United States Tax Court

T.C. Summary Opinion 2022-6

NICOLE HARRISON,

Petitioner

v.

COMMISSIONER OF INTERNAL REVENUE,

Respondent

—————

Docket No. 12170-19S. Filed May 12, 2022.

—————

Nicole Harrison, pro se.

Jane J. Kim, for respondent.

SUMMARY OPINION

PANUTHOS, Special Trial Judge: This case was heard pursuant 

to the provisions of section 7463 of the Internal Revenue Code in effect 

when the petition was filed.1 Pursuant to section 7463(b), the decision 

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

not be treated as precedent for any other case.

In a notice of deficiency dated April 9, 2019, respondent 

determined a deficiency in petitioner’s federal income tax of $26,054, a 

section 6651(a)(1) failure to timely file addition to tax of $5,322, and a 

section 6662(a) accuracy-related penalty of $5,210.80 for petitioner’s 

taxable year 2015 (year in issue).

1Unless otherwise indicated, all statutory references are to the Internal 

Revenue Code, Title 26 U.S.C., in effect at all relevant times, all regulation references 

are to the Code of Federal Regulations, Title 26 (Treas. Reg.), in effect at all relevant 

times, and all Rule references are to the Tax Court Rules of Practice and Procedure.

Served 05/12/22
2

After concessions,2 the issues for decision are:

(1) whether petitioner is entitled to deduct charitable 

contributions and unreimbursed employee expenses reported on 

Schedule A, Itemized Deductions;

(2) whether petitioner is entitled to certain expense deductions 

relating to her consulting activity reported on Schedule C, Profit or Loss 

From Business;

(3) whether petitioner is entitled to deduct real estate activity 

expenses reported on Schedule E, Supplemental Income and Loss; and

(4) whether petitioner is liable for an addition to tax for failure to 

timely file pursuant to section 6651(a)(1).

Background

Some of the facts have been stipulated, and we incorporate the 

Stipulation of Facts and accompanying exhibits by this reference. The 

record consists of the Stipulation of Facts with Attached Exhibits and 

petitioner’s testimony.

Petitioner resided in New York when the Petition was timely

filed.

I. Petitioner’s Employment

Petitioner was employed full time by Samsung Electronics during 

the year in issue. Petitioner worked as a “corporate strategy” 

consultant. In late 2014, while she was still employed at Samsung, she 

became interested in a sole proprietorship venture relating to her 

experience in corporate strategy. She described her venture work as 

consultative, providing insights, trends, and data to businesses.

II. Petitioner’s Charitable Contributions

Petitioner made several charitable contributions during the year 

in issue. She made cash contributions to charitable organizations, most 

of which were processed through a PayPal account linked to her 

2Respondent concedes that petitioner is not liable for the section 6662(a)

accuracy-related penalty of $5,210.80.
3

checking account. In addition, she regularly donated clothing, shoes, 

and jewelry to organizations such as Goodwill and Dress for Success.

III. Petitioner’s Travel Expenses

As part of petitioner’s role at Samsung in corporate strategy, she 

managed cross-functional projects that involved consulting with 

management and headquarters in Korea. She traveled frequently to 

and from Korea. Although Samsung did not require petitioner to book 

business class, it was considered accepted practice that she would book 

business class flights for work travel for which she was reimbursed. 

During her time at Samsung, the corporate travel reimbursement policy 

changed, and under the new policy, reimbursement was not allowed for 

business class flights for employees below the director level. After the 

change in policy, petitioner continued to book business flights as she had 

before. She received reimbursement from Samsung for her flights, at 

the coach level, resulting in a differential that she deducted on her 

Schedule A for the year in issue. To substantiate the expenses, 

petitioner submitted bank statements of her corporate card at Samsung.

