T.C. M em o . 2 0 1 7 -2 3 9

UNITED STATES TAX COURT
CONSTANTINE GUS CRISTO, Pet i t io n er v . COM M ISSIONER OF INTERNAL REVENUE, Res po n d en t

Do ck etNo . 2 1 6 1-1 2. Fi l edNo vem b er 2 9 , 2 01 7
.
Co n st an t i n e Gu s Cri s t o, p ro s e. An n Lo u i se Darn ol d , fo r res p o n d en t .

M EM ORANDUM FINDINGS OF FACT AND OPINION PARIS, J u d g e: W i th res p ectt o p et i t i o n er’ s Fed eral i nco m e t ax fo r 2 0 0 2 , th e In t ern al Rev enu e Serv i ce (IRS o r res po n d en t ) d et erm i n ed a d efi ci en cy i n t ax o f $ 1 1 9 ,3 9 5 an da s ect i o n 6 6 6 2 (a) accu racy -rel at edp en al ty o f $ 2 2,6 8 1 .4 0
. 1 Aft er

1 Un l es s o th erwi s e i nd i cat ed , al l s ect i o n referen ces are t o th e In t ern al (co n ti n u ed ...)- 2
-

[* 2 ] co n ces s i o ns , th e i s s u es fo r d eci s i o n are wh et h er p et it i o n er i s en t it l edt o d eductfo r 2 0 0 2 : (1 ) t rav el ex p en ses b ey o ndth o s e t h atres p o nd en t h as al lo wed
an d (2 ) trai n i n g ex p en s es o f $ 2 8 ,3 7 7
. FINDINGS OF FACT Th e Co u rth el d a p art i al tri al o n M ay 1 4 , 2 0 1 3 , an do n Sep t em b er 2 , 2 0 1 6 , th e p art i es fi l ed a m o ti o n t o s ub m i t th i s cas e u n d er Ru l e 1 2 2 , refl ect i n g t h ei r ag reem en tth atth e rel ev an tfact s co u l d b e p res en t edwi th o u tfu rt h er t ri al . Th e p art i es fi l ed a s ti p ul at i o n o f fact s , a fi rs ts up pl em en t al s t i p ul at i o n o f fact s , a
s eco n ds up p l em en t al s t ip ul at i o n o f fact s , a th i rds up pl em en t al s t i p ul at i o n o f fact s , an d a fo u rt h s up p l em en t al s t i p u l at i o n o f fact s . Th e p art i es al so at t ach ed n u m ero u s
ex h ib i t s t o th e s t i pu l at i o n s. Th e s t i p u l at edfact s an dex hi b i t s are i n co rp o rat edb y th i s referen ce. 2 Wh en th e p et i t i o n was fi l edp et i t i o n er res i d edi n Cal i fo rn i a.

1 (...co n t in u ed ) Rev enu e Co de (Co d e) i n effect fo r t h e y ear i n i s s ue, an dal l Ru le referen ces are t o th e Tax Co u rt Ru l es o f Pract ice an dPro cedu re.

2 Res p o n d en to b

ject edt o th e t h i rdan dfo u rt h s upp l em en tal s t i p u l at i o n s o f fact s an dth e res p ect i v e acco m pan y i ng ex h i b it s o n th e g ro u n d o f rel ev an cy . Th e Co u rtaccep t edth e s t i p u lat i o n s, ad m i t t edth e ex h i b i t s, an d o rd eredth e p art i es t o b ri ef t h e rel ev an cy

o f t h o s e s t i p u lat i o n s an dex h ib i t s . Res p o n d en t ’ s o b ject i o n s are ad dres s edi n fra n o t es 6 an d7
. In p et it i o n er’ s b ri ef, h e o b ject edt o s ev eral o f res p o n den t ’ s p ro p o s ed fi nd i ng s o f fact an dp ro p o s edh i s o wnfi n d i n gs o f fact th atrev i s edcert ai n (co n ti n u ed ...)- 3
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[* 3 ] Pet i t i o ner fo rm edDes p erad o , LLC (Des p erad o ), o n J an u ary 8 , 2 00 2 , wi t h th e p u rp o s e o f p ro du ci n g m o v i es . Duri n g 2 00 2 p et it i on er was i n v ol v edi n
s ecu ri n g fi n an ci n g fo r, p ro du ci n g , an den g ag i n g i n th e p rel i m i n ary d ev el o p m en to f a fi l m o ri g i n al ly

t i t led“ W al k in g o n W at er”. Th i s fi l m was fi n al l y

rel eas edi n 2 0 0 7
u n d er t h e t it l e “ Th e Deep Bel o w”. Du ri n g 2 0 0 2 p et i t i o n er s p en ta s ub s t an t i al n u m b er o f d ay s trav el i n g fo r Des perad o ’ s m o v i e p ro du ct i o n b u s i n es s. Th ro ug h ou tth e p ro du ct io n o f “ W al k i n g
o n W at er”, p et i t i o n er at t em p t edt o effi ci en t ly

