MEMORANDUM FINDINGS OF FACT AND OPINION

WELLS, Judge: Respondent determined a deficiency in petitioners' tax for 1976 and 1977 in the amounts of $ 88,990.48 and $ 27,642.09, respectively. The issues are (1) whether gains and losses from certain commodity straddle transactions should be disallowed; (2) whether petitioners are entitled to a causalty loss deduction in excess of that allowed by respondent for a fire in their residence; and (3) whether petitioners are entitled1988 Tax Ct. Memo LEXIS 3">*8 to deduct employee promotional expenses in excess of those allowed by respondent.

FINDINGS OF FACT

Some of the facts have been stipulated and are found accordingly. The stipulation of facts and the exhibits attached thereto are incorporated herein by reference.

Petitioners resided in Rosyln, New York, at the time they filed their petition.

During the years at issue, petitioner Alan Marcus ("Mr. Marcus") was an investment broker employed by Bear, Stearns & Co. ("Bear Sterns"). He has been registered as a security broker since 1962. He became registered as a commodity representative in 1975. He has had experience in the full range of brokerage and investment business. During the years at issue his primary business was trading stocks and other investment vehicles as a broker for his customers.

For convenience, our remaining findings of fact and opinion will be grouped according to the issues to which they relate.

ADDITIONAL FINDINGS OF FACT

Mr. Marcus has traded for his personal account, as well as for accounts of customers. In 1975 he began trading for his personal account stock option straddles that were traded on regulated domestic exchanges.

1988 Tax Ct. Memo LEXIS 3">*9 In 1976 and 1977 Mr. Marcus ¹ allegedly ² entered into commodity transactions that were described on the sales confirmations and monthly account statements as puts and calls for "London Tin" and "London Coffee". (Those alleged transactions hereinafter sometimes will be referred to as London options.)

In disallowing the gains and losses from London options reported on petitioners' tax returns, respondent's statutory notice of deficiency stated:

the gains and losses claimed by [petitioners] in 1976 and 1977 with respect to the alleged coffee and tin transactions cannot be recognized because it has not been established that the gains and losses occurred or occurred in the manner claimed. The transactions at issue were shams or devoid of the substance necessary1988 Tax Ct. Memo LEXIS 3">*10 for recognition for federal income tax purposes.

Further, the claimed gains and losses are disallowed because they do not clearly reflect income. Recognition of the claimed gains and losses would distort the economic reality of the entire transaction. No genuine gains and losses occurred, the alleged gains and losses were but one step in a series of integrated transactions, and the entire transaction lacked economic reality.

* * *

Additionally, the claimed loss is disallowed because of the lack of any profit motive with respect to the alleged coffee and tin transactions.

The notice of deficiency summarized the gains and losses from London options reported on the tax returns and disallowed respondent as follows:

Petitioners reported on their tax returns ordinary and capital gains and losses from London options that net to a loss of $ 15,747.25 for the two years involved herein.

Mr. Marcus invested in London options upon the recommendation of the1988 Tax Ct. Memo LEXIS 3">*12 retail manager of Bear Stearns' commodity department, Norman Turkish. Norman Turkish's office was on the same floor as Mr. Marcus' in 1976. At the time Mr. Marcus opened the London option account, he perceived that Norman Turkish had a "fantastic reputation for being a very successful commodity trader." Norman Turkish also was considered a specialist in trading straddles for the purpose of deferring taxes on income.

Before investing in London options, Mr. Marcus received two typed reports, each two pages in length and ending with "Norman A. Turkish" and "June, 1976." Those reports described general predictions for the coffee and tin markets and discussed the potential to profit from buying straddles in coffee and tin futures. Those reports also stated that tin is traded on the London Metal Exchange, Western Hemisphere Coffee is traded on the New York Coffee and Sugar Exchange, and African Robusta Coffee is traded on the London Terminal Market.

Pursuant to those reports and to conversations with Norman Turkish, Mr. Marcus agreed to invest in coffee and tin commodities. Account statements from Bear Stearns reflect that trading in London options for Mr. Marcus' account commenced1988 Tax Ct. Memo LEXIS 3">*13 on June 28, 1976. Account statements further reflect that on July 2, 1976, Mr. Marcus paid an initial deposit of $ 15,000 to Bear Stearns for the London option account. The London option account was a discretionary account, so that Bear Stearns had full discretion over the account. Mr. Marcus could give no instructions at all regarding the account except to direct the firm to close the account and liquidate all the positions held therein.

Options

In order to limit his risk of loss, however, Mr. Marcus desired that the account was to buy options contracts only, not actual futures contracts. ⁵ According to Mr. Marcus' account statements, the account held both calls and puts. A call option gives the holder (the buyer) the right to buy from the grantor (the seller or writer) a specified quantity of a commodity at a specified price (the strike price) ⁶ on or before the option's expiration date. ⁷ A put option gives the holder the right to sell to the grantor a specified quantity of the commodity at a specified strike price on or before the expiration date.

1988 Tax Ct. Memo LEXIS 3">*14 The holder of an option contract has a right but not an obligation to sell or purchase the commodity at the strike price. Although the grantor of an option may be subject to unlimited risk, the holder is never at risk for more than the cost of the option. ⁸

The price of an option itself (the premium) is a function of three factors: the nearness of the strike price to the cost of the underlying commodity, the expectations regarding future costs for the commodity, and the lenth of time before the option expires.

During the years at issue, commodity options were not traded on United States commodity exchanges.

Straddles

Mr. Marcus understood that the options that were to be in his account might be held as straddles. ⁹ A straddle is established by simultaneously holding a "long" position (a call to buy the commodity) for one expiration date and a "short" position (a put to sell1988 Tax Ct. Memo LEXIS 3">*15 the commodity) for another expiration date. The two separate positions are called the "legs" of the straddle. The profit or loss potential of a straddle is not based on absolute price movements in the legs, but instead is measured by the increase or decrease in the price differential between the puts and calls. The price movement for one month rarely will equal the price movement for the other month; the difference between the movements in price produces the gain or loss on the straddle. As a general rule, as the period of time between the expiration months in a straddle increases, the potential for profit and the risk of loss also increase. If a put or call is not held in a straddle configuration (i.e., the position is unhedged), the potential for profit arises solely from the risk that the value of the single option will increase or decrease.