IV. Petitioner’s Schedule C Expenses

Petitioner expressed interest in launching a corporate strategy 

consulting business, NH Strategy & Growth Solutions. To build her 

brand, she contracted with a company, TemplateMonster, to set up a 

website, techstrategynews.com, through which she published 

assessments about technology trends and developments. She also paid 

TemplateMonster to host the website on a server. Petitioner also 

purchased several website domains that had similar sounding names in 

order to redirect patrons to her website.

In order to build up clientele and build her brand, she began 

networking and participating in speaking engagements during the year 

in issue. She traveled for at least two clients, in Buffalo, New York, and 

Ohio, and spoke at a conference in Atlanta, Georgia.

Petitioner worked from her rental apartment. She renovated part 

of it to convert it into office space which included lighting, flooring, and 

cabinets. She also purchased a laptop for her work for which she 

provided a receipt.
4 

V. Mortgage Payments

In 2014, before the year in issue, petitioner and a relative cosigned a mortgage for a three-family house in Brooklyn, New York. One 

floor of the house was occupied by petitioner’s relative, while the other 

two floors were rented to third parties. Petitioner contributed to the 

mortgage by sending cash payments via Venmo to her relative. She did 

not receive any income from the property. Petitioner claimed passive 

activity losses on Schedule E for remediating a flooded basement, 

insurance, and other house-related expenses.

VI. Petitioner’s Tax Return

 Petitioner filed Form 1040, U.S. Individual Income Tax Return, 

for tax year 2015 on October 10, 2017. Petitioner reported wages 

received from her employer as $130,663. Her tax return for the year in 

issue also included:

Schedule A

 Charitable contributions $7,550

 Unreimbursed employee expenses 24,150

Schedule C3

 Depreciation 9,477

 Legal and professional services 5,000

 Repairs and Maintenance 25,000

 Travel 2,000

 Car and Truck 25,875

 Utilities 1,500

 Other 4,500

Schedule E

 Passive Activity loss limitation

 deduction 25,000

3Petitioner also reported $400 in gross receipts on her Schedule C.
5

On April 9, 2019, respondent issued a Notice of Deficiency to 

petitioner for tax year 2015, disallowing her Schedule A, C, and E 

deductions and determining an addition to tax and a penalty under the 

provisions of sections 6651(a)(1) and 6662(a).

Discussion

I. Burden of Proof

In general, the Commissioner’s determination set forth in a notice 

of deficiency is presumed correct, and the taxpayer bears the burden of 

proving that the determination is in error. Rule 142(a); Welch v. 

Helvering, 290 U.S. 111, 115 (1933).4 Deductions are a matter of 

legislative grace, and the taxpayer bears the burden of proving that she 

is entitled to any deduction claimed. See Rule 142(a); Deputy v. du Pont, 

308 U.S. 488, 493 (1940); New Colonial Ice Co. v. Helvering, 292 U.S. 

435, 440 (1934). If the taxpayer is able to establish that he or she paid 

or incurred a deductible expense but is unable to substantiate the 

precise amount, the Court generally may approximate the deductible 

amount, but only if the taxpayer presents sufficient evidence to establish 

a rational basis for making the estimate. See Cohan v. Commissioner, 

39 F.2d 540, 543–44 (2d Cir. 1930).

II. Schedule A

A. Charitable Contributions

Petitioner claimed $7,550 in charitable contribution deductions, 

all of which respondent disallowed. A taxpayer may deduct charitable 

contributions during the year as long as the taxpayer satisfies statutory 

and regulatory substantiation requirements. See § 170(a)(1); Treas. 

Reg. § 1.170A-13. The substantiation requirements depend on the size 

of the contribution and whether the contribution is a gift of cash or 

property. Subject to various exceptions, if property other than money is 

donated, “the amount of the contribution is the fair market value of the 

property at the time of the contribution.” Treas. Reg. § 1.170A-1(c)(1). 

