                        T.C. Memo. 2001-168



                     UNITED STATES TAX COURT



                NICHOLAS M. ROMER, Petitioner v.
          COMMISSIONER OF INTERNAL REVENUE, Respondent



     Docket No. 11646-97.                      Filed July 6, 2001.



     Nicholas M. Romer, pro se.1

     Elizabeth Downs, for respondent.



             MEMORANDUM FINDINGS OF FACT AND OPINION


     THORNTON, Judge:   Respondent determined the following

deficiencies, additions to tax, and penalties with respect to




     1
       At trial, petitioner was represented by Howard S. Kleyman,
who entered his appearance shortly before the trial date and
withdrew as attorney of record immediately after the trial.
                                   - 2 -

petitioner’s Federal income taxes:2

                            Addition to Tax    Civil Fraud Penalty
 Year         Deficiency      Sec. 6654(a)          Sec. 6663
 1989          $ 84,472          $5,708              $ 63,354
 1990            95,905           6,343                71,929
 1991           153,032           8,702               114,774


       After concessions by both parties,3 the issues for decision

are:       (1) Whether petitioner is entitled to deductions for

aviation-related expenses, not previously claimed on his Federal

income tax returns, in excess of amounts agreed to by respondent;

(2) whether petitioner is liable for civil fraud penalties under

section 6663; and (3) whether the period of assessment for

taxable year 1989 has expired.4


       2
       Unless otherwise indicated, all section references are to
the Internal Revenue Code in effect during the years at issue,
and all Rule references are to the Tax Court Rules of Practice
and Procedure.
       3
       As discussed more fully infra, the parties stipulated the
amounts of petitioner’s unreported gross income from various
sources and certain allowable deductions related thereto. In
addition, respondent concedes that petitioner is entitled to
deductions with respect to losses on the sale of two aircraft for
taxable years 1989 and 1990 in the respective amounts of $13,195
and $6,591. Respondent also concedes that petitioner is entitled
to a math error adjustment, in his favor, to reported Schedule C,
Profit or Loss From Business, costs of operations in the amount
of $8,000 for taxable year 1989 and rental deductions in the
total amount of $5,427 for taxable year 1991.
       4
        We have jurisdiction to redetermine additions to tax
under sec. 6654(a) only if no Federal income tax returns were
filed for the years before the Court. See sec. 6665(b)(2); see
also Meyer v. Commissioner, 97 T.C. 555, 562 (1991); Sigel v.
Commissioner, T.C. Memo. 2001-138. Because petitioner filed a
Federal income tax return for each year before the Court, the
                                                   (continued...)
                                - 3 -

                           FINDINGS OF FACT

     The parties have stipulated some of the facts, which we

incorporate in our findings by this reference.    When he filed his

petition, petitioner resided in Franklin, Tennessee.

Petitioner’s Accounting Activity

     During the years in issue, petitioner was a certified public

accountant (C.P.A.) practicing with Romer & Co., a Minneapolis,

Minnesota, accounting business that he founded in 1974.    As part

of his accounting practice, petitioner prepared individual State

and Federal income tax returns for aircraft pilots.

Petitioner’s Aviation Activities

     During the years in issue, petitioner also engaged in

various aviation activities as a licensed commercial pilot, a

certified flight instructor, a licensed aircraft dealer, an

airline transport pilot, and a charter pilot (the aviation

activities).   During the years in issue, petitioner owned, at

different times, four aircraft:    A Piper Navajo N1430S, a Piper

Navajo N55CT, an Aero Commander N163D, and a King Air N623R

(collectively, the aircraft).    Petitioner used the aircraft in

his aviation activities.

     During the subject years, petitioner had no charter

certificate.   In order to fly his aircraft on charter flights,



     4
      (...continued)
Court lacks jurisdiction to redetermine the sec. 6654(a)
additions to tax.
                               - 4 -

petitioner associated himself with Great Lakes Air d/b/a Cirrus

Air Charter (Great Lakes) and Cirrus Flight Operations (Cirrus).

Great Lakes possessed a charter certificate and operated an air

charter business.   Cirrus sold fuel and provided maintenance to

small aircraft.   During the years in issue, Great Lakes and

Cirrus were owned, in part, by Richard Cross (Cross), who was a

pilot for Sun Country Airlines, and in part by an unrelated

business entity known as General Housewares.

     Pursuant to an agreement with Cross, petitioner flew his

aircraft on charter flights under Great Lakes’ charter

certificate.   Sometimes, Cirrus would arrange for other pilots to

fly petitioner’s aircraft on charter trips.5

     Apparently, petitioner was entitled to receive all the

income generated from flights using his aircraft and was credited

with all the income and charged with associated expenses incurred

by Great Lakes or Cirrus in an account that he maintained with

Great Lakes (Great Lakes account).     Romer & Co. provided

accounting services for Great Lakes and Cirrus and prepared their

Federal income tax returns.




     5
       The record is unclear as to the exact relationship of
these other pilots to Cirrus and to petitioner. One of the
pilots, Richard Matthews, testified that his income from the
flights in question was reported on Forms 1099 issued by Great
Lakes and stated: “I believe we’d be called subcontractors”.
                                 - 5 -

     During each of the years in issue, petitioner received gross

receipts and incurred expenses with respect to his aviation

activities.

Petitioner’s Tax Returns

     For the years in issue, petitioner personally prepared his

Federal income tax returns.     He reported no gross income or

expenses from his aviation activities.     On Schedule C, Profit or

Loss From Business, he reported gross receipts and net profit

from “Bookkeeping and Accounting” as follows:

               Year   Gross Receipts       Net Profit
               1989      $116,869           $23,177
               1990       165,116            25,122
               1991        13,200            13,200

The Criminal Investigation

     In the early 1990's, petitioner became the subject of an

investigation by the Internal Revenue Service Criminal

Investigation Division (CID).    On several occasions in 1992, as

part of that investigation, undercover CID agents posing as new

clients of Romer & Co. met with petitioner and surreptitiously

recorded their conversations.    The criminal investigation

culminated in the April 15, 1996, indictment of petitioner on

three counts of violating section 7206(1) with respect to his

individual Federal income tax returns for taxable years 1989,

1990, and 1991, for willfully making and subscribing false tax
                                  - 6 -

returns, under penalties of perjury, knowing that he had

underreported gross receipts from his accounting firm and had

failed to report any gross receipts from his aviation activities.

     On August 13, 1996, petitioner entered into a plea

agreement, pleading guilty to one count of willfully failing to

supply information on his 1991 Federal income tax return pursuant

to section 7203.   The plea agreement states that petitioner

“admits that the civil fraud penalty and interest applies to

whatever additional tax he is deemed to owe after pursuing

remaining civil remedies for tax years 1989-1991.”    Petitioner

was ultimately sentenced to 6 months’ imprisonment.

Notice of Deficiency

     In the notice of deficiency, dated April 10, 1997,

respondent determined that petitioner had failed to report gross

receipts from his accounting and aviation activities and other

sources in the following amounts:

                        Romer &        Aviation      Other
          Year            Co.         Activities     Income
          1989         $144,607       $ 69,889       $1,966
          1990          183,344         77,881        4,148
          1991          369,337        102,313          978

     Respondent also determined that petitioner is subject to the

section 6663 civil fraud penalty and the section 6654(a) addition

to tax for failing to pay estimated taxes for each of the subject

years.
                               - 7 -



                              OPINION

A.   Aviation Expenses

     Petitioner concedes that he failed to report gross receipts

in the amounts determined in respondent’s notice of deficiency.

He contends, however, that he is entitled to deduct associated

business expenses not claimed on his returns for the subject

years.   He claims that these newly asserted deductions more than

offset the gross proceeds that he omitted from his returns and

that consequently he has no deficiency for any year in issue.

