T.C. Memo. 1998-194



                      UNITED STATES TAX COURT



                 GEORGE F. WALKER, Petitioner v.
          COMMISSIONER OF INTERNAL REVENUE, Respondent



     Docket No. 663-96.                         Filed May 27, 1998.



     George F. Walker, pro se.

     Charles M. Ruchelman, for respondent.



             MEMORANDUM FINDINGS OF FACT AND OPINION


     FAY, Judge:   Respondent determined a deficiency of $8,433 in

petitioner's Federal income tax for 1990 and an addition to tax
                                   - 2 -


of $1,952 under section 6651(a)(1)1 for failing to timely file

his 1990 tax return.

       Before trial, petitioner conceded that his daughter, Wendy

Walker, did not qualify as his dependent under sections 151 and

152 as claimed on his Federal income tax return.         In his opening

brief, petitioner conceded that he was liable for the addition to

tax under section 6651(a)(1).       The remaining issues for decision

are:       (1) Whether petitioner is entitled to claim certain trade

or business deductions; (2) whether payments of $2,400 made to

his former wife qualify as alimony; and (3) whether petitioner is

entitled to file as a "head of household" for 1990.

                             FINDINGS OF FACT

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

The stipulations of fact and attached exhibits are incorporated

herein by this reference.       Petitioner resided in Landover,

Maryland, at the time the petition was filed in this case.

       During the year in issue, petitioner worked for the District

of Columbia Department of Administrative Services.         The office

where petitioner worked was located in the Gallery Place area of

Washington, D.C.       Petitioner earned approximately $52,728 at his

position with the D.C. government.         In 1990, petitioner lived


       1
      All section references are to the Internal Revenue Code in
effect for the year in issue, and all Rule references are to the
Tax Court Rules of Practice and Procedure, unless otherwise
indicated.
                                 - 3 -


with Mr. Warren T. Boswell in a house owned by Mr. Boswell.

Petitioner rented a bedroom from Mr. Boswell for approximately

$200 per month.

     Petitioner and his former wife, Mary L. Walker, were married

on April 4, 1966.    Two children were born of the marriage, Wendy

Walker and Stefan Walker.    Petitioner and his former wife (here-

inafter sometimes referred to as Mary Walker) separated in 1987,

and on July 24, 1987, they executed a separation and property

settlement agreement (the separation agreement).2   The separation

agreement provides as follows:

          4. REAL PROPERTY. The parties jointly own a home
     as tenants by the entirety known as 8910 Landers Road,
     North Little Rock, Pulaski County, Arkansas, in which
     neither party lives and which is current on the market
     for sale. Upon sale of said property, the parties will
     have equal shares of the equity proceeds after all
     associated debts are paid. One such associated debt is
     the repayment to wife the sum of $12,000.00, to be
     invested into a retirement pension fund on her behalf.
     At the wife's discretion, she may assign her half of
     the remaining equity to husband for the purpose of
     purchasing property to construct condominium apartment
     building (4-6 units) with a single garage attached.
     For her equity investment, the husband shall deed to
     wife one ground level two bedroom unit with the
     attached garage as wholly owned and free of debt. * * *

          5. AUTOMOBILE. The husband and wife do hereby
     release and relinquish unto each other, any and all
     rights, title and interest in and to the following
     individually and jointly owned automobiles:

          a.      1987 Honda Accord       Wife
          b.      1984 Mercedes Benz      Husband

     2
       The record does not indicate when a formal divorce decree
was entered.
                             - 4 -


     c.       1975 Chevrolet Nova         Husband
     d.       1972 Chevrolet Pickup       Husband
     e.       1973 Ford T-B               Husband

*         *          *       *        *         *   *

     6. HOUSEHOLD FURNITURE AND PERSONAL PROPERTY.
The husband hereby covenants and agrees and transfers
unto the wife all his right, title and interest in and
to the household furnishings, furniture, appliances,
bric-a-brac, and all other items of personal property
and household effects in the following rooms of home:
living room, dining room, master bedroom excluding
remote TV, den TV, recreation room TV, her choice of
decorating items, washer and dryer, kitchen appliances
and dishes/cookware, and den console stereo. The
husband shall be entitled to remove all his personal
belongings, clothes, and the other household furnish-
ings heretofore agreed upon between the parties hereto.
The parties further agree to share equally the remain-
ing funds currently held in escrow for business Chapter
II upon release by the Court's Trustee.

