1Unless otherwise indicated, all section references are to

the Internal Revenue Code in effect for the year in issue. All

Rule references are to the Tax Court Rules of Practice and

Procedure.

T.C. Memo. 1996-297

UNITED STATES TAX COURT

JOHN K. JORMAN, JR. AND AUDREY JORMAN, Petitioners v.

COMMISSIONER OF INTERNAL REVENUE, Respondent

Docket No. 9379-94. Filed June 26, 1996.

John K. Jorman, pro se.

Brian M. Harrington, for respondent.

MEMORANDUM FINDINGS OF FACT AND OPINION

CARLUZZO, Special Trial Judge: This case was heard pursuant

to section 7443A(b)(3) and Rules 180, 181, and 182.1 Respondent

determined a deficiency in petitioners' 1991 Federal income tax
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in the amount of $6,339 and an accuracy-related penalty under

section 6662(a) in the amount of $1,268.

After concessions by the parties, the issues for decision

are: (1) Whether petitioners are entitled to an itemized

deduction for moving expenses; (2) whether John K. Jorman was

engaged in a trade or business related to the real estate

industry during the year 1991 so as to allow for deductions under

section 162(a); and (3) whether petitioners negligently filed

their 1991 Federal income tax return so as to render them liable

for the accuracy-related penalty imposed by section 6662(a).

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

The stipulation of facts and the exhibits attached thereto are

incorporated herein by this reference. During the year in issue,

petitioners were husband and wife and filed a joint Federal

income tax return. At the time that the petition was filed, 

John K. Jorman resided in Plainfield, Indiana, and Audrey Jorman

resided in Indianapolis, Indiana. References to petitioner are

to John K. Jorman.

FINDINGS OF FACT

During the year in issue, petitioner was employed as a

customer service supervisor with PSI Energy, Inc. (PSI). 

Petitioner began his employment with PSI on March 30, 1990, in

Bloomington, Indiana. When he started with PSI he was living in

Indianapolis, Indiana. He moved to an apartment in Bloomington

sometime in May or June of 1990. Toward the end of 1990,
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petitioner was promoted and transferred to Kokomo, Indiana, which

is approximately 120 miles from Bloomington. His assignment with

PSI in Kokomo began in January of 1991.

Prior to his transfer, petitioner traveled to Kokomo by car

on several occasions to look for a place to live and eventually

rented an apartment there. He moved into this apartment in late

January 1991. After his transfer was effective, and before he

moved into his apartment in Kokomo, petitioner resided with a

friend in Fishers, Indiana, for 4 weeks. Petitioner testified

that he paid his friend $100 per week, or a total of $400, for

such lodging but offered no corroborating evidence on this point. 

During this same time period he spent approximately $20 per week

on groceries and a total of $60 for meals in restaurants.

There is insufficient evidence in the record to determine

whether petitioner incurred any penalty for terminating his lease

on the Bloomington apartment. In connection with the acquisition

of the apartment in Kokomo, petitioner incurred expenses for new

curtains and other furnishings.

During 1991, PSI had in effect an employee relocation

program, part of which provided financial and other assistance to

employees transferred from one company location to another. 

Petitioner qualified for benefits under this program, evidenced

by a Miscellaneous Expenses Allowance Agreement entered into by

petitioner and PSI on January 7, 1991. Although not exactly

clear from the record, it appears that petitioner received
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2This amount was paid directly by PSI to third parties on

petitioner's behalf.

$8,352.39 in relocation benefits directly or indirectly from PSI

as a result of his transfer from Bloomington to Kokomo. Included

in the amount of relocation benefits received by petitioner were

the following items:

Amount paid to third party for transportation

 and storage of household goods and 

 personal effects $1,247.25

Amount paid to petitioner for lodging 

 incurred in his move from Bloomington to 

 Kokomo 22.60

Amount paid to petitioner for expenses 

 incurred in selling, buying, or leasing a 

 residence 416.68

The entire amount of the relocation benefits received by

petitioner in 1991 was included in his Form W-2 wages and

reported on petitioners' 1991 return. 

