                       T.C. Memo. 1998-23



                     UNITED STATES TAX COURT



          PAUL M. AND JUNE S. SENGPIEHL, Petitioners v.
           COMMISSIONER OF INTERNAL REVENUE, Respondent



     Docket No. 18672-96.                   Filed January 20, 1998.



     Paul M. Sengpiehl, for petitioners.

     Naseem J. Khan and John Comeau, for respondent.


                       MEMORANDUM OPINION

     GOLDBERG, Special Trial Judge:   This case was heard pursuant

to section 7443A(b)(3) and Rules 180, 181, and 182.1

     Respondent determined a deficiency in petitioners' Federal

income tax for 1991 in the amount of $4,828.

1
     All section references are to the Internal Revenue Code in
effect for the taxable year in issue. All Rule references are to
the Tax Court Rules of Practice and Procedure.
                                2

     After concessions,2 the issues for decision are whether

petitioners are entitled to deductions for various amounts

claimed as Schedule C expenses and whether petitioners are

entitled to a dependency exemption deduction with respect to

their married son.

     Some of the facts have been stipulated and are so found.

The stipulation of facts and the attached exhibits are

incorporated herein.   Petitioners resided in Oak Park, Illinois,

at the time their petition was filed.

     During the taxable year in issue, Paul M. Sengpiehl

(petitioner) was a self-employed attorney.   Petitioner conducted

his legal practice out of petitioners' home in Oak Park,

Illinois.   Petitioner did not maintain another office during the

year in issue.

     Petitioners' residence has three stories, including an

unfinished basement.   The basement measures 759 square feet.   In

1991, the basement contained the heater and washing machine.    It

contained no living area.   Petitioner used 272 square feet of the

basement to store materials used in his law practice.

2
     Petitioners concede they are not entitled to deductions for
car and truck expense in the amount of $930, depreciation expense
in the amount of $1,168, and insurance expense in the amount of
$1,667. Respondent concedes that petitioners are entitled to a
deduction for office expense in the amount of $6,030, and
petitioners concede that they are not entitled to a deduction for
the remaining amount of office expense claimed in the amount of
$1,092. Respondent further concedes that petitioners are
entitled to a Schedule C deduction for other expenses in the
amount of $1,889.35.
                                 3

     The first floor is divided into five rooms.    The living room

measures 299 square feet and in 1991 was furnished with two

sofas, some easy chairs, a coffee table, a lamp table, a piano,

and bookshelves.    The dining room measures 159.375 square feet

and was furnished with a dining room table, chairs, and china

cabinets in 1991.    The kitchen is 195.25 square feet in size and

in 1991 contained kitchen appliances, a table and chairs, and a

telephone.   An enclosed porch located next to the dining room is

165 square feet and in 1991 was furnished with a sofa, easy

chairs, a wordprocessor, a copy machine, a fax machine, a file

cabinet, a television set with cable television, and one

telephone.   Another enclosed porch next to the dining room

measures 105 square feet.    In 1991, this porch was furnished with

a desk, chairs, credenza, two filing cabinets, and a telephone

during the year in issue.    The first floor also includes a

hallway measuring 138 square feet.

     The second floor of the house contains four rooms, including

a bathroom and a hallway, totaling 688.25 square feet.

Petitioner did not use any of the second floor in operating his

law practice.

     Petitioners paid mortgage interest, real estate taxes, home

insurance, and utilities in the respective amounts of $2,324.97,

$4,442.01, $360, and $2,815.44 during 1991.
                                 4

     Petitioners' home had one telephone line with extensions in

the kitchen, master bedroom, and in each of the enclosed porches.

Petitioners' phone number was listed in the residential section

of the Illinois Bell Telephone Directory and in Sullivan's Law

Directory under petitioner's name.   Petitioners paid telephone

expenses in the amount of $1,004 in 1991.

     Petitioners' son, Jeffrey Sengpiehl, and daughter, Chrystal

Sengpiehl, resided with petitioners for part of the year in

issue.    Chrystal Sengpiehl lived in their home through the end of

August 1991, at which time she left to attend college.   Jeffrey

Sengpiehl married in November 1991, at which time he moved from

petitioners' home.   Jeffrey Sengpiehl and his wife filed a joint

tax return Form 1040 for the tax year 1991 and reported income in

the amount of $13,351.87.

     On Schedule C of their 1991 Federal income tax return,

petitioners reported gross receipts from petitioner’s legal

practice in the amount of $50,179.62.   On Schedule C, petitioners

claimed a deduction for home office expense in the amount of

$4,143 based upon business usage of 41.67 percent of their home.

