TAX COURT OPINION

Case: Karel E. Long
Docket Number: 12562-14S
Judge: Wherry
Opinion Type: bench
Filed: 07/23/2015
Pages: 24

UNITED STATES TAX COURT WASHINGTON, DC 20217 KAREL E. LONG, Petitioner, v. ) ) ) ) ) Docket No. 12562-14S 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 Judge Robert A. Wherry, Jr., at Los Angeles, California on June 11, 2015, containing oral findings of fact and opinion rendered at the conclusion of the trial. In accordance with the oral findings of fact and opinion, a decision will be entered under Rule 155. (Signed) Robert A. Wherry, Jr. Judge Dated: Washington, D.C. July 23, 2015 SERVED JUL 2 4 2015 Capital Reporting Company Bench Opinion of Judge Robert A. Wherry, Jr. 3 June 11, 2015 Karel E. Long v. Commissioner Docket No. 12562-14S THE COURT HAS DECIDED TO RENDER ORAL FINDINGS OF FACT AND OPINION IN THIS CASE AND THE FOLLOWING REPRESENTS THE COURT'S ORAL FINDINGS OF FACT AND OPINION. THE ORAL FINDINGS OF FACT AND OPINION SHALL NOT BE RELIED UPON AS PRECEDENT IN ANY OTHER CASE. This case was heard pursuant to the provisions of section 7463 of the Intelnal Revenue Code of 1986 (Code) as amended, and Rules 170 through 174 of the Tax Court Rules of Practice and Procedure. 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. This bench opinion is made pursuant to the authority granted by section 7459(b) of the Code as amended, and Rule 152 of the Tax Court Rules of Practice and Procedure. Unless otherwise indicated, subsequent section references are to the Code, and Rule references are to the Tax Court Rules of 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 Practice and Procedure. 866.488.DEPO twww.CapitalReportingCompany.com Capital Reporting Company 4 1 Karel E. Long appeared on her own behalf. 2 Christopher J. Richmond appeared on behalf of 3 4 5 6 7 8 respondent. In a notice of deficiency mailed March 12, 2014, respondent disallowed Ms. Long's deduction on Schedule C, Business Income and Loss, of her 2010 Form 1040, U.S. Individual Income Tax Return, of $23,492 of tuition expenses paid to Pepperdine 9 University for courses in its Master of Science in 10 OrganizationÑDevelopment (MSOD) degree program. 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 Respondent also determined a $1,264.20 accuracy- related penalty under section 6662(a). Ms. Long timely petitioned this Court to challenge those determinations. At issue is whether Ms. Long's tuition expenses were deductible under section 1.162- 5, Income Tax Regs. FINDINGS OF FACT At trial on June 8, 2015, the parties filed a stipulation of facts with attached exhibits, the facts of which are incorporated herein by this reference. Ms. Long lived in California when she filed her petition. Ms. Long's Occupation in 2010 In 2010, Ms. Long was employed by Los Angeles Universal Preschool (LAUP) as a Board 866.488.DEPO twww.Capita1ReportingCompany.com Capital Reporting Company 5 1 2 3 4 5 6 7 8 Liaison/Executive Relations Specialist (Board Liaison) and as the Executive Assistant to LAUP's CEO, Dr. Gary Mangiofico. She reported directly to Dr. Mangiofico in both roles. Ms. Long began working for LAUP as a Board Liaison in August 2007, with a starting salary of $70,000 plus benefits. At that time, Ms. Long held a Bachelor of Arts degree in communications from the 9 University of Southeln California, had 20 years of 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 overall work experience as an employee and/or homemaker, had managed and trained event and administrative staff, and had worked in public relations and as a liaison. LAUP hired Ms. Long, at least in part, because of her administrative skills, including calendaring, report preparation and analysis, her experience in events management and coordination, including budgeting, and her prior promotion activities and experience interfacing with the media. When the CEO's executive assistant left LAUP in or around October 2007, Ms. Long was asked, and agreed, to take on this additional role. LAUP was established in 2005 as a nonprofit organization in connection with "First 5 California, " an initiative to support child development in the first five years of life funded by an earmarked 866.488.DEPO twww.