     The parties have stipulated that petitioner is entitled to

certain deductions not claimed on his return with respect to both

his aviation activities and the Romer & Co. accounting

business.6   Giving effect to the parties’ concessions and

stipulations results in net losses from petitioner’s aviation

activities for each of the years in issue but indicates positive

net income from petitioner’s other activities.   Seeking to

eliminate any remaining net income (and indeed to produce

significant net losses) from his accounting business and other



     6
       Respondent concedes that petitioner is entitled to the
following Schedule C deductions (including depreciation), which
were not claimed on petitioner’s Federal income tax returns:

                            Romer &             Aviation
             Year             Co.              Activities
             1989          $ 99,805            $ 75,049
             1990           119,106              91,646
             1991           267,257             166,687
                                - 8 -

sources, petitioner seeks to deduct the following additional

expenses relating to his aviation activities, not previously

claimed on his return and not agreed to by respondent (the

unagreed expenses):

                      Year                Amount
                      1989              $40,074
                      1990                53,372
                                        1
                      1991                47,504
          1
            This amount includes additional depreciation of
     $20,847 that petitioner is claiming on one of his
     aircraft. The $47,504 amount is also based, in part,
     on petitioner’s alleged duplicate living expenses
     assuming that Nashville, Tenn., is petitioner’s tax
     home. If Minneapolis, Minn., is assumed to be
     petitioner’s tax home, the amount claimed is $43,476.

     Section 162 generally allows a deduction for all ordinary

and necessary expenses paid or incurred during the taxable year

in carrying on a trade or business.      An expense is ordinary if it

is customary or usual within a particular trade, business, or

industry or relates to a transaction “of common or frequent

occurrence in the type of business involved.”      Deputy v. du Pont,

308 U.S. 488, 495 (1940).    An expense is necessary if it is

appropriate and helpful for the development of the business.

Commissioner v. Heininger, 320 U.S. 467, 471 (1943).      Expenses

that are personal in nature are generally not allowed as

deductions.   Sec. 262(a).

     When a taxpayer establishes that he has incurred deductible

expenses but is unable to substantiate the exact amounts, we can

estimate the deductible amount, but only if the taxpayer presents
                                 - 9 -

sufficient evidence to establish a rational basis for making the

estimate.     See Cohan v. Commissioner, 39 F.2d 540, 543-544 (2d

Cir. 1930); see also Vanicek v. Commissioner, 85 T.C. 731, 742-

743 (1985).

     Section 274(d) supersedes the general rule of Cohan v.

Commissioner, supra, and precludes us from estimating the

taxpayer’s expenses with regard to certain items.    See Sanford v.

Commissioner, 50 T.C. 823, 827 (1968), affd. per curiam 412 F.2d

201 (2d Cir. 1969).    Section 274(d) imposes strict substantiation

requirements for expenses relating to, among other things,

travel, entertainment, and “listed property”, including

automobiles and other property used as a means of transportation.

Sec. 1.274-5T(a), Temporary Income Tax Regs., 50 Fed. Reg. 46014

(Nov. 6, 1985).    To obtain a deduction for such items, the

taxpayer must substantiate “by [either] adequate records or

sufficient evidence corroborating * * * [his] own statement” the

amount of the expense, the time and place of travel or

entertainment, the business purpose of the expense, and the

business relationship to the taxpayer of the person entertained.

Sec. 274(d); Beale v. Commissioner, T.C. Memo. 2000-158; sec.

1.274-5(b)(1), Income Tax Regs.    To meet the “adequate records

test”, a taxpayer must maintain an account book, diary, statement

of expense, or similar record prepared contemporaneously with the

expenditure and documentary evidence of certain expenditures,
                                - 10 -

such as receipts or bills.    See sec. 1.274-5(c)(2), Income Tax

Regs.    In combination, these records must be sufficient to

establish each element--amount, time and place, business purpose,

and business relationship–-of the expenditure for which a

deduction is sought.

     In the absence of adequate records to substantiate each

element of an expense under section 274, a taxpayer may

alternatively establish such element:    (A) By his own statement,

whether written or oral, containing specific information in

detail as to such element; and (B) by other corroborative

evidence sufficient to establish such element.    See sec. 1.274-

5(c)(3), Income Tax Regs.

     Deductions are a matter of legislative grace, and the

taxpayer bears the burden of establishing entitlement to any

claimed deduction.    See Rule 142(a); see also INDOPCO, Inc. v.

Commissioner, 503 U.S. 79, 84 (1992); New Colonial Ice Co. v.

Helvering, 292 U.S. 435, 440 (1934); Hradesky v. Commissioner, 65

T.C. 87, 90 (1975), affd. per curiam 540 F.2d 821 (5th Cir.

1976).    The taxpayer is required to maintain records sufficient

to establish the amount of his income and deductions.     See sec.

6001; sec. 1.6000-1(a), (e), Income Tax Regs.

        For the most part, the business records that petitioner

relies upon to establish his claimed deductions do not reflect

the sort of systematic record keeping that one might expect of a

practicing C.P.A.     Rather, they more closely resemble the
                              - 11 -

proverbial shoebox.   His extensive miscellany of documents

includes photocopied bank statements, checks (some canceled, some

not), credit card invoices, flight log pages, and so forth.

Many of these documents contain cryptic and oftentimes

indecipherable notations, generally handwritten.   Petitioner

suggests various explanations for the inadequacy of his records,

none of which we find convincing.7


     7
       On brief, petitioner makes passing allegations that
respondent seized “all of * * * [his] financial and other records
together with most of Cirrus’ records” and that when respondent
returned those records “they were not in the same order or
condition in which they had been when seized.” Petitioner does
not explain why he would not have retained copies of the
documents that he turned over to respondent, or indeed what has
become of the originals. Even if we were to assume, for sake of
argument, that petitioner’s allegations were true, these
allegations do not address the larger point that petitioner might
be required to maintain more systematic records than he alleges
to have turned over to respondent. In any event, petitioner
offered no evidence as to how respondent’s treatment of the
records hindered his ability to present his case at trial.

     Additionally, petitioner suggests on brief that he once
possessed certain records (e.g., fuel purchase receipts,
appointment books, billing records, and aircraft maintenance
records) that would have bolstered his case, but that prior to
trial, he had either discarded these records or no longer had
them in his custody or control, thereby preventing their use at
trial. We find petitioner’s allegations unconvincing,
particularly in light of the ongoing criminal investigation of
petitioner before his plea agreement in 1996. Moreover,
petitioner bears the burden of proof, and we cannot assume that
the discarded or lost records would have helped him.

     Petitioner further complains that, but for respondent’s
evidentiary objections and vigorous application of the Federal
Rules of Evidence, he would have been able to offer sufficient
evidence to substantiate his alleged expenses. The short answer
is that petitioner cannot carry his evidentiary burden with
incompetent evidence. This Court is obligated to follow the
                                                   (continued...)
                              - 12 -

     Apparently recognizing the shortcomings in his documentary

evidence, petitioner seeks to overcome them by his own detailed

and highly self-serving testimony.     As a preliminary matter, we

note that petitioner was not a credible witness.    As previously

discussed, he is an experienced C.P.A. and self-professed tax

expert who consciously ignored the requirements of the Internal

Revenue Code.   He offers many excuses, but no good reason, why

his contemporaneous business records so poorly substantiate his

claimed deductions, and why in fact he omitted the claimed

deductions from his tax returns, only to assert them in niggling

detail years later after being indicted and conceding that he

omitted great sums of gross income.8    The explanations petitioner

has offered-–e.g., that he was motivated by his desire to avoid

detection by various State and Federal authorities who might find


     7
      (...continued)
Federal Rules of Evidence. See sec. 7453; Malinowski v.
Commissioner, 71 T.C. 1120, 1125 (1979). At trial, petitioner
was represented by counsel, who was given ample opportunity to
respond to respondent’s evidentiary objections and to raise
objections of his own regarding evidentiary matters or any other
matter relating to the conduct of the trial.
     8
       Among petitioner’s many implausible arguments is one that
he believed there was no harm in his omitting the gross income
because he knew, thanks to his tax expertise, that he would have
been entitled to even greater amounts of deductions, if he had
claimed them, that would have eliminated any net tax liability
and in fact would have produced losses for tax purposes. We do
not believe that petitioner would have consciously foregone
claiming such losses. In the course of this proceeding, we have
observed in petitioner no hint of such largesse toward the fisc.
We do observe, however, that petitioner’s continued attempts to
exonerate himself with such ludicrous arguments reflect adversely
on his credibility.
                                - 13 -

the conduct of his various business activities problematical or

illegal–-do nothing to enhance his credibility.     Petitioner’s

demeanor on the stand, his admitted criminal conduct, and (as

discussed in more detail infra) impeaching evidence originating

from his criminal investigation all combine to undermine his

credibility severely.     Petitioner’s testimony struck us as in

good part invention, contrived to meet the needs of trial

according to his self-professed knowledge (if belated

appreciation) of the applicable legal requirements.     In short, we

are unable to give petitioner’s testimony much weight.