s p en dth e l i m i t ed cap i tal . He
av o id ed h o t el ex p en s es b y s t ay i n g wi th h i s ex -wi fe wh i l e wo rk i n g i n Ph o en i x , Ari zo n a, an dAs pen , Co l o rad o , an dh i s au ntwh i l e wo rk i n g i n Tu l s a, Ok lah o m a,
an d i n D al l as , Tex as . Pet i t i o ner p u rch as edg ro ceri es an d h o u s ek eep i ng s upp l i es i n retu rn fo r t hei r h o s p i t al i ty . Pet i t i o ner s ou g h t t o i n vo l v e h i s s o n , Al ex , i n Des perad o ’ s en d eav o rs . Al ex
en jo y edm ak i n g m o v i es ; h i s ch i l dh o o dwo rk h ads h o wn p ro m i se i n fi l m m ak i n g . Pet i t io n er as k edAl ex t o t ak e a n u m b er o f fi l m -rel at edco u rs es o u ts id e o f t h o s e

2 (...co n t in u ed ) s t ip u l at i o n s i n th e s t i p ul at i o n o f fact s an dth e s up p l em en tal s t ip u l at i o n o f fact s . Pet i t io n er s t at edth atth o s e s t i p u l at i o n s were i n co m p l et e o r i n accu rat e wh i ch h e b as edup o n h i s b el i ef t h at h i s co u n s el was i n effect i v e. Pet it io n er’ s p ro p o s ed fi nd i ng s o f fact fai l t o ad dres s s ub s t an t i at io n i s s u es o v er an dab o v e wh at res p o n d en t h as co n ced edo r wh atth e Co u rt h as ad dres sedi n th e b al an ce o f th i s o p i n i o n .- 4
-

[* 4 ] req u i redb y

Al ex ’ s co l leg e fo r h i s b ach el o r’ s d eg ree i n En g l i s h . Becau s e Al ex h adn o fo rm al fi lm

trai n i n g , th e t wo ag reedth atth es e co u rs es wo u l d fu rt h er Al ex ’ s s k i l l s an d w ou l db e u s efu l fo r h i s i n v o l v em en ti n “ W al ki ng o n W at er”. Fo l l o wi ng h i s fat h er’ s req u es t , Al ex t o o ka t o t al o f 2 8 fi lm -rel at edcred it h ou rs
o v er t h e co u rs e o f h i s u n d erg radu at e edu cat i o n , i n cl u d i n g tw o 4 -cred i t -h o u r
co u rs es i n s p ri n g 2 0 0 2 --h i s t o ry an dan al y s i s o f m ed ia art s II an dco n cep t d ev el o p m en t --an do n e 4 -cred i t -h o u r co urs e i n fal l 2 0 0 2--i n tro du ct i o n t o m ed i a p ro duct i o n . 3 Al ex ap p l i edth e s k i l l s an d kn o wl ed g e g ai n edthro u g h h i s
co u rs ewo rkt o th e p rep ro du ct i on act i v i ty o f “ W al ki ng o n W at er” du ri ng 2 0 0 2 an d
co n ti n u edi n th atcap aci ty th ro u g h i t s p ro duct i o n i n 2 0 03 an d rel eas e i n 2 0 0 7
. Pet i t i o ner t i m el y

fi l edh i s 2 0 02 Fo rm

1 04 0 , U.S. In d i vi du al In co m e Tax Retu rn . He p rep ared an d t i m el y fi l edo n b eh al f o f Des p erad o a 2 0 0 2 Fo rm 1 0 6 5 , U.S. Retu rn o f Part ners h i p In co m e. Bo th fo rm s were p rep aredu s i n g t h e cas h b as i s m et h o do f acco u nt i n g . Pet i t io n er rep ort ed $ 3 00 ,0 0 0 o f i n co m e, wh i ch h e
o ffs etwi th $ 2 6 7 ,5 2 1 o f d edu ct i o n s . Th es e d edu ct io n s were al l ocat edacro s s 2 6 cat eg o ri es o f ex pen s es . Sch edu l es K-1 , Part n er’ s Sh are o f In co m e, Dedu ct i o n s , Cred i t s , et c., at t ach edt o Des perad o ’ s 2 0 0 2 Fo rm 1 0 65 refl ectth atp et i ti o n er

