mr. Owens testified generally that the

Big O businesses did not generate as much income as respondent

determined, and that the Big O businesses were small and competed

with larger firms.   He did not give any information to support

his conclusionary claims.   Mrs. Owens testified briefly.    Her

testimony did not show that respondent's determination was

incorrect.   Ms. Feltrinelli did not testify.   We sustain

respondent's determination about the amount of income petitioners

received in 1989 and 1990, except as conceded by respondent.
                                - 21 -

     2.   Whether Petitioners Had More Deductions or Cost of
          Goods Sold Than Allowed by Respondent

     Respondent's agent audited petitioners in these cases and

allowed deductions and cost of goods sold to the extent

substantiated by petitioners.    Petitioners contend that they may

deduct more than respondent allowed.

          a.    Deductions for The Owens' Vineyard

     Mr. and Mrs. Owens contend that they may deduct $1,820 for

vineyard upkeep in 1989.   We disagree.

     Mr. and Mrs. Owens had no records for this activity and no

experience in the business.   There is no evidence how they

conducted this activity.   Mr. and Mrs. Owens denied that they

made wine.   There is no evidence that the vineyards produced any

income.   Mr. and Mrs. Owens did not show that their vineyard was

an activity for profit.

          b.    Franchise Payment

     Petitioners contend that Mr. Owens orally gave Ms.

Feltrinelli a franchise to operate Big O Truck Stop.    Petitioners

contend that Ms. Feltrinelli made a $5,000 franchise payment to

Mr. Owens in the years in issue.    Other than Mr. Owens'

testimony, there is no evidence that Ms. Feltrinelli paid $5,000

to the Owens in 1989 or 1990.    The signs, telephone-answering

procedure, and bank accounts suggest that Mr. Owens owned and

operated Big O Truck Stop.    Petitioners have failed to prove Ms.
                                 - 22 -

Feltrinelli paid a $5,000 franchise fee to the Owens in 1989 or

1990.

             c.    Payments for The Owens' Children's College
                   Education

        Mr. and Mrs. Owens contend that they may deduct $8,200 in

1989 and $8,100 in 1990 that they gave to their children to go to

college.     Mr. and Mrs. Owens testified generally that their

children worked as needed for their businesses.     Mr. and Mrs.

Owens did not keep records of this work.     We conclude that Mr.

and Mrs. Owens may not deduct these amounts.

             d.    Other Claimed Deductions and Cost of Goods Sold

        There is no evidence to support petitioners' contentions

that they may deduct more than respondent allowed for charitable

contributions, wages for part-time help, utilities, insurance,

interest and taxes, a tractor, a low boy trailer, a tanker truck,

and car and truck expenses, or that their cost of goods sold was

more than respondent allowed.     Mrs. Owens testified that she lost

some of the truck expense and car deduction records for the years

in issue, but petitioners did not offer enough other evidence to

show that they may deduct these items.     Respondent conceded that

petitioners may deduct some items based on statements by

petitioners.      For example, respondent concedes that petitioners

may deduct some payments for utilities, goods and supplies, and

employees' wages.
                                - 23 -

     We conclude that petitioners did not establish their right

to more deductions or cost of goods sold than respondent allowed

for 1989 and 1990.

D.   Self-Employment Tax

     Respondent determined that petitioners are liable for self-

employment tax under section 1401 and that they may deduct one-

half of the self-employment tax they paid under section 164(f).

Petitioners concede that they were each self-employed.      We

sustain respondent's determination on this issue.

E.   Whether Petitioners Are Liable for the Accuracy-Related
     Penalty Under Section 6662(a)

     Respondent determined that petitioners are liable for the

accuracy-related penalty for negligence for 1989 and 1990 under

section 6662(a) and (c).     Petitioners contend that they are not

liable for the accuracy-related penalty for negligence.      We

disagree.

     Taxpayers are liable for a penalty equal to 20 percent of

the part of the underpayment to which section 6662 applies.       Sec.

6662(a).    Negligence is a lack of due care or failure to do what

a reasonable and ordinarily prudent person would do under the

circumstances.    Zmuda v. Commissioner, 731 F.2d 1417, 1422 (9th

Cir. 1984), affg. 79 T.C. 714 (1982); Neely v. Commissioner, 85

T.C. 934, 947 (1985).    For purposes of section 6662(a),

negligence is a failure to reasonably attempt to comply with the

Internal Revenue Code.     Sec. 6662(c).   The accuracy-related
                                - 24 -

penalty under section 6662(a) does not apply to any part of an

underpayment if the taxpayer shows that there was reasonable

cause for that part of the underpayment and that the taxpayer

acted in good faith based on the facts and circumstances.       Sec.

6664(c)(1).   Failure to keep adequate records is evidence of

negligence.    Marcello v. Commissioner, 380 F.2d 509, 511 (5th

Cir. 1967), affg. T.C. Memo. 1964-303; Magnon v. Commissioner, 73

T.C. 980, 1008-1009 (1980).

     Petitioners bear the burden of proving that they were not

negligent.    Rule 142(a).   They did not do so.   They did not show

that they had good faith or reasonable cause.      Ms. Feltrinelli

concedes that her records were inadequate.     Petitioners did not

show that they were not negligent.

     Petitioners contend that they are not liable for the

accuracy-related penalty for negligence because they do not owe

taxes.   We disagree for reasons stated above.

     We conclude that petitioners are liable for the

accuracy-related penalty for negligence for 1989 and 1990 under

section 6662(a) and (c) and that each petitioner's understatement

for each year in issue is due to negligence.

     To reflect concessions and the foregoing,


                                           Decisions will be

                                      entered under Rule 155.