     1.   Aviation Fuel

     Petitioner seeks to deduct expenses, not claimed on his

return, that he allegedly incurred for aviation fuel.     The

parties agree that petitioner is entitled to deductions for fuel

expenses paid by debits on petitioner’s Great Lakes account, by

check, and by his Visa credit card (the credit card) for taxable

years 1989, 1990, and 1991 in the respective aggregate amounts of

$4,926, $11,328, and $612.     The parties disagree as to whether

petitioner is entitled to deductions for aviation fuel

expenditures that petitioner alleges he made in cash, in the

amounts of $13,803, $27,287, and $3,276, for the years 1989,

1990, and 1991, respectively.     The parties also disagree as to

whether petitioner is entitled to deductions for fuel expenses

charged to petitioner’s credit card in taxable years 1990 and

1991 in the amounts of $4,912 and $710, respectively.
                               - 14 -

     As to the claimed cash purchases of fuel, petitioner has no

receipts to support his expenditures.    Petitioner attempts to

fill this evidentiary void by the following methodology:    First,

petitioner uses his flight logbooks for each of the subject years

to obtain the total hours that he alleges were flown in each of

his aircraft.    Next, petitioner postulates the number of gallons

each aircraft consumed per hour of flight to estimate the total

number of gallons of fuel each of his aircraft consumed each

year, based on the hours he claims the aircraft were flown.

Then, to arrive at his total fuel expenses for each year,

petitioner postulates the average cost of a gallon of aviation

fuel for the years in question and multiplies that figure by the

number of gallons he estimates each aircraft to have consumed.

Finally, petitioner subtracts from the total fuel expenses for

each year the amount of fuel expenditures he has documentation

for and arrives at the amount he says he must have purchased with

cash in each year.

     We find petitioner’s methodology deficient in practically

every respect.   In particular, petitioner has failed to

corroborate his self-serving testimony with any competent proof

as to the fuel efficiency of his aircraft or the cost of aviation

fuel during the relevant time periods.    Indeed, petitioner’s

testimony leaves us unpersuaded that he actually incurred the

cash expenditures.
                              - 15 -

     Moreover, the evidence fails to establish that petitioner’s

alleged aviation fuel expenses–-either those allegedly paid in

cash or those charged to his credit card--were exclusively for

business purposes.   Petitioner testified that his aircraft were

never flown for nonbusiness purposes.       This testimony is directly

contradicted by petitioner’s prior statements.          During the

criminal investigation of petitioner, undercover CID agents

posing as potential clients for Romer & Co. secretly taped

conversations with petitioner.       The transcripts from those

conversations, which are part of the record in this case, reveal

that petitioner not only used his aircraft for recreational

purposes, but that he claimed personal expenses incurred on

recreational trips as business expenses.         For instance, during an

August 19, 1992, conversation, petitioner discussed with

undercover CID agents, who were using the pseudonyms “Bill

Fraizer” and “Dave Hamilton”, the possibility of their buying his

aircraft and operating it under Cirrus’ charter certificate:

          BILL FRAIZER: But, if we –- if we had you * * *
     [keep track of our expenses, Cirrus] could send
     everything to you, couldn’t they?

               *     *    *      *      *    *      *

          NICK ROEMER [Romer]: Sure. But then what you
     would show on your tax return is you’re an air charter
     business, and each of you would do it. And you would
     show X amount of income coming in and then all of your
     expenses, the maintenance and all of that kind of
     stuff. But then beyond that you would deduct any other
     fun things you’re doing that otherwise you don’t have a
     place to deduct right now.
                                 - 16 -

            BILL FRAIZER:    Okay.

          NICK ROEMER [Romer]:        You know, your trips out to,
     wherever.

            DAVE HAMILTON:    Uh-huh.

            BILL FRAIZER:    Yeah.

          NICK ROEMER [Romer]: And you deduct all of your
     personal flying on it. When I’d fly my airplanes, I
     used to take a lot of ski trips out to Colorado. And
     I, and I deduct all of the fuel and all of the expenses
     associated with those, and those were just nothing but
     going out skiing for the weekend.

            DAVE HAMILTON:    Sure.

            BILL FRAIZER:    Sure.

          NICK ROEMER [Romer]: So, in terms of the income
     tax side of it, you can really put a big hole in your
     tax return with an airplane. And as long as you’re
     spending other money having fun doing other things.
     You go down to Florida deep sea fishing or something,
     you take an airplane down there. The IRS has no
     knowledge of what the purpose of that trip was.

Particularly in the light of these damning admissions, we do not

believe petitioner’s testimony that he used the aircraft

exclusively for business purposes.

     Petitioner argues that his credit card receipts substantiate

business purposes for all the aviation fuel he purchased on his

credit card.    The receipts do not substantiate business purposes

directly.    Petitioner argues, however, that entries in his flight

logbooks complete the picture.        The photocopied pages of flight

logbooks placed into evidence by petitioner contain several

columns of information including, generally, the dates of

flights, the make and model of the aircraft flown, and where the
                               - 17 -

aircraft traveled.    One of the columns in the flight logbooks is

entitled “PROCEDURES-MANEUVERS”.    Petitioner contends that he

contemporaneously listed the business purpose of each flight in

the flight logbooks by making notations in the PROCEDURES-

MANEUVERS column.    Of the approximately 460 flights listed in

petitioner’s flight logbooks, however, only slightly over half

have accompanying notations in the PROCEDURES-MANEUVERS column.

The notations that do exist are generally indecipherable and do

not enable the Court to determine the business purpose of the

subject flights.9    Petitioner’s testimony, whereby he attempts to

supplement or explain the documentary evidence, we do not find

reliable or trustworthy.

     Petitioner also offered the testimony of two witnesses,

Cross and Richard Matthews (Matthews) to establish that all of

the flights in his aircraft were for business purposes.    We found

the testimony of Cross and Matthews to be vague and evasive in

material respects.    In these circumstances, we are not required

to, and do not, accept their testimony.    See Ruark v.

Commissioner, 449 F.2d 311, 312 (9th Cir. 1971), affg. per curiam

T.C. Memo. 1969-48; Clark v. Commissioner, 266 F.2d 698, 708-709

(9th Cir. 1959), affg. and remanding on another issue T.C. Memo.




     9
       The cryptic notations include statements such as “no
heater” or “6 landings”. One notation contains simply a check
mark. Many of the notations are merely names without further
explanation.
                              - 18 -

1957-129; Tokarski v. Commissioner, 87 T.C. 74, 77 (1986);

Shackelford v. Commissioner, T.C. Memo. 1994-271.

     In sum, although petitioner was intimately familiar with the

substantiation requirements of the Tax Code, he chose not to keep

adequate records of alleged fuel expenditures that went unclaimed

on his Federal tax returns as filed and that he claims now to

offset gross income that he concedes he improperly omitted from

his Federal tax returns.   Petitioner has failed to adequately

substantiate the unagreed aviation fuel expenses.

     2.    Depreciation on Petitioner’s Aircraft

     In February 1991, petitioner purchased a King Air-N623R

aircraft (King Air) for $225,000 and subsequently placed it in

service.   On his 1991 tax return, petitioner claimed no

depreciation deduction with respect to the King Air.   Petitioner

now asserts that he is entitled to depreciation deductions of

$53,000 with respect to the King Air, based on an asserted 5-year

useful life of the aircraft and the availability of additional

$10,000 “first-year depreciation” pursuant to section 179.

