T.C. Memo. 1998-193



                      UNITED STATES TAX COURT



                 SUSAN E. SHORES, Petitioner v.
          COMMISSIONER OF INTERNAL REVENUE, Respondent



     Docket No. 3390-97.                        Filed May 26, 1998.



     Audrey J. Orlando, for petitioner.

     G. Michelle Ferreira, for respondent.


                        MEMORANDUM OPINION

     PANUTHOS, Chief Special Trial Judge:     This case was heard

pursuant to the provisions of section 7443A(b)(3)1 and Rules 180,

181, and 182.   Respondent determined a deficiency in petitioner's

1994 Federal income tax in the amount of $5,354.

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

     The only issue for decision is whether petitioner is

entitled to deduct certain business expenses, which she claimed

on Schedule C of her 1994 return, in excess of the amounts

allowed by respondent.2

Background

     Some of the facts have been stipulated, and they are so

found.   The stipulation of facts and the attached exhibits are

incorporated herein by this reference.   At the time of filing the

petition, petitioner resided at Palo Alto, California.   For

clarity and convenience, we have combined the findings of fact

and discussion of pertinent legal issues.

     In March 1990, petitioner entered into an agreement with a

company named Au Pair In America (hereinafter APIA).   The

agreement was titled "Community Counselor Letter of Agreement"

and provided in part that

     The Community Counselor interviews potential Host
     Families to evaluate their appropriateness for the
     [APIA] Program, matches Host Families with Au Pairs,
     has responsibility for a cluster of area Au Pairs
     throughout the year's exchange and generally
     facilitates the Host Family/Au Pair relationship.


     2
         Respondent's notice of deficiency also reduced
petitioner's total itemized deductions from $13,219 to $11,056
and increased petitioner's self-employment tax from $376 to
$1,219. The parties appear to agree that these adjustments are
dependent upon the other adjustments, and therefore, we do not
separately address them. To the extent that petitioner seeks an
abatement of interest (or review thereof), she must make such a
request to the Commissioner and await a final determination not
to abate interest. Sec. 6404(g); see Bourekis v. Commissioner,

, 27 (1998).
                              - 3 -

     Petitioner described the APIA program as a "cultural,

educational, exchange program".    APIA hired individuals such as

petitioner to recruit families for the program.   APIA assigned

each community counselor a geographic area for recruitment of

families and performance of their responsibilities.   Petitioner

was assigned the south bay area of San Francisco.

     Petitioner recruited families for APIA through marketing the

program at job fairs, well baby classes, art festivals, and

advertising materials that she created.   Petitioner provided

applications to the APIA program, counseled families on the

interview process, interviewed families that applied, and

communicated with the "headquarters" of APIA regarding the

"matching" of au pairs with families.   Petitioner arranged the

travel plans for au pairs to meet families and provided an

orientation in a family's home before an au pair's arrival.

Petitioner met an au pair within 48 hours of arrival at a

family's home and maintained a close relationship with au pairs

that were matched with families she recruited.

     During 1994, petitioner continued her activity with APIA

and also worked full time as a kindergarten teacher for

Ravenswood City School District.    She taught at a school located

in Menlo Park, which was less than half a mile from her home.

Petitioner devoted 15 to 40 hours per week to her activity with
                                - 4 -

APIA, and she used a room in her home exclusively as an office

for this purpose.

     Petitioner's 1994 Schedule C reflects "consultant" as her

principal business activity and "Au Pair in America" as the

business name.3    Shirley Gaman prepared petitioner's 1994 income

tax return.   Petitioner gave Ms. Gaman her "checks and credit

card things, and receipts" and paid Ms. Gaman $200 for her

services.   Ms. Gaman did not execute the return as preparer.     Ms.

Gaman died at some point after preparation of the return.

