                        T.C. Memo. 1996-253



                      UNITED STATES TAX COURT



               AUSTIN B. EWELL, JR., Petitioner v.
          COMMISSIONER OF INTERNAL REVENUE, Respondent



     Docket No. 16900-93.                       Filed May 30, 1996.


     George F. Belyea, for petitioner.

     Lloyd T. Silberzweig, for respondent.



             MEMORANDUM FINDINGS OF FACT AND OPINION


     COLVIN, Judge:   Respondent determined that petitioner has a

deficiency in Federal income tax of $33,513 for 1987.    After

concessions, we must decide the following:

     1.   Whether various payments made by petitioner to and on

behalf of his former spouse from March 27 to December 19, 1987,

were alimony under section 71(b)(1).   We hold that they were not
                                 - 2 -


because petitioner and his former spouse first had a divorce or

separation instrument on December 19, 1987.

     2.     Whether petitioner may deduct $72,024 for interest and

$10,727 for taxes that he paid, on behalf of his former spouse,

as petitioner contends; $10,002, as respondent contends; or some

other amount.     We hold that he may deduct a portion of these

expenses equal to the portion he proved he paid with his separate

funds.

     3.     Whether petitioner may deduct $6,326 for business use

of his Jeep Cherokee.     We hold that he may not.

     Section references are to the Internal Revenue Code in

effect for the year in issue.     Unless otherwise stated, Rule

references are to the Tax Court Rules of Practice and Procedure.

                           FINDINGS OF FACT

     Some of the facts have been stipulated and are so found.

A.   Petitioner

     Petitioner lived in Fresno, California, when he filed his

petition.   He is a lawyer.    He represented public water districts

and some farmers and ranchers.     He used the cash receipts and

disbursements method of accounting.

B.   Real Property Belonging to Petitioner and His Former Spouse

     In 1987, petitioner and his former spouse jointly owned the

following property:
                               - 3 -


     1.    19605 Auberry Road, Clovis, Cal.--587 acres, residence,

           buildings, cattle grazing land.

     2.    Avenue 13 ½ between Roads 35 and 36, Madera County,

           Cal.--20 acres of citrus trees.

     3.    34711 Avenue 14, Madera County, Cal.--residence,

           buildings, and 30 acres of citrus trees and kiwi vines.

     4.    Millerton Road, Fresno, Cal.--386 acres of cattle

           grazing land.

     5.    Millerton Road (Forman Ranch), Fresno, Cal.--40 acres

           of cattle grazing land.

     6.    Pittman Hill Road, Fresno County, Cal.--a 50-percent

           interest in 160 acres of grazing land.

     7.    40008 Oakwoods Lane, Shaver Lake, Cal.--rental

           residence.

     8.    6264 N. Van Ness Boulevard, Fresno, Cal.--residence

     9.    Zenobia Road, Rural Route 3, Wakeman, Ohio--a one-third

           interest in 72 acres with a residence and other

           buildings.

     10.   Zenobia Road (Lone Elm Farms), Rural Route 3, Wakeman,

           Ohio--a 50-percent interest in 210 acres with a

           residence and other buildings.

     Petitioner and his former spouse were jointly liable for the

mortgages and property taxes on their jointly owned property.
                                 - 4 -


     Petitioner's former spouse held a 100-percent interest in

lot 752, tract 3230, Tehachapi, Cal.     Petitioner held a 27.084-

percent interest in 12 Plover Circle, Watsonville, Cal.

C.   Petitioner’s Separation From His Former Spouse

     Petitioner and his former spouse separated on March 27,

1987.     In April 1987, petitioner’s former spouse gave him a

written list of her expenses.

     Petitioner’s former wife was admitted to a psychiatric

hospital in April and released in May 1987.     During that time,

petitioner’s father-in-law told petitioner to preserve the

community assets, to maintain the farming and business

properties, and to keep the community payments current.

Petitioner’s father-in-law was a judge on the California Court of

Appeals and a partner with petitioner and petitioner’s former

spouse on some ranches.

D.   Petitioner’s Bank Accounts, Income, and Payments

     1.      Bank Accounts

     From March 27 to December 31, 1987, petitioner had five bank

accounts (account Nos. 062-118-2706, 062-118-2714, 062-118-4024,

062-118-9611, and 062-119-0725).     On March 27, 1987, petitioner

and his former spouse had $67,611 of community funds in the first

three of those bank accounts.
                                - 5 -


     2.   Community Income

     Petitioner and his former spouse received $77,866 in

community income from March 27 to December 31, 1987, in addition

to the $67,611 of community funds that they had when they

separated.   Their community funds totaled $145,477 from March 27

to December 31, 1987.    Their community funds were insufficient to

pay community obligations during that time.

