                        T.C. Memo. 1996-244



                      UNITED STATES TAX COURT



        FOUNTAIN VALLEY TRANSIT MIX, INC., Petitioner v.
          COMMISSIONER OF INTERNAL REVENUE, Respondent



     Docket No. 2114-94.                        Filed May 28, 1996.



     Jerome Pastor and Neil Dilman, for petitioner.

     Robert F. Conte, for respondent.



             MEMORANDUM FINDINGS OF FACT AND OPINION

     SCOTT, Judge:   Respondent determined a deficiency in

petitioner's Federal income tax for its fiscal year ending

June 30, 1990, in the amount of $100,784, and a penalty under

section 6662(b)(2) in the amount of $24,667.    Some of the issues

raised by the pleadings have been disposed of by agreement of the

parties, leaving for decision:   (1) Whether petitioner is
entitled to a deduction as a trade or business expense of the

cost of purchasing tires which it contends were for use on leased

trucks; and (2) whether petitioner is liable for an accuracy-

related penalty under section 66621 as determined by respondent.

                          FINDINGS OF FACT

     Some of the facts have been stipulated and are found

accordingly.

     Petitioner, Fountain Valley Transit Mix, Inc., is a

California corporation.   At the time of the filing of the

petition in this case, petitioner maintained its principal place

of business in Fountain Valley, California.   Petitioner filed its

Federal income tax return for its fiscal year ending June 30,

1990, with the Internal Revenue Service Center in Fresno,

California.

     Petitioner was incorporated in June 1987 and operated a

ready-mixed concrete business in southern California during its

fiscal year ending June 30, 1990.   Petitioner produced and

delivered ready-mixed concrete to unrelated third-party

contractors who had building projects in the southern California

area.

     During its fiscal year 1990, petitioner was owned half by

Mr. Kurt Caillier (Kurt Caillier) and half by Kurt Caillier's

brother, Mr. Randy Caillier (Randy Caillier).   In 1990, Kurt

     1
        All section references are to the Internal Revenue Code
in effect for the year in issue, and all Rule references are to
the Tax Court Rules of Practice and Procedure, unless otherwise
indicated.
                                -3 -

Caillier, Randy Caillier, their father Andre Caillier and Kurt

Caillier's uncle Mr. Howard Le Mieux (the Caillier family), owned

or controlled the following corporations:    (1) A&A Ready-Mixed

Concrete, Inc. (A&A); (2) L.A. Premix; (3) Royal Tire Co., Inc.,

doing business as Johnny Gillette Tire Co. (Gillette Tire); (4)

R&K Trucking; (5) Cemak Trucking; (6) Downey Transit Mix; and (7)

Mission Viejo Materials.    During the years 1990 and 1991, the

Cailliers owned at least seven companies which used trucks in the

operations of their businesses.

     In 1990, Kurt Caillier was the president of A&A.   A&A used

concrete trucks in the operation of its business.    During

petitioner's fiscal year 1990, A&A had larger gross sales than

petitioner.

     Kurt Caillier is the president and 50-percent owner of L.A.

Premix, another ready-mixed concrete company which uses concrete

trucks in the operation of its business.    L.A. Premix was formed

and began operations sometime in 1990.

     In 1990, the Caillier family began purchasing concrete

trucks for L.A. Premix.    For a period prior to the full operation

of L.A. Premix, petitioner leased some of the concrete trucks

which the Caillier family had purchased for L.A. Premix.

     In 1990, Kurt Caillier owned 50 percent of Cemak Trucking,

Downey Transit Mix, and R&K Trucking.    Each of these companies

used trucks in the operation of its business.
                                -4 -

     During petitioner's fiscal year 1990, Gillette Tire was in

the business of selling and recapping tires.    For its fiscal year

ending March 31, 1991, Gillette Tire filed a consolidated tax

return with A&A.    Gillette Tire derived a substantial portion of

its income from the sale of truck tires and tire-related services

to unrelated third parties.

