                        T.C. Memo. 2007-296



                      UNITED STATES TAX COURT



                 EILEEN G. AKERS, Petitioner v.
          COMMISSIONER OF INTERNAL REVENUE, Respondent



     Docket No. 6746-05.               Filed October 1, 2007.



     Geoffrey A. Akers (specially recognized), for petitioner.

     Steven M. Webster, for respondent.



                        MEMORANDUM OPINION


     GOEKE, Judge:   Respondent determined deficiencies in income

tax and penalties under section 66621 for the taxable years 2000,

2001, and 2002.   Respondent disallowed deductions claimed for



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

miscellaneous business expenses on Schedule A, Itemized

Deductions, in all 3 years, and a deduction for a payment to a

self-employed plan (SEP) in the year 2000.    As explained herein,

we shall sustain most of respondent’s adjustments and the

accuracy-related penalties.

                              Background

     At the time of filing the petition in this case, petitioner

was a resident of Norwich, Connecticut.

     Petitioner was married during the years in question, but she

and her husband filed separate income tax returns.    Petitioner’s

married filing separate income tax returns were prepared by her

husband.    Petitioner’s Federal income tax returns were audited

for 2000 through 2002, and petitioner failed to provide adequate

substantiation for certain claimed expenses.

     On March 9, 2005, respondent issued a notice of deficiency

to petitioner.    Respondent determined the following deficiencies

and penalties:

                                           Accuracy-Related
     Year             Deficiency           Sec. 6662 Penalty

     2000              $10,624                $2,124.80
     2001                9,718                 1,943.60
     2002                  304                    60.80


     For the taxable year 2000, petitioner reported and

respondent disallowed the following items:
                                - 3 -

           Item            Deduction     Allowed   Adjustment

   Investment interest     $17,378       $4,027     $13,351

   Sch. A misc.
   business expenses:

   Computer                  2,196           -0-     2,196
   Maintenance agreement       -0-           650      (100)
   Uranium 616 exp.          4,462           -0-     4,462
   Gold 616 exp.             5,621           -0-     5,621
   Union dues                  550           -0-       -0-
   Society dues                557           131       426
   Fees and rentals            521           521       -0-
   Pubs; tax advice          2,102           -0-     2,102
   Supplies                    261           261       -0-
   Education                   147           147       -0-
   Oil and gas               1,647           -0-     1,647
   Computer software         1,146           -0-     1,146

      Total                 19,210        1,710     17,500

   Amort. Bond prem.         4,164           -0-     4,164
   Self-employed SEP         1,000           -0-     1,000

     For the miscellaneous business expenses reported for 2000,

the notice of deficiency mistakenly allowed only $709.

Respondent agrees $1,710 is allowable, for a difference of

$1,001.   Further, respondent agrees that union dues of $500 are

deductible in 2000.

     For the taxable year 2001, petitioner reported and

respondent disallowed the following items:
                               - 4 -

     Item                 Deduction     Allowed    Adjustment

   Investment interest    $46,792       $3,731      $43,061

   Sch. A misc.
   business expenses:

   Computer                 3,446            -0-     3,446
   Union dues                 550            550       -0-
   Worthless securities     1,926            -0-     1,926
   Tax books                1,406            -0-     1,406
   Society dues             1,796            135     1,661
   Oil and gas              1,649            -0-     1,649
   Supplies                   741            741       -0-
   Oakville School            377            377       -0-
   Depreciation               641            -0-       641

      Total                12,532        1,803      10,729

   Amort. bond prem.          662            -0-       662

     For the taxable year 2002, petitioner reported and

respondent disallowed the following items:

     Item                 Deduction     Allowed    Adjustment

   Sch. A misc.
   business expenses:

   Computer                $5,594          -0-      $5,594
   Sec. 616 expense         2,015          -0-       2,015
   Union dues                 550         $550         -0-
   Oil and gas              1,952          -0-       1,952
   Supplies                   645          645         -0-
   Legal advice             1,902          -0-       1,902
   Prof. Soc. members         626          150         476
   Involuntary              2,206          -0-       2,206
   Advisory fees              350          -0-         350

      Total                15,840        1,345      14,495

   Amort. Bond prem.          442            -0-       442
                                - 5 -

     Petitioner reported wage income in each of the years in

question from the Norwich public schools in Norwich, Connecticut.

