                        T.C. Memo. 1997-106



                      UNITED STATES TAX COURT



    NATHANIEL L. WARD, SR., AND IRENE E. WARD, Petitioners v.
           COMMISSIONER OF INTERNAL REVENUE, Respondent



     Docket Nos. 2167-95, 19590-95.             Filed March 3, 1997.



     Nathaniel L. Ward, Sr., and Irene E. Ward, pro se.

     William Henck, for respondent.



             MEMORANDUM FINDINGS OF FACT AND OPINION

     GERBER, Judge:   Respondent, by means of two separate notices

of deficiency, determined deficiencies in petitioners’ Federal

income tax and an accuracy-related penalty as follows:
                                - 2 -

                                               Penalty
          Year           Deficiency          Sec. 6662(a)
          1991            $11,344                 ---
          1992             15,419               $3,151
          1993             13,349                2,762

After considering the parties' concessions,1 the following issues

remain for our consideration:   (1) Whether petitioners are

entitled to various deductions claimed on the Schedule F

(farming) for the years 1991, 1992, and 1993; (2) whether

petitioners are entitled to employee business expenses in excess

of $243.62 and $771.92 conceded by respondent for 1992 and 1993,

respectively; (3) whether petitioners are entitled to

contribution deductions in excess of the amounts conceded by

respondent; and (4) whether petitioners are liable for the

accuracy-related penalty attributable to negligence under section

6662(a)2 for 1992 and 1993.

                        FINDINGS OF FACT3

     Petitioners were married and resided at Snow Hill, Maryland,

at the dates their petitions were filed in these cases, which

have been consolidated for purposes of trial and opinion.     During


     1
       Petitioners conceded that they omitted interest income and
a State tax refund, but stated that those omissions were not
intentional. Respondent conceded certain deduction items after
petitioners provided documentation. The documentation is part of
the trial record.
     2
       Unless otherwise indicated, section references are to the
Internal Revenue Code in effect for the taxable years at issue,
and Rule references are to this Court’s Rules of Practice and
Procedure.
     3
       The parties’ stipulated facts and exhibits are
incorporated by this reference.
                               - 3 -

the years 1991, 1992, and 1993, petitioners were school teachers,

and they filed joint Federal income tax returns.   Petitioners,

during 1991 and 1992, used a residence in Snow Hill that was

situated on a 36-acre farm which they acquired during 1972.

Petitioners’ plan was to convert the farm from annual crops to

trees.   During the years in question, 18 acres of the farm were

leased to a farmer for an annual rent of $820.   Seven acres had

been cultivated with pine trees, and four additional acres were

cleared for the future planting of trees.   The remainder of the

land was not specifically accounted for at trial but was where

the residence was located.

     Nathaniel L. Ward, Sr. (petitioner), was a science teacher,

and he taught about 150 miles from the Snow Hill residence.    He

maintained an apartment in the community where he taught.     During

the years in question, petitioner made about three weekly round

trips from the location where he taught to the Snow Hill

residence, where his family generally resided.   Petitioner

occasionally did some work at the farm tending to the trees and

performing general maintenance to the farm property.

     Petitioners, on their Schedule F, reported income of $820

from rent each year and claimed expenses which would have

resulted in losses from farming of $30,340, $52,400, and $48,273

for 1991, 1992, and 1993, respectively, after considering the

$820 from rent.   Respondent disallowed the claimed losses for

lack of substantiation for all 3 years and for lack of a profit
                                - 4 -

motive for 1992 and 1993.    Petitioner did not have any knowledge

of the value of timber in place or whether his claimed losses had

any relevance to the amount of gain he might have earned from

their harvest.   Petitioner’s focus was on developing a tree farm

for his children or the next generation.    Petitioners did not

produce any documentary evidence supporting the deductions

claimed on their Schedules F.

     Petitioners, in connection with their professional

employment as teachers, paid union dues and purchased equipment

and teaching aids.    Petitioners claimed employee business

expenses on Schedule A of their 1992 and 1993 returns in the

respective amounts of $3,691.42 and $4,605.    At trial,

petitioners offered documentary evidence which corroborated

amounts that were substantially less than those claimed on their

1992 and 1993 returns.