     3.   Petitioner’s Separate Funds

     Petitioner deposited at least $146,019 of his separate funds

in their joint checking accounts.   He provided about $20,000 per

month from his salary.   Those funds were available to pay their

postseparation community obligations in 1987.     Petitioner spent

$172,484 of his separate funds to pay community expenses from

March 27, 1987, to May 8, 1989.

     4.   Petitioner’s Payments to and on Behalf of His Former
          Spouse

       In May 1987, petitioner began to pay about $3,700 per

month to support his former spouse.     He made no payments to

his former spouse from December 19 to December 31, 1987.

     From March 27 to December 31, 1987, petitioner paid

$4,287.27 of the lease expenses for his former spouse’s car

and paid mortgage interest of $144,048, mortgage principal of

$61,541, and property taxes of $21,454 related to property he

owned jointly with his former spouse.     From April 1 to
                               - 6 -


December 31, 1987, petitioner paid his former spouse's 50 percent

share of farming expenses ($8,818) and rental expenses ($6,859).

     In 1987, petitioner paid $8,560 for accounting fees to

prepare his and his former spouse’s 1986 joint income tax return.

On December 31, 1987, petitioner paid the California Franchise

Tax Board $5,248 for his and his former spouse’s 1986 State

taxes.

E.   Negotiations Between Family Law Attorneys Regarding
     Petitioner’s Payments to and on Behalf of His Former Spouse

     On August 13, 1987, James B. Preston (Preston), counsel to

petitioner's former spouse, wrote a letter to Donald Magarian

(Magarian), petitioner's divorce counsel, stating in pertinent

part:

     As temporary arrangements we would propose the
     following temporary orders:
     1. Joint legal and physical custody of the minor
     children, as arranged between the parties.

     2. Each party maintain the furniture, fixtures,
     appliances and vehicles in their respective possession.

     3. Each party restrained from disposing of community
     or separate assets.

     4.   Family support of $4,000 per month.

     5. Personal restraining orders against harassment by
     either party against the other party, family members
     and friends.

     6. Mr. Ewell continue to maintain Mrs. Ewell and the
     minor children on major medical/health and vehicle
     insurance, and any non-covered medical, dental,
     psychological and medication be paid by Mr. Ewell.
                               - 7 -


     7. Mr. Ewell continue to maintain life insurance in
     current amounts with Mrs. Ewell and the children as
     primary beneficiaries.

     8.   Mr. Ewell pay the outstanding credit accounts.

     9. Mr. Ewell advance attorney fees of $5,000 toward
     Mrs. Ewell's attorney fees, plus whatever our
     accountant may require as a retainer.

     Please review and if satisfactory, I will prepare a
     formal order.

     Additionally, once the Order is prepared, I would
     request my accountants be given access to the financial
     records of the parties.

     On August 28, 1987, Magarian wrote Preston a letter stating

as follows:

          I have received your letter dated August 13, 1987
     and have had the opportunity to review it with Mr.
     Ewell. After my discussion with Mr. Ewell, it was
     brought to my attention that both Mr. Ewell and his
     wife feel it would be beneficial for them to go to
     joint counselling before any major expenses regarding
     the legal aspects of the dissolution of marriage take
     place. It appears that the parties would desire to
     maintain the status quo at this time.

          With the foregoing in mind, I am going to address
     the nine points you raised in your letter for a
     temporary agreement as follows:

     1. The custodial arrangement would be acceptable
     pending the parties attending joint counselling with a
     psycologist [sic] that they can agree upon.

     2.   Acceptable.

     3. Acceptable, except in the ordinary course of
     business.

     4. Mr. Ewell would continue to take care of the Wife
     and children's needs as he has been doing for the past
     few months which appears to be acceptable to the Wife
     at this point in time.
                              - 8 -


     5. I do not know the urgency of an immediate
     restraining order, however, if your client feels it is
     necessary at this time, obviously, Mr. Ewell will
     comply.

     6. Acceptable, except that psychological and
     medication be controlled by some type of dollar amount.

     7.   Acceptable.

     8. Acceptable, however, if there is going to be an
     order, we will have to reserve jurisdiction regarding
     reimbursement to Mr. Ewell.

