1 Unless otherwise indicated, 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.

T.C. Memo. 1997-143

UNITED STATES TAX COURT

NATHANAEL ROMAN, Petitioner v.

COMMISSIONER OF INTERNAL REVENUE, Respondent

Docket No. 4370-95. Filed March 19, 1997.

Nathanael Roman, pro se.

Paul K. Voelker, for respondent.

MEMORANDUM FINDINGS OF FACT AND OPINION

CHIECHI, Judge: Respondent determined the following deficiencies in, additions to, and accuracy-related penalties on

petitioner's Federal income tax:

Year Deficiency

Additions to Tax

Sec. 6651(a)(1)1

Accuracy-Related Penalties

Sec. 6662(a)

1989 $7,083 $2,960 $1,417
- 2 -

2 Respondent determined in the notice of deficiency (notice)

that petitioner is not entitled to the deduction for wages and

salaries of $7,633 claimed in Schedule E (Supplemental Income and

Loss) (1991 Schedule E) of his 1991 U.S. individual income tax

return (return) and that, consequently, he is not entitled to the

"total loss" of $6,951 claimed in that schedule, but instead has

1991 Schedule E total income of $682. Petitioner concedes that

he is not entitled to a 1991 Schedule E deduction for wages and

salaries in the amount of $7,633 and that he does not have a 1991

Schedule E "total loss" of $6,951. However, he claims with

respect to his 1991 Schedule E (1) that, in addition to the other

expenses claimed in that schedule, he is entitled to deduct

expenses for (a) contract labor and (b) automobile and travel of

$595 and $60, respectively, and (2) that he has "total income" of

$26. In response to those claims, respondent states on brief: 

"While respondent does not concede that petitioner is entitled to

rental expenses in the specific categories or in the specific

amounts now claimed, respondent will not dispute that petitioner

realized a Schedule E rental gain for 1991 in the amount of $26". 

Since respondent does not dispute that petitioner has 1991 Schedule E "total income" of $26, we shall not address petitioner's

contentions regarding the deductions to which he claims he is

entitled in arriving at that "total income" amount.

1990 6,916 3,156 1,033

1991 7,232 -- 1,446

The issues remaining for decision are:2

(1) Is petitioner entitled for the years at issue to any

deductions claimed for charitable contributions? We hold that he

is not. 

(2) Is petitioner entitled for 1990 and 1991 to any Schedule

C (Profit or Loss from Business) deductions claimed with respect

to TFC Engineering? We hold that he is not.

(3) Is petitioner entitled for 1989 to treat (a) certain

long-term capital losses from the sales of stocks as his losses,

(b) certain transactions as giving rise to nonbusiness bad debts,

and (c) certain stock as worthless? We hold that he is not.
- 3 -

3 Unless otherwise indicated, our findings of fact pertain to

the years at issue.

4 Petitioner contends for the first time on brief (1) that, when

this case was called for trial, respondent changed the position

which she set forth in the stipulation of facts (stipulation)

that the parties had lodged before trial with respect to certain

exhibits of petitioner that were attached to that stipulation and

which related to his claims for certain charitable contributions,

business expenses, nonbusiness bad debts, and long-term capital

losses and (2) that respondent therefore violated the terms of

that stipulation, thereby resulting in an injustice to petitioner. We disagree. The stipulation contained respondent's

evidentiary objections and/or statements of position with respect

to the stipulated exhibits of petitioner. Respondent expressly

stated therein that, in stipulating that petitioner was attaching

certain exhibits to the stipulation, respondent does not stipulate that petitioner is entitled to any of the claimed items to

which the exhibits of petitioner relate. Certain other portions

of the stipulation and the exhibits of petitioner attached

thereto were not clear to the Court, and at the beginning of the

trial of this case the Court asked (1) respondent to clarify

certain statements in the stipulation about respondent's position

regarding the exhibits of petitioner that were attached to the

stipulation, (2) the parties to clarify certain other statements

about certain of those exhibits, and (3) the parties to address

respondent's evidentiary objections to certain of those exhibits. 

The Court then (1) ruled on respondent's evidentiary objections

and excluded certain portions of the stipulation and the exhibits

of petitioner that were attached thereto and (2) received into

evidence and made a part of the record in this case the remaining

portions of the stipulation and the exhibits that were attached

thereto.

(4) Is petitioner liable for 1989 and 1990 for the addition

to tax under section 6651(a)(1)? We hold that he is.

(5) Is petitioner liable for the years at issue for the

accuracy-related penalty under section 6662(a)? We hold that he

is to the extent stated herein.

FINDINGS OF FACT3

Some of the facts have been stipulated and are so found.4
- 4 -

5 Hereinafter, all dollar amounts are rounded to the nearest

dollar.

At the time the petition was filed, petitioner lived in Las

Cruces, New Mexico.

Petitioner, who was an engineer working for the Department

of the Army during the years at issue, filed returns for 1989,

1990, and 1991 on February 21, 1992, October 12, 1993, and

February 5, 1992, respectively.

Claimed Charitable Contributions

Claimed Charitable Contributions

With Respect to Certain Blank Checks

During 1989, 1990, and 1991, petitioner prepared checks

totaling $15,092,5 $14,100, and $12,695, respectively, on which

he left the payee lines blank (blank checks) at the request of

one or more individuals whose identity is not disclosed in the

record. One of the following or similar handwritten notations

appeared on the check stubs (check stubs) for those checks: 

"Donation", "Lee's Travel Fund & Meals", "Lee's Travel Fund",

"Contribution", and "Charitable Donation". The blank checks were

deposited into a bank account (TFC account) of Twenty-First

Century Corporation (TFC) by Ms. Thelma Spiegel (Ms. Spiegel). 