     Petitioners claimed contributions to charity by cash or

check in 1991, 1992, and 1993 in the respective amounts of

$3,530, $3,470, and $3,160.    At trial, petitioners presented

documentary evidence substantiating $10 and $25 of contributions

for 1992 and 1993, respectively, and no documentary evidence was

presented for 1991.    Petitioner contended that he and his wife

tithed at a 10-percent rate during the years in question, which

would have resulted in contributions of $8,000 in each year under

consideration.   He offered the explanation that he claimed only

about $3,000 in each year because larger claims might have
                                - 5 -

triggered an audit by the Internal Revenue Service.    Petitioner

did not go to church very often, but his wife and daughter

attended regularly.

                               OPINION

     Respondent determined that petitioners failed to

substantiate their farm or Schedule F deductions for the 1991

taxable year.   For 1992 and 1993, respondent also determined that

petitioners failed to substantiate farm or Schedule F deductions

and that they failed to show that the farming activity was a

trade or business entered into for profit and that the expenses

were ordinary and necessary.   The evidence in this record reveals

that petitioners held and used the land with a dual purpose.

They leased a substantial portion of their farm to an individual

for farming purposes and had a secondary purpose to hold and

manage the property for investment purposes and the eventual

benefit of their children.   We do not find that petitioners were

in the business of growing trees for a profit as they contended.

     Of the $30,340, $52,400, and $48,273 of claimed farming

expenditures for 1991, 1992, and 1993, respectively, the largest

portions were claimed for travel by car and truck.    As an

example, for 1993 petitioners claimed $22,693 for car and truck

expenses and $21,000 for travel,4 or $43,693 of the $48,273 total


     4
       If we accepted that petitioner traveled a 300-mile round
trip three times per week, then his cost per mile for 1993 would
have approximated $.045 per mile--($21,000 divided by (50 weeks x
3 x 300)).
                               - 6 -

claimed.   Meals expenses at $3,900 was the next largest item

claimed on Schedule F for 1993, leaving $1,500 for repairs,

maintenance, and supplies accounting for the balance.    The 1991

and 1992 Schedules F are substantially similar in amount and

proportion.

     Petitioners failed to substantiate the car and truck or

meals expenses claimed, and accordingly it is not necessary to

give them further consideration.   Petitioner contended that the

travel was for about three weekly 300-mile round trips from the

location of his employment as a teacher to the farm, where his

wife generally resided.   Petitioner contended that those trips

were to work on his tree-farming activity.

     Section 162(a) allows a deduction for "ordinary and

necessary" expenses paid or incurred during the taxable year in

carrying on a trade or business.    Sanford v. Commissioner, 50

T.C. 823, 826 (1968), affd. per curiam 412 F.2d 201 (2d Cir.

1969).   An ordinary and necessary expense is one that is

appropriate and helpful to the taxpayer's business and that

results from an activity which is a common and accepted practice.

Boser v. Commissioner, 77 T.C. 1124, 1132 (1981).

     Deductions are a matter of legislative grace, and

petitioners bear the burden of proving that they are entitled to

the deductions claimed.   Rule 142(a); INDOPCO, Inc.    v.

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

Helvering, 292 U.S. 435 (1934).    Taxpayers must keep sufficient
                                 - 7 -

records to establish the amount of their deductions.    Sec. 6001.

Under certain circumstances, when taxpayers establish that they

incurred a trade or business expense but do not substantiate the

amount of the expense, the Court may estimate the amount of the

deductible expense.    Cohan v. Commissioner, 39 F.2d 540, 543-544

(2d Cir. 1930).   The estimate must, however, have some reasonable

evidentiary basis.     Vanicek v. Commissioner, 85 T.C. 731, 743

(1985).   In estimating the amount deductible, the Court considers

that taxpayers' inexactitude is of their own making.     Cohan v.

Commissioner, supra at 544.

     Initially, we do not accept petitioners's testimony that he

was engaged in any profit-seeking activity concerning the growing

of trees.   Secondly, we cannot find that petitioner’s travel was

ordinary or necessary in connection with either his leasing

activity or investment goals.    Simply, the travel was for

petitioner’s personal convenience to be with his family.

