                          T.C. Memo. 1996-65



                        UNITED STATES TAX COURT



        DUDLEY JOSEPH AND MYRNA DUPUY CALLAHAN, Petitioners v.
             COMMISSIONER OF INTERNAL REVENUE, Respondent



        Docket No. 4863-94.              Filed February 20, 1996.



        Myrna Dupuy Callahan, pro se.

        Linda K. West, for respondent.



                MEMORANDUM FINDINGS OF FACT AND OPINION


        WOLFE, Special Trial Judge:     This case was heard pursuant

to the provisions of section 7443A(b)(3) and Rules 180, 181, and

182.1    In a notice of deficiency, respondent determined

1
     All section references are to the Internal Revenue Code in
effect for the years at issue, unless otherwise indicated. All
Rule references are to the Tax Court Rules of Practice and
Procedure.
                              - 2 -

deficiencies in petitioners' Federal income tax for the years

1989, 1990, and 1991 in the respective amounts of $4,226, $4,504,

and $5,625, and accuracy-related penalties under section 6662(a)

in the respective amounts of $845, $901, and $1,125.

     The issues for decision are:   (1) Whether petitioners are

entitled to deduct expenses incurred in connection with Myrna

Dupuy Callahan's writing activity as expenses of an activity

engaged in for profit for taxable years 1989, 1990, and 1991; (2)

whether petitioners have substantiated and are entitled to deduct

casualty losses in the amounts of $13,233 and $13,835 for taxable

years 1989 and 1990, respectively; (3) whether petitioners have

substantiated and are entitled to deduct certain Schedule A

expenses for taxable year 1991; (4) whether petitioners' medical

expense deductions for taxable years 1989, 1990, and 1991 must be

recalculated in accordance with any adjustments to petitioners'

adjusted gross income; (5) whether petitioners are entitled to

deduct State sales taxes in the amount of $1,964 for taxable year

1990; (6) whether petitioners have substantiated and are entitled

to deduct charitable contributions in excess of $4,216 for

taxable year 1990; and (7) whether petitioners are liable for

penalties for negligence or disregard of rules or regulations

under section 6662(a).
                                 - 3 -

                          FINDINGS OF FACT

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

The stipulated facts and attached exhibits are incorporated by

this reference.   Petitioners resided in Plaquemine, Louisiana,

when their petition was filed.

     Myrna Dupuy Callahan (petitioner) graduated from high school

with honors and attended Our Lady of Lake College in Baton Rouge,

Louisiana, where she took classes in general nursing, psychology,

and chemistry.    She eventually became a registered cosmetologist

after an illness prevented her from completing her training in

nursing.   She operated Vogue Beauty Box for 13 years, and for 1

year during that period--when her daughter was old enough for

kindergarten--she also opened and operated a neighborhood

kindergarten.    Subsequent to running Vogue Beauty Box, petitioner

became a salesperson for Home Decorators, Inc., and two insurance

companies, Lincoln National and Prudential.

     Petitioner has engaged in two hobbies since the late 1970's:

entering sweepstakes, and refunding and rebating with coupons.

Over time petitioner developed a filing and recordkeeping system,

plus various techniques or strategies designed to maximize the

savings available from product coupons and rebate offers.    She

also developed a methodology intended to improve her chances of

winning sweepstakes contests.    After a friend suggested she

document her refunding and rebating methodology, in 1982
                                - 4 -

petitioner wrote two manuals, Mrs. M.'s Quick & Easy Refund &

Rebate System and Mrs. M.'s Winning Sweepstakes System.    Sometime

thereafter she placed a $5 advertisement in a coupon booklet for

persons interested in testing her systems and also made inquiries

with several publishers.   Although no one was interested in

publishing her manuals, some people did respond to her

advertisement.

     Petitioner copyrighted Mrs. M.'s Quick & Easy Refund &

Rebate System in 1984 and self-published both manuals in 1992

under a name and logo of her own design, $'s Info Books.    It is

unclear from the record if and when Mrs. M.'s Winning Sweepstakes

System was copyrighted.    Each manual is printed on 8 1/2 inch by

11 inch paper, one-sided, and spiral bound on the left side.    The

refund and rebate guide is 15 pages in length, including an

inside cover page, table of contents, 2 pages of comments from

test marketers, and 2 pages of order forms.   The sweepstakes

manual is nine total pages, including an inside cover page, two

pages of order forms, and two pages of comments from test

marketers.