Ms. Spiegel, inter alia, served as the bookkeeper for the collection of tithes and charitable contributions of Agape Assemblies,

Inc. (Agape) and Body of Christ Church and had the authority to

make deposits to, and withdrawals from, the TFC account.
- 5 -

Agape was an organization described in sections 170(c)(2)

and 501(c)(3) and listed in respondent's Publication 78, Cumulative List of Organizations described in Section 170(c) of the

Internal Revenue Code of 1986 (Publication 78).

Ms. Donna Dorris (Ms. Dorris) was the secretary of Agape and

oversaw the work of Ms. Spiegel. Ms. Dorris drew no distinction

between Agape and TFC because she considered both organizations

to be one and the same.

Claimed Charitable Contributions With 

Respect to Certain Additional Checks 

During 1989, petitioner wrote a check (check 3448) to

Professional Reprographics and a check (check 3534) to R.B.

Design & Printing (R.B. Design & Printing) in the amounts of $86

and $874, respectively. The following handwritten notations

appeared on the check stubs for check 3448 and check 3534,

respectively: "Corrections to Poetry Text" and "Lee Mc's poetry

books". A receipt from R.B. Design & Printing indicated that

check 3534 was used to pay a bill for 500 70-page poetry books,

that a customer named "McWilliams" placed the order for those

books, and that Nathanael Roman received those books.

Petitioner wrote two checks (checks 3597 and 3660) during

1989, one check (check 3974) during 1990, and one check (check

4494) during 1991 to Ms. Shirley A. Ridgway (Ms. Ridgway) in the

amounts of $545, $550, $270, and $70, respectively. Ms. Ridgway

and petitioner, who have known each other for approximately 25
- 6 -

6 Checks 3448, 3534, 3597, 3660, 3974, and 4494 and the check to

Citizen's Bank are collectively referred to as the additional

checks.

years, are good friends. The following handwritten notations

appeared on the check stubs for checks 3597, 3660, 3974, and

4494, respectively: "Tithes/mine", "Donation", "Donation Reimbursement", and "Agape Assemblies".

During 1989, petitioner wrote a check to Citizen's Bank

(check to Citizen's Bank) in the amount of $540. The following

handwritten notation appeared on the check stub for that check: 

"TFC Deposit/Donation".6

Return Treatment of Claimed Charitable Contributions

In Schedule A of petitioner's 1989, 1990, and 1991 returns,

petitioner claimed deductions for charitable contributions

totaling $22,690, $15,456, and $15,210, respectively.

TFC Engineering

Dona Ana County, New Mexico, issued petitioner a Certificate

of Business Registration for calendar year 1985 for an entity

called TFC Engineering. That certificate stated in pertinent

part: 

Whereas, a business registration application form

has been completed on behalf of the above named individual, partnership or corporation, and the registration fee of $25 has been paid; 

Now, therefore, the County of Dona Ana, State of

New Mexico, hereby acknowledges receipt of said fee for

the calendar year ending December 31, 1985.

During 1990 and 1991, petitioner provided financial support
- 7 -

to his son Matthew Roman (Matthew Roman) who was, as of the fall

of 1990, a 20-year old college student. Petitioner and Matthew

Roman's mother Gloria J. Maldonado (Ms. Maldonado) were divorced

sometime in 1974 or 1975. During 1990 and 1991, Matthew Roman

generally resided at petitioner's house during the weekends and

at Ms. Maldonado's house during the weekdays. Pursuant to the

divorce decree relating to petitioner's divorce from Ms.

Maldonado, petitioner's obligation to support his son ended when

his son turned 18 years old.

During 1990 and 1991, petitioner and his son had an agreement under which petitioner was to pay Matthew Roman approximately $130 every several weeks in exchange for, inter alia,

bookkeeping, filing, and automobile detailing by Matthew Roman. 

The following handwritten notation appeared on the check stubs

for most of the checks that petitioner's son received from

petitioner during 1990 (Matthew Roman's checks): "Matt's Rm. &

Bd.". Most of Matthew Roman's checks were written either to Ms.

Maldonado or the payee lines were left blank; several of those

checks were payable to New Mexico State University, University of

Nebraska, William T. Baker, D.O, P.A., and Wal-Mart Pharmacy; and

none of them was payable to Matthew Roman.

During 1990 and 1991, petitioner wrote 17 checks to Ms.

Ridgway (Ms. Ridgway's checks) totaling $2,582. One of the

following handwritten notations appeared on the check stubs for

each of 16 of those checks: "RX-7 Repair[s]", "Taillights RX-7",
- 8 -

"RX-7/Chrysler Ins.", "RX-7 Oil change", "auto advertisement",

"Toyota Repair", "Car Insurance", "Auto Repair[s]", "Auto Tax/

Tune-up", "Auto (RX-7) Repair", and "Auto Supplies". One of Ms.

Ridgway's checks, dated January 26, 1990, was for $1,100, and the

following handwritten notation appeared on the check stub for

that check: "Business". None of the handwritten notations on

the check stubs for those checks indicated that it was a payment

for services rendered by Ms. Ridgway.

In Schedule C of petitioner's 1990 return (1990 Schedule C),

petitioner indicated that TFC Engineering's "Principal business"

was "Engineering Services" and that it was the first Schedule C

filed for TFC Engineering. The 1990 Schedule C showed a net loss

of $6,246, comprised of no gross income, $4,207 in claimed bad

debts, and $2,039 in claimed "Wages". The return that petitioner

filed for 1991 did not include a Schedule C for TFC Engineering.