     9. Mr. Ewell is well aware of the law that would
     require him to pay to you reasonable attorney fees for
     this case. After some discussion, he feels that at
     this point since hopefully, there will be no legal
     activity, that he would be willing to pay to you
     $1,000.00 on account and then we can discuss further
     attorneys fees depending on what the future of this
     case has in store at that time. We can also come to
     some type of conclusion of how much an accountant would
     need. I am sure that will be no problem at the time
     when the issues are before us.

          After you review this letter, please contact me as
     I would like to get your thoughts on the matter.

     Robert Stringham (Stringham) succeeded a Mr. Hicks, not

otherwise described in the record, who had succeeded Preston.   On

November 3, 1987, Stringham wrote Magarian a letter that included

the following:

     Kristine Ewell has called me to tell me that while
     Mr. Ewell had agreed to increase support from $3,700.00
     per month to $4,000.00 per month, he has instead, in
     the last two payments, reduced the support by $350.00
     per payment, down to $3,000.00 per month.

     We propose in behalf of Mrs. Ewell that we stipulate
     to a temporary order providing for child support of
     $600.00 per month per child and spousal support of
     $2,800.00 per month. Child support and spousal support
     proposed to be payable in semi-monthly installments on
                                - 9 -


     the 1st and 15th of each month commencing November 1,
     1987.

     We would like to have a partial payment of account of
     fees and costs at this time of $2,500.00.

     Since Mrs. Ewell is in need of these funds, we look
     forward to hearing from you within the next week in the
     hope that a hearing can be avoided.

F.   Temporary Stipulation and Order Re Child Custody and Joint
     Arrangement

     On December 18 and 19, 1987, the parties signed a Temporary

Stipulation and Order Re Child Custody and Joint Arrangement,

Family Support, Attorney Fees and Other Orders.   The Superior

Court of California for Fresno County filed it on or about

December 23.    It provided in part:

          IT IS FURTHER ORDERED that Respondent/Husband
     shall pay to Petitioner/Wife the sum of $2,100.00 per
     month support, commencing December 15, 1987, payable
     $1,050 on the 15th and $1,050 on the __, and continuing
     __ day of each and every month thereafter until Wife
     ___ dies, Husband dies, or further order of the court.
     In regard to these payments, time shall be of the
     essence. The court shall reserve jurisdiction over
     whether these payments shall be charged in whole, or
     part, to Respondent/Husband's separate property, or the
     community

     (NOTE:    Blanks indicate illegible parts of the copy of the

document in evidence.)

     It also required petitioner to:

     keep current the obligations of the community to the
     best of his ability until such time as the liquidity
     of the community estate is known upon presentation of
     an accounting by Respondent/Husband, and one-half of
     any such payments from Respondent/Husband’s separate
     property shall be reimbursed to him by the community.
     The Court shall reserve jurisdiction to determine
                              - 10 -


     whether reimbursement being sought by
     Respondent/Husband is a benefit to the community or to
     his separate property, or whether community property
     asset had a use value which would have an affect [sic]
     on reimbursement.

     Petitioner's $1,650 payment to his former spouse on

December 16, 1987, included $1,050 for alimony and $600 for child

support.

G.   Petitioner’s Jeep Cherokee

     In 1987, petitioner leased a 1987 four-wheel-drive Jeep

Cherokee (Jeep) that he used for commuting to work, his law

practice, farming, ranching, and rental businesses, and for

personal use.   He also had a 1985 Audi.    Petitioner paid $6,326

to lease and operate the Jeep in 1987.     He did not have any

records showing how he used the Jeep in 1987.

H.   Bankruptcy of Petitioner’s Former Spouse

     On July 1, 1988, petitioner’s former spouse filed a petition

in bankruptcy with the U.S. Bankruptcy Court, Case No. 188-02583-

A-11.   Petitioner claimed that he was entitled to receive

reimbursement of $86,000 from her bankruptcy estate.     The

superior court which had jurisdiction over petitioner’s divorce

approved his claim, but his former spouse disputed it.

Petitioner’s former spouse appealed to the U.S. Court of Appeals

for the Ninth Circuit.

     A trustee was appointed in the bankruptcy case.     The

bankruptcy estate did not pay petitioner.     As of the date of
                                - 11 -


trial, petitioner had not been reimbursed, and there was little

or nothing left in the estate for petitioner or his former

spouse.     It is highly unlikely that petitioner will be reimbursed

by his former spouse’s bankruptcy estate.

