Shackelford v. Commissioner

T.C. Memo. 1995-484

UNITED STATES TAX COURT

BETTY J. SHACKELFORD, Petitioner v.
COMMISSIONER OF INTERNAL REVENUE, Respondent

Docket No. 13183-93. Filed October 5, 1995.

Roderick L. MacKenzie, for petitioner.

Daniel J. Parent and Kathryn K. Vetter, for respondent.

MEMORANDUM OPINION

RUWE, Judge: Respondent determined a deficiency of $40,012

in petitioner's 1989 Federal income tax. Respondent further

determined an accuracy-related penalty pursuant to section

6662(a)1 in the amount of $7,949.

1
Unless otherwise indicated, all section references are to
the Internal Revenue Code in effect for the taxable year in
issue, and all Rule references are to the Tax Court Rules of
Practice and Procedure.
 - 2 -

After concessions, the issues for decision are: (1) Whether

petitioner's correct filing status for the taxable year 1989 was

"single" or "married filing separate"; (2) whether petitioner's

Schedule C gross receipts were understated by $3,600; (3) whether

petitioner is entitled to certain Schedule C deductions for the

taxable year 1989; (4) whether petitioner is entitled to a

charitable contribution deduction in the amount of $924; and (5)

whether petitioner is liable for the accuracy-related penalty for

negligence or substantial understatement of income tax pursuant

to section 6662(a) for the taxable year 1989.

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

The stipulation of facts, supplemental stipulation of facts, and

attached exhibits are incorporated herein by this reference.

Background

At the time petitioner filed her petition in this case, she

resided in Roseville, California.

Petitioner is a certified vocational rehabilitation

counselor. During 1989, petitioner operated Shackelford

Vocational Rehabilitation Services as a sole proprietorship

(hereinafter referred to as petitioner's business). Petitioner

maintained a business checking account with Wells Fargo Bank in

Marysville, California. She used the deposits to this account to

determine her Schedule C gross receipts for tax purposes.

As a vocational rehabilitation counselor, petitioner worked
 - 3 -

with clients who were injured on the job and helped them find new

employment. Petitioner would evaluate each client, establish a

plan for the client (i.e., job placement, a school or training

program, or establishing self-employment), and monitor the

progress of the client. One-half to two-thirds of petitioner's

clients were Hispanic. Thus, it was often necessary for

petitioner to communicate in Spanish with her clients--both

orally and in writing. Although petitioner could speak Spanish

and could draft an informal letter or document in Spanish, she

could not write in Spanish well enough to draft a formal

document. Thus, she would have to draft such documents in

English and hire someone to translate them into Spanish.

Petitioner and Richard Maynard (Mr. Maynard) went through a

marriage ceremony on May 23, 1985, and the marriage certificate

was filed on May 24, 1985. With the assistance of separate

counsel, petitioner and Mr. Maynard entered into a prenuptial

agreement on May 22, 1985. Petitioner filed an Inventory of

Separate Property in Placer County, California, on November 5,

1985. During 1989, petitioner and Mr. Maynard resided together

and held themselves out as being married.

On March 2, 1994, petitioner filed a petition in the

Superior Court in El Dorado County, California, requesting an

annulment of her marriage on the basis of fraud. An uncontested

hearing was held on April 21, 1994, and a Judgment of Nullity was

entered effective on that date.
 - 4 -

During 1989, Mr. Maynard was a certified public accountant

and a partner in Maynard & McDonald, an accounting firm. Maynard

& McDonald provided payroll services for petitioner's business.

A checking account in the name of Maynard & McDonald Trust was

maintained at the Bank of Alex Brown. The purpose of the trust

account was to handle funds for Maynard & McDonald partnership

clients. Funds deposited into the account were not included in

the income of Maynard & McDonald partnership.

Renata Reeves Hernandez (Renata) is petitioner's daughter.

During most of 1989, Renata resided in Albuquerque, New Mexico.

Renata moved to Marysville, California, in October 1989. Prior

to moving to California in 1989, Renata translated English

letters and documents into Spanish for use in petitioner's

business. Petitioner would mail or fax the documents to Renata

in Albuquerque, and Renata would translate and return them.

After Renata moved to California in 1989, she went to work for

petitioner's business as a translator and a job developer,

working with petitioner's Hispanic clients.

For purposes of convenience, the additional findings of fact

with respect to respondent's specific determinations will be

combined with our discussion of each issue.

Marital Status

On her 1989 Federal income tax return, petitioner designated

her filing status as "single". The first issue for decision is
 - 5 -

whether petitioner's correct filing status for the taxable year

1989 was "single" or "married filing separate".

As a preliminary matter, however, we must determine which party

bears the burden of proof on this issue.

