TAX COURT OPINION

Case: Mike & Felicia C. Culberson
Docket Number: 12544-06S
Judge: Carluzzo
Opinion Type: summary
Filed: 01/08/2009
Pages: 16

I T .C . Summary Opinion 2 009- 8 UNITED STATES TAX COUR T CAL . STAT . S . T . JUDGE MIKE CULBERSON AND FELICIA C . CUL ERSON, Petitioners v . COMMISSIONER OF INTERNAL RE ENUE, Responden t Docket No . 12544-06S . Riled January 8, 2009 . Mike Culberson and Felicia C . Culbe~son, pro sese . Beth A . Nunnink , for respondent . CARLUZZO, Special Trial Judge : Thi s case was heard pursuant to the provisions of section 74163 .' Pursuant to section 7463(b), the decision to be entered is not reviewable by an y 'Unless otherwise indicated, sectio~ references are to the Internal Revenue Code of 1986, as amended, in effect for the relevant period . Rule references are to the Tax Court Rules of Practice and Procedure . SERVED JAN 0 8 2009 - 2 - j other court, and this opinion shall not be cited as precedent for any other case . In a notice of deficiency dated April 5, 2006, respondent determined the following deficiencies in and penalties with respect to petitioners' Federal income taxes : Year Deficiency Sec . 6662(a) Penalty 2003 $18,593 $3,718 .60 2004 12,459 2,491 .8 0 The issues for decision for each year are : (1) Whether petitioners are entitled to a trade or business expense deduction for utilities ; (2) whether petitioners are entitled to an itemized deduction for amounts identified as unreimbursed employee business expenses ; and (3) whether petitioners are entitled to trade or business expense deductions for expenses attributable to a tournament fishing activity . Background Some of the facts have been stipulated and are so found . Petitioners are, and were at all times relevant, married to each other . At the time the petition was filed, they resided in Tennessee . Petitioners' Employment and Tournament Fishing Activit y Mike Culberson (petitioner) was employed as a firefighter by the City of Franklin, Tennessee . During each year in issue he paid union dues, he contributed towards the cost of - 3 - cable/satellite television service at th e firehouse, h e contributed towards a common meal fund f or meals consumed at the firehouse, and he incurred expenses for iaintaining and cleanin g his firefighter uniforms . Petitioner was also the sole propri tor of a lawn car e business that he operated during each ye r in issue . The income and expenses attributable to that busine s are shown on a Schedule C, Profit or Loss From Business included with petitioners' return for each year in iss e . During each year in issue petitions entered or participated in various fishing tournaments, a practice that he started in 1988 . Typically, entrants to these fishing tournaments paid a fee and were eligible to win various pr i es or prize money . From 1988 through the years in issue petition is expenditure s incurred in connection with the fishing tournaments always exceeded any winnings or income he received from the activity . From 1988 through 2002 petitioner apparently did not treat his tournament fishing activity as a trade or business for Federa l income tax purposes . Things changed in X003 . Starting in that year, having heard that other firefighters were claimin g deductions for similar expenditures, and upon the advice of his income tax return preparer, petitioner cdnsidered his tournament fishing activity a trade or business . - 4 - S Felicia C . Culberson was employed as a vehicle repair supervisor by Enterprise Rent-A-Car (Enterprise) until November 2003 . As an employee of Enterprise, she was provided the use of a company-owned car . The value of the use of the company-owned car was somehow calculated and included in the wage incom e reported on the 2003 Form W-2, Wage and Tax Statement, issued to her by Enterprise . From December 2003 through May 2004 she worked on a part- time or temporary basis for various employers . In June 2004 she began working full time for an employer she identified only as "Dell" . She described her job with Dell as "sales rep for the business sales floor" . Petitioners' Federal Income Tax Return s Petitioners filed a timely joint Federal income tax return for each year in issue . Both returns were prepared by a professional income tax return preparer . 1 . 