                         T.C. Memo. 1997-204



                       UNITED STATES TAX COURT



                MELREL L. STEPHENS, Petitioner v.
          COMMISSIONER OF INTERNAL REVENUE, Respondent



     Docket No.    14361-95.                     Filed May 5, 1997.



     Marc A. Zimmerman, for petitioner.

     Roger P. Law, for respondent.



             MEMORANDUM FINDINGS OF FACT AND OPINION


     LARO, Judge:    Melrel L. Stephens petitioned the Court to

redetermine respondent's determination of a $44,221 deficiency in

her 1993 Federal income tax and an $8,844 penalty under

section 6662(a).    Respondent reflected her determination in a

notice of deficiency issued to petitioner on June 13, 1995.
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     We must decide the following issues with respect to 1993:

     1.    Whether petitioner may deduct charitable contributions

in an amount greater than allowed by respondent in the notice of

deficiency.

     2.    Whether petitioner may deduct mortgage interest in an

amount greater than allowed by respondent in the notice of

deficiency.

     3.    Whether petitioner is liable for the accuracy-related

penalty for negligence determined by respondent under section

6662(a).

     Section references are to the Internal Revenue Code in

effect for the year in issue.    Rule references are to the Tax

Court Rules of Practice and Procedure.

                          FINDINGS OF FACT

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

The stipulated facts and the exhibits submitted therewith are

incorporated herein by this reference.    Petitioner resided at

331 West 46th Street, in Los Angeles, California, when she

petitioned the Court.

     Petitioner filed timely a 1993 Form 1040, U.S. Individual

Income Tax Return, using the filing status of "Single".

Petitioner's return was prepared by a tax return preparer

(the Preparer) employed by Security Income Tax Service.    In order

to have the return prepared, petitioner gave the Preparer a bag
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of documents that included her receipts for gambling, mortgage

interest, and other expenses.   Petitioner did not discuss with

the Preparer each document in the bag, and she did not review her

return with the Preparer after he prepared it.

     On January 28, 1989, petitioner won $7.2 million in the

California State Lottery, payable in yearly installments.

Petitioner received a $361,000 installment of those winnings in

1993.   These winnings were reported on petitioner's 1993 tax

return.   No other income was reported thereon.

     During 1993, petitioner had an ownership interest in four

real properties located in California at the following addresses:

331 West 46th Street, Los Angeles; 22150 Salter Road, Perris;

8431 Hooper Avenue, Los Angeles; and 2232 Mortimer, Huntington

Park.   Petitioner also had an ownership interest in land in

Chicot County, Arkansas.   None of these properties generated any

income in 1993.

     In 1993, petitioner paid the following mortgage interest and

real property taxes on the above-mentioned properties:

        Property           Mortgage               Real
         Situs             Interest           Property Taxes

    331 W. 46th St.         $10,913                $245
    Salter Rd.               23,994               2,333
    8431 Hooper              11,085               1,320
    2232 Mortimer             3,426               2,367
    Chicot County              ---                  236
      Total                  49,418               6,501
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     In 1993, petitioner contributed $290 to the United Christian

Church, and she gave $3,000 to the "Most Worshipful United Grand

Lodge A.F. & A.M. Inc." of Los Angeles, California.    Petitioner

testified that she also gave "approximately $3,000" in cash to

the B-Ball Association (B-Ball), a youth organization in Carson,

California.

     Petitioner's 1993 Form 1040 reported $111,737 of itemized

deductions on Schedule A, Itemized Deductions.    The reported

deductions are broken down as follows:1

     Real estate taxes . . . . . . . . . . . . . $8,798
     Department of motor vehicle tax . . . . . .    916
     Home mortgage interest . . . . . . . . . . 56,600
     Contributions by cash or check . . . . . . . 3,000
     Gambling losses . . . . . . . . . . . . . . 50,000

Respondent determined that petitioner was not entitled to any of

these deductions because she had not substantiated her

entitlement to them.

                             OPINION

     Petitioner must prove that respondent's determinations set

forth in the notice of deficiency are incorrect.    Rule 142(a);

Welch v. Helvering, 290 U.S. 111, 115 (1933).    Petitioner also

must prove her entitlement to any deduction.    Deductions are

strictly a matter of legislative grace, and petitioner must show

that her claimed deductions are allowed by the Code.    Petitioner


     1
       The difference between the sum of these deductions and the
reported $111,737 amount is attributable to the "phased-out"
deductions. See sec. 67.
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must also keep sufficient records to substantiate any deduction

that would otherwise be allowed by the Code.    Sec. 6001;

New Colonial Ice Co. v. Helvering, 292 U.S. 435, 440 (1934).

     With respect to the $3,000 charitable contribution reported

on her 1993 Form 1040, petitioner argues that she is entitled to

deduct this amount on account of a $3,000 donation to B-Ball in

1993.    Petitioner relies solely on her testimony to support her

claim to this deduction.

