                            T.C. Memo. 1998-374



                          UNITED STATES TAX COURT



                 KATIA V. AND PETER POPOV, Petitioners v.
               COMMISSIONER OF INTERNAL REVENUE, Respondent


        Docket No. 24453-96.                     Filed October 15, 1998.


        Peter Popov, for petitioners.


        Daniel M. Whitley, for respondent.


                            MEMORANDUM OPINION


        NAMEROFF, Special Trial Judge:    This case was heard pursuant

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

183.1       Respondent determined a deficiency in petitioners’ 1993

Federal income tax in the amount of $2,079 and an accuracy-

related penalty under section 6662(a) in the amount of $416.

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

       After concessions by respondent,2 the issues for decision

are:       (1) Whether petitioners are entitled to the claimed

employee expenses on Schedule A for:       Home office $3,600,

electricity $109, telephone $505, car and truck $3,346, meals and

entertainment $1,479, and clothing $1,296; (2) whether

petitioners are entitled to a claimed Schedule C deduction of

$1,180 for travel; and (3) whether petitioners are liable for the

accuracy-related penalty under section 6662(a) for negligence or

disregard of rules or regulations.

       Some of the facts have been stipulated, and they are so

found.       The stipulation of facts and the attached exhibits are

incorporated herein by this reference.       At the time they filed

their petition, petitioners resided in Beverly Hills, California.

Schedule A

       Katia Popov (Mrs. Popov) is a professional violinist.

During 1993, Mrs. Popov played with the Los Angeles Chamber

Orchestra and the Long Beach Symphony.       Additionally, Mrs. Popov

played in orchestras which recorded music for the motion picture

industry.       For example, a contractor (from MGM, Paramount,

Universal, etc.) would call Mrs. Popov to tell her that he was

putting together an orchestra to record music for a motion

picture.       When the contractor called, either Mrs. or Mr. Popov


       2
        In the notice of deficiency, respondent disallowed
certain expenses which were claimed on Schedule C-1 pertaining to
Mrs. Popov’s business. Respondent now concedes these items.
                               - 3 -

would record the time and place of the recording session in Mrs.

Popov’s calendar.   Mrs. Popov worked for 24 contractors during

1993 and recorded at 38 locations.     The recording sessions were

scheduled in either 3- or 6-hour blocks of time, and Mrs. Popov

was paid by the contractor.   Mrs. Popov received a total of 26

Forms W-2 for 1993.

     In the notice of deficiency, respondent disallowed the

Schedule A expenses, stating that petitioners have not

established that the expenses were paid or incurred during the

taxable year, or if the expenses were incurred, petitioners have

not shown that these are deductible expenses.     At trial,

respondent further contended that the car and truck and the meals

and entertainment expenses lacked substantiation.

     Section 162(a) permits the deduction of "ordinary and

necessary" expenses paid or incurred during the taxable year in

carrying on any trade or business.     Taxpayers must keep

sufficient records to establish deduction amounts.     Sec. 6001;

Meneguzzo v. Commissioner, 43 T.C. 824, 831-832 (1965).

Home Office and Electricity

     Neither the various contractors, the Los Angeles Chamber

Orchestra, nor the Long Beach Symphony provided a place for Mrs.

Popov to practice, although it was expected that the musicians

would practice daily.   For the recording sessions, Mrs. Popov

would not receive the sheet music in advance in order to

rehearse.   Once the musicians arrived at the studio, they would
                                 - 4 -

receive the sheet music, and shortly thereafter they would start

recording.   A musician had to be very well prepared in order to

play music on such short notice.

     Petitioners lived in a one-bedroom apartment with their 4-

year-old daughter Irina.    For a few months in 1993, Mr. Popov’s

mother visited from Bulgaria and also lived in the apartment.     In

addition to the bedroom, the apartment contained a kitchen/dining

area and a living room.    The door from the outside into the

apartment was on one side of the living room.    On that same side

was an open area where a person could walk from the

kitchen/dining area to the bedroom and bathroom.    The rest of the

living room was used only for practice and recording purposes.

     Mrs. Popov would practice in the living room.    In the living

room, there were shelves which held recording equipment, a small

table, and a bureau in which Mrs. Popov kept her sheet music.