Generally, the burden of proof is on the taxpayer. Rule

142(a); Welch v. Helvering, 290 U.S. 111, 115 (1933). Respondent

bears the burden of proof, however, with respect to "any new

matter, increases in deficiency, and affirmative defenses,

pleaded in the answer". Rule 142(a). An assertion in an amended

answer is treated as a new matter when it either increases the

original deficiency or requires the presentation of different

evidence. Wayne Bolt & Nut Co. v. Commissioner, 93 T.C. 500, 507

(1989); Achiro v. Commissioner, 77 T.C. 881, 890 (1981). The

assertion of a new theory that merely clarifies or develops the

original determination is not a new matter in respect of which

respondent bears the burden of proof. Wayne Bolt & Nut Co. v.

Commissioner, supra; Achiro v. Commissioner, supra; Estate of

Jayne v. Commissioner, 61 T.C. 744, 748-749 (1974).

In her notice of deficiency, respondent determined a

deficiency in petitioner's income tax of $40,012 and an accuracy-

related penalty of $7,949. On April 6, 1994, respondent filed a

Motion for Leave to File an Amendment to Answer, which this Court

granted. In her amended answer, respondent asserted a deficiency

in petitioner's income tax of $42,583 and an addition to tax of

$8,463 based on respondent's revised determination that
 - 6 -

petitioner's correct filing status was "married filing separate"

rather than "single".

Respondent's assertion in the amended answer clearly

increased the original deficiency. In addition, the new

assertion requires the presentation of different evidence

regarding petitioner's marital status. Accordingly, we find that

the issue of petitioner's filing status is a new matter, in

respect of which the burden of proof falls on respondent.

The determination of whether an individual is married shall

be made as of the close of the taxable year. Sec. 7703(a)(1). A

person who is married may file a joint return with his or her

spouse or may file separately; however, a married person may not

file as an unmarried individual. Sec. 1(a), (c), and (d).

Marital status for Federal tax purposes is defined by State law.

Lee v. Commissioner, 64 T.C. 552, 556-559 (1975), affd. 550 F.2d

1201 (9th Cir. 1977); Gersten v. Commissioner, 28 T.C. 756, 770

(1957), affd. in part and remanded in part 267 F.2d 195 (9th Cir.

1959). Thus, we must look to California law to determine whether

petitioner was married as of the close of the taxable year 1989.

Petitioner and Mr. Maynard were married on May 23, 1985, and

the marriage certificate was filed on May 24, 1985. As of the

close of 1989, petitioner and Mr. Maynard were residing together

and were holding themselves out as being married. On March 2,

1994, however, petitioner filed a petition in the Superior Court

in El Dorado County, California, requesting an annulment of a
 - 7 -

voidable marriage on the basis of fraud pursuant to section

4425(d) of the California Code.2 A Judgment of Nullity was

entered effective on April 21, 1994. Petitioner argues that the

effect of the Judgment of Nullity is to render her marriage void

from its inception and that her filing as "single" for 1989 was

not in error.

In general, an annulment decree has the effect of declaring

a marriage void ab initio under the law of California. It thus

"relates back" to erase the marriage from the outset. Sefton v.

Sefton, 291 P.2d 439, 440 (Cal. 1955); see Cal. Family Code sec.

2212(a) (West 1994). However, the doctrine of "relation back" is

not without its exceptions. The doctrine is a legal fiction that

was fashioned by the courts to do substantial justice as between

the parties to a voidable marriage. Sefton v. Sefton, supra at

441. "A judgment of nullity of marriage is conclusive only as to

the parties to the proceeding and those claiming under them."

Cal. Family Code sec. 2212(b) (West 1994). Thus, the Supreme

Court of California warns that "in cases involving the rights of

third parties, courts have been especially wary lest the logical

appeal of the fiction should obscure fundamental problems and

lead to unjust or ill-advised results respecting a third party's

rights." Sefton v. Sefton, supra at 441; see also Hendrix v.

United States Immigration & Naturalization Serv., 583 F.2d 1102,

2
Sec. 4425(d) of the Cal. Civil Code was repealed effective
Jan. 1, 1994. That section was replaced with sec. 2210(d) of the
Cal. Family Code without substantive change.
 - 8 -

1103 (9th Cir. 1978); Powers v. Fox, 158 Cal. Rptr. 92, 95 (Ct.

App. 1979); Interinsurance Exch. of the Auto. Club v. Velji, 118

Cal. Rptr. 596, 600 (Ct. App. 1975).