Respondent concedes that petitioner is entitled to a 1991

depreciation deduction of $32,153 with respect to the King Air,

based on a 7-year class life and the half-year convention under

section 168.

     Section 167(a)(1) allows as a depreciation deduction a

reasonable allowance for the exhaustion, wear and tear of

property used in a trade or business.   Depreciation on tangible
                                  - 19 -

assets placed in service after December 31, 1980 (as the King Air

was), is generally determined under the accelerated cost recovery

system (ACRS) of section 168.      See sec. 168(a); C&M Amusements,

Inc. v. Commissioner, T.C. Memo. 1993-527.      Application of ACRS

is generally mandatory and precludes computation of depreciation

based on estimated useful life for tangible property acquired

after 1980.    See C&M Amusements, Inc. v. Commissioner, supra;

Grinalds v. Commissioner, T.C. Memo. 1993-66.

       ACRS deductions are determined using the “applicable

recovery period”, along with prescribed depreciation methods and

conventions.    Sec. 168(a).   Here, the parties disagree only about

the applicable recovery period, so we confine our consideration

to that issue.

       Under ACRS, aircraft are classified as “7-year property”.

Section 168(e)(3)(C); Rev. Proc. 87-56, 1987-2 C.B. 674 (asset

class 45.0), clarified and modified by Rev. Proc. 88-22, 1988-1

C.B. 785.    The applicable recovery period for 7-year property is

7 years.    See sec. 168(c)(1).    Therefore, pursuant to section

168(a), petitioner must depreciate the King Air over 7 years.

Accordingly, petitioner is not entitled to additional

depreciation based on an asserted 5-year useful life of the King

Air.

       Furthermore, petitioner is not entitled to any allowance

under section 179.    Generally, section 179(a) permits a taxpayer

to elect to expense the cost of tangible personal property for
                              - 20 -

the year that the property is placed in service.     The allowance

is limited to $10,000, reduced (but not below zero) by the amount

by which the cost of the section 179 property placed in service

exceeds $200,000.   See section 179(b).    Thus, the allowance is

zero if the cost of the section 179 property exceeds $210,000.

Because petitioner purchased the King Air in 1991 for $225,000,

no section 179 allowance is available.10

     3.   Parts and Repairs

     For taxable year 1989, petitioner seeks deductions totaling

$941 for unagreed expenses allegedly incurred for various parts

and repairs required for his aircraft.     Respondent generally

contends that petitioner has failed to substantiate the business

purpose for each expenditure.11

     On the basis of our review of the documentary evidence in

the record, we find that petitioner has adequately substantiated

an expenditure of $808 for an aircraft part.     He has failed,

however, adequately to substantiate business purpose for the

remaining unagreed expenses at issue, which include numerous

small payments allegedly made to auto parts stores, a hardware




     10
       It also appears that petitioner made no proper election
for the sec. 179 allowance. See sec. 179(c). Given our holding
that petitioner is not entitled to any sec. 179 allowance,
however, we need not address this issue.
     11
       Respondent does not contend that any of petitioner’s
alleged expenditures for parts should have been capitalized under
sec. 263. Accordingly, we do not reach this issue.
                               - 21 -

store, and various food vendors (e.g., Domino’s Pizza and

Arby’s).

     4.    Supplies

     Petitioner seeks to deduct unagreed expenses allegedly

incurred in purchasing “supplies” for his aviation activities in

1989, 1990, and 1991.    The “supplies” allegedly purchased

include, among other things, grass seed, snacks (e.g., peanuts,

candy, soft drinks), loofa sponges, toothpaste, mouthwash, soap,

light bulbs, tools, sporting goods items, a shower curtain,

batteries, miscellaneous items from auto parts stores, liquor,

and clothing.    Petitioner contends that some of the alleged

purchases were made with cash.    For these items, there is no

corroborating documentation.    To substantiate other items,

petitioner has entered into evidence various receipts, credit

card statements, canceled checks, and a check register.    None of

these documents directly establish business purpose.    Petitioner

seeks to fill these evidentiary gaps with his own self-serving

testimony, which we do not find credible or reliable.12

     On the basis of our review of all the evidence, we conclude

and hold that petitioner has failed to adequately substantiate

the amounts or business purposes of his alleged supplies


     12
       Petitioner’s documentary evidence includes cash register
receipts from retail department or hardware stores listing
numerous purchases in generally small amounts. Petitioner
purported to recall with great specificity the circumstances and
business purpose of individual, small-dollar items on these
decade-old receipts. We did not find his testimony credible.
                              - 22 -

expenditures, many of which appear to reflect significant

elements of personal consumption.   Even if we were to assume,

arguendo, that some of these expenditures were for items used

aboard petitioner’s aircraft, this fact would not in and of

itself substantiate business purpose, for as previously

discussed, in the criminal investigation petitioner admitted that

he used his aircraft for personal purposes.   Even if we were to

assume, arguendo, that some of these expenditures were for

legitimate business purposes, the evidentiary record does not

provide a rational basis for identifying or estimating such

expenditures to the exclusion of the personal expenditures that

we believe are included in these unagreed expenses.

     Petitioner has failed to establish entitlement to deductions

he claims for supplies.

     5.   Labor Expenses

     Petitioner seeks to deduct as business expenses two checks

totaling $306 drawn on Romer & Co.’s checking account and made

payable to “Jennie Sheffers” (Sheffers).   Petitioner contends

that he gave the checks to Sheffers as payment for washing and

waxing his aircraft.   The checks themselves do not have any

notation as to why they were made payable to Sheffers.    Besides

petitioner’s own self-serving testimony, we have no corroborative

evidence as to why these checks were drawn.   We find it telling

that these checks were drawn on Romer & Co.’s checking account

rather than on the checking account set up for petitioner’s
                                - 23 -

aviation activities.    Petitioner admitted at trial that he used

Romer & Co.’s checking account to pay his personal expenses.

Thus, the evidence does not rule out the possibility that

petitioner made the checks at issue payable to Sheffers to cover

personal expenses.   Petitioner has failed to substantiate

business purpose for these payments.

     6.   Pilot Expenses

     Petitioner contends that pilots who flew his aircraft

generally charged their expenses to his credit card.      He also

contends that he reimbursed one pilot named Adrian Grimm (Grimm)

$2,010 by paying that amount directly to Grimm’s creditors.

Petitioner claims he is entitled to deduct the $2,010 as a

business expense under section 162.

     In support of his claim, petitioner introduced into evidence

five checks made payable to parties that petitioner contends were

Grimm’s creditors.     While the checks themselves make no mention

of Grimm, the notations in petitioner’s check register contain

such statements as “Adrian Grimm-Fuel & Expense”, “for Adrian”,

or just “Adrian”.

     Petitioner has failed adequately to establish that the

payments in question were for pilot services rendered.

     7.   Rent

     Petitioner seeks a deduction for a check in the amount of

$200 for hangar rent for June 1989.      On the basis of the

documentary evidence in the record, we conclude that petitioner
                                - 24 -

has adequately substantiated and is entitled to the $200

deduction at issue.

     8.   Fees

     Petitioner seeks deductions for three payments in 1989 in

the respective amounts of $10, $110, and $10,000, and three

payments in 1990 in the respective amounts of $6, $59, and $91

for “fees”.

     Petitioner has offered no evidence regarding the $10 and

$110 payments in 1989, nor any of the three payments in 1990.

Consequently, we deem petitioner to have conceded that these

items are not deductible.    As for the alleged $10,000 payment, it

appears--for reasons that are unclear from the record--that

petitioner initially paid this amount to Cross, who at some

undetermined later date refunded most if not all of it to

petitioner.13    Petitioner has failed to show that he is entitled

to deduct the alleged $10,000 payment.

     9.   Miscellaneous Cash Expenditures

     Petitioner seeks to deduct various cash expenditures that he

allegedly made during the subject years for, among other things,

aviation maps, charts, hotels, parts, and apartment furnishings.

Respondent disallowed petitioner’s deductions for these cash

expenditures.