                                OPINION

A.   Whether Petitioner and His Former Spouse Had a Written
     Separation Agreement Before December 19, 1987

     1.     Parties' Contentions

     Petitioner contends that he may deduct as alimony support

payments he made to and on behalf of his former spouse from

August 27, to December 19, 1987.1    He argues that a written

support agreement existed on August 27, 1987.      He contends that

his former spouse’s list of expenses, his claimed oral agreement

to pay her $3,700 per month, the August 1987 exchange of letters

between the family law attorneys, and notations petitioner wrote

on checks constitute a written agreement for purposes of section

71(b)(2)(A).

     Respondent contends that there was no written support

agreement before December 19, 1987.       On that date the court with

jurisdiction over the parties’ divorce signed the stipulated

judgment.    Respondent contends that petitioner’s payments from

August 27 to December 19, 1987, are not alimony, except



     1
       Petitioner concedes that $13,581 he paid to his former
spouse from Mar. 27 to Aug. 27, 1987, is not alimony.
                                  - 12 -


respondent concedes that $1,050 that petitioner paid to his

former spouse on December 16, 1987 was alimony.

     2.     Written Separation Agreement Requirement

     A taxpayer may deduct alimony or separate maintenance

payments.    Sec. 215(a).   Alimony is any payment in cash if, among

other requirements, it is received by (or on behalf of) a spouse

under a divorce or separation instrument.      Sec. 71(b)(1)(A).

A divorce or separation instrument is:      (a) A decree of divorce

or separate maintenance or a written instrument incident to the

decree; (b) a written separation agreement; or (c) a decree

requiring a spouse to pay for the support or maintenance of the

other spouse.    Sec. 71(b)(2).    No decree was in effect when

petitioner made the payments at issue.      Thus, we must decide

whether there was a written separation agreement under section

71(b)(2) before December 19, 1987.

     The term "written separation agreement" is not defined by

section 71(b)(2), its legislative history, or the Commissioner's

regulations.    Bogard v. Commissioner, 59 T.C. 97, 100 (1972).       A

written separation agreement is a clear, written statement of the

terms of support for separated parties.      Id. at 101.   It must be

a writing that constitutes an agreement.      Grant v. Commissioner,

84 T.C. 809, 823 (1985), affd. without published opinion 809 F.2d

260 (4th Cir. 1986).
                                - 13 -


     3.     Whether Petitioner and His Former Spouse Had a Written
            Separation Agreement Before December 19, 1987

     Petitioner and his former spouse separated on March 27,

1987.     Respondent contends that we should not believe

petitioner’s testimony that his former spouse gave him a list of

her expenses which totaled about $3,700 per month which he agreed

to pay.     Respondent points out that petitioner did not provide

respondent or the Court with a copy of the list but gives no

other reason that we should disbelieve petitioner.     Petitioner’s

claim is consistent with the fact that he in fact paid those

amounts in the months after April 1987.     We accept petitioner’s

testimony that his former spouse gave him a written list of her

expenses and that he told her that he would pay those amounts.

     Petitioner contends that his oral agreement is part of a

written separation agreement.     We disagree; an agreement must be

written for purposes of section 71(b)(2).     Sec. 71(b)(2); Grant

v. Commissioner, supra; see Gordon v. Commissioner, 70 T.C. 525,

529 (1978) (interpreting similar language in section 71(a)(1)).

     The family law attorneys for petitioner and his former

spouse conducted negotiations relating to the terms of a

separation agreement from August to November 1987, but they did

not reach an agreement.     On December 19, 1987, the family law

attorneys signed a stipulated judgment.     The stipulated judgment

required petitioner to pay alimony of $2,100 per month and child

support of $1,200 per month, and to pay community obligations
                                - 14 -


subject to his right to be reimbursed for one-half of the

payments he made with his separate funds.

     Petitioner argues that the written list of expenses his

former spouse gave him, the letters exchanged by the attorneys,

and notations petitioner claims he made on checks he issued,

considered together, constitute a written separation agreement.

We disagree.    An agreement requires mutual assent or a meeting of

the minds.     Kronish v. Commissioner, 90 T.C. 684, 693 (1988).

Letters which do not show that there was a meeting of the minds

are not a written separation agreement under section 71(b)(2).

Grant v. Commissioner, supra; Estate of Hill v. Commissioner, 59

T.C. 846, 856-857 (1973).    There was no agreement reached in the

letters between the family law attorneys.    The letters show only

that there was a negotiation.    Preston made nine proposals,

including family support of $4,000 per month, in his letter dated

August 13, 1987.    Magarian said two provisions were acceptable,

two were conditionally acceptable, and five were unacceptable.

