                         T.C. Memo. 2001-59



                       UNITED STATES TAX COURT



         LARRY M. PETTY AND JEAN L. PETTY, Petitioners v.
           COMMISSIONER OF INTERNAL REVENUE, Respondent



     Docket No. 4038-99.                         Filed March 9, 2001.



     Larry M. Petty and Jean L. Petty, pro sese.

     Stephen P. Baker, for respondent.



             MEMORANDUM FINDINGS OF FACT AND OPINION


     CHIECHI, Judge:    Respondent determined deficiencies in,

additions under section 6651(a)(1)1 to, and accuracy-related

penalties under section 6662(a) on, petitioners’ Federal income


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

tax (tax), as follows:

                          Addition to Tax    Accuracy-Related Penalty
 Year       Deficiency       Under Sec.          Under Sec. 6662(a)
                            6651(a)(1)
 1992         $4,271            $417                      $854
 1993          7,848           1,240                     1,570

        The issues remaining for decision2 are:

        (1)    Are petitioners entitled for 1993 to Schedule C deduc-

tions in excess of those conceded by respondent?         We hold that

they are not.

        (2)    Are petitioners liable for 1993 for the addition to tax

under section 6651(a)(1)?       We hold that they are.

                             FINDINGS OF FACT

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

        Petitioners resided in Alaska at the time the petition was

filed.

        On April 5, 1997, petitioners signed Form 1040, U.S. Indi-

vidual Income Tax Return, for 1993 (petitioners’ joint return),

which respondent received on April 9, 1997.       Attached to peti-

tioners’ joint return was Schedule C, Profit or Loss From Busi-

ness (Schedule C), in which petitioner Larry Petty (Mr. Petty)

reported his principal business or profession as “Truck Service”.

In Schedule C, petitioners reported gross income of $5,820 and

claimed expenses of $30,268 and a net loss of $24,448.           Included


        2
      Computational issues also remain, resolution of which flows
automatically from the concessions of the parties and our find-
ings with respect to petitioners’ claimed Schedule C deductions.
                              - 3 -

in the expenses claimed in Schedule C were $7,902 for “Repair

parts”, $3,748 for “Repairs and maintenance”, $6,205 for “Depre-

ciation”, and $3,208 for “Fuel”.

     During 1993, petitioners paid the amounts indicated with

respect to the following expenses that they claim are part of the

total expenses that they deducted for 1993 in Schedule C for

“Repair parts”:

   Date of
    Check            Amount           Claimed Nature of Expense
  05/22/93           $0.48                  Bolts for gate
  04/21/93           14.00         Keys for side bin of farm truck
  01/02/93             3.89                       Parts
  01/06/93            43.20                       Parts
  03/30/93             6.92              Parts--bolts and nuts
  04/21/93           19.25                         Keys
  07/03/93           25.00          Interior Tax Assoc. membership
  07/06/93             8.43                 Generator parts
  08/31/93           46.88                      Ford part
  11/10/93           15.54                    Parts--fuses
             Total $183.59

     During 1993, petitioners paid the amounts indicated with

respect to the following expenses that they claim are deductible

for 1993 as Schedule C expenses for “Repairs and maintenance”:

  Date of
   Check          Amount           Claimed Nature of Expense
 01/02/93         $192.89           Repairs to farm building
 03/05/93           41.44                 Part ‘98 Olds
 03/05/93           45.00                 Dodge starter
 03/08/93          200.00                 Transfer case
 03/10/93           18.16                    Dodge ad
 01/07/93           79.93      Seatcover, truck mat, and weather
                                        cord for wrecker
 01/08/93          119.97                    Tool box
 01/11/93           31.76                    Supplies
 02/19/93            8.74               Part for CB radio
 03/03/93           49.00                      Tool
 02/12/93           17.95         Not disclosed by the record
                               - 4 -