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 increase in the State's cigarette tax. LAUP served the initiative's goal by establishing preschools in Los Angeles County for four-year-olds. As of the time of trial, LAUP had set up approximately 300 preschools in the county. Notwithstanding that one of her titles was "Executive Assistant, " Ms. Long was not a secretary but rather a member of LAUP's management team. As Board Liaison, she managed LAUP's relationship with its governing Board. The Board met monthly and consisted of approximately 11 members, 5 of whom were appointed, 1 by each member of the 5-member Los Angeles County Board of Supervisors and the rest of whom were volunteers from the community. Ms. Long planned, organized, and prepared briefing packets for Board meetings, and she was responsible for keeping the Board members informed of legislative developments and relevant media items. As Dr. Mangiofico's Executive Assistant, she participated in senior leadership meetings, organized and planned meetings and retreats, and 22 managed Dr. Mangiofico's schedule, expenses, and 23 24 25 speaking engagements. LAUP's management team employed a secretary who reported to Jimetta Moore, now LAUP's Vice President for Human Resources, 866.488.DEPO twww.CapitalReportingCompany.com Capital Reporting Company 7 1 Administration, and Employee Development. The 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 secretary earned substantially less than Ms. Long, whose salary may have been at a management-level. Ms. Long's Studies at Pepperdine In the relevant years, LAUP was a start-up that sought to recruit high-quality employees and encouraged their growth through further education. Dr. Mangiofico, Ms. Long's supervisor, was a faculty member at Pepperdine and recommended that she enroll in the MSOD program. Ms. Moore also encouraged Ms. Long to pursue the program. Ms. Long entered the MSOD program in August 2009 and graduated in June 2011. During this period she both went to school and worked full-time. The MSOD program reflects Pepperdine's more than 35 years of experience in educating change practitioners. The program focuses on individual and organizational development, but its curriculum also reflects changes in the organizational development profession, such as the growing importance of globalization, sustainability, and technology to responsible business performance. Broadly, organization development can be described as a deliberately planned, organization-wide effort to increase an organization's effectiveness and/or 866.488.DEPO twww.CapitalReportingCompany.com Capital Reporting Company 8 1 2 3 4 5 6 7 8 efficiency, and/or to enable it to achieve its strategic goals. Students in the MSOD program study training, personal development, team development, team building, and learning and development. Ms. Long's coursework included subjects such as "Small Systems Diagnosis and Change, " "International Organization Development, " "Strategy and Organizational Development, " and "Integrative 9 Action Strategies." In these classes, students 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 learned how to measure organizational performance, formulate and implement organizational strategies, and create and manage organizational change. Ms. Long acquired knowledge in the MSOD program that she had not previously possessed, but her coursework also increased her ability to stimulate an effective, robust Board of Directors for LAUP. She had not previously studied organizational development, but team-building was an element of her work at LAUP before, during, and after her graduation from the MSOD program. Ms. Moore believed that Ms. Long's studies improved her work performance at LAUP. Ms. Long's Subsequent Endeavors After Ms. Long started at LAUP in 2007, cigarette sales in California declined, and cigarette tax revenues, LAUP's funding source, fell. LAUP 866.488.DEPO twww.CapitalReportingCompany.com Capital Reporting Company 9 1 experienced some financial challenges. Meanwhile, 2 midway through Ms. Long's coursework at Pepperdine in 3 4 5 6 7 8 9 10 11 May 2010, Dr. Mangiafico left LAUP, and a new CEO replaced him. In April 2011, Ms. Moore sent Ms. Long an email in which she offered her a new position with the title Board Executive Assistant. Ms. Long's Board Liaison position was being modified, and while the new position would entail many of the