A holder of a straddle has both a put and a call, so fluctuation in the price of the underlying commodity typically results in a gain in one leg of the straddle and a loss in the other. After a fluctuation in the price of the underlying commodity, a straddle holder sometimes makes1988 Tax Ct. Memo LEXIS 3">*16 a "switch" transaction. A switch occurs when one leg of the straddle is "closed out" ¹⁰ and is replaced by purchasing an option identical to the one closed out (i.e., for an identical quantity of the same commodity), except for a different expiration date. A switch of a straddle theoretically enables a holder to close out the loss leg and offset the loss recognized against ordinary income or capital gain from another source, while holding the gain leg open until a later year with an offsetting rehedge to protect the unrealized gain. This technique theoretically results in both tax deferral and conversion of ordinary income into long term capital gain.

1988 Tax Ct. Memo LEXIS 3">*17 London Metals Exchange

As stipulated by the parties, the findings of this Court in Glass v. Commissioner,87 T.C. 1087">87 T.C. 1087 (1986), concerning the operations and functionings of the London Metals Exchange ("LME") shall apply to this case. We incorporate by this reference those findings and, in the interest of brevity, shall reiterate only those findings material to our decision.

The LME was established in 1877. Cash, future, and option contracts in tin and other metals are traded on the LME. LME trade prices are expressed only in pounds sterling.

Unlike United States exchanges, the LME does not operate as a clearing house for trades. Rather, all transactions on or subject to the rules of the LME are executed principal-to-principal, and the LME may be described as a "principal's market." Thus, a purchaser (or a seller) of an option or futures contract through a broker/dealer in effect purchases that contract from (or sells it to) the broker/dealer. Broker/dealers normally "lay off" their trades; i.e., they also will enter into a second offsetting contract with another party whenever they enter into one contract. The LME does not require broker/dealers to1988 Tax Ct. Memo LEXIS 3">*18 lay off trades; however, those broker/dealers who do not lay off are said to be "running a position" (taking a risk) in the market.

Because the LME operates as a principal's market, there is no accurate financial data that summarizes the transactions entered into by the various broker/dealers. Although estimates of trading volume are reported in the London Financial Times, such estimates do not reflect a substantial amount (approximately eighty percent) of the trading that takes place on the LME.

Another significant difference between the LME and United States Commodity exchanges is the LME's lack of limits on price changes for the traded metals. Prices are free to fluctuate on the LME as market conditions dictate.

Margin payments provide insurance to brokers/dealers that losses in a customer's account will be satisfied. "Initial margin" (or initial deposit) is the amount of money which a broker/dealer may require from a customer before initiating trading for the customer. "Maintenance margin" is the amount of funds that a broker/dealer might require a customer to pay after trading commences. A broker/dealer makes a margin call on a customer when additional funds are1988 Tax Ct. Memo LEXIS 3">*19 required as security for the customer's account. During the years at issue, the LME had no margin requirements, except for certain long-term silver futures contracts that are not present in our case. Thus, the amount of margin, if any, is subject to negotiation between the broker/dealer and the customer, although margin normally is based upon the value of outstanding contracts and lower for straddle positions than for the riskier unhedged positions. Also, the absence of a margin requirement on the LME allows broker/dealers to begin trading for a customer before receiving any initial deposit.

Bear Stearns was not a member of any London exchange during the years at issue. J. H. Rayner (Mincing Lane) Ltd. (hereinafter referred to as Rayner), a subsidiary of S & W Berisford Ltd., acted as Bear Stearns' agent in London, handling any London options transactions for Bear Stearns and its customers.

Petitioners received no cash income from the investment in London options, nor have they recouped any part of the $ 15,000 invested.

In October of 1977 or 1978, subsequent to Mr. Marcus' London options transactions, Norman Turkish was convicted of evading income taxes, of filing false1988 Tax Ct. Memo LEXIS 3">*20 income tax returns, and of conspiracy to defraud the United States. The conspiracy charge was a result of Norman Turkish's involvement in a conspiracy to fix and prearrange commodity future transactions in the Crude Oil Futures Market through the use of straddles. ¹¹

OPINION

The first issue for decision is whether petitioners' gains and losses on the London options should be disallowed.

Respondent makes three arguments in the alternative on this issue. First, he asserts that the gains and losses claimed with respect to the London options should be disallowed because petitioners have not established that the transactions actually occurred (i.e., he argues that the transactions were not authentic). Second, respondent contends that, even if the transactions occurred, they should be disregarded for tax purposes because they were shams, structured as a prearranged tax avoidance scheme that lacked economic substance. Last, respondent argues that the gains and losses should be disregarded because the transactions were not entered into with a profit1988 Tax Ct. Memo LEXIS 3">*21 motive.

In regard to respondent's first argument, petitioners counter that respondent has not raised in the pleadings the issue of the authenticity of the transactions; thus, the issue is not before the Court. Even if the authenticity of the transactions is properly before the Court, petitioners assert that respondent, pursuant to Rule 142(a), ¹² has the burden to prove the transactions are not authentic and that respondent has not met his burden. Petitioners contend that respondent has such a burden of proof because the authenticity issue, if ever properly raised by respondent, only was raised subsequent to the notice of deficiency. Furthermore, petitioners assert that, even if they have the burden to prove the authenticity of the transactions, they have met the burden.

In regard to respondent's other arguments, petitioners assert that they have shown that (1) 1988 Tax Ct. Memo LEXIS 3">*22 the London options were not shams, and (2) Mr. Marcus invested in the London options for the purpose of making a profit, and, thus, the transactions should not be disregarded for tax purposes. ¹³

Respondent's determinations in the notice of deficiency are presumptively correct, and petitioners have the burden to prove otherwise. Rule 142(a); Welch v. Helvering,290 U.S. 111">290 U.S. 111 (1933). We find that petitioners have not met their burden, and we uphold respondent's determination that all gains and losses from London options should not be recognized and should be disallowed.

The issues before the Court in Glass were similar to those before us in the instant case. In Glass the Commissioner argued that straddle transactions on the LME were not bona fide, were economic shams, and were not entered into by the taxpayers with a profit motive. In our opinion in Glass, we did not reach the issue of the transactions' authenticity. Rather, we found1988 Tax Ct. Memo LEXIS 3">*23 it unnecessary to determine the bona fides of the transactions and instead focused our attention "not on questions of fact but on a question of law. If [LME straddle] losses are unallowable under a paradigm set of facts as postulated by petitioners, then the question of whether petitioners have introduced enough evidence to prove that the transactions are authentic becomes moot." 87 T.C. 1087">87 T.C. at 1172. We ultimately concluded that the London options transactions in that case were shams. 87 T.C. 1087">87 T.C. at 1176-1177. In the instant case we also need not determine the authenticity of the transactions, since petitioners have the burden of proof on the sham and profit motive issues, and they have not shown how, if at all, their transactions differed from those of the taxpayers in Glass.