Magarian rejected Preston's proposal that petitioner pay family

support of $4,000 per month.

     Petitioner contends that he noted on each of his checks that

the payment was for support and that those check notations are a

part of the written separation agreement.    We disagree.   The

checks are not in evidence.    Even if they were, the fact that
                               - 15 -


petitioner made a notation on a check does not show that he

agreed to provide support.

     Petitioner points out that he paid support after the

exchange of letters.    However, the fact that he made payments

does not show that there was a written agreement; on the

contrary, the letters themselves show that there was not.

     We conclude that petitioner’s former spouse’s list of

expenses, negotiation letters between the family law attorneys,

check notations, and the fact that petitioner provided support

are not a written separation agreement for purposes of sections

71(b)(2) and 215.    Thus, payments that petitioner made before the

stipulated judgment was entered on December 19, 1987, are not

alimony.2

B.   Whether Petitioner May Deduct $72,024 for Interest and
     $10,727 for Taxes as His Former Spouse’s Share of Business
     Expenses

     1.     Parties' Contentions and Background

     Petitioner contends that he may deduct his payment of his

former spouse’s share of interest ($72,024) and taxes ($10,727)

for business properties that they owned jointly because he used

his separate funds to pay those expenses.



     2
       In light of our conclusion, we need not decide
respondent’s contention that we lack jurisdiction to decide
whether petitioner may deduct some of these items because he
did not claim them as a deduction on his 1987 income tax
return or in the petition in this case.
                               - 16 -


     Respondent contends that petitioner did not show that they

were deductible expenses or that he used his separate funds to

pay them.   Respondent also contends that petitioner may not

deduct those amounts because he had substantial community funds

available when he paid them.   Respondent concedes that petitioner

may deduct his one-half share of those amounts, which we treat as

a concession that the interest and taxes at issue would have been

deductible if paid by petitioner's former spouse.

     2.     Whether the Possibility That Petitioner May Be
            Reimbursed Bars Him From Deducting His Payment of His
            Former Spouse’s Share of Mortgage Interest and Property
            Taxes

     Respondent contends that petitioner may not deduct his

payments of his former spouse’s share of mortgage interest and

property taxes because he has a right to be reimbursed by her.

Respondent contends that Levy v. Commissioner, 212 F.2d 552, 554

(5th Cir. 1954), affg. a Memorandum Opinion of this Court dated

March 9, 1953; Estate of Boyd v. Commissioner, 28 T.C. 564, 566-

567 (1957); and Conte v. Commissioner, T.C. Memo. 1981-571, affd.

722 F.2d 727 (2d Cir. 1983), support this contention.   We

disagree.

     Petitioner concedes that he had a right to be reimbursed for

community expenses that he paid with his separate funds from

March 27 to December 31, 1987.   However, none of the cases

respondent relies on involved mortgage interest and real property

taxes for which the taxpayer was jointly and severally liable.
                                - 17 -


The payments were for repairs, maintenance, and capital

improvements for jointly owned property paid entirely by one of

the owners.   In contrast to this case, the Commissioner conceded

in Conte that the taxpayer could deduct real estate taxes and

mortgage interest to the extent he paid them because he was

jointly and severally liable for those obligations.    Conte v.

Commissioner, supra.

     Unlike this case, in none of those cases did the court find

that reimbursement would be highly unlikely.   In Estate of Boyd

and Conte we did not consider the probability that the taxpayers

would be reimbursed.   In Levy, the court found that the taxpayers

did not show that they could not have enforced their right to be

reimbursed.   Levy v. Commissioner, supra at 554.

     Petitioner and his former spouse are jointly and severally

liable for the mortgage interest and property taxes at issue.

Petitioner could lose the properties if the mortgage interest and

property taxes were not paid.    Taxpayers may deduct the payment

of expenses for which they are not liable if necessary to protect

their property interests.   Dunn & McCarthy, Inc. v. Commissioner,

139 F.2d 242, 244 (2d Cir. 1943); Waring Prods. Corp. v.

Commissioner, 27 T.C. 921, 929-930 (1957); Catholic News

Publishing Co. v. Commissioner, 10 T.C. 73, 77 (1948).

     We conclude that petitioner may deduct the amount he paid

for his former spouse’s share of mortgage interest and real
                              - 18 -


estate taxes to the extent he has proven that he paid it with his

separate funds.

