                        T.C. Memo. 1997-557



                      UNITED STATES TAX COURT



                JORDON JAY FINGAR, Petitioner v.
          COMMISSIONER OF INTERNAL REVENUE, Respondent



     Docket No. 1507-95.                 Filed December 22, 1997.




     Jordon Jay Fingar, pro se.

     John T. Lortie, Avarian R. McKendrick, and Marjorie
Desporte-Bryan (specially recognized), for respondent.


             MEMORANDUM FINDINGS OF FACT AND OPINION

     PARR, Judge:   Respondent determined deficiencies in, and

additions to, petitioner's Federal income taxes as follows:
                                - 2 -


                                       Additions to Tax
         Year      Deficiency     Sec. 6651(a)(1) Sec. 6653
         1979       $25,292            $3,823        $1,745
                                                      1
         1980        35,137             9,248           2,150
     1
      On brief, respondent argues that pursuant to sec. 6653(a),
petitioner is subject to a $1,150 addition to tax for 1980.
However, in the notice of deficiency, respondent determined the
sec. 6653(a) addition to tax for 1980 to be $2,150. We find the
$1,150 amount to be a typographical error.

     All section references are to the Internal Revenue Code in

effect for the years in issue, and all Rule references are to the

Tax Court Rules of Practice and Procedure, unless otherwise

indicated.    All dollar amounts are rounded to the nearest dollar,

unless otherwise indicated.

     For 1979 and 1980, petitioner made estimated tax payments of

$10,000 and $6,000, respectively.    Petitioner, however, did not

file his 1979 and 1980 Federal income tax returns until January

10, 1992.    Respondent issued the notice of deficiency for 1979

and 1980 on November 2, 1994.    Accordingly, the notice of

deficiency is valid since it was issued within 3 years of the

date petitioner filed his returns for the taxable years in issue.

Sec. 6501(a).1




1
     It appears respondent improperly assessed petitioner for
1979 and 1980 on the basis of a substitute return filed under
sec. 6020(b) without issuing a notice of deficiency, in violation
of sec. 6213(a). As a result of a question from the Court,
respondent released the lien for 1979 but did not release the
lien for 1980, apparently because petitioner's 1980 purported
liability, as determined by respondent, was not satisfied.
                                 - 3 -

       After concessions by the parties,2 the issues for decision

are:     (1) Whether petitioner may claim Schedule A deductions for

taxes and interest in excess of the amounts allowed by respondent

for the taxable years in issue.      We hold he may, to the extent

set out below.     (2) Whether pursuant to section 162, petitioner

may claim unreimbursed business expense deductions in excess of

the amounts allowed by respondent for the taxable years in issue.

We hold he may, to the extent set out below.       (3) Whether

pursuant to section 280A, petitioner is entitled to deduct home

office expenses for the taxable years in issue.       We hold he is

not.     (4) Whether for 1980, petitioner had unreported interest

income of $853.     We hold he did not.    (5) Whether for 1979,

petitioner is entitled to a theft loss not previously claimed on

his return.     We hold he is not.   (6)   Whether pursuant to section

6651(a)(1) petitioner is liable for additions to tax for his

failure to timely file Federal income tax returns for the taxable

2
     At trial and on brief, respondent concedes that petitioner
correctly reported his share of his then law firm's partnership
income of $96,340 for 1979 and $88,428 for 1980.
     Respondent further concedes that petitioner correctly
claimed Keogh plan deductions of $4,766 for 1979 and $4,150 for
1980.
      Respondent further concedes that petitioner provided
receipts to verify the amounts set out below were spent by
petitioner for 1979 and 1980.

     Item       1979 Amount Verified          1980 Amount Verified
    Taxes             $4,188                          -0-
    Interest           1,010                          -0-
    Auto               3,162                        $1,739
    Sailboat          13,572                        17,270
    T&E                3,109                         1,950
                                - 4 -

years in issue.   We hold he is.   (7) Whether pursuant to section

6653(a) petitioner is liable for additions to tax for negligence

or intentional disregard of rules and regulations for the taxable

years in issue.   We hold he is.

                           FINDINGS OF FACT

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

The stipulated facts and the accompanying exhibits3 are

incorporated into our findings by this reference.    At the time

the petition in this case was filed, petitioner resided in

Surfside, Florida.