The term “fair market value” is defined as “the price at which the 

property would change hands between a willing buyer and a willing 

4Pursuant to section 7491(a), the burden of proof may shift to the 

Commissioner if the taxpayer introduces credible evidence with respect to any factual 

issues relevant to ascertaining the taxpayer’s tax liability. Because she has not alleged 

or shown that section 7491(a) applies, the burden of proof remains on petitioner.
6

seller, neither being under any compulsion to buy or sell and both having 

reasonable knowledge of relevant facts.” Id. subpara. (2).

A charitable contribution of money must be substantiated by at 

least one of the following: (1) a canceled check; (2) a receipt from the 

donee charitable organization showing the name of the donee, the date 

of the contribution, and the amount of the contribution; or (3) in the 

absence of a canceled check or receipt from the donee charitable 

organization, other reliable written records showing the name of the 

donee, the date of the contribution, and the amount of the contribution. 

See Treas. Reg. § 1.170A-13(a)(1). The reliability of the record is 

determined on the basis of all of the relevant facts and circumstances. 

See id. subpara. (2)(i). No deduction is allowed for any monetary gift 

unless the donor maintains a record of the contribution or a written 

communication showing the name of donee organization, the date of the 

contribution, and the amount of the contribution. See § 170(f)(17).

A charitable contribution of property must be substantiated by a 

receipt showing (1) the name of the donee; (2) the date and location of 

the contribution; and (3) a description of the property in detail 

reasonably sufficient under the circumstances. Treas. Reg. § 1.170A13(b)(1). A receipt is not required if the contribution is made in 

circumstances where it is impractical to obtain a receipt. See id. The 

reliability of the records is determined on the basis of all of the relevant 

facts and circumstances. See id. subpara. (2).

If the donation is a small amount, any written or other evidence 

from the donee charitable organization acknowledging receipt is 

generally sufficient. See id. para. (a)(2)(i)(C). Nevertheless, 

contributions of $250 or more require donee written acknowledgment 

containing specified information. See § 170(f)(8). Furthermore, 

additional information is required to support a deduction exceeding 

$500 for a charitable contribution of property. Specifically, the taxpayer 

must also maintain written records establishing (1) the item’s manner 

of acquisition as well as either the item’s approximate date of acquisition 

or date the property was substantially completed and (2) the cost or 

other basis, adjusted as provided by section 1016, of property donated 

by the taxpayer during the taxable year. See § 170(f)(11)(A)(i), (B); 

Treas. Reg. § 1.170A-13(b)(3)(i).

With respect to noncash contributions, petitioner presented 

limited testimony and receipts. She testified she donated bags

containing clothing, shoes, and jewelry to Goodwill and Dress for 
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Success. While she provided some receipts to respondent before trial,

other receipts were presented for the first time at the trial. She 

described the items in the bags as “used clothing in good condition” and 

valued the items at cost, discounted by 50%. No further description was 

provided through receipts or testimony as to the contents of the bags or

the ages or the costs of the contents. While we have no doubt that 

petitioner made some contributions of clothing and other items, the 

failure to provide sufficient and timely receipts until trial, despite 

requests from the IRS, works against her. The record lacks approximate 

dates of acquisition of the items, detailed descriptions of the items, and 

the costs or other bases. Under these circumstances, the Court is 

burdened with attempting to place a value on property with insufficient 

information. Using our best judgment, we allow petitioner $500 for 

noncash contributions.

With respect to cash contributions, petitioner presented some 

very general testimony that she had used Paypal linked to her bank 

account to make contributions throughout the year. She reviewed 

contributions from a prior tax year to estimate the contributions for the 

year in issue. Petitioner did not provide any documentation from her 

bank or Paypal in support and provided only one receipt for $100

contributed to “Fund for Animals.” Given this record, we conclude that 

petitioner did not provide sufficient substantiation. We allow petitioner 

$100 for cash contributions.