     We find petitioner's testimony inconsistent and

unpersuasive.   Petitioner testified that she paid "approximately

$3,000" to B-Ball; however, she was unable to state unequivocally

when she purportedly paid this amount.   Petitioner testified that

she was unsure whether she paid the $3,000 amount in one or

several installments.   Petitioner later testified that she had

$3,000 in cash when she attended a B-Ball meeting, and that she

gave it to one of B-Ball's representatives at that time.

Petitioner's lack of detailed books, records, and receipts

precludes the Court from reaching a determination of what (if

anything) was given to B-Ball.    Even if we could arrive at such a

determination, petitioner would still not be entitled to the

disputed deduction.   Petitioner has not proven that B-Ball was a

qualified recipient under section 170(c)(2).2   See McGahen v.


     2
       Although petitioner does not argue that she can deduct the
$3,000 amount given to the Most Worshipful United Grand Lodge
                                                   (continued...)
                               - 6 -

Commissioner, 76 T.C. 468, 481 (1981), affd. without published

opinion 720 F.2d 664 (3d Cir. 1983).   Accordingly, except for the

$290 contribution to the United Christian Church, which

respondent concedes, we hold for respondent on this issue.

     Turning to the mortgage interest, the parties do not dispute

that petitioner may deduct the interest that she paid on her

primary residence and one other California property.3    See

sec. 163(h)(2)(D).   The parties lock horns on the interest paid

on the remaining two Californian properties.    Petitioner asserts

that this interest is deductible as interest on properties held

out for rental; i.e., investment interest.    Petitioner argues

that her lottery winnings are investment income that can be

offset by this investment interest expense.

     We disagree with petitioner that the interest on the other

properties is deductible as investment interest.    We are unable

to find in the record that petitioner ever held any of these

properties out for rental or otherwise held them as an

investment.   Petitioner's brief, on this issue, is directed

entirely towards her assertion that lottery winnings are a form

of investment income.   We need not decide that issue, however,


     2
      (...continued)
A.F. & A.M. Inc., we note that the record does not indicate that
this lodge was a qualified recipient under sec. 170(c)(2).
     3
       We understand the parties' agreement to mean that
petitioner may deduct the mortgage interest paid with respect to
331 West 46th Street ($10,913) and Salter Road ($23,994).
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because petitioner neglects to address why the mortgage interest

is not nondeductible personal interest, see sec. 163(h), and the

record does not otherwise allow us to conclude that it is not

nondeductible personal interest.   Although petitioner is correct

that an individual may deduct investment interest to the extent

that it does not exceed net investment income, sec. 163(d)(1), we

are unpersuaded that the mortgage interest was paid "on

indebtedness properly allocable to property held for investment."

Sec. 163(d)(3).   We hold for respondent on this issue.

     Respondent also determined that petitioner's underpayment of

income tax was due to negligence, and, accordingly, that

petitioner was liable for the penalty under section 6662(a).

Section 6662(a) imposes an accuracy-related penalty equal to

20 percent of the portion of an underpayment that is attributable

to negligence.    In order to avoid this penalty, petitioner must

prove that she was not negligent, i.e., she made a reasonable

attempt to comply with the provisions of the Internal Revenue

Code, and that she was not careless, reckless, or in intentional

disregard of rules or regulations.      Sec. 6662(c); Drum v.

Commissioner, T.C. Memo. 1994-433, affd. without published

opinion 61 F.3d 910 (9th Cir. 1995); see also Allen v.

Commissioner, 925 F.2d 348, 353 (9th Cir. 1991) (negligence also

defined as a lack of due care or a failure to do what a
                                - 8 -

reasonable and prudent person would do under similar

circumstances), affg. 92 T.C. 1 (1989).

     Petitioner claims she was unsophisticated about tax laws,

and that she relied on the Preparer to prepare a proper return.

Although he failed to do so, petitioner concludes, her reliance

on him to do a proper job was consistent with ordinary business

care and prudence under the circumstances.      We do not agree.

Reasonable reliance on a tax adviser is consistent with ordinary

business care and prudence only in certain cases.     In those

cases, the taxpayer must establish that: (1) The adviser had

sufficient expertise to justify reliance, (2) the taxpayer

provided necessary and accurate information to the adviser, and

(3) the taxpayer actually relied in good faith on the adviser's

judgment.   See, e.g., Ellwest Stereo Theatres, Inc. v.

Commissioner, T.C. Memo. 1995-610.      We are unable to find in the

record that petitioner met any of these requirements; i.e.,

(1) We know nothing about the preparer or his firm, (2) we are

unable to find that petitioner provided necessary and accurate

information to the Preparer, and (3) the record indicates that

petitioner did not actually rely in good faith on the Preparer's

judgment.   We conclude that petitioner did not exercise due care,

and that she failed to do what a reasonable and ordinarily

prudent person would have done under the circumstances.     We hold

for respondent on this issue.
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     In reaching all of our holdings herein, we have considered

all arguments made by petitioner and, to the extent not discussed

above, find them to be without relevance or without merit.

     To reflect the foregoing,

                                              Decision will be entered

                                         under Rule 155.