Before moving to our discussion, we pause to note that we have seen no evidence in this case to indicate that any non-metal commodities, such as coffee, ever were traded on the LME. One of the 2-page reports given to Mr. Marcus does indicate that coffee was traded on the Lodnon Terminal Market. ¹⁴ Also in evidence is a Bear Stearns request to Rayner for information regarding London1988 Tax Ct. Memo LEXIS 3">*24 options, which request indicates that Bear Stearns perceived that the coffee transactions occurred on the London Coffee Terminal Market. Petitioners, however, have offered no evidence whatsoever in regard to the procedures or the regulations, if any, of the London Terminal Market or the London Coffee Terminal Market, if the two documents were not referring to the same market. For that matter, except for the above mentioned references in those two stipulated exhibits, petitioners make no mention of any Terminal Market in London. Petitioners' arguments and briefs seem to imply that no difference existed between tin transactions, which would have occurred on the LME, and coffee transactions, which certainly would not have occurred on the LME. Since petitioners have offered no evidence regarding the coffee market and imply that there is no difference between coffee and tin transactions, we shall treat the coffee transactions as if they occurred on a market similar to the LME. Such an assumption, however, will not alter our findings and decision below.

1988 Tax Ct. Memo LEXIS 3">*25 Sham Transactions

Petitioners' basic contention in regard to the London options is that they have distinguished their case from Glass. In support thereof, petitioners offered several Bear Stearns' documents as well as sales confirmation slips and monthly statements for Mr. Marcus' London options account. ¹⁵ The Bear Stearns documents in evidence, however, do not provide any basis that would allow us to distinguish between the London options transactions in Glass and those involved herein.

1988 Tax Ct. Memo LEXIS 3">*26 In the Glass case extensive documentation and testimony from LME dealers were a part of the record. In the instant case however, petitioners have offered no documents from London that may be traced to Mr. Marcus' London transactions.¹⁶ Petitioners also have not offered testimony from any dealers or brokers, either from London or from Bear Stearns in New York, who might have knowledge about the London options or who might be able to distinguish Mr. Marcus' transactions from those in Glass. The paucity of proven facts about the overseas transactions in the instant case causes us to be skeptical that Mr. Marcus' transactions differed in any significant way from those in Glass. See Julien v. Commissioner,82 T.C. 492">82 T.C. 492, 82 T.C. 492">501 (1984).

In Glass, we held that LME option1988 Tax Ct. Memo LEXIS 3">*27 transactions were shams because they were a series of transactions having no business or profit-making function apart from obtaining tax deductions. 87 T.C. 1087">87 T.C. at 1176. We found that the only profit-making function, beyond tax savings, of an investment in London options could be to obtain a "profit from a 'difference' gain in excess of commissions and other costs upon the completion of his commodity trading." ¹⁷87 T.C. 1087">87 T.C. at 1173.

Other than Mr. Marcus' testimony, the only evidence in the record at all pertinent to the profit-making function of the London options are the two 2-page reports that generally describe the tin and coffee markets. Both 2-page reports were stipulated by the parties without any reservation of objection to the truth of the matters alleged therein; however, the reports do not discuss the particulars of trading in those commodities. The reports only summarily explain how the commodity transactions discussed therein might1988 Tax Ct. Memo LEXIS 3">*28 generate economic profits. No evidence was presented to corroborate the assertions in the 2-page reports, and, even in conjunction with the other documents in evidence, the two 2-page reports remain insufficient to explain how Mr. Marcus could have profited economically. For that matter, we have seen no evidence to indicate that the transactions in Mr. Marcus' account actually were conducted pursuant to the strategy discussed in the reports. In short, the paucity of evidence leaves us unconvinced that, after commissions and other costs are considered, a profit even could have been made with the trading strategy used in Mr. Marcus' London options account.

Mr. Marcus was the only witness for petitioners. He testified, "When [the London option transactions] were set up, I had no understanding whatsoever of what was being done." He was not familiar with the London market, did not understand all of the techniques, and relied on "people [he] trusted" at Bear Stearns, especially Norman Turkish. Yet, neither Norman Turkish nor any of the other "people" on whom Mr. Marcus relied were called by petitioners as witnesses to explain the London option transactions. We cannot assume1988 Tax Ct. Memo LEXIS 3">*29 that the testimony of absent witnesses would have been favorable to the party with the burden of proof; indeed, the normal inference is that the testimony would be unfavorable. Blum v. Commissioner,59 T.C. 436">59 T.C. 436, 59 T.C. 436">440 (1972); Pollack v. Commissioner,47 T.C. 92">47 T.C. 92, 47 T.C. 92">108 (1966), affd. 392 F.2d 409">392 F.2d 409 (5th Cir. 1968); Wichita Terminal Elevator Co. v. Commissioner,6 T.C. 1158">6 T.C. 1158, 6 T.C. 1158">1165 (1946), affd. 162 F.2d 513">162 F.2d 513 (10th Cir. 1947).

Mr. Marcus testified that he understood that his account would buy only options in order to limit his risk of loss. Respondent's expert witness, on the other hand, interpreted the monthly statements sent to Mr. Marcus to show that underlying futures contracts or commodities, not just options, were bought and sold in the account. Furthermore, petitioners did not contradict this characterization by respondent's expert. ¹⁸ The purchase of futures contracts or commodities would have increased Mr. Marcus' risk of loss far beyond the $ 15,000 advanced by him to open the account. ¹⁹ In fact, his January 1977 monthly statement shows his account had a net deficit of several hundred thousand dollars1988 Tax Ct. Memo LEXIS 3">*30 at month's end. ²⁰ Yet, peculiarly enough, no margin calls were made on Mr. Marcus. Petitioners do not explain satisfactorily either the reason for the account having such a large deficit after such a small investment or the reason no additional margin was required of them. ²¹ The inference we draw from these seeming incongruities is that the substance of the underlying transactions did not comport with the transactions as represented by petitioners.