     In June 1987, petitioner signed a lease agreement with

Nikki's Leasing Corp. (Nikki's) to lease ready-mixed concrete

trucks (the Nikki lease).    Kurt Caillier established Nikki's and

other leasing companies in 1987 to lease trucks to the Caillier

family's related companies.    These companies were owned by

children of Kurt and Randy Caillier but controlled by Kurt and

Randy Caillier.    During petitioner's fiscal year 1990, Kurt

Caillier was the president of both petitioner and Nikki's.

     During its fiscal year ending June 30, 1990, petitioner

leased trucks from Nikki's pursuant to the Nikki lease.    In 1990,

petitioner had on lease from Nikki's 48 trucks.    The number of

trucks used by petitioner fluctuated from day to day.    If

petitioner needed additional trucks, it would use available

trucks of related companies and sometimes would rent trucks from

unrelated sources.    In 1990, petitioner did not own any concrete

trucks.

     In 1990, Mr. Chris Pisano (Mr. Pisano) was petitioner's

general manager.    As general manager, Mr. Pisano ran the daily
                                -5 -

operations of petitioner.    Mr. Pisano also ran the daily

operations of L.A. Premix.

     The Nikki lease required Nikki's, as lessor, to pay for the

replacement of all tires on the trucks it leased to petitioner.

The second clause of paragraph 5 of the Nikki lease (the tire

replacement clause) stated as follows:

     Lessor will provide at its own cost and expense all
     necessary replacement tires and tubes. Lessee agrees
     that Lessee's driver will substitute the spare tire
     when tire trouble occurs on said vehicle while in
     possession of Lessee's driver and that Lessee's drivers
     shall not operate said motor vehicle on a flat tire or
     tires, or any tire or tires which do not contain
     sufficient air pressure to prevent damage to the
     sidewalls thereof, other than from ordinary wear and
     tear.

The Nikki lease further stated that the lessor was to provide and

pay for all mechanical repairs, maintenance, and parts and labor.

Petitioner was to provide for lubrication and gasoline expenses

as well as washing and cleaning the trucks.    Paragraph 13 of the

lease stated:

          WAIVER. The failure of either party hereto in any
     one or more instances to insist upon the performance of
     any of the terms, covenants or conditions of this
     lease, exercise any right or privilege in this
     agreement conferred or the waiver of any breach of any
     of the terms, covenants, or conditions of this
     agreement, shall not be construed as hereafter waiving
     any such terms, covenants, conditions, rights or
     privileges but the same shall continue and remain in
     full force and effect the same as if no such
     forbearance or waiver had occurred.

     The lease agreement which was signed on behalf of Nikki's by

Kurt Caillier and on behalf of petitioner by Chris Pisano was
                               -6 -

shown to Internal Revenue Agent Paul Siebert (Agent Siebert) in

1992 during an audit of petitioner's tax liability for its fiscal

year 1990 to substantiate the truck rental expense petitioner was

claiming on its Federal income tax return for that fiscal year.

When respondent's agent was given the Nikki lease, he was not

informed it had been modified, and no addendum was attached to

the Nikki lease.   An addendum had not been entered into at that

time.

     The tire replacement clause in the Nikki lease was pointed

out to Kurt Caillier by Agent Siebert during the audit of

petitioner's tax liability for its fiscal year 1990.   Thereafter,

Kurt Caillier signed for both the lessee and lessor an addendum

to the lease (the Nikki lease addendum) which stated as follows:

     Confirming the existing practice between companies:
     The Lessee shall be responsible for the replacement of
     all worn tires and return the vehicle to Lessor with
     the tire in good condition. Reasonable wear and tear
     excepted.

     The monthly rental shall take this into consideration.


     April Leasing Corp. (April Leasing), Elissa Leasing Corp.