Petitioner

     During 1979, petitioner was a real estate attorney and

partner at the law firm of Robinson, Silverman, Pearce, Aronsohn,

Sand & Berman (Robinson Silverman or the firm) in New York City.

While at Robinson Silverman, petitioner began working on

transactions of the Bank of New York (the bank), one of the

firm's larger and more active clients.    At that time, petitioner

was representing the bank in negotiating and closing multi-

million dollar construction loans for large hotels, condominiums,

and office buildings all over the country.

     Robinson Silverman was not the only firm representing the

bank during 1979.    Robert Greenbaum (Greenbaum), a partner at


3
     At trial, petitioner offered Exs. 11, 12, 13, 14, 86, 89,
and 90 into evidence. Respondent objected on the grounds of
relevancy. Upon consideration, we find that the exhibits fail to
address the issues in the instant case. Accordingly,
respondent's objections are sustained.
                               - 5 -

another New York law firm, also represented the bank on

construction loan transactions.   Petitioner and Greenbaum had

been friends for some time.   They had worked together at a firm

in Brooklyn, New York, after graduating from law school, and

petitioner was the best man at Greenbaum's wedding.

     Sometime before 1979, Jimmy Hamilton (Hamilton), an officer

at the bank, approached petitioner and Greenbaum with a

proposition.   The bank was dissatisfied with the way Robinson

Silverman and Greenbaum's firm were handling the bank's business.

Knowing that petitioner and Greenbaum were old friends, Hamilton

suggested that they both leave their respective firms and form a

boutique law firm which would represent the bank.    The bank was

starting a new project in Miami, Florida, known as the Turnberry

Isle Yacht and Racquet Club (Turnberry Isle), a planned luxury

condominium complex on the Intercoastal Waterway.    The Turnberry

Isle Project alone would entail construction loans in excess of

$300 million, to be financed by the bank, with the legal

representation of the bank to be exclusively by petitioner and

his new law firm.   The bank had other similar construction deals

in Florida, which would be directed to their new firm.      If

petitioner and Greenbaum agreed, they would be permitted to

represent other clients with the bank's approval.    Petitioner and

Greenbaum immediately accepted the bank's offer.    Until

petitioner and Greenbaum left their respective jobs the bank

continued to give their firms business.
                                 - 6 -

       Sometime in 1980 petitioner, Greenbaum, and Dickey, another

attorney, formed the new law firm known as Dickey, Greenbaum &

Fingar (Dickey Greenbaum).    Dickey Greenbaum was located in a

downtown office space selected by the bank and close to it.



The Blue Chip

       In 1976, petitioner purchased the Blue Chip (Blue Chip or

the boat), a year-old, 37-foot sailboat for $29,000.      Petitioner

paid $5,000 in cash and financed the rest at an interest rate of

9½ percent.    During the taxable years in issue, petitioner used

the boat to entertain clients.

                               OPINION

       At the outset, we note that the recordkeeping by petitioner

for the years in issue was inconsistent and disorganized.      While

we found petitioner generally to be a credible witness, his lack

of consistent recordkeeping and his disorganized presentation at

trial caused the Court much additional effort in reviewing the

record and sorting out the issues.       Thus, the responsibility for

any omissions in the record lies with petitioner.      Given that

petitioner has the burden of proof, such omissions weigh against

him.

Issue 1.    Schedule A Deductions

       Respondent determined that for 1979 and 1980, petitioner is

not entitled to deduct taxes and interest in excess of the
                                   - 7 -

amounts allowed in the notice of deficiency.4      Petitioner asserts

that the amounts claimed for taxes and interest have been

sufficiently substantiated, both through his oral testimony and

the documentary evidence presented at trial.

        As a general rule, the Commissioner's determinations are

presumed correct, and the taxpayer bears the burden of proving

that those determinations are erroneous.      Rule 142(a); Welch v.

