TAX COURT OPINION

Case: Stephanie Miller
Docket Number: 6203-16S
Judge: Carluzzo
Opinion Type: bench
Filed: 03/28/2017
Pages: 10

UNITED STATES TAX COURT WASHINGTON, DC 20217 STEPHANIE MILLER, Petitioner, v. ) ) ) SR ) Docket No. 6203-16S COMMISSIONER OF INTERNAL REVENUE, Respondent. ) ) ) ORDER Pursuant to Rule 152(b), Tax Court Rules of Practice and Procedure, it is ORDERED that the Clerk of the Court shall transmit herewith to petitioner and to respondent a copy of the pages of the transcript of the trial in the above case before Special Trial Judge Lewis R. Carluzzo at San Francisco, California, containing his oral findings of fact and opinion rendered at the trial session at which the case was heard. In accordance with the oral findings of fact and opinion, decision will be entered for respondent. (Signed) Lewis R. Carluzzo Special Trial Judge Dated: Washington, D.C. March 28, 2017 SERVED Mar 29 2017 Capital Reporting Company 3 1 Bench Opinion by Special Trial Judge Lewis R. ' 2 Carluzzo . 3 March 16, 2017 4 5 6 7 8 9 10 11 12 13 Stephanie Miller v. Commissioner Docket No. 6203-16S THE COURT: The Court has decided to rende'r oral findings of fact and opinion in this case, and the following represents The Court's oral findings of fact and opinion (bench opinion). Unless otherwise noted, Section references made in this bench opinion are to the Internal Revenue Code of 1996, as amended, in effect for the relevant period, and Rule references are to the Tax 14 Court Rules of Practice and Procedure. 15 16 17 18 19 20 21 22 23 24 25 This bench opinion is made pursuant to the authority granted by Section 7459(b) and Rule 152. This proceeding for the redetermination.of a deficiency is a small tax case subject to the provisions of Section 7463 and Rules 170 through 175. Except as provided in Rule 152(c), this bench opinion shall not be cited as authority and pursuant.to Section 7463(b), the decision entered in this case shall not be treated as precedent for any other case. Stephanie Miller appeared on her own behalf. Catlin A. Downing appeared on behalf of 866.488.DEPO www.CapitalReportingCompany.com Capital Reporting Company 4 1 2 3 4 Respondent. In a notice of deficiency dated December 7, 2015 (notice), Respondent determined a $1,995 deficiency in Petitioner's 2013 federal income tax. The issue for decision is whether 5 Petitioner is entitled to a deduction for certain 6 7 8 unreimbursed employee business expenses. Some of the facts have been stipulated and are so found. At the time the petition was filed, Petitioner resided in 9 California. 10 11 12 13 14 15 16 17 18 19 During 2013, Petitioner was employed as an office manager with Family Emergency Shelter Company (FESCO) where she has been employed since 2004. In 2010, and at the recommendation of a FESCO program coordinator, Petitioner enrolled as a degree candidate at Ashford University (Ashford) where she earned a BA degree in public administration. Nothing in the record suggests that as of the date she became an Ashford student Petitioner was required to pursue,w+tt'a college degree in order to 20 maintain her then current employment with FESCO. As 21 22 23 24 25 it turned out, following graduation Petitioner "has been promoted" and has been given a "more pertinent role in the agency". Petitioner's 2013 federal income tax return was prepared by Niki Pasricha who apparently also 866.488.DEPO www.CapitalReportingCompany.com Capital Reporting Company 5 1 2 3 4 5 6 7 8 9 10 11 holds her power of attorney for federal tax matters. As relevant here, the return includes Schedule A, itemized deductions, on which Petitioner claims a $16,460 deduction for unreimbursed employee business expenses. That amount consists of the following items shown on a Form 2106, pmployee usiness xpenses, also included with the return: (1) Vehicle expenses of $7,263 computed by applying the applicable standard mileage rate to 12,855 miles that the Form 2106 represents that Petitioner drove in connection 12 with her employment; (2) Parking fees, tolls, and 13 14 15 16 17 18 19 20 21 22 23 24 transportation expenses totaling $459; (3) $3,057 of "other business expenses", not including meals; (4) $256 for meals after taking into account the reduction required by Section 274; (5) education expenses of $5,425, which apparently represents a portion of Petitioner's tuition at Ashford. In the notice, the entire deduction for unreimbursed employee business expenses is disallowed. According to the notice, Petitioner is not entitled to the deduction because she failed to establish that the expenses were "paid or incurred" and were "ordinary and necessary" to her "business". 25 Other adjustments made in the notice are 866.488.DEPO www.CapitalReportingCompany.com Capital Reporting Company 6 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 computational and need not be addressed in this bench opinion. We have observed in opinions too numerous to count, deductions are a matter of legislative grace and the taxpayer bears the burden of proof to establish entitlement to any claimed deduction. Rule 142(a) INDOPCO, Inc. v. Commissioner, 503 U.S. 79, 84 (1992), New Colonial Ice Co. v. Commissioner, 292 U.S. 435, 440 (1934). (Nothing in the record suggests that the provisions of Section 7491(a) are applicable and we proceed as though they are not). The taxpayer's burden requires the taxpayer to substantiate deductions claimed by keeping and producing adequate records that enable the Commissioner to determine the taxpayer's correct tax liability. Section 6001, Hradesky v. Commissioner, 65 T.C. 87, 90 (1975), aff'd per curiam 540 F.2d 821 (5th Circuit 1976), Meneguzzo v. Commissioner, 43 T.C. 824, 831-832 (1965). A taxpayer claiming a deduction on a federal income tax return must demonstrate that the deduction is allowable pursuant to some statutory provision and must further substantiate that the expense to which the deduction relates has been paid or incurred. See Section 6001, Hradesky v. 866.488.DEPO www.CapitalReportingCompany.com Capital Reporting Company 7 1 2 3 4 5 6 7 8 9 10 11 12 Commissioner, 65 T.C. at 90, Section 1.6001-1(a) income tax regs. It is generally well-known that a taxpayer may deduct ordinary and necessary expenses paid in connection with