     3.   Tracing of Community Funds and Petitioner’s Separate
          Funds

     The parties agree that petitioner may use either the family

expenditure or direct tracing method to show the amount, if any,

of separate funds that he used to the pay community debts that he

seeks to deduct.

     Under the family expenditure method, total community

expenditures are subtracted from total community funds to show

whether any community funds remain.    Under the direct tracing

method, each check from and each deposit to a particular account

is listed in chronological order, and the balances in the account

are computed after each transaction.    A separate transaction

account balance is computed for the community property, the

husband's separate property, and the wife's separate property for

each account.

     4.   Whether Exhibit 9 Is Admissible

     Petitioner’s Exhibit 9 purports to use the direct tracing

method to show that he used his separate funds to pay the

community debts.3   Exhibit 9 is a worksheet consisting of eight

     3
       George Belyea, who represented petitioner in this case,
briefly testified to authenticate worksheets (including Exh. 9)
with which the parties had been working for several months to
trace petitioner’s community and separate funds. Respondent
objected to his testimony and the admission of the exhibits that
                                                   (continued...)
                               - 19 -


pages, each with 15 columns.   In Exhibit 9, George Belyea

(Belyea), who represented petitioner in this case, used Lotus 1-

2-3 software to analyze 600 to 700 checking account transactions.

     The contents of voluminous writings which cannot

conveniently be examined in court may be presented in summary

form if the writings are made available for examination or

copying, or both, by other parties at a reasonable time and

place.   Fed. R. Evid. 1006.

     Respondent contends that Exhibit 9 is not admissible because

it is an improper summary under rule 1006 of the Federal Rules of

Evidence and because, in violation of the Court’s standing

pretrial order, it was not exhanged 15 days ahead of the first

day of the trial session.   Respondent contends that petitioner

did not provide a copy of Exhibit 9 until 2 days before the trial

session began, in violation of the Court’s standing pretrial

order, which requires the parties to exchange documents at least

15 days before the trial session begins.


     3
      (...continued)
he sought to authenticate on the grounds that his testimony was
barred by Rule 24(f). Respondent’s counsel conceded that he was
not surprised by what Belyea said. We overruled respondent's
objection, but invited the parties to argue this issue on brief.
Respondent did not do so, which we treat as respondent's
concession. See Stringer v. Commissioner, 84 T.C. 693, 708
(1985), affd. without published opinion 789 F.2d 917 (4th Cir.
1986); cf. Kern Co. Elec. Pension Fund v. Commissioner, 96 T.C.
845, 858 (1991), affd. without published opinion 988 F.2d 120
(9th Cir. 1993); Marcus v. Commissioner, 22 T.C. 824, 832 (1954).
                              - 20 -


     Petitioner contends that Belyea gave respondent

substantially similar versions of Exhibit 9 3 months before

trial.   Respondent’s counsel said that he saw prior versions of

Exhibit 9 more than 15 days before the trial session began, but

did not see a version of Exhibit 9 with the columns “COMMUNITY

CHECKING ACCOUNT BALANCE” and “COMBINED CHECKING ACCOUNT BALANCE”

until February 4, 1995.

     Petitioner contends that the data in Exhibit 9 is taken from

Exhibits 13-M and 10.   We disagree.   Exhibits 13-M and 10 are not

the source of the data in columns 11 (“COMMUNITY CHECKING ACCOUNT

BALANCE”), 13 (“A B EWELL SALARY & EXPENSE REIMBURSEMENT”), 14

(“A B EWELL SEPARATE PROPERTY CHECKING ACCT BALANCE”), and 15

(“COMBINED CHECKING ACCOUNT BALANCE”) of Exhibit 9.    Belyea said

that he gave respondent’s counsel the data on which he based

those columns 3 months before trial.   However, at trial, Belyea

could not identify the data on which he based columns 11, 13, 14,

and 15, which included the columns that respondent’s counsel

identified.

     Exhibit 10 is apparently the source for column 7 of Exhibit

9, entitled “TRANS FROM COMMUNITY SAVINGS ACCOUNT”, but not for

any other columns.   We conclude that columns 1 to 6, 8 to 10, and

12 of Exhibit 9 are based on Exhibit 13-M, and that column 7 of

Exhibit 9 is based on Exhibit 10.   The rest of Exhibit 9 is not
                                - 21 -


based on other evidence.    Thus, columns 1-10 and 12 of Exhibit 9

are admissible, but columns 11, 13, 14, and 15 are not.