Petitioners also claimed a deduction for other expenses in the

amount of $6,895, including telephone expense in the amount of

$1,004.   On their 1991 return, petitioners claimed a dependency

exemption deduction with respect to both Chrystal and Jeffrey.

Petitioners also claimed an earned income credit for 1991.
                                 5

     In the notice of deficiency, respondent disallowed $3,357 of

petitioners' home office deduction.   The balance was allowed

based upon business usage of the two enclosed porches or 7.15

percent of their home.   Respondent allowed petitioners additional

itemized deductions for the portion of the disallowed home office

expense which represents mortgage interest and real estate taxes

in the amount of $2,459.   Respondent disallowed petitioners'

other expenses in the amount of $5,518 because petitioners had

not shown that this amount was for ordinary and necessary

business expenses.   Respondent further disallowed petitioners'

dependency exemption deduction claimed with respect to their son

Jeffrey because he filed a joint return for the year in issue.

As a computational result of respondent's other adjustments,

respondent disallowed petitioners' claimed earned income credit.

     Respondent's determinations are presumed correct, and

petitioners bear the burden of proving them erroneous.   Rule

142(a); Welch v. Helvering, 290 U.S. 111, 115 (1933).    Further,

deductions are a matter of legislative grace, and petitioners

must prove entitlement to any deductions claimed.   INDOPCO, Inc.

v. Commissioner, 503 U.S. 79, 84 (1992).

Schedule C Deductions

     A.   Home Office Expenses

     Section 280A generally prohibits deduction of otherwise

allowable expenses with respect to the use of an individual
                                  6

taxpayer's home.   As an exception, this restriction does not

apply to any item that is allocable to a portion of the home that

is exclusively used on a regular basis as the principal place of

business for the taxpayer's trade or business.      Sec. 280A(c).

Section 280A(c) requires that the taxpayer use the portion of the

home solely for the purpose of carrying on a trade or business

and that there be no personal use of that part of the home.        See

Cadwallader v. Commissioner, 919 F.2d 1273, 1275 (7th Cir. 1990),

affg. T.C. Memo. 1989-356; Sam Goldberger, Inc. v. Commissioner,

88 T.C. 1532, 1556-1557 (1987).       The legislative history of

section 280A provides:

     Exclusive use of a portion of a taxpayer's dwelling unit
     means that the taxpayer must use a specific part of a
     dwelling unit solely for the purpose of carrying on his
     trade or business. The use of a portion of a dwelling unit
     for both personal purposes and for the carrying on of a
     trade or business does not meet the exclusive use test.
     Thus, for example, a taxpayer who uses a den in his dwelling
     unit to write legal briefs, prepare tax returns, or engage
     in similar activities as well as for personal purposes, will
     be denied a deduction for the expenses paid or incurred in
     connection with the use of the residence which are allocable
     to these activities.

Sam Goldberger, Inc. v. Commissioner, supra (quoting S. Rept. 94-

938 (1976), 1976-3 C.B. (Vol. 3) 49, 186; H. Rept. 94-658 (1975),

1976-3 C.B. (Vol. 2) 695, 853).

     The general rule of section 280A(a) does not apply to any

item that is allocable to space that is used on a regular basis

for storage of the taxpayer's inventory held for use in the
                                  7

taxpayer's trade or business of selling products at retail or

wholesale.   Sec. 280A(c)(2).

     There is no dispute that petitioner's principal place of

business was located in petitioners' home.      The issue is with

respect to what portion of petitioners' home are petitioners

entitled to claim a deduction for home office expenses.         The

parties have presented their arguments on a room-by-room basis,

and we use this framework in our analysis.      Petitioners argue

that they are entitled to a deduction for home office expenses

allocable to 51 percent business use of their home.

     By way of background, we note that petitioner contends that

his family did no entertaining at home and that his wife and

children made no use of any of the rooms in the house aside from

the bedrooms, bathroom, and kitchen, and the dining room on a

extremely limited number of occasions.      Furthermore, with respect

to the use of several rooms at issue, specifically the dining

room, kitchen, and bathroom, petitioners advance the argument

that "exclusive" business use during business hours is sufficient

to satisfy section 280A(c), regardless of any personal use after

hours.   We do not agree.   The use of a portion of a home for both

personal and business purposes does not meet the exclusive use

requirement of section 280A(c).       Sam Goldberger, Inc. v.