Helvering, 290 U.S. 111, 115 (1933); Nickeson v. Commissioner,

962 F.2d 973, 976 (10th Cir. 1992), affg. Brock v. Commissioner,

T.C. Memo. 1989-641.     Moreover, deductions are a matter of

legislative grace, and the taxpayer bears the burden of proving

that he is entitled to any deduction claimed.      Rule 142(a); New

Colonial Ice Co. v. Helvering, 292 U.S. 435, 440 (1934).        This

includes the burden of substantiation.       Hradesky v. Commissioner,

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

1976).

       Failure to prove the exact amount of an otherwise deductible

item is not fatal, because generally, unless precluded by section

274, we may estimate the amount of such an expense and allow the

deduction to that extent.     Finley v. Commissioner, 255 F.2d 128,


4
     In the notice of deficiency, respondent allowed petitioner
to deduct the following amounts:

     Item    1979 Amount Allowed      1980 Amount Allowed
    Taxes          $5,091                   $422
    Interest        1,010                    -0-
                               - 8 -

133 (10th Cir. 1958), affg. 27 T.C. 413 (1956); Cohan v.

Commissioner, 39 F.2d 540 (2d Cir. 1930).   The estimate, however,

must have some reasonable evidentiary basis.   Vanicek v.

Commissioner, 85 T.C. 731, 743 (1985).

     A.   Taxes

     Respondent determined that petitioner is entitled to deduct

taxes of $5,091 and $422 for 1979 and 1980, respectively.

Petitioner deducted taxes of $17,000 for 1979 and $17,300 for

1980.5

     Section 164(a) generally permits taxpayers to deduct State

and local income taxes, general sales taxes, and taxes on the

sale of gasoline paid or accrued within the taxable year.   Sec.

1.164-1(a), Income Tax Regs.

     Petitioner estimated his deduction for general sales tax, on

the basis of a sales tax of 6 percent multiplied by the various

purchases he made for the boat, the car, and other miscellaneous

expenditures he incurred during the taxable years in issue.

Petitioner's explanation, although logical, is implausible.    He

deducted $10,000 in general sales tax for each year.   Assuming a

sales tax of 6 percent, petitioner would have had to purchase

$166,666 worth of items subject to sales tax in 1979 and 1980 to

have incurred $10,000 in general sales tax for each of those

5
     The $17,000 in taxes that petitioner deducted in 1979
includes $6,000 for State and local income taxes, $1,000 for
State and local gasoline tax, and $10,000 for general sales tax.
     The $17,300 in taxes that petitioner deducted in 1980
includes $6,000 for State and local income taxes, $1,300 for
personal property tax, and $10,000 for general sales tax.
                                - 9 -

years.    This is unlikely, given that petitioner reported income

for 1979 and 1980 of $99,558 and $89,779, respectively.    It is

reasonable to infer, however, that petitioner made purchases in

connection with his boat and car, and for other miscellaneous

items.    Accordingly, we hold that petitioner may deduct general

sales tax of $1,000 for 1979 and $1,000 for 1980.    Cohan v.

Commissioner, supra.

     For 1979, respondent concedes that petitioner paid New York

State income taxes of $4,188.   For 1980, respondent did not allow

petitioner to deduct any State income taxes, because he failed to

substantiate that he incurred such expenditures.    Petitioner

testified, however, that he paid State and local income taxes for

1980 but was unable to get a copy of his cashed checks because

the bank he had used went out of business.   Given that

petitioner's income did not substantially fluctuate from 1979 to

1980, it is reasonable to infer that petitioner paid

approximately the same amount of State income taxes in 1980 as he

did in 1979.    Accordingly, we allow petitioner to deduct $4,000

in State income taxes for 1980.

     B.    Interest

     Respondent determined that petitioner is entitled to deduct

interest of $1,010 and zero for 1979 and 1980, respectively.

Petitioner deducted interest of $7,200 for 1979 and $10,000 for

1980.
                                 - 10 -

      Section 163(a) generally permits taxpayers to deduct

interest paid or accrued within the taxable year on indebtedness.

Sec. 1.163-1(a), Income Tax Regs.; see also Eboli v.

Commissioner, 93 T.C. 123, 129 (1989).