In the present case, petitioner filed her petition for an

annulment of a voidable marriage only 2 months prior to the trial

of this case. Up until that time, she held herself out as being

married. We do not think that petitioner's current attempt to

claim that she was single during 1989, as a result of the

Judgment of Nullity, promotes the purposes for which the

relation-back doctrine was intended. Accordingly, we hold that

the Judgment of Nullity in the present case does not relate back

to the date of the marriage and, therefore, is not binding on the

Commissioner for purposes of petitioner's Federal income tax

filing status.3

Understatement of Gross Receipts

Petitioner determined her Schedule C gross receipts based

upon deposits into her business bank account. Respondent

increased petitioner's gross receipts by $14,658 in the notice of

deficiency. Petitioner concedes she understated her gross

3
Respondent also argues that petitioner's securing of an
uncontested annulment constituted a "sham transaction" designed
to manipulate her marital status for Federal tax purposes and,
thus, should not be given effect. Respondent points to the
timing of the petition for nullity of marriage, which was shortly
after respondent informed petitioner by letter that she intended
to raise petitioner's marital status as an issue, as support for
this contention. However, as a result of our holding, we see no
reason to look behind the State court's judgment.
 - 9 -

receipts by $7,652.18. Respondent concedes $3,406 of the

adjustment to petitioner's gross receipts. The remaining $3,600

still in issue will be determined by whether the proceeds from the

1989 sale of petitioner's automobile were deposited into the

business account.

In November or December 1989, petitioner sold an automobile

that she had used in her business for $3,600. Petitioner reported

the sale of the automobile on Form 4797 (Sales of Business

Property), which was attached to her 1989 Federal income tax

return. Petitioner claims that the $3,600 was also deposited to

her business bank account and should not be included again as

business gross receipts. Respondent disputes petitioner's claim

that the sales proceeds were deposited into petitioner's business

bank account.

Beyond her own self-serving testimony, petitioner offered no

evidence to establish that the proceeds from the sale of the

automobile were deposited into her business bank account. Although

petitioner points to her filing of the Form 4797 to corroborate her

testimony, the filing of this form does not prove that the proceeds

were deposited into her business bank account. Accordingly, we

hold that petitioner failed to prove respondent's determination

erroneous and sustain respondent's determination of gross receipts

as modified by the parties' respective concessions. See Clark v.

Commissioner, 266 F.2d 698, 708-709 (9th Cir. 1959), remanding T.C.

Memo. 1957-129; Tokarski v. Commissioner, 87 T.C. 74, 77 (1986).
 - 10 -

Additional Schedule C Deductions

Deductions are a matter of legislative grace, and taxpayers

bear the burden of proving that they are entitled to any deductions

claimed. Rule 142(a); New Colonial Ice Co. v. Helvering, 292 U.S.

435, 440 (1934). Taxpayers are required to maintain records that

are sufficient to substantiate claimed deductions. Sec. 6001.

Section 162 generally allows a deduction for all the ordinary

and necessary expenses paid or incurred during the taxable year in

carrying on any trade or business. Such expenses must be directly

connected with or pertain to the taxpayer's trade or business.

Sec. 1.162-1(a), Income Tax Regs. The determination of whether an

expenditure satisfies the requirements of section 162 is a question

of fact. Commissioner v. Heininger, 320 U.S. 467, 475 (1943).

Petitioner claims that she is entitled to a deduction in the

amount of $52,999.50, which she originally reported as cost of

goods sold on her Schedule C, and which was disallowed by

respondent. The $52,999.50 amount represented the sum of checks

drawn on petitioner's business bank account. These checks were

made payable to her husband, Mr. Maynard, and consisted of six

checks for $3,500, six checks for $5,000, a check for $1,983, and a

check for $16.50. The checks were deposited into the trust account

of Maynard & McDonald.

Petitioner alleges that these amounts were paid to Mr. Maynard

for consulting services he provided for her business. Petitioner

testified that Mr. Maynard advised her with respect to equipment,
 - 11 -

hiring practices, and marketing in addition to advising her with

respect to specific clients. Petitioner further testified that the

State of California required that she utilize the type of services

performed by Mr. Maynard. Respondent, on the other hand, argues

that petitioner has failed to meet her burden of proving that these

amounts were paid to Mr. Maynard for consulting services.

Respondent contends that any services that Mr. Maynard may have

performed would not have warranted the large amount paid to him.

Respondent urges us to view this as a "family situation" and

suggests that the $52,999.50 was simply a transfer of money between

petitioner and her husband.

These very same payments totaling $52,999.50 from petitioner

to her husband are also at issue in a separate case involving

petitioner's husband--Maynard v. Commissioner, docket No. 13220-93.

That case was originally scheduled for trial on May 16, 1994, at

Carson City, Nevada.4 When that case was called, the parties in

that case filed a stipulation disposing of some, but not all, of

the issues, and we granted Mr. Maynard's motion to continue his

case. The case was subsequently tried before Judge Gerber on June

12, 1995.

One of the issues in Mr. Maynard's case was whether he

fraudulently failed to report the $52,999.50 he received from

petitioner. The Commissioner's Answer in that case alleged:

4
Petitioner's case was tried on May 19, 1994, in Carson
City, Nevada.
 - 12 -

During 1989, Shackelford Vocational Rehabilitation
Services (SVRS) wrote checks payable to petitioner
totalling $52,983[5] for consulting services. Petitioner
did not report any of these amounts as income on his 1989
income tax return.