     5.   Whether Exhibit 9 Shows That Petitioner Used His
          Separate Funds To Pay Business Interest and Taxes

          a.      Direct Tracing Method

     Petitioner contends that Exhibit 9 shows under the direct

tracing method that he used his separate funds to pay business

interest and taxes.    We disagree.

     Petitioner contends that Exhibit 9 shows that, after

issuance of check No. 1008 on April 1, 1987, there were no

community funds in the checking account, the community balance

remained in deficit for the rest of 1987, and by December 31,

1987, he had used $193,967.44 of his separate funds to pay for

the community deficit.     Exhibit 9 without columns 11, 13, 14, and

15 does not establish that there were no community funds in the

accounts on April 1, 1987, or that petitioner and his former

spouse had insufficient community funds to pay community expenses

after April 1, 1987.    It does not show all of the community funds

on deposit when petitioner and his former spouse separated.

Exhibit 9 does not include the $67,611 of community funds

petitioner and his former spouse had when they separated on

March 27, 1987.

     Even if all of Exhibit 9 were admitted, it only shows a

beginning community checking account balance of $1,496.69 and no

other community funds before March 31, 1987.    Petitioner has not
                                - 22 -


identified the source of the $1,496.69 or any of the beginning

balances in Exhibit 9.    Exhibit 9 does not show that they spent

more than $67,611 by April 1, 1987.      Exhibit 9 does not properly

apply the direct tracing method.    It does not directly trace

petitioner’s separate funds through the commingled accounts to

the specific payments that he seeks to deduct.     Exhibit 9 does

not list the balance of each account and the balance of

petitioner’s separate funds computed after each transaction as

required by the direct tracing method.     It appears that Belyea

combined petitioner’s five accounts on Exhibit 9.     Exhibit 9 does

not directly trace each transaction in each account and show the

community and separate fund balance after each transaction.

Thus, even if Exhibit 9 were fully admitted, petitioner has not

proven that the community funds were in deficit after April 1,

1987.

     We conclude that petitioner has not shown that he used his

separate funds to pay his former spouse’s share of mortgage

interest and property taxes for their business properties through

the direct tracing method.

             b.   Family Expenditure Method

        Respondent concedes that the family expenditure method shows

that petitioner used some of his separate funds to pay mortgage

interest and property taxes.    Respondent concedes that petitioner
                              - 23 -


may deduct $10,002.   Petitioner contends that he may deduct

$82,751.

     Petitioner paid mortgage interest of $144,048, mortgage

principal of $61,541, and property taxes of $21,454 (a total of

$227,043) from March 27 to December 31, 1987.    During that time

he had $145,477 of community funds.    Community funds in an

account in which community and separate funds are commingled are

presumed to have been used to pay community obligations.       See v.

See, 64 Cal. 2d 778, 783, 415 P.2d 776, 779 (1966); Hicks v.

Hicks, 211 Cal. App. 2d 144, 154, 27 Cal. Rptr. 307, 314 (1962).

Applying that presumption here, respondent concedes that

petitioner used $81,566 ($227,043 - $145,477) of his separate

funds to pay community obligations which included mortgage

principal, interest, and property taxes.    To compute the amount

of separate and community funds used for principal, interest, and

taxes, the parties, in the Rule 155 computations, should compute

the amount of separate and community funds used to pay principal,

interest, and property taxes by using the ratio of $81,566

(separate funds) over $145,477 (community funds) (56 percent).

Thus, petitioner may deduct 56 percent of his former spouse’s

share of mortgage interest and property taxes that he paid before

January 1, 1988.
                               - 24 -


     6.   Whether Petitioner May Deduct Amounts He Paid With His
          Separate Funds If Community Funds Were Available

     Respondent contends that petitioner may not deduct amounts

that he paid for his former spouse’s share of community business

expenses with his separate funds because there were community

funds available in a separate savings account.   We disagree.

     The direct tracing method does not require all community

funds to be exhausted first.   Under the direct tracing method,

a party can prove that he or she used his or her separate funds

even if other community funds are available.   Our acceptance of

respondent’s contention would, in effect, eliminate the direct

tracing method and require the parties to use the family

expenditure method.   Respondent stipulated that either of the two

methods may be used under California law to trace whether a party

used separate funds to pay particular expenditures.   Thus,

respondent’s position is contrary to respondent’s stipulation

that allows parties to use the direct tracing and family

expenditure methods to trace funds.