       Petitioner presented no documentation to substantiate the

interest deductions claimed, except for $1,010 which respondent

conceded for 1979.   Petitioner testified that he tried to obtain

a copy of his cashed checks for 1979 and 1980 from his bank, but

the bank was no longer in existence.       During these years

petitioner had outstanding a $25,000 loan on his sailboat and a

$7,000 loan on his car.   It is thus reasonable to infer that

petitioner incurred interest expenses in excess of the amounts

allowed by respondent in the notice of deficiency.       Using our

best estimate, we hold that petitioner may deduct interest of

$3,200 in 1979 and $3,200 in 1980.        Cohan v. Commissioner,

supra.

Issue 2. Unreimbursed Business Expenses

      Respondent determined that for 1979 and 1980, petitioner is

not entitled to deduct automobile expenses, travel and

entertainment expenses, and expenses incurred in connection with

his boat in excess of the amounts allowed in the notice of

deficiency.6


6
     In the notice of deficiency, respondent allowed petitioner
to deduct the following amounts:

    Item   1979 Amount Allowed      1980 Amount Allowed
                                                      (continued...)
                                - 11 -

     A.   Automobile Expenses

     Respondent determined that petitioner may deduct $530 in

automobile expenses for 1979 and $0 for 1980.      Petitioner asserts

that he used his Jaguar XJ-12-L (the car) solely for business

purposes; therefore his deductions for the taxable years in issue

are fully allowable.

     Section 162 generally allows a taxpayer to deduct all

ordinary and necessary expenses incurred during the taxable year

in carrying on a trade or business.      Sec. 162(a).   An expense is

ordinary if it is considered to be "normal, usual, or customary"

in the context of the particular business out of which it arose.

Deputy v. Du Pont, 308 U.S. 488, 495-496 (1940).        An expense is

necessary if it is appropriate and helpful to the operation of

the taxpayer's trade or business.     Commissioner v. Tellier, 383

U.S. 687, 689 (1966).   A taxpayer's general statement that his

expenses were incurred in pursuit of a trade or business normally

is not sufficient to establish that the expenses had a reasonably

direct relationship to that trade or business.      Ferrer v.

Commissioner, 50 T.C. 177, 185 (1968), affd. per curiam 409 F.2d

1359 (2d Cir. 1969).    Rather, a taxpayer ordinarily must maintain

records sufficient to permit verification of income and expenses.




6
 (...continued)
 Auto           $530                        -0-
 T&E          1,136                      $1,950
 Sailboat        -0-                        -0-
                              - 12 -

Sec. 6001; sec. 1.6001-1, Income Tax Regs.7   Accordingly, we

must determine whether petitioner has met his burden of proving

that such expenses satisfy the requirements of section 162(a).

     For 1979 and 1980, petitioner deducted $23,000 and $30,000,

respectively, for business travel and entertainment expenses.

Petitioner's automobile expenses are included in these amounts.

The record, however, is unclear as to the specific amount that

petitioner claimed for automobile expenses.   In the notice of

deficiency for 1979, respondent allowed petitioner as a

reasonable deduction 55 miles per week at 18.5 cents per mile or

$530.   For 1980, respondent did not allow petitioner a deduction

for any expenses he incurred in connection with the car.

     Respondent argues that petitioner did not maintain a mileage

log nor did he record the business purpose of his auto expenses.

Accordingly, respondent contends that petitioner failed to

establish the total business miles driven during the taxable

years in issue.

     At trial, petitioner testified that he used his car to

transport clients to and from closings.   He further testified

that he did not drive to work but used the subway to commute.

Furthermore, petitioner stressed that because he lived in

Manhattan, he did not need a car; that maintaining a car in New

7
     Sec. 274(d)(4) was added to apply to years beginning after
1985. Sec. 274(d)(4) requires specific substantiation for
expenses "with respect to any listed property (as defined in
section 280F(d)(4))". Sec. 280F(d)(4) includes any passenger
automobile as listed property.
                                - 13 -

York City was extremely expensive; and that he used the car

solely for business to transport clients.    Given the availability

of mass transportation in New York City, the constant traffic

congestion, and the high cost of, as well as the restrictions on,

parking, we find highly persuasive petitioner's testimony that he

did not use his car for commuting.

     At trial, respondent conceded that for 1979 and 1980,

petitioner substantiated automobile expenses of at least $3,162

and $1,739 respectively.   Thus, on the basis of the entire

record, we hold that petitioner may deduct $3,162 in 1979 and

$1,739 in 1980.