Mrs. Popov would record herself practicing in order to make

improvements.   She would also make demo tapes to send to

orchestras to secure bookings.    Other than a chair Mrs. Popov

occasionally used while practicing, the living room contained no

other furniture such as a sofa.    Irina’s crib and toys along with

a sleeper sofa were in the bedroom, and there was a television in

the dining room.   All residents of the apartment slept in the

bedroom, and Irina spent time in the building’s common areas and

patio playing with other children.
                               - 5 -

     Mr. Popov took measurements of the apartment and determined

that the living room took up 40 percent of the entire apartment

space.   The record also includes a rough diagram of the layout of

their apartment.   Petitioners claimed a home office deduction for

the living room and deducted $3,600 or 40 percent of the rent for

the year and $109 or 20 percent of the electricity for the year.

There is no dispute as to the cost of the rent or electricity.

     Section 280A(a) generally disallows a deduction with respect

to the use of a taxpayer’s personal residence.   Section

280A(c)(1)(A), however, provides that section 280A(a) shall not

apply if a portion of the taxpayer’s personal residence is

exclusively used on a regular basis as the principal place of

business for any trade or business of the taxpayer.   The

exclusive use of a portion of a taxpayer’s dwelling unit means

that the taxpayer must use a specific part of the dwelling unit

solely for the purpose of carrying on his trade or business.

     We are satisfied that a specific portion of the living room

was exclusively used by Mrs. Popov for her practicing and

recording activities during 1993.

     Additionally, we must address the question of whether the

home office constitutes Mrs. Popov’s principal place of business.

The Supreme Court in Commissioner v. Soliman, 506 U.S. 168

(1993), identified two primary considerations to decide whether

an office located within a taxpayer’s dwelling unit is a

taxpayer’s principal place of business:   (1) The relative
                               - 6 -

importance of the activities performed at each business location,

and (2) the time spent at each place.     Id. at 175.

     Mrs. Popov practiced 4 to 5 hours per day in her home

office.   Without practicing, she could not perform adequately and

risked losing employment.   Thus, practicing at home was a very

important component to her success as a musician.       In addition,

she used the home office to make demo tapes to further her

career.   However, the Supreme Court stated:    “We decide, however,

that the point where goods and services are delivered must be

given great weight in determining the place where the most

important functions are performed.”     Id.   In the instant case the

places where Mrs. Popov’s services are performed are the concert

halls and studios.   Her performances in these places were what

earned her income.   All the rest was preparatory to performing.

Therefore, while the home office where she prepared was an

important place for her business, we cannot say that it was her

principal place of business.   Accordingly, she has not satisfied

the requirements of section 280A and is not entitled to a

deduction for the use of a home office.
                               - 7 -



Telephone Expense

     In 1993, petitioners had only one telephone line.    The total

phone bills for that year were $587.97.    In preparing their tax

returns, petitioners subtracted the basic monthly charge and

claimed the balance of $505 as deductible.    Mrs. Popov claimed

that both she and Mr. Popov made long distance calls for her

business.   Mrs. Popov testified that all long distance calls were

business calls, yet she did not elaborate on the business purpose

of these calls.

     Section 262(a) provides that no deduction shall be allowed

for personal, living, or family expenses.    Section 262(b)

provides that any charges, including taxes, for basic local

telephone service for the first telephone line of the taxpayer’s

residence are treated as personal expenses for the purposes of

section 262(a).

     Petitioners submitted all of their telephone bills for 1993.

There were telephone calls that were late at night, for long

periods of time, and to foreign countries.    Since petitioners did

not identify the business purposes of any long distance calls,

they are deemed to be personal and not deductible.

Car and Truck Expenses

     Mrs. Popov drove to 38 different locations in order to play

the violin for the various orchestras.    The contractors used

different studios according to what was available.    Mrs. Popov
                                 - 8 -

also drove to the library where she would listen to music in

connection with her performances.    Mrs. Popov would make a note

in her calendar when she would go to the library.

     Mrs. Popov measured the distance the first two or three

times she drove to a particular location.       Using Mrs. Popov’s

calendar, petitioners constructed a mileage log to assist them in

preparing their tax return.    The log listed the date,

destination, and round-trip mileage for each trip.       According to

their return, Mrs. Popov drove 11,950 miles in 1993 and took the

mileage deduction of $3,346 based on 28 cents per mile.3      See

Rev. Proc. 92-104, 1992-2 C.B. 583, 584.