     In 1992, 1993, and 1994, petitioner generated publicity for

her manuals in the local print and broadcast media, and attended

a number of autograph parties at local bookstores, libraries, and

clubs.   During those same years she wrote to published authors

for advice, applied to newspapers and publishers for writing
                                 - 5 -

assignments, and sought financial assistance for her writing

endeavors.    In 1994 she acquired a local occupational license "to

pursue and follow the Occupation of wholesale retail."

Petitioner self-publishes her manuals on a prepaid basis only for

$10.00 each, plus $1.00 for postage and handling.    Her manuals

have been listed on two databases compiled by R.R. Bowker Company

(Bowker), Literary Market Place:    A Directory of American Book

Publishers and Books in Print.

     The gross receipts, gross income, expenses, and losses

attributed to $'s Info Books and as reported by petitioners on

their Forms 1040, Schedules C for taxable years 1987 through 1992

are summarized as follows:

                  Gross          Gross
     Year        Receipts        Income   Expenses        Losses
     1987          $80            $80      $6,061        $(5,981)
     1988          -0-              3       6,333         (6,330)
     1989          -0-             33      13,059        (13,026)
     1990          134            124      23,287        (23,163)
     1991          -0-             27      21,641        (21,614)
     1992          432            (68)     25,411        (25,343)
     Total         646            199      95,792        (95,457)

The principal source of petitioners' receipts reported on

Schedules C for 1987-1992 was prizes and sweepstakes winnings.

Among the sources of petitioners' reported Schedule C losses were

deductions for depreciation of an electric screwdriver and a

weedwacker.   Their Schedules C losses contributed to petitioners'

receiving full tax refunds for 1989, 1990, and 1991.
                                - 6 -

     In June of 1989, petitioners' house sustained damages from

termite infestation as well as a tornado and flood caused by

Tropical Storm Allison.    Tropical Storm Allison was declared a

major disaster that year, and petitioners were awarded a grant in

the amount of $5,660 from the Federal Emergency Management Agency

(FEMA) and the Louisiana State Individual and Family Grant (IFG)

Program.   Termite damage required repairs in 1990 as well.

                               OPINION

     Respondent determined deficiencies in petitioners' 1989,

1990, and 1991 Federal income taxes in the amounts of $4,226,

$4,504, and $5,625, respectively, and penalties pursuant to

section 6662(a) for negligence in the amounts of $845, $901, and

$1,125, respectively.   Respondent's determinations are presumed

correct, and petitioners have the burden of proving otherwise.

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

1.   Publishing Activity

     Section 183 provides that if an activity engaged in by an

individual is not engaged in for profit, no deduction

attributable to such activity shall be allowed, except as

provided in section 183(b).2   An "activity not engaged in for


2
     In the case of an activity not engaged in for profit, sec.
183(b)(1) allows a deduction for expenses that are otherwise
deductible without regard to whether the activity is engaged in
for profit. Sec. 183(b)(2) allows a deduction for expenses that
would be deductible only if the activity were engaged in for
profit, but only to the extent the total gross income derived
from the activity exceeds the deductions allowed by sec.
183(b)(1).
                               - 7 -

profit" is any activity for which deductions would not be allowed

under section 162 or under paragraph (1) or (2) of section 212.

Sec. 183(c).   Section 162 allows a deduction for all the ordinary

and necessary expenses paid or incurred in carrying on a

business.   Section 212 allows a deduction for all the ordinary

and necessary expenses paid or incurred for the production or

collection of income, or for the management, conservation, or

maintenance of property held for the production of income.    The

profit standards applicable to section 212 are the same as those

used in section 162.   See Antonides v. Commissioner, 893 F.2d

656, 659 (4th Cir. 1990), affg. 91 T.C. 686 (1988).

     For a taxpayer to deduct expenses of an activity pursuant to

section 162, he must show that he engaged in the activity with an

actual and honest objective of making a profit.   Sec. 183;

Ronnen v. Commissioner, 90 T.C. 74, 91 (1988); Fuchs v.

Commissioner, 83 T.C. 79, 97-98 (1984); Dreicer v. Commissioner,

78 T.C. 642, 645 (1982), affd. without opinion 702 F.2d 1205

(D.C. Cir. 1983); sec. 1.183-2(a), Income Tax Regs.   Although a

reasonable expectation of profit is not required, the taxpayer's

profit objective must be bona fide.    Hulter v. Commissioner, 91

T.C. 371, 393 (1988); Beck v. Commissioner, 85 T.C. 557, 569

(1985).   "Profit" in this context means economic profit,

independent of tax savings.   Drobny v. Commissioner, 86 T.C.