In his reply, Mr. Maynard denied "that he failed to report any of

these amounts as income on his 1989 income tax return." In the

stipulation filed on May 16, 1994, in Mr. Maynard's case, the

parties stipulated the following:

During 1989, Maynard received $52,999.50 from Shackelford
Vocational Services for consulting services. Petitioner
concedes that this amount is income to him.

The Commissioner's allegations and the stipulation in Maynard

v. Commissioner, docket No. 13220-93, clearly set forth the factual

basis upon which the Commissioner relies in that case; i.e., that

the payments to Mr. Maynard were "for consulting services". This

stipulation is inconsistent with respondent's position in the

instant case; i.e., that the payments were not for consulting

services or were in excess of what was warranted by whatever

nominal consulting services Mr. Maynard rendered to petitioner. We

agree with respondent that any portion of these payments in excess

of those made as reasonable compensation for consulting services

would be personal intrafamily transfers. However, such personal

intrafamily transfers would not be taxable income to Mr. Maynard.

5
The difference between this amount and the amount at issue
in the instant case is equal to the $16.50 check, which we have
previously mentioned.
 - 13 -

But as we have noted, respondent has stipulated and, therefore,

established in Mr. Maynard's case, that the payments were for

consulting services and that the entire $52,999.50 is includable in

Mr. Maynard's taxable income. This stipulation is obviously

advantageous to the Commissioner in Mr. Maynard's case and, in

accordance with the stipulation, the Court will redetermine Mr.

Maynard's tax deficiency by including the payments in his taxable

income.

The inconsistency between the Commissioner's stipulation in

Maynard v. Commissioner, docket No. 13220-93, that the payments to

Mr. Maynard were income from consulting services, and her position

in the present case that the exact same payments were not for

consulting services is one that we find most troublesome.6 At

trial, neither party in this case mentioned the stipulation in Mr.

Maynard's case, and, except for an oblique reference to that

stipulation in petitioner's reply brief, there was no argument

about its legal implications for petitioner. In her reply brief,

petitioner asks us to take judicial notice of the stipulation in

Mr. Maynard's case but makes no argument as to how we can turn a

stipulation in one case into a finding of fact in another. Of

course, this Court may take judicial notice of its own records,

including any pleadings and stipulations filed by the parties,7 but

6
See Andrews v. Commissioner, 73 AFTR2d 94-660 (9th Cir.
1993).
7
See United States v. Rey, 811 F.2d 1453, 1457 n.5 (11th
(continued...)
 - 14 -

Rule 91(e) provides that "A stipulation and the admissions therein

shall be binding and have effect only in the pending case and not

for any other purpose, and cannot be used against any of the

parties thereto in any other case or proceeding."

While we may not take a stipulated fact in one case and use it

to find facts in another case, we think that we do have the ability

to prevent inconsistent results in the situation before us. We

have previously held that we may apply equitable principles to

decide a matter over which we have jurisdiction, Woods v.

Commissioner, 92 T.C. 776, 787-788 (1989). Such equitable

principles include the doctrine of judicial estoppel, Reynolds v.

Commissioner, 861 F.2d 469, 472 (6th Cir. 1988), revg. T.C. Memo.

1987-261; Huddleston v. Commissioner, 100 T.C. 17, 28 (1993). The

doctrine of judicial estoppel protects the integrity of the

judicial process by preventing a party from successfully asserting

one position before a court and thereafter asserting a completely

contradictory position before the same or another court merely

because it is now in that party's interest to do so. Reynolds v.

Commissioner, supra at 472; Huddleston v. Commissioner, supra at

26. Such manipulation of the judicial process has been

characterized by the courts as "cynical gamesmanship * * * to suit

7
(...continued)
Cir. 1987); United States v. Wilson, 631 F.2d 118, 119 (9th Cir.
1980); St. Louis Baptist Temple, Inc. v. FDIC, 605 F.2d 1169,
1172 (10th Cir. 1979). "Judicial notice is particularly
applicable to the court's own records of prior litigation closely
related to the case before it." St. Louis Baptist Temple, Inc.
v. FDIC, supra at 1172.
 - 15 -

an exigency of the moment", Teledyne Indus., Inc. v. NLRB, 911 F.2d

1214, 1218 (6th Cir. 1990); "blowing hot and cold", Allen v. Zurich

Ins. Co., 667 F.2d 1162, 1167 n.3 (4th Cir. 1982); and "playing

fast and loose with the courts", Scarano v. Central R.R., 203 F.2d

510, 513 (3d Cir. 1953).