     7. LIFE INSURANCE. The husband covenants and
agrees to maintain and pay all premiums, as and when
they become due, on the life insurance policy in the
amount of Fifty Thousand Dollars ($50,000.00), with a
provision for double indemnity in the event of acci-
dental death, and to retain the wife as the primary
beneficiary thereof until she remarries or until her
death.

     8. TAX REFUND. The husband covenants and agrees
the wife shall be entitled to half (½) the Federal and
State tax refunds for calendar year 1986. The husband
agrees that he will endorse said tax return checks
immediately upon receipt and pay to the wife half (½)
the proceeds.

*         *          *       *        *         *   *

     10. ALIMONY. The husband does hereby covenant
and agree to pay unto the wife as alimony for her
maintenance and support, the sum of One Hundred Eigh-
teen Dollars ($118.00) per month, commencing on the
first of the month after the date of separation, and
for each and every month thereafter until date of
February, 1988 and increase to $300.00 per month until
                                - 5 -


     completion of condominium per section 4 and wife is
     given deed to her unit, or death of the husband.

     During 1990, petitioner paid Mary Walker a total of $2,400.

Petitioner claimed that these payments were deductible alimony on

his 1990 Federal income tax return; however, Mary Walker did not

report these payments as income on her 1990 Federal income tax

return.

     Petitioner filed his 1990 Federal income tax return on

May 24, 1993.   On Schedule C of this return, petitioner reported

gross sales of $900 from a business described as "Management

Consulting, Training Development, Jewelry, Multilevel".      Cost of

goods sold of $483 was reported, and petitioner claimed other

expenses totaling $27,485, resulting in a net loss of $27,068.

     On May 23, 1994, petitioner filed an amended Federal income

tax return for 1990.    In the amended return, petitioner filed two

Schedules C which separated the activities reported in his

original Schedule C as follows:

                            Schedule C #1

Principal Business:    Minority Student Education Programs
                       Research, Experimentation

     Gross receipts . . . . . . . . . . . . .      -0-
     Gross income . . . . . . . . . . . . . .      -0-
     Expenses
          Car and truck       $9,849.75
          Insurance              401.66
          Interest             1,814.58
          Office expense       1,800.00
          Rent/other prop.       918.00
          Repairs and main.      149.05
          Supplies             1,783.07
                                 - 6 -


          Travel                    230.99
          Meals and enter.        5,797.18
          Utilities               1,305.27
          Membership                272.00

               Total             24,321.55      $24,321.55

     Net loss . . . . . . . . . . . . . . .   (24,321.55)

                             Schedule C #2

Principal Business:    Management consulting, training
                       development, jewelry, multilevel

     Gross receipts . . . . . . . . . . . . . $900
     Cost of goods sold . . . . . . . . . . . 1 483

     Gross income . . . . . . . . . . . . . .    417
     Expenses . . . . . . . . . . . . . . .      -0-
     Net profit . . . . . . . . . . . . . . .    417
     1
      In the notice of deficiency, respondent disallowed all of
petitioner's Schedule C expenses. Respondent's posttrial brief
states that the activity in question is petitioner's minority
student education programs, and no mention is made concerning the
jewelry, multilevel business. We therefore take this as a
concession by respondent that the $483 cost of goods sold related
to petitioner's jewelry, multilevel business is allowable.

Petitioner has conceded that he was not entitled to several of

the expenses claimed in his return as originally filed.3

     At trial, petitioner asserted that his minority student

education programs research, experimentation business (minority

education business) consisted of minority education programs that


     3
      Petitioner has conceded that he is not entitled to claim
advertising expenses of $1,026 and legal services expenses of $81
as claimed on his original 1990 Federal income tax return.
Further, petitioner has conceded that he is not entitled to
$31.88 of the total insurance expense, $777.92 of the total
interest expense, and $1,363.65 of the total travel expense
claimed on his original 1990 Federal income tax return.
                                - 7 -


petitioner attempted to sell to local municipalities and school

districts.    According to petitioner, had a school district pur-

chased one of his minority education programs, that school

district would have been eligible for grant money that had been

set aside by the U.S. Department of Education.    Petitioner claims

that he would have prepared the necessary proposal for the local

government to receive grant funds from the U.S. Department of

Education.    As reflected in the zero gross receipts reported on

Schedule C-1 of petitioner's Federal income tax return, no

municipality or school district purchased a minority education

program from petitioner during 1990.