1326, 1341 (1986).   Whether a taxpayer had an actual and honest

profit objective is a question of fact to be resolved from all
                               - 8 -

relevant facts and circumstances.      Hulter v. Commissioner, supra

at 393; Golanty v. Commissioner, 72 T.C. 411, 426 (1979), affd.

in an unpublished opinion 647 F.2d 170 (9th Cir. 1981).     The

burden of proving such objective is on petitioner.     Rule 142(a);

Welch v. Helvering, 290 U.S. 111 (1933).     Greater weight is given

to objective facts than to a taxpayer's statement of intent.

Beck v. Commissioner, supra at 570; Thomas v. Commissioner, 84

T.C. 1244, 1269 (1985), affd. 792 F.2d 1256 (4th Cir. 1986); sec.

1.183-2(a), Income Tax Regs.

     Section 1.183-2(b), Income Tax Regs., provides a non-

exclusive list of factors which should be considered in

determining whether an activity is engaged in with the requisite

profit objective.   The nine factors are:    (1) The manner in which

the taxpayer carries on the activity; (2) the expertise of the

taxpayer or his advisors; (3) the time and effort expended by the

taxpayer in carrying on the activity; (4) the expectation that

the assets used by the taxpayer may appreciate in value; (5) the

success of the taxpayer in carrying on other similar or

dissimilar activities; (6) the taxpayer's history of income or

losses with respect to the activity; (7) the amount of occasional

profits, if any, which are earned; (8) the financial status of

the taxpayer; and (9) whether elements of personal pleasure or

recreation are involved.   No single factor, nor the existence of

even a majority of the factors, is controlling, but rather it is
                                - 9 -

an evaluation of all the facts and circumstances in the case,

taken as a whole, which is determinative.

     Petitioner did not carry on her writing activity in a

businesslike manner.   Her resume lists bookkeeping and accounting

among her business experiences and skills, yet petitioner did not

maintain any type of records, books, or accounting method

relating to her writing activity.   At trial she submitted copies

of hundreds of checks written in 1989, 1990, and 1991 (over 400

checks for 1989 alone).   The various payees included Wal-Mart, K-

Mart, Shell, Exxon, Southern Bell, J.C. Penney, Citibank, and

various individuals.   A majority of the checks fail to indicate

what was purchased or for what purpose the particular expenditure

was made.   We find petitioner's "shoebox method" of recordkeeping

inconsistent with a business or an activity for profit,

particularly in light of her claim to past bookkeeping and

accounting experience.

     Petitioner has little expertise or experience as a

professional writer.   She testified that she ghostwrote for a

political candidate and has had "many of [her] works from about

[her] junior year of high school published in local and other

newspapers, unedited."    However, petitioner did not state whether

she was remunerated for any of her written work or campaign

ghostwriting, and she did not submit into evidence any of her

purportedly published material, except for the items directly in

issue in this case.    We are not required to accept petitioner's
                               - 10 -

self-serving and uncorroborated testimony, particularly where

other and better evidence to prove the point in question is

available.    Wood v. Commissioner, 338 F.2d 602, 605 (9th Cir.

1964), affg. 41 T.C. 593 (1964).

     The record does not disclose the time and effort expended by

petitioner on her writing activity for taxable years 1989, 1990,

and 1991.    However, the bulk of her efforts detailed in the

record were expended before and after the taxable years in issue.

Each of the manuals that petitioner has introduced as her major

income-producing works was written in 1982.    Petitioner made

inquiries with publishers and placed her only advertisement for

test marketers during the 1980's.    The manuals were self-

published in 1992.    Publicity for the manuals and petitioner's

autograph parties occurred no earlier than 1992, and she did not

write to published authors or seek financial assistance until

after 1991.    The record raises a strong inference that petitioner

did little or nothing with respect to her writing activity during

the taxable years at issue, 1989-1991.