same duties she was then performing, it would be part-time only and would carry reduced benefits. Ms. Long accepted the part-time position and worked in this capacity 12 until June 2012, when LAUP concluded that the new 13 14 15 CEO's assistant could also perform Board liaison functions and terminated Ms. Long's employment. Ms. Long formed The Kreshek Group, Inc., a 16 California S corporation of which she is the sole 17 18 19 20 shareholder and employee, to perform consulting work for a friend in 2012. This work entailed using the new skills she had learned in the MSOD program. On the LinkedIn page that represents its sole ongoing 21 activity, Ms. Long's corporation holds her out as an 22 23 24 25 advisor/consultant. Other than the work for her friend, Ms. Long has never provided consulting services via her S corporation, although she and the corporation remain available to do so. 866.488.DEPO twww.CapitalReportingCompany.com Capital Reporting Company 10 1 2 3 4 5 6 7 8 In December 2013, Dr. Mangiafico, LAUP's former CEO and Ms. Long's former boss and mentor, contacted her regarding a job opportunity at Pepperdine. At that time Dr. Mangiafico worked only part-time as a professor at Pepperdine and was semi- retired. Ms. Long applied and was selected for the position about which Dr. Mangiafico had notified her. At the time of trial, she was employed as the 9 Associate Director of Executive Education at 10 Pepperdine' s Graziadio School of Business and 11 Management, where she coordinates executive 12 development programs. 13 Ms. Long's 2010 Tax Return 14 15 16 17 18 19 20 21 22 23 24 25 On a Schedule C filed with her 2010 Federal income tax return, Ms. Long reported having a sole proprietorship, denominated "Karel E. Long, " with gross earnings of $1,000. Ms. Long was not in the trade or business of consulting in 2010, and that was the first year in which she operated this sole proprietorship. Against this income, Ms. Long deducted expenses consisting primarily of $23,492 of " [c] ontinuing [e] ducation" expense attributable to her Pepperdine tuition. Respondent disallowed this deduction on the basis that Ms. Long had not shown the expense was paid or incurred during 2010 and 866.488.DEPO twww.CapitalReportingCompany.com Capital Reporting Company 11 ordinary and necessary to her business. DISCUSSION Deductions are a matter of legislative grace, and taxpayers bear the burden of proving entitlement to any claimed deduction. Rule 142(a); INDOPCO, Inc. v. Commissioner, 503 U.S. 79, 84 (1992). Ms. Long originally deducted her tuition expenses on Schedule C, but the parties have stipulated that she did not have a trade or business as a consultant in 2010. Furthermore, in her pretrial memorandum, Ms. Long conceded, and the Court agrees, that the expenses were not properly deductible on Schedule C. She then contended that they were instead deductible on Schedule A. Consequently, we consider whether the deduction was allowable on Schedule A. Pursuant to sections 67 and 162(a), an employee taxpayer may deduct as miscellaneous itemized deductions all of the ordinary and necessary unreimbursed business expenses paid or incurred during the taxable year in carrying on the trade or business of the taxpayer's employment. Lucas v . Commissioner, 79 T.C. 1, 6 (1982); s(cid:0)523also sec. 1.67-IT(a)(1)(i), Temporary Income Tax Regs., 53 Fed. Reg. 9875 (March 28, 1988) (providing that 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 866.488.DEPO twww.CapitalReportingCompany.com Capital Reporting Company 12 1 2 unreimbursed business expenses are subject to the 2% of adjusted gross income floor under sec. 67(a)). 3 Otherwise qualifying education expenses are deductible under these provisions if they satisfy two requirements. Sec. 1.162-5(a), Income Tax Regs. I. Maintain or Improve Skills Required for Present Employment 4 5 6 7 8 For education expenditures to be deductible 10 under section 1.162-5, Income Tax Regs., education 11 must either " (1) [m] aintain * * * or improve *** 12 13 14 15 16 17 18 19 20 21 22 23 skills required by the individual in his employment or other trade or business, or (2) [m]eet *** the express requirements of the individual' s employer, or the requirements of applicable law or regulations, imposed as a condition to the retention by the individual of an established employment relationship, status, or rate of compensation." Id. Ms. Long does not contend that either LAUP or any law or regulation obliged her to enroll in the MSOD Program, so we consider only whether her studies in that program maintained or enhanced skills required for her roles as Board Liaison and 24 Executive Assistant to Dr. Mangiofico. 