(Elissa Leasing), Andrea Leasing Corp. (Andrea Leasing), and

Stacey Leasing Corp. (Stacey Leasing) were also leasing companies

which were controlled by Kurt Caillier and Randy Caillier.    These

companies were established in 1987 to lease concrete trucks to

entities controlled by the Caillier family in the same way that

Nikki's leased trucks to petitioner.   The lease agreements
                               -7 -

entered into between April Leasing, Elissa Leasing, Andrea

Leasing, and Stacey Leasing, and other concrete companies

controlled by the Caillier family, contained the same terms as

the Nikki lease, placing the obligation of purchasing new tires

on the lessor.   After Agent Siebert pointed out the tire

replacement clause in the Nikki lease to Kurt Caillier in 1992,

Kurt Caillier signed on behalf of the lessor addenda to the

Elissa Leasing, Andrea Leasing, and Stacey Leasing leases

identical to the addendum to the Nikki lease.    These addenda were

then attached to the original leases.    Kurt Caillier in 1992

signed on behalf of April Leasing an addendum to its lease with

A&A identical to the Nikki lease addendum, and Andre Caillier

signed this addendum on behalf of A&A.    The addendum to the April

Leasing lease, however, was dated December 31, 1987.

     In April 1990, Gillette Tire had an opportunity to purchase

a large number of tires at a discount.    Mr. Ron Rose (Mr. Rose),

who handled all the maintenance, and Mr. Cliff Bodie (Mr. Bodie),

who handled all the tire maintenance for all the related

companies named above, figured out how many tires in total should

be purchased for use of all the related concrete companies during

a 1-year period.   Mr. Pisano determined the tires needed by

petitioner's leased trucks for a year.    The number of tires which

Mr. Rose and Mr. Bodie determined would be needed by all the

related concrete companies was based on the total yardage of

concrete they estimated the companies would haul during the year
                                -8 -

1990.    Gross sales of a ready-mixed concrete operation during a

year are directly related to the yards of concrete the company

sells during that year.   The number of tires used on the trucks

operated by a ready-mixed concrete business is dependent on the

distance the trucks are driven, which is related to the number of

yards of concrete sold, since the range for hauling of concrete

is limited by the time the concrete will remain useful after it

is placed in the truck.   Generally, petitioner would not deliver

concrete to a location that was more than a 90-minute drive from

petitioner's plant.    Kurt Caillier approved the bulk purchase of

tires.

     On April 9, 1990, Gillette Tire submitted invoice No. 30088

to petitioner in the amount of $387,637.30 for 993 tires.

According to a Gillette Tire billing statement dated June 1,

1990, petitioner paid $129,212.43 on May 18, 1990, approximately

one-third of $387,637.30, to Gillette Tire.    The billing

statement indicates that the payment was in reference to invoice

No. 30088.    Petitioner's books and records indicate that this

payment to Gillette Tire was made with petitioner's check No.

4318.

     According to petitioner's books and records, another payment

of $129,212.43 was made by petitioner with check No. 4369 on June

28, 1990, to Gillette Tire with respect to the April 9, 1990,

invoice.    On June 30, 1990, an intercompany account between
                                 -9 -

petitioner and Gillette Tire showed that petitioner owed an

additional $261,392 to Gillette Tire.

     A statement from Gillette Tire to petitioner dated June 1,

1990, shows a number of charges by Gillette Tire to petitioner

from May 10 to June 10, 1990, and the following payments or

credits to the account:

     1055-A        R      05/18/90        30088        -129,212.43

     1875-A        R      05/24/90   28824,29234.223      -4416.15

     [blank]       A      05/30/90        [blank]      -387,637.30


     The repair expenses which were claimed on Nikki's Federal

income tax returns for its fiscal years ending September 30,

1988, September 30, 1989, and September 30, 1990, were allocated

to Nikki's returns by Mr. John Gaeta (Mr. Gaeta), A&A's vice

president.     Mr. Gaeta was also responsible for allocating other

expenses such as repairs, fuel, and insurance among the related

companies.     The repair expenses were allocated to Nikki's returns

pursuant to the terms of the Nikki lease.     The repair expenses

incurred by petitioner and the other related ready-mixed concrete

companies were allocated to the leasing companies' returns, just

as certain other expenses were allocated.     For example,

petitioner had its own fuel pumps, and trucks of related

companies as well as petitioner's trucks used those pumps.       Some

of the expense of the fuel pumps was later allocated to the other

related companies.
                                 -10 -

       Petitioner's Federal income tax returns for its years ending

June 30, 1988, 1989, and 1990 showed the following respective

gross receipts and expenses:

Year        Gross receipts Fuel tax      Truck maintenance    Fuel

1988        $13,692,622     $24,729           $656,537       $301,497
1989         17,168,758      47,401            770,155        466,045
1990         19,645,187      53,035            884,262        280,069


       According to the information reported on petitioner's income

tax returns for its fiscal years 1988, 1989, and 1990,

petitioner's fuel taxes increased as its gross receipts

increased.    However, in 1990, petitioner's fuel expenses dropped

significantly despite the increase in gross receipts and fuel

taxes.

       Kurt Caillier very briefly reviewed petitioner's Federal

income tax return for its fiscal year ending June 30, 1990 (the

return), before he signed it.    Kurt Caillier signed the return,

presuming it was correct.    Kurt Caillier was aware that the tire

expense at issue in this case was deducted on the return.

       Nikki's Federal income tax returns for the fiscal years

ending September 30, 1988, 1989, and 1990, showed the following

respective gross rents and expenses:

Year        Gross rents     Insurance Truck maintenance      Licenses

1988         $722,938       $84,745           $236,589       $26,474
1989        1,396,971        87,591            275,783        77,796
1990        1,303,300        73,264            232,639       109,177
                              -11 -

     According to the information reported on Nikki's returns,

Nikki's gross rents and license fees doubled from 1988 to 1989.

However, from 1988 to 1990, despite the increase in gross rents

as compared to 1988, insurance expenses and truck maintenance

expenses decreased.

     For its fiscal years ending September 30, 1988, 1989, and

1990, Nikki's reported taxable income as follows:

     Fiscal year ended        Taxable income (loss)

       Sept. 30, 1988                 ($31,543)
       Sept. 30, 1989                   93,786
       Sept. 30, 1990                  (30,896)


     A&A's gross sales for its fiscal year ending March 31, 1991,

were $43,784,608.

     For its fiscal year ending March 31, 1991, Gillette Tire

reported net sales of $4,790,749.

     During his audit of petitioner's tax liability, Agent

Siebert reviewed every item in petitioner's truck maintenance

account for the fiscal years ending June 30, 1990 and 1991.

Among the items in the account claimed as truck maintenance

expenses on petitioner's Federal income tax returns for its

fiscal years ending June 30, 1990 and 1991, Agent Siebert found

no invoice for the purchase of tires other than Gillette Tire's

invoice No. 30088 for $387,637.30 dated April 9, 1990.   During

his examination, Agent Siebert was given no documentation

relating to the actual delivery of the tires petitioner purchased
                                 -12 -

from Gillette Tire, nor to the installation of tires on

petitioner's trucks.

     Also, Agent Siebert, during his audit of petitioner's income

tax liability, asked to see all of petitioner's documents

relating to the rental of Nikki's concrete trucks, including

documents which showed how the rental rate was set and how many

trucks were being rented.   Petitioner had very few records with

reference to the rental of trucks and no records showing the

number of trucks that were used by petitioner on a weekly,

monthly, or yearly basis.

     Respondent in her notice of deficiency determined that

petitioner was not entitled to deduct $258,425 of its claimed

deduction for truck maintenance expenses.   This amount was the

total amount of checks numbered 4318 and 4369 to Gillette Tire

which petitioner claims were for tires purchased for its trucks.

                                OPINION

     Section 162(a) generally allows a taxpayer a deduction for

all the ordinary and necessary expenses paid or incurred during

the taxable year in carrying on any trade or business.    These

expenses must be directly connected with or pertaining to the

taxpayer's trade or business.    Sec. 1.162-1(a), Income Tax Regs.

     As a general rule, where an expense is the obligation of

another, a taxpayer cannot properly claim a deduction for the

expense as an ordinary and necessary expense of his business.