     On their Federal income tax returns for 1987 through 1992

(the only returns submitted into evidence), petitioners never

reported a net profit from petitioner's writing activity.     During

that time her writing activity generated losses in excess of

$95,000, which were used to offset petitioners' other taxable

income, including petitioner Dudley J. Callahan's salary for each

year, which far exceeded the amounts involved in petitioner's
                              - 11 -

Schedules C activity.   Petitioners received full refunds of all

taxes withheld for the years in issue.   A record of substantial

losses over many years and the absence of any likelihood of

achieving a profitable operation are important factors bearing on

the taxpayer's true intention.   Hendricks v. Commissioner, 32

F.3d 94, 99 (4th Cir. 1994), affg. T.C. Memo. 1993-396; Golanty

v. Commissioner, 72 T.C. at 426-427; Bessenyey v. Commissioner,

45 T.C. 261, 274 (1965), affd. 379 F.2d 252 (2d Cir. 1967).

     The remaining factors suggested by the income tax

regulations warrant only a brief note.   Nothing in the record

shows, and petitioners did not argue, that petitioner used any

assets in her writing activity that would appreciate in value.

Petitioners' Federal income tax returns reflect a history of

losses from her writing activity, which is also reflective of the

extent of petitioner's success or lack thereof in carrying on her

writing activity.   Petitioners' financial status is such that it

does not influence the analysis in either direction.   Finally,

the record indicates that petitioner enjoys her status as a self-

published writer.

     Petitioner has failed to prove that she had an actual and

honest profit objective for the taxable years at issue.   See

Dreicer v. Commissioner, 78 T.C. at 645; see also Lesher v.

Commissioner, T.C. Memo. 1991-161; Klapper v. Commissioner, T.C.

Memo. 1990-372, affd. without published opinion 935 F.2d 1278 (2d

Cir. 1991); Sherman v. Commissioner, T.C. Memo. 1989-269, each
                                - 12 -

holding that the writing and supposedly related activities in

such case were not conducted for profit.    Petitioner did not

carry on her activity in a businesslike manner.    Refunding and

rebating, and entering sweepstakes, have long been hobbies that

petitioner enjoys.     She recorded her methodologies in 1982 at the

suggestion of a friend and with the intention of helping her

friends save money on groceries.    Neither manual was published

for 10 years until petitioner "self-published" them at an area

copy shop.    It was not until then, after the taxable years in

issue, that petitioner pursued financial assistance, wrote a few

published authors, and sought publicity for herself.    The record

does not disclose how much time, if any, petitioner spent on her

writing activity during the taxable years at issue, 1989, 1990,

and 1991.    On their 1989 and 1991 Schedules C petitioners

reported gross receipts of zero; for 1990 they reported $134 in

gross receipts, all of which was from prizes and awards.

Moreover, there was no showing that petitioners ever made a net

profit from petitioner's writing activity.    Respondent is

sustained on this issue.

2.   Casualty Losses

     Petitioners claimed casualty losses on their 1989 and 1990

returns in the respective amounts of $13,233 and $13,835.     They

attributed these losses to damages sustained from Tropical Storm

Allison and termite infestation.    Petitioners were unable to

apportion the total damages between Tropical Storm Allison and
                              - 13 -

the termite infestation.   Respondent disallowed petitioners'

claimed casualty losses on the grounds that the cost of repairing

termite damage is not a casualty loss and for lack of

substantiation.

     Section 165(a) allows a deduction for losses sustained

during the taxable year and not compensated for by insurance or

otherwise.   In the case of individuals, deductible losses are

limited to losses incurred in a trade or business or a

transaction entered into for profit, and losses resulting from

"fire, storm, shipwreck, or other casualty, or from theft."     Sec.

165(c).   An "other casualty" has been defined by the courts to

mean a loss proximately caused by a sudden, unexpected, or

unusual event, excluding progressive deterioration.     Maher v.

Commissioner, 680 F.2d 91, 92 (11th Cir. 1982), affg. 76 T.C. 593

(1981); Fay v. Helvering, 120 F.2d 253 (2d Cir. 1941), affg. 42

B.T.A. 206 (1940); White v. Commissioner, 48 T.C. 430, 435

(1967).   Casualty losses for individuals are deductible only to

the extent that the loss exceeds $100 per casualty and 10 percent

of adjusted gross income (AGI).   Sec. 165(h).