     13
       Petitioner admitted that a portion of the $10,000 was
refunded to him but could not recall the amount. Cross testified
that he refunded “pretty much the whole thing” to petitioner.
                               - 25 -

     For the vast majority of the cash expenditures he seeks to

deduct, petitioner has no receipts or other records of the

expenditures.   The only proof petitioner presents to evidence

these expenditures consists of his self-serving and

uncorroborated testimony.   Under the circumstances, we are not

required to accept this testimony, and we do not.   See Tokarski

v. Commissioner, 87 T.C. at 77; Shackelford v. Commissioner, T.C.

Memo. 1994-271.   Thus, petitioner is not entitled to deduct these

expenditures.

     As to those expenditures for which petitioner presented

receipts, he failed to present evidence of the business purpose

for each expenditure.   Many of these expenditures appear to be of

a personal nature.

     Accordingly, petitioner is not entitled to any of the

deductions sought for these expenditures.

     10.   Subscriptions

     For 1991, petitioner seeks to deduct a $59 subscription

payment to a trade publication, Trade-A-Plane.   Subscription

expenses with respect to trade and professional magazines

relating to a taxpayer’s trade or business are deductible under

section 162.    See Kasey v. Commissioner, 54 T.C. 1642, 1650

(1970), affd. 457 F.2d 369 (9th Cir. 1972).   In 1991, petitioner

was a licensed aircraft dealer engaged in the business of buying

and selling aircraft.   On the basis of documentary evidence in
                               - 26 -

the record, we conclude that petitioner has adequately

established entitlement to the claimed subscription expense.

     11.    Home Office Expenses

     Petitioner claims home office deductions of $1,867 and

$1,996 for taxable years 1989 and 1990, respectively. Petitioner

alleges that because there was no office space at Great Lakes

available to him, he used space in his home as the principal

place of business for his aviation activities.

     Respondent denies that petitioner’s residence constituted

the principal place of business for petitioner’s aviation

activities.    Accordingly, respondent has disallowed petitioner

any deduction for home office expense.

     Generally, an individual taxpayer may not deduct expenses

with respect to a dwelling unit that the taxpayer uses as a

residence during a taxable year.    See sec. 280A(a).   This general

rule does not apply, however, where the taxpayer uses a portion

of the residence regularly and exclusively as either:     (1) The

taxpayer’s principal place of business, or (2) a place of

business which is used by clients or customers in meeting or

dealing with the taxpayer in the normal course of the taxpayer’s

business.    See sec. 280A(c)(1)(A) and (B).14   Petitioner does not

allege that he met clients at his home; rather, he contends that



     14
        The exception provided in sec. 280A(c)(1)(C) is
inapplicable, as petitioner has not alleged that he used any
separate structure not attached to his dwelling unit.
                               - 27 -

his home was the principal place of business for his aviation

activities.

     Where a taxpayer’s business is conducted in part at the

taxpayer’s residence and in part at another location, there are

two primary considerations in determining whether the home office

qualifies as the taxpayer’s principal place of business:   (1) The

relative importance of the functions or activities performed at

each business location, and (2) the time spent at each location.

See Commissioner v. Soliman, 506 U.S. 168, 175-177 (1993);

Strohmaier v. Commissioner, 113 T.C. 106, 111-112 (1999).15

     As a threshold matter, we are unpersuaded of the truth of

petitioner’s allegation that he had no office space at Great

Lakes available to him.16   For this reason alone, we question

whether petitioner’s home was his principal place of business.


     15
       Effective for taxable years beginning after Dec. 31,
1998, sec. 280A was amended so that the term “principal place of
business” now includes a place of business that the taxpayer uses
to perform administrative or management activities related to the
taxpayer’s trade or business if there is no other fixed location
of the trade or business where the taxpayer conducts substantial
administrative or management activities. Sec. 280A(c), as
amended by the Taxpayer Relief Act of 1997, Pub. L. 105-34, sec.
932(a), 111 Stat. 788.
     16
       When applying for an aircraft dealer’s license,
petitioner represented to the Minn. Dept. of Transp. that he
leased from Great Lakes 150 sq. ft. of office space at the Anoka
airport to use “as an operating base” for his aircraft dealer
business. The issuance of an aircraft dealer’s license by the
Minn. Dept. of Transp. to petitioner was based in part upon this
representation. Petitioner now claims that he had no office
space at Great Lakes and was forced to use his home to conduct
business activities. We find petitioner’s convenient change of
story troubling.
                                - 28 -

     Petitioner alleges that he used space in his home for, among

other things, storing supplies, parts, and materials, flight

planning, business planning, purchasing aircraft parts, and

searching for aircraft sales.     The only proof petitioner presents

to evidence these allegations consists of his self-serving and

uncorroborated testimony.     For the reasons discussed supra, we do

not accept his testimony.     See Tokarski v. Commissioner, supra at

77; Shackelford v. Commissioner, supra.

        Comparing the time that petitioner spent at home with the

amount of time he spent at other places where aviation-related

activities occurred supports a determination that petitioner’s

home was not his principal place of business.     See Fryer v.

Commissioner, T.C. Memo. 1974-77.     Nothing in the record suggests

that the amount of time petitioner spent engaged in aviation-

related activities at home was significant in relation to the

amount of time he spent at other business locations where

aviation-related activities occurred.     For example, from

petitioner’s testimony at trial, we understand that a large part

of his work as an aircraft dealer involved travel away from his

home.     Thus, without more, we cannot say that petitioner spent

more time at his home office on aircraft sales than he did

traveling.     See Commissioner v. Soliman, supra at 175-176; Beale

v. Commissioner, T.C. Memo. 2000-158.
                                - 29 -

     Accordingly, having failed to prove that his home was his

principal place of business, petitioner is not entitled to

deductions for home office expenses.

     12.   Automobile Mileage Expenses

     Petitioner seeks to deduct Minneapolis-area vehicle mileage

expenses of $5,992, $5,866, and $1,248 for taxable years 1989,

1990, and 1991, respectively.    He alleges that these expenses

arose from driving his automobiles from either his residence or

from Romer & Co. to, among other places, airports and various

retailers to make purchases for his aviation activities.

     A taxpayer’s costs of commuting to and from his place of

business are nondeductible, personal expenses.    See Fausner v.

Commissioner, 413 U.S. 838 (1973); Commissioner v. Flowers, 326

U.S. 465 (1946); Feistman v. Commissioner, 63 T.C. 129, 134

(1974); secs. 1.162-2(e) and 1.262-1(b)(5), Income Tax Regs.      A

taxpayer’s costs of transportation between his residence and

local job sites may be deductible if his residence serves as his

“principal place of business” and the travel is in the nature of

normal and deductible business travel.    Strohmaier v.

Commissioner, 113 T.C. at 113-114; Wis. Psychiatric Servs., Ltd.

v. Commissioner, 76 T.C. 839, 849 (1981); Curphey v.

Commissioner, 73 T.C. 766, 777-778 (1980).

     As we held above, petitioner failed to prove that his

residence was the “principal place of business” for his aviation

activities.   Consequently, mileage expenses for trips either to
                                - 30 -

or from petitioner’s residence are nondeductible commuting

expenses.   The record provides no reliable basis for segregating

petitioner’s nondeductible personal use of his automobile from

any business use (e.g., trips from Romer & Co. to a local airport

or to purchase supplies).   For this reason alone, petitioner has

failed to establish entitlement to the claimed mileage

deductions.

     Even if we were to assume, arguendo, that whatever miles

petitioner might have driven in the course of normal and

deductible business travel could be, on some rational basis,

segregated from his commuting mileage, petitioner has still

failed to substantiate his expenses adequately.   Passenger

automobiles are “listed property” under section 280F(d)(4)(A)(i).

Thus, the mileage expenses are subject to the heightened

substantiation requirements of section 274(d), and no deduction

is allowed with respect to the listed property unless for each

claimed expenditure or use of listed property petitioner

substantiates the requisite elements of amount, time, and

business or investment purpose.    See sec. 1.274-5A(c)(2), Income

Tax Regs.; sec. 1.274-5T(b)(6), Temporary Income Tax Regs., 50

Fed. Reg. 46016 (Nov. 6, 1985).    Petitioner has failed to satisfy

these statutory requirements.