     B.   Sailboat

     Respondent determined that for 1979 and 1980 petitioner is

not entitled to deduct any expenses incurred in connection with

the ownership and operation of the Blue Chip, because he failed

to establish that the expenses he incurred in connection with the

boat were ordinary and necessary under section 162.    Petitioner

asserts that he used the boat solely for business purposes;

therefore, he contends that his deductions for the taxable years

in issue are fully allowable.    However, section 162 does not

control this issue.

     For tax years beginning in 1979, section 274(a)(1)(B)

strictly disallows the deduction, otherwise allowable, of an item

with respect to a facility used for, or in connection with,

entertainment as defined in section 274(a)(1)(A), such as a boat.
                               - 14 -

Harrigan Lumber Co. v. Commissioner, 88 T.C. 1562, 1565 (1987),

affd. without published opinion 851 F.2d 362 (11th Cir. 1988);

see also sec. 1.274-2(e)(2), Income Tax Regs.

     Accordingly, we hold that petitioner cannot deduct any

expenses incurred in connection with the Blue Chip.8

     C.   Travel and Entertainment

     Respondent determined that petitioner is entitled to deduct

$1,136 in travel and entertainment (T&E) expenses for 1979 and

$1,950 for 1980.   Petitioner deducted T&E expenses of $23,000 for

1979 and $30,000 for 1980.   Petitioner asserts that he provided

respondent with receipts to verify that he incurred such

expenses; therefore, he argues that his T&E deductions for the

taxable years in issue are fully allowable.

     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

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. 1.274-5(b)(1), Income Tax Regs.

For travel expenses incurred while away from home, a taxpayer

must maintain adequate records reflecting:    (1) The amount of

each separate expenditure of transportation and lodging, (2) the

8
     At trial and on brief, petitioner asserts that he is
entitled to a depreciation deduction for the Blue Chip not
previously claimed on his 1979 and 1980 returns. Given our
holding, however, that petitioner's boat is an entertainment
facility within the meaning of sec. 274(a)(1)(B), a depreciation
deduction with respect to the boat is disallowed.
                               - 15 -

dates of departure and return for each trip, and the number of

days spent on business, (3) the place of travel, and (4) the

business benefit derived by the taxpayer for each trip.   Sec.

1.274-5(b)(2), Income Tax Regs.

     At trial, petitioner's testimony regarding his travel, meal,

and entertainment expenses was vague and in many instances

incoherent.   Although petitioner submitted various receipts and a

personal diary for each tax year establishing that he incurred

expenses, these documents fail to establish the business purpose

and business relationship of these expenses.   Accordingly,

petitioner has failed to meet the strict substantiation

requirements of section 274(d), and we, therefore, sustain

respondent's determination for the taxable years in issue.

Issue 3.    Home Office Deductions

     Respondent determined that petitioner is not entitled to a

home office deduction for the taxable years in issue.   Petitioner

asserts that during 1979 his home office was used for many

meetings "with the bank people, and with Greenbaum and Dickey,

plotting our escape from our respective firms."   Similarly, in

1980, petitioner asserts that he used his home office to meet

with clients from Robinson and Silverman and to wind down his old

business.

     Section 280A generally prohibits the deduction of otherwise

allowable expenses with respect to the use of an individual

taxpayer's home.    Section 280A(c)(1) provides a narrow exception
                              - 16 -

to the disallowance of home office deductions where a taxpayer

can establish that a portion of the home is used exclusively on a

regular basis as:   (1) The taxpayer's principal place of

business, or (2) as a place of business which is used by clients

or customers in meeting or dealing with the taxpayer in the

normal course of business.   While determination of a taxpayer's

principal place of business for purposes of section 280A depends

upon the particular facts of the case, the two primary factors

applied in determining whether a home office qualifies as a

taxpayer's principal place of business are:   (1) The relative

importance of the activities performed at each business location,

and (2) the time spent at each location.   Commissioner v.

Soliman, 506 U.S. 168, 175 (1993).

     Petitioner has failed to establish that he used a portion of

his apartment exclusively on a regular basis for business.