3 Al th o ug h a d i v o rce ag reem en treq ui red p et i t i o n er’ s ex -wi fe t o b ear al l o f th e co s t s o f Al ex ’ s edu cat i o n , p et i t i o n er p ai d fo r t h e s p ri n g 2 0 0 2 an dfal l 2 0 0 2 s em es t ers o f Al ex ’ s u n d erg radu at e edu cat i o n .- 5
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[* 5 ] o wn ed9 5 % o f Des p erad o . Al ex d idn o to wnth e rem ai n i n g 5 % o f Des p erad o du ri n g th e y ear at i s s ue. Pet i t i o ner’ s retu rn was s el ect edfo r au d i t . Aft er p et i t i o n er ex ecu t eda s eri es
o f Fo rm s 8 7 2 , Co ns en tt o Ex t en dth e Ti m e t o As s es s Tax , o n No v em b er 3 , 2 0 1 1 , res p o n d en t i s s uedp et i t i o n er a n o t i ce o f d efi ci en cy fo r 2 0 0 2 d et erm i n i n g an i n co m e t ax d efi ci en cy o f $ 1 1 9 , 3 9 5 an da s ect i o n 6 6 6 2(a) accu racy -rel at edp en al t y
o f $ 2 2,6 8 1 .4 0
. Pet it i o n er t im el y fi l edh i s p et i t i o n an ds el ect edOk l ah o m a Ci ty , Ok l ah o m a, as th e p l ace o f t ri al . Befo re tri al h e o b t ai n edp ro b on o co un s el th ro u g h th e l o cal l o w i nco m e t ax p ay er cl i n ic. 4 Pet i t i o ner an d h i s co un s el wo rk edwi th res p o nd en t ’ s co u n s el t o p ro v i d e
s ub s t an t i at i o n o f p et i t i o ner’ s ex p en s es u n d erl y i n g h i s cl ai m edd educt i o n s (an do f
ex p en s es i n ad d i t i o n t o th e am ou n t s cl ai m edo n th e o ri g i n al retu rn ). Th is
o u t s t an d i n g effo rtres u l t edi n a redu ct io n o f t h e d efi ci en cy fro m $ 1 19 ,3 9 5 t o $ 2 9 ,8 7 1 ; th e Go v ern m en t ’ s fu ll co n ces si o n o f t h e en t i re s ect i o n 6 6 6 2 (a) p en al t y ;
an d a co n ces s i o n th atp et i t i o ner i s en t i t l edt o a cert ai n am o u nto f i n t eres t ab at em en t . 5 Fo ll o wi ng th e wi th drawal o f h i s co u n s el , p et it i o n er wo rk ed wi th

4 Fo r reas o n s i rrel ev an t h ere, p et it i o n er’ s co u n sel wi thd rew b efo re t h e s ub m i s si o n o f t h i s cas e u n d er Ru l e 1 2 2
.

5 OnFeb ru ary

2 9 , 2 0 16 , th e p art i es fi l eda s up p l em en t al s t i p u lat i on o f fact s (co n ti n u ed ...)- 6
-

[* 6 ] res p o n d en t ’ s co u n s el an d s ub s t an t iat edan ad d i t i o nal $ 4 ,8 8 5
. 6 7 o f ex p en s es fo r 2 0 0 2
. Th e Co u rth el d a p art i al tri al o n M ay 1 4 , 2 0 1 3
. 6 OnSep tem b er 2 , 2 0 1 6 , th e p art i es fi l ed a m ot i o n t o s ub m i tth i s cas e u nd er Ru le 1 2 2 , s t at i n g th atfu rt h er t ri al
was n o l o n ger n eces s ary

an d t h atth i s cas e co u l db e s ub m it t edo n th e p l ead i n g s
an d th e s t i pu l at i on s o f fact s , ex h i b i t s, an d t es t i m o n y . Th e Co urtg ran t edthat
m o ti o n o n Sep t em

b er 2 7 , 2 0 1 6.

5 (...co n t in u ed ) i n wh ich th ey

s t ip u l at ed th at i n t eres to n an y d efi ci en cy

fo r t h e t ax ab l e y ear 2 0 0 2 i s s u s p en d edp u rs u an tt o s ec. 6 4 04 (g ) b eg i n n i n g o n Ap ri l 1 8 , 2 0 0 5, an den di n g o n J u l y 2 6 , 2 0 0 7. Bu tth e p art ies d i dn o ts t ip u l at e t h atth es e d at es are t he o n ly p eri o d s du ri n g wh i ch i n teres ti s s u sp en d ed . See Bo ku m v . Co m m i s s i o n er, 9 9 2 F.2 d1 1 3 2 , 1 1 3 5 -1 1 3 6 (1 1 th Ci r. 1 9 93 ), aff’ g 9 4 T.C. 1 2 6 (1 9 9 0); Bai l Bo n d s b y M arv i n Nel s o n , In c. v . Co m m i s s i o n er, 8 2 0 F.2 d1 5 4 3 , 1 54 7 (9 th Ci r. 1 9 8 7 ), aff’ g T.C. M em o . 1 98 6 -2 3 . Ind efi ci en cy p ro ceed i n g s th e Co urth as n o juri s d ict i o n as t o i nt eres t . See s ec. 7 4 8 1 (c); Bo u rek i s v . Co m m i s si o n er, 1 1 0 T.C. 2 0 (1 9 9 8 ).
6 Du ri n g th e p en d en cy

