                        T.C. Memo. 2001-310



                      UNITED STATES TAX COURT



             THOMAS C. SANDOVAL, JR., Petitioner v.
          COMMISSIONER OF INTERNAL REVENUE, Respondent



     Docket No. 16395-98.                Filed December 11, 2001.


     Thomas C. Sandoval, Jr., pro se.

     Elizabeth Owen, for respondent.



             MEMORANDUM FINDINGS OF FACT AND OPINION


     FOLEY, Judge:   By notice dated August 20, 1998, respondent

determined a $23,474 deficiency, and a $4,695 section 6662(a)

penalty, relating to petitioner’s 1994 Federal income taxes.

Unless otherwise indicated, all section references are to the

Internal Revenue Code in effect for the year in issue, and all
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Rule references are to the Tax Court Rules of Practice and

Procedure.

     After concessions the remaining issues are whether

petitioner:   (1) May deduct certain expenses relating to his

residential real estate, (2) has net operating losses to offset a

portion of his 1994 taxable income, (3) is allowed a depreciation

deduction for property purportedly used in his trade or business,

and (4) is liable for a section 6662(a) penalty relating to

negligence.

                         FINDINGS OF FACT

     Petitioner resided in San Antonio, Texas, at the time he

filed his petition.

     During the year in issue, petitioner was married to Bobbie

J. Sandoval; was the sole proprietor of Allied Electric and Air

Conditioning Co. (Allied Electric), an electric and air

conditioning business; and was the owner of real estate in San

Antonio located at 4330 Seabrook Drive (Seabrook), 320 Indiana

(Indiana), and a duplex at 137 and 139 El Monte Boulevard (El

Monte).   Seabrook, Indiana, and El Monte were purchased in 1979,

1987, and 1988, respectively.

     On petitioner’s 1994 Federal income tax return, received by

respondent on October 19, 1995, he omitted his rental activities,

incorrectly claimed single filing status, and did not review the
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return for accuracy.   Dan Mitchell, a certified public

accountant, prepared petitioner’s 1994 tax return.

     Respondent used a bank deposit analysis to reconstruct

petitioner’s income relating to Allied Electric; disallowed

$77,531 of Schedule C, Profit or Loss From Business, deductions,

relating to Allied Electric; and determined a deficiency in

petitioner’s 1994 taxes and a section 6662(a) accuracy-related

penalty.

                              OPINION

I.   Petitioner’s Real Estate Activities

     We sustain respondent’s determinations relating to

petitioner’s residential properties.      Petitioner had the burden

of proof,1 yet presented unreliable documentary evidence and

contradictory testimony.   Rule 142(a).

     A.    139 El Monte

     139 El Monte was not held for the production of income.

Armando Pineda occupied the property for part of 1994, while

petitioner’s daughter occupied it for the remainder of the year.

There is no credible evidence (i.e., rent payments, lease

agreements, canceled checks, general ledgers, etc.) establishing

that petitioner rented the property to those individuals.

Depreciation and maintenance expenses relating to a residence




     1
      Sec. 7491 is not applicable to this case.
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occupied on a rent-free basis are not deductible.    Prince Trust

v. Commissioner, 35 T.C. 974 (1961).

     B.   Seabrook and Indiana

     In determining the allocation of basis between land and

improvements for Seabrook and Indiana, respondent relied on 1994

city government tax assessment records.    Petitioner complains

that respondent should have used tax assessment records for the

years in which each property was purchased, yet presented neither

those records nor any other credible evidence to rebut

respondent’s determinations.

     Petitioner contends that he is entitled to a 15-year

recovery period for both Seabrook and Indiana.    Respondent

contends, and we agree, that the appropriate recovery period for

Seabrook, placed in service in 1979, is 20 years (i.e., the

midpoint of the Class Life Asset Depreciation System’s asset

depreciation range, which is 16-24 years).    See Sprint Corp. v.

Commissioner, 108 T.C. 384, 400 (1997); sec. 1.167(a)-

11(b)(4)(i), Income Tax Regs.; Rev. Proc. 77-10, 1977-1 C.B. 548.

The recovery period for Indiana, placed in service in 1987, is

27.5 years.   Sec. 168(c).   We also sustain respondent’s

determination that petitioner received $3,900 rental income

relating to Seabrook.
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II.   Allied Electric Business Deductions

      A.   Net Operating Loss Carryforwards

      Petitioner contends, but failed to establish, that his 1994

income is offset by net operating losses.     See Jones v.

Commissioner, 25 T.C. 1100, 1104 (1956)(holding that a taxpayer

must prove the amount of the net operating loss carryforward

deductions claimed and that his gross income in other years did

not offset those losses), revd. and remanded on other grounds 259

F.2d 300 (5th Cir. 1958).     Petitioner’s documentary evidence

consisted of his tax returns and a worksheet with figures

differing from those on the returns.     See Wilkinson v.

Commissioner, 71 T.C. 633, 639 (1979)(holding that tax returns

alone do not establish a taxpayer’s entitlement to claimed

deductions).   Respondent concedes petitioner had eligible net

operating losses of $15,546, $3,577, $35,791, and $9,573 in 1982,

1989, 1991, and 1992, respectively.      These losses were absorbed

by income in carryback and carryover years prior to 1994.     See

sec. 172(b)(stating that net operating losses must be carried

back 3 years and the remaining portion carried forward 15 years).

Accordingly, petitioner does not have a net operating loss

carryforward in 1994.

      B.   Additional Business Depreciation

      Petitioner failed to establish that the Lincoln Town Car was

used for business purposes.    We conclude, however, that the
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Freuhauf vans, trailer, and the canopy, were used in petitioner’s

business.    Accordingly, depreciation deductions relating to these

items are allowed.

III.    Negligence

       Section 6662(a) and (b)(1) impose an accuracy-related

penalty on the portion of an underpayment of tax attributable to

negligence.    Petitioner contends that no tax deficiency exists

and blames his accountant for errors and omissions on his tax

returns.    We are unpersuaded.    Petitioner overstated his

deductions, underreported income, failed to report his rental

activities, filed as single instead of married, failed to review

the return, and had no reasonable cause for any of these errors.

Petitioner did not exercise due care in the filing of his return

and thus is liable for the section 6662(a) penalty.

       Contentions we have not addressed are moot, irrelevant, or

meritless.

       To reflect the foregoing,

                                                Decision will be entered

                                           under Rule 155.
