Kevin P. Osborne - Page 8

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               As discussed above, the business promotion expense                     
          deductions were adjusted by respondent to reflect the 50-percent            
          limitation under section 274(n).  The cause for the adjustment to           
          the tax and license deductions is not as clear because petitioner           
          concedes this issue and it was not argued at trial.  Petitioner             
          claimed deductions of $7,517 in 1996 and $4,323 in 1997;                    
          respondent allowed only $2,454 and $1,412, respectively.  Neither           
          petitioner’s tax return nor respondent’s notice of deficiency               
          enumerates the individual expenses constituting the total claimed           
          and allowed deductions for taxes and licenses.  Respondent,                 
          however, argues in his trial memorandum that the totals were                
          derived from the following with respect to 1996:3                           
               Claimed     Allowed                                                    
               Federal income tax withholding       $1,300       $-0-                 
               Employees’ FICA                       1,829        -0-                 
               Employer’s FICA                       1,829      1,829                 
               FUTA                                    121        121                 
               State income tax withholding            165        -0-                 
               State unemployment insurance            377        377                 
               State employee training tax              15         15                 
               State disability insurance              191        -0-                 
               Licenses                                112        112                 
               Petitioner’s Federal income tax       1,578        -0-                 
               7,517      2,454                                                       
          Petitioner primarily argues that he is not liable for the                   
          negligence penalty because he relied on his tax return preparer.            
          Limiting our review to the two items for which respondent found             
          petitioner to be negligent, we agree with petitioner.  Blind                

          3Some of the corresponding individual amounts were                          
          stipulated by the parties as having been paid.                              

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