     We have found, however, that petitioners repaired and

maintained the farm property in connection with their leasing

activity and, based on the record, find that they are entitled to

a total deduction of $1,500 in Schedule F expenses for each of

the 3 taxable years.

     Petitioner’s testimony regarding the claimed contribution

deductions was generally not credible and was uncorroborated.

However, we find that petitioner Irene E. Ward did regularly make

cash contributions upon her visits to church.    Relying on Cohan
                                - 8 -

v. Commissioner, supra at 543-544, we find that petitioners are

entitled to $500 in contributions for each of the 3 taxable

years.

     Petitioners purchased supplies, teaching aides, and computer

items in connection with their teaching activity.    In addition,

petitioners had expenditures for the maintenance of their

computers.   To some extent, the computers were used for personal

purposes.    At trial, petitioners provided some documentation of

their expenditures concerning their employee business expenses.

The amounts documented were less than one-half of the amounts

claimed for 1992 and 1993.   However, some of the documentation

for one year provided a basis for allowance of a similar amount

in the other year.   For example, petitioners provided

substantiation of $771.92 for union dues in 1993, and respondent

conceded that amount.

     The claimed deductions relating to computers are subject to

the more rigorous requirements of section 274(d) because they are

"listed property" as described in section 274(d)(4) and listed in

section 280F(d)(4)(A)(iv).   See also sec. 1.274-5T(a), Temporary

Income Tax Regs., 50 Fed. Reg. 46014 (Nov. 6, 1985).     In that

regard, petitioners provided specific proof of computer

expenditures during 1992 and 1993 in the amounts of $1,224.40 and

$1,668.93.   Taking into consideration personal use, we hold that

petitioners are entitled to employee computer-related business
                                 - 9 -

expenses for 1992 and 1993 in the amounts of $612.20 and $834.47,

respectively.

     Regarding the remainder of the deduction for employment-

related expenditures, we have taken into consideration the

totality of the circumstances, including payments in one year

that would likely have been paid in other years in connection

with their teaching activities.    Accordingly, and relying on

Cohan v. Commissioner, supra at 543-544, we find that petitioners

are entitled to $1,0005 of employee business expenses, in

addition to the amounts allowed in connection with the computers,

all of which are subject to any computational limitations for

each of the taxable years 1992 and 1993.

     Respondent determined an accuracy-related penalty due to

negligence under section 6662(a) for petitioners' 1992 and 1993

taxable years.     The accuracy-related penalty is equal to 20

percent of any portion of an underpayment attributable to a

taxpayer's negligence or disregard of rules or regulations.       Sec.

6662(a) and (b)(1).    The term "negligence" includes any failure

to do what a reasonable and ordinarily prudent person would do

under the same circumstances.     Neely v. Commissioner, 85 T.C.

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

reckless, or intentional disregard.      Sec. 6662(c).   The penalty

does not apply to any portion of an underpayment for which there


     5
       This amount includes the $771.92 documentation of union
dues that respondent conceded for 1993.
                                 - 10 -

was reasonable cause and with respect to which the taxpayer acted

in good faith.   Sec. 6664(c).    Petitioners bear the burden of

showing that they were not negligent.     Rule 142(a); Bixby v.

Commissioner, 58 T.C. 757, 791-792 (1972).

     Petitioners have stated that they did not intentionally omit

interest income and State tax refunds.     Petitioners, however, did

omit interest income in 2 different years and also conceded that

respondent correctly disallowed all of the medical expense

deductions claimed for each of the 3 years.     More significantly,

petitioners were substantially without supporting documentation

for most of the items claimed on Schedules A and F of each of

their 1992 and 1993 income tax returns.     In addition, the manner

in which petitioner estimated the amount deductible reflected a

huge exaggeration.   Under these circumstances, we cannot find

that petitioners acted with reasonable cause or in good faith.

Accordingly, petitioners are liable for the accuracy-related

penalty attributable to negligence for the entire underpayment

for the taxable years 1992 and 1993.

     To reflect the foregoing and considering concessions of the

parties,

                                      Decisions will be entered

                                 under Rule 155.
