                        T.C. Memo. 1997-222



                      UNITED STATES TAX COURT



            THOMAS E. AND IRIS M. TILLEY, Petitioners v.
            COMMISSIONER OF INTERNAL REVENUE, Respondent



     Docket No. 2594-96.                         Filed May 12, 1997.



     Thomas E. Tilley and Iris M. Tilley, pro sese.

     James R. Rich, for respondent.



                         MEMORANDUM OPINION


     FOLEY, Judge:   By notice of deficiency dated November 14,

1995, respondent determined deficiencies in petitioners' Federal

income taxes and accuracy-related penalties as follows:

                                                  Penalty
     Year            Deficiency                 Sec. 6662(a)

     1991              $7,739                      $1,548
                                 - 2 -

     1992              62,976                    12,595

Unless otherwise indicated, all section references are to the

Internal Revenue Code in effect for the years in issue, and all

Rule references are to the Tax Court Rules of Practice and

Procedure.

     The issues for decision are as follows:

     1.   Whether petitioners are liable for the deficiencies

determined by respondent.   We hold that petitioners are liable.

     2.   Whether petitioners, pursuant to section 6662(a), are

liable for accuracy-related penalties.    We hold that petitioners

are liable.

     3.   Whether a penalty, pursuant to section 6673, should be

imposed upon petitioners.   We do not impose a penalty.

     At the time the petition was filed, petitioners resided in

Chapel Hill, North Carolina.

     Petitioners filed, in a timely manner, joint Federal income

tax returns for 1991 and 1992.    On the returns, petitioners

reported, among other items, the following:    (1) A depreciation

deduction of $2,200 for 1991; (2) a capital loss of $5,056 for

1991; and (3) bad debt deductions of $36,000 for 1991 and

$224,963 for 1992.   Respondent disallowed these items and

increased petitioners' taxable income by $41,056 for 1991 and

$224,963 for 1992.   Respondent further determined that

petitioners were subject to accuracy-related penalties for

negligence.   Petitioners filed their petition on February 12,
                                 - 3 -

1996.   On December 6, 1996, the Court filed respondent's Motion

for Claim for Damages Under I.R.C. § 6673, contending that

petitioners' position in the case was frivolous or groundless.

     Taxpayers bear the burden of proving that respondent's

determinations of deficiencies and penalties are erroneous.          Rule

142(a).   Petitioners have introduced no evidence to support their

entitlement to the deductions they claimed.       While Mr. Tilley

testified that he had relied on an accountant to ensure that the

returns were correct, petitioners introduced no evidence to

establish that such reliance was reasonable.       See sec. 6664(c);

sec. 1.6664-4(b), Income Tax Regs.       As a result, we conclude that

petitioners have failed to meet their burden of proof, and they

are liable for the deficiencies and accuracy-related penalties as

determined by respondent.

     Respondent filed a motion for the imposition of a penalty

under section 6673(a)(1).   We conclude that such a penalty is

inappropriate in the present case and deny respondent's motion.

     To reflect the foregoing,


                                              An appropriate order and

                                         decision will be entered.