200 3 As relevant here, petitioners' 2003 return includes a Schedule A, Itemized Deductions, two Forms 2106, Employee Business Expenses (one relating to petitioner's employment as a firefighter and the other relating to Felicia C . Culberson's employment with Enterprise), a Schedule C on which the income and expenses of petitioner's lawn care business are reported (the 2003 lawn care Schedule C), and a Schedule C on which the income and expenditures attributable to petitioner's tournament fishing activity are reported (the 2003 tournament fishing activity Schedule C) . Among other things, on the Schedule petitioners claimed a $7,448 deduction for unreimbursed employee business expenses .2 Of this amount, $2,624 relates to petitioner and $3,960 relate s to Felicia C . Culberson .3 The amount relating to petitione r ($2,624) is attributable to claimed expen ses for vehicle expenses ($324), meals consumed at the firehouse $2,040, after th e application of section 274(n)), and other "business expenses" ($260, presumably including union dues, h aircuts, uniform maintenance, and contributions towards ca ble/satellite television service at the firehouse) . The amount re lating to Felicia C . Culberson ($3,960) is attributable entirely to vehicle expenses . This amount was computed by applying the applicable "standard mileage rate" (then 36 cents per mile) tol 11,000 of the 14,000 miles that a vehicle not identified on the return is claimed t o have been driven by her for business pur p oses . 2This amount is before the applicat i n of sec . 67 (a) . 3The difference between $6,584 (the as shown on the Forms 2106) and $7,448, t the Schedule A, has not been explained . explained on a statement referenced on the Schedule A but not included with the copy of the return placed into evidence . sum of $2,624 and $3,960 he amount deducted on The difference might b e - 6 - On the 2003 lawn care Schedule C, among other items no longer in dispute, petitioners claimed a $240 deduction for "utilities" expenses . The exact nature of the underlying expenditure is not known . The 2003 tournament fishing activity Schedule C shows gross receipts and gross income in the same amount ; that is, $415 . The following deductions are claimed on that Schedule C : Deduction Depreciation/sec . 179 Legal and professional services Supplies Taxes and licenses Fuel for boat Entry fees Oil for boat Amoun t $18,74 9 75 0 62 0 23 8 40 4 1,11 0 11 0 The $21,566 net loss shown on that Schedule C is taken into account in . the computation of the adjusted gross income reported on petitioners' 2003 return . 2 . 200 4 As relevant here, petitioners' 2004 return includes a Schedule A, two Forms 2106 (one relating to petitioner's employment as a firefighter, and the other relating to Felicia C . Culberson's employment, presumably with Dell), a Schedule C on which the income and expenses of petitioner's lawn care business are reported (the 2004 lawn care Schedule C), and a Schedule C on which the income and expenditures attributable to petitioner's 2004 tournament fishing activity are reported (the 2004 tournament fishing activity Schedule C) . Among other things, on the Schedule A petitioners claimed a $5,857 deduction for unreimbursed employ e business expenses .' Of this amount, $2,446 relates to petiti ner and $1,425 relates to Felicia Culbertson .5 The amount relating to petitioner ($2,446) is attributable to claimed expeises for vehicle expenses ($41), meals consumed at the firehouse ( 2,040, after the application of section 274(n)), and othe "business expenses" ($365, presumably including union dues, aircuts, uniform maintenance, and contributions towards c ble/satellite television service at the firehouse) . The amount r lating to Felicia C . Culberson ($1,425) is attributable entir ly to vehicle expenses . This amount was computed by applying the applicable "standard mileage rate" (then 37 .5 cents per mile) to 3,800 of the 13,000 miles that a vehicle not identified on t e return is claimed to have been driven by her for business pu r oses . On the 2004 lawn care Schedule C, a ong other items no longer in dispute, petitioners claimed a $255 deduction fo r 4This is the amount before the appli ation of sec . 67(a) . 5The difference between $3,871 (the sum of $2,446 and $1,425 as shown on the Forms 2106) and $5,857, the amount deducted on the Schedule A, has not been explained . The difference might be explained on a statement referenced on the Schedule A but not included with the copy of the return placed into evidence . "utilities" expenses . The exact nature of the underlying expenditure is not known . The 2004 tournament fishing activity Schedule C shows gross receipts and gross income in the same amount ; that is, $380 . The following deductions are claimed on that Schedule C : Deduction Amoun t Car and truck expenses Depreciation/sec . 179 Repairs and maintenance Supplies Meals (after sec . 274(n)) Fuel for boat Entry fees Oil for boat Cellphone $3,33 8 7,08 0 7 5 54 0 25 5 51 6 2,39 0 23 9 58 8 The $14,641 net loss shown on that Schedule C is taken into account in the computation of the adjusted gross income reported on petitioners' 2004 return . The Notice of Deficienc y Some of the adjustments made in that notice have been agreed to between the parties or conceded by one or the other of them, and others are computational . Those adjustments will not be noted . The adjustments that remain in dispute for each year in issue are as follows : (1) The disallowance of the utilities expense deduction claimed on the lawn care Schedule C ; (2) the disallowance of the unreimbursed employe business expense deduction claimed on the Schedule A ; and (3) the disallowanc e of the net loss claimed on the tournamen fishing activit y Schedule C . Discussion The issues that remain in dispute a 11 involve disallowed deductions . As we have observed in coun less opinions , deductions are a matter of legislative g ace . New Colonial Ic e Co . v . Commissioner , 292 U .S . 