1988 Tax Ct. Memo LEXIS 3">*31 We also note that there is a remarkable correlation between the $ 15,000 initial margin deposit paid to Bear Stearns and the overall net loss "realized" by Mr. Marcus on his London options transactions. During the two years Mr. Marcus was involved in London options, petitioners' tax returns show total gains on individual closed tin and coffee transactions of $ 1,494,498.96 and total losses on individual closed transactions of $ 1,510,733.21. ²² The net of these two totals yields a net loss of $ 15,748.25. We find it an amazing coincidence that although the individual transactions generated over $ 3 million in total claimed gains and losses, the net total loss was only $ 15,748.25, merely a few hundred dollars more than Mr. Marcus' initial deposit. Petitioners do not comment upon this coincidence at all. For that matter, we have seen no evidence to indicate that Mr. Marcus ever paid the $ 748, more or less, by which his net losses surpassed his initial margin deposit.

1988 Tax Ct. Memo LEXIS 3">*32 In Forseth v. Commissioner, 85 T.C. at 155-156, 159-160 (1985), affd. sub nom. Mahoney v. Commissioner,808 F.2d 1219">808 F.2d 1219 (6th Cir. 1987), affd. without published opinion sub nom. Bramblett v. Commissioner,810 F.2d 197">810 F.2d 197 (5th Cir. 1987), affd. sub nom. Enrici v. Commissioner,813 F.2d 293">813 F.2d 293 (9th Cir. 1987), affd. without published opinion sub nom. Wooldridge v. Commissioner,800 F.2d 266">800 F.2d 266 (11th Cir. 1986), we held that purported LME straddles were shams because, inter alia, (1) positions were entered into for the taxpayers before they posted any margin, and (2) the taxpayers' initial margin deposits roughly equaled the excess of total losses over total gains "realized" by the taxpayers on their commodity trades. Both of those factors are also present in the case before us. In affirming Forseth, the Sixth Circuit noted that the "zeroing out" of all margin accounts was "just too convenient to be explained away by the long arm of coincidence." Mahoney v. Commissioner,808 F.2d 1219">808 F.2d at 1220. The Sixth Circuit also noted other indicia pointing to a sham, several of which are present in our1988 Tax Ct. Memo LEXIS 3">*33 case: the conspicuous lack of concern over adequacy of margin, the lack of margin calls, and the complete discretion accorded to London dealers for a highly risky investment -- commodity speculations. 808 F.2d 1219">808 F.2d at 1220. In short, the unexplained remarkable correlation between Mr. Marcus' initial deposit and his net "realized" loss, as well as the factors noted by the Sixth Circuit that are present herein, imply that Mr. Marcus' transactions were shams and devoid of economic substance.

Last, we note the comments of the Court in Glass,87 T.C. 1087">87 T.C. at 1175-1176, in regard to LME straddle strategies similar ²³ to those of Mr. Marcus:

Could petitioners have profited from difference gains in commodity straddle transactions had they not in every instance entered into closing transactions on sold options in year one of the straddle operation? Since the answer to this question must be "yes," it must follow that there was no business or profit-making purpose behind the sold option closing transactions above and beyond tax deductions. The intentionally realized losses in year one were not necessary or helpful in profiting from difference gains in petitioners' 1988 Tax Ct. Memo LEXIS 3">*34 commodity straddle transactions. Put in this light, the London options strategy was "a mere device which put on the form of [commodity option and futures transactions] as a disguise for concealing its real character," the obtaining of unallowable loss deductions. As such, the London options transaction lacked economic substance and was a sham. [Emphasis in original.] [Fn. ref. omitted.]

In conclusion, we have not found necessarily that the transactions were shams. Rather, due to the incompleteness of the record in this case, we cannot say with any certainty whether Mr. Marcus' transactions differed from those on which losses were disallowed in Glass. Our inability to draw that conclusion, however, is irrelevant. We only need to conclude whether petitioners have carried their burden to show that respondent's disallowance was improper. Rule 142(a). Petitioners certainly have not carried that burden.

However, since we conclude only that petitioners failed to prove the transactions were not shams, not that the transactions definitely were shams, we also shall give an additional basis for rejecting petitiones' claims.

Profit Motive

1988 Tax Ct. Memo LEXIS 3">*35 Glass was the first case to consider section 108 of the Deficit Reduction Act of 1984, 98 Stat. 630, after that provision was amended by section 1808(d) of the Tax Reform Act of 1986, 100 Stat. 2817.²⁴ (Hereinafter we shall refer to section 108, as amended, as section 108.) We described section 108 and stated, "New section 108(a) allows losses sustained by investors in straddle transactions if incurred in a transactions entered into for profit." Glass v. Commissioner,87 T.C. 1087">87 T.C. at 1175. See also Freytag v. Commissioner,89 T.C. 849">89 T.C. 849 (1987). Petitioners have shown us no evidence whatsoever to indicate that the London options herein were not straddles as contemplated in section 108. Indeed, the testimony of Mr. Marcus and respondent's expert, as well as the various documents in the record, all characterize the transactions herein as straddles, and we hold that section 108 applies to the instant case.

1988 Tax Ct. Memo LEXIS 3">*36 We held in Glass that section 108 does not permit loss deductions in the first year of commodity straddle transactions when the sham involves a series of transactions which have no economic significance (i.e., profit-making function) beyond the expected tax benefits. 87 T.C. 1087">87 T.C. at 1176. Thus, we could end our discussion here on the issue of London options. Nevertheless, since our holding that the London option transactions were shams rested on petitioners' failure to carry their burden of proof, and not on the fact that the transactions were shown to be shams, we shall analyze section 108 and offer an additional basis for rejecting petitioners' claimed losses.

87 T.C. 1087">Glass v. Commissioner, supra at 1167, summarized section 108 as follows:

In summary, then, amended section 108 traces the pattern of the loss provisions of section 165(c)(1) and (2), and makes it clear that losses incurred by commodities dealers trading in commodities are deductible under section 108 since they are losses incurred in a trade or business. Investors, on the other hand, must meet the test of loss incurred in a transaction entered into for profit. In the context of commodity1988 Tax Ct. Memo LEXIS 3">*37 straddle transactions, the investor language parallels the section 165(c)(2) language which we construed in Smith [v. Commissioner,78 T.C. 350">78 T.C. 350, (1982), affd. without published opinion 820 F.2d 1220">820 F.2d 1220 (4th Cir. 1987)] and Fox [v. Commissioner,82 T.C. 1001">82 T.C. 1001 (1984)], and (except as to commodities dealers) we think the effect of amended section 108 is to revalidate our holdings in those cases. * * *

We therefore must review our holdings in Smith and Fox to understand the test for deductibility under section 108. In 78 T.C. 350">Smith v. Commissioner, supra at 394, we held that investors ²⁵ in "butterfly straddles" of commodity futures "lacked the requisite economic profit objective necessary to enable them to deduct their commodity tax straddle losses." In 82 T.C. 1001">Fox v. Commissioner, supra at 1021, 23 disallowed loss deductions to investors in "vertical spreads" on U.S. Treasury bill options and held that loss deductions are permitted only for "transactions entered into primarily for profit," and "for those essentially tax-motivated transactions which are unmistakably within the contemplation of congressional1988 Tax Ct. Memo LEXIS 3">*38 intent."