     During 1990, petitioner's two children, Wendy and Stefan

Walker, attended the University of Central Arkansas as full-time

students.    Both Wendy and Stefan resided in campus housing in

Arkansas, and neither ever stayed in Mr. Boswell's house with

petitioner during the year in issue.

                               OPINION

     The first issue for decision is whether petitioner is

entitled to the trade or business deductions claimed in his 1990

Federal income tax return.    In the notice of deficiency, respon-

dent disallowed petitioner's claimed Schedule C deductions on the

grounds that they were not ordinary and necessary expenses of a

trade or business or that they were not properly substantiated.

In the alternative, respondent determined that the activities to
                               - 8 -


which the deductions relate were not undertaken for profit.

Because we sustain respondent's alternative determination,

namely, that petitioner's activities were not undertaken for

profit, we do not express an opinion regarding respondent's

primary determination.

     Respondent's determinations are presumed to be correct, and

petitioner bears the burden of proving otherwise.   Rule 142(a);

Welch v. Helvering, 

, 115 (1933).    Furthermore,

deductions are strictly a matter of legislative grace, and

petitioner must demonstrate his entitlement to any deductions

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

, 84 (1992); New Colonial Ice Co. v. Helvering, 

,

440 (1934).

     Whether a taxpayer engaged in an activity with the primary

purpose of making a profit is a question of fact.    Dreicer v.

Commissioner, 

, 644-645 (1982), affd. without pub-

lished opinion 

(D.C. Cir. 1983); sec. 1.183-2(a),

Income Tax Regs.   While a reasonable expectation of profit is not

required, a taxpayer's profit objective must be bona fide.      Taube

v. Commissioner, 

, 478-479 (1987).    In making this

determination, the Court gives more weight to objective facts

than to a taxpayer's mere statement of intent.    Dreicer v.

Commissioner, supra at 645; sec. 1.183-2(a), Income Tax Regs.
                               - 9 -


     Section 1.183-2(b), Income Tax Regs., provides a nonexclu-

sive list of factors to be considered in determining whether an

activity is engaged in for profit.     The factors include:   (1) The

manner in which the taxpayer carried on the activity; (2) the

expertise of the taxpayer or his advisers; (3) the time and

effort expended by the taxpayer in carrying on the activity;

(4) the expectation that the assets used in the activity may

appreciate in value; (5) the success of the taxpayer in carrying

on other similar or dissimilar activities; (6) the taxpayer's

history of income or losses with respect to the activity; (7) the

amount of occasional profits, if any, which are earned; (8) the

financial status of the taxpayer; and (9) whether elements of

personal pleasure or recreation are involved.

     On the basis of all of the evidence presented at trial, we

conclude that petitioner lacked the requisite profit motive in

carrying on his minority education business.     Petitioner

described his business as minority education programs that local

municipalities and school districts would purchase and thereby

become eligible for grant money from the Department of Education.

However, the record lacks even basic information concerning

petitioner's minority education programs.     It is unclear what

subject matter, or grade level, was being targeted by peti-

tioner's programs.   Petitioner did not disclose what type of

academic materials were associated with his minority education
                               - 10 -


programs, nor did he explain how he developed or procured those

materials.   Petitioner did not offer any books or ledgers

relating to this business into the record.   Petitioner did not

present the Court with a business plan or profit projections.

     Other factors also weigh heavily against petitioner.

Petitioner does not have a college degree in education.      When

asked for his credentials, petitioner responded that he was

qualified in the academic field because he had successfully

raised two children who are high academic achievers.    Petitioner

did not maintain a separate checking account for the business but

paid his claimed business expenses from funds in his personal

account.   Petitioner did not have a set schedule of time which he

devoted to the activity; rather, he worked on the activity

whenever he had available time.   There is no indication that the

business had any assets that would appreciate in value.

