T.C. Summary Opinion 2005-45

UNITED STATES TAX COURT

WICKIE B. WHALEN, Petitioner v.

COMMISSIONER OF INTERNAL REVENUE, Respondent

Docket No. 22269-03S. Filed April 18, 2005.

Wickie B. Whalen, pro se.

Lauren B. Epstein and Willie Fortenberry, Jr., for

respondent.

 DEAN, Special Trial Judge: This case was heard pursuant to

the provisions of section 7463 of the Internal Revenue Code in

effect at the time that the petition was filed. Unless otherwise

indicated, all subsequent section references are to the Internal

Revenue Code in effect for the year in issue. The decision to be

entered is not reviewable by any other court, and this opinion

should not be cited as authority.
- 2 -

Respondent determined for 2001 a deficiency in petitioner’s

Federal income tax of $7,171 and an accuracy-related penalty

under section 6662(a) of $1,434.20.

The issues for decision are whether petitioner is: (1)

Entitled to deductions on Schedule A, Itemized Deductions,

greater than those respondent allowed; and (2) liable for an

accuracy-related penalty under section 6662(a).

The stipulated facts and the exhibits received into evidence

are incorporated herein by reference. At the time the petition

in this case was filed, petitioner resided in Miami, Florida. 

Background

Petitioner has been employed as a college professor with

Miami-Dade Community College (the college) since 1976. He

teaches in the Department of Visual Arts and philosophy. 

During 2001, petitioner taught art history I and II, general

education humanities, and art appreciation. As part of a

consortium, he also taught a summer program for the college in

Italy. Those courses consisted of art history, art appreciation,

humanities, world history, and Italian art history. 

A. Petitioner’s Tax Return for 2001

Petitioner timely filed with the Internal Revenue Service a

Form 1040, U.S. Individual Income Tax Return, for 2001. Attached

to the return were various forms including a Schedule A and a

Form 2106, Employee Business Expenses.
- 3 -

1The $1,247.76 petitioner reported for meals and

entertainment expenses is one-half of the total amount petitioner

spent for meals and entertainment expenses during 2001. 

On Schedule A, petitioner reported unreimbursed employee

expenses of $26,188.74. Petitioner itemized the expenses on Form

2106 as follows: $19,779.66 of travel expenses, $5,161.32 of

business expenses, and $1,247.761 of meals and entertainment

expenses. Subject to the 2 percent of adjusted gross income

limitation, petitioner claimed total unreimbursed employee

business expense deductions of $24,408.44. He did not report any

reimbursements received from the college. 

The parties agree that petitioner spent a total of $3,404.51

on hotels during 2002 and claimed this amount as part of the

travel expenses listed on Form 2106 for 2001. The parties also

agree that petitioner spent $2,606.61 on other expenses and

included this amount as part of the other business expenses

claimed on his Form 2106. 

B. The College’s Reimbursement Policies

As relevant herein, the college had two reimbursement

policies in effect during 2001. Under Procedure 3280,

Reimbursement to College Employees for College-Related Purchases

Not Exceeding $200 (small purchase reimbursement policy),

petitioner was required to obtain advance supervisory approval

for purchases of college-related materials and services not
- 4 -

exceeding a total of $200. This small purchase reimbursement

policy has been in effect since 1971.

Under Procedure 3400, Travel Reimbursement for the District

Board of Trustees, The President, College Employees and Other

Authorized Persons (travel reimbursement policy), petitioner was

required to obtain advance approval from the college president or

area head and the Human Resources Office for out-of-county

travel. “Out-of-County” travel is defined as travel performed

outside of Dade, Broward, or Monroe Counties, Florida, up to and

including Long Key.

Requests for out-of-county travel are required to be

submitted on form P-2, Request for Leave of Absence and

Reimbursement. The college would reimburse for expenses only for

those days that were specifically included in the approved leave

days on the form P-2.

For travel involving conferences and conventions, the

college required that a copy of the program or agenda itemizing

the registration fees be submitted with the form P-2. Further,

all trips with estimated expenses of more than $1,500 required

advance approval from the college president. This travel

reimbursement policy has been in effect since 1976. Petitioner

acknowledged that he is very familiar with the college’s

reimbursement policies and process. 
- 5 -

C. Petitioner’s Trips

1. Istanbul

Petitioner traveled to Istanbul in April 2001. He submitted

a copy of his American Express yearend billing summary which

showed that he had made some expenditures in Istanbul. The

summary did not provide any detailed information regarding the

purpose of the expenditures. Petitioner did not provide any

evidence demonstrating that the college required him to make the

trip to Istanbul.

2. Italy

Petitioner purchased an airline ticket to Italy on April 17,

2001, for $1,356.13. He received a partial reimbursement for

that airline ticket and claimed only $411.13 as part of the

travel expenses listed on Form 2106. Petitioner also spent a

total of $1,054 on Eurail passes during 2001 which he claimed as

part of his travel expenses on Form 2106.

3. Peru

From August 1 through August 18, 2001, petitioner traveled

throughout Peru. He submitted an itinerary of his trip to Peru

and the American Express billing summary which showed that he had

made some expenditures but did not provide any detailed

information regarding the purpose of the expenditures. 

