                            T.C. Memo. 1997-498



                          UNITED STATES TAX COURT



                   DONALD VICTOR TESCHNER, Petitioner v.
               COMMISSIONER OF INTERNAL REVENUE, Respondent


Docket No. 23343-95.                             Filed November 5, 1997.


Donald Victor Teschner, pro se.


Nancy C. McCurley, for respondent.


                            MEMORANDUM OPINION


       NAMEROFF, Special Trial Judge:     This case was heard pursuant
to the provisions of section 7443A(b)(3)1 and Rules 180, 181, and
182.       Respondent determined a deficiency in petitioner's 1991




       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 -


Federal income tax in the amount of $4,640 and an accuracy-
related penalty under section 6662(a) in the amount of $928.
       After concessions by respondent, the issues for decision
are:    (1) Whether petitioner derived income as an employee or as
an independent contractor during 1991; (2) whether petitioner is
entitled to deduct certain business expenses in excess of the
amounts allowed by respondent; and (3) whether petitioner is
liable for the section 6662 accuracy-related penalty.
                             Background
       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 he filed his
petition, petitioner resided in Los Angeles, California.
       Petitioner is a professional musician.   During 1991,
petitioner provided services to rock star Rod Stewart (Stewart).
He played various instruments for Stewart’s band, including
guitar, violin, and mandolin.    Petitioner was not a permanent
member of the band and was not retained through written contract.
Rather, he was called upon by Stewart to perform on an as-needed
basis through oral agreement.
       During most of 1991, petitioner was on tour with Stewart and
other members of the band.    He traveled from city to city,
staying in hotels and living out of suitcases for long stretches
of time.    He traveled with the band for 13 months to cities in
the United States, Europe, Asia, and Australia.
       Petitioner’s work schedule was set by Stewart and was
primarily based on practice, concert, and travel schedules.
                                - 3 -


Moreover, Stewart heavily influenced petitioner’s stage dress.
While Stewart dictated which songs petitioner played, he was
permitted to improvise chords within the given songs.    After work
hours, petitioner was free to do his “own thing”.    For the 1991
year, petitioner earned $76,005 for his work with the Stewart
band.    This amount was reported as Form W-2 income, and taxes
were withheld.2
     Petitioner did not perform work exclusively for Stewart.
During 1991, petitioner received approximately $1,600 in wages
from three other sources3 from performances with other bands.
For example, petitioner received about $470 for his work on the
Stan Rigway record “Wall of Voo Doo”.    All of the above income
was reported as Form W-2 wages, and income taxes were withheld.
     During 1991, petitioner purchased various items that he
believed were necessary for his work.    For example, petitioner
purchased two of every instrument that he played while on tour
with the Stewart band.    This insured that petitioner always had a
spare instrument, just in case one became nonoperational.
Moreover, petitioner purchased “flashy” and “loud” clothes to
wear during his performances.    Petitioner also purchased “films
and records” as research material to familiarize himself with




     2
        Two Forms W-2 were issued to petitioner for his work with
the Stewart band: One from Stewart Annoyances, Ltd., and the
other from Pebbles Music, Inc.
     3
        The other sources were the David Geffen Co., Phonograph
Record Manufacturing, and Talent Partners.
                                   - 4 -


various songs or styles that he was to perform.              Petitioner was
not reimbursed for any of these expenses.
     Prior to joining the Stewart band, petitioner had leased a
house in the Los Angeles area.        During 1991, petitioner paid rent
of $920 per month to maintain this house.           Petitioner had a
living arrangement with a fellow musician, Jonathan Currie
(Currie), who needed a place to live.           Beginning in February
1991, and lasting approximately 2 years, Currie lived in
petitioner’s home and took care of petitioner’s personal affairs
while petitioner was on tour with the Stewart band.              In exchange
for this service, Currie received free board and “a little bit of
money”.   This arrangement allowed petitioner to maintain his home
and to avoid the hassles of moving.
     The amounts claimed by petitioner on his Schedule A and
allowed or disallowed by respondent for the 1991 taxable year are
as follows:
                                  Allowed in
                                the notice of       Conceded
   Expense           Claimed     deficiency      by respondent   Disallowed

Auto. (local trans.) $3,349         $383               -0-         $2,966
Depreciation           1,673       1,617           $1,133          (1,077)
Meals & ent. (@ 80%)   3,110         -0-            1,103           2,007
Office supplies          219          15               118             86
Photography              -0-         -0-               324           (324)
Prof. development        422         -0-               -0-            422
Prof. maintenance      3,066         -0-               -0-          3,066
Prof. supplies        17,329       3,382               -0-         13,947
Maintenance (laundry)    655         728               156           (229)
                                                     1
Research                 432         -0-               -0-            432
Telephone              2,398         -0-               -0-          2,398
Tools                    -0-         -0-               277           (277)
Travel                15,381         -0-            4,476          10,905

 Totals              48,034        6,125            7,587          34,322
      1
        Respondent’s concession of this expense was included in amounts
allowed for prof. supplies and tools.
                                 - 5 -


     Petitioner filed an amended return for 1991 reflecting two

adjustments.   First, petitioner changed his worker classification

from employee to independent contractor.    Second, petitioner

claimed an additional $7,757 deduction for agent’s commission

expense.   Respondent has not accepted either of these

adjustments.