On their 1991 return petitioners claimed an itemized moving

expense deduction in the amount of $3,897.18 computed as follows:

Transportation and storage expenses in 

 moving household goods and personal 

 effects $1,247.252

Travel, meals and lodging expenses

 in moving from old to new residence 298.25

Pre-move travel, meals, and lodging

 in looking for a new residence after

 getting a job incurred from 1/1-1/31/91 1,344.00

Expenses of settling an unexpired lease 412.68
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Expenses of getting a new lease 595.00

Total claimed deduction 3,897.18

In addition to his employment with PSI during 1991,

petitioner also maintains that he was in some trade or business

related to the real estate industry. Petitioner held licenses to

appraise, broker, and sell real estate during the year in issue. 

A Schedule C included with petitioners' 1991 return reflects the

following items:

Gross receipts -0-

Gross income -0-

Car and truck expenses $10,000

Office expense 4,345

Taxes and licenses 50

Other expenses

Materials 4,100

Journal 78

Total expenses 18,573

Net loss 18,573

Petitioner provided little detail as to how the specific

amounts of the deductions were computed. He did testify that the

automobile deduction related to a 1978 Buick Regal and a 1980

Oldsmobile Cutlass, vehicles that were acquired by petitioners

prior to 1991. He also testified that included in office

expenses were items such as cable television services fees,

newspaper and magazine subscriptions, and the costs of acquiring

a sofa, computer table, and other items of furniture, as well as

a portion of the rent paid on his Kokomo apartment. Petitioner
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maintained a separate bank account for the real estate activity;

however, most of the checks entered into evidence that were drawn

on the account were made payable to "cash". Petitioner described

the nature of his real estate activity for years prior to 1991

but provided no information concerning what he was doing in 1991.

OPINION

Respondent disallowed the entire moving expense deduction

based upon lack of substantiation. Respondent disallowed all of

the deductions claimed on the Schedule C upon the ground that

petitioner's real estate activity did not constitute a trade or

business within the meaning of section 162(a). Petitioners claim

that they have satisfied all of the provisions of section 217,

and with the exception of certain PSI records, rely exclusively

on petitioner's testimony to support the amount of the deduction

claimed. Petitioner also claims that he was engaged in some real

estate business during 1991 and relies primarily upon his history

of such activity in the years 1985 through 1988. 

Respondent's determinations, having been made in a notice of

deficiency, are presumed correct, and petitioners bear the burden

of proving such determinations to be erroneous. Rule 142(a);

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

deductions are a matter of legislative grace, and the taxpayer

bears the burden of proving that he is entitled to any deduction

claimed. Rule 142(a); INDOPCO, Inc. v. Commissioner, 503 U.S.

79, 84 (1992); New Colonial Ice Co. v. Helvering, 292 U.S. 435,
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440 (1934); Welch v. Helvering, supra. In addition, a taxpayer

is required to keep books or records to substantiate all

deductions which are claimed. Sec. 6001; sec. 1.6001-1(a),

Income Tax Regs. Where a taxpayer fails to produce any records

to substantiate his deductions, disallowance of the claimed

deductions is proper. Williams v. Commissioner, T.C. Memo. 1986-

195.

Moving Expense Deduction

Ordinarily, moving expenses are considered nondeductible

family and living expenses. However, subject to certain

requirements neither relevant nor in dispute in this case,

section 217 permits a deduction for all reasonable moving

expenses paid or incurred during the taxable year in connection

with the commencement of work as an employee at a new principal

place of work. Whether a claimed moving expense is reasonable is

a question of fact to be determined under the circumstances of

the particular move. Sec. 1.217-2(b)(2), Income Tax Regs. A

taxpayer is required to prove the expenses incurred. See

Haberthier v. Commissioner, T.C. Memo. 1984-377. Petitioners'

proof in support of the disputed moving expense deduction

consists of petitioner's testimony and records from PSI relating

to the amount of relocation benefits petitioner received. After
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3The deduction is computed as follows: Expenses incurred

for transportation of household goods ($1,247.25), plus two round

trips by car from Bloomington to Kokomo for househunting, at the

standard mileage rate provided in Rev. Proc. 90-59, 1990-2 C.B.