25 "Whether education maintains or 1mproves 866.488.DEPO twww.CapitalReportingCompany.com Capital Reporting Company 13 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 skills required by the taxpayer's employment is a question of fact." Boser v. Commissioner, 77 T.C. 1124, 1131 (1982). That "education is helpful to [the taxpayer] *** in the performance of his employment does not establish that its cost is deductible as a business expense." Joseph v. Commissioner, T.C. Memo. 2005-169, 90 T.C.M. (CCH) 26, 31 (2005). Although "[a] precise correlation is not necessary," the taxpayer "must show that there was a direct and proximate relationship" between the education and the skills required in his employment. Boser v. Commissioner, 77 T.C. at 1131. Ms. Long testified that her coursework in the MSOD program enabled her to better foster an effective and robust Board of Directors for LAUP and that she applied the team-building expertise she acquired in the program in her job duties. Ms. 19 Moore, a human resources executive at LAUP, 20 21 22 23 24 25 confirmed that Ms. Long's studies improved her work performance. During Ms. Long's tenure, LAUP was a start-up organization pursuing rapid growth: From its creation in 2005 through the time of trial in 2015, it established 300 preschools in Los Angeles 866.488.DEPO twww.Capita1ReportingCompany.com Capital Reporting Company 1 County. This was no small feat considering that, 14 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 to set up a school of any kind, one would need to vet and hire staff, find and buy, lease, or otherwise acquire the use of a suitable facility, develop programming, and acquire supplies and materials. LAUP's Board of Directors oversaw these efforts. Ms. Long's performance evaluations reveal that as Board Liaison, she managed LAUP's relationship with the Board and coordinated the Board's activities. Her course of study at Pepperdine enabled her to better assist the Board in developing and implementing educational strategies and in managing organizational change as LAUP's preschool network expanded. Although the correlation is not a precise one, the evidence in the record tends to show a direct and proximate relationship between the MSOD program and Ms. Long's role at LAUP. In opposing this conclusion, respondent first contends that the MSOD program was "too general an education to qualify as a deductible business expense", citing Weiszmann v. Commissioner, 52 T.C. 1106, 1109-1111 (1969), aff'd per curium, 443 F.2d 29 (9th Cir. 1971). But in that case the taxpayer, a patent trainee, sought to deduct expenses incurred in obtaining a law degree, and the Court disallowed the 866.488.DEPO twww.CapitalReportingCompany.com Capital Reporting Company 15 deduction on the basis that the education qualified him for a new profession, not because the law was too general a course of study. See id. at 1110. Furthermore, despite the relative generality of their curricula, we have allowed deductions for expenses incurred in pursuing a master of business administration degree (MBA), see Allemeier v. Commissioner, T.C. Memo. 2005- 207, 90 T.C.M. (CCH) 197, 199-201 (2005), and a master of science in administration degree (MSA), see Beatty v. Commissioner, T.C. Memo. 1980-196, 40 T.C.M. (CCH) 438, 440-441 (1980). Respondent further contends that the MSOD curriculum was unrelated to Ms. Long's duties at LAUP, which he describes as "primarily administrative and clerical". Although Ms. Long's performance evaluations do indicate that she performed some administrative tasks, both Ms. Long and Ms. Moore testified that Ms. Long was not a secretary and was more like a manager or executive. The effectiveness of LAUP's Board of Directors depended largely upon her coordination, communication, and guidance, and in the MSOD program, she studied how to measure and enhance an organization's effectiveness and how to manage 