Deputy v. du Pont, 308 U.S. 488 (1940); Betson v. Commissioner,
                               -13 -

802 F.2d 365, 368 (9th Cir. 1986), affg. on this issue T.C. Memo.

1984-264.

     Respondent's position in this case is that under the lease

between Nikki's and petitioner, the purchase of tires was an

expense of Nikki's and, therefore, the tire purchase expense was

properly deductible by Nikki's and not by petitioner.   In order

to show that the lease was not an accurate statement of the

agreement between the parties, petitioner introduced the

testimony of Kurt Caillier, which respondent objects to under the

parol evidence rule.   Under the terms of the lease, the

obligation of paying for the tire expenses was Nikki's.

Petitioner argues that Kurt Caillier's testimony should be

admitted to prove that the terms of the lease were contrary to

the intent of the parties.   Respondent contends that any parol

evidence pertaining to the tire expense provision in the lease

should be excluded.

     As a preliminary matter, respondent contends that we should

apply the "Danielson rule", Commissioner v. Danielson, 378 F.2d

771 (3d Cir. 1967), vacating 44 T.C. 549 (1965), to determine the

rights of the parties in this case.2   This Court has consistently

     2
        In Commissioner v. Danielson, 378 F.2d 771, 775 (3d Cir.
1967), vacating 44 T.C. 549 (1965), the court stated:

     a party can challenge the tax consequences of his agreement
     as construed by the Commissioner only by adducing proof
     which in an action between the parties to the agreement
     would be admissible to alter that construction or to show
                                                   (continued...)
                                 -14 -

held that we do not follow the Danielson rule unless required to

do so by Golsen v. Commissioner, 54 T.C. 742, 756-757 (1970),

affd. 445 F.2d 985 (10th Cir. 1971), and has instead adopted a

"strong proof rule".     Anderson v. Commissioner, 92 T.C. 138, 171

(1989); Elrod v. Commissioner, 87 T.C. 1046, 1065-1066 (1986);

G.C. Servs. Corp. v. Commissioner, 73 T.C. 406, 412 (1979).

Since the Court of Appeals for the Ninth Circuit, the Circuit to

which this case is appealable, has not explicitly adopted the

Danielson rule, see Schmitz v. Commissioner, 51 T.C. 306, 315-316

(1968), affd. sub nom. Throndson v. Commissioner, 457 F.2d 1022,

1025 (9th Cir. 1972), we will apply the "strong proof rule" which

we have adopted.   Under this rule, parol evidence is admissible

on the issue of whether a clear provision of an agreement was put

in the agreement by mistake.

     The parties point out that in Estate of Craft v.

Commissioner, 68 T.C. 249, 263 (1977), affd. 608 F.2d 240 (5th

Cir. 1979), we stated:

     where we are called upon to make a State law
     determination as to the existence and extent of legal
     rights and interests created by a written instrument,
     we must look to that State's parol evidence rule in
     deciding whether or not to exclude extrinsic evidence
     that bears on the disputed rights and interests under
     the instrument.




     2
      (...continued)
     its unenforceability because of mistake, undue influence,
     fraud, duress, etc. * * *
                                -15 -

     In this case, our issue is not the rights created by the

lease as written, which requires Nikki's to pay for tires, but

whether there was a mistake in putting the provision as to

payment in the lease.   However, we conclude that under California

law, if it has application here, as under our "strong proof

rule", parol evidence would be admissible to show that the

provision in the lease for payment by Nikki's for tires was a

mistake.

     Under California law, where a mistake in a writing is put in

issue, the parol evidence rule does not exclude evidence relevant

to that issue.    Cal. Civ. Proc. Code sec. 1856 (West 1983); Stock

v. Meek, 221 P.2d 15, 19-20 (Cal. 1950).   We, therefore, may

properly consider the testimony of Kurt Caillier with respect to

whether there was a mistake in the lease with respect to which

company was required to furnish tires for the trucks petitioner

leased from Nikki.