     An individual's casualty loss is "treated as sustained

during the taxable year in which the loss occurs as evidenced by

closed and completed transactions and as fixed by identifiable

events occurring in such taxable year."   Sec. 1.165-1(d)(1),

Income Tax Regs.   The amount of a casualty loss is generally

computed as the fair market value of the property immediately
                                - 14 -

before the casualty, minus the fair market value of the property

immediately after the casualty, not to exceed, however, the

property's adjusted basis.   Helvering v. Owens, 305 U.S. 468, 471

(1939); Millsap v. Commissioner, 46 T.C. 751 (1966), affd. 387

F.2d 420 (8th Cir. 1968); sec. 1.165-7(b)(1), Income Tax Regs.

The determination of these respective values "shall generally be

ascertained by competent appraisal," and any such deduction

"shall be limited to the actual loss resulting from damage to the

property."   Sec. 1.165-7(a)(2)(i), Income Tax Regs.   The cost of

repairs to the property damaged is also acceptable as evidence of

the loss of value under certain circumstances.   Sec. 1.165-

7(a)(2)(ii), Income Tax Regs.

     Termite damage generally does not give rise to a deductible

casualty loss because it does not occur suddenly, unexpectedly,

or from an unusual cause.    United States v. Rogers, 120 F.2d 244

(9th Cir. 1941); Dodge v. Commissioner, 25 T.C. 1022, 1026

(1956).   Only in exceptional situations where damages from

termite infestation occurred in a relatively short period of

time, ranging, for example, from 3 to 14 months, has a casualty

loss been sustained.   Rosenberg v. Commissioner, 198 F.2d 46 (8th

Cir. 1952), revg. 16 T.C. 1360 (1951); Kilroe v. Commissioner, 32

T.C. 1304 (1959); Buist v. United States, 164 F.Supp. 218 (E.D.

S.C. 1958); Shopmaker v. United States, 119 F.Supp. 705 (E.D. Mo.

1953); see Dodge v. Commissioner, supra, for a detailed analysis

of the cases.
                              - 15 -

     In the present case, nothing in the record shows that

petitioners' termite infestation occurred over a short period of

time.   Petitioner testified that when petitioners were deciding

whether to paint their house or put up vinyl siding, painters

advised them that the wood was in good condition.    However,

petitioner failed to indicate in what year she received this

suggestion, and there is no evidence or indication that the

painter was specifically looking for termite infestation or was

qualified to do so.   Moreover, since his painting contract turned

on his analysis of the wood, the painter's opinion could hardly

be considered unbiased.   We hold that petitioners are not

entitled to claim as casualty losses their costs of repairing any

termite damage incurred in 1989 and 1990.

     Petitioners' casualty losses purportedly incurred as a

result of Tropical Storm Allison present an issue of

substantiation.   Generally, taxpayers are required to

substantiate claimed deductions and credits by maintaining the

records needed to establish the amount of such items.    Sec. 6001;

sec. 1.6001-1(a), Income Tax Regs.     Even though a taxpayer fails

to maintain adequate records, under some circumstances we may

estimate the amount a taxpayer is entitled to deduct if he

provides a means of making a reasonable estimate of the expense.

Cohan v. Commissioner, 39 F.2d 540 (2d Cir. 1930).     However, in

order for us to make an estimate, there must be sufficient

evidence to show that at least the estimated amount actually was
                                - 16 -

spent or incurred for the stated purpose.    Williams v. United

States, 245 F.2d 559, 560 (5th Cir. 1957); Vanicek v.

Commissioner, 85 T.C. 731, 743 (1985).    Furthermore, in making an

estimate, we must bear heavily on petitioner, "whose inexactitude

is of his own making."   Cohan v. Commissioner, supra at 544.

     Petitioners did not submit any evidence or testify to the

effect that their house was appraised by a competent

professional, either before or after the damages were sustained.

In addition, petitioners were unable to separate the structural

damages caused by Tropical Storm Allison from the structural

damages caused by the termite infestation.   To substantiate the

casualty losses claimed on their returns, petitioners submitted a

letter from FEMA, which references their 1989 grant of $5,660,

photocopies of checks and receipts, handwritten lists of

expenditures, and a written statement from one James Robinson,

dated August 25, 1993, stating that he performed repairs to their

house sustained from Tropical Storm Allison.

     We consider the letter from FEMA sufficient to substantiate

that petitioners sustained damages from Tropical Storm Allison,

but only for taxable year 1989 and only in the amount of the

grant, $5,660.   Cohan v. Commissioner, supra; sec. 1.165-

7(a)(2)(ii), Income Tax Regs.    The checks and receipts submitted

by petitioners, however, are insufficient to substantiate the

1989 casualty loss in excess of $5,660.   Many of the checks do

not indicate what was purchased or for what purpose the
                                - 17 -

particular expenditure was made, and some of the photocopied

receipts and handwritten lists were insufficient on their face.