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 866.488.DEPO twww.CapitalReportingCompany.com Capital Reporting Company 16 1 2 3 4 5 6 7 8 10 11 12 organizational change. We conclude that Ms. Long's studies in the MSOD program improved the skills required for performance of her then-existing employment. II. Not Leading to Qualification in a New Trade or Business Educational expenditures are not deductible if the education is (1) necessary "to meet the minimum educational requirements for qualification in [the taxpayer ' s] *** employment or other trade or business" or (2) "part of a program of study *** which 13 will lead to qualifying [the taxpayer] *** in a new 14 15 16 17 18 19 20 21 22 23 24 25 trade or business." Sec. 1.162-5(b) (2) and (3), Income Tax Regs. If education expenditures fall into of these prohibited categories, they are nondeductible even though the education maintains or improves the skills required by the taxpayer's existing trade or business. Id. subpara. (1) . Only the second proscription--against education leading to qualification in a new trade or business--is at issue here. "This Court has adopted a ' commonsense approach' " to determining whether education qualifies a taxpayer for a new trade or business. Davis v. 866.488.DEPO twww.Capita1ReportingCompany.com Capital Reporting Company 17 1 Commissioner, 65 T. C. 1014, 1019 (1976) (quoting 2 Glenn v. Commissioner, 62 T.C.270, 275 (1974)). On 3 4 one hand, " [i] f the education qualifies the taxpayer to perform significantly different tasks and 5 activities than could be performed prior to the 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 education, then such education qualifies the taxpayer for a new trade or business." Johnson v. Commissioner, 77 T.C. 876, 878 (1981) (emphasis added) . Thus, for example, when a course of study leads to the taxpayer's qualification to practice in a licensed profession such as law or real estate, education expenses are generally not deductible. See, e.g., Robinson v. Commissioner, 78 T.C. 550, 553-555 (1982) (practical nurse could not deduct education expenses incurred in qualifying as a registered nurse in part because Minnesota law defined the two professions differently and licensed them separately) ; Johnson v. Commissioner, 77 T . C. at 878-880 (real estate agents could not deduct education expenses incurred in qualifying as real estate brokers because under California law, "significant differences" existed in the duties these two groups of licensees could perform); Bodley v. Commissioner, 56 T.C. 1357, 1360-1361 (1971) (teacher 866.488.DEPO twww.CapitalReportingCompany.com Capital Reporting Company 18 1 2 3 4 5 6 7 8 9 10 11 12 could not deduct expenses incurred in obtaining a law degree even though he did not initially intend to practice law); sec. 1.162-5(b)(3)(ii), Examples (1) and (2), Income Tax Regs (taxpayers could not deduct expenses incurred in obtaining law degrees). On the other hand, "[i]n the case of an employee, a change of duties does not constitute a new trade or business if the new duties involve the same general type of work as is involved in the individual's present employment." Sec. 1.162- 5(b)(3)(i), Income Tax Regs. Thus, for example, a classroom teacher who shifts from teaching 13 mathematics to teaching science or to working as a 14 15 16 17 18 19 20 21 22 23 24 guidance counselor or principal has not embarked upon a new trade or business. Id. subdivs. (b), (c), and (d), Income Tax Regs. Similarly, a general medical doctor taking a two-week course in new developments in specialized fields or a psychiatrist in private practice who studies psychoanalysis at an accredited institute to attain a qualification to practice psychoanalysis does not become qualified in a new trade or business. Sec. 1.162-5(b)(3)(ii), Examples (3) and (4). Ms. Long performed the same tasks and 25 activities in her job at LAUP before, during, and 866.488.DEPO twww.CapitalReportingCompany.com Capital Reporting Company 19 1 2 3 after completing her studies. Her scope of work changed somewhat in 2011, when LAUP moved her from full-time to part-time, but she did not change jobs 4 until December 2013, when she began working at 5 6 7 8 9 10 11 12 13 14 15 16 Pepperdine. Ms. Long formed The Kreshek Group, Inc., in 2012, but testified that she has done