     An examination of the expenses claimed by petitioner lends

further support to our conclusion that petitioner lacked a profit

motive.    Many of the expenses relate to travel and entertaining,

items that have elements of personal pleasure.   Petitioner also

deducted monthly payments for his property on Lake Anna, a place

where petitioner took potential customers fishing.    It also

appears that petitioner claimed numerous deductions for expendi-

tures that constitute nondeductible personal items.    For

instance, petitioner deducted various costs related to his
                                - 11 -


automobile, such as monthly oil changes, registration fees,

parking citations, and fees for parking near his D.C. government

office.    Petitioner deducted cable subscription fees for his

television, monthly fees for his telephone and pager, and the

cost of various magazine subscriptions.    Finally, petitioner has

a history of starting projects that never become profitable.     For

3 years before and 3 years after the year in issue, petitioner

reported net losses from his claimed business activities as

follows:

                                Gross     COGS &          Net
Year         Activity           Income    Expenses    Profit/Loss

1987   Management consulting,    $495    $23,264.99   ($22,769.99)
       jewelry & products
       multilevel marketing

1988   Management consulting      649     25,071.00   (24,422.00)
       training development
       jewelry, & multilevel

1989   Management consulting      591     20,024.00   (19,433.00)
       training development
       jewelry, multilevel

1991   Minority issues &          -0-     19,611.00   (19,611.00)
       management consulting

1992   Insurance marketing        530     18,830.00   (18,300.00)
       & planning
       (A.L. Williams)

1993   Computer programming       -0-     10,344.00   (10,344.00)
       systems analysis, appli-
       cation development       _____    __________   ____________

                  Total         2,265    117,144.99   (114,879.99)
                              - 12 -


     In summary, petitioner has failed to demonstrate that he

undertook the minority education business with the actual and

honest objective of making a profit.   Accordingly, we find on the

basis of the facts and circumstances of this case that peti-

tioner's activity with respect to the minority education business

is not an activity engaged in for profit and is therefore subject

to the limitations imposed by section 183.

     The second issue for decision is whether payments of $2,400

to petitioner's former wife constitute deductible alimony.     Peti-

tioner deducted $2,400 for monthly payments made to his former

wife pursuant to their separation agreement.   Respondent dis-

allowed this deduction in the notice of deficiency.

     Section 215(a) permits a deduction for the payment of

alimony during a taxable year.   Section 215(b) defines alimony by

reference to section 71(b).   Section 71(b)(1) defines alimony as

any cash payment meeting the four criteria provided in subpara-

graphs (A) through (D) of that section.   Accordingly, if any

portion of the payments made by petitioner fails to meet the four

enumerated criteria, that portion is not alimony and is not

deductible by petitioner.

     Neither of the parties argues that the requirements of sub-

paragraphs (A), (B), and (C) of section 71(b)(1) have not been

satisfied.   Their disagreement focuses on the provisions of

subparagraph (D).   Section 71(b)(1)(D) requires that the payor
                               - 13 -


spouse must not be liable for any payments under the divorce or

separation instrument after the death of the payee spouse.    In

the present case, the separation agreement provides that the

payments are to cease upon the death of petitioner, while the

agreement is silent regarding the obligation to make payments

upon the death of petitioner's former wife, Mary Walker.

Respondent argues that, since the obligation to make payments

does not cease upon the death of Mary Walker, payments made

pursuant to the separation agreement do not constitute alimony.

     Contrary to respondent's contention, the separation agree-

ment's failure to address the termination of payments upon the

death of Mary Walker is not fatal to petitioner's position.

Often State law defines the rights of the spouses with regard to

postmarriage support payments.   By its terms, the separation

agreement is to be construed in accordance with the laws of the

State of Maryland.    Maryland law provides that a husband and wife

may make a valid and enforceable settlement of alimony.    Md. Code

Ann., Fam. Law sec. 8-101(b) (1991).    Under Maryland law, unless

the parties agree otherwise, alimony terminates on the death of

either party.   Md. Code Ann., Fam. Law sec. 11-108(1) (1991).     We

find that petitioner and Mary Walker did not agree that the

payments would extend beyond the death of Mary, and therefore,

under State law, petitioner's obligation to make payments would

cease at her death.   As a result, we conclude that the payments
                                - 14 -


made by petitioner satisfy the requirement under section

71(b)(1)(D).