     Petitioner claims mileage expense deductions based on his

application of the Federal standard mileage rates to miles he

estimates that he drove in business travel.   These mileage
                                  - 31 -

estimates, in turn, he claims to base on flight logbooks, some

retail store receipts, and a map of the Minneapolis area.

Petitioner failed to keep a mileage log and failed to document in

any way the business use of his vehicles.       Use of the Federal

standard mileage rates serves only to substantiate the amount of

expenses.    See Rev. Proc. 89-66, 1989-2 C.B. 792, updated and

amplified by Rev. Proc. 90-59, 1990-2 C.B. 644.       Petitioner’s

records do not substantiate the remaining elements of time and

business purpose.    Petitioner’s unsupported, self-serving

testimony did not adequately substantiate any of the necessary

elements under section 274(d).       Therefore, petitioner is not

entitled to deductions for his alleged automobile expenses.

     13.    Travel Expenses

     Petitioner contends that for each of the years at issue he

is entitled to deduct unagreed travel expenses, which fall into

two general categories:       (a) Travel expenses relating to

petitioner’s Minneapolis-based aviation activities, and (b)

travel expenses relating to petitioner’s Nashville-based

employment with Flagship Airlines.

     Under section 262, personal living expenses are generally

nondeductible.    A taxpayer may deduct travel expenses, including

amounts for meals and lodging, incurred “while away from home in

the pursuit of a trade or business”.       Sec. 162(a)(2); see

Commissioner v. Flowers, supra at 470.       For purposes of section

162(a)(2), a taxpayer is not “away from home” unless he or she is
                                - 32 -

on a trip that requires sleep or rest.      See United States v.

Correll, 389 U.S. 299 (1967).    This rule “requires a stop of

sufficient duration that it would normally be related to a

significant increase in expenses.”       Barry v. Commissioner, 435

F.2d 1290, 1291 (1st Cir.), affg. 54 T.C. 1210 (1970).

     To be deductible as an expense incurred while “away from

home”, a travel expense must be reasonable and necessary, and

incurred in pursuit of business.    Sec. 162(a)(2); see

Commissioner v. Flowers, supra at 470.      To be deductible under

section 162(a)(2), travel expenses must meet the heightened

substantiation requirements of section 274(d).      See sec.

274(d)(1).

     a. Travel Expenses Relating to Petitioner’s Minneapolis-
     Based Aviation Activities

     Petitioner claims travel expenses relating to his

Minneapolis-based aviation activities.      These travel expenses

include but are not limited to meals, lodging, rental cars, tips,

shoe shines, and laundry.   Petitioner kept no contemporaneous

log, diary, journal, or calendar of these expenses.      Instead,

petitioner presented voluminous documentary evidence consisting

of photocopies of his flight logbooks, receipts, canceled checks,

credit card statements, and a check register.      Many of these

expenditures were allegedly made with cash, and petitioner has

offered no documentary evidence to substantiate that they were

actually made.
                               - 33 -

       We have held on numerous occasions that merely presenting

the Court with a “blizzard” of receipts and other documents

“falls woefully short of meeting the requirements” of section

274.    Lynch v. Commissioner, T.C. Memo. 1983-173; see Gilman v.

Commissioner, 72 T.C. 730 (1979); Rutz v. Commissioner, 66 T.C.

879 (1976).    Giving petitioner the benefit of the doubt, however,

we have painstakingly scoured petitioner’s documentary evidence

in an attempt to decipher whether, in the aggregate or otherwise,

petitioner presented adequate records to substantiate any of

these alleged travel expenses under section 274.    On the basis of

our review of all the evidence, we conclude that petitioner has

failed to comply with the statutory requirements of section 274.

Petitioner’s detailed but highly self-serving and noncredible

testimony does nothing to cure these infirmities.

       Moreover, the record does not establish which, if any, of

the expenses at issue were incurred in connection with trips that

required petitioner to sleep or rest, within the meaning of

United States v. Correll, supra, so as to constitute expenses for

travel “away from home” within the meaning of section 162(a)(2).

On brief, petitioner suggests that he satisfies the “sleep or

rest” rule because the “typical charter flight” was of such

duration that FAA requirements would require the pilot to rest

for “several hours”.    Nothing in the record specifically

establishes, however, on which trips petitioner might have rested

or for how long, or that the duration of the rest would be
                                - 34 -

related to a significant increase in petitioner’s expenses.    See

Barry v. Commissioner, 54 T.C. 1210 (1970) (consulting management

engineer who made 16 to 19-hour business trips during which he

generally rested once or twice briefly in his automobile was not

away from home within the meaning of section 162(a)(2)).

Accordingly, petitioner has failed to establish that the claimed

expenses were incurred on travel away from home, within the

meaning of section 162(a)(2).

     Because petitioner has not adequately substantiated the

time, place, and business purpose of his travel, and has failed

to establish that his travel was away from home within the

meaning of section 162(a)(2), we also reject petitioner’s

contention that he is entitled to deductions for the cost of

meals and incidentals based on the applicable Federal meal and

incidental expense (M&IE) per diem rate for each day he traveled

“out of town on business”.17


     17
       Sec. 1.274-5T(j), Temporary Income Tax Regs., 50 Fed.
Reg. 46032 (Nov. 6, 1985), grants the Commissioner the authority
to establish a method under which a taxpayer may elect to use a
specified amount for meals and incidentals paid or incurred while
traveling away from home in lieu of substantiating the actual
costs (per diem substantiation method). For the taxable years at
issue, Commissioner established that method through Rev. Proc.
89-67, 1989-2 C.B. 795 (Rev. Proc. 89-67), amplified, modified,
and clarified by Rev. Proc. 90-60, 1990-2 C.B. 651 (Rev. Proc.
90-60). Although use of the Federal meal and incidental expense
(M&IE) rate does eliminate some of the substantiation
requirements of sec. 274 (essentially, the cost element), the
taxpayer is not relieved of substantiating the time, place, and
business purpose of the travel. See sec. 1.274-5T(j), Temporary
Income Tax Regs., 50 Fed. Reg. 46032 (Nov. 6, 1985); Rev. Proc.
                                                   (continued...)
                               - 35 -

     b.   Travel Expenses Relating to Petitioner’s Nashville-
          Based Employment With Flagship Airlines

          Background

     On March 4, 1991, Flagship Airlines (a division of American

Airlines, Inc.), in Nashville, Tennessee, employed petitioner as

a pilot.18   Shortly thereafter, petitioner moved to Tennessee.

From March through December 1991, and thereafter, petitioner

resided in Antioch, Tennessee, located near Nashville.19   After

moving to Tennessee, petitioner leased his house in Minneapolis

to an unidentified tenant.

     After moving to Tennessee, petitioner divided his time

between Nashville and Minneapolis, where he continued to attend

to his accounting business and his other aviation activities.

Petitioner alleges that he would typically spend “two, three, and

sometimes four consecutive days in Nashville” and then return to

Minneapolis.20




     17
      (...continued)
90-60 at sec. 7.01, 1989-2 C.B. at 799; Rev. Proc. 89-67 at sec.
7.01, 1990-2 C.B. at 656.
     18
       On his 1991 Federal income tax return, petitioner
reported wages from Flagship Airlines in the amount of $11,226.
     19
       For purposes of simplicity and clarity, and because
Antioch is located close to Nashville, references hereinafter to
Nashville will include references to Antioch.
     20
       The record does not specifically indicate where
petitioner lodged when he was in Minneapolis, after moving to
Tennessee.
                                - 36 -

     Petitioner contends that Minneapolis remained his tax home

in 1991.    For 1991, petitioner seeks to deduct as travel expenses

$3,552 of “duplicate living expenses” that he allegedly incurred

while residing and working in Nashville, away from his tax home

of Minneapolis.     These asserted deductions fall into three

general categories:     (1) Rent and utilities for an apartment in

Nashville; (2) meals and incidental expenses relating to his

Nashville employment; and (3) expenditures for the purchase and

repair of two automobiles in Nashville.21    Petitioner argues

alternatively that if Nashville were his tax home in 1991, he is

entitled to deduct $7,580 for duplicate living costs he incurred

in Minneapolis.     Respondent contends that petitioner’s tax home

for taxable year 1991 was Nashville and that petitioner is not

entitled to deduct living costs incurred in Minneapolis.

