Midwest Industrial Supply, Inc. - Page 2

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                         Additions to Tax                                       Penalty
          Year DeficiencySec. 6653(a)(1)(A)  Sec. 6653(a)(1)(B)   Sec. 6653(a)   Sec. 6661(a)   Sec. 6662(a)
          1986 $22,116      $1,106         1         --    $5,529      --             
          1987 21,873       1,094          2         --    5,468       --             
          1988 12,489       --             --        $624  3,122       --             
          1989   5,943   -- --  --   -- $1,189                                        
               150 percent of the interest due on $22,116.                            
               250 percent of the interest due on $21,873.                            
          Unless otherwise indicated, all section references are to the Internal Revenue
          Code in effect for the years in issue, and all Rule references are to the Tax
          Court Rules of Practice and Procedure.                                      
               This case presents the following issues:                               
               1.  Whether amounts claimed as advertising expenses by petitioner in   
          1986, 1987, 1988, and 1989 are ordinary and necessary business expenses     
          pursuant to section 162.  We hold that they are not.                        
               2.  Whether petitioner is liable for additions to tax for negligence   
          and substantial understatement of income tax and for an accuracy-related    
          penalty.  We hold that petitioner is so liable.                             
                                    FINDINGS OF FACT                                  
               Some of the facts have been stipulated and are so found.               
               Petitioner is an Ohio corporation whose principal place of business was
          in Canton, Ohio, at the time the petition was filed.  During the years in   
          issue, petitioner manufactured deicing and dust control products.  These    
          products were used in coal mining, manufacturing, railroad, construction, and
          other operations in which dust and/or freezing weather is a problem.        
               Robert W. Vitale, the sole shareholder and director of petitioner, has 
          had a longstanding interest in horses.  During the 1970's, Mr. Vitale owned a
          horse farm known as Highspring Farm.  Beginning in 1979, Mr. Vitale joined a
          number of equestrian organizations.  He has served as president of the North
          American Trakehner Association and has been a member of the United States   
          Dressage Federation, the United States Combined Training Association, and the
          Jumping Association.  He has also written several articles on the breeding of

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