435, 440 1934) . A taxpaye r claiming a deduction on a Federal income tax return mus t demonstrate that the deduction is allowa le pursuant to some statutory provision and must further sub tantiate that th e expense to which the deduction relates h s been paid or incurred . See sec . 6001 ; Hradesky v . Commissioner , 65 T .C . 87 (1975), affd . per curiam 540 F .2d 821 (5th Cir . 1976) ; sec . 1 .6001-1(a), Income Tax Regs . According to petitioners , the deductions here in dispute ar e allowable under section 162(a) . That se tion generally allows a deduction for ordinary and necessary exp nses paid or incurred during the taxable year in carrying on a y trade or business . The term "trade or business" as used in ection 162(a) includes the trade or business of being an employ e . Primuth v . Commissioner , 54 T .C . 374, 377-378 (1970b ; Christensen v . Commissioner , 17 T .C . 1456 (1952) . The determination of whether - 10 - an expenditure satisfies the requirements for deductibility under section 162 is a question of fact . See Commissioner v . Heininger , 320 U .S . 467, 475 (1943) . In general, an expense is ordinary if it is considered normal, usual, or customary in the context of the particular business out of which it arose . See Deputy v . du Pont , 308 U .S . 488, 495 (1940) . Ordinarily, an expense is necessary if it is appropriate and helpful to the operation of the taxpayer's trade or business . See Commissioner v . Tellier , 383 U .S . 687 (1966) ; Carbine v . Commissioner , 83 T .C . 356, 363 (1984), affd . 777 F .2d 662 (11th Cir . 1985) . On the other hand, section 262(a) generally disallows a deduction for personal, living, or family expenses . Against these general principles of Federal income taxation, we consider petitioners' entitlement to the deductions respondent disallowed . Utilities Expense Deductio n Petitioners claimed a deduction for utilities expenses on the lawn care Schedule C for each year in issue . Neither petitioners nor their income tax return preparer could explain the nature of the underlying expenditure with the degree of specificity necessary to allow the claimed deduction . Without knowing the nature of the expense we cannot determine whether it was "ordinary and necessary" for petitioner to have incurred that expense in connection with his lawn care business . Respondent's disallowance of the utilitie 0 expense deduction fo r - 11 - each year in issue is sustained . Unreimbursed Employee Business Ex ense Deductio n The unreimbursed employee business expense deduction petitioners claimed for each year in iss e consists of four components : (1) An amount for which no xplanation has been provided ($864 for 2003 and $1,986 for 2 04) ; (2) vehicle expenses for both petitioners ; (3) meals petitioner consumed at the firehouse ; and (4) various expenses, including union dues, haircuts, uniform maintenance, etc ., rel ting to petitioner's employment as a firefighter . We conside each in the order just listed . 1 . Unexplained Amount s Expenditures not explained hardly q alify for deduction . Petitioners are not entitled to a deduction for the unexplained amounts included in the unreimbursed emp ogee business expense deduction claimed for each year . 2 . Vehicle Expense s The unreimbursed employee businesslexpense deduction claimed for each year includes amounts attribut ble to vehicle expenses relating to both petitioners . The reco d contains insufficient evidence to support a finding that eith r petitioner wa s required, as a condition of employment, to incur any expense s for the use of any vehicle . Petitioners are not entitled to a - 12 - deduction for amounts attributable to vehicle expenses included in the unreimbursed employee business expense deduction claimed for each year . 3 . Meals Expense s Petitioner contributed to a fund that was used to purchase food for meals that he consumed while on duty at the firehouse . Generally, the costs of a taxpayer's meals are nondeductible personal expenses, unless the expense of a meal is incurred while the taxpayer is traveling away from home for business purposes . See secs . 162(a)(2), 262(a) . If, however, a fire department requires its firefighter-employees as a condition of employment to make contributions into a common meal fund, then those contributions qualify as deductible, ordinary and necessary business expenses . See, e .g ., Sibla v . Commissioner , 68 T .C . 422, 432 (1977), affd . 611 F .2d 1260 (9th Cir . 1980) ; Belt v . Commissioner , T .C . Memo . 