We applied these standards in Freytag v. Commissioner,89 T.C. 849">89 T.C. at 884-885:

The initial question that arises under our holdings in Smith and Fox is whether these transactions were "unmistakenly within the contemplation of congressional intent" for affording special tax consideration. * * * the economic raison d'etre for these transactions was to permit the customers to speculate on interest rates. But rank speculation is generally not considered the type of investment that Congress has sought to foster, and petitioners have not shown us expressions of congressional intent to encourage investments of this nature. Furthermore, we doubt seriously that Congress would ever encourage a speculative device where the primary by-product is to shift1988 Tax Ct. Memo LEXIS 3">*39 income from one year to another. Thus, under the Smith and Fox analyses, petitioners must show that their primary motivation in entering into these transactions was for economic profit.

The instant case is consonant with Freytag in that the only economic justification for the existence ("raison d'etre") of Mr. Marcus' investment in tin and coffee options could be to permit speculation on the price fluctuations of the options and the underlying commodity. Mr. Marcus certainly had no intention of becoming a manufacturer or dealer of those commodities. Also, petitioners have not shown any unmistakable congressional intent to allow deductions for straddle losses by investors who did not have a primary profit motive. Thus, as in Freytag, petitioners must show that Mr. Marcus' primary motivation in entering into London option transactions was for economic profit. Rule 142(a).

Petitioners admit that Mr. Marcus unquestionably was aware of the tax treatment regarding straddles. They also have stipulated that Norman Turkish was considered a specialist in trading straddles for the purpose of deferring income taxes. Without a doubt, Mr. Marcus considered the prospect of1988 Tax Ct. Memo LEXIS 3">*40 favorable tax consequences when he invested in the London options. The question we must answer, however, is whether Mr. Marcus' primary motive, independent of tax savings, was the desire for economic profit. Malat v. Riddell,383 U.S. 569">383 U.S. 569, 383 U.S. 569">572 (1966); Fox v. Commissioner,82 T.C. 1001">82 T.C. at 1022.

In order to show Mr. Marcus' primary profit motive, petitioners offer only Mr. Marcus' testimony and the two 2-page reports from Norman Turkish that generally described the coffee and tin markets. In our determination of whether Mr. Marcus engaged in London options with a profit motive, however, all of the relevant facts and circumstances are to be taken into account. Siegel v. Commissioner,78 T.C. 659">78 T.C. 659, 78 T.C. 659">699 (1982). Greater weight, though, should be given to the objective facts than to Mr. Marcus' self-serving testimony regarding his intent. 82 T.C. 1001">Fox v. Commissioner, supra at 1022; 78 T.C. 350">Siegel v. Commissioner, supra;Dreicer v. Commissioner,78 T.C. 642">78 T.C. 642, 78 T.C. 642">645 (1982); Engdahl v. Commissioner,72 T.C. 659">72 T.C. 659, 72 T.C. 659">666 (1979).

The objective facts before us do not indicate that Mr. Marcus' primary1988 Tax Ct. Memo LEXIS 3">*41 interest was the desire for economic profit. See 82 T.C. 1001">Fox v. Commissioner, supra at 1023. In Glass,87 T.C. 1087">87 T.C. at 1174, we discussed LME strategies that appear indistinguishable from those used in Mr. Marcus' account:

There can be no real dispute that the tax centerpiece of the London options transactions was the closing of the sold option in year one with an ordinary loss objective and the moving of the offsetting capital gain to a subsequent year. The London option trades were consciously effected with this in mind. Petitioners no doubt realize that, given the complexity of trading in commodity options and futures and the relatively high cost of commissions, profiting from difference gains in amounts sizable enough to make the enterprise worthwhile is a difficult and hazardous undertaking at best. It follows logically, then, that the intentional skewing of the transactions to realize year one losses introduces an additional negative element which prohibitively stacks the deck against the chances of significant financial success.

Petitioners argue that under the London options transactions there was a reasonable prospect for a profit. This argument1988 Tax Ct. Memo LEXIS 3">*42 conveniently overlooks the fact that in the critical year -- the loss year -- there was no prospect for any profit, for any other result would have destroyed the raison d'etre for entering into the London options transactions in the first place. [Emphasis in original.]

There are other indications that Mr. Marcus' profit motive was not primary. We find it odd that Mr. Marcus, an experienced Wall Street stockbroker, never attempted to understand the transactions occurring in his London options account. ²⁶ Mr. Marcus also testified that he had no way to verify the terms or the prices of the options as represented on his statements except by indirect reference to the United States coffee market. ²⁷

1988 Tax Ct. Memo LEXIS 3">*43 The 2-page reports from Norman Turkish discuss a potential to profit if the coffee and tin markets behave as the reports suggest. Mr. Marcus, however, did not investigate further the tin and coffee markets. He testified that he never received any written projection or prospectus other than the general 2-page report; he simply relied on whatever Norman Turkish represented to him.

Petitioners have not presented any expert testimony or any other evidence to corroborate Norman Turkish's assertions in the reports regarding the commodity markets. Also, petitioners presented no evidence regarding whether a profit even could be made on London options after commissions and other costs are considered. Indeed, the absence of such evidence leads to an inference that Mr. Marcus did not know the true profit potential, if any, of the London options. If Mr. Marcus did not know whether he even could (not whether he definitely would) profit on the London options, we find it inconceivable that he could have had a profit motive.

Taken together, these facts indicate that if Mr. Marcus had an interest in a potential economic gain, it was only minor -- not his primary motive. Therefore, pursuant1988 Tax Ct. Memo LEXIS 3">*44 to our holdings in Smith, Fox, Glass, and Freytag, we find that Mr. Marcus has not shown that he had the requisite profit motive. Rule 142(a).

We therefore uphold respondent's determinations in regard to London options.