She also reported dividend and interest income.

     Petitioner timely filed a petition in this Court.    A

stipulation of facts with accompanying exhibits was received at

trial, as well as the testimony of petitioner’s husband.

Petitioner attempted to introduce additional exhibits with her

posttrial brief, but the record having been closed, these

documents were not admitted into evidence.

                              Discussion

     Respondent’s determination is presumed correct.    Rule

142(a).    Deductions are a matter of legislative grace, and a

taxpayer bears the burden of proving entitlement to any deduction

claimed.    New Colonial Ice Co. v. Helvering, 292 U.S. 435, 440

(1934); Hradesky v. Commissioner, 65 T.C. 87, 89 (1975), affd.

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

credible evidence to shift the burden of proof under section

7491(a), petitioner bears the burden of proving respondent’s

determination is incorrect.

     Petitioner raises several arguments concerning the

procedural history of this case prior to the issuance of the

notice of deficiency.   These arguments do not relate to the
                                - 6 -

merits of the tax dispute for the years in question.    Rather,

this case concerns the substantiation of claimed deductions and

the applicability of the penalty under section 6662.

     We first address the $1,000 deduction in 2000 for an alleged

payment to an SEP plan.    Respondent finds the documentation for

this deduction to be inadequate.    We disagree and find it to be

sufficient to sustain the deduction because the exhibit in the

record establishes the $1,000 payment.

     The largest amounts in dispute in 2000 and 2001 are for

investment interest.   The deduction of investment interest is

governed by section 163.    Petitioner deducted $17,358 and

$46,792, respectively.    Respondent allowed $4,007 and $3,731,

respectively.   Section 163(d)(1) limits the investment interest

deduction to the net investment income for the year, which would

come into play for 2001.    Nevertheless, the records submitted by

the petitioner are redacted, spliced together, and recopied.

Some of the records do not even relate to accounts owned by the

petitioner.   We find the evidence offered by petitioner to be

inadequate to substantiate any investment interest in excess of

that allowed by respondent.

     In each of the years in dispute, petitioner claimed a

miscellaneous business expense deduction under the words

“Computer”.   Respondent allowed $650 for a computer maintenance

agreement in 2000, which was not claimed on the return.    The
                               - 7 -

substantiation submitted for the amounts claimed on the return is

for a computer purchased in 1997.   Based upon the testimony of

petitioner’s husband, this computer was fully depreciated for tax

purposes prior to 2000.   Accordingly, the miscellaneous business

expense deductions for “Computer” are disallowed.

     In 2001, petitioner claimed a deduction of $1,926 for

worthless securities.   In 2000, petitioner claimed deductions of

$4,462 and $5,621 for “Uranium 616 expense” and “Gold 616

expense”, respectively.   In 2000 and 2001, petitioner claimed

deductions of $1,647 and $1,649, respectively, under the caption

“Oil and gas”.   The information submitted by petitioner relative

to these items are the copies of checks dated in 1983 and 1984.

We found petitioner’s husband’s explanation of these deductions

to be unconvincing, and these deductions are disallowed.

     The other miscellaneous business expenses disallowed by

respondent were not adequately substantiated by petitioner, and

respondent’s adjustments are sustained.

     The remaining issue is the penalty under section 6662.

Section 6662(a) provides a penalty equal to 20 percent on the

portion of the underpayment of tax attributable to a substantial

understatement of income tax or to negligence.   A substantial

understatement of income tax is defined as an understatement of

tax that exceeds the greater of 10 percent of the tax required to

be shown on the tax return or $5,000.   Sec. 6662(d)(1)(A).   For
                               - 8 -

2000 and 2001, the deficiencies exceed $5,000.     For 2002,

respondent asserts that the underpayment of tax is attributable

to negligence, because petitioner failed to maintain adequate

books and records to substantiate the deductions claimed.      There

is no question in this case that the records were inadequate.

Petitioner relied upon her husband to prepare her returns and

keep her records.   Unfortunately, his efforts in this regard were

inadequate, and there is insufficient evidence of reasonable

cause for petitioner’s failure to maintain proper records.

Accordingly, we find the penalty under section 6662(a) is

applicable to the deficiencies for the years in question.

     To reflect the foregoing and concessions by respondent,


                                            Decision will be entered

                                       under Rule 155.