B. Unreimbursed Employee Business Expenses

Petitioner deducted $24,150 in travel expenses as unreimbursed 

employee business expenses for the year in issue, all of which 

respondent disallowed. Section 162 generally allows a deduction for “all 

the ordinary and necessary expenses paid or incurred during the taxable 

year in carrying on any trade or business.” Boyd v. Commissioner, 122 

T.C. 305, 313 (2004). The taxpayer bears the burden of proving that 

expenses were of a business nature rather than personal and that they 

were ordinary and necessary. Rule 142(a); Welch v. Helvering, 290 U.S. 

at 115. Performing services as an employee constitutes a trade or 

business. See O’Malley v. Commissioner, 91 T.C. 352, 363–64 (1988); 

Primuth v. Commissioner, 54 T.C. 374, 377–78 (1970).

Certain expenses including travel expenses require strict 

substantiation through adequate records or by sufficient evidence 

corroborating the taxpayer’s own statement as to the amount, time, 

place, and business purpose of these expenditures. § 274(d). 
8

Substantiation by adequate records requires the taxpayer to maintain 

an account book, a diary, a log, a statement of expense, trip sheets, or a 

similar record prepared contemporaneously with the expenditure and 

documentary evidence (e.g., receipts or bills) of certain expenditures. 

Treas. Reg. § 1.274-5(c)(2)(iii); Temp. Treas. Reg. § 1.274-5T(c)(2). 

Substantiation by other sufficient evidence requires the production of 

corroborative evidence in support of the taxpayer’s statement 

specifically detailing the required element. Temp. Treas. Reg. § 1.274-

5T(c)(3).

In order to deduct employee business expenses, a taxpayer must 

not have received reimbursement, and must not have had the right to 

obtain reimbursement, from his employer. See Orvis v. Commissioner, 

788 F.2d 1406, 1408 (9th Cir. 1986), aff’g T.C. Memo. 1984-533. The 

taxpayer bears the burden of proving that he is not entitled to 

reimbursement from his employer for such expenses. See Fountain v. 

Commissioner, 59 T.C. 696, 708 (1973). The taxpayer can prove that he 

was not entitled to reimbursement by showing, for example, that he was 

expected to bear these costs. See id.; see also Dunkelberger v. 

Commissioner, T.C. Memo. 1992-723 (finding that management team 

expected taxpayer to bear expense of business lunches with vendors).

At trial, petitioner testified that she regularly took business class 

flights to Korea for her work as an employee of Samsung. To 

substantiate these expenses, she produced her Samsung corporate card 

statements, personal bank account statements, and Samsung’s travel 

reimbursement policy. Petitioner also testified that she attempted to 

obtain reimbursement from her employer for the business class flights 

which had been granted in the past. Pursuant to the modified policy, 

Samsung reimbursed petitioner for travel expenses only at the coach 

level. Petitioner testified credibly that while she was not expected to 

take business class flights, it had been customary for her to do so before 

a change in policy.

Nonetheless, petitioner has not met the strict substantiation 

requirements of adequate records or sufficient evidence under section 

274(d). While the bank statements list flight and hotel expenses, they 

do not provide flight details. From the record, the Court is unable to 

determine when the flights were taken and for what purposes. 

Petitioner has not provided records that demonstrate times, places, and 

business purposes for these expenditures.
9

Accordingly, we conclude that petitioner is not entitled to deduct 

unreimbursed employee business expenses for the year in issue.

III. Schedule C Business Expenses

Section 162(a) does not permit deductions for startup or 

preopening expenses incurred by a taxpayer before beginning business 

operations. See § 195(a). A preliminary search for a potential business 

opportunity would not qualify the taxpayer for deductions under section 

162, 165, or 212. Dean v. Commissioner, 56 T.C. 895, 902 (1971). While 

petitioner reported $400 of gross receipts for the venture, she has not 

demonstrated that she was carrying on a trade or business. Petitioner 

continued to work full time at Samsung during the year in issue. At 

best, it appears that her activity for the year in issue was in the 

exploratory stages of forming a business. To substantiate her expenses, 

she provided a mileage log of trips taken to various networking events, 

receipts for home renovations, and an invoice for website creation. 