     Discussion

           (i)   Petitioner’s Tax Home

     In the context of section 162(a)(2), “home” generally means

the vicinity of the taxpayer’s principal place of employment,

rather than the site of the taxpayer’s personal residence.       See

Mitchell v. Commissioner, 74 T.C. 578, 581 (1980).     When a

taxpayer has businesses or employment in two places distant from

one another, his tax home for purposes of section 162(a)(2) is


     21
       To the extent that petitioner has asserted deductions for
his costs of traveling between Minneapolis and Nashville, these
costs appear to be embodied in the asserted travel expenses
previously addressed.
                               - 37 -

the city where he spends more of his time, engages in greater

business activity, and derives a greater proportion of his

income.   See Markey v. Commissioner, 490 F.2d 1249, 1255 (6th

Cir. 1974), revg. T.C. Memo. 1972-154; Puckett v. Commissioner,

56 T.C. 1092, 1097 (1971); Lagrone v. Commissioner, T.C. Memo.

1988-451, affd. without published opinion 876 F.2d 893 (5th Cir.

1989).    For this purpose, the place where the taxpayer maintains

his or her permanent residence may be relevant but is not

conclusive.    See Ziporyn v. Commissioner, T.C. Memo. 1997-151;

Lagrone v. Commissioner, supra.

     During 1991, petitioner had two business activities--his

accounting and aviation activities in Minneapolis--that were

distant from his employment with Flagship Airlines in Nashville.

Although petitioner maintained his personal residence in

Nashville, for most of 1991, all other factors point toward

Minneapolis as his tax home.   It appears that in 1991 petitioner

spent less than half his days in Nashville working for Flagship

Airlines, and the remaining time in Minneapolis working for Romer

& Co. and performing other aviation activities.    More

significantly, petitioner earned only $11,226 in income from

Flagship Airlines in 1991, while earning gross income of

approximately $382,000 from Romer & Co. in Minneapolis and an

additional $102,313 from his other aviation activities based in

Minneapolis.    We conclude that Minneapolis was petitioner’s tax

home.
                                - 38 -

        (ii)   Nashville Rent

     From March 1991 and at all relevant times thereafter,

petitioner maintained his personal residence in Nashville, where

he rented and furnished an apartment; as far as the record

reveals, he maintained no regular living quarters in Minneapolis

(his tax home).   Petitioner seeks deductions for his Nashville

rent and utility expenses.

     As far as the record reveals, petitioner’s decision to

maintain his personal residence at his minor employment post in

Nashville rather than near his principal place of business in

Minneapolis was a personal choice made for the sake of his own

convenience.   Such a decision does not operate to convert

personal living expenses into deductible business expenses.     See

Mazzotta v. Commissioner, 57 T.C. 427 (1971), affd. without

published opinion 465 F.2d 1399 (2d Cir. 1972); Lagrone v.

Commissioner, supra.    There is no evidence in the record to

indicate that Flagship Airlines required petitioner to live in

the Nashville area.    In this regard, this case is less like

Folkman v. United States, 615 F.2d 493 (9th Cir. 1980) (allowing

commercial pilot’s travel expenses between his San Francisco,

California, airline duty post and Reno, Nevada, where he resided

as a condition of retaining employment with the Nevada Air

National Guard), upon which petitioner relies, than Dean v.

Commissioner, T.C. Memo. 1976-379 (disallowing commercial pilot’s

travel expenses between his New York airline duty post and Kansas
                               - 39 -

City, Missouri, where he resided for personal reasons to which

his employment with the Kansas Air Force Reserve was incidental).

In any event, the record provides no basis for determining what

portion, if any, of petitioner’s rental expenses might be

properly attributable to his presence in Nashville for the

performance of business duties, as opposed to his presence there

for personal reasons.

     We conclude and hold that the Nashville apartment rental and

utilities expenses are not deductible travel expenses under

section 162(a)(2).

        (iii)   Nashville Meals and Incidental Expenses

     As previously discussed, the evidence in the record does not

adequately substantiate the time, place, or business purpose of

petitioner’s travel.    Petitioner seems to suggest that with

respect to the days he resided in Nashville, the time, place, and

business purpose of his travel are substantiated because of his

employment there with Flagship Airlines.    We disagree,

particularly as to the element of business purpose.     As

previously discussed, for the majority of taxable year 1991,

petitioner’s sole personal residence was in Nashville.

Petitioner failed to establish the requisite business purpose for

his stays in Nashville.

     To the extent petitioner’s claim is predicated on travel

expenses that might have been incurred in connection with his

employment with Flagship Airlines while he was away from his
                                - 40 -

Nashville residence, petitioner has also failed to establish

entitlement to deductible business expenses.    From evidence in

the record, it appears that in 1991 Flagship Airlines used the

per diem substantiation method to reimburse petitioner $2,848 in

travel expenses under an accountable plan, within the meaning of

section 1.62-2(c)(2), Income Tax Regs.22   Amounts treated as paid

to an employee under an accountable plan are excluded from the

employee’s income.   See sec. 1.62-2(c)(4), Income Tax Regs.

Accordingly, no deduction is allowed with respect to such

reimbursed expenses.   If the employer reimbursement is less than

the deductible business expenses the employee incurred on behalf

of his employer, deductibility of the excess business expenses by

the employee is subject to the heightened substantiation

requirements of section 274(d).    See sec. 1.274-5T(f)(2)(iii),

Temporary Income Tax Regs, 50 Fed. Reg. 46028 (Nov. 6, 1985).

     With respect to the business travel for which Flagship

Airlines made reimbursements, petitioner has failed to

substantiate that he incurred deductible business expenses in

excess of the reimbursements.    Accordingly, petitioner is

entitled to no deduction with respect to such travel.



     22
       The Form W-2 petitioner received from Flagship Airlines
for taxable year 1991 listed $2,848 in Box 17 of the form and
used the designation “Code L”. The “Code L” designation is used
in Box 17 to report employee expense payments made under an
accountable plan, where the payment is equal to “government
specified rates”, such as the per diem substantiation method.
See 1991 Instructions for Forms W-2 and W-2P.
                                - 41 -

     In sum, petitioner is not entitled to deductions for meals

and incidental expenses relating to his Nashville residency or

employment.

        (iv)     Nashville Automobile Expenses

     Petitioner alleges that he purchased two “junk airport cars”

for his transportation in Nashville and that he used them solely

because he was conducting business in Nashville.     He seeks to

deduct $1,057 relating to the purchase and repair of these cars.

     Petitioner has failed to prove that the automobiles he

purchased in Nashville were used solely for business purposes.

It stands to reason that they were not, given that petitioner’s

personal residence was in Nashville.     Even if we were to assume,

arguendo, that the automobiles were used for business purposes,

petitioner’s claim for deductions still must fail.     Section 263

denies a deduction for the cost of acquisition of machinery and

equipment and similar property having a substantial life beyond

the taxable year.     See sec. 1.263(a)-1(b) and (a)-2(a), Income

Tax Regs.     Moreover, automobiles are “listed property” under

section 280F(d)(4), thereby requiring petitioner to meet the

heightened substantiation requirements of section 274(d).

Petitioner has failed to establish with any particularity the

time and place of the use of the cars or the business purpose of

each use.     Petitioner thus fails to meet the substantiation

requirements of section 274.
                                - 42 -

       In conclusion, petitioner is not entitled to his claimed

deductions for unagreed travel expenses.