Claimed Stock Sale Losses, Nonbusiness 

Bad Debts, and Worthless Stock 

Claimed Stock Sales Losses

From at least the last quarter of 1987 through April 27,

1989, petitioner as custodian for Matthew Roman under the Uniform

Gifts to Minors Act (UGMA) of New Mexico maintained an account

(Vanguard account) at Vanguard Discount Brokerage Services

(Vanguard). The Social Security number that Vanguard listed for

that account was 525-53-6344. Petitioner's Social Security

number is 123-32-4215. Vanguard sent a statement for the last
- 9 -

quarter of 1987 (1987 Vanguard statement) to petitioner as

custodian for Matthew Roman under the UGMA of New Mexico that

indicated that 45 shares of Daisy Systems Corp. stock (Daisy

stock) and 200 shares of Gibraltar Financial Corp. stock (Gibraltar stock) had been purchased for $304 and $700, respectively. 

Vanguard sent another statement for the last quarter of 1988

(1988 Vanguard statement) to petitioner as custodian for Matthew

Roman under the UGMA of New Mexico that showed that those stocks

were still being held. (Hereinafter, the 1987 Vanguard statement

and the 1988 Vanguard statement shall be referred to collectively

as the Vanguard statements.) Vanguard sent to petitioner as

custodian for Matthew Roman under the UGMA of New Mexico a form

in lieu of Form 1099-B for 1989 (Vanguard 1099) that indicated

that on April 27, 1989, the Daisy stock and the Gibraltar stock

were sold for $157 and $60, respectively.

Claimed Nonbusiness Bad Debts

Claimed Nonbusiness Bad Debts of Mr. Parra

On October 5, 1988, Richard L. Parra (Mr. Parra) signed a

note that stated that he was to repay Nathanael Roman $5,351 at

an annual percentage interest rate of 12.5 percent (October 5

note). Mr. Parra was to repay that note in monthly installments

of principal and interest totaling $179. On October 7, 1988, Mr.

Parra signed another note that stated that he was to repay

Nathanael Roman $5,020 at an annual percentage interest rate of

18.2 percent (October 7 note). Mr. Parra was to repay that note
- 10 -

in monthly installments of principal and interest totaling $182.

On or about October 5, 1988, petitioner borrowed $5,351, the

same principal amount as the October 5 note, from Air Defense

Center Federal Credit Union (ADCFCU loan). The ADCFCU loan bore

the same annual percentage interest rate as the October 5 note. 

On October 7, 1988, petitioner borrowed $5,020, the same principal amount as the October 7 note, from Norwest Financial New

Mexico, Inc. (Norwest loan). The Norwest loan bore the same

annual percentage interest rate as the October 7 note. During

1989, petitioner repaid the ADCFCU loan and the Norwest loan by

using $9,966 that he borrowed from White Sands Federal Credit

Union (White Sands loan) at an annual percentage interest rate of

13 percent.

Claimed Nonbusiness Bad Debt of Mr. McWilliams

On December 15, 1987, Robert L. McWilliams (Mr. McWilliams)

signed a note (Mr. McWilliams' note) that stated that he was to

repay Nathanael Roman $4,500 at an annual percentage interest

rate of 12 percent in monthly installments of principal and

interest totaling $275. Mr. McWilliams did not pay any principal

or interest on that note. When petitioner learned during 1989

that Mr. McWilliams was unable to pay certain creditors, he

determined that Mr. McWilliams did not intend to pay the principal and interest on Mr. McWilliams' note.
- 11 -

7 The record does not disclose the amounts of those insurance

payments during 1988 and 1989.

Claimed Nonbusiness Bad Debts of Ms. Parra, 

Ms. Parra and/or Mr. Parra, and Mr. Ridgway

Ms. Parra

On May 19, 1989, petitioner gave Linda Parra (Ms. Parra),

Mr. Parra's wife, a check for $500 (Ms. Parra's check). The

check stub for that check included the following handwritten

notation: "Linda will repay at the rate of $50.00 per week

starting 27 May 1989". Ms. Parra did not repay petitioner the

amount of Ms. Parra's check.

Ms. Parra and/or Mr. Parra

One or more individuals associated with Agape whose identity

is not disclosed in the record asked petitioner to pay during

1988 and 1989 that portion of the premium under a group health

insurance policy maintained by Agape that was attributable to

health coverage for Ms. Parra and/or Mr. Parra and their daughter

(insurance payment). Petitioner made one insurance payment

during 1988 and two such payments during 1989.7 Neither Ms.

Parra and/or Mr. Parra nor their daughter repaid petitioner the

amounts of those insurance payments.
- 12 -

Mr. Ridgway

On October 6, 1988, petitioner gave James B. Ridgway (Mr.

Ridgway) a check for $300 (Mr. Ridgway's check) that included the

following handwritten notation on the check stub for that check: 

"Auto Purchase Loan". Mr. Ridgway did not repay the amount of

Mr. Ridgway's check.

Claimed Worthless Stock

On April 17, 1987, petitioner paid $1,000 in return for

1,000 shares of $1 par value common stock of Celebration Products

(Celebration), and he received a stock certificate representing

those shares. On May 14, 1988, petitioner paid $2,000 to purchase an additional 2,000 shares of $1 par value Celebration

common stock. However, petitioner received a stock certificate

representing only 1,000 of those 2,000 shares.

At all relevant times, Mr. Parra was a principal officer of

Celebration. During 1989, petitioner determined that Mr. Parra

was unable to make Celebration into a successful business.

Return Treatment of Claimed Stock Sale Losses, 

Nonbusiness Bad Debts, and Worthless Stock 

In Schedule D (Capital Gains and Losses) of petitioner's

1989 return (1989 Schedule D), petitioner claimed the following

as short-term capital losses:

Promissory Note -- Robert L. Parra $7,500

Promissory Note -- Robert L. Parra 7,500

Promissory Note -- Robert L. McWilliams 6,000

Celebration Products Stock 2,500

 Total 23,500
- 13 -

He claimed no short-term capital gains and no long-term capital

gains or losses in his 1989 Schedule D. Because of the $3,000

limitation imposed by section 1211(b) for each taxable year on

the amount of net capital loss by which an individual may reduce

income, petitioner reduced the income reported in his 1989 return

by $3,000 of the claimed short-term capital losses reported in

his 1989 Schedule D. He carried over the remaining $20,500 of

such claimed losses to Schedule D of his 1990 return and reduced

the income reported in that return by $3,000 of that claimed loss

carryover. Petitioner carried over the remaining $17,500 of that

claimed loss carryover to Schedule D of his 1991 return and

reduced the income reported in that return by $3,000 of that

claimed loss carryover.

