                       T.C. Memo. 1997-63



                     UNITED STATES TAX COURT



                  CRAIG V. ADAMS, Petitioner v.
          COMMISSIONER OF INTERNAL REVENUE, Respondent



     Docket No. 10587-95.                   Filed February 4, 1997.



     Clinton A. Jackson, for petitioner.

     Charles M. Ruchelman, for respondent.



             MEMORANDUM FINDINGS OF FACT AND OPINION

     COHEN, Chief Judge:    Respondent determined a deficiency of

$30,394 in petitioner's Federal income tax for 1991 and an

accuracy-related penalty of $6,078 pursuant to section 6662(a).

Unless otherwise indicated, all section references are to the

Internal Revenue Code in effect for the year in issue, and all
                                - 2 -

Rule references are to the Tax Court Rules of Practice and

Procedure.

       After a concession by petitioner, the issues remaining for

decision are:    (1) Whether petitioner failed to report income;

(2) whether petitioner is entitled to depreciation deductions;

(3) whether petitioner is entitled to rental expense deductions;

(4) whether petitioner is entitled to claim his mother and his

father as his dependents; (5) whether petitioner is entitled to

head of household filing status; and (6) whether petitioner is

liable for the accuracy-related penalty under section 6662.

                          FINDINGS OF FACT

       Some of the facts have been stipulated, and the stipulated

facts are incorporated in our findings by this reference.     At the

time the petition was filed, petitioner resided in Washington,

D.C.    During the first 6 months of 1991, petitioner was chief

resident at Washington Hospital Center.      For the last 6 months of

1991, petitioner was in a private medical practice.

World Medical/Dental--Equipment Leasing and Depreciation

       Petitioner purchased various medical and dental equipment,

office furniture, and a used neon sign during 1987, 1988, and

1989.    During 1989, 1990, and at least a portion of 1991,

petitioner's mother operated World Medical/Dental, a walk-in

dental clinic on 16th Street, N.W., in Washington, D.C.     Pursuant

to a lease agreement dated July 1, 1987, petitioner's mother was

to pay $2,500 per month for the use of the medical and dental
                                - 3 -

equipment and the office furniture in the World Medical/Dental

business.    On December 6, 1988, petitioner and his mother entered

into an agreement whereby petitioner's mother would pay

petitioner $500 per month for the use of a used neon sign that

read "World Med/Dent".

       On his 1989 and 1990 Schedules C, petitioner reported that

his principal business was a medical/dental office known as

"World Med/Dent" located on 16th Street, N.W., in Washington,

D.C.    Petitioner reported income of only $10,000 and $12,500 on

his Schedules C for 1989 and 1990, respectively.    In addition to

depreciation on the leased items, petitioner claimed advertising,

postage, laundry, travel, and supplies as Schedule C expenses in

1989 and 1990.

       On his 1991 Schedule C, petitioner reported that his

principal business was a "Medical Office/Physician" located on

Irving Street, N.W., Washington, D.C.    Petitioner received no

lease payments from his mother during 1991, and he retrieved his

equipment from his mother during April 1991.

       During 1991, petitioner did not use the neon sign or any of

the dental equipment in his private medical practice.

Unreported Income

       Dr. Marie Kay (Dr. Kay) was employed by World Medical/Dental

beginning in January 1988.    According to Dr. Kay's employment

agreement, all equipment, furniture, and supplies of World

Medical/Dental were and were to remain the property of
                                - 4 -

petitioner.    Dr. Kay was initially to be paid a certain amount

per working day and then, after 270 days, Dr. Kay's pay was to be

a 20-percent share of the net profits.    On or about February 1,

1991, Dr. Kay presented a cashier's check in the amount of

$23,000 to petitioner's mother.    On February 8, 1991, Dr. Kay

presented a check in the amount of $15,000 to petitioner's

mother.    The February 8, 1991, check bore the notation "Deposit

for purchase of practice World Dental".    On or about February 22,

1991, Dr. Kay presented a cashier's check in the amount of

$25,000 to petitioner's mother.

     In late February 1991, petitioner received a check in the

amount of $33,000 from the account of World Medical/Dental.      On

March 6, 1991, petitioner received an additional $25,000 from his

parents.    These amounts were in addition to gifts that petitioner

received from his parents during 1991.