In order to invoke judicial estoppel against a party, that

party's contrary position must have previously been accepted by the

court, which means only that the court must have adopted a position

urged by the party, either as a preliminary matter or as a part of

a final disposition.8 In the Tax Court, a stipulation is treated

as a conclusive admission by the parties, and the Court will not

permit a party to change or contradict a stipulation, except in

extraordinary circumstances. Rule 91(e). Thus, while this Court

has not yet decided the ultimate matter in Mr. Maynard's case, the

Court will certainly find that Mr. Maynard received $52,999.50 from

petitioner in 1989 "for consulting services" and that this amount

is includable in Mr. Maynard's taxable income for 1989.9 Such a

finding supports the Commissioner's position in Mr. Maynard's case.

Under these circumstances, the fact that the Court has yet to issue

an opinion or render a decision in Mr. Maynard's case, should not

8
"Acceptance by a court does not mean that the party being
estopped prevailed in the prior proceeding with regard to the
ultimate matter in dispute, but rather only that a particular
position or argument asserted by the party in the prior
proceeding was accepted by the court." Huddleston v.
Commissioner, 100 T.C. 17, 26 (1993).
9
Both the Commissioner and Mr. Maynard agree to this finding
in their respective briefs.
 - 16 -

prevent us from applying the doctrine of judicial estoppel.

Accordingly, we hold that respondent is judicially estopped from

claiming that the payments to Mr. Maynard were not fees for his

consulting services. It follows that petitioner is entitled to a

deduction for the $52,999.50.

Petitioner claimed a deduction in the amount of $256.16 for

expenses incurred in moving Renata's possessions from New Mexico to

California. Petitioner also claimed a deduction in the amount of

$248 for an airline ticket to Albuquerque, New Mexico, so that she

could assist in moving Renata and Renata's daughter. In addition,

petitioner claimed a deduction in the amount of $48.83 for a room

at the Geronimo Motel in Flagstaff, Arizona, where the three of

them stayed on their way to California. Renata had wanted to

return to California, but had no money. Petitioner wanted Renata

to work for her, and after moving to California in 1989, Renata

went to work for petitioner's business as a translator and a job

developer.

In general, where an expenditure is primarily associated with

business purposes, and personal benefit is distinctly secondary and

incidental, the expenditure may be deducted under section 162.

International Artists, Ltd. v. Commissioner, 55 T.C. 94, 104

(1970); Sanitary Farms Dairy, Inc. v. Commissioner, 25 T.C. 463,

467-468 (1955). Conversely, if an expenditure is primarily

motivated by personal considerations, no deduction will be allowed.

Henry v. Commissioner, 36 T.C. 879, 884 (1961); Larrabee v.
 - 17 -

Commissioner, 33 T.C. 838, 841-843 (1960). While we agree that

petitioner wanted her daughter to come to California and work for

her, petitioner has failed to establish that the moving expenses

were incurred primarily for business purposes and that personal

considerations were distinctly secondary. We, therefore, uphold

respondent's disallowance of any deduction for moving expenses.

Petitioner claimed a deduction in the amount of $399.88 for

payment of a deposit and the first month's rent for an apartment

for Renata in California. Petitioner contends that these

expenditures were an agreed upon condition of Renata's employment.

Renata was barely able to pay her last month's rent and had no

money to rent an apartment in California. Petitioner contends that

these expenditures were therefore necessary to facilitate Renata's

relocation to California and her employment with petitioner.

Petitioner has failed to establish that these expenditures were

incurred primarily for business reasons and not primarily motivated

by personal considerations, and we uphold respondent's disallowance

of a deduction for them. Henry v. Commissioner, supra; Larrabee v.

Commissioner, supra.

Petitioner claimed a deduction for a check in the amount of

$231 payable to Maynard & McDonald and for a check in the amount of

$376.64 payable to Gold Country Financial, Inc. Petitioner argues

that the expenditures were for health insurance for Renata, which

petitioner contends was an agreed upon condition of Renata's

employment. The check written to Gold Country Financial, Inc.,
 - 18 -

bears the notation "Insurance". However, petitioner did not offer

or provide health insurance to any other employee. Moreover,

petitioner has provided no evidence that a check written to Maynard

& McDonald substantiates an employee health insurance expense. We

find that petitioner has failed to establish that these

expenditures were incurred primarily for business reasons. Henry

v. Commissioner, supra; Larrabee v. Commissioner, supra.

Petitioner claimed a deduction for a check in the amount of

$200 payable to Renata. Petitioner contends that the check

represented reimbursement of mileage incurred by her employee. The

check bears the notation "Mileage 11/29-12/15/89". However, it was

not petitioner's practice to reimburse employees for mileage in a

separate check. Instead, employees reported mileage on their

biweekly time sheets and were reimbursed in their regular pay

checks. This practice applied to Renata as well. Petitioner has

provided no credible evidence to explain why this particular

reimbursement was handled out of the ordinary course. Accordingly,

we uphold respondent's disallowance of this deduction.