In his returns for the years at issue, petitioner did not

claim any losses attributable to the sales of the Daisy stock and

the Gibraltar stock, the amount of Ms. Parra's check, the amount

of the insurance payments, and the amount of Mr. Ridgway's check.

OPINION

Petitioner bears the burden of proving that respondent's

determinations in the notice are erroneous and that he is entitled to the tax treatment that he is claiming for the items in

dispute. See Rule 142(a); Welch v. Helvering, 290 U.S. 111, 115

(1933).
- 14 -

8 The amounts claimed as charitable contributions to or for the

use of Agape in petitioner's returns for the years at issue are

greater than the total amounts of the blank checks and the

additional checks for 1989, 1990, and 1991 that are part of the

record in this case. That record does not establish the reason

for those differences, although petitioner contends that they

relate to cash contributions that he claims he made to Agape

during those years.

Petitioner testified with respect to the stock sale losses,

nonbusiness bad debts, and worthless stock that he is claiming. 

He did not testify about any other issue in this case. We

presume that if he had testified truthfully about those other

issues, his testimony would not have been favorable to his

position on them. See Cohen v. Commissioner, 9 T.C. 1156, 1162

(1947), affd. 176 F.2d 394 (10th Cir. 1949); Wichita Terminal

Elevator Co. v. Commissioner, 6 T.C. 1158, 1165 (1946), affd. 162

F.2d 513 (10th Cir. 1947). 

Claimed Charitable Contribution Deductions

Petitioner contends that he is entitled to deductions for

1989, 1990, and 1991 for charitable contributions that he made to

or for the use of Agape in the amounts of $22,690, $15,456, and

$15,210, respectively.8 The parties agree that contributions

during the years at issue "to or for the use of" Agape within the

meaning of section 170(c) are deductible because Agape was during

those years an organization described in sections 170(c)(2) and

501(c)(3) and listed in Publication 78. The issue we must decide

is the factual question whether, as petitioner contends, petitioner contributed the amounts at issue to or for the use of
- 15 -

9 Respondent does not dispute that the handwritten notations on

the check stubs for the checks that petitioner wrote during the

years at issue appeared on those checks. Hereinafter, for ease

of reference, we shall discuss the handwritten notations on the

check stubs that are in evidence as if they appeared on the

checks to which those stubs relate.

10 Ms. Dorris testified that it was the policy of Agape that the

payee lines on those checks be left blank. She did not explain

the reason for that alleged policy.

11 Petitioner does not dispute that during the years at issue

TFC was not an organization described in secs. 170(c)(2) and

501(c)(3) and that it was not listed in Publication 78. Therefore, we conclude that he does not dispute that contributions

made to or for the use of TFC during those years are not deductible under sec. 170(a).

Agape. If he did, he is entitled to deduct those contributed

amounts under section 170(a).

To support his position, petitioner introduced into evidence

(1) check stubs containing, inter alia, the information that appeared on the blank checks and the additional checks;9 (2) lists

that he prepared for each of the years at issue (petitioner's

lists) of the blank checks and the additional checks, as well as

of the cash, that he claims he contributed to or for the use of

Agape during each such year; and (3) the testimony of Ms. Spiegel

and Ms. Dorris.

We are unwilling to rely on (1) the check stubs for the

blank checks because petitioner left blank the payee lines on the

checks represented by those stubs10 and those checks were deposited into the bank account of TFC11 and (2) petitioner's lists

because they are nothing more than petitioner's self-serving,

uncorroborated statements.
- 16 -

Nor are we willing to accept the testimony of Ms. Spiegel

and Ms. Dorris to establish that during the years at issue

petitioner contributed the amounts in question to or for the use

of Agape. We question Ms. Spiegel's testimony in that regard,

which we found to be inconsistent in certain material respects. 

Although she testified on direct examination that she deposited

the blank checks into Agape's account, she admitted on crossexamination that she deposited those checks into the TFC account. 

In addition, although Ms. Spiegel initially testified on crossexamination that she disbursed the funds from the TFC account to

Agape, she later admitted that she disbursed the funds from the

TFC account to Mr. McWilliams.

We also found Ms. Dorris' testimony to be unreliable. For

example, she drew no distinction in her testimony between Agape

and TFC because she considered both organizations to be one and

the same. To illustrate, Ms. Dorris testified that petitioner

gave her petitioner's lists to review about six weeks prior to

trial, that she reviewed those lists, that those lists corresponded with a ledger of contributions to Agape, which was not

introduced into evidence, and that the amounts reflected in those

lists were deposited into the TFC account.

On the instant record, we find that petitioner has failed to

carry his burden of showing that the amounts of the blank checks

that he claims he contributed to Agape during each of the years

at issue were, in fact, contributed during each such year to or
- 17 -

12 In her testimony, Ms. Spiegel referred to Body of Christ

Church. Except for its name, which suggests that Body of Christ

Church may have had a ministry, the record discloses no facts

about that organization.

for the use of that organization within the meaning of section

170(c).

With respect to check 3448 in the amount of $86, the following handwritten notation appeared on that check: "Corrections to

Poetry Text". There is no reliable evidence in the record that

"Corrections to Poetry Text" was related to a project of Agape.