     Petitioner reported income and claimed expenses relating to

her "consultant" business during the year in issue as follows:

Income:
  Gross receipts                                     $17,260.00

Expenses:
  Advertising                            $830.16
  Car and truck expenses                2,600.24
  Legal and professional services         300.00
  Rent or lease:
    Vehicles                              480.32
    Other business property             1,750.00
  Repairs and maintenance                 598.17
  Supplies                              1,429.28
  Travel, meals, and entertainment:
    Travel                              1,940.00
    Meals and entertainment               261.81
  Utilities                             1,742.80
    Total expenses                                    11,932.78

    Net (profit)                                       5,327.22

Petitioner also reported wages from employment unrelated to the

Schedule C activity in the amount of $41,859.49.

     3
        Respondent does not dispute that petitioner was self-
employed as a "consultant" for Au Pair In America.
                                - 5 -

     Petitioner stored her business and tax records in a shed

behind the carport at her home.    In the fall of 1995, a

combination of excessive rain and a leak in the carport caused

the destruction of petitioner's 1994 tax records and other

personal items in the shed.    After the incident, petitioner

notified her insurance representative and her landlord about the

damage.   In January 1997, after the issuance of the notice of

deficiency, petitioner began reconstructing her 1994 tax records.

     Respondent determined that petitioner was not entitled to

deduct any of the claimed Schedule C expenses.    Respondent does

not dispute that petitioner's records were destroyed because of a

casualty beyond petitioner's control.    Further, respondent does

not appear to dispute that petitioner reasonably reconstructed

her records for 1994.    Rather, respondent contends that

petitioner's expenses were not ordinary and necessary business

expenses.

Discussion

     1.   General

     Section 162(a) provides that there shall be allowed as a

deduction all the ordinary and necessary expenses paid or

incurred during the taxable year in carrying on any trade or

business.    "Necessary" has been interpreted to mean that the

expense must be appropriate or helpful to the taxpayer's trade or

business.    Commissioner v. Tellier, 

, 689 (1966);

Joseph v. Commissioner, T.C. Memo. 1997-447 (citing Welch v.
                                - 6 -

Helvering, 

, 113 (1933)).    To be an "ordinary"

expense, "the transaction which gives rise to it must be of

common or frequent occurrence in the type of business involved."

Deputy v. du Pont, 

, 495 (citing Welch v. Helvering,

supra at 114).   Whether an expense is "ordinary and necessary" is

generally a question of fact.    Commissioner v. Heininger, 

, 475 (1943); Walliser v. Commissioner, 

, 437

(1979).

     Section 6001 requires that a taxpayer liable for any tax

shall maintain such records, render such statements, make such

returns, and comply with such regulations as the Secretary may

from time to time prescribe.    To be entitled to a deduction under

section 162(a), therefore, a taxpayer is required to substantiate

the deduction through the maintenance of books and records.

     In the event that a taxpayer establishes that he or she has

incurred a deductible expense, but is unable to substantiate the

precise amount, we may estimate the amount of the deductible

expense.    Cohan v. Commissioner, 

, 543-544 (2d Cir.

1930).    We cannot estimate deductible expenses, however, unless

the taxpayer presents evidence sufficient to provide some

rational basis upon which estimates may be made.    Vanicek v.

Commissioner, 

, 743 (1985).

     If an expense item comes within the parameters of section

274(d), we cannot rely on Cohan v. 

, to

estimate the taxpayer's expenses with respect to that item.
                               - 7 -

Sanford v. Commissioner, 

, 827 (1968), affd. per

curiam 

(2d Cir. 1969).    Section 274(d) imposes

stringent substantiation requirements for certain deductions,

including travel, entertainment, and meal expenses.     Jeffers v.

Commissioner, T.C. Memo. 1986-285; sec. 1.274-5T(a), Temporary

Income Tax Regs., 50 Fed. Reg. 46014 (Nov. 6, 1985).     Thus,

section 274(d) specifically proscribes deductions for travel or

entertainment expenses in the absence of adequate records or of

sufficient evidence corroborating the taxpayer's own statement.

See Joseph v. 

.     Section 274(d) also applies

to business use of certain property such as passenger

automobiles.   Secs. 274(d)(4), 280F(d)(4)(A)(i).