Petitioner did not provide any evidence demonstrating that the
- 6 -

college required him to make the trip. He did not allocate his

travel expenses between business and personal expenses.

4. Portland, Oregon

On September 14, 2001, petitioner submitted to the college a

form P-2 regarding a trip to Portland. He attended the Community

College Humanities Association National Convention from October

24 through 28, 2001. During that convention, petitioner

presented the topic “How to Integrate Opera and Other Music into

the Humanities Curriculum”. He submitted receipts for lodging,

meals, and registration to the college and was reimbursed for a

total of $807.92 on November 19, 2001. Petitioner was not

reimbursed by the college for his airline ticket. 

D. Petitioner’s Other Business Expenses

Petitioner also claimed a deduction for other business

expenses on his Form 2106 of $5,161.32. He did not seek

preapproval for these expenditures, nor did he request

reimbursement. 

Respondent issued a statutory notice of deficiency to

petitioner in which he disallowed most of the employee expense

deductions petitioner claimed on Schedule A for lack of

substantiation as deductible section 162 expenses. Respondent

also determined petitioner is liable for an accuracy-related

penalty under section 6662(a).
- 7 -

Discussion

The Commissioner’s determinations are presumed correct, and

generally, the taxpayer bears the burden of proving otherwise. 

Welch v. Helvering, 290 U.S. 111, 115 (1933). Moreover,

deductions are a matter of legislative grace, and the taxpayer

bears the burden of proving that he or she is entitled to any

deduction claimed. New Colonial Ice Co. v. Helvering, 292 U.S.

435, 440 (1934); Welch v. Helvering, supra. This includes the

burden of substantiation. Hradesky v. Commissioner, 65 T.C. 87,

90 (1975), affd. per curiam 540 F.2d 821 (5th Cir. 1976).

The burden of proof may shift to the Commissioner under

section 7491(a). Because petitioner failed to comply with the

requirements of section 7491(a)(2), however, section 7491 is

inapplicable. Under section 7491(c), respondent has the burden

of production with respect to petitioner’s liability for the

accuracy-related penalty.

Petitioner’s Deductions

Section 162(a) authorizes a deduction for all ordinary and

necessary expenses paid or incurred during a taxable year in

carrying on a trade or business. An “ordinary” expense is one

that relates to a transaction “of common or frequent occurrence

in the type of business involved”, Deputy v. du Pont, 308 U.S.

488, 495 (1940), and a “necessary” expense is one that is

“appropriate and helpful” for “the development of the
- 8 -

petitioner’s business”, Welch v. Helvering, supra at 113. A

“trade or business” includes the trade or business of being an

employee. O’Malley v. Commissioner, 91 T.C. 352, 363-364 (1988);

Primuth v. Commissioner, 54 T.C. 374, 377-378 (1970). Pursuant

to section 162, a taxpayer must maintain records sufficient to

substantiate the amounts of the deductions claimed. Sec. 6001;

Meneguzzo v. Commissioner, 43 T.C. 824, 831-832 (1965); sec.

1.6001-1(a), (e), Income Tax Regs.

In addition to satisfying the criteria for deductibility

under section 162, the taxpayer must also satisfy the strict

substantiation requirements of section 274(d) for certain

categories of expenses in order for a deduction to be allowed. 

Section 274(d) disallows deductions for traveling expenses and

meals and entertainment unless the taxpayer substantiates by

adequate records or by sufficient evidence corroborating the

taxpayer’s own statement: (1) The amount of the expense; (2) the

time and place of the expense; (3) the business purpose of the

expense; and (4) the business relationship to the taxpayer of the

persons involved in the expense. 

The substantiation requirements of section 274(d) are

designed to encourage taxpayers to maintain records, together

with documentary evidence substantiating each element of the

expense sought to be deducted. Sec. 1.274-5T(c)(1), Temporary

Income Tax Regs., 50 Fed. Reg. 46016 (Nov. 6, 1985).
- 9 -

In addition to the strict substantiation requirements of

section 274(d), a deduction for foreign travel is subject to the

allocation requirements of section 274(c). See sec. 1.274-4(a),

Income Tax Regs. Thus, section 274(c) generally requires the

proration of foreign travel expenses between business and

nonbusiness expenses.

For petitioner’s trips to Istanbul and Peru, to the extent

that the strict substantiation rules of section 274(d) apply,

petitioner has not adequately substantiated any of his claimed

deductions. See sec. 274(d); sec. 1.274-5T(a), Temporary Income

Tax Regs., 50 Fed. Reg. 46014 (Nov. 6, 1985); see also sec. 6001;

sec. 1.6001-1(a), Income Tax Regs.

For petitioner’s trip to Italy, petitioner was reimbursed

for a portion of his airfare. Beyond this item, petitioner did

not provide any documentation showing an allocation between his

personal and “business” expenses for the trip as required by

section 274(c). 