With respect to check 3534 in the amount of $874 that was

payable to R.B. Design & Printing, the following handwritten

notation appeared on that check: "Lee Mc's Poetry Books". A

receipt from R.B. Design & Printing indicated that check 3534 was

used to pay a bill for 500 70-page poetry books, that a customer

named "McWilliams" placed the order for those books, and that

Nathanael Roman received those books. Ms. Dorris testified that

Mr. McWilliams was one of the "members of the ministry". Assuming arguendo that Mr. McWilliams were a member of the ministry of

Agape,12 the record does not disclose whether he was acting in

that capacity when he incurred the expense at R.B. Design &

Printing that petitioner paid with check 3534.

With respect to checks 3597, 3660, 3974, and 4494 in the

respective amounts of $545, $550, $270, and $70 that were payable

to Ms. Ridgway, the following handwritten notations appeared on

those respective checks: "Tithes/mine", "Donation", "Donation
- 18 -

Reimbursement", and "Agape Assemblies". As we understand petitioner's position, he claims that he wrote those checks in order

to reimburse Ms. Ridgway for contributions that she made on his

behalf to Agape during 1989, 1990, and 1991. We do not have an

explanation from Ms. Ridgway, who testified with respect to

another issue in this case, about the purposes of those checks,

nor do we know if she deducted in her returns the funds that

petitioner claims she contributed to Agape on his behalf.

With respect to the check to Citizen's Bank, the following

handwritten notation appeared on that check: "TFC Deposit/

Donation". Even petitioner's own notation suggests that petitioner made a deposit to a bank account of TFC, and not Agape, at

Citizen's Bank.

On the instant record, we find that petitioner has failed to

carry his burden of showing that the additional checks (i.e.,

checks 3448, 3534, 3597, 3660, 3974, and 4494 and the check to

Citizen's Bank) represent amounts that petitioner contributed

during 1989, 1990, and/or 1991 to or for the use of Agape within

the meaning of section 170(c).

Summary

Based on the entire record before us, we find that petitioner has failed to carry his burden of proving that the amounts

of the blank checks and the additional checks (as well as any

cash) that he claims he contributed to or for the use of Agape

during 1989, 1990, and/or 1991 were, in fact, contributed during
- 19 -

13 Although petitioner reported no income in his 1990 Schedule C

with respect to TFC Engineering, he is claiming herein that he

did have income for 1990 attributable thereto. Although petitioner deducted certain expenses in his 1990 Schedule C with

respect to TFC Engineering, he is claiming herein that he incurred different types and amounts of expenses during 1990 with

respect thereto. In addition, although petitioner did not include a Schedule C for TFC Engineering in his return for 1991, he

is claiming herein Schedule C gross income and expenses with

respect thereto for that year.

14 Respondent also contends that, because the claimed automobile-related activity of TFC Engineering was not an activity

engaged in for profit during 1990 and 1991, pursuant to sec. 183,

petitioner is not entitled to deduct any expenses in excess of

income. Petitioner does not address respondent's contention

under sec. 183. On the record before us, we find that petitioner

has failed to establish that the automobile-related activity in

which he claims TFC Engineering engaged during 1990 and 1991 is

an activity engaged in for profit within the meaning of sec. 183.

each such year to or for the use of that organization within the

meaning of section 170(c). Accordingly, we sustain respondent's

determinations disallowing the charitable contributions that

petitioner claims for those years.

Claimed Schedule C Deductions 

With Respect to TFC Engineering

Petitioner claims on brief (1) that TFC Engineering was

engaged during 1990 and 1991 in the business of purchasing,

repairing, and reselling automobiles and (2) that that alleged

business generated losses during those years of $6,246 and

$7,562, respectively.13 Respondent disputes petitioner's

claims.14

To support his position with respect to the claimed Schedule

C losses for TFC Engineering, petitioner relies on certain documentary and testimonial evidence. The documentary evidence con-
- 20 -

sists of (1) lists and summaries, presumably prepared by or on

behalf of petitioner (petitioner's summaries), that purport to

show with respect to certain automobiles their respective purchase prices, repair or other expenses, and, in certain instances, sales prices; (2) check stubs of petitioner that appear to

correspond to certain alleged purchase price and expense amounts

shown in petitioner's summaries; and (3) receipts for certain of

the expenses shown in those summaries that indicated that the

following customers were responsible for the expenses incurred:

Customer Name

Number of Receipts

Listing Customer Name

Nathanael Roman 11

Shirley Ridgway 8

Matthew Roman 1

Aunt Shirley's Auto Sales 1

Robert's Auto Repair 6

We are unwilling to rely on petitioner's self-serving

summaries to establish that during 1990 and 1991 he was in the

business of purchasing, repairing, and reselling automobiles. 

Although certain check stubs of petitioner and receipts for

repairs that are in evidence support petitioner's position that

during 1990 and 1991 he paid the repair and other expenses for

certain automobiles, we are not persuaded by the documentary (and

other) evidence introduced by petitioner on this issue that

during those years he owned the automobiles listed in petitioner's summaries and that he attempted to, and/or did, sell any

of those automobiles for profit during those years.
- 21 -

The testimonial evidence regarding the claimed Schedule C

losses for TFC Engineering consists of the testimony of Ms.

Ridgway and Matthew Roman. Ms. Ridgway testified that around

1989 she managed mobile homes and automobile sales for petitioner. We question Ms. Ridgway's testimony. Indeed, petitioner

acknowledges on brief that Ms. Ridgway was mistaken when she

testified that she performed those functions for him around 1989. 

Petitioner claims that Ms. Ridgway did not manage mobile homes

for him until 1991. Petitioner also claims that Ms. Ridgway

first managed automobile sales for him during 1990. Ms. Ridgway

also testified that she received around $2,900 during 1990 and

some undisclosed amount during 1991 from TFC Engineering for

"sales and organizing the mobile homes, making collections,

taking care of repairs, also leasing the mobile homes--taking

care of all those things for you." The documentary evidence

shows that during 1990 and 1991 petitioner wrote 17 checks to Ms.