     In order to deduct an automobile expense under section

162(a), petitioners must comply with the strict substantiation

requirements under section 274(d).       Section 274(d)(4) requires

substantiation for certain items listed under section 280F(d)(4)

such as passenger automobiles.    Sec. 280F(d)(4)(A)(i).     In order

to substantiate a deduction attributable to listed property, a

taxpayer must maintain adequate records or present corroborative

evidence to show:    (1) The amount of each automobile expenditure,

(2) the automobile’s business and total usage, (3) the date of

the automobile’s use, and (4) the business purpose of the

automobile trip.    Sec. 1.274-5T(b)(6), Temporary Income Tax

Regs., 50 Fed. Reg. 46016 (Nov. 6, 1985).

     3
        We note a small discrepancy as the total number of miles
listed in the log is 11,750.
                                - 9 -

     We find that petitioners are entitled to a deduction of

$3,290 for use of the car (.28 x 11,750 miles).    Petitioners’ log

and the calendar contain sufficient information to satisfy the

stringent substantiation requirements of section 274(d).

Meals and Entertainment

     Mrs. Popov dined frequently with other musicians.

Occasionally, she would pick up the tab, and if someone else did,

Mrs. Popov would contribute money for her share.    Mrs. Popov

entertained other musicians in order to make contacts, to obtain

engagements, and to enhance her reputation as a musician.      She

stated that this was necessary since she was new to Los Angeles

and it was difficult getting into the music business.    She

further contends that it was helpful since she made contacts

which helped increase her salary.    In addition to making

contacts, Mrs. Popov dined with these people “to make more

friends and be social.”    Petitioners submitted receipts from

restaurants, and on most of the receipts, the names of the people

present at the meal were listed.

     Petitioners also submitted receipts for bulk food purchases.

Mrs. Popov testified that when she would give a recital, there

would be a reception afterwards for which she would provide

refreshments.

     A taxpayer is required under section 274(d) to substantiate

entertainment expenses by adequate records to corroborate his or

her own testimony as to:    (1) The amount of the expense, (2) the
                              - 10 -

time and place the expense was incurred, (3) the business purpose

of the expense, and (4) the business relationship to the taxpayer

of each expense incurred.   Sec. 1.274-5T(b)(4), Temporary Income

Tax Regs., 50 Fed. Reg. 46015 (Nov. 6, 1985).

     Petitioners did not provide any records outside of receipts

to substantiate the business purpose of these meals.   Casual

conversation about business matters among business associates or

fellow employees does not satisfy the business purpose

requirement of section 274(d).    Sec. 1.274-2(c), Income Tax Regs.

Therefore, no deduction for meals is allowed.

     However, we find that petitioners are entitled to a

deduction for the food purchased for the reception after one

recital.   Petitioners provided an announcement for the recital

and receipts for food purchases.   Petitioners are entitled to a

deduction of $89.

Performance Clothing

     Mrs. Popov was required to wear certain types of clothing

and shoes for the performances.    Petitioners presented pictures

and receipts for skirts, dresses, pants, blouses, sequined

blouses, and shoes that were purchased in 1993.   For the Los

Angeles Chamber Orchestra and the Long Beach Symphony, Mrs. Popov

was required to wear black.   Mrs. Popov testified that the type

of music to be performed would dictate what she was to wear.    She

also testified that she is not fond of the color black.

Petitioners claimed a clothing expense of $1,296.
                               - 11 -

       It is well settled that clothing that is suitable for

general or personal wear does not qualify as a business expense

under section 162.    E.g., Green v. Commissioner, T.C. Memo. 1989-

599.    Such costs are not deductible even when it has been shown

that the particular clothes would not have been purchased but for

the employment.    Stiner v. United States, 524 F.2d 640 (10th Cir.

1975); Donnelly v. Commissioner, 262 F.2d 411 (2d Cir. 1959),

affg. 28 T.C. 1278 (1957).

       We find that the majority of the clothes and the shoes are

adaptable for general and personal wear and, therefore, are not a

deductible ordinary and necessary business expense.    However, a

few of the items are quite formal and not adaptable for general

and personal wear, such as the sequined items and formal dresses.

We hold that petitioners are entitled to a deduction of $218.

Sec. 162(a); see Fisher v. Commissioner, 23 T.C. 218 (1954),

affd. 230 F.2d 79 (7th Cir. 1956).

Travel Expense on Schedule C

       Petitioners claimed a deduction for travel on Schedule C in

the amount of $1,180 for airfare to Bulgaria for Mr. Popov.

During 1993, Mr. Popov was a law student.    He also started a

business called the Intellectual Marriage Club, whose goal was to

introduce educated Eastern Europeans to Americans.    Before her

visit to the United States, Mr. Popov’s mother placed

advertisements for him, but only in the newspapers in Sofia where
                               - 12 -

she resided.   Mr. Popov explained that his father was unable to

perform these tasks.