operating a trade or business. See Section 162(a), Boyd v. Commissioner, 122 T.C. 305, 313 (2004). Generally, for purposes of Section 162, the phrase "trade or business" includes performances of services as an employee. Primuth v. Commissioner, 54 T.C. 374, 377 (1970). To be deductible, however, the taxpayer must not have a right to reimbursement for the expense from the taxpayer's employer. See 13 Orvis c. Commissioner, 788 F.2d 1406, 1408 (9th 14 Circuit 1986), affirming T.C. Memo 1984-533. Section 15 16 17 18 19 20 21 22 23 24 25 162(a) (2·) specifically allows a deduction for travel expenses, including the costs of meal and lodging, incurred while the taxpayer is away from home for business purposes. Although Petitioner does not expressly cite to any of these fundamental principles of federal income taxation, it is clear that she relies upon them in support of her entitlement to the disallowed deduction. And we turn our attention to the facts of this case to see how the foregoing principles apply. We begin by noting that Petitioner did not 866.488.DEPO www.CapitalReportingCompany.com Capital Reporting Company 8 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 testify at trial. That being so, little is known about her day-to-day job responsibilities as an office manager for FESCO during the year in issue. Even less is known about the circumstances giving rise to the expenses that are included in the employee business expense deduction here in dispute. There's no evidence in the record that could support a finding that taxpayer was required to incur vehicle expenses, parking fees, tolls, transportation expenses, or meals and entertainment expenses as an employee of FESCO. The $3,057 shown merely as "business expenses" on Line 4 of the Form 2106 has not been explained at all. From the evidence submitted, we simply cannot determine whether the above-referenced expenses are "directly connected with or pertaining to" Petitioner's employment. See Section 1.162-1(a) income tax regs. Furthermore, we have nothing in the record that establishes whether she was reimbursed for those expenses or entitled to reimbursement for those expenses from her employer. Mr. Pasricha, the individual who prepared 23 Petitioner's return, testified on Petitioner's 24 25 behalf. With the possible exception of the deduction for education expenses, he readily admitted that the 866.488.DEPO www.CapitalReportingCompany.com Capital Reporting Company 9 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 expenses shown on the Form 2016 were based upon estimates Petitioner provided to him. He did not see any source records, mileage logs, or other documents that might substantiate the amounts shown for the items. That being so and without more information, we are unable to determine whether Petitioner, in fact, paid or incurred any of the expenses shown on the Form 2016 during 2013. We'll address Petitioner's entitlement to a deduction for education expenses later in this bench opinion. As for the other items shown on the Form 2016, Respondent's disallowances are sustained because, as explained in the notice, Petitioner has failed to establish that the expenses were ordinary and necessary expenses paid or incurred in connection 16 with her employment with FESCO. 17 18 19 20 21 22 23 24 25 Turning our attention to Petitioner's entitlement to a deduction for education expenses, we begin with a reference to Section 1.162-5, income tax regs. That regulation provides the general rule with respect to the allowance of a deduction for education expenses incurred by a taxpayer in connection with the taxpayer's trade or business. The regulation provides that the taxpayer may deduct education expenses as ordinary and 866.488.DEPO www.CapitalReportingCompany.com Capital Reporting Company 10 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 necessary business expenses if the education: (1) Maintains or improves skills required by the individual in his employment or other trade or business or (2) meets the express requirements of the individuals employer or the requirements of. applicable law or regulations imposed as a condition to the retention of the individual of an established employment relationship status or rate of pay. The regulation further provides that an education expense is not deductible if the education qualifies the individual for a new trade or business. As noted, Petitioner was employed as an office manager at the time the education expenses were paid or incurred. Although we have a general idea of what is required of an office manager, we have no idea whether our general conception is 17 .Wwith the realities of Petitioner's 18 19 20 21 22 23 24 25 employment. Without knowing what Petitioner did as an office manager and what was required of her by her employer, we cannot tell whether Petitioner's course of study leading to a bachelor's degree in public administration maintained or improved the skills ehe required in connection with her employment as an office manager or whether the education expenses were necessary to meet the express requirements of her 866.488.DEPO www.CapitalReportingCompany.com Capital Reporting Company 11 1 2 employer so as to allow her to remain employed. Furthermore, it would seem to us that 3 Petitioner's bachelor's degree in public 4 5 6 7 8 9 10 11 administration qualified her for other employment opportunities not available to her without the degree. This in and of itself would deny her the deduction she seeks even if she never pursued those other opportunities. See Burstein v. Commissioner, 66 T.C. 492, 495 (1976), Bodley v. Commissioner, 56 T.C. 1357, 1360 (1971). While we congratulate and commend 12 Petitioner on pursuing a college education, her reward for doing so will have to be other than a reduction in her 2013 federal income tax. It follows that Petitioner's adjustment disallowed in the unreimbursed employee business expense deduction claimed on Petitioner's return is sustained. To reflect the foregoing, decision will be entered for Respondent. This concludes The Court's bench opinion in this case. (Whereupon, at 10:57 a.m., the above- entitled matter was concluded.) 13 14 15 16 17 18 19 20 21 22 23 24 25 866.488.DEPO www.CapitalReportingCompany.com