     Petitioner had both his original and amended returns

prepared by tax professionals.    Petitioner gave the tax

professionals the same documentation that he presented to the

Court.   Moreover, petitioner discussed with them all deductions

claimed on the returns.

                           Discussion

Worker Classification

     The first issue for our consideration is whether petitioner

derived income as an employee or as an independent contractor

during 1991.   Respondent argues that petitioner derived all his

income for 1991 as an employee, while petitioner asserts that he

was an independent contractor.

     Respondent's determination is presumed correct, and

petitioner bears the burden of proving he is not an employee.

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

Whether an individual is an employee or an independent contractor

is determined by examining relevant facts and circumstances and

applying common law principles.     Nationwide Mut. Ins. Co. v.
                                - 6 -


Darden, 503 U.S. 318, 323-324 (1992); Matthews v. Commissioner,

92 T.C. 351, 360 (1989), affd. 907 F.2d 1173 (D.C. Cir. 1990);

Professional & Executive Leasing, Inc. v. Commissioner, 89 T.C.

225, 232 (1987), affd. 862 F.2d 751 (9th Cir. 1988).

     Courts look to several factors to decide whether an

employment relationship exists.   Among them are the following:

(1) The degree of control exercised by the principal over the

manner in which work is performed; (2) the individual's

investment in the facilities used; (3) the individual's

opportunity for profit or loss; (4) whether or not the principal

has the right to discharge the individual; (5) the permanency of

the relationship; (6) whether the work performed is an integral

part of the principal's regular business; and (7) the

relationship the parties believe they are creating.     United

States v. Silk, 331 U.S. 704, 716 (1947); Simpson v.

Commissioner, 64 T.C. 974, 984-985 (1975); sec. 31.3121(d)-

1(c)(2), Employment Tax Regs.   These factors are not weighted

equally but must be evaluated according to their significance in

each particular case.   See Packard v. Commissioner, 63 T.C. 621,

630 (1975).

     Although no one factor is dispositive, the employer's degree

of control over the details of an individual's work is the most

important consideration in determining the nature of the working

relationship.   E.g., Matthews v. Commissioner, supra at 361.     An
                                 - 7 -


employer-employee relationship exists when an employer retains

the right to control the manner and means by which an individual

performs services.     Nationwide Mut. Ins. Co. v. Darden, supra;

Simpson v. Commissioner, supra; Ellison v. Commissioner, 55 T.C.

142, 152-153 (1970).

     Petitioner received income from several activities.     We have

divided the activities into two groups:    (1) Income from the

Stewart band and (2) other income.

     A. Income From the Stewart Band

     Upon reviewing the entire record in light of the above

factors, we hold that petitioner received income from his

activity with the Stewart band as an employee during 1991.

Several factors support our conclusion.

     First, Stewart controlled how, when, and where petitioner

was to perform his services.    Petitioner was required to tour,

travel, and perform according to the band’s scheduled

performances.   Moreover, Stewart had influence over what

petitioner wore on and off the stage, which instruments he

brought with him and played, and which songs he performed.    While

it is true that petitioner had some flexibility in choosing which

chords to play, his ability to improvise was limited by the

framework provided by the Stewart band.    Second, petitioner was

an integral part of the band while on tour.    This fact suggests

that an employment relationship existed.    Finally, while
                               - 8 -


petitioner testified that he believed he was an independent

contractor, his actions suggested otherwise.   Petitioner’s

original return, on which he claimed unreimbursed miscellaneous

employee business expenses as a Schedule A adjustment, reflected

the conclusion that he was an employee.    Only after respondent’s

determination of the deficiency, including the application of the

alternative minimum tax due to large itemized deductions, did

petitioner and his new tax return preparer conclude that he

should have reported his income and expenses on a Schedule C.

     We acknowledge that some factors support a finding of an

independent contractor relationship.   For example, petitioner was

required to provide his own tools and supplies, was not

restricted in working for others, and was not a permanent member

of the band.   On the other hand, it appears from the evidence

presented that Stewart paid for petitioner’s transportation and

hotel bills while on tour.4   On balance, we are persuaded by

those factors that support our position.