consulting work for only one client through the corporation and that the corporation's only business presence is on her LinkedIn page. Respondent claims in his Pretrial Memorandum that Ms. Long began consulting on organization development during 2010 and reported self-employment earnings from consulting in 2010 through 2012. No evidence in the record supports respondent's assertion other than the nominal $1,000 of gross receipts reported on Ms. Long's 2010 Form 1040, 17 which Ms. Long attributed to her doing a "favor" for 18 19 20 21 22 23 24 25 a friend. Moreover, the parties have stipulated that she was not engaged in the trade or business of consulting during 2010, the tax year at issue. What matters, of course, is not whether Ms. Long did engage in a new trade or business using the skills and knowledge she gained from the MSOD program, but whether that education qualified her to engage in a new trade or business. See, e.g., 866.488.DEPO twww.CapitalReportingCompany.com Capital Reporting Company 20 1 Weiler v. Commissioner, 54 T. C. 398, 401-402 (1970) . 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 On the basis of our case law and the evidence presented in Ms. Long's trial, we answer that question negatively. Outside the contexts of licensed professions and occupations in which tasks, duties, or qualifications are expressly defined by statute, regulation, or the employer, we have tended to define a taxpayer's pre-education trade or business relatively broadly, on the basis of the types of tasks and activities the taxpayer performs. See, e.g., Allemeier v. Commissioner, 90 T.C.M. (CCH) at 200-201 (where the taxpayer had excelled in his sales position and been "rewarded with increased responsibility, including management, marketing, and finance-related tasks" before enrolling in an MBA program, the program did not qualify him for a new trade or business), supplemented by T.C. Memo. 2006- 28, 91 T.C.M. (CCH) 758 (2006) (denying petitioner's 20 motion for litigation costs under section 7430); but 21 22 23 24 25 cf., e.g., Schneider v. Commissioner, T.C. Memo. 1983-753, 47 T.C.M. (CCH) 675, 676-680 (1983) (MBA program qualified a former U.S. Army infantry officer for a new trade or business where the officer had performed management, administrative, and logistical 866.488.DEPO twww.CapitalReportingCompany.com Capital Reporting Company 21 1 2 3 4 5 6 7 8 9 10 11 12 duties for the military but enrolled in the MBA program immediately after resigning his commission and had no experience in business). We find two of our cases particularly helpful here. In Blair v. Commissioner, T.C. Memo 1980-488, 41 T.C.M. (CCH) 289, 289-290 (1980), a personnel representative at Sherwin Williams was promoted to personnel manager after she enrolled in an MBA program, and she deducted expenses related to the program. Although the scope of her duties changed, becoming "primarily supervisory", "the only major difference" between her two positions was that "a Sherwin Williams personnel 13 manager makes decisions while a personnel 14 15 16 17 18 19 20 21 22 23 24 25 representative only makes recommendations." Id. at 290-291. We concluded that personnel representative and personnel manager were not separate trades or businesses and that the taxpayer's MBA studies had not qualified her for a new one. See id. at 291. In Beatty v. Commissioner, T.C. Memo 1980- 196, 40 T.C.M. (CCH) at 439, the taxpayer was an engineer responsible for aircraft software integration at McDonnell Douglas. His duties there included managing guidance system development, coordinating software integration with other engineers, and developing software and testing 866.488.DEPO twww.Capita1ReportingCompany.com Capital Reporting Company 22 1 procedures, and his career goal lay in engineering 2 management. See id. We concluded that his studies 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 in an MSA program, consisting of courses "generally oriented toward management and administration, " including "work planning, employee motivation, organization theory, finance, quantitative methods and law", did not qualify him for a new trade or business. See id. at 439-441. Before enrolling in the MSOD program, Ms. Long had studied communications at USC, managed and trained event and administrative