       14.   Entertainment Expenses

       Petitioner seeks to deduct as entertainment expenses $13 and

$31, respectively, for two meals that he alleges were business

related.     Deductibility of these items is governed by section

274.    See sec. 274(d)(2).   Petitioner failed to offer direct

evidence substantiating the amount, time, place, or date of these

claimed entertainment expenditures.      See sec. 1.274-5(c)(3),

Income Tax Regs.     Accordingly, petitioner is entitled to no

deduction for his alleged entertainment expenses.

       15.   Alleged Interest Payments to Petitioner’s Mother

       Petitioner alleges that he borrowed money from his mother

during the subject years to fund his aviation activities.       He

seeks to deduct three checks totaling $941 allegedly paid to his

mother for interest on the alleged loan.      He concedes that there

is no documentary evidence of either the loan or his obligation

to repay his mother.

       Section 163(a) generally allows a deduction for “all

interest paid or accrued within the taxable year on

indebtedness.”     Indebtedness means an unconditional and legally

enforceable obligation for the payment of money.     See Autenreith

v. Commissioner, 115 F.2d 856, 858 (3d Cir.), affg. 41 B.T.A. 319

(1940); Linder v. Commissioner, 68 T.C. 792, 796 (1977).
                                - 43 -

     We review the economic realities of transactions between

family members with heightened scrutiny.       See Estate of Reynolds

v. Commissioner, 55 T.C. 172, 201 (1970). “The presumption is

that a transfer between closely related parties is a gift.”       Id.

Petitioner has not overcome this presumption.      Apart from

petitioner’s own self-serving testimony, there are no indicia of

an underlying, legally enforceable indebtedness between

petitioner and his mother.    See Christensen v. Commissioner, 40

T.C. 563 (1963).   Indeed, petitioner did not even show the amount

of the loan.   Furthermore, even if we were to assume arguendo

that there was bona fide indebtedness between petitioner and his

mother, he has failed to establish that any interest paid was

properly allocable to a trade or business or met any of the other

exceptions to the statutory rule disallowing deductions for

personal interest.   See sec. 163(h).

     Petitioner is not entitled to the claimed deductions for

alleged interest payments to his mother.

B.   Civil Fraud Penalty

     If any part of any underpayment of a tax required to be

shown on a return is due to fraud, there is an addition to tax of

75 percent of the portion of the underpayment that is

attributable to fraud.     See sec. 6663(a).

     Respondent must prove fraud by clear and convincing

evidence.   See sec. 7454(a); Rule 142(b).      Fraud is the

intentional wrongdoing of a taxpayer to evade tax believed to be
                              - 44 -

owing.   See Petzoldt v. Commissioner, 92 T.C. 661, 698 (1989).     A

finding of fraud requires a showing that the taxpayer intended to

evade tax known or believed to be owing by conduct intended to

conceal, mislead, or otherwise prevent the collection of taxes.

See Korecky v. Commissioner, 781 F.2d 1566, 1568 (11th Cir.

1986), affg. T.C. Memo. 1985-63.

     Fraud is never presumed but must be proved by clear and

convincing evidence.   See Petzoldt v. Commissioner, supra at 699.

Because direct proof of a taxpayer’s intent is rarely available,

however, fraudulent intent may be established by circumstantial

evidence.   See Spies v. United States, 317 U.S. 492, 499 (1943);

Bradford v. Commissioner, 796 F.2d 303, 307 (9th Cir. 1986),

affg. T.C. Memo. 1984-601; Korecky v. Commissioner, supra at

1568; Stephenson v. Commissioner, 79 T.C. 995, 1005-1006 (1982),

affd. 748 F.2d 331 (6th Cir. 1984).    The taxpayer’s entire course

of conduct may be examined to establish the requisite intent.

See Stone v. Commissioner, 56 T.C. 213, 224 (1971); Otsuki v.

Commissioner, 53 T.C. 96, 105-106 (1969).

     For the reasons described below, we conclude that respondent

has established that petitioner had underpayments for each of the

years in issue and that he had fraudulent intent with respect

thereto.

     Based on the stipulations regarding both petitioner’s

unreported income and the deductions allowed by respondent, and

based on our holdings herein regarding petitioner’s alleged
                              - 45 -

additional deductions, respondent offered clear and convincing

evidence that there were underpayments for each year in issue.

See House v. Commissioner, T.C. Memo. 2000-22.

     The record is replete with evidence of petitioner’s

fraudulent intent.   Over a 3-year period, petitioner consistently

underreported large amounts of gross receipts and net income.      A

consistent pattern of underreporting large amounts of income is

evidence of fraud.   See Holland v. United States, 348 U.S. 121,

137 (1954); Merritt v. Commissioner, 301 F.2d 484 (5th Cir.

1962), affg. T.C. Memo. 1959-172.

     Petitioner is a tax professional and a C.P.A. who prepares

tax returns for a living and represents clients before the

Internal Revenue Service.   His experience and knowledge of the

tax laws is circumstantial evidence that he was aware of his

obligation to report his income and that in consistently

underreporting his income, he did so with fraudulent intent.     See

Solomon v. Commissioner, 732 F.2d 1459, 1461-1462 (6th Cir.

1984), affg. T.C. Memo. 1982-603; Beaver v. Commissioner, 55 T.C.

85, 93 (1970).   As previously discussed, his explanations of his

unreported income were implausible and unconvincing.   We view

petitioner’s lack of credibility as circumstantial evidence of

his fraudulent intent.

     Petitioner boasted to the undercover CID agents that he

disguised personal expenses incurred on personal trips in his

aircraft as business expenses.   The use of a business to cloak
                              - 46 -

the personal nature of expenses is evidence of fraud.   See

Truesdell v. Commissioner, 89 T.C. 1280, 1302-1303 (1987); Benes

v. Commissioner, 42 T.C. 358, 383 (1964), affd. 355 F.2d 929 (6th

Cir. 1966).

     Although it appears that the accounting records of Romer &

Co. were adequate for petitioner to accurately determine and

report his income therefrom, he chose not to.   With respect to

his aviation activities, petitioner failed to maintain adequate

records of his income and expenses, and this failure is

circumstantial evidence of fraud.   See Bradford v. Commissioner,

supra at 307-308; Clayton v. Commissioner, 102 T.C. 632, 647

(1994).

     Finally, in 1996, petitioner pleaded guilty to one count of

violating section 7203 for the willful failure to supply

information on his 1991 Federal income tax return.   In his plea

agreement, petitioner admitted that “the civil fraud penalty and

interest applies to whatever additional tax he is deemed to owe

after pursuing remaining civil remedies for tax years 1989-1991.”

Petitioner’s admission, even if assumed to be nonbinding, is at

the least evidence that his underpayments for these years were

due to fraud.   See Williams v. Commissioner, T.C. Memo. 1994-560.

     In sum, respondent has shown by clear and convincing

evidence that petitioner underreported his income in the subject

years with the fraudulent intent of evading taxes.   Petitioner

has failed to rebut the presumption that the entire underpayment
                                - 47 -

for each of the years in issue is due to fraud.    See sec.

6663(b).   Accordingly, petitioner is liable for the fraud penalty

under section 6663 for each of the years in issue based upon the

underpayments to be determined in the Rule 155 computations.

C.   Statute of Limitations

     Petitioner filed his Federal income tax return for taxable

year 1989 on April 15, 1990.    Respondent mailed the notice of

deficiency on April 10, 1997.    With little elaboration,

petitioner alleges on brief that the period of limitations has

run for taxable year 1989.

     Generally the amount of any tax must be assessed within 3

years after a return is filed.    See sec. 6501(a).   If the

Commissioner proves that the taxpayer’s return was false or

fraudulent with the intent to evade tax, however, tax may be

assessed “at any time”.   Sec. 6501(c)(1).   We have held that

respondent proved by clear and convincing evidence that

petitioner’s tax returns for the years 1989 through 1991 were

filed with the fraudulent intent to evade taxes.      Accordingly,

respondent is not time barred from assessing tax liability

against petitioner for any of the subject years.

     We have considered all other arguments advanced by

petitioner for a contrary result and find them to be moot,

irrelevant, or without merit.

     To reflect the foregoing,


                                          Decision will be

                                     entered under Rule 155.