     Respondent provides no persuasive authority for this

contention.   Respondent contends that Bozek v. Commissioner,

T.C. Memo. 1986-37; Porter v. Commissioner, T.C. Memo. 1979-104;

Kaonis v. Commissioner, T.C. Memo. 1978-184, affd. without

published opinion 639 F.2d 788 (9th Cir. 1981); and Powell v.

Commissioner, T.C. Memo. 1967-32, hold that spouses filing

separate income tax returns may deduct only one-half of the
                             - 25 -


community expenses, even if one spouse pays all of them, unless

there is an allocation agreement.   However, those cases do not

control here because in them, in contrast to this case, we did

not decide that the taxpayer could not prove that he or she used

separate funds to pay community obligations where community funds

were available.4

     We conclude that the fact that community funds were not

exhausted does not preclude petitioner from deducting the amounts

that he paid for community obligations with his separate

property.

     7.     Conclusion

     We conclude that petitioner may deduct 56 percent of his

former spouse's share of mortgage interest and property taxes

that he paid in 1987.

C.   Jeep Expenses

     Petitioner contends that he may deduct as a business expense

$6,326 which he paid in 1987 to lease and operate his Jeep.5


     4
       Two cases that respondent cites, Powell v. Commissioner,
T.C. Memo. 1967-32, and Finney v. Commissioner, T.C. Memo. 1976-
329, hold that a taxpayer may not deduct more than the taxpayer’s
share of a community obligation if the taxpayer did not establish
that the taxpayer used separate funds to pay the community
obligation. In Finney, we held that the taxpayer, who owned
property with his wife as tenants by the entirety, could deduct
all of the mortgage interest payment because he made the payments
with his separate funds.
     5
       Petitioner deducted $6,918 on Schedule A of his 1987
return for employee business expenses relating to his 1987 Jeep.
                                - 26 -


Respondent contends that petitioner:     (1) Did not substantiate

that he paid those amounts, (2) used the Jeep to commute to his

office and for other personal uses, and (3) had no records of the

business use of the Jeep.     Petitioner contends that he is not

required to have automobile use logs because he used the Jeep

almost exclusively for his farming and rental activities, and his

business usage of his Audi exceeds his personal use of the Jeep.

     A taxpayer may deduct ordinary and necessary expenses paid

or incurred during the taxable year in carrying on a trade or

business.    Sec. 162.   However, automobile expenses are subject to

special substantiation rules.     The Jeep is listed property under

section 280F(d)(4)(A)(i) because it is a passenger automobile.      A

taxpayer may not deduct automobile expenses unless he or she

substantiates by adequate records or sufficient evidence

corroborating the taxpayer’s own statement the amount, time and

place, and business purpose of the expense.     Sec. 274(d)(4).

     Petitioner has not substantiated the purpose, time, or place

of travel for any of the Jeep expenses as required under section

274(d)(4).    He did not have a log or records of the mileage,

dates, locations, or business purpose of the trips he took in the

Jeep.

     We disagree with petitioner’s contention that he may count

business use of his Audi to offset personal use of the Jeep.

Petitioner offers no authority to support this argument, and we
                                - 27 -


know of none.   Also, petitioner has not provided any logs or

other evidence of his use of the Audi.

     The substantiation requirements do not apply to a qualified

nonpersonal use vehicle.     Sec. 274(d).    A qualified nonpersonal

use vehicle is “any vehicle which, by reason of its nature, is

not likely to be used more than a de minimis amount for personal

purposes.”   Sec. 274(i).    Petitioner contends that the Jeep is a

qualified nonpersonal use vehicle.       We disagree.   Sec. 1.274-

5T(k)(2)(ii), Temporary Income Tax Regs., 50 Fed. Reg. 46033

(Nov. 6, 1985) (partial list of qualified nonpersonal use

vehicles, including clearly marked police and fire vehicles,

ambulances, hearses, vehicles designed to carry cargo with a

gross weight of more than 14,000 pounds, bucket trucks, cement

mixers, combines, cranes, derricks, delivery trucks with seating

only for the driver, dump trucks, flatbed trucks, forklifts,

refrigerated trucks, school buses, tractors, and other special

purpose farm vehicles.)     A Jeep is not like these specialized-use

vehicles.

     We conclude that petitioner may not deduct amounts for the

Jeep in excess of that allowed by respondent.

     To reflect concessions and the foregoing,


                                   An order will be issued denying

                               in part respondent's motion to strike

                               the testimony of George F. Belyea and
 - 28 -


related documents and decision will

be entered under Rule 155.