Petitioner claimed a deduction for payments of $1,100 and $500

to Florin Road Nissan as a downpayment for a car for Renata.

Petitioner testified that it was necessary for Renata to travel as

part of her job responsibilities. Petitioner further testified

that after Renata had been working for a few weeks, her car failed,

and petitioner agreed to help Renata purchase a new car to

facilitate her business-related travel. Petitioner handled the
 - 19 -

expenditure as an advance against Renata's mileage reimbursement.

However, as noted above, shortly after making the downpayment for

the car, petitioner wrote a check to Renata for $200, which she

claimed was for mileage reimbursement. We are not required to

accept petitioner's inconsistent and self-serving testimony as

gospel. Tokarski v. Commissioner, 87 T.C. at 77. We, therefore,

sustain respondent's determination with respect to the automobile

expenditures.

Petitioner claimed a deduction for a check in the amount of

$343.75 made payable to Rich, Fuidge, Morris & Sanbrook. The only

evidence that petitioner offered to substantiate the business

purpose for this expenditure was her general statement that the

amount was paid for legal fees related to her business.10 We do not

think that such a general statement is sufficient "to endow * * *

[the expenditure] with a business purpose." Ferrer v.

Commissioner, 50 T.C. 177, 185 (1968), affd. 409 F.2d 1359 (2d Cir.

1969). Accordingly, the deduction for legal fees is disallowed.

10
After petitioner testified that Rich, Fuidge, Morris &
Sanbrook was the name of a law firm in Marysville, California,
she testified as follows:

Q And did you pay them $343.75?
A Yes.
Q And was that for business or personal?
A It was legal fees. Business.
Q Legal fees related to what?
A Business.
Q Do you remember specifically what business
aspect it was paid for?
A I--I talked about my business in general. I
don't recall the specific.
 - 20 -

Petitioner also claimed certain travel expense deductions for

business-related travel and automobile expense deductions, which

respondent has disallowed. Section 162(a)(2) allows a deduction

for all ordinary and necessary travel expenses paid by a taxpayer

during the taxable year while traveling away from home in pursuit

of a trade or business. A travel expense deduction is disallowed

if the taxpayer does not satisfy the substantiation requirements of

section 274(d) through either adequate records or the taxpayer's

own detailed statement that is corroborated by sufficient evidence.

Section 274(d) also applies to listed property, which includes any

passenger automobile. Secs. 274(d)(4), 280F(d)(4)(A)(i). At a

minimum, the taxpayer must substantiate: (1) The amount of the

expense, (2) the time and place such expense was incurred, (3) the

business purpose of the expense, and (4) the business relationship

to the taxpayer of any persons entertained. Sec. 274(d).

The regulations further clarify the stringent substantiation

requirements of section 274. A taxpayer generally must

substantiate each expenditure by producing (1) adequate records or

(2) sufficient evidence to corroborate his or her own statement.

Sec. 1.274-5T(c)(1), Temporary Income Tax Regs., 50 Fed. Reg.

46016-46017 (Nov. 6, 1985). The "adequate records" standard

requires that a taxpayer maintain an account book, diary, log,

statement of expense, or other similar record that contains entries

of expenditures made at or near the time of the expenditure. In

addition, a taxpayer must supply documentary evidence, such as
 - 21 -

receipts or paid bills. Sec. 1.274-5T(c)(2)(i)-(iii), Temporary

Income Tax Regs., 50 Fed. Reg. 46017-46020 (Nov. 6, 1985).

Alternatively, taxpayers who are unable to satisfy the adequate

records requirement are still entitled to a deduction for expenses

that they can substantiate with other corroborative evidence. Sec.

1.274-5T(c)(3), Temporary Income Tax Regs., 50 Fed. Reg. 46020-

46021 (Nov. 6, 1985).

Petitioner claimed to have prepared a contemporaneous log or

diary to record her travel, meals, and entertainment during 1989.

However, petitioner refused to produce copies of these logs or

diaries. Because petitioner has clearly failed to meet the

adequate records requirement, we must determine whether she has

sufficiently substantiated her claimed travel and automobile

deductions with other corroborative evidence.

Petitioner deducted a total of $60 for parking at the

Sacramento airport. The only evidence offered to substantiate

these expenses was a parking receipt for $32 and petitioner's own

vague testimony that these parking expenses were incurred in a

business endeavor. We hold that petitioner failed to substantiate

these expenditures sufficiently.

Petitioner claimed a deduction in the amount of $53.90 for a

motel room. Petitioner produced a copy of a room receipt dated

June 30 as evidence of this expenditure. The receipt does not bear

the name or location of the motel. On brief, petitioner claimed

that the expenditure was for a motel in Klamath Falls, Oregon,
 - 22 -

which is near a small community where one of her clients resided.