     Under California law, the requirement of consent to a

contract may be disproved by mistake.   Mistake may be either of

fact or of law.   Cal. Civ. Code sec. 1576 (West 1982).   Mistake

of fact is a mistake, not caused by the neglect of a legal duty

on the part of the person making the mistake, and consisting of

either an unconscious ignorance or forgetfulness of a fact

material to the contract, or belief in the present existence of a

thing material to the contract which is nonexistent.   Cal. Civ.

Code sec. 1577 (West 1982).   Mistake must be proven by clear and
                               -16 -

convincing evidence, and a preponderance of evidence is

insufficient.   Moore v. Vandermast, Inc., 119 P.2d 129, 130 (Cal.

1941); Martinelli v. Gabriel, 230 P.2d 444, 447 (Cal. Dist. Ct.

App. 1951); Taff v. Atlas Assurance Co., 137 P.2d 483, 485 (Cal.

Dist. Ct. App. 1943).

     In this case, unlike the situation in numerous California

cases dealing with the issue of mistake, the parties seeking

relief from mistake are related companies.    Therefore, in this

case, it is more difficult to determine the true intent of the

parties at the time of contracting.    However, there is no

evidence in this case, as is later more fully pointed out, of the

circumstances surrounding the execution of the lease.

     The only testimony here concerning a mistake in the lease is

the testimony of Kurt Caillier that he had always understood that

petitioner was to pay for the tires and not the lessor.    Kurt

Caillier testified that he did not read the contract carefully

when he signed it on behalf of the lessor since the contract was

between two of his related companies.    He did not explain who

drafted the lease or who told the drafter what provisions to

include.

     Based on the evidence, we hold that petitioner has not met

its burden of proving that the tire replacement clause was

entered into by mistake.   The testimony of Kurt Caillier is the

only evidence as to the lease in the record.    His testimony is

unsupported by the terms of the lease and by identical language
                                 -17 -

in the leases between A&A and April Leasing, and between Elissa

Leasing, and Stacey Leasing, and other companies owned and

controlled by the Cailliers.   The record does not show that

petitioner deducted tire expenses for prior years or whether the

other companies related to petitioner deducted tire expenses for

years prior to 1990.   Petitioner's prior two Federal income tax

returns listed only truck maintenance expenses in general and did

not specify any amounts as tire expenses, and petitioner offered

no proof that prior purchases were made or deducted by

petitioner.   Respondent's agent, in reviewing the books and

records of petitioner for years prior to 1990, found no payment

of tire expense or deduction taken for such expense.   Kurt

Caillier testified that had he known that the tire replacement

clause put the burden of providing tires on Nikki's, the lease

rate would have been higher, but this statement was not supported

by other evidence in the record, such as by lease rates of other

companies or of petitioner's related companies.   Petitioner has

offered no evidence other than the testimony of Kurt Caillier.

     There are numerous other deficiencies in the evidence.    Kurt

Caillier testified that he did not read the lease carefully

before he signed it, but he did not testify as to who furnished

the drafter of the lease with the information that caused this

clause to be put in the lease.

     The record shows that Mr. Chris Pisano, the general manager

of petitioner, signed the truck rental lease on behalf of
                               -18 -

petitioner.   Mr. Pisano was a witness in this case, but he was

not asked and did not state whether he understood that Nikki's

was to pay for tires for any of the trucks it leased to

petitioner when he signed the lease on behalf of petitioner.      He

did say that for petitioner's fiscal year ending in 1990,

petitioner had its busiest time and leased about 48 trucks from

Nikki's, and he also stated that he furnished to Kurt Caillier

his estimate of the number of tires the trucks operated by

petitioner would use in a year.   However, he was not asked and

did not testify as to the number of tires he determined would be

used for the 48 trucks in a year.      This lack of evidence is

particularly important in evaluating whether there was a mistake

in the lease agreement since petitioner was billed by Gillette

Tire for 993 tires at a cost of $387,637.30, but an adjustment to

the account was made on May 30, 1990.      The inference from this

adjustment is that petitioner was no longer liable for the charge

for these tires.