Pennsylvania Property

     In February 1990, petitioner inherited property in

Pittsburgh, Pennsylvania (the Pennsylvania property).    During

1990 and 1991, petitioner received no rental income from the

property.    On his 1991 Schedule E, petitioner claimed rental

expenses totaling $3,955.42 relating to the Pennsylvania

property.

Dependency and Head of Household Status

     Petitioner's mother and father did not file 1991 Federal

income tax returns.    During 1991, petitioner's parents resided,
                                - 5 -

at least for some period of time, in a Washington, D.C., home

that was owned by petitioner and at least one of his brothers.

Petitioner's parents were in Florida on numerous occasions during

1991 and made several trips to other locations during the year.

In 1991, petitioner's father received all of his Social Security

checks at a Florida address where petitioner's grandmother

resided.   During 1991, petitioner received gifts from his parents

totaling at least $20,000.    Petitioner deposited into his

personal bank account checks made payable to his father totaling

$10,240.42.    Petitioner's mother received an undetermined amount

of interest payments from investments during 1991.

                               OPINION

Unreported Income

     Respondent determined that petitioner failed to report

$63,000 that was received from the sale of his medical/dental

equipment.    This amount corresponds to the amounts received by

petitioner's mother from Dr. Kay.    During 1991, petitioner

received payments of $33,000 and $25,000 and deposited into his

personal account checks payable to his father totaling

$10,240.72, in addition to his receipt of over $20,000 in gifts

from his parents.

     Petitioner argues that the money that was received from

World Medical/Dental and from petitioner's father was in

repayment of loans.
                               - 6 -

     Neither petitioner nor his parents could provide any

specifics about the claimed loans.     No documentation or other

objective indicia of a bona fide debt were introduced.     On the

minimal evidence presented, and in view of the family

relationship, we cannot conclude that there was any bona fide

obligation between petitioner's parents and petitioner.     See

Perry v. Commissioner, 92 T.C. 470, 481 (1989), affd. without

published opinion 912 F.2d 1466 (5th Cir. 1990).

     Petitioner also argues that no sale of the World

Medical/Dental practice to Dr. Kay was ever consummated.

Petitioner does not deny, however, that he was the owner of the

equipment, furniture, and supplies of World Medical/Dental at the

time the alleged sale occurred.   That the sale to Dr. Kay was not

completed does not exclude from gross income any money received

by petitioner in contemplation of the sale of his equipment that

was part of World Medical/Dental.

     Dr. Kay testified that the money that she paid to

petitioner's mother was a downpayment on the purchase of World

Medical/Dental.   Dr. Kay also testified that she never received

any of the assets of World Medical/Dental and that she was never

refunded any portion of her downpayment.     According to Dr. Kay's

testimony, World Medical/Dental was suddenly closed in April 1991

without any explanation.

     Petitioner's only explanation at trial for Dr. Kay's

payments is that the $63,000 received by World Medical/Dental
                                - 7 -

from Dr. Kay was for expenses due under a term of Dr. Kay's

employment contract.   On brief, petitioner did not make this

argument and apparently abandoned this position.   Even if this

position were not abandoned, petitioner has not produced any

reliable evidence in support of his claim.   Furthermore, Dr. Kay

testified credibly that she never shared in the net profits and

that her salary remained at a certain dollar amount per day.

     Petitioner has not offered any credible evidence to disprove

respondent's determination that he received income from funds

paid by Dr. Kay.   Petitioner's changing factual contentions

suggest that he has little regard for the truth.   Thus,

respondent's determination will be sustained.

Equipment Depreciation

     Respondent determined that petitioner is not entitled to

depreciation deductions claimed on medical/dental equipment and a

used neon sign.    Petitioner bears the burden of establishing that

he is entitled to the claimed deductions.    Rule 142(a); INDOPCO

v. Commissioner, 503 U.S. 79, 84 (1992); Rockwell v.

Commissioner, 512 F.2d 882, 886 (9th Cir. 1975), affg. T.C. Memo.

1972-133.   This includes substantiating the amount of the item

claimed.    Hradesky v. Commissioner, 65 T.C. 87, 90 (1975), affd.

per curiam 540 F.2d 821 (5th Cir. 1976).