Petitioner points to a billing statement in that client's file, in

which one line reads "Travel Time and Mileage" and is dated June

30, 1989, as corroborative evidence of the business purpose of this

expenditure. We do not think that this sufficiently corroborates

the time, place, and business purpose for the expenditure as

required by section 274(d).

Petitioner claimed a deduction in the amount of $418 for a

room at the Adobe Resort Motel in Yachats, Oregon. Petitioner

introduced a credit card statement listing the expenditure.

Petitioner testified that the purpose of the trip was to

investigate various plans for clients. While she was there,

petitioner allegedly contacted a Captain Schones and spoke to him

about the prospect of her clients' working in the fishing industry.

Petitioner further testified that a "majority" of the trip was for

business purposes. While we think that petitioner has adequately

substantiated the amount of the expense and the time and place such

expense was incurred, petitioner has introduced no evidence to

corroborate her testimony as to the business purpose of the trip.

Accordingly, we uphold respondent's determination.

Petitioner claimed a deduction in the amount of $274, which

was paid to Shingle Travel Agency for airline travel for Renata to

Bakersfield, California. The check payable to Shingle Travel

Agency bears the notation "Rosa Garcia Conference". Petitioner

testified that the purpose of Renata's trip was to monitor a
 - 23 -

client's progress in a rehabilitation program at a brain damage

facility in Bakersfield. This testimony was corroborated in part

by the testimony of Kathryn Talley, petitioner's office manager.

Moreover, Renata's trip to Bakersfield was only for the day. We

hold that petitioner has sufficiently substantiated the business

purpose for this expenditure and, therefore, allow a deduction for

it.11

Petitioner claimed a deduction in the amount of $193.31 for

automobile expenses, with respect to the vehicle that petitioner

used in her business. The only evidence introduced to substantiate

this expenditure was a charge statement showing a payment to Toyota

of Sacramento. There is no evidence as to the business purpose of

the charge. Nor is there any evidence as to the amount of time

petitioner used her automobile for business purposes, other than

her vague testimony that she used it "constantly" for business

purposes. Accordingly, we sustain respondent's disallowance of a

deduction for this expenditure.

On October 19, 1989, petitioner and Mr. Maynard traveled to

Guatemala. Petitioner testified that the purpose of the trip was

to improve her Spanish and to become more familiar with Guatemala

so that she could place clients there. Petitioner further

testified that Mr. Maynard accompanied her as a business

11
Petitioner appears to have deducted this expense twice--
once as a travel expense and once as cost of goods sold. We
direct the parties to adjust for this in the Rule 155
computation.
 - 24 -

consultant. While in Guatemala, petitioner and Mr. Maynard

enrolled in the Professional Spanish Language School, which met for

6 hours a day, 5 days a week. Petitioner enrolled for 2 weeks, and

Mr. Maynard enrolled for 4 weeks. Petitioner returned from

Guatemala on November 7, 1989, and Mr. Maynard returned on November

18, 1989.

When a taxpayer's travel takes her outside the United States,

section 274(c) requires an allocation of all expenses in addition

to the other substantiation requirements. No deduction is allowed

for those expenses that are not allocable to the taxpayer's trade

or business. Sec. 274(c)(1). Such allocation is not required,

however, if the travel does not exceed 1 week, or the amount of

time allocated to nonbusiness activities is less than 25 percent of

the total travel time. Sec. 274(c)(2).

Furthermore, when a taxpayer's spouse accompanies her on a

business trip, expenses attributable to his travel are not

deductible unless the taxpayer adequately shows that the spouse's

presence on the trip has a bona fide business purpose other than

the performance of some incidental service. Sec. 1.162-2(c),

Income Tax Regs. The spouse must provide substantial services that

are directly and primarily related to the carrying on of the

taxpayer's business. Weatherford v. United States, 418 F.2d 895,

897 (9th Cir. 1969). The court in Weatherford disallowed a

deduction for the traveling expenses of a wife who did not work on

her husband's wheat farm and who had no specific role in connection
 - 25 -

with the farm other than discussing business matters with her

husband. Id. Similarly, in the present case, petitioner did not

show that Mr. Maynard had a specific role in connection with her

business.

With respect to the trip to Guatemala, petitioner deducted

$96.09, which she paid to the Hotel Del Lago in Guatemala.

Petitioner introduced a charge statement listing the charges to

this hotel in order to substantiate the expenditures. Petitioner

also deducted $15.00, which she paid to the Hotel Sol-Mor in

Guatemala. Petitioner introduced a receipt from the hotel that was

made out to Mr. Maynard and reflected the price of the room in

quetzals.12 Moreover, petitioner deducted $1,124 for the airline

tickets to Guatemala for Mr. Maynard and herself, for which she

introduced boarding passes and Mr. Maynard's airline ticket.