     The record also shows that it was not uncommon for one of

the Caillier-owned corporations to pay expenses of another and

make adjustments on the books of the corporations involved.

     Not only is there no strong proof in this case that the

provision that Nikki's pay for the tires on the trucks rented to

petitioner was a mistake; the evidence as a whole indicates that

it was not a mistake in the agreement the parties entered into.
                               -19 -

     Petitioner argues in a memorandum filed prior to the briefs

in this case, but incorporated in petitioner's opening brief by

reference, that, in the alternative, the parties subsequently

modified the Nikki lease.   Since the contract was not modified in

writing until Agent Siebert pointed out to Kurt Caillier that the

tire expenses were to be borne by the lessor under the contract,

which occurred subsequent to the taxable year at issue in this

case, petitioner argues that the parties modified the contract by

an executed oral agreement.   Cal. Civ. Code sec. 1698 (West 1982)

states as follows:

          (a) A contract in writing may be modified by a
     contract in writing.

          (b) A contract in writing may be modified by an
     oral agreement to the extent that the oral agreement is
     executed by the parties.

          (c) Unless the contract otherwise expressly
     provides, a contract in writing may be modified by an
     oral agreement supported by new consideration. The
     statute of frauds * * * is required to be satisfied if
     the contract as modified is within its provisions.


While it is clear under California law that a written contract

may be modified either by a subsequent written contract or by an

executed oral contract, petitioner has offered no evidence

whatsoever of either an oral agreement or of any new

consideration.   Kurt Caillier testified that until 1992 he was

unaware of the provision in the lease that Nikki's pay for tires

on the trucks leased to petitioner.    This is contradictory to an

oral agreement modifying the provision.
                                 -20 -

     Based on the evidence in this record, we sustain

respondent's disallowance of petitioner's claimed deduction for

the cost of truck tires purchased in its fiscal year 1990.

     Next at issue is whether petitioner is liable for an

accuracy-related penalty pursuant to section 6662(b)(2).

Section 6662(a) imposes an accuracy-related penalty of 20 percent

on any portion of an underpayment of tax that is attributable to

items set forth in section 6662(b).      Section 6662(b)(2) specifies

as one of those items "Any substantial understatement of income

tax."   An understatement is substantial if it exceeds the greater

of 10 percent of the tax required to be shown on the return for

the taxable year or for a corporation $10,000.     Sec.

6662(d)(1)(B).

     Section 6662(d)(2)(B) states that the amount of the

understatement shall be reduced by the portion of the

understatement which is attributable to the tax treatment of any

item if there is or was substantial authority for such treatment,

or if the relevant facts affecting the item's tax treatment are

adequately disclosed on the return or in a statement attached to

the return, and there is a reasonable basis for the tax treatment

of such item.    To determine whether the treatment of any portion

of an understatement is supported by substantial authority, the

weight of authorities in support of the taxpayer's position must

be substantial in relation to the weight of authorities

supporting contrary positions.    Antonides v. Commissioner, 91
                               -21 -

T.C. 686, 702-703 (1988), affd. 893 F.2d 656 (4th Cir. 1990);

sec. 1.6662-4(d)(3), Income Tax Regs.

     Petitioner has not shown that there was substantial

authority for its position that the tire expense deduction was

properly taken.   On petitioner's return for the year at issue,

the tire expense was included under the category "truck

maintenance", but was not separately listed on the return.       We

hold that the tire expense deduction was not adequately disclosed

on petitioner's return.

     Section 6664(c)(1) provides that the penalty should not be

imposed on any portion of an underpayment if the taxpayer shows

reasonable cause for such portion of the underpayment and that he

acted in good faith with respect to such portion.        For the same

reasons we conclude that petitioner has not shown that the

provision of its contract with Nikki's that Nikki's pay for the

cost of tires used on trucks leased to petitioner was a mistake,

we conclude that petitioner has not shown reasonable cause for

its understatement of tax.

     We, therefore, sustain respondent's determination of the

accuracy-related penalty under section 6662.



                                            Decision will be entered

                                       under Rule 155.