     "Section 167(a) provides that a reasonable allowance for the

exhaustion, wear and tear, and obsolescence of property used in

the trade or business or of property held by the taxpayer for the
                                - 8 -

production of income shall be allowed as a depreciation

deduction."    Sec. 1.167(a)-1(a), Income Tax Regs.   The allowance

is "that amount which should be set aside for the taxable year

* * * so that the aggregate of the amounts set aside, plus the

salvage value, will, at the end of the estimated useful life of

the depreciable property, equal the cost or other basis of the

property".    Sec. 1.167(a)-1(a), Income Tax Regs.    The basis to be

used is "the adjusted basis provided in section 1011 for the

purpose of determining the gain on the sale or other disposition

of such property."    Sec. 167(g).1   In the instant case,

petitioner's basis is the cost of the medical/dental equipment

and the used neon sign.

     As evidence of the cost of the items, petitioner introduced

handwritten documents to show various alleged sales of equipment

from petitioner's father to petitioner.     At trial, petitioner

testified that petitioner's father used petitioner's money to

purchase the equipment and that the documents were executed to

memorialize the transaction.    Petitioner's father's testimony

indicated that the documents, although dated in 1987, 1988, and

1989, were not necessarily prepared contemporaneously with the

purchase of the equipment.    No receipts or other independent

     1
      This is the section in effect for property placed into
service during 1987, 1988, and 1989. The section was later
renumbered sec. 167(c) by sec. 11812(a)(1) and (2) of the Omnibus
Budget Reconciliation Act of 1990, Pub. L. 101-508, 104 Stat.
1388, 1388-534, for property placed into service after
November 5, 1990.
                               - 9 -

evidence of the purchase or of the cost of these items was

received into evidence from which we can estimate an allowable

deduction, cf. Cohan v. Commissioner, 39 F.2d 540 (2d Cir. 1930);

we must have some basis on which an estimate may be made.

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

     Respondent's determination that petitioner is not entitled

to depreciation deductions for medical/dental equipment and a

used neon sign will be sustained.

Pennsylvania Property

     Respondent determined that petitioner is not entitled to

deduct any claimed expenses associated with the Pennsylvania

property other than $732 in real estate taxes paid by petitioner.

The parties stipulated that certain amounts claimed as supplies

and advertising expense were paid, but respondent does not agree

that the amounts spent related to rental of the Pennsylvania

property.   Respondent contends that the advertisement and the

supplies, along with the claimed repairs and depreciation

expenses, are not deductible because petitioner did not hold the

property in the course of a trade or business or for the

production or collection of income during 1991.

     The record is totally lacking in credible evidence of

petitioner's attempting to rent the Pennsylvania property.   At

trial, petitioner admitted that, at some point during "the

spring" of 1991, he decided to "unload" the property.

Photographs that were admitted as evidence of the repairs that
                              - 10 -

petitioner made to the property show a "For Sale" sign in the

window of the property.   A classified advertisement that was

introduced at trial likewise indicates that the property was for

sale, not for rent.

     Petitioner also introduced numerous receipts in an attempt

to substantiate purchases of items for supplies and repairs.    The

majority of these receipts show purchases in the Washington,

D.C., area, not in the Pittsburgh area.    That petitioner would

purchase all of these items in the Washington, D.C., area and

transport them to Pittsburgh to make the repairs is not credible,

especially in light of petitioner's testimony that a family

friend in Pittsburgh made most of the repairs.

     On the record before us, we cannot conclude that petitioner

attempted to rent the Pennsylvania property.    We conclude that

petitioner did not hold out the Pennsylvania property in the

course of a trade or business or for the production of income

during 1991.   Thus, respondent's determination that petitioner is

not entitled to deductions relating to the property, in excess of

the real property taxes allowed, will be sustained.

Personal Exemptions for Petitioner's Parents and
Head of Household Filing Status

     Respondent determined that petitioner is not entitled to

personal exemptions for petitioner's mother, father, and brother

for 1991.   At trial, petitioner conceded that he was not entitled

to a personal exemption for his brother.
                                - 11 -

     Section 151 provides for deductions for personal exemptions.

In this case, petitioner would be entitled to exemptions for his

mother and father if his mother and father were dependents under

section 152 and if his mother's and father's gross income were

less than the exemption amount ($2,150 for 1991).   Secs. 151(c),

152; Rev. Proc. 90-64, 1990-2 C.B. 674, 675.

     Petitioner's mother and father would be "dependents" if

"over half of * * * [their] support, for the calendar year in

which the taxable year of the taxpayer begins, was received from

the taxpayer".   Sec. 152(a).   Petitioner has not proven that he

provided over one-half of his parents' support during 1991.