1984-167 . On the other hand, if a firefighter's contributions into a common meal fund are not required as a condition of employment but are made voluntarily, then such contributions are considered a personal expense that is not deductible . See, e .g ., Duggan v . Commissioner , 77 T .C . 911, 914-915 (1981) . It is obvious that the meal expenses petitioners deducted were not incurred while petitioner was traveling away from home on business . Furthermore, nothing in the record would support a - 13 - finding that the contributions petitioner made to the common mea l fund were made on other than a voluntary basis . Petitioners ar e not entitled to a deduction for amount s attributable to mea l expenses included in the unreimbursed J loyee business expens e deduction claimed for each year . 4 . Other Expense s The unreimbursed employee business xpense deduction claimed for each year includes amounts attributa le to variou s expenditures for union dues, haircuts, u iform maintenance, etc ., relating to petitioner's employment as a firefighter . We need not consider petitioners' entitlement to include those amounts i n an unreimbursed employee business expens deduction because even if the total amount claimed for each yea were allowed, it woul d not exceed 2 percent of their adjusted gross income . See sec . 67(a) . li Respondent's disallowance of the miscellaneous itemize d deduction for unreimbursed employee busi ess expenses for eac h year in issue is sustained . Tournament Fishing Activity Schedule C L sse s According to petitioners, the expen e deductions claimed and the resultant loss shown on the 2003 tou nament fishing activity Schedule C and the 2004 tournament fishi g activity Schedule C are allowable because the activity constitutes a trade o r business within the meaning of section 102(a) and section - 14 - 165(c)(1) . According to respondent, petitioner's tournament fishing activity did not qualify as a trade or business during either year in issue and expenditures incurred in connection with that activity are deductible only as allowed by section 183 . To be engaged in a trade or business within the meaning of section 162(a) and section 165(a)(2), a taxpayer must conduct the activity with continuity, regularity, and for the primary purpose of deriving a profit . Commissioner v . Groetzinaer , 480 U .S . 23, 35 (1987) . Whether a taxpayer is carrying on a trade or business requires an examination of all of the facts in each case . Id . a t 36 . Although a reasonable expectation of profit is not required, the taxpayer's profit objective must be actual and honest . Dreicer v . Commissioner , 78 T .C . 642, 644-645 (1982), affd . without published opinion 702 F .2d 1205 (D .C . Cir . 1983) ; sec . 1 .183-2(a), Income Tax Regs . Whether a taxpayer has an actual and honest profit objective is a question of fact to be answered from all of the relevant facts and circumstances . Hastings v . Commissioner , T .C . Memo . 2002-310 ; sec . 1 .183-2(a), Income Tax Regs . The pertinent regulations set forth a nonexhaustive list of factors that may be considered in deciding whether a profit objective exists . These factors include : (1) The manner in which the taxpayer carries on the activity, (2) the expertise of - 15 - the taxpayer or his advisers, (3) the ti e and effort expended by the taxpayer in carrying on the activity, (4) the expectation that assets used in the activity may appreciate in value, (5) the success of the taxpayer in carrying on o her similar or dissimilar activities, (6) the taxpayer' history of income or losses with respect to the activity, (7) the amount of occasional profits, if any, which are earned, (8) t e financial status of the taxpayer, and (9) the elements of pe sonal pleasure or recreation . Golanty v . Commissioner , 72 T .C . 411, 426 (1979), affd . without published opinion 647 F .2d 170 (9th Cir . 1981) ; sec . 1 .183-2(b), Income Tax Regs . No single factor or group o f factors is determinative . Golanty v . Commissioner, supra at 426 . A final determination is made only afterla consideration of all of the relevant facts and circumstances . ' It is not necessary to discuss each of the factors enumerated in section 1 .183-2(b), IncomelTax Regs ., as it is clear that no factor supports a determination in petitioners' favor . The record contains insufficient evidence to support a finding that petitioner conducted his tournament fishing activity with the primary objective of making a pjrofit for either year i n issue . It follows that the activity do e s not constitute a trad e or business for either year . It furtherl follows that petitioner s are entitled to deductions relating to that activity only a s allowable under section 183, and they are not entitled to a deduction for the loss shown on either the 2003 or the 2004 - 16 - tournament fishing activity Schedule C . To reflect the foregoing, Decision will be entere d under Rule 155 .