 06/12/93         100.00                Part for 1978 Dodge
 06/16/93          72.75                     Case of oil
 03/29/93           4.73                           Oil
 03/28/93          22.82                Part for 966 loader
 06/16/93          32.65                     Fence bolts
 03/24/93          15.08                        Repairs
 05/15/93         205.00                  Built farm gates
 04/01/93          20.06                     Ford switch
 11/30/93          69.41                   Part for F-250
 08/13/93         188.11                      Ford parts
 01/19/93          17.65                    Wrecker parts
 01/15/93         118.46                   Wrecker lights
 01/14/93          15.58                 Bolts for wrecker
 01/02/93           8.60           Not disclosed by the record
 03/11/93          85.50                       Organizer
 02/22/93           7.43                  Log forks repair
 02/23/93         124.60                Wrecker motor heads
 01/25/93         120.00                        Ford tow
 01/25/93          40.00                       Dodge tag
 11/23/93          46.14               Repairs--No. 10 black
                                            stranded wire
 03/26/93          70.27                 Oil change and oil
 08/02/93         120.00           Not disclosed by the record
 07/29/93         106.12            Batteries for Case tractor
 12/08/93         102.26                         Chains
 04/13/93          65.00          Title change and registration
 03/24/93          51.00           Not disclosed by the record
 04/14/93          19.96                          Tools
 03/22/93          45.00              Title transfer and tags
 05/27/93          30.90                       Used tire
 01/22/92          91.85                Headlights, farm use
 01/17/93          36.30                          Tools
 01/31/93         447.45                      Wood tools
 01/30/93          85.00         Tow and 4-day storage of wrecked
                                              farm truck
 02/03/93          76.67                   Tool box, etc.
 01/29/93          30.19                            Ad
 01/29/93       1,092.62                   Wrecker repair
 02/09/93         138.77                   Wrecker repair
 02/08/93         291.91                   Wrecker repair
         Total $5,020.68

     At some time around December 1993 or January 1994, petition-

ers traveled from Alaska to Texas to purchase certain farm

equipment.   After purchasing such equipment, petitioners discov-
                               - 5 -

ered that the truck and the trailer that they had driven to Texas

were not large enough to transport all of that equipment back to

Alaska.   Consequently, at a time not established by the record,

petitioners purchased another truck and another trailer to use in

transporting to Alaska the farm equipment that they had purchased

in Texas.

     In the notice of deficiency issued to petitioners for 1992

and 1993 (notice), respondent determined, inter alia, to disallow

deductions for 1993 for certain of the total expenses claimed in

Schedule C because petitioners did not establish that Mr. Petty

was engaged in a trade or business during 1993, that such ex-

penses were paid or incurred during 1993, and that such expenses

were ordinary and necessary expenses within the meaning of

section 162(a).   Respondent further determined, inter alia, that

petitioners are liable for 1993 for the addition to tax under

section 6651(a)(1) for their failure to file timely petitioners’

joint return.

                              OPINION

     At trial, respondent conceded all determinations in the

notice relating to 1992 and 1993, except certain determinations

for 1993.3   After concessions, it is respondent’s position that


     3
      In addition to respondent’s concessions of most of the
determinations in the notice, respondent conceded at trial that
petitioners are entitled for 1993 to deductions in Schedule F,
Profit or Loss from Farming, in excess of those claimed by them
                                                   (continued...)
                                - 6 -

petitioners have a deficiency in tax for 1993 of $1,483 and that

they are liable for that year for the addition to tax under

section 6651(a)(1).    At trial, petitioners conceded all expenses

claimed in Schedule C for “Fuel” in excess of those conceded by

respondent for 1993.

     Petitioners bear the burden of proving error in the determi-

nations for 1993 that remain at issue and their entitlement to

the new matter that they claimed at trial.4   See Rule 142(a);

Welch v. Helvering, 290 U.S. 111, 115 (1933).