o f th i s cas e p et i t io n er t h ri ce req u es t edan o ffer-i n co m p ro m i s e fro m

res p o n d en t . Each o ffer was reject ed . Pet it i on er as k s th e Co u rt t o rev i ew res p o n d en t ’ s ev al u at i o n an d reject io n o f h i s o ffers -i n -co m p ro m is e. Bu t th es e o ffers are n o trel ev an tt o th e an al y si s o f h i s p ro p o s edl i ab i l i ty fo r 2 0 0 2 ; th e Co u rts u s t ai n s res p on d en t’ s o b ject i o n s wi th res pect t o th e t h i rdan dfo u rt h s up p lem en t al s t ip ul at i o n s o f fact s an d t he acco m p an y i n g ex h i bi t s as th ey

rel at e t o p et i t i o n er’ s o ffers -i n -co m p ro m i s e s ub m i t t ed aft er t h e fi l i n g o f h i s p et i t i o n. Pet i t io n er i s n o t , h o wev er, p recl u d ed fro m s ub m i t t i n g an o ffer-i n -co m p ro m i s e aft er h i s 2 0 0 2 d efi ci en cy

i s as s es sed . Aft er as s es s m en t , i f t h ere i s a fo rm al co l l ect i o n du e p ro ces s h eari n g an d h e recei v es a n o t i ce o f d et erm i n at i o n , p et i t i o n er m ay p et i t i o n th i s Co u rtfo r rev i ew o f t h ath eari n g an dd et erm in at io n . See s ec. 6 3 3 0 (d ).- 7
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[* 7 ] OPINION I. Bu rd en o f Pro o f In g en eral , th e Co m

m i s s i o n er’ s d et erm i n at i o n s etfo rt h i n a n o t i ce o f d efi ci en cy

i s p res um edco rrect . W el ch v . Hel v eri n g , 2 9 0 U.S. 1 11 , 1 1 5 (1 9 3 3 ). In p ert i nen tp art , Ru le 1 4 2(a)(1 ) p ro v i d es the g en eral ru l e t hat“ [t ] h e b u rd eno f p ro o f
s h al l b e up o n the p et i t i o n er”. Th e s ub m i ss i o n o f t h i s cas e u n der Ru l e 1 2 2 d o es n o t ch an ge o r o th erwi s e l es s en p et i t i o n er’ s b u rd en o f p ro o f. See Ru l e 1 2 2 (b ); W eav er
v . Co m m i s s i o n er, 1 2 1 T.C. 2 73 , 2 7 5 (2 0 0 3). Th e t ax p ay er b ears th e b u rd en o f p ro v in g h i s en t i t l em en t t o d edu ct i o n s al l o wed b y th e Co d e an do f s ub s t an t i at i n g th e am o un t s o f cl ai m edd edu ct i o n s . INDOPCO, In c. v . Co m m i s s i o ner, 5 0 3 U.S. 7 9 , 8 4 (1 9 9 2 ); s ec. 1 .6 0 0 1 -1 (a), In co m e Tax Reg s . Un d er s ect i o n 7 49 1 (a) i f t h e t ax p ay er i n tro duces cred i b l e ev i d en ce wi th
res p ectt o an y

fact u al i s s u e rel ev an tt o as cert ai n i n g th e p ro p er i n co m e t ax l i ab i li t y , an d i f cert ai n co n di t i o n s are m et , th e b urd en o f p ro o f s h i ft s t o th e Co m m i s s i o n er. See al s o Ru l e 1 42 (a). W i th res p ectt o th e i s s ues ad dres s edb el o w , 7 p et i t i o n er d o es

7 In h i s b ri efs , p et i t io ner arg u es thatth e b u rd en o f p ro of s ho u l ds h iftt o res p o n d en t wi th res p ectt o th e qu es t i o n o f wh eth er p et i ti o ner’ s co n st itu t i o n al ri gh t s were v i o l at edb efo re t h e n o t i ce o f d efi ci en cy was i s su ed . Gen eral l y , th e Co u rtwi ll n o tl o o k b eh i n da n o t i ce o f d efi ci en cy . Green berg ’ s Ex p res s , In c. v . Co m m i s s i o n er, 6 2 T.C. 3 24 , 3 2 7 (1 9 7 4 ). Al th o u g h u n co ns t i tu ti o n al co n du cti s an ex cep t i o n t o th e g en eral ru l e t h atth e Co u rtwi l l n o tl o okb eh i n dth e n o ti ce o f (co n ti n u ed ...)- 8
-