     B. Other Income

     We also find that petitioner received income from other

activity as an employee.   Petitioner failed to present any

persuasive evidence to support a contrary finding and has

     4
        The hotel bills received in evidence reflect substantial
charges for bar, movies, and room service, but no charges for
room rent. Moreover, there are no documents in evidence that
suggest that petitioner paid for his own transportation while
traveling with the band.
                               - 9 -


effectively conceded this issue.    See Rule 149(b).   While

petitioner provided minimal detail about his income from other

activity, we surmise that petitioner performed activities similar

to those performed for the Stewart band.    In light of the fact

that no contrary evidence was presented, we sustain respondent’s

determination on this issue.

Employee Business Expenses

     We next consider whether petitioner is entitled to Schedule

A deductions for various employee business expenses.     Deductions

are a matter of legislative grace, and taxpayers must prove that

they are entitled to those claimed.    Rule 142(a); INDOPCO, Inc.

v. Commissioner, 503 U.S. 79, 84 (1992).     They must maintain

adequate records to substantiate deduction amounts.     Sec. 6001;

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

     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.     Generally, except as provided

by section 274(d), when evidence shows that a taxpayer incurred a

deductible expense, but the exact amount cannot be determined,

the Court may approximate the amount.     Cohan v. Commissioner, 39

F.2d 540, 543-544 (2d Cir. 1930).    The Court, however, must have

some basis upon which an estimate may be made.     Vanicek v.

Commissioner, 85 T.C. 731, 742-743 (1985).
                              - 10 -


     Travel and meals and entertainment expenses are deductible

if they are ordinary and necessary to a taxpayer’s business.

Sec. 162(a).   Section 274(d), however, provides that no deduction

will be allowed for travel expenses or any activity which is

generally considered to constitute entertainment unless the

taxpayer maintained records sufficient to establish:    (1) The

amount of each expense; (2) the time and place of the activity;

(3) the business purpose of the activity; and (4) the business

relationship to the taxpayer of persons entertained.    Sec.

274(d).   Meals in a restaurant are generally considered to be

“entertainment” and governed by section 274(d).    See, e.g.,

Matlock v. Commissioner, T.C. Memo. 1992-324.     Section 274(d) is

an exception to the Cohan rule and prohibits the estimation of

these expenses.   Sanford v. Commissioner, 50 T.C. 823, 827-828

(1968), affd. per curiam 412 F.2d 201 (2d Cir. 1969); sec. 1.274-

5T(a), Temporary Income Tax Reg., 50 Fed. Reg. 46014 (Nov. 6,

1985).

     Expenditures for equipment having a useful life extending

beyond the taxable year are capital and are nondeductible as

business expenses.   Ryman v. Commissioner, 51 T.C. 799, 802

(1969).   Section 167, however, permits a depreciation deduction

for property used in a trade or business.   Depreciation on

tangible property placed in service after December 31, 1986, is

determined under section 168 pursuant to the Modified Accelerated
                               - 11 -


Cost Recovery System (MACRS), which was introduced into law by

the Tax Reform Act of 1986, Pub. L. 99-514, sec. 201(a), 100

Stat. 2085, 2121-2137.    A depreciation deduction for tangible

property is calculated by using the applicable depreciation

method, recovery period, and convention.    Sec. 168(a).

     No deduction is allowed for personal, living, or family

expenses.   Sec. 262.   In evaluating whether certain expenses are

personal or business in nature, the courts have found that some

expenses are so “inherently personal” that they are almost

invariably held to come within the ambit of section 262.     Fred W.

Amend Co. v. Commissioner, 55 T.C. 320, 325-326 (1970), affd. 454

F.2d 399 (7th Cir. 1971).    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).

     With the exception of a $200 deduction for stage clothes,

see infra pp. 12-13, petitioner is not entitled to deductions for

any of his claimed expenses in excess of what respondent has

allowed.    For the automobile, office supplies, research, and

travel expenses, petitioner did not submit documentary or
                               - 12 -


testimonial evidence to substantiate any amount in excess of what

respondent conceded.   For the meals and entertainment expenses,

petitioner’s “substantiation” consists merely of receipts and a

smattering of testimony regarding these meal items, which, at

best, establish that money was spent.   Petitioner failed to

reveal the business purpose of each meal and/or the business

relationship of the person entertained, as is required by section

274(d).    In addition, some of the receipts do not reveal the time

and place of the meetings, while others pertained to meetings

that occurred during a taxable year not before the Court.