Commissioner, supra.
                                8

     Petitioners also argue that the claimed allocation

percentage is proper based on the amount of time that the rooms

were purportedly devoted to use in petitioner's legal practice.

In this respect, petitioners rely on Neilson v. Commissioner, 94

T.C. 1 (1990), and Gino v. Commissioner, 60 T.C. 304 (1973),

revd. 538 F.2d 833 (9th Cir. 1976), wherein the Court compared

the number of hours the space in issue was used for business

purposes as opposed to the number of hours it was used for other

purposes.   Petitioners' reliance is misplaced.   The facts in

Neilson v. Commissioner, supra, involved a day-care operation in

the taxpayers' home, and, thus, section 280A(c)(4) applied.

Petitioners do not argue, nor would we agree, that section

280A(c)(4) applies in these circumstances.   The second case, Gino

v. Commissioner, supra, was decided prior to the enactment of

section 280A.

     Petitioner argues that the portion of his home allocable to

his business use included the dining room.   Petitioners contend

that any use of the dining room "after hours" does not negate the

use of the room for business purposes because personal activities

may go on at outside law offices after hours.     Respondent argues

that petitioners have failed to prove that the area was used

exclusively for business purposes, and, therefore, cannot

allocate the expenses to business use.
                                9

     Petitioner testified that he used the dining room to conduct

conferences and to execute various documents.   Petitioner also

testified that he stored current legal files in the dining room

piled on the floor and on the furniture, although the only filing

cabinets were in one of the other rooms.   Two of petitioner's

clients testified to meeting with petitioner in the dining room

area.   Petitioner admitted that his family used the dining room

for family dinners but testified that this occurred on Saturdays

and Sundays only, on three birthdays, and on Thanksgiving.

     Although the testimony convinces us that petitioner used the

dining room for some business purposes, petitioner has not

established that this room was used exclusively for business

purposes.   Based on the record, we do not believe that the

personal use of the dining room was de minimis.   See, e.g., Culp

v. Commissioner, T.C. Memo. 1993-270; Hughes v. Commissioner,

T.C. Memo. 1981-140.   Petitioners are not entitled to deduct the

expenses attributable to this portion of their home.

     Petitioner argues that the portion of his home allocable to

his business included the living room.   Respondent argues that

petitioner has failed to prove that the area was used exclusively

for business purposes.   Respondent contends that petitioner's

testimony is not credible and that we should infer from the

manner in which the room was furnished that petitioners and their

children made personal use of their living room, citing Hefti v.
                                 10

Commissioner, T.C. Memo. 1988-22, affd. without published opinion

894 F.2d 1340 (8th Cir. 1989).

     Petitioner testified that he used the living room as an

informal meeting area and as a conference room in his legal

practice.   Petitioner testified that he met with at least 54

clients in this room during 1991.     Petitioner testified that he

and Mrs. Sengpiehl usually did not entertain at home and that

their children never had guests at the house.    He further

testified that he was the only member of the family who played

the piano and that he did not do so during the year in issue.

Two of petitioners' clients testified that when they met with

petitioner, they had free access to the entire first floor, and

testified to meeting with petitioner in the living room.

     We found the witnesses' testimony credible concerning the

use of the living room for business purposes.    We have no basis

for doubting petitioner's testimony that the living room was not

used for personal reasons when petitioner admitted to making

personal use of other rooms.   Therefore, we find that petitioners

have satisfied the requirements of section 280A(c)(1) with regard

to the living room.

     Petitioners argue that one-half of the kitchen space is part

of petitioner's home office.   Respondent contends petitioners

have failed to prove that any part of the kitchen was used

exclusively for business purposes.    We agree with respondent.
                                  11

     Petitioner testified that Mrs. Sengpiehl was available to

serve his clients refreshments.    One of petitioner's clients

testified that she made phone calls from the kitchen.    Petitioner

also testified that his family would get coffee from the kitchen

and that dinner was eaten in half of the kitchen.

     Petitioners have not established that any part of the

kitchen was used exclusively in petitioner's business.

Petitioners are not entitled to a deduction for the expenses

allocable to the kitchen.

     Petitioners argue that petitioner's home office included the

bathroom.    Respondent counters that petitioners used the bathroom

for personal purposes and have failed to meet the requirements of

section 280A(c).   We agree with respondent.

     Petitioner testified that the bathroom was available for his

clients' use, and that his children were not present in the house

during the normal business hours of his law practice.