Schedule C Deductions

     Deductions are strictly a matter of legislative grace, and

petitioners bear the burden of proving that they are entitled to

any deductions claimed.   See INDOPCO, Inc. v. Commissioner, 503

U.S. 79, 84 (1992).    At trial, petitioners attempted to satisfy

that burden through Mr. Petty’s testimony and certain documentary

evidence.   We found Mr. Petty’s testimony to be general, vague,

conclusory, and/or questionable in certain material respects.

Under these circumstances, we are not required to, and we shall

not, rely on Mr. Petty’s testimony to sustain petitioners’ burden

of proving that they are entitled to any Schedule C deductions in

excess of those conceded by respondent.    See Lerch v. Commis-


     3
      (...continued)
when they filed their 1993 joint return.
     4
      Although the Court gave petitioners the opportunity to file
briefs, they chose not to do so.
                                 - 7 -

sioner, 877 F.2d 624, 631-632 (7th Cir. 1989), affg. T.C. Memo.

1987-295; Geiger v. Commissioner, 440 F.2d 688, 689-690 (9th Cir.

1971), affg. per curiam T.C. Memo. 1969-159; Tokarski v. Commis-

sioner, 87 T.C. 74, 77 (1986).

     As for the documentary evidence on which petitioners rely,

some of that evidence establishes that petitioners paid certain

amounts for various expenditures.5       However, we find that that

documentary evidence does not show that any of those paid amounts

is deductible for 1993.

     On brief, respondent concedes that during 1993 Mr. Petty

operated a truck service Schedule C business.       However, respon-

dent contends on brief that petitioners have failed to establish

their entitlement for 1993 to the claimed Schedule C deductions

at issue.

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

necessary expenses paid during the taxable year in carrying on a

trade or business.   The determination of whether an expenditure



     5
      Not all of the documentary evidence on which petitioners
rely establishes that petitioners paid the expenditures to which
that evidence relates. For example, petitioners introduced
carbon copies of the front, and not the back, of certain checks.
By way of further illustration of documentary evidence on which
we are unwilling to rely is a check that was endorsed on the back
by the payee and immediately thereunder reendorsed by Mr. Petty.
Under Mr. Petty’s endorsement appears petitioners’ bank account
number. Finally, the documentary evidence proffered by petition-
ers included certain invoices which do not indicate that the
sales described in such invoices were made to, and paid by,
petitioners.
                                 - 8 -

satisfies the requirements for deductibility under section 162 is

a question of fact.   See Commissioner v. Heininger, 320 U.S. 467,

475 (1943).    In general, an expense is ordinary if it is consid-

ered normal, usual, or customary in the context of the particular

business out of which it arose.    See Deputy v. du Pont, 308 U.S.

488, 495 (1940).   Ordinarily, an expense is necessary if it is

appropriate and helpful to the operation of the taxpayer’s trade

or business.   See Commissioner v. Tellier, 383 U.S. 687, 689

(1966); Carbine v. Commissioner, 83 T.C. 356, 363 (1984), affd.

777 F.2d 662 (11th Cir. 1985).

     With respect to the deductions for 1993 totaling $7,902

claimed in Schedule C for “Repair parts”, respondent concedes

that petitioners are entitled to deduct $5,214 of those claimed

expenses.   However, respondent contends that petitioners are not

entitled to deduct the balance (i.e., $2,688) of those claimed

Schedule C expenses because they have not shown that such ex-

penses are ordinary and necessary expenses paid during 1993 in

carrying on Mr. Petty’s truck service business.   Of the $2,688 of

claimed Schedule C expenses for “Repair parts” that are at issue,

petitioners have shown that during 1993 they paid only $183.59

of such claimed expenses.6   We find on the instant record that


     6
      Petitioners contend that the entire amount of the $183.59
of Schedule C expenses at issue for 1993 that we have found they
paid during that year relates to, and is deductible as, “Repair
parts”. On the record presented, we reject that contention. For
                                                   (continued...)
                               - 9 -

petitioners have failed to establish that during 1993 they paid

more than $183.59 of the claimed Schedule C expenses for “Repair

parts” that are at issue.   We further find on the record before

us that petitioners have failed to establish that the $2,688 of

Schedule C expenses at issue claimed as deductions for 1993 for

“Repair parts” are ordinary and necessary expenses paid during

that year in carrying on Mr. Petty’s truck service business.