     In general, when a taxpayer's records have been lost or

destroyed through circumstances beyond his control, he is

entitled to substantiate the deductions by reconstructing his

expenditures through other credible evidence.

     At trial, respondent conceded:    "The record has shown today

that the records--the receipts and invoices that have been

presented to the Government have been reconstructed in such a way

that they are essentially the same as they would have been, had

they not been destroyed".

     2.   Advertising

     Petitioner claimed a deduction for advertising expenses in

the amount of $830.16.   To obtain clients, petitioner was

required to advertise her services.    Petitioner created
                                  - 8 -

materials, including brochures.      Petitioner also testified with

respect to additional advertising expenses.       We found

petitioner's testimony credible.      Therefore, we conclude that

petitioner is entitled to deduct $830.16 in advertising expenses.

Cohan v. 

.

        3.   Car and Truck

     Petitioner claimed automobile expenses in the amount of

$2,600.24.      Petitioner estimated the business use of her

automobile to be approximately 70 percent of the total use.       We

accept petitioner's credible testimony in this regard.

Petitioner calculated the amount of $2,600.24 on the basis of her

actual expenses rather than mileage expenses in 1994.        A taxpayer

must establish his out-of-pocket expenses attributable to the

business use of his automobile, such as gasoline, oil, and

repairs.      Sec. 1.162-1(a), Income Tax Regs.   Automobile expenses

are deductible if the automobile is used in connection with a

trade or business.      Sec. 1.162-1(a), Income Tax Regs.    Petitioner

testified that her activities with APIA required much local

travel, and she explained the nature of such activities.

     A large portion of the gasoline expenditures was in cash.

Petitioner also produced some credit card statements in support

of her testimony to the extent gas purchases were made with

credit.      Petitioner produced credit card statements, invoices,

and receipts with respect to the repairs performed on her car in

1994.    Ms. Gaman prepared an attachment for petitioner's 1994
                                  - 9 -

Schedule C that itemizes petitioner's actual expenses and

reflects an amount of $2,600.24.       We conclude that petitioner is

entitled to the claimed deduction for automobile expenses in the

amount of $2,600.24.

             4.   Legal/Professional Services

     Petitioner claimed a deduction for legal and professional

services in the amount of $300.       Petitioner testified that she

wanted to engage in "aggressive marketing" in 1994.       She met with

Luke Bailey and paid a consulting fee for his expertise in this

area.     On the basis of the record, we conclude that petitioner is

entitled to a deduction in the amount of $300 for this service.

See Cohan v. 

; Vanicek v. 

.

    5.     Rent or Lease

     Petitioner claimed a deduction for rent or lease of other

business property in the amount of $1,750.       Petitioner further

claimed a deduction for rent or lease of vehicles, machinery, and

equipment in the amount of $480.32.       Petitioner did not present

any evidence to establish that she is entitled to the claimed

expenditure.      Thus, we sustain respondent's disallowance.

     6.     Repairs and Maintenance

     Petitioner claimed a deduction for repairs and maintenance

in the amount of $598.17.      Petitioner did not present any

evidence to establish that she is entitled to the claimed

expenditure.      Thus, we sustain respondent's disallowance.
                                - 10 -

     7.   Supplies

     Petitioner claimed a deduction for supplies in the amount of

$1,429.28.   Petitioner presented copies of her canceled checks

and credit card statements and made notations on the statements

regarding the items purchased.    For example, petitioner claims

that she purchased office supplies, such as copy machine paper,

pens, and a garbage can for her office.    We conclude that these

items are deductible as ordinary and necessary business expenses.

Commissioner v. Heininger, 

(1943); Cohan v.

Commissioner, 

(2d Cir. 1930).     Petitioner also

testified that she purchased personalized items for the au pairs,

such as "an American flag, or a little California flag."