[* 8 ] n o tco n t en d , an dth e ev i d en ce d o es n o tes t ab l is h , th atth e b u rd en o f p ro o f
s h i ft s t o res p o n d en tu n d er s ect i o n 7 4 91 (a) as t o an y i s s u e o f fact
. II. Sch edu l e C Ex p en s es Sect io n 1 6 2 (a) al l o ws a t ax p ay er t o d edu ct“ al l th e o rd i n ary an dn eces s ary
ex p en s es p ai d o r i n cu rreddu ri n g the t ax ab l e y ear i n carry in g o n an y trad e o r b u s i n es s ”. A n eces s ary ex p en s e i s o n e t h ati s “ ap p ro p ri at e an dh el p fu l ” t o th e t ax p ay er’ s b u s i n es s ; o rd i n ary ex p en s es are t h o se t hatare co m m o n o r freq uen ti n th e t y pe o f b u s i nes s i n wh i ch th e t ax p ay er i s en g ag ed . Dep u ty v . duPo n t , 3 0 8 U.S. 4 8 8 , 4 9 5 (1 9 4 0 ); W el ch v . Hel v eri n g , 2 9 0 U.S. at1 1 3. Pers o n al , l i vi n g , an d fam i l y ex p en s es are g en eral l y

n o td edu ct i b l e. Sec. 2 62
.

7 (...co n t in u ed ) d efi ci en cy , th i s Co u rth as n o td ecl areda n o t ice o f d efi ci en cy v o i d as a s an ct i o n fo r s u ch co n du ct . See Ri l an dv . Co m m i s s i o n er, 7 9 T.C. 1 8 5 , 2 07 (1 9 8 2 ); J ack s o n v . Co m m i s s i o n er, 7 3 T.C. 3 94 , 4 0 1 (1 9 7 9 ); Green b erg ’ s Ex pres s , In c. v . Co m m i s s i o n er, 6 2 T.C. at 3 2 8 ; Hu m an En g ’ g In s t . v . Co m m i s s io n er, 6 1 T.C. 6 1 , 6 6 (1 97 3 ); Su arez v . Co m m i s s io n er, 5 8 T.C. 7 9 2 , 8 14 (1 9 7 2 ). Res p o n den t ’ s o b ject i on s are s u st ai n edwi th res p ectt o th e s t i p ul at i o n s o f fact s an dthe acco m pan y i n g ex h i b i t s t h atrel at e t o p et i t i o n er’ s p ren ot i ce d eal i ng s wi th the IRS. Pet i t i o ner’ s l en gt hy

d eal i n g s wi th th e IRS fo l l o w an u n fo rtu n at e s eto f ci rcu m s t an ces th ato ccu rredb efo re t h e n o t i ce o f d efi ci en cy . Pet i ti o n er as k s th i s Co u rtt o “ i n i t i at e s o m e s ep arat e act i o n o r referral th atwo u l dres u l ti n the p ro p er ad ju d i cat i o n o f t h at ab u se” b u tp o i n t s t o n o au th o ri ty t o s up p orts u ch a rem ed y . Th e Co u rtwi l l n o tl o o k b eh i n dth e n o t i ce o f d efi ci en cy i n thi s cas e, an dth e b u rd eno f p ro of rem ai ns o n p et i t i o n er t o es tab l i s h a v i o lat i o n o f h i s co ns t i tu t i o n al ri gh t s.- 9
-

[* 9 ] Dedu ct i o n s are a m at t er o f l eg i s l at i v e g race, an dthe t ax p ay er b ears th e b u rd eno f p ro vi ng th atcl ai m edex p en s es are o rd i n ary an d n eces s ary . Ru le 1 4 2 (a). Th e t ax p ay er al s o b ears th e b u rd en o f s ub s t an t i at i n g t h e ex p en s es u nd erl y i n g h i s cl ai m edd edu ct i on s b y

k eep i ng an dp ro du ci n g reco rd s s uffi ci en tt o en ab l e t h e Co m m i s s i o n er t o d et erm i ne t h e co rrect t ax l i ab i l i ty . Sec. 6 0 01 ; INDOPCO, In c. v . Co m m i s s i o n er, 5 0 3 U.S. at8 4 ; s ec. 1 .6 0 0 1 -1 (a), (e), In co m e Tax Reg s . Th e fai l u re t o k eep an d p res en ts u ch reco rd s co u n t s h eav i l y ag ai n s t a t ax p ay er’ s at t em p t edp ro o f. Ro g ers v . Co m m i s s i o n er, T.C. M em o . 2 0 1 4 -1 4 1, at* 1 7
. Sect io n 2 7 4 (d ) i m

p o s es m o re ri g o ro u s s ub s t an t i at i o n req u i rem en t s fo r
ex p en s es p ert ai n i ng t o trav el , b u s i n es s m eal s o r en t ert ai n m en t , an d l i s t edp ro p ert y . Deduct io n s fo r t h es e ex p en ses are d i s al l o wedu n l es s t h e t ax p ay er s ub s tan t i at es b y ad equat e reco rd s o r b y s uffi ci en tev id en ce co rro b o rat in g h i s o wns t at em en t : (1 ) t h e am o u n t o f t h e ex p en s e; (2 ) t h e t i m e an d p lace o f t h e trav el , m eal , en t ert ai n m en t , o r u se o f t h e p ro p ert y ; (3 ) t h e b u s i n es s p u rp o se o f t he ex p en s e; an d (4 ) i n the cas e o f m eal s an den t ert ai n m en t , the b u s i n es s rel at i o n s hi p t o the t ax p ay er o f t h e p ers o n s en t ert ai n ed . See s ec. 2 7 4(d ). Th ere i s n o d o ubt th at p et i t i on er carri edo n b u s i n es s o n b eh al f o f Des p erad o
an d p ai dex p en s es p ert ai n i n g t o i ti n 2 0 0 2
.- 1 0 -