     Based on our examination of the entire record before us, we

find that petitioners have failed to prove that they are entitled

for 1993 to deduct under section 162(a) $2,688 of their claimed

Schedule C expenses for “Repair parts” that remain at issue or

any other amount in excess of that conceded by respondent.

     With respect to the deductions for 1993 totaling $3,748

claimed in Schedule C for “Repairs and maintenance”, respondent

concedes that petitioners are entitled to deduct $865 of those

claimed expenses.   However, respondent contends that petitioners

are not entitled to deduct the balance (i.e., $2,883) of those

claimed Schedule C expenses because they have not shown that such

expenses are ordinary and necessary expenses paid during 1993 in

carrying on Mr. Petty’s truck service business.   On the record

before us, we agree with respondent.

     We note initially that the documentary evidence on which


     6
      (...continued)
example, two such claimed paid expenses are for keys and one such
claimed expense is for a membership fee in a tax association.
                             - 10 -

petitioners rely to establish their entitlement to deduct for

1993 the expenses remaining at issue that they claimed in Sched-

ule C for “Repairs and maintenance” shows that they paid amounts

during 1993 totaling $5,020.68.   However, petitioners claimed a

deduction in Schedule C for “Repairs and maintenance” of only

$3,748, of which, as noted above, respondent conceded $865 at

trial, leaving only $2,883 which remains at issue.   Furthermore,

the documentary evidence on which petitioners rely to support

their entitlement to deduct for 1993 the $2,883 of claimed

Schedule C expenses for “Repairs and maintenance” that remain at

issue included a number of checks which do not even involve or

relate to repair and/or maintenance expenses.7   On the instant

record, we find that petitioners have failed to establish that

the entire amount of $5,020.68 that the record establishes they

paid during 1993 relates to “Repairs and maintenance”.   We

further find on the record before us that petitioners have failed

to prove that such paid amounts are ordinary and necessary

expenses paid during 1993 in carrying on Mr. Petty’s truck



     7
      For example, three of the checks petitioners introduced
into evidence to substantiate their claimed Schedule C expenses
for “Repairs and maintenance” represent amounts paid for car
titles and registrations; two of such checks represent amounts
paid for ads; and four of such checks represent amounts paid for
items not established by the record. In this connection, Mr.
Petty indicated at trial that a number of the checks introduced
by petitioners with respect to the deductions claimed in Schedule
C for “Repairs and maintenance” represented “a bunch of checks as
an afterthought, that I put in here.”
                              - 11 -

service business.8

     Based on our examination of the entire record before us, we

find that petitioners have failed to prove that they are entitled

for 1993 to deduct under section 162(a) $2,883 of their claimed

Schedule C expenses for “Repairs and maintenance” that remain at

issue or any other amount in excess of that conceded by respon-

dent.

     With respect to the deductions for 1993 totaling $6,205

claimed in Schedule C for depreciation, respondent concedes that

petitioners are entitled under section 167(a) to deduct $2,055.