     Several receipts reflect large expenditures for food and

drink for many people.   Petitioner explained that Stewart had

several rules (such as not being late for a bus) which, if

violated, required the “guilty” person to pick up the restaurant

tab for the entire band.   These may or may not be Stewart’s

rules, but we know of no authority to support a finding that such

activities constitute ordinary and necessary expenditures.

     Petitioner claimed deductions for depreciation expense in

the amount of $1,673 and professional supplies in the amount of

$17,329.   To support these deductions, petitioner submitted

receipts and invoices totaling $17,132.   Respondent concedes that

petitioner spent $17,132 on musical equipment and supplies during

1991, of which $825 is currently deductible and $16,307 is

nondeductible, but depreciable.   Despite these concessions,
                               - 13 -


respondent has allowed petitioner a $3,382 professional supplies

deduction and a $2,750 depreciation deduction (calculated by

dividing the remaining cost basis of equipment, $13,750,5 by a 5-

year life of the asset).    Petitioner has not presented proof or

argument to support a deduction in excess of what respondent has

allowed.

     To support a stage clothes deduction,6 petitioner submitted

receipts totaling $695.11, representing purchases of various

stage clothes items for which respondent has not allowed any

amount.    The receipts reflect the purchases of silk boxers,

leather pants, men’s underwear, hats, and a vest.    Clearly the

underwear does not qualify as a business expense.    As to the

remaining clothes items, we find that the majority of them are

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

deductible employee business expense.    Some of the more “flashy”

and “loud” items, however, might not be acceptable ordinary wear.

Although the receipts do not indicate which items fall into that

category, we allow petitioner a $200 deduction for stage clothes.

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

     The claimed agent’s commission expense is supported only by

petitioner’s testimony and relates to rent payments petitioner

     5
        This number is the original cost basis, $17,132, less the
amount respondent conceded as deductible in 1991, $3,382.
     6
        Petitioner did not claim a separate deduction for stage
clothes but most likely included it as part of another category.
                                - 14 -


made on his home on behalf of Currie, his “agent”.    This expense

appears to be the kind of personal expenditure that is

nondeductible under section 262.

     Finally, as to the professional development and maintenance

expenses, petitioner presented no documentation or testimony to

support these deductions, and he seems to have abandoned his

claim for these items.    As to the claimed telephone expenses, the

only evidence of telephone expenses presented were telephone

charges appearing on the hotel bills incurred while petitioner

was on tour with the band.    There is no evidence that these calls

were business related, and, hence, petitioner is not entitled to

any deduction.

Accuracy-Related Penalty Under Section 6662

     We finally consider whether petitioner is liable for the

section 6662 accuracy-related penalty.    Section 6662 imposes a

penalty equal to 20 percent of the portion of the underpayment

attributable to, inter alia, negligence or disregard of rules or

regulations.     "Negligence" includes failure to make a reasonable

attempt to comply with the law, and the term "disregard" includes

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

Failure to maintain adequate records constitutes negligence.

Crocker v. Commissioner, 92 T.C. 899, 917 (1989); Schroeder v.

Commissioner, 40 T.C. 30, 34 (1963).
                                 - 15 -


     The Commissioner’s determination imposing the section

6662(a) accuracy-related penalty is presumed correct, and the

taxpayer bears the burden of proving that he is not liable for

the penalty.    Rule 142(a); Tweeddale v. Commissioner, 92 T.C.

501, 505 (1989).    No penalty, however, shall be imposed under

section 6662(a) with respect to any portion of an underpayment if

it is shown that there was reasonable cause and the taxpayer

acted in good faith with respect to that portion of the

underpayment.    Sec. 6664(c).

     The disallowance of petitioner’s Schedule A deductions stems

from his negligent handling of his tax affairs and his disregard

of rules or regulations.    For most items, petitioner failed to

maintain adequate records to sustain the deduction amounts in

excess of what respondent allowed.        Petitioner also disregarded

the rules or regulations that require the capitalization of

assets that have a useful life extending beyond the taxable year.

While it is true that petitioner was on the road for much of 1991

and that his tax returns were prepared by tax professionals, he,

nonetheless, bears the ultimate responsibility for the accuracy

of his returns.    Magill v. Commissioner, 70 T.C. 465, 479-480

(1978), affd. 651 F.2d 1233 (6th Cir. 1981).       Petitioner was

aware of every deduction claimed on his tax returns.
                             - 16 -


     In light of the above, and the fact that petitioner did not

present sufficient evidence to satisfy his burden, we find

petitioner liable for the section 6662 accuracy-related penalty

with respect to all items not conceded by respondent or allowed

by this Court.

     To reflect the foregoing,


                                        Decision will be entered

                                  under Rule 155.