[* 1 0 ] A. Trav el Ex pen s es Du ri n g 2 0 0 2 p et i t i o n er s p en ta s ub s t an t i al n u m b er o f d ay s trav el i n g fo r Des perad o ’ s m o v i e p ro du ct i o n b u s i n es s. As a res u l th e cl ai m eda t rav el ex p en s e d educt i o n o f $ 1 7,1 7 2 , co m p ri s i n g ai rfare o f $ 5 ,6 4 0 ; l o d g i n g an d m eal ex p en s es o f $ 8 ,4 2 9 ; an dau t o m ob i l e ex p en s es o f $ 3 ,1 0 3
. 8 On l y cert ai n l o d gi n g an dm eal
ex p en s es rem ai n i n i s s ue. Pet i t i o ner s tay edwi th h i s ex -wi fe fo r 1 6 7 n i g ht s du ri n g 2 0 0 2 ; h e s tay ed wi th h is au n t fo r 2 1 n i g h t s . Duri n g th es e s t ay s p et i t i o n er o ft en p u rch as ed g ro ceri es an d h o u s ek eep i ng s up p l ies fo r h i s h o s t , cl ai m i n g th ath e s p en t$ 4 ,4 5 4 .8 5
an d th ath e s h o u l db e al lo wedt o d edu ctth i s am o u n ti n l i euo f l o d g in g. Pet i t i o n er
as k s th e Co u rtt o fi n dth ath e i s en t i t l edt o d edu ctth i s am o un ti n ad di t i o n t o t h e l o d g i n g ex p en ses res p o n d en tal read y al l owedo r co nced ed
. 9 He al s o arg ues th ath e
s h o u ldb e en t i t l edt o a d edu ct i o n fo r m eal s an di n ci den t al ex p en s es o f $ 8,3 4 2

8 Th e s t i p u l at io n o f s et tl edi s s u es refl ect s res p o n den t ’ s co n ces s i o n o f ad d it i o n al d educt i o n s fo r $ 1 ,3 7 6 .4 4 i n car ren t al ex p en s es an dan ad d i t i o nal $ 6 ,3 8 7 o f au t o m o b i l e-rel at edex p en s es th at p et i t io n er d i d n o to ri g i n al ly cl ai m . 9 Pet i t i on er’ s s pread s heet ap p l i es “p er d i em ” rat es o f $ 2 4 .5 7 , $ 1 7.0 9 , an d $ 1 4 .6 8 , d ep en d i n g up o n th e ci ty i n wh i ch h e was s tay i n g . Hi s b ri ef ap p l ies a co n si s t en trat e o f $ 2 5 .9 4 wi th o u tan y ex p lan at i on . He arg u es th ath e s ub s tan t i at ed th i s am o u n tth ro u g h Des p erad o’ s cred itcards t at em en t s , b u tn o s u ch ev i d en ce was s ub m i t t edt o th i s Co u rt .- 1 1 -

[* 1 1 ] u s i n g th e Fed eral m eal s an di n ci d en t al ex pen s es (M &IE) rat es i n IRS Pub l icat i o n 1 5 4 2
. 1 0 No twi th s t an d i n g th e ab s en ce o f recei p ts fo r t h e g ro ceri es an d h o u s ek eep i n g
s up p li es , p et i t i o n er’ s rel at i on s h i p s wi th h i s h os t s , an d h i s ad m i t t edco ns u m p t i o n o f
s o m e o f t h e g ro ceri es , res po n d en tco n ced ed thatp et i t i o n er s h o u l db e en t i t l edt o d educt5 0 % o f t h atam o u n t , o r $ 2 ,2 2 7 .4 3 , as a l o d g i n g ex p en s e. Becau s e p et i t i o n er h as n o ts ubs t an ti at edan y am ou n to f ex p en ses fo r t h es e g ro ceri es an d h o u s ek eep i n g s up p l i es , h e i s n o ten t i t l ed t o an y l o d gi n g d edu ct io n i n ex ces s o f t h e
am ou n t s res p o n d en tal l owed o r co n ced ed
. W i th res p ect t o th e am o un to f ex p en s es p et i t i o n er i s p erm i t t edt o d edu ctfo r 2 0 0 2 , h e req ues t s thatth e Co urtfi n dth ath e i s en t i t l ed t o th e ap p ro p ri at e am o u n t al l o wed un d er th e Fed eral M &IE s ch edu l e. Pet i t i o n er d idn o t k eep m an y recei p t s
o r reco rd s fo r h is m eal ex pen s es i n cu rredwh i l e t rav el i ng i n 2 0 0 2 . Bu tb ecau s e t h e Co u rtd en i edp et i t i o n er’ s req u es tt o b e rel i ev ed o f t h e s ti pu l at i o n o f fact s , th e
s up p lem en t al s t ip ul at i o n o f fact s , an dth e acco m pan y i n g ex h i b i ts , res p o n d en ti s b o u n db y the s t i p u l at io n thatp et i t i o n er m ad e t h e t ri ps as l i st edi n h is s p read s h eet