ADDITIONAL FINDINGS OF FACT

Petitioners suffered serious fire damage to their home in May, 1977. ²⁸ Petitioners recovered $ 24,960 from their fire insurance company as reimbursement for personal and household possessions damaged in the fire.

On their 1977 tax return petitioners claimed a casualty loss for expenses and losses to personal and household possessions ²⁹ as follows:

1988 Tax Ct. Memo LEXIS 3">*45 Petitioners' tax return reflected properly the $ 100 limitation per casualty required by section 165(c)(3).

Petitioners based their claimed property loss of $ 89,000 upon a schedule prepared by petitioner Judith Marcus (hereinafter Mrs. Marcus) a few days after the fire. Mrs. Marcus, with the assistance of an insurance adjuster, had surveyed the house and listed on the schedule all of the items in the house. The schedule listed all items in each room of the house and assigned a dollar value to each item. The schedule does not contain any indication of the ages of the items or of the original costs of the items.

Respondent, in the statutory notice of deficiency, allowed petitioners a casualty loss deduction of $ 30,000, and disallowed the balance ($ 45,132) of the claimed loss.

OPINION

The next issue for our determination is whether petitioners are entitled to a casualty loss deduction in any amount greater than that allowed by respondent. Respondent's determination has the presumption of correctness, and petitioners have the burden of proving it wrong. ³⁰ Rule 142(a). We hold for respondent because petitioners have failed to prove that they suffered a casualty1988 Tax Ct. Memo LEXIS 3">*46 loss in any amount greater than that allowed by respondent.

Section 1.165-7(b)(1), Income Tax Regs., provides the rule for determining the amount deductible with respect to nonbusiness casualty losses, such as petitioners', as follows:

(b) Amount deductible. (1) General rule. In the case of any casualty loss whether or not incurred in a trade or business or in any transaction entered into for profit, the amount of loss to be taken into account for the purposes of section 165(a) shall be the lesser of either --

(i) The amount which is equal to the fair market value of the property immediately before the casualty1988 Tax Ct. Memo LEXIS 3">*47 reduced by the fair market value of the property immediately after the casualty; or

(ii) The amount of the adjusted basis prescribed in section 1.1011-1[,Income Tax Regs.,] for determining the loss from the sale or other disposition of the property involved.

Petitioners claimed total losses from and expenses caused by the fire of $ 100,092 ³¹ before insurance. Respondent in effect allowed petitioners $ 54,960 ³² of those claimed losses. In support of their case, petitioners forward their own testimony, the schedule of items in the house prepared soon after the fire by Mrs. Marcus and the adjuster, and a folder of various receipts from 1976 and 1977.

Petitioners' testimony on this point is admissible evidence, even though they are not expert appraisers. Harmon v. Commissioner,13 T.C. 373">13 T.C. 373, 13 T.C. 373">383 (1949). ³³ Petitioners' testimony, however, although not at all fatal to their claim, ³⁴1988 Tax Ct. Memo LEXIS 3">*48 does not suffice to prove their claim. See Millsap v. Commissioner,46 T.C. 751">46 T.C. 751, 46 T.C. 751">760 (1966), affd. 387 F.2d 420">387 F.2d 420 (8th Cir. 1968). Rather, we would require additional evidence, besides petitioners' self-serving lay testimony, to overcome respondent's determination herein.

The schedule of personal and household items lists a dollar value beside each item; however, petitioners have presented no evidence to substantiate the values assigned to each item by petitioners. Mrs. Marcus testified that the value of each item on the schedule was determined by reference to the age and original cost of the item: brand new property, "just bought", was valued at 100 percent of cost; other "brand new" property was1988 Tax Ct. Memo LEXIS 3">*49 valued at 80 percent of cost; other property up to two years old was valued at 50 percent of cost; and all property over two years old was valued at one third of cost.

There is no indication on the schedule, however, of the ages and original costs of any item. For that matter, we have no indication that the methodology used to determine the value of each item even gave a reasonable approximation of fair market value at the time of the fire. Testimony from an expert, such as an adjuster from a fire insurance company, would have been very cogent in our inquiry into the reasonableness of petitioners' methodology.

Even if we assume that the methodology used in preparing the schedule was reasonable, we are not convinced that petitioners satisfactorily proved their case. The original cost of each item apparently was provided by Mrs. Marcus. She testified, "I happen to be also a very good shopper and * * * I know about costs of things that I bought." Mrs. Marcus also apparently provided the ages of each item. Neither the ages nor the original costs, however, are shown on the schedule, so no mathematical check can be made of the extension and computation of the individual values. 1988 Tax Ct. Memo LEXIS 3">*50 The omission of the ages and costs is especially significant in determining the accuracy of the schedule, given Mrs. Marcus' testimony that "I'm not so good with numbers."

We are unwilling to accept the schedule's values of the damaged property for another reason. We are not convinced that the values on the schedule necessarily are reduced to the lower of petitioners' bases in the property or diminution in value caused by the fire. For example, the folder of receipts in evidence contains a charge receipt, dated January 24, 1976, for two sportcoats at a cost of $ 55 each and in the total amount of $ 117.70 after the addition of sales tax. Mrs. Marcus' schedule lists 5 sports jackets; however, each is assigned a value of $ 135. The inventory does not include any sportcoats valued at or below the $ 55 (or $ 58.85 including tax) cost of those purchased in January, 1976, and petitioners do not comment upon or explain this inconsistency. ³⁵

1988 Tax Ct. Memo LEXIS 3">*51 The adjuster who went through the house with Mrs. Marcus might have helped her with the computational aspects of the schedule. The adjuster also might have helped petitioners prove their case had he testified. His testimony might have substantiated the reasonableness of the schedule's methodology. His testimony also might have supported Mrs. Marcus' naked assertions regarding the ages and original costs of the items on the inventory. In addition, the adjuster's testimony might have indicated that the items on the inventory were completely destroyed and had no residual value -- a particular that petitioners have not attempted to show, ³⁶ except to the extent of their unsubstantiated testimony. Finally, the adjuster's testimony might have helped explain to us why petitioners were reimbursed only $ 24,960 by their insurer after they suffered a loss that they allege exceeds $ 100,000. ³⁷ Petitioners do not suggest that the adjuster was unavailable for testimony; thus, we may infer that his testimony would have been unfavorable to petitioners. See Blum v. Commissioner,59 T.C. 436">59 T.C. at 440.