staff, worked in public relations and as a liaison, managed LAUP's relationship with its governing Board, and provided the tools, information, and coordination necessary to the Board's effective oversight of a rapidly growing nonprofit organization. The MSOD program curriculum qualified her to manage organizational growth and change and to formulate and implement organizational strategies, and it developed her interpersonal and team-building skills. As was true in Blair and Beatty, there was significant overlap between Ms. Long's experience and skills before the program and the enhanced expertise she gained from it. She remained a management and administrative professional whose duties centered on making organizations (like 866.488.DEPO twww.CapitalReportingCompany.com Capital Reporting Company 23 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 the Board) more effective. Through the MSOD program, she learned contemporary academic theories and new techniques and methodologies applicable to the tasks she performed on a daily basis. Respondent contends that the MSOD program qualified Ms. Long to work as an organizational development consultant, but Ms. Long's lack of success in attracting clients for The Kreshek Group, Inc. -- she has done work for only one client since forming the company in 2012 -- suggests otherwise. At LAUP and later at Pepperdine, she continued to be employed in "the same general type of work", see sec. 1.162- (5) (b) (3) (i), Income Tax Regs., and did not become qualified to perform "significantly different tasks", see Johnson, 77 T.C. at 878. For the foregoing reasons, we conclude that Ms. Long's Pepperdine University continuing education tuition expense satisfied the requirements of section 1.162-5, Income Tax Regs., and is allowable for 2010 as a miscellaneous itemized deduction. Although we have held that Ms. Long may deduct the disputed expense, because of the section 67(a) limitation on itemized deductions, she will 25 still have underpaid her taxes in some amount. 866.488.DEPO twww.CapitalReportingCompany.com Capital Reporting Company 24 1 Consequently, we must consider the asserted section 2 3 4 5 6 7 8 6662(a) accuracy-related penalty. Respondent has the burden of production. See Higbee v. Commissioner, 116 T.C. 438, 446 (2001); see also sec. 7491(c). Unfortunately, respondent's notice of deficiency uses boilerplate language to describe the basis for the penalty, even though there is no evidence in the record of any substantial valuation 9 misstatement or transaction lacking economic 10 11 12 13 substance. As to a "determination" on these grounds, see Scar v. Commissioner, 814 F.2d 1363 (9th Cir. 1987), rev'g 81 T.C. 855 (1983). Respondent did not raise these issues in his 14 pretrial memorandum or at trial, so we deem them 15 16 17 18 19 20 21 22 23 24 25 conceded. His pretrial memorandum does cite negligence and a substantial understatement as bases for the penalty. He ostensibly conceded the first of these two grounds at trial, and in any event, leaving aside Ms. Long's error in claiming her education expense on Schedule C rather than Schedule A, the record reflects that she made a reasonable attempt to comply with the Internal Revenue Code and was not negligent. See sec. 6662(c); see also Freytag v. Commissioner, 89 T.C. 849, 887 (1987) 866.488.DEPO twww.CapitalReportingCompany.com Capital Reporting Company 25 (defining negligence as '"a lack of due care or the failure to do what a reasonable and ordinarily prudent person would do under the circumstances"' (quoting Marcello v. Commissioner, 380 F.2d 499, 506 (5th Cir. 1967), aff'd 43 T.C. 168 (1964) and T.C. Memo. 1964-299)), aff'd, 904 F.2d 1011 (5th Cir. 1990), aff'd, 501 U.S. 868 (1991). Finally, although the Court leaves computation of the precise amount of Ms. Long's underpayment to the parties, we surmise that it will not be substantial within the meaning of section 6662(b)(2), (d). Hence, Ms. Long would not be liable for the accuracy-related penalty. To reflect the foregoing, decision will be entered under Rule 155. THIS CONCLUDES THE COURT'S ORAL FINDINGS OF FACT AND OPINION IN THIS CASE. (Whereupon, at 11:55 a.m. the above- entitled matter was concluded.) 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 866.488.DEPO twww.CapitalReportingCompany.com