Petitioner offered no further evidence to establish how these

items are ordinary and necessary to her business.    Therefore, we

find that petitioner is not entitled to deduct these items as

supply expenses.     On the basis of the entire record, we conclude

that petitioner is entitled to deduct $500 in supply expenses.

     8.   Travel

     Taxpayers may deduct travel expenses, including expenses for

meals and lodging, that they incur while "away from home" if the

expenses are reasonable and necessary and bear a reasonable and

proximate relationship to the business activity.     Kinney v.

Commissioner, 

, 126 (1976); McKinney v. Commissioner,

T.C. Memo. 1981-181, modified T.C. Memo. 1981-377, affd. 732 F.2d
                              - 11 -

414 (10th Cir. 1983).   If travel expenses are incurred for both

business and other purposes, the expenses are deductible only if

the travel is primarily related to the taxpayer's trade or

business.   Sec. 1.162-2(b)(1), Income Tax Regs.   If a trip is

primarily personal in nature, the travel expenses are not

deductible even if the taxpayer engages in some business

activities at the destination.   

is primarily

business related or personal is a question of fact.    Sec. 1.162-

2(b)(2), Income Tax Regs.

     Petitioner claimed a deduction for travel expenses in the

amount of $1,940.   Petitioner presented copies of her credit card

statements and marked the items associated with her travel

expenses including airfare, rental car fees, and lodging.

Petitioner testified that her trips to Minneapolis, Seattle, and

Boston were in response to immediate concerns involving au pairs

and families at those locations and gave specific information

regarding the nature of the concerns associated with each trip.

     Petitioner also deducted travel expenses for trips to St.

Croix, Puerto Rico, Disneyland, and Las Vegas.     The fact that a

taxpayer engaged in business during a portion of the trip is not

sufficient to entitle the taxpayer to deduct travel expenses

absent a showing that business was the primary motive for the

trip.   Reed v. Commissioner, 

(1960); Levine v.

Commissioner, T.C. Memo. 1987-413; sec. 1.162-2(b)(1) Income Tax
                                - 12 -

Regs.     Petitioner offered no further evidence with respect to the

business purpose of these trips other than her testimony that the

trips served an educational purpose for the au pairs.      We are not

satisfied that these trips were primarily related to petitioner's

trade or business.

     On the basis of this record, we conclude that petitioner is

entitled to a deduction for travel expenses associated with her

trips to Minneapolis, Seattle, and Boston.      Accordingly,

petitioner is entitled to a deduction of $911.64 for travel

expenses.

     9.     Meals and Entertainment

        A taxpayer may deduct meal and entertainment expenses if

they are directly related to the active conduct of the taxpayer's

trade or business.     Sec. 1.274-2(d)(1), Income Tax Regs.    The

deduction for meal and entertainment expenses generally is

limited to 50 percent of the substantiated amount.      Sec. 274(n).

        Petitioner claimed she incurred meal and entertainment

expenses in the amount of $523.62.       Petitioner provided canceled

checks and copies of her credit card statements for restaurant

meals and groceries.     Petitioner testified that she incurred

expenses in entertaining au pairs and families either at

restaurants or at her home.     We find petitioner's testimony

credible and detailed with respect to the business purpose of the

meals and the business relationship of the individuals
                                - 13 -

entertained.    Petitioner testified that she kept a calendar for

these events, and the calendar was destroyed by water damage.       On

the basis of this record, we conclude that petitioner is entitled

to a deduction in the amount of $262 for meal and entertainment

expenses.

     10.    Utilities (Home Office)

     Petitioner deducted utility expenses in the amount of

$1,742.80.     Section 280A, in general, disallows deductions with

respect to the use of a dwelling unit that is used by the

taxpayer during the taxable year as a residence.     However,

section 280A(c) permits the deduction of expenses allocable to a

portion of the dwelling unit which is exclusively used on a

regular basis as "the principal place of business for any trade

or business of the taxpayer".     Thus, to qualify under section

280A(c) for a home-office deduction, petitioner must establish

that a portion of her dwelling is (1) exclusively used, (2) on a

regular basis, and (3) as the principal place of business for her

trade or business.     Hamacher v. Commissioner, 

, 353

(1990).     However, section 280A(c)(5) limits the amount of

deductions to the excess of the gross income derived from the use

of the home office over the deductions allocable to the home

office that are otherwise allowable.