Petitioner's parents lived in a home that was owned by petitioner

and at least one of his brothers.    Petitioner introduced numerous

receipts in an attempt to substantiate his payment of expenses

for his parents.   From the record in this case, we cannot be

certain that these expenditures were made for petitioner, his

parents, or otherwise.   We are not persuaded by petitioner's or

his parents' conclusory assertions in the absence of any

corroboration.

     Petitioner received at least $20,000 in gifts from his

parents during 1991.   The source of these funds was not explained

at trial.   Also, petitioner's mother testified that she received

an undetermined amount of interest income during 1991.   During

1991, petitioner's mother also operated World Medical/Dental.     No

evidence was provided as to whether or not petitioner's mother
                                 - 12 -

received any income from World Medical/Dental during 1991.

Petitioner allegedly purchased various items of equipment from

his father.

     Petitioner has failed to prove that he provided in excess of

one-half of the support of his parents during 1991 or that his

parents' income was less than the exemption amount, and, thus,

petitioner cannot claim his parents as dependents.

     Respondent determined that petitioner is not entitled to

claim head of household status for the year in issue.   Section

2(b) provides:

          (1) In general.--For purposes of this subtitle, an
     individual shall be considered a head of a household
     if, and only if, such individual is not married at the
     close of his taxable year, is not a surviving spouse
     (as defined in subsection (a)), and either--

                 (A) * * *

                 *    *      *   *    *   *   *

               (B) maintains a household which constitutes
          for such taxable year the principal place of abode
          of the father or mother of the taxpayer, if the
          taxpayer is entitled to a deduction for the
          taxable year for such father or mother under
          section 151. [Emphasis added.]

Because petitioner is not entitled to personal exemptions for his

parents under section 151, respondent's determination that

petitioner is not entitled to head of household status will be

sustained.

Accuracy-Related Penalty

     Section 6662(a) imposes a penalty in an amount equal to

20 percent of the underpayment of tax attributable to one or more
                                - 13 -

of the items set forth in section 6662(b).      Respondent asserts

that the entire underpayment of petitioner’s tax was due to

negligence or intentional disregard of rules or regulations.

Petitioner bears the burden of proving that respondent's

determinations are erroneous.    Rule 142(a); Bixby v.

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

     “Negligence” includes a failure to make a reasonable attempt

to comply with the provisions of the internal revenue laws.       Sec.

6662(c); sec. 1.6662-3(b)(1), Income Tax Regs.      “Disregard”

includes any careless, reckless, or intentional disregard of

rules or regulations.   Sec. 6662(c); sec. 1.6662-3(b)(2), Income

Tax Regs.   Large understatements of income have been held to be

indicative of negligence or intentional disregard of the rules or

regulations.   See Anders v. Commissioner, 68 T.C. 474, 493

(1977).

     The section 6662 accuracy-related penalty does not apply

with respect to any portion of an underpayment if it is shown

that there was reasonable cause for such portion and that

petitioner acted in good faith with respect to such portion.

Sec. 6664(c)(1).   The determination of whether petitioner acted

with reasonable cause and in good faith depends upon the

pertinent facts and circumstances.       Sec. 1.6664-4(b)(1), Income

Tax Regs.

     Petitioner claims that he relied on the Internal Revenue

Service (IRS) information hotline and the Form 1040 instructions
                                - 14 -

in preparing his 1991 return.    Such reliance, petitioner claims,

is evidence that he acted with reasonable cause and in good

faith.

     Reliance on "professional" advice will constitute reasonable

cause only if the taxpayer acted in good faith and made full

disclosure of all relevant facts to the adviser.    See Paula

Constr. Co. v. Commissioner, 58 T.C. 1055, 1061 (1972), affd.

without published opinion 474 F.2d 1345 (5th Cir. 1973).

Petitioner admitted at trial that, when he called the hotline, he

did not explain that the equipment was being leased or that no

income was being reported from the activity in 1991.    Petitioner

did not make full disclosure so that his alleged reliance on the

hotline is reasonable cause.    Petitioner failed to keep adequate

records to substantiate his entitlement to deductions that he

claimed.   Sec. 6001; Crocker v. Commissioner, 92 T.C. 899, 912

(1989); sec. 1.6001-1, Income Tax Regs.

     Petitioner's whole case is based on inconsistencies and

improbabilities and lacks credibility.    Petitioner has not

established reasonable cause or good faith reliance to excuse him

from the penalty for negligence or intentional disregard of rules

or regulations.

     To reflect the foregoing and a concession of petitioner,

                                          Decision will be entered

                                     for respondent.