     Petitioner argues that the payments are alimony made pur-

suant to the separation agreement.       No explanation was given for

the discrepancy between the amount paid ($2,400) and that called

for in the separation agreement ($300 per month).      Respondent

contends that the payments made by petitioner relate to the

$12,000 debt to Mary Walker pursuant to paragraph 4 of the

separation agreement, and therefore the payments are in the

nature of a property settlement or the repayment of a loan and

not deductible by petitioner.

     Generally, we resolve questions as to whether payments are

"alimony" or something other than alimony on the basis of all the

facts and circumstances of the particular case, including the

terms of the spouses' separation agreement or divorce decree.

Jacklin   v. Commissioner, 

, 351-352 (1982).        In the

instant case, we are unpersuaded by respondent's argument that

the payments relate to the $12,000 liability mentioned in

paragraph 4 of the separation agreement.      The separation

agreement indicates that the liability was to be satisfied from

proceeds received on the sale of the Walkers' marital home in

Arkansas, as petitioner contends, and that the repayment was to

be invested in a retirement fund on Mary Walker's behalf.

Further, there is no evidence to suggest that the payments
                              - 15 -


constitute interest on some obligation owed to her.   On the basis

of the evidence presented by the parties, we conclude that the

payments in issue constitute alimony, and petitioner is entitled

to deduct them.

     The third issue for decision is whether petitioner qualifies

for head of household filing status as defined in section 2(b).

Respondent determined that petitioner was not entitled to head of

household filing status as claimed on his 1990 Federal income tax

return.   Section 2(b) defines "head of a household" as an

unmarried individual who maintains as his home a household which

is the principal place of abode of his child or any other person

for whom the taxpayer is entitled to a dependency exemption.

Section 1.2-2(c)(1), Income Tax Regs., provides as follows:

          (c) Household. (1) In order for a taxpayer to
     be considered as maintaining a household by reason of
     any individual described in paragraph (a)(1) or (b)(3)
     of this section * * * Such home must also constitute
     the principal place of abode of at least one of the
     persons specified in such paragraph (a)(1) or (b)(3) of
     this section. * * * The taxpayer and such other person
     must occupy the household for the entire taxable year
     of the taxpayer. * * * The taxpayer and such other
     person will be considered as occupying the household
     for such entire taxable year notwithstanding temporary
     absences from the household due to special circum-
     stances. A nonpermanent failure to occupy the common
     abode by reason of illness, education * * * shall be
     considered temporary absence due to special circum-
     stances. Such absence will not prevent the taxpayer
     from being considered as maintaining a household if (i)
     it is reasonable to assume that the taxpayer or such
     other person will return to the household, and (ii) the
     taxpayer continues to maintain such household or a
     substantially equivalent household in anticipation of
     such return.
                               - 16 -


     Petitioner contends that, with regard to his son Stefan, the

housing arrangement complied with the requirements as set out in

the regulations.    For petitioner's residence to be considered his

son's principal place of abode, petitioner must meet the follow-

ing three requirements:   (1) The special circumstances or neces-

sity of the absence must be a type intended by the statute;

(2) it was reasonable for petitioner to assume his son, if ever

able, would return to the household, and (3) petitioner main-

tained the household in anticipation of his return.    See Manning

v. Commissioner, 

, 840-841 (1979).    The evidence does

not support petitioner's contentions.

     Petitioner's son, Stefan, spent the entire year in college.

He did not stay with petitioner at Mr. Boswell's house for even

one night during 1990.    Mr. Boswell's home is a three-bedroom

house.   The owner, Mr. Boswell, slept in one bedroom, petitioner

slept in the second, and the third room had a sofa and a shelf of

books but no bed.    Mr. Boswell credibly testified that he and

petitioner never discussed having any of his children stay at the

house, and Mr. Boswell stated:    "I wouldn't have had the room for

them [petitioner's children] anyway."    On brief, petitioner

candidly admitted that the only reason for one of his children to

stay with him would be in the event of an emergency.    Ultimately,

Stefan graduated from college in 1991, and after graduation he

continued to live in Arkansas.
                               - 17 -


     From this record, we do not find it was reasonable to assume

Stefan would return home to live with petitioner in Washing-

ton, D.C., upon graduation from college.     Further, we do not find

that petitioner maintained a household in anticipation of his

son's return.    Accordingly, we sustain respondent's determination

on this issue.

     To reflect the foregoing,

                                     Decision will be entered under

                                 Rule 155.