     The determination of the principal place of business depends

on the particular facts of each case.     Commissioner v. Soliman,
                               - 14 -

, 175 (1993).    Two primary considerations in deciding

whether a taxpayer may deduct costs of a home office are:      (1)

The relative importance of the activities performed at each

business location, and (2) the time spent at each place.       

testifying that she used a room in her home

exclusively as her main business office, petitioner presented no

evidence to establish either the nature of or the relative

importance of the activity performed at this location.      Further,

petitioner did not establish how much time she spent in her

office.    Therefore, we conclude that petitioner is not entitled

to a home office deduction.

     11.    Telephone

     Petitioner also submitted copies of her telephone bills from

1994.   Petitioner did not maintain a separate telephone line for

her business.    We may estimate the deductible amount of

petitioner's telephone expenses.    Laurano v. Commissioner, 

, 727 (1978).    Section 262(b) provides that the basic

local telephone service for the first telephone line to a

taxpayer's residence is a nondeductible, personal expense.

     Petitioner testified that most of her long distance calls

were business related.    Petitioner presented copies of her

telephone bills from 1994.    In calculating her business expenses,

petitioner excluded amounts related to the basic local service.

On the basis of our best judgment, we find that petitioner is
                                 - 15 -

entitled to a deduction in the amount of $450 for telephone

expenses.    

not claim any additional deduction for, or

present any other evidence to substantiate, expenditures for the

use of a home office.

     12.    Computer Cost

     Although not claimed on her Schedule C, petitioner contends

that the $2,200 cost of the computer she purchased is deductible

under section 179.    Petitioner offered a copy of her credit card

statement dated May 16, 1994, which indicates that she purchased

a computer for $2,200.      Petitioner testified that she used the

computer exclusively for her business with APIA.      On the basis of

this record, we find that petitioner purchased a computer for

$2,200 and used the computer solely for her activities with APIA.

     Under section 179(a), a taxpayer may elect to treat the cost

of any section 179 property as an expense which is not chargeable

to capital account.    Taxpayers electing to do so may deduct the

cost of such property in the taxable year in which the property

is placed into service.      The aggregate cost which may be taken

into account under section 179(a) cannot exceed $17,500.      Sec.

179(b)(1).    Section 179(c)(1) provides that an election must:

          (A) specify the items of section 179 property to
     which the election applies and the portion of the cost
     of each of such items which is to be taken into account
     under subsection (a), and

            (B) be made on the taxpayer's return of the tax
                                - 16 -

     imposed by this chapter for the taxable year.

Such an election shall be made in such a manner as the Secretary

may by regulations prescribe.

     Section 1.179-5(a), Income Tax Regs., provides that the

election under section 179

     shall be made on the taxpayer's first income tax return
     for the taxable year to which the election applies
     (whether or not the return is timely) or on an amended
     return filed within the time prescribed by law
     (including extensions) for filing the return for such
     taxable year. * * * [Emphasis added.]

     Petitioner made no section 179 election for the computer on

her 1994 return or any amended return filed within the time

prescribed by law, including extensions, for filing her 1994

return.   Alisobhani v. Commissioner, T.C. Memo. 1994-629; Subt v.

Commissioner, T.C. Memo. 1991-429.       Thus, pursuant to section

1.179-5(a), Income Tax Regs., petitioner should have filed an

amended return no later than October 15, 1995 (assuming valid

extensions), in order for petitioner to have properly elected

section 179 treatment.   Thus, petitioner is not entitled to an

expense deduction under section 179 for the computer.        Starr v.

Commissioner, T.C. Memo. 1995-190, affd. without published

opinion 

(9th Cir. 1996).

     To reflect the foregoing,



                                             Decision will be entered

                                     under Rule 155.