Petitioner testified that the alleged home office was located in

a dining area between the living room and the kitchen.   There is

no indication that the room was partitioned off from the rest of

the apartment.   Furthermore, the evidence does not enable us to

find that petitioner used his home office to regularly meet with

clients.   Finally, petitioner has failed to establish that his

home office was his principal place of business.   The evidence is

clear that during the taxable years in issue, the principal

places of petitioner's law practice were at Robinson Silverman

and Dickey Greenbaum, where petitioner had an office and a
                               - 17 -

secretary, spent most of his time, and earned his livelihood.

For the reasons discussed herein, we sustain respondent's

determination on this issue.

Issue 4.   Unreported Interest Income

     For 1980, respondent determined that petitioner failed to

report interest income of $853 from the Irving Trust Co.

Petitioner asserts that he received $2,291 of interest income in

1980 and that he correctly reported that amount on his 1980

Federal income tax return.

     As a general rule, interest received by or credited to a

taxpayer within the taxable year, including interest on savings

or other bank deposits constitutes gross income and is fully

taxable.   Sec. 1.61-7, Income Tax Regs.

     At trial, respondent submitted five Forms 1099 totaling

$1,429 (the Forms 1099) to establish that petitioner has

unreported income of $853 for 1980.     However, the Forms 1099 on

which respondent relies refer to 1979, not to 1980.    Moreover,

none of the Forms 1099 are from the Irving Trust Co.

Accordingly, we hold that petitioner correctly reported his

interest income for 1980.

Issue 5.   Theft Loss

     As a general rule, in computing taxable income, a taxpayer

may deduct, pursuant to section 165(a), any loss sustained during

the taxable year, including a loss arising from theft which is

not compensated by insurance or otherwise, if the taxpayer meets
                               - 18 -

the requirements of section 165 and the regulations thereunder.

If the theft loss is not connected with a taxpayer's trade or

business, a deduction shall be allowed only to the extent that

the amount of loss to the taxpayer arising from each casualty

exceeds $100.    Sec. 165(c)(3).

     At trial and on brief, petitioner asserts that he is

entitled to a $1,739 theft loss deduction not previously claimed

on his 1979 return for camera equipment allegedly stolen from his

car in March of 1979.   Petitioner, however, has not established

that he has met the requirements of section 165 entitling him to

such a deduction.   Petitioner did not submit a police report as

evidence that the theft actually occurred, nor did he submit

receipts to establish the amount spent for each item.

Accordingly, petitioner has failed to carry the burden of proof

on this issue.

Issue 6.   Section 6651 (a)(1) Addition to Tax

     For 1979 and 1980, respondent determined that petitioner,

pursuant to section 6651(a)(1), is liable for additions to tax of

$3,823 and $9,248, respectively.

     Section 6651 imposes an addition to tax for failure to

timely file a Federal income tax return unless it is shown that

the failure is due to reasonable cause and not due to willful

neglect.   Petitioner has the burden of proving that respondent's

determination of the addition to tax is erroneous.   Rule 142(a);

Welch v. Helvering, 290 U.S. at 115.
                               - 19 -

     Petitioner did not file his income tax returns for 1979 and

1980 until January 10, 1992.   He failed to present any evidence

that his failure to timely file was due to anything other than

willful neglect.   Accordingly, we sustain respondent's

determination on this issue.

Issue 7. Section 6653(a) Addition to Tax

     For 1979 and 1980, respondent determined that petitioner,

pursuant to section 6653(a), is liable for additions to tax of

$1,745 and $2,150, respectively.

     Section 6653(a) imposes an addition to tax of 5 percent of

the underpayment if any part of the underpayment is due to

negligence or intentional disregard of rules or regulations.

Negligence is defined as lack of due care or the failure to do

what a reasonable and ordinarily prudent person would do under

the circumstances.   Neely v. Commissioner, 85 T.C. 934, 947

(1985).   The burden is on petitioner to show that he acted

reasonably and exercised due care.      Id.

     Petitioner did not address the section 6653 issue at trial

or on brief.   Therefore, he failed to carry his burden of proof,

and we sustain respondent's determination on this issue.

     To reflect the foregoing,



                                        Decision will be entered

                                   under Rule 155.