Ridgway totaling $2,582, 16 of which appear to relate to certain

repair and other expenses regarding certain automobiles, one of

which for $1,100 contained the handwritten notation "Business",

and none of which establishes that those checks were payments for

services rendered during those years by Ms. Ridgway to petitioner

in the conduct of a business of purchasing, repairing, and reselling automobiles. In short, we are not persuaded by Ms.

Ridgway's testimony (and the other pertinent evidence) that

petitioner was engaged in such a business during 1990 and 1991.
- 22 -

Nor did we find the testimony of Matthew Roman, petitioner's

son, particularly helpful to petitioner's position that during

1990 and 1991 he was engaged in the business of buying, repairing, and reselling automobiles. Indeed, although he testified

that during 1990 petitioner paid him for "bookkeeping, filing,

automobile detailing * * * and long-range business planning",

Matthew Roman did not even know the nature of the business in

which petitioner was allegedly engaged and for which he allegedly

worked during 1990 and 1991. On cross-examination, respondent's

counsel asked petitioner's son to describe the type of business

in which his father was engaged during 1990. Petitioner's son

replied: "I believe the -- well, at that time the name of his

business was TFC Engineering. And the scope of that is beyond my

knowledge." 

Based on the entire record before us, we find that petitioner has failed to satisfy his burden of proving that during

1990 and 1991 he was engaged under the name TFC Engineering (or

under any other name) in a trade or business within the meaning

of section 162(a) of purchasing, repairing, and reselling automobiles. Accordingly, petitioner is not entitled to any of the

deductions that he claims for those years with respect to such

alleged business of TFC Engineering.

Claimed Stock Sale Losses, Nonbusiness 

Bad Debts, and Worthless Stock 

Claimed Stock Sale Losses

Petitioner claims that during 1989 he realized long-term
- 23 -

capital losses of $147 and $640 on the respective sales of the

Daisy stock and the Gibraltar stock. At trial, petitioner

presented the Vanguard statements and the Vanguard 1099 for 1989,

the year in which the Daisy stock and the Gibraltar stock were

sold. Those documents show that at least during the last quarter

of 1987 to April 27, 1989, those stocks were held in an account

at Vanguard by Nathanael Roman as custodian for his son Matthew

Roman under the UGMA of New Mexico. The Social Security number

listed on the Vanguard statements and the Vanguard 1099 for the

Vanguard account was 525-53-6344. Petitioner's Social Security

number is 123-32-4215. The Vanguard 1099 indicated that on April

27, 1989, Nathanael Roman as custodian for Matthew Roman under

the UGMA of New Mexico sold the Daisy stock and the Gibraltar

stock. No evidence was offered at trial to contradict the

Vanguard statements and the Vanguard 1099, although we note that,

pursuant to the UGMA of New Mexico, petitioner should have

delivered the Daisy stock and the Gibraltar stock to his son when

he became 18 on December 3, 1987. See N.M. Stat. Ann. sec. 46-7-

4(D) (Michie 1978) (repealed July 1989).

Under New Mexico law in effect during all relevant times, "A

gift made in a manner prescribed in the Uniform Gifts to Minors

Act * * * is irrevocable and conveys to the minor indefeasibly

vested legal title to the security". N.M. Stat. Ann. sec. 46-7-

3(A) (Michie 1978) (repealed July 1989). A transfer under the

UGMA properly made under State law is effective to transfer the
- 24 -

incidence of income taxation from the parent to the child except

to the extent that custodial funds are used to discharge the

support obligation of the parent. J.T. Henry & Associates, Inc.

v. Commissioner, 80 T.C. 886, 890 (1983). The record does not

show whether there were any dividends from the Daisy stock or the

Gibraltar stock that petitioner used to support his son while he

was a minor (i.e., prior to December 3, 1987, when he became 18).

Based on the entire record before us, we find that petitioner has failed to satisfy his burden of proving that he owned

the Daisy stock and the Gibraltar stock on April 27, 1989, the

date on which those stocks were sold. Accordingly, we reject

petitioner's claim that during 1989 he realized long-term capital

losses on the sales of those stocks. 

Claimed Nonbusiness Bad Debts

Section 166(d) allows a deduction for a nonbusiness debt

that becomes worthless during the taxable year. A nonbusiness

debt is defined in section 166(d)(2) as a debt other than (1) a

debt created or acquired in connection with a trade or business

of the taxpayer or (2) a debt the loss from the worthlessness of

which is incurred in the taxpayer's trade or business. 

Only a bona fide debt qualifies as debt for purposes of

section 166. A bona fide debt is a debt that arises from a

debtor-creditor relationship based upon a valid and enforceable

obligation to pay a fixed or determinable sum of money. Sec.

1.166-1(c), Income Tax Regs. Whether a bona fide debtor-creditor
- 25 -

relationship exists is a question of fact to be determined upon a

consideration of all the pertinent facts and circumstances. 

Fisher v. Commissioner, 54 T.C. 905, 909 (1970). An essential

consideration is whether there exists a good faith intent on the

part of the alleged creditor to enforce repayment and a good

faith intent on the part of the alleged debtor to make repayment. 

See id.

The following factors have been taken into account by this

Court and other courts in determining whether such a good faith

intention of repayment exist: (1) Whether a note or other

evidence of indebtedness exists, Clark v. Commissioner, 18 T.C.

780, 783 (1952), affd. 205 F.2d 353 (2d Cir. 1953); (2) whether

interest is charged, id.; (3) whether there is a fixed schedule

for repayments, id.; (4) whether a demand for repayment has been

made, Zimmerman v. United States, 318 F.2d 611, 613 (9th Cir.