It is clear from the record that petitioner’s trip to

Portland for a convention was directly related to his occupation

as a professor. Petitioner stated that he was not reimbursed by

the college for his airline ticket “because there was a

technicality in the procedure.” Paragraph (C)(2)(c) of the

college’s Travel Reimbursement Policy states, in pertinent part:
- 10 -

2. Transportation Out-of-County 

c. Transportation by air, when traveling on

official business, should be booked through

the Reservation Travel Desk. Only under

extenuating circumstances, may a traveler

purchase his/her own ticket. * * * 

The college did not reimburse petitioner for his airfare

because he purchased his airline ticket through an agent other

than the college’s reservation travel desk in violation of the

travel reimbursement policy. To the extent he followed the

college’s travel reimbursement policy and submitted the required

documentation, petitioner was reimbursed for his expenses.

Under section 162(a), petitioner is not entitled to deduct

expenses for which he has been or could have been reimbursed. 

Orvis v. Commissioner, 788 F.2d 1406 (9th Cir. 1986) (deduction

not allowable to the extent that the employee is entitled to

reimbursement from the employer), affg. T.C. Memo. 1984-533;

Lucas v. Commissioner, 79 T.C. 1, 7 (1982) (same); Kennelly v.

Commissioner, 56 T.C. 936, 943 (1971) (same), affd. without

published opinion 456 F.2d 1335 (2d Cir. 1972). 

The college had a policy of reimbursing its employees for

ordinary and necessary business expenses. Pursuant to those

policies, petitioner received some reimbursements related to his

trips to Italy and Portland. Petitioner admitted that he did not

seek reimbursement for some of his expenses for his trip to Italy

and did not seek reimbursement at all for expenses for his trips
- 11 -

to Istanbul and Peru. Petitioner also failed to seek

reimbursement for other business expenses he claimed on his Form

2106 because he believed he would not have been reimbursed

because of the college’s limited budget.

When a taxpayer has the right to obtain reimbursement for

his employee business expenses from his employer but fails to

seek reimbursement, the taxpayer cannot deduct the expenses

because it is not “necessary” for the taxpayer to remain

unreimbursed. See Orvis v. Commissioner, supra at 1408. In

general, only those unreimbursed employee business expenses that

are not reimbursable by the taxpayer’s employer are deductible by

the taxpayer under section 162.

The deduction of travel expenses away from home, including

meals and lodging, under section 162(a)(2), is also conditioned

on those expenses’ being substantiated by adequate records or by

other sufficient evidence corroborating the claimed expenses

pursuant to section 274(d). Sec. 1.274-5T(a)(1), Temporary

Income Tax Regs., supra. 

Petitioner’s credit card statements fail to provide the

detailed information required by section 274(d), and petitioner

has failed to provide any other evidence to substantiate his

claimed deductions. The Court sustains respondent’s

determination.
- 12 -

Accuracy-Related Penalty

Respondent determined that petitioner is liable for an

addition to tax under section 6662(a) because (1) petitioner was

negligent or disregarded rules or regulations, or (2)

petitioner’s deficiency represents a substantial understatement

of income tax. Respondent has the burden of production under

section 7491(c) and must come forward with sufficient evidence

that it is appropriate to impose the penalty. See Higbee v.

Commissioner, 116 T.C. 438, 446-447 (2001).

Section 6662(a) imposes an accuracy-related penalty of 20

percent of the portion of the underpayment of tax attributable to

the actions set forth in section 6662(b). Section 6662(b)(2)

provides for an addition to tax in the amount of 20 percent for

any “substantial understatement of income tax.” A substantial

understatement is defined as the greater of 10 percent of the tax

required to be shown on the return or $5,000. Sec.

6662(d)(1)(A). 

Petitioner reported Federal income tax of $13,373. 

Respondent determined in the statutory notice of deficiency that

the tax required to be shown on petitioner’s return is $19,334. 

The Court is satisfied that petitioner substantially understated

the income tax required to be shown on his return and that

respondent has met his burden of production with respect to the

accuracy-related penalty. 
- 13 -

The accuracy-related penalty under section 6662(a) does not

apply to any portion of an underpayment, however, if it is shown

that there was reasonable cause for, and that the taxpayer acted

in good faith with respect to, that portion. Sec. 6664(c)(1);

sec. 1.6664-4(b), Income Tax Regs. The determination of whether

the taxpayer acted with reasonable cause and in good faith

depends on the pertinent facts and circumstances, including the

taxpayer’s efforts to assess his or her proper tax liability and

the knowledge and experience of the taxpayer. Sec.

1.6664-4(b)(1), Income Tax Regs. While the Commissioner bears

the burden of production under section 7491(c), the taxpayer

bears the burden of proof with regard to reasonable cause. 

Higbee v. Commissioner, supra at 446. 

Petitioner has not demonstrated that he failed to

substantiate his claimed deductions in spite of good faith or

with reasonable cause. Petitioner also failed to address at

trial the issue of his liability for the accuracy-related

penalty. Therefore, the Court finds petitioner is liable for an

accuracy-related penalty under section 6662. 

Reviewed and adopted as the report of the Small Tax Case

Division.

Decision will be entered

for respondent.