1 0 Al th o u g h p art ies m ay

n o trai se an i s su e fo r t h e fi rs tt i m e o n b ri ef i f t h e Co u rt ’ s co n s i d erat io n o f t h e i s s u e wo u l d s urp ri s e an d p reju d i ce t h e o p p o s in g p art y , s ee Sm al l ey

v . Co m m i s s i o n er, 1 1 6 T.C. 4 5 0 , 4 56 (2 0 0 1 ), res p o nd en twas n o tp reju d i ced i n th i s i n s t an ce b y p et it i on er’ s req u es t t o b e al lo wedt o d edu ctth e Fed eral p er d i em

am o u n t fo r h i s m eal s an di nci d en t al ex p en s es .- 1 2 -

[* 1 2 ] an d t h ato n th o s e t ri p s h e co ndu ct edb u s i n es s o n b eh al f o f Des p erad o . See Rev
. Pro c. 2 0 0 1 -4 7 , s ec. 4 .0 3 , 2 0 0 1 -2 C.B. 3 3 2, 3 3 4 (p ro v i d i n g th atth e Fed eral M &IE rat e i s d eem eds ub st an t iat ed fo r p u rp o s es o f t h e rev en u e p ro cedu re an dfo r p u rp os es o f s ect io n 1 .2 7 4 -5 (c), In co m e Tax Reg s ., i f t h e s el f-em p l o y edi n d i v i du al
s ub s t an t i at es th e el em en t s o f t i m e, p l ace, an db u s i n es s p u rp o s e). Pet i t i o ner m ay

th erefo re d edu ctan am o u n tb as edup o n t h e Fed eral M &IE rat e fo r t h e l ocal i t i es i n h i s s p read s h eetrat her t h an h i s actu al ex pen s es p ai d
. 1 1 See Rev
. Pro c. 2 0 0 1 -4 7 , s ecs . 4 .0 3 , 7 .0 7 , 2 0 0 1 -2 C.B. 3 3 4, 3 3 9 . Becau s e p et i ti o n er
was th e m an ag i n g m em

b er o f Des p erad o , h e i s co ns i d ered s el f-em p l o y edrat h er th an an em

p l o y ee. Cf. Cas t i g l io l a v . Co m m i ss i o n er, T.C. M em o . 2 0 1 7 -6 2 , at* 7
-
* 1 4 . Th i s am o u n ti s p ro p erl y d edu ct edfro m

p et i t i on er’ s g ro s s i n co m e u n d er
s ect i on 6 2 (a)(1 ). Si n ce p et it i o n er d i dn o t k eep reco rd s o f t h e p o rt i o n h e co n s u m ed
o f t h e g ro ceri es p urch as edfo r h i s h o s t s --an d t o p rev en t the i nad v ert en t dup l i cat i o n
o f t h es e co st s fo r d ay s fo r wh i ch h e i s en t i tl edt o d edu ctan am ou n tu s i n g th e Fed eral p er d i em

rat e--t he s u m

o f t h e res p ect iv e Fed eral p er d i em am ou n ts s h al l b e

1 1 Becau s e t h e Co u rtfi nd s p et i t i on er i s en t i t l edt o u s e t h e Fed eral p er d i em rat es in l i euo f am o u nt s actu al l y s ub s t an t iat ed , h e i s n o ten t it l edt o d edu ctan y m eal -rel at edam o un t s th atres p o n d en t co n ced ed , i
. e., the $ 2 0 .8 6 i n “ o th er m eal s ” an d th e $ 2 14 h e s p en tfo r a s h aredm eal wi th h i s at t orn ey an dh i s at t o rn ey ’ s wi fe. An dwi th o u tan y

ev i d en ce wi th wh i ch th e Co u rtco u l d p ro p erl y al l o cat e t h e $ 2 ,4 1 4 i n “ m eal an den t ert ai nm en tex p en ses ” b et ween th e cat eg o ri es , p et it i o n er i s n o t en t i t l edt o d edu ctth i s am o u n t ei t h er.- 1 3 -

