T.C. Summary Opinion 2001-143

UNITED STATES TAX COURT

JANE ANNE JEFFRIES, Petitioner v.

COMMISSIONER OF INTERNAL REVENUE, Respondent

Docket No. 10063-99S. Filed September 14, 2001.

Jane Anne Jeffries, pro se.

Angelique M. Neal, for respondent.

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

the provisions of section 7463 of the Internal Revenue Code in

effect at the time the petition was filed. The decision to be

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

should not be cited as authority. Unless otherwise indicated,

subsequent section references are to the Internal Revenue Code in

effect for the year in issue. 
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Respondent determined a deficiency in petitioner’s 1994

Federal income tax in the amount of $6,337. Respondent

disallowed petitioner’s deduction of $30,684 for expenses claimed

on a Schedule C, Profit or Loss From Business, on the grounds

that petitioner did not engage in an activity for the purpose of

making a profit. An automatic adjustment was made.

This Court must decide whether petitioner engaged in a

tutoring activity for profit within the meaning of section 183.

Some of the facts in this case have been stipulated and are

so found. Petitioner resided in Los Angeles, California, at the

time she filed her petition.

During 1994, petitioner was employed as a teacher with the

Los Angeles Unified School District (LAUSD). She earned wages of

$54,610. Petitioner taught at Richland Elementary School

(Richland). As a teacher at Richland, petitioner taught first

grade students from January through June 1994, and third and

fourth grade students from September through December 1994.

On her Federal income tax return for 1994, petitioner

claimed deductions for an alleged activity she called

Conversation with Connection (CWC). In the alleged activity CWC,

petitioner claimed she tutored students (not at or from Richland)

about the use of computers. The year at issue was the second

year that petitioner’s tax returns reflected the alleged activity

called CWC.
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Petitioner owned a condominium located at 410 N. Market

Street, Apt. 17, Inglewood, California 90302. She alleged she

operated CWC from that condominium.

During 1994, petitioner did not maintain a roster, syllabus,

or any other documentation, to show who the students were who

were purported clients of CWC. There was no documentation for

the lessons that were allegedly taught to them. During 1994,

petitioner did not maintain a log, or other documentation, of any

hours she spent on CWC.

Petitioner did not obtain a business license for CWC. She

did not maintain any business books and records for CWC. 

Petitioner did not maintain a separate business checking account

for CWC. She did not advertise the services available through

CWC.

Petitioner reported gross receipts and losses for CWC on her

Federal individual income tax returns for the tax years 1993

through 1996 as follows:

 Gross Receipts

 Tax Year Reported Loss Claimed

1993 -0- $13,150

1994 -0- 30,684

1995 -0- 24,359

1996 -0- 16,291

Petitioner did not charge her alleged students because she

said they could not afford to pay. When asked when she could

make a profit, petitioner answered: “I expected to make a profit
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when I could be working with people who could afford to pay for

my services.” She further stated: “I intended to have a

business called Conversation With Connection. It will be when I

retire from the school district.” Petitioner is not retired from

the school district.

Petitioner deducted on her Schedule C expenses which were

personal expenses not deductible under section 262. She deducted

moneys paid to a handyman to paint her house. She deducted

moneys paid for a carpet delivered to her house. She deducted a

gift (a membership in the Screen Actor’s Guild) to a friend’s

daughter. She deducted payments to a person who repaired her

personal automobile. She deducted payments for assistance during

a funeral. Thus, petitioner’s use of her Schedule C allowed her

to claim deductions for many nondeductible personal expenses.

Section 183(a) disallows any deductions attributable to

activities not engaged in for profit except as provided under

section 183(b). A taxpayer need not have a reasonable

expectation of profit. However, the facts and circumstances must

demonstrate that he or she entered into the activity, or 

continued the activity, with the actual and honest objective of

making a profit. Taube v. Commissioner, 88 T.C. 464, 478 (1987);

Dreicer v. Commissioner, 78 T.C. 642, 645 (1982), affd. without

opinion 702 F.2d 1205 (D.C. Cir. 1983); sec. 1.183-2(a), Income

Tax Regs. The taxpayer's objective to make a profit must be
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analyzed by looking at all the surrounding facts. Dreicer v.

Commissioner, supra at 645. These facts are given greater weight

than the taxpayer’s mere statement of intent. Id.

Section 1.183-2(b), Income Tax Regs., provides a

nonexclusive list of relevant factors which should be considered

in determining whether the taxpayer has the requisite profit

objective. The factors are: (1) The manner in which the taxpayer

carries on the activity; (2) the expertise of the taxpayer or

advisers; (3) the time and effort expended by the taxpayer in

carrying on the activity; (4) the expectation that the assets

used in the activity may appreciate in value; (5) the success of

the taxpayer in carrying on other similar or dissimilar

activities; (6) the taxpayer’s history of income or losses with

respect to the activity; (7) the amount of occasional profits, if

any, which are earned; (8) the financial status of the taxpayer;

and (9) any elements indicating personal pleasure or recreation. 

Sec. 1.183-2(b), Income Tax Regs. These factors are not

applicable or appropriate in every case. Abramson v.

Commissioner, 86 T.C. 360, 371 (1986).

Petitioner did not carry on a business in a businesslike

fashion. She had no books or records, no records of students,

and no business plans. She had no gross receipts. She could not

make a profit because she did not charge for the alleged

services. She admitted that she intended to go into business
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after she retired. There is no credible evidence that she spent

time on this activity. Petitioner has a history of substantial

losses, with no prospect for any gain. Petitioner deducted

personal expenses nondeductible under section 262 on her Schedule

C. Upon a review of the facts in the record, we conclude that

petitioner did not engage in the CWC activity with an actual and

honest objective of making a profit, and that under section 183

she is not entitled to claim the deductions in issue. 

Respondent’s determination is sustained.

Reviewed and adopted as the report of the Small Tax Case

Division.

Decision will be entered

for respondent.