Not only has petitioner failed to allocate her foreign travel

expenses between business and nonbusiness as required by section

274(c), but petitioner has also failed to show that Mr. Maynard's

presence on the trip to Guatemala had a bona fide business purpose,

see sec. 1.162-2(c), Income Tax Regs. Accordingly, we sustain

respondent's disallowance of a deduction for petitioner's foreign

traveling expenses.

12
The quetzal is the basic unit of currency in Guatemala.
The receipt reflected an amount due of 46.80 quetzals.
Petitioner deducted an equivalent amount in U.S. dollars.
Respondent has not challenged petitioner's exchange rate
computation; therefore, we will accept it for purposes of
deciding this issue.
 - 26 -

In addition to her deductions for travel expenditures,

petitioner deducted $252 for the Spanish classes that Mr. Maynard

took while in Guatemala,13 and $132.60 for parking at the airport in

San Francisco during her trip to Guatemala. We find that

petitioner has not introduced adequate evidence to corroborate her

testimony as to the business purpose for these expenditures.

Charitable Contribution Deduction

Next, we must determine whether petitioner is entitled to a

deduction for charitable contributions in the amount of $924.

Petitioner testified that she contributed "Approximately $1,000 in

cash" to the Roseville Church of Christ in addition to the amount

that she had already substantiated by canceled checks. Petitioner

claimed that she made weekly cash contributions in addition to her

contributions by check, because she did not want the church to know

exactly how much she was giving.

Section 1.170A-13(a), Income Tax Regs., provides certain

recordkeeping requirements for charitable contributions:

(1) In general. If a taxpayer makes a charitable
contribution of money in a taxable year beginning after
December 31, 1982, the taxpayer shall maintain for each
contribution one of the following:

(i) A cancelled check.
(ii) A receipt from the donee charitable
organization showing the name of the donee, the date of
the contribution, and the amount of the contribution.

13
Respondent has conceded that the cost of petitioner's
Spanish classes is a deductible expense.
 - 27 -

* * *

(iii) In the absence of a canceled check or receipt
from the donee charitable organization, other reliable
written records showing the name of the donee, the date
of the contribution, and the amount of the contribution.

Petitioner provided no written evidence of her contributions. We,

therefore, sustain respondent's determination disallowing

petitioner's charitable deductions.

Addition to Tax - Accuracy Related Penalty

The final issue for decision is whether petitioner is liable

for the accuracy-related penalty for negligence or substantial

understatement of income tax under section 6662(a). Section 6662

imposes an addition to tax equal to 20 percent of the portion of

the underpayment that is attributable to (1) negligence or

disregard of rules or regulations, or (2) substantial

understatement of income tax. Sec. 6662(a), (b)(1), (2).

The term "negligence" includes any failure to make a

reasonable attempt to comply with the provisions of the Internal

Revenue Code, and the term "disregard" includes any careless,

reckless, or intentional disregard. Sec. 6662(c). Negligence is

defined as the lack of due care or the failure to do what a

reasonable and ordinarily prudent person would do under the

circumstances. McGee v. Commissioner, 979 F.2d 66, 71 (5th Cir.

1992), affg. T.C. Memo. 1991-510; Marcello v. Commissioner, 380

F.2d 499, 506-507 (5th Cir. 1967), affg. in part and remanding in
 - 28 -

part 43 T.C. 168 (1964); Neely v. Commissioner, 85 T.C. 934, 947

(1985).

There is a substantial understatement of income tax if the

amount of the understatement for the taxable year exceeds the

greater of 10 percent of the amount required to be shown on the tax

return, or $5,000. Sec. 6662(d)(1)(A). The amount of the

understatement is reduced, however, if there was substantial

authority for the taxpayer's treatment of the item. Sec.

6662(d)(2)(B). In order to satisfy the substantial authority

standard, petitioner must show that the weight of authorities

supporting her position is substantial in relation to those

supporting a contrary position. Antonides v. Commissioner, 91 T.C.

686, 702 (1988), affd. 893 F.2d 656 (4th Cir. 1990); sec. 1.6661-

3(b)(1), Income Tax Regs.

Petitioner has the burden of proving that respondent's

determination of the accuracy-related penalty is in error. Rule

142(a); Welch v. Helvering, 290 U.S. 111, 115 (1933). Petitioner

conceded that she is liable for the accuracy-related penalty with

respect to those items that she conceded at or before trial and on

brief. With respect to those items still in issue, petitioner

simply claims that her positions were supported by substantial

authorities. However, petitioner provided no evidence to show that

she was not negligent, and she pointed to no authorities to support

her position and bring her within the exception to the definition

of substantial understatement. Accordingly, we sustain
 - 29 -

respondent's determination that petitioner is liable for the

addition to tax under section 6662(a).

Decision will be entered

under Rule 155.