With respect to taxable year 1990, we find that the events fixing

the loss inflicted by Tropical Storm Allison all occurred in

1989.     The storm hit in the middle of 1989, and petitioners were

awarded their FEMA grant that same year.

     An outright disbursement or grant made by a public agency

designated to help relieve any financial losses caused by a

natural disaster is in the nature of "insurance or otherwise."

Spak v. Commissioner, 76 T.C. 464, 467 (1981); Shanahan v.

Commissioner, 63 T.C. 21 (1974).     Consistent with this rule, on

their 1989 Form 4684, Casualties and Thefts, petitioners reported

their FEMA grant on the line provided for "insurance or other

reimbursement".     The record shows that petitioners failed to

substantiate any casualty losses in excess of the amount

compensated for by insurance or otherwise, and that the events

fixing the damages caused by Tropical Storm Allison all occurred

in 1989.     Accordingly, we hold that petitioners are not entitled

to claim a casualty loss for either of the taxable years 1989 and

1990.

3.      1991 Schedule A Miscellaneous Deductions

        On their 1991 Schedule A, Form 1040, petitioners claimed

miscellaneous deductions in the amount of $22,237.     Petitioners

indicated on their return that this amount consisted of the

following:     $126 paid to acquire stock, $575 for term insurance,
                              - 18 -

$1,166 for insurance on investments, and $20,370 for repairs and

depreciation.   Written at the top of Schedule A was "ANDREW", in

reference to Hurricane Andrew.   Respondent disallowed

petitioners' claimed miscellaneous deductions for 1991 for lack

of substantiation.

     As noted, taxpayers are generally required to substantiate

claimed deductions and credits by maintaining the records needed

to establish the amount of such items.    Sec. 6001; sec. 1.6001-

1(a), Income Tax Regs.   Petitioners did not elaborate upon which

of the reported Schedule A expense deductions related to

Hurricane Andrew, although petitioner did testify that "labor"

expenses reported on line 21 of Schedule C for that year were for

repairs caused by Hurricane Andrew.    Petitioners submitted

photocopies of hundreds of checks, whose payees included Southern

Bell, Reader's Digest, American Family Publishers, J.C. Penney

Insurance, Allstate Insurance, Shell, Exxon, Texaco, and "cash,"

among others.   Most of the checks do not indicate what was

purchased or the purpose of the expenditure.    When asked to

clarify the stock and insurance expenses, petitioner testified

only that the stock was purchased to create a "perpetual fund for

the maintenance of" their parents' graves.    We find both the

photocopies of the checks and petitioner's testimony insufficient

to substantiate the Schedule A miscellaneous deductions claimed

for 1991.   Respondent is sustained on this issue.
                                - 19 -

4.   Medical Expenses

     In the notice of deficiency, respondent adjusted

petitioners' gross medical expenses as reported on Schedules A,

lines 1a and 1, of their 1989, 1990, and 1991 returns (decreasing

the amounts reported for 1989 and 1990, and increasing the amount

reported for 1991).     At trial, respondent stated that the gross

amounts reported were not in dispute.    We consider respondent to

have conceded the gross amounts of medical expenses reported on

the returns.   Respondent argues only that the amount of medical

expenses petitioners may deduct must be recalculated in light of

any adjustments to their adjusted gross income by reason of this

opinion.

     Section 213 allows a deduction for expenses paid for medical

care of the taxpayer, his spouse, or a dependent, which is not

compensated for by insurance or otherwise, to the extent that

such expenses exceed 7.5 percent of adjusted gross income.    The

amount of the deduction for medical expenses obviously depends

upon the taxpayer's adjusted gross income.    Accordingly, we hold

that petitioners' allowable medical expense deductions for the

taxable years at issue must be recalculated to reflect any

adjustments to their adjusted gross income by reason of this

opinion.

5.   State Sales Taxes

     On their 1990 Schedule A, Form 1040, petitioners claimed a

deduction for "other taxes" in the amount of $1,964.    Respondent
                                - 20 -

determined that this amount was paid for State sales taxes and

disallowed the deduction in full on the grounds that State sales

taxes are not deductible.