     Mr. Popov flew to Bulgaria to place advertisements in

newspapers advertising his business in Sofia and in larger cities

outside of Sofia.   Mr. Popov also wanted to establish an office

in Bulgaria to facilitate the payment procedures.    Mr. Popov

testified that he had to go to Bulgaria to do all of this in

person, since Bulgaria does not have a banking system and most

transactions are done in cash.

     In Bulgaria, Mr. Popov stayed at the family apartment with

his father for 1 month.   His mother was in the United States at

the time for a 3-month visit with petitioners.    Mr. Popov did a

substantial amount of traveling in Bulgaria and placed numerous

advertisements for the dating service in newspapers in both Sofia

and other cities.

     Taxpayers may deduct travel expenses if the expenses are

reasonable and necessary and bear a reasonable and proximate

relationship to the business activity.    Kinney v. Commissioner,

66 T.C. 122, 126 (1976); McKinney v. Commissioner, T.C. Memo.

1981-181, modified T.C. Memo. 1981-377, affd. 732 F.2d 414 (10th

Cir. 1983).    If travel expenses are incurred for both business

and other purposes, the expenses are deductible only if the

travel is primarily related to the taxpayer’s trade or business.

Sec. 1.162-2(b)(1), Income Tax Regs.    If a trip is primarily

personal in nature, the travel expenses are not deductible even
                                 - 13 -

if the taxpayer engages in some business activities at the

destination.    Id.    Whether travel is primarily business related

or personal is a question of fact.        Sec. 1.162-2(b)(2), Income

Tax Regs.    Travel expenses must also be adequately substantiated

under the provisions of section 274(d).        See Fast v.

Commissioner, T.C. Memo. 1998-272.

     Mr. Popov usually depended on his mother to place the ads

for him.    However, since she was in the United States for 3

months, Mr. Popov had to perform that task himself.          This was

also an opportune time for Mr. Popov to focus on his business and

travel to Bulgaria, since it was his summer break from law

school.    Mr. Popov wanted to place ads in other newspapers

outside of Sofia and investigate setting up an office.          Mr. Popov

does not have any friends remaining in Bulgaria, and from the

numerous advertisements presented at trial, it appears that Mr.

Popov did a substantial amount of work.        We find that Mr. Popov’s

trip to Bulgaria was primarily business related and bore a

reasonable and proximate relationship to his Bulgarian/American

dating service.    The requirements of section 274(d) have been

satisfied.     Accordingly, petitioners are entitled to deduct the

travel expense of $1,180.

Accuracy-Related Penalty

     Respondent determined an accuracy-related penalty under

section 6662(a).      Section 6662(a) imposes a penalty of 20 percent

on any portion of an underpayment of tax that is attributable to
                              - 14 -

negligence or disregard of rules or regulations.     Sec. 6662(a)

and (b)(1). “Negligence” is defined as any failure to make a

reasonable attempt to comply with the provisions of the Internal

Revenue Code, and the term “disregard” includes any careless,

reckless, or intentional disregard.    Sec. 6662(c).   A position

with respect to an item is attributable to negligence if it lacks

a reasonable basis.   Sec. 1.6662-3(b)(1), Income Tax Regs.

     Moreover, taxpayers are required to keep adequate books and

records sufficient to establish the amounts of deductions or

other items required to be shown on their returns.     Failure to

maintain adequate books and records or to substantiate items

properly also constitutes negligence.     Id.

     Section 6664(c)(1) provides that the penalty under section

6662(a) shall not apply to any portion of an underpayment if it

is shown that there was reasonable cause for the taxpayer’s

position with respect to that portion and that the taxpayer acted

in good faith with respect to that portion.     Sec. 6664(c)(1).

The determination of whether a taxpayer acted with reasonable

cause and good faith within the meaning of section 6664(c)(1) is

made on a case-by-case basis, taking into account all the

pertinent facts and circumstances.     Sec. 1.6664-4(b)(1), Income

Tax Regs.

     After reviewing the record and considering our holdings on

the claimed deductions, we find that petitioners have not proved

that they acted in good faith with respect to the underpayment of
                             - 15 -

tax attributable to the disallowed deductions for meals,

telephone expense, and clothing.   Accordingly, we hold that

petitioners are liable for the section 6662(a) accuracy-related

penalty for 1993 attributable thereto.

     To reflect the foregoing,



                                         Decision will be entered

                                    under Rule 155.