644 (2 round trips x 240 miles per trip x $.275 per mile = $132),

plus travel by car from Bloomington to Kokomo in connection with

the move (120 miles x $.275 = $33), plus total meal expenses for

househunting and temporary quarters ($140 x .80 = $112).

 

4In Jorman v. Commissioner, T.C. Memo. 1994-613, we held

that petitioner's real estate activity was not engaged in with an

actual and honest profit objective in 1990 so as to allow for

deductions under sec. 162(a).

considering such evidence we find that petitioners are entitled

to a moving expense deduction in the amount of $1,524.25.3

Schedule C Deductions

Petitioner is no doubt connected in some fashion with the

real estate industry, as evidenced by the licenses he holds and

his activities in prior years. However, it is clear that

petitioner was not engaged in any real estate business during

1991. Although petitioner testified as to what he did in other

years, he provided no explanation whatsoever regarding what his

real estate activity consisted of in 1991. The introduction of

checks made payable to "cash" and drawn on some "business"

account tells us little, if anything, about the nature of the

activity. In those instances where a check was made payable to a

specific payee, it appears that the transaction involved a

personal rather than a business expense. 

In countless opinions far too numerous to cite, including

one involving petitioner,4 this Court has resolved disputes
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between taxpayers and the Commissioner involving whether certain

activities constituted trades or businesses for purposes of

section 162(a). In resolving such disputes we are required to

focus upon the nature of the activity involved. Needless to say,

before we can determine whether an activity constitutes a trade

or business, we must know what the activity is. In this case, we

have no idea what petitioner's real-estate-related activity was

in 1991. Without knowing the nature and the extent of the

underlying activity, we cannot determine whether such activity

was conducted by petitioner regularly and with continuity with

the primary purpose of earning a profit. Absent such findings 

we are unable to conclude that petitioner was engaged in a realestate-related trade or business during 1991. See Commissioner

v. Groetzinger, 480 U.S. 23, 35 (1987). Because petitioner has

failed to meet his burden of proving that the deductions in

dispute relate to expenses paid or incurred in connection with an

activity that constitutes a trade or business, respondent's

adjustments disallowing the deductions are sustained. 

Accuracy-Related Penalty

Respondent determined that petitioners were liable for the

accuracy-related penalty pursuant to section 6662(a) in the

amount of $1,268 for the year 1991. Section 6662(a) and (b)(1)

imposes a penalty on any portion of an underpayment which is

attributable to negligence or disregard of rules or regulations. 

The term "negligence" includes any failure to make a reasonable
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attempt to comply with the statute, and the term "disregard"

includes any careless, reckless, or intentional disregard. Sec.

6662(c). Respondent's determination is presumed correct, and

petitioners bear the burden of proving that they are not liable

for the accuracy-related penalty under section 6662(a). Rule

142(a); Welch v. Helvering, supra at 115 (1933); Bixby v.

Commissioner, 58 T.C. 757, 791-792 (1972). 

Petitioners produced little substantiating evidence in

support of the moving expense deduction in dispute in this

matter. Furthermore, they failed to explain why all but one of

the components of the deduction were in excess of what

substantiating evidence they did produce. Likewise, petitioners

produced substantiating evidence for only a small portion of the

deductions claimed on the Schedule C. Had we resolved the trade

or business issue in favor of petitioners, most of the deductions

would have been denied for lack of substantiation anyway. Given

petitioners' prior experience in this Court, they were no doubt

aware that the production of substantiating evidence was expected

and necessary to support their claimed entitlement to the

deductions in dispute. We can only conclude that their failure

to produce substantiating evidence results from their failure to

have maintained adequate books and records as required by section

6001 and the corresponding regulation. In our view, petitioners'

failure to explain the excessive deductions claimed along with

their recordkeeping deficiencies constitute at least a careless
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disregard of rules or regulations within the meaning of section

6662(b)(1) and (c), which renders them liable for the penalty

imposed by section 6662(a), and we so hold.

To reflect the foregoing,

Decision will be entered

under Rule 155.