1963); and (5) whether at the time the loan was allegedly made

the alleged borrower had the ability to repay it, Jewell Ridge

Coal Corp. v. Commissioner, 318 F.2d 695, 699 (4th Cir. 1963),

affg. T.C. Memo. 1962-194. 

In general, the determination of whether a debt is worthless

is a question of fact, and all pertinent evidence must be considered, including the value of collateral, if any, securing the

debt and the financial condition of the debtor. Sec. 1.166-2(a),

Income Tax Regs. 

Section 166(b) provides that the amount of the deduction for
- 26 -

15 It is not clear from the record whether petitioner deducted

the interest that he paid on the ADCFCU loan, the Norwest loan,

and/or the White Sands loan under sec. 163(a), as limited by sec.

163(h). In any event, we do not understand petitioner to contend

that he is entitled for 1989 to an interest expense deduction

with respect to those loans.

any bad debt is the adjusted basis provided in section 1011. As

pertinent here, section 1011(a) defines the term "adjusted basis"

as the basis determined under section 1012, adjusted as provided

under section 1016, and section 1012 provides that the basis of

property is its cost. 

Claimed Nonbusiness Bad Debts of Mr. Parra 

At the conclusion of the trial in this case, respondent

conceded that the October 5 and the October 7 notes were loans

and that petitioner is entitled to treat the respective principal

amounts of those notes as nonbusiness bad debts for 1989. As we

understand petitioner's position, he contends that, in addition

to the principal amounts conceded by respondent with respect to

the October 5 and October 7 notes, he is entitled for 1989 to

treat as a nonbusiness bad debt the interest due on the October 5

and the October 7 notes.15 Respondent disputes petitioner's

contention. We agree with respondent. 

The record does not establish that petitioner, a cash basis

taxpayer, included in income for any year interest payments, if

any, on the October 5 and the October 7 notes. Consequently,

petitioner has failed to show that he has any basis in that

interest. 
- 27 -

On the record before us, we find that petitioner has failed

to prove that he is entitled for 1989 to treat as a nonbusiness

bad debt the interest on the October 5 and the October 7 notes.

Claimed Nonbusiness Bad Debt of Mr. McWilliams

Petitioner contends that the aggregate amount of principal

and interest on Mr. McWilliams' note is a bona fide debt that

became worthless during 1989. Petitioner introduced into evidence a note signed by Mr. McWilliams on December 15, 1987, which

stated that Mr. McWilliams was to repay Nathanael Roman $4,500 at

an annual percentage interest rate of 12 percent in monthly

installments of principal and interest totaling $275. In addition, petitioner testified that: (1) He lent Mr. McWilliams the

amount represented by Mr. McWilliams' note, (2) during 1989 Mr.

McWilliams was unable to pay certain creditors, and (3) he

determined that Mr. McWilliams was unable to pay the aggregate

amount of the principal and interest on Mr. McWilliams' note.

Based on petitioner's documentary and testimonial evidence

regarding Mr. McWilliams' note, we find that the aggregate amount

of the principal and interest on Mr. McWilliams' note is a bona

fide debt within the meaning of section 166. We must now determine whether petitioner has shown that that debt became worthless

during 1989. The only evidence presented at trial with respect

to the worthlessness of Mr. McWilliams' note was petitioner's

testimony that during 1989 he determined that Mr. McWilliams was

unable to pay certain creditors. More than petitioner's belief
- 28 -

that Mr. McWilliams' note became worthless during 1989 is required to prove that it did become worthless during that year. 

See Aagaard v. Commissioner, 56 T.C. 191, 209 (1971).

Based on our review of the instant record, we find that

petitioner has failed to carry his burden of proving that Mr.

McWilliams' note became worthless during 1989. Accordingly, we

sustain respondent's determination that petitioner is not entitled for that year to treat any amount of Mr. McWilliams' note as

a nonbusiness bad debt.

Claimed Nonbusiness Bad Debts of Ms. Parra, 

Ms. Parra and/or Mr. Parra, and Mr. Ridgway

Petitioner contends that he is entitled for 1989 to treat

the following as nonbusiness bad debts under section 166: The

amount of Ms. Parra's check; the undisclosed amounts of the

insurance payments that petitioner made; and the amount of Mr.

Ridgway's check. The record does not show that there was any

interest required to be paid on, that petitioner expected or

demanded repayment of, or that the alleged debtors believed that

they were required to repay those alleged loans. Nor does the

record show the financial condition of any of the alleged debtors

at the times (1) petitioner allegedly lent them the amounts in

question and (2) petitioner determined that the alleged loans

became worthless. 

Based on our review of the instant record, we find that

petitioner has failed to carry his burden of proving (1) that the

amounts of Ms. Parra's check, the insurance payments, and Mr.
- 29 -

Ridgway's check were bona fide debts within the meaning of section 166 and (2) that, assuming arguendo that such amounts were

bona fide debts, they became worthless during 1989. Accordingly,

we reject petitioner's claim that he is entitled for that year to

treat such amounts as nonbusiness bad debts.

Claimed Worthless Stock

Petitioner contends that the 3,000 shares of Celebration

common stock that he purchased on April 17, 1987, and May 14,

1988, became worthless during 1989 and that he is entitled for

that year to treat that stock as worthless stock under section

165(g).

Section 165(a) and (g) permits a capital loss deduction for

worthless stock for the taxable year during which such stock

becomes worthless. Our resolution of the question presented here

under section 165(g) depends on the facts and circumstances

relating to the Celebration stock at issue. See Lincoln v.

Commissioner, 24 T.C. 669, 694 (1955), affd. 242 F.2d 748 (6th

Cir. 1957).