Petitioner testified that she was trying to build a brand by creating a 

website and participating in speaking engagements, precisely to solicit 

potential clients. Carrying on a trade or business requires more than 

initial research into business potential and the solicitation of potential 

customers. See Christian v. Commissioner, T.C. Memo. 1995-12.

Thus, we find that petitioner’s activity did not rise to the level of 

carrying on a trade or business during the year in issue. As a result, the 

Court need not address whether petitioner has met the substantiation 

requirements of section 274(d). Accordingly, petitioner is not entitled to 

deduct, under section 162(a), any other business expenses.

IV. Schedule E Passive Activity Loss

Sections 162 and 212 permit a taxpayer to deduct certain business 

and investment expenses. If a taxpayer is an individual, however, 

section 469(a) generally disallows any “passive activity loss” for the 

taxable year. A passive activity loss is defined as the excess of the 

aggregate losses from all passive activities for that year over the 

aggregate income from all passive activities for such year. § 469(d)(1).

A passive activity is any trade or business in which the taxpayer 

does not materially participate. § 469(c)(1). Rental activity is generally 

treated as per se passive regardless of whether the taxpayer materially 

participates. § 469(c)(2). There are two exceptions to the general rule 

that rental real estate activities are per se passive activities: (1) passive 

activity losses up to $25,000 under section 469(i) and (2) certain 
10

taxpayers in real property trades or businesses (real estate 

professionals) under section 469(c)(7). Moss v. Commissioner, 135 T.C. 

365, 368 (2010).

Section 469(i) allows taxpayers who “actively participated” in 

rental real estate activities during any taxable year to deduct up to 

$25,000 of the passive activity losses attributable to those activities in 

that year. § 469(i)(1) and (2). This Court has determined that the active

participation standard is met if a taxpayer participates in a significant

and bona fide sense in making management decisions or arranging for

others to provide services such as repairs. Madler v. Commissioner, T.C.

Memo. 1998-112.

Petitioner did not provide evidence that she qualifies for the 

active participation exception. Petitioner testified that she co-signed the 

mortgage documents but did not provide copies. She also claims that 

she contributed to the mortgage payments through Venmo, but she did 

not provide any receipts or further evidence that she participated in the 

rental activity. Further, she claimed that she did not receive any income 

from the property. Thus, petitioner has not demonstrated she qualifies 

for the active participation exception, under section 469(i), to the 

disallowance of passive activity losses by individuals. Accordingly, 

petitioner is not entitled to deduct any expenses under section 162(a).

V. Section 6651(a)(1) Failure To Timely File

Section 6651(a)(1) imposes an addition to tax for failure to file a 

return on the date prescribed (including extensions) unless the taxpayer 

can establish that the failure is due to reasonable cause and not due to 

willful neglect. Respondent bears the burden of production with respect 

to petitioner’s liability for the addition to tax under section 6651(a)(1). 

See § 7491(c); Higbee v. Commissioner, 116 T.C. 438, 446–47 (2001).

Petitioner’s 2015 Form 1040 was due on April 18, 2016. 

Respondent has satisfied the burden of production since the parties 

stipulated that respondent received petitioner’s 2015 tax return on 

October 10, 2017. Therefore, petitioner bears the burden of proving that 

her failure to file a timely return was due to reasonable cause rather 

than willful neglect. See Higbee, 116 T.C. at 446. Petitioner has not 

offered any evidence that her failure was due to reasonable cause and 

not due to willful neglect.
11

We conclude that petitioner has not shown her failure to timely 

file a return was due to reasonable cause. Accordingly, she is liable for 

the section 6651(a)(1) addition to tax.

We have considered all of petitioner’s arguments, and, to the 

extent not addressed herein, we conclude that they are moot, irrelevant, 

or without merit.

To reflect the foregoing conclusions and respondent’s concessions,

Decision will be entered under Rule 155.