1988 Tax Ct. Memo LEXIS 3">*52 Petitioners have introduced into evidence a folder containing about 25 sheets of paper, each of which has several receipts and charge slips stapled to both sides of it. Petitioners' counsel asserted at trial that the bills totaled about $ 28,000; however, petitioners have not summarized the receipts in any orderly fashion whatsoever. ³⁸ Furthermore, Mr. Marcus' testimony at trial indicates that certain of the receipts are duplications of others in the folder, and respondent's brief suggests that the costs on the receipts are in certain cases lower than the values for those same items on petitioners' inventory schedule. Even if we assume arguendo that the receipts total $ 28,000 and that they all represent the fair market value of damaged property immediately before the fire, the receipts nevertheless substantiate only approximately 51 percent of the $ 54,960 loss allowed by respondent, and even a smaller percentage of the $ 89,000 property loss claimed on petitioners' tax return. ³⁹ These receipts do not alter our conclusion that petitioners have failed to prove respondent's determination incorrect.

1988 Tax Ct. Memo LEXIS 3">*53 Petitioners also claimed a fire loss deduction for adjuster's fees, boarding charges, storage and removal, and legal fees. Although we have at times allowed casualty loss deductions for clean-up expenses, e.g., Steinert v. Commissioner,33 T.C. 447">33 T.C. 447, 33 T.C. 447">450 (1959), petitioners have presented no evidence whatsoever that any of these costs were for clean-up expenses. Furthermore, petitioners have shown us no evidence or authority whatsoever that would authorize a deduction for these expenses. ⁴⁰ Last, petitioners have not even shown that respondent did not allow some portion of these expenses in determining the allowable deduction.

In conclusion, petitioners have not shown that they are entitled to a casualty loss deduction any greater than that allowed by respondent. Rule 142(a). We thus hold for respondent on this issue.

For convenience and to avoid unnecessary repetition, our remaining findings of fact and opinion will be combined.

The1988 Tax Ct. Memo LEXIS 3">*54 last issue for decision is whether petitioners are entitled to deductions in excess of those allowed by respondent for "Promotional expenses-lunches-gifts-flowers-etc. for clients relating to production of income." (Hereinafter we often shall refer to those expenses as promotional expenses.) The promotional expenses were claimed as relating to Mr. Marcus' employment as a stockbroker.

Petitioners claimed deductions in the total amount of $ 19,200 for promotional expenses on their 1976 tax return. Respondent disallowed certain of the expenses claimed for 1976 as follows:

Petitioners claimed deductions for promotional expenses in the total amount of $ 17,800 on their 1977 return. Respondent disallowed all of petitioners' 1977 deductions for: expenses of hosting three meetings of an Investment Club ($ 412 total); twenty percent of the cost of a trip to California taken1988 Tax Ct. Memo LEXIS 3">*55 by petitioners during which they vacationed and visited customers of Mr. Marcus residing in California ($ 360 deducted); a Personal Growth Seminar ($ 250); a tuxedo rented by Mr. Marcus from Jack and Co. ($ 37); and gifts to clerks working in the order room and other Bear Stearns employees ($ 935). Those disallowed deductions total $ 1,994. The remainder of the $ 17,800 claimed by petitioners for 1977 was for business meals and entertainment, of which respondent disallowed $ 2,190.

Petitioners have the burden of proving respondent's determination incorrect. Rule 142(a).

Section 162(a) requires that business expenses be ordinary and necessary to be deductible. The deductibility of entertainment expenses is limited further by section 274(a) ⁴¹ to items directly related to or associated with the active conduct of the taxpayer's trade or business. During the years at issue, section 274(e)(1) provided an exception to section 274(a) for business meals furnished under circumstances conducive to a business discussion.

1988 Tax Ct. Memo LEXIS 3">*56 Respondent nevertheless disallowed certain of petitioner's claimed deductions, asserting that the expenses were not substantiated properly, as required by section 274(d). Section 274(d) requires that such expenses be substantiated by adequate records or sufficient evidence to corroborate the amount of the expenditure, the time and place of the activity, the business purpose, and the business relationship of the person entertained.

Except for Mr. Marcus' testimony, petitioners have forwarded no evidence whatsoever to substantiate the promotional expenses claimed for 1976. They have not put into evidence any checks, receipts, or other documentary evidence pertaining to 1976.

Respondent's revenue agent testified that he examined Mr. Marcus' 1976 diary of business expenses before making a decision that some of the expenses were substantiated sufficiently. Mr. Marcus' 1976 diary, however, is not in evidence before us. Mr. Marcus testified that his accountant had moved to California and that he "cannot get ahold of [the] '76 diary."

Petitioners, however, offered no evidence to explain why Mr. Marcus could not have reclaimed the diary before the accountant's departure. Petitioners1988 Tax Ct. Memo LEXIS 3">*57 have shown us no justification why Mr. Marcus should be relieved of his duty to retain records sufficient to substantiate his claimed entertainment expenditures. See sec. 1.274-5(c), Income Tax Regs.; sec. 1.6001-1(e), Income Tax Regs. Although Mr. Marcus may have had the diary when he was examined by respondent's agent, section 1.6001-1(a) and (e), Income Tax Regs., requires that records sufficient to establish the amount of deductions "shall be retained so long as the contents thereof may become material in the administration of an internal revenue law." (Emphasis supplied.) Obviously, the records must be retained until completion of proceedings in this Court.

A trial before this Court is a proceeding de novo; our determination of petitioners' tax liability must be based on the record before us and not on any records used at the administrative level. Davis v. Commissioner,65 T.C. 1014">65 T.C. 1014, 65 T.C. 1014">1022 (1975); Greenberg's Express, Inc. v. Commissioner,62 T.C. 324">62 T.C. 324, 62 T.C. 324">328 (1974). Since the record before us includes no corroboration whatsoever of the 1976 expenses, we find that Mr. Marcus' uncorroborated testimony is insufficient to substantiate the deductions1988 Tax Ct. Memo LEXIS 3">*58 disallowed by respondent. See LaForge v. Commissioner,434 F.2d 370">434 F.2d 370, 434 F.2d 370">372 (2d Cir. 1970), remanding on the issue 53 T.C. 41">53 T.C. 41 (1969). We therefore sustain respondent's determination in regard to 1976 promotional expenses.

A copy of Mr. Marcus' 1977 diary is a part of the record. The diary is composed of sheets from a daily desk calendar on which were written amounts and notations designating the amounts as being for lunch, dinner, snack, parking, drinks, etc. The calendar pages also contained names of persons beside most of the entries. Many of the entries were accompanied by copies of charge slips, restaurant receipts, or other corroborating evidence, e.g., ticket stubs from movies or admission tickets to jail alai games or horse racing tracks.