The only evidence presented by petitioner about the worthlessness of the Celebration stock is his testimony that he

determined during 1989 that Mr. Parra was unable to make Celebration into a successful business. Petitioner's belief that the

Celebration stock at issue became worthless during 1989 is not

enough to persuade us that that stock did become worthless during

that year. See Aagaard v. Commissioner, supra.
- 30 -

On the instant record, we find that petitioner has failed to

satisfy his burden of proving that the Celebration stock became

worthless during 1989. Accordingly, we sustain respondent's

determination that petitioner is not entitled for that year to

treat that stock as worthless under section 165(g).

Section 6651(a)(1)

Respondent determined that petitioner is liable for each of

the years 1989 and 1990 for the addition to tax under section

6651(a)(1) for failing to file timely his return for each of

those years. Although petitioner presented no evidence at trial

with respect to those determinations, he contends on brief that,

because he believed that he overpaid his taxes for 1989 and 1990

and that he was owed a refund for those years, he did not have to

file returns for 1989 and 1990. In the 1989 and 1990 returns

that petitioner filed late, he reported gross income of $61,340

and $65,948, respectively, and claimed "Head of household" status

and two exemptions totaling $4,000 and $4,100, respectively. 

There is no determination in the notice that petitioner is not

entitled to the head of household status and the two exemptions

that he claimed in those returns.

Section 6012(a)(1)(A) generally requires that every individual whose gross income for the taxable year equals or exceeds

the "exemption amount" must file a return. The term "exemption

amount" has the same meaning as provided in section 151(d). Sec.

6012(a)(1)(D)(ii). Certain exceptions apply to the general re-
- 31 -

quirement set forth in section 6012(a)(1)(A). As pertinent here,

section 6012(a)(1)(A)(ii) provides that an individual who qualifies as a "Head of household"--a term defined in section

6012(a)(1)(A)(i) to have the same meaning as provided in section

2(b)--is not required to file a return if that individual's gross

income for the taxable year is less than the sum of the exemption

amount and the "basic standard deduction" applicable to such

individual. The term "basic standard deduction" is defined in

section 6012(a)(1)(D)(i) to have the same meaning as provided in

section 63(c)(2). According to the return that petitioner filed

late for each of the years 1989 and 1990, his gross income

exceeded the sum of the exemption amount and the basic standard

deduction for each such year. He therefore was required to file

a return for each of the years 1989 and 1990.

On the instant record, we find that petitioner has failed to

satisfy his burden of proving that his failure to file timely his

returns for 1989 and 1990 was due to reasonable cause, and not

willful neglect. Accordingly, we sustain respondent's determinations for those years imposing the addition to tax under section

6651(a)(1).

Section 6662(a)

Section 6662(a) imposes a penalty equal to 20 percent of the

underpayment of tax attributable to, inter alia, any substantial

understatement of income tax. Sec. 6662(b)(2). With respect to

individuals, an understatement of income tax is substantial if it
- 32 -

exceeds the greater of 10 percent of the tax required to be shown

in the return or $5,000. Sec. 6662(d)(1)(A). An understatement

of income tax is equal to the amount of tax required to be shown

in the return less the amount shown therein (reduced by any

rebate within the meaning of section 6211(b)(2)). Sec.

6662(d)(2)(A). 

The accuracy-related penalty under section 6662(a) does not

apply to any portion of an underpayment if it is shown that there

was reasonable cause for, and that the taxpayer acted in good

faith with respect to, such portion. Sec. 6664(c)(1). The

determination of whether a taxpayer acted with reasonable cause

and in good faith depends upon the pertinent facts and circumstances, including the taxpayer's efforts to assess his or her

proper tax liability and the knowledge and experience of the

taxpayer. Sec. 1.6664-4(b)(1), Income Tax Regs. 

Respondent determined that petitioner's substantial understatement of income tax (1) for 1989 and 1990 is attributable to

the $3,000 capital loss deduction and the charitable contribution

deduction claimed by petitioner for each of those years and 

(2) for 1991 is attributable to those claimed deductions as well

as the $7,633 deduction for wages and salaries that petitioner

claimed in his 1991 Schedule E.

With respect to the $3,000 capital loss deduction that

petitioner claimed for each of the years at issue, respondent

concedes that petitioner is entitled to treat the October 5 and
- 33 -

the October 7 notes in the respective principal amounts of $5,351

and $5,020 as nonbusiness bad debts for 1989. Pursuant to

respondent's concession, petitioner is entitled to a $3,000

capital loss deduction for each of the years at issue. Secs.

1221(b), 1212(b). Consequently, there is no substantial understatement of income tax for each of those years that is attributable to the $3,000 capital loss deduction claimed by petitioner

for each such year.

With respect to the charitable contribution deduction that

petitioner claimed for each of the years at issue, petitioner

contends that he is entitled to those deductions and that therefore respondent erred in imposing the accuracy-related penalty

with respect to them. We disagree. We have sustained herein

respondent's determinations disallowing the charitable contribution deductions claimed by petitioner for the years at issue. On

the record before us, we sustain respondent's determinations

imposing the accuracy-related penalty for each such year to the

extent that it is attributable to those claimed deductions.

With respect to the $7,633 deduction for wages and salaries

claimed by petitioner in his 1991 Schedule E, that claimed

deduction resulted in a 1991 Schedule E "total loss" of $6,951

that petitioner used to reduce his income for 1991. Petitioner

concedes that he is not entitled to the $7,633 deduction for

wages and salaries and the $6,951 "total loss" that he claimed in

his 1991 Schedule E. However, he contends (1) that, in addition
- 34 -

to the other deductions that he claimed in that schedule, he is

entitled to deduct $595 for contract labor expenses and $60 for

automobile and travel expenses and (2) that he has 1991 Schedule

E "total income" of $26. On the record before us, we sustain

respondent's determination imposing the accuracy-related penalty

for 1991 to the extent that it is attributable to the $7,633

expense deduction, and resulting "total loss", that petitioner

claimed in his 1991 Schedule E.

To reflect the foregoing and the concessions of the parties,

Decision will be entered

under Rule 155.