     Prior to 1986, section 164(a)(4) allowed a deduction for

State and local general sales taxes paid or accrued within the

taxable year.   Section 164(a)(4) was repealed by section

134(a)(1) of The Tax Reform Act of 1986, Pub. L. 99-514, 100

Stat. 2116.    Petitioners offered no evidence that the $1,964 they

deducted for "other taxes" represented anything other than State

sales taxes.    In fact, petitioners state in their posttrial

memorandum that the "other taxes" were State sales taxes on

personal property.   Respondent is sustained on this issue.

6.   Charitable Contributions

     On their 1990 Schedule A, Form 1040, petitioners claimed

charitable contributions in the amount of $4,342.    Respondent

disallowed $126 of this amount for lack of substantiation.

     Section 170 allows a deduction for charitable contributions

subject to certain limitations.    If a taxpayer makes a cash

contribution, the taxpayer in the absence of a canceled check or

receipt from the donee must maintain other reliable written

records showing the name of each charity, and the date and the

amount of each contribution.    Sec. 1.170A-13(a)(1)(iii), Income

Tax Regs.

     Petitioners offered no evidence to substantiate their

charitable contributions apart from the photocopies of hundreds
                               - 21 -

of checks written in 1990.    It is unclear which of these, if any,

purportedly substantiate the $126 disallowed by respondent.

Petitioners have not satisfied their burden of proof.      Respondent

is sustained on this issue.

7.   Negligence

     For taxable years 1989, 1990, and 1991, respondent

determined that petitioners are liable for the accuracy-related

penalty under section 6662(a) for negligence in the respective

amounts of $845, $901, and $1,125.      Section 6662(a) and (b)(1)

imposes an accuracy-related penalty on any portion of an

underpayment which is attributable to negligence or disregard of

rules or regulations.   Negligence is the lack of due care or

failure to do what a reasonable and ordinarily prudent person

would do under the circumstances.     Neely v. Commissioner, 85 T.C.

934, 947 (1985).   The term "disregard" includes any careless,

reckless, or intentional disregard.      Sec. 6662(c).   Petitioners

have the burden of proof to show that the penalty should not be

sustained by the Court.    Rule 142(a); Tweeddale v. Commissioner,

92 T.C. 501, 505 (1989).

     Petitioners submitted one piece of evidence with respect to

the negligence penalty, a one-paragraph statement clipped from a

text, magazine, or pamphlet offering tax tips.      This particular

clipping states that business expenses of writers are deductible

in the year incurred and need not be expensed over time.

Petitioners' reliance on this comment, regardless of its
                                - 22 -

accuracy, does not excuse their negligence.    None of the

adjustments to petitioners' taxes at issue herein, or the

deficiencies resulting therefrom, derive from expenses deducted

in the wrong year.   After reviewing the entire record, including

petitioners' persistent claims to substantial deductions for

items that plainly represent their nondeductible living expenses

and also petitioners' failure to substantiate claims, we are

convinced that petitioners' deficiencies for 1989, 1990, and 1991

are the result of negligence.    Respondent is sustained on this

issue.

     Petitioners raised several other questions in their post-

trial briefs which we address summarily.    First, the notice of

deficiency was timely with respect to all 3 years.3   Second, the

deficiency notice was not arbitrary and excessive.    Pasternak v.

Commissioner, 990 F.2d 893, 897 (6th Cir. 1993), affg. Donahoe v.

Commissioner, T.C. Memo. 1991-181; Campbell v. Commissioner, 90

T.C. 110, 115 (1988).   Third, petitioners failed to provide any

evidence that they were subjected to unnecessary examination or

investigations, or that if they were subjected to multiple

examinations for the same taxable year, that they objected

thereto.   Fourth, petitioners are not entitled to a refund for



3
     Petitioners formally extended the time to assess their
Federal income tax for taxable year 1989 to anytime on or before
Oct. 18, 1994. The notice of deficiency was issued prior to Oct.
18, 1994, and within the 3-year limitations period with respect
to taxable years 1990-91. Secs. 6501, 6503.
                              - 23 -

any of the years at issue because they did not pay any taxes in

1989, 1990, or 1991.   Amounts withheld during those years were

fully refunded to petitioners.    Finally, there are no grounds to

award petitioners litigation costs under section 7430, since

petitioners are not the prevailing party.

     To reflect the foregoing,


                                      Decision will be entered

                                 under Rule 155.