Petitioners have failed to establish that the bathroom was

exclusively used for business purposes, and no deduction may be

allowed with respect to this portion of the house.

     Petitioners contend that petitioner's home office includes a

portion of their basement used by petitioner for storage of legal

materials.   Respondent argues that petitioners are not entitled

to a deduction for the storage space under section 280A(c)(2).

Petitioners argue that respondent raised this issue initially on
                                12

brief, and therefore has the burden of proof.   We think

respondent's argument is not on point.

     Petitioner testified that he used a portion of the basement,

measuring 272 square feet, to store files, law books, and estate

property.   There is no suggestion that petitioner used this

portion for personal reasons.   Thus, we find that this portion of

the basement satisfies the requirements of section 280A(c)(1) and

is part of petitioner's home office.

     Finally, petitioners argue that petitioner's law office

includes the hallway on the first floor.   Petitioners offered no

evidence to establish that this area was used exclusively for

business purposes.   Therefore, petitioners are not entitled to

deduct expenses allocable to this portion of their residence.

     Based on the above analysis, petitioners are entitled to an

additional home office deduction with respect to the expenses

attributable to 571 square feet.3

     B. Telephone Expense

     Section 262(a) provides:   "Except as otherwise expressly

provided in this chapter, no deduction shall be allowed for

personal, living, or family expenses."   Section 262(b) provides

that any charges, including taxes, for basic local telephone

service for the first telephone line of the taxpayer's residence


3
   Computations under Rule 155 should account for respondent's
allowance of mortgage interest and real estate taxes as itemized
deductions.
                                 13

are treated as personal expenses for the purposes of section

262(a).

     Petitioners argue that the telephone expenses are deductible

as business expenses under section 162(a), and therefore the

deduction of such expenses is otherwise expressly provided.

Petitioners ignore the explicit language of section 262(b).

Petitioners failed to offer any testimony or evidence as to

whether the telephone expenses claimed include long distance

charges for business purposes.    Thus, petitioners have failed to

establish that they are entitled to a deduction for telephone

expense.    Respondent is sustained on this issue.

     C.    Other Expenses

     Petitioner testified that he incurred checking account fees

during 1991.    Petitioners did not argue that they are entitled to

a deduction for these fees in either of their posttrial briefs.

Moreover, petitioners have not established that the amount of

fees paid or that the fees were incurred for business purposes.

Petitioners are not entitled to a deduction for any checking

account fees.
                                14

Dependency Exemption

     Section 151(c)(2) provides that no deduction for a

dependency exemption is allowed with respect to any dependent who

filed a joint return with his spouse for the taxable year at

issue.   The language of section 151(c)(2) is clear.    Petitioners

are not entitled to a deduction for a dependency exemption with

respect to Jeffrey Sengpiehl because he filed a joint return with

his wife for 1991.

     Petitioners, however, contend that the instructions for

completing Form 1040EZ allow parents to claim a dependency

exemption deduction with respect to a married child.     Petitioners

further contend that Jeffrey Sengpiehl did not claim a personal

exemption for the year in issue.     Petitioners argue that

respondent should be estopped from arguing that petitioners are

not entitled to the deduction because the instructions contained

on Form 1040EZ indicate otherwise and Jeffrey Sengpiehl is no

longer able to amend his return due to the running of the statute

of limitations.

     On brief, petitioners allege that Form 1040EZ, "Income Tax

Return for Singles and Joint Filers", contains certain

instructions for married taxpayers.     We are unable to determine

where petitioners have found the language contained in their

brief.   There is no copy of Form 1040EZ in the record.

Petitioners' son and daughter-in-law filed Form 1040 for 1991.
                                 15

Our research on this issue discloses that the 1991 Form 1040EZ is

entitled "Income Tax Return for Single Filers with No

Dependents".    The instruction booklet for the 1991 Form 1040EZ

provides that a filer must meet seven requirements to the form.

The first requirement is:    "Your filing status is single".    We do

not believe that petitioners could reasonably have been misled by

these instructions.    Petitioners' interpretation is clearly

incorrect.4    Respondent is sustained on this issue.

     We have considered all of the arguments of both parties,

and, to the extent not discussed herein, we find them to be

without merit or irrelevant.

     To reflect the foregoing and the concessions of the parties,



                                           Decision will be entered

                                      under Rule 155.




4
     Even if respondent's publication was erroneous or was a
misleading interpretation of the law as petitioners allege,
respondent is not bound by such publication. Green v.
Commissioner, 59 T.C. 456, 458 (1972).