However, respondent contends that petitioners are not entitled to

deduct the remaining amount (i.e., $4,150) of claimed Schedule C

depreciation.   Section 167(a) allows a deduction for a reasonable

allowance for the exhaustion, wear and tear, and obsolescence of

property used in a trade or business or held for the production

of income.   The basis on which a depreciation deduction is

allowable with respect to any property under section 167(a) is

the adjusted basis of the property, determined under section 1011

for the purpose of determining gain on the sale or other disposi-

tion of such property.   See sec. 167(c).   Petitioners introduced

no evidence to support the $4,150 of claimed Schedule C deprecia-


     8
      We also find on the record presented that petitioners have
failed to establish that the $5,020.68 of expenses that the
documentary evidence introduced at trial establishes they paid
did not include amounts of expenses conceded by respondent as
deductible Schedule C expenses.
                                - 12 -

tion deductions at issue for 1993 other than Mr. Petty’s testi-

mony that “my Schedule C was filled out by my accountant, and I

stand by [that] as correct.”9

     Based on our examination of the entire record before us, we

find that petitioners have failed to prove that they are entitled

for 1993 to deductions under section 167(a) for $4,150 of their

claimed Schedule C depreciation deductions that remain at issue

or any other amount in excess of that conceded by respondent.

     At trial, petitioners raised a new issue with respect to the

purchase of a truck and a trailer, which they contend they

purchased in 1993.   Although petitioners do not claim a specific

total dollar amount for any deductions with respect to that

purchase, it is our understanding that petitioners are claiming

depreciation on the truck and the trailer and all of the expenses

that they paid during their round trip from Alaska to Texas.10

Mr. Petty initially testified that the purchase price of the

truck and the trailer was approximately $40,000.   He thereafter

testified that he did not remember the purchase price of the



     9
      Assuming arguendo that petitioners had established that the
properties on which they are claiming the Schedule C depreciation
deductions at issue for 1993 were used in a trade or business or
held for the production of income during that year, we find on
the instant record that petitioners have failed to prove their
respective bases in any such properties for 1993.
     10
      Mr. Petty indicated at trial that he wanted to claim “All
the expenses that went [sic] involved in the going to Texas, and
the truck and trailer in service in ‘93, whatever that is”.
                              - 13 -

truck and the trailer.   The only documentary evidence petitioners

submitted with respect to the purchase in question was a check

dated January 7, 1994 (check), in the amount of $500 that was

payable to Bledsoe Ford.   The signature line on that check bore

the name “Larry Petty”, and a notation on the check stated:

“down on 93 F350".   Petitioners contend that the check was for

the purchase of the extended warranty on the truck and not for

the purchase of the truck itself.   On the record before us, we

find that petitioners have failed to establish that they paid

specified amounts of expenses during their round trip from Alaska

to Texas, that any such amounts were paid in 1993, that any such

amounts were for ordinary and necessary expenses paid in 1993 in

carrying on any trade or business of Mr. Petty or petitioners,

and that any such amounts were not already included as part of

the expenses conceded by respondent.   We further find on the

instant record that petitioners have failed to establish their

entitlement for 1993 to any deduction for depreciation under

section 167(a) with respect to their purchase in Texas of a truck

and a trailer.

     Based on our examination of the entire record before us, we

find that petitioners have failed to prove that they are entitled

for 1993 to deductions under sections 162(a) and 167(a) in excess

of any such deductions conceded by respondent with respect to

amounts that they claim they paid during their round trip from
                                - 14 -

Alaska to Texas and for the purchase of a truck and a trailer in

Texas.

Addition to Tax Under Section 6651(a)(1)

     Section 6651(a)(1) imposes an addition to tax for failure to

file timely a tax return.   The addition to tax does not apply if

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

glect.   See sec. 6651(a)(1).   Petitioners’ joint return for 1993

was received by respondent on April 9, 1997.   Petitioners intro-

duced no evidence and advanced no contentions at trial regarding

respondent’s determination to impose for 1993 the addition to tax

under section 6651(a)(1).   On the instant record, we find that

petitioners have failed to carry their burden of establishing

that they are not liable for 1993 for the addition to tax under

section 6651(a)(1).

     We have considered all of the arguments and contentions of

petitioners that were advanced at trial, which are not discussed

herein, and we find them to be without merit and/or irrelevant.

     To reflect the foregoing and the concessions of the parties,

                                     Decision will be entered under

                                Rule 155.