[* 1 3 ] redu cedb y

th e $ 2 , 2 2 7
. 4 3 res p o n d en tco n ced edas a l od g i n g ex pen s e. Th at t o t al i s redu cedb y

5 0% u nd er s ect i o n 2 7 4 (n ). B. Trai n i n g Ex p en ses Pet i t i o ner d educt ed$ 2 8 ,3 7 7 as a t rai n i n g ex pen se; th i s am ou n t , h e arg u es , i s th e am o un th e p ai d fo r Al ex ’ s u n d erg radu at e co u rs es t ak en i n 2 0 02 . Pet i t i o n er p ai d$ 14 ,7 5 2 o n Decem

b er 3 1, 2 0 0 1 , fo r th e s p ri n g 2 00 2 s em es t er an d $ 1 0,7 9 7 o n Sep tem b er 3 , 2 0 0 2 , fo r t h e fal l s em es t er. Pet i t io n er cl ai m s th atth e $ 2 ,8 28 d i fferen ce b et ween th e s u m o f t h e tu i t i o n p aym en ts an dth e am o u n tcl ai m edas a d educt i o n was a p aym en tt o h i s ex -wi fe fo r s o m e o f Al ex ’ s co l l eg e ex p en s es . 1 2 Pet i t i o ner’ s s o n s h o wedp ro m i s e i n fi l m m ak i ng fro m

a y o un g ag e. Becau s e
o f Al ex ’ s s el f-d ev el o p eds k i l l s an d p o t en t i al , p et i t i o n er as k edh i m t o t ak e fi l m rel at ed co u rs es o ut si d e o f h i s req u iredcu rri cu l u m thatwo u ldfu rt h er d ev el o p th es e
s k i l l s an dt al en t s . Pet i t i o n er t es t i fi edthath e wan t edh is s o n t o h av e “ a t ech n i cal b as i s s o th ath e wo u l d b e a fi l m m ak er” t h ath e co ul dtru s t . Al ex h el p edh i s fat her du ri n g th e s u m

m er o f 2 0 0 2 , ap p l y i n g th e s ki l l s an dkn o wl ed g e g ai nedth ro u g h h i s two fi l m co u rs es t o the p rep ro du ct i o n act i v i ty o f “ W al k i n g o n W at er” du ri n g 2 0 0 2. He co n t i nu edt ak i n g fi l m co u rs es , u l t im at el y t ak i n g fi v e o th ers .

1 2 Becau s e t h e Co u rtfi nd s th atp et i t i o n er i s n o ten t i t l edt o d edu ctthe edu cat i o n -rel at edex pen s es h e p ai d o n b eh al f o f h i s s o n , h i s p aym en t o f t h e $ 2 ,8 28 v el n o n i s i rrel ev an t .- 1 4 -

[* 1 4 ] Al ex was n o tan em p l o y ee o r o wn er o f p et i t i o n er’ s fi l m p ro du ct i o n
co m p an y ; h e was a s tu d en twh o s e fat h er was s tart i n g a fi l m p ro du ct i o n co m

p an y
an d wan t edi tt o b e a fam il y en d eav o r. Pet i t i o n er p ai dAl ex ’ s tu it i on o n Decem b er 3 1 , 2 0 0 1 , fo r t he s p ri n g 2 0 0 2 s em es t er; Des p erad o was n o t fo rm ed as an en t i ty
u n t i l J anu ary

8 , 2 0 0 2 . Th erefo re, Al ex co u l dn o th av e b een an em p l o y ee o f Des perad o wh en th e tu i t i o n was p ai di n 2 0 0 1 . Al th o ug h p et i t i o ner p ai dAl ex ’ s tu i t i o n fo r t h e fal l 2 0 0 2 s em es t er aft er Al ex h adwo rk edo n t h e p rep ro du ct i o n act i vi ty o f “ W al k i n g o n W at er”, t h e Co urtcan n o t fi n d t h attw o i n tro du ct o ry fi l m
co u rs es tran sfo rm edAl ex ’ s p ro m i s e i n fi l m m ak i n g i n t o an es t ab l i sh edtrad e o r b u s i n es s . Pet i t i o n er’ s p aym en t o f t h e tu it i on fo r t h es e s em es t ers was a k i n d g es tu re t o h i s s o n an drel i ev ed h i s ex -wi fe o f h er tu i t i o n res p o n s i b i l i t i es u n d er t h e d i v o rce d ecree. It was n o ta d edu ct i b le b u s i n es s ex p en s e. Th e Co u rtfi n d s t h atp et i t i o n er i s n oten t i t l edt o a d edu ct i o n rel at edt o th e edu cat i o n al ex pen s es o f h i s s o n . Res p on d en t ’ s d i s al lo w an ce o f t hi s d educt i o n i s
s u s t ai n ed
. To refl ectthe fo reg o i n g an d th e p art ies ’ co n ces s i o n s , Deci s i o n wi ll b e en t ered
u n der Ru l e 1 5 5
.