Mr. Marcus' 1977 diary had entries for approximately 316 meals, ⁴² not including the California trip and the Personal Growth Seminar. Meals were listed on 254 different days; ⁴³ 54 of the days had entries for two meals, and 4 of the days showed entries for three meals. The expenses listed on the diary for those meals totaled a little over $ 16,000. Mr. Marcus took a deduction for $ 15,806, or over 951988 Tax Ct. Memo LEXIS 3">*59 percent, of the total meal expenses listed in his diary.

The diary, however, was very scant in describing the business purposes of any of these meals or entertainment. In general, only the name or names of Mr. Marcus' companions were shown in the diary, if any description was given at all. Besides the diary, the only other evidence of the business purpose of the meals and entertainment is Mr. Marcus' testimony: 1988 Tax Ct. Memo LEXIS 3">*60 "I was developing my business and obviously I was doing it successfully, and I took people out, customers who I was doing business with to get more business, people who I wasn't doing business with to get business and so on and so forth." He did not elaborate or offer further evidence, however, as to the business purpose behind any specific meal.

Respondent disallowed only $ 2,910 of the $ 15,806 claimed for meals and entertainment on petitioners' tax return. Based on the evidence before us, we find that this determination by respondent is more than reasonable.

The requirements imposed by section 274 are in addition to those imposed by section 162, and petitioners shall have the burden of proving initially that the expenditures were ordinary and business expenses, proximately related to the trade or business. ⁴⁴Sanford v. Commissioner,50 T.C. 823">50 T.C. 823, 50 T.C. 823">826 (1968), affd. 412 F.2d 201">412 F.2d 201 (2d Cir. 1969), cert. denied 396 U.S. 841">396 U.S. 841 (1969). Petitioners only vaguely asserted any specific business purpose; the assertions, for that matter, were in regard only to the expenses in general, not to any specific meal or meeting. Mr. Marcus' testimony1988 Tax Ct. Memo LEXIS 3">*61 did not amplify on the information in the diary. We can infer that many of the meals may have been with customers or potential customers, but the records contain no evidence whatsoever as to the purpose of the specific meetings. The diary is curiously lacking in any description of the specific business relationship (e.g., current customer, potential customer, co-worker) between Mr. Marcus and the person(s) entertained, and in some cases does not even identify the person(s) entertained. ⁴⁵ In short, petitioners' vague assertions of the general business purpose for the 316 meals are insufficient to show that respondent's disallowance of 18 percent of the meal costs was improper. See 78 T.C. 350">Sanford v. Commissioner, supra.

1988 Tax Ct. Memo LEXIS 3">*62 The diary also contained copies of checks and notations that Investment Club meetings were sponsored by petitioners on three weekends in 1977. Mr. Marcus testified that he was the broker for the club, and that the meetings were held to discuss the club's investments and to distribute monthly account statements to club members. Petitioners, however, have not offered testimony from any other club member, a club membership list, an account statement or any other evidence to support the existence of the investment club. Thus, we find that petitioners have not substantiated (1) the business purpose of the club, (2) whether the claimed expenses for the club meetings were ordinary and necessary, or (3) even whether an investment club existed.

Similarly, petitioners failed to present a receipt for the tuxedo rented from Jack & Co. or the identity of the supposed business function for which the tuxedo was rented.

In the diary are two charge slips -- one for a New York City hotel and the other for a restaurant -- to support Mr. Marcus' deduction for a Personal Growth Seminar. Petitioners, however, have offered no receipts for the cost of the seminar itself. They also failed to offer1988 Tax Ct. Memo LEXIS 3">*63 any literature about the seminar so that we might determine whether the seminar expenses are properly deductible.

Mr. Marcus had receipts for his California trip; however, his testimony regarding the California trip was vague -- only that the nature of the business was "to visit customers who lived in California and to solicit business and to establish relationships and enhance relationships that existed." Although only 20 percent of the cost of the trip was taken as a deduction, petitioners have not shown that any of the expenses are ordinary and necessary business expenses that were not primarily personal in nature.

Last, respondent disallowed deductions for "gifts" of checks made out to "Cash" and cashed around the Christmas holiday period. In evidence are twenty-two such checks from Mr. Marcus' diary -- two in the amount of $ 300 and dated December 6, 1977, and twenty smaller checks, each in the amount of either $ 10 or $ 25 and dated December 19, 1977. ⁴⁶

Mr. 1988 Tax Ct. Memo LEXIS 3">*64 Marcus testified that he cashed the two $ 300 checks himself and gave cash tips to "runners and people like that." Mr. Marcus, however, provided no names of persons he tipped with this cash and did not testify as to the individual amounts given to any recipient. No other evidence was offered as to the amounts given to any individual. Thus, we cannot determine whether any individual was given a cash tip in excess of $ 25, the maximum deductible gift under section 274(b)(1).

However, petitioners' failure to substantiate, as required by section 274(d), the tips represented by the two larger checks is a fortiori fatal to their claimed deductions. The record contains neither (i) any written statement or oral testimony of any recipient of any gift, nor (ii) any documentary evidence of either the amount of any individual cash tip or the name of any individual tipped. See sec. 1.274-5(c)(2)(i) and (3), Income Tax Regs. Thus, we hold that petitioners have not met their burden under section 274(d) to substantiate the cash tips. Rule 142(a).

Mr. Marcus testified that the $ 10 and $ 25 checks were given to "margin clerks, order room clerks, people at Bear Stearns that had done things1988 Tax Ct. Memo LEXIS 3">*65 for [Mr. Marcus] during the year." On the back of these smaller checks are endorsements by different people. We hold that Mr. Marcus' testimony, the discreet amount of each check, the date written on each check, and the endorsements on the back of the smaller checks by the sundry individuals are sufficient to substantiate the elements for which section 274(d) requires substantiation, namely, the description, amount, date, and business purpose of the gift, and the business relationship of the recipient to Mr. Marcus. We thus hold that petitioners have shown that they are entitled to a deduction of $ 350 for these twenty smaller checks.

In summary, we hold that petitioners are entitled to an additional deduction for 1977 for gifts in the amount of $ 350, but we otherwise sustain respondent's determination of promotional expenses. ⁴⁷

To1988 Tax Ct. Memo LEXIS 3">*66 reflect the foregoing,

Decision will be entered under Rule 155.