TAX COURT OPINION

Case: Ernestine Forrest
Docket Number: 23122-07
Judge: Vasquez
Opinion Type: memo
Filed: 10/05/2009
Pages: 10

i T .C . Memo . 2009-22 8 UNITED STATES TAX COUR T ERNESTINE FORREST, Petitioner v . COMMISSIONER OF INTERNAL REVENUE, Responden t Docket No . 23122-07 . ( . . Filed October 5, 2009 . 1, Ernestine Forrest, pro se . Michael K . Park , for respondent . MEMORANDUM FINDINGS OF FACT AND OPINIO N VASQUEZ, Judge : Respondent determined a $1,882 deficiency in petitioner's 2003 Federal income tax . After concessions,'Hth e issue for decision is whether petitioner is entitled to deduc t 1 Petitioner concedes respondent's adjustment to .alternative minimum'tax liability and that her expense for airfare to an American Bar Association (ABA) meeting cannot be deducted because the ABA reimbursed her . D OCT - 5 2009 certain business expenses under section 162(a) .2 We hold that - 2 - she is not . FINDINGS OF FAC T Some of the facts have been stipulated and are so found . The stipulation of facts and the attached exhibits are incorporated herein by this reference . Petitioner resided in California at the time she filed her petition . Petitionerilwas admitted to practice law in California i n 1974 and in Colorado in 1986 . Before 1988 petitioner worked as a contract attorney performing various legal services, e .g . , researching legal issues, attending hearings, etc ., on behalf of other attorneys ., She represented her own clients on occasion , .1I but this was rare . In some cases petitioner became an employe e of the attorneylior law firm she worked for . From 1988 until her employment was terminated in 2000 she worked as a securitie s regulator for the California Department of Corporations (the II department) . Petitioner worked as a contract attorney again in 2000 but not at all during 2001 and 2002 . In 2003 petitioner decided once again to try to work as a contract attorney . She attended the ABA 2003 Midyear Meeting in Seattle, Washington, on February 8-11 . While there she attende d 2 Unless otherwise indicated, all section references are to the Internal Revenue Code in effect for the year in issue, and all Rule references are to the Tax Court Rules of Practice and Procedure . I 3 _ a women's caucus luncheon, a solo and small firm lawyers breakfast caucus, and seminars on securities law . Petitioner networked with colleagues and informed them she was available a s a contract attorney to perform various legal services on their 1 behalf . Petitioner also purchased various supplies, .including a l computer, printer,'paper products, etc ., as well as telephone , fax, and Internet services between January and March 2003 . 1 Petitioner attempted to be reinstated as a securities regulato r by the department and eventually filed suit against the department in 2003 . She used some of the supplies she had purchased to assist in her reinstatement efforts . Befor e petitioner secured any clients or earned any income as a contract attorney in 2003, she was reinstated by the department and returned to work on or around March 25 . On October 15, 2006, petitioner filed Form 1040, U .S . Individual Income Tax Return, for 2003 (2003 return) . She included with her 2003 return Schedule A, Itemized Deductions . On Schedule A petitioner claimed $19,192 .52 in .deductions fo r other expenses, which the IRS did not question . Petitione r attached to Schedule A a listing of . these expenses summarized a s follows : Business travel ,, to professional conventions Professional fees , dues , education costs , etc . Mail and photocopy costs Computer , Internet , and supplies Business telephone and fax Litigation expenses and attorney ' s fees Business use of car Total $ 3,303 .8 4 3 , 384 .1 3 835 .7 3 2,146 .8 4 725 .0 0 7 , 496 .9 8 1,300 .0 0 19,192 .5 2 Petitioner did not include Schedule C, Profit or Loss From Business, or Form 6251, Alternative Minimum Tax--Individuals, with her 2003 return . Respondent determined a $1,882 deficiency in petitioner' s ,;II 2003 Federal income tax arising from petitioner's failur e report alternative minimum tax (AMT) liability . Petitioner timely filed a petition with this Court . She concedes the AM T adjustment but asserts that $1,761 of her expenses reported on Schedule A should be recast as Schedule C business expens e deductions .3 OPINION Petitioner,llhas neither claimed nor shown that she satisfie d the requirements of section 7491(a) to shift the burden of proof to respondent with regard to any factual issue . Accordingly, th e 3 The $1,7:61 of expenses petitioner claims she paid in connection with'lthe alleged trade or business consist of the following : $211 .81 to Costco for office supplies an d miscellaneous items ; $129 .45 to Office Depot ; $493 .14 to the Seattle Hilton hotel ; $35 to the Commission on Women in the Profession ; $195 to the Clerk of the Supreme Court ; $18 .15 to Federal Express for the ABA ; $73 .94 to Pacific Bell ; $140 to the Los Angeles County Bar Association for .dues ; $315 to the State Bar of California ; $115 to the ABA ; and $34 .35 to Staples for paper and otherisupplies . ~I, burden of proof is on petitioner to show that respondent's determination set forth in the notice-of deficiency is incorrect . See Rule 142(a)(1) ; Welch v . Helverina , 290 U .S . 111, 115 (1933) . Deductions are a matter of legislative grace ; petitioner has the burden of showing that she is entitled to any deductio n claimed . See Rule 142(a) ; New Colonial Ice Co . v . Helverina ,1 29 2 U .S . 435, 440 (1934) . Petitioner . argues that during 2003 she carried on a trade or business, i .e ., she worked as a contract attorney providing lega l services to other attorneys, and that she paid certain expenses in connection with this alleged trade or business . Respondent argues petitioner was not engaged in a trade or business because she admittedly had no clients and reported no income related to the activity during 2003 . Section 162(a) allows a deduction for ordinary and necessary expenses paid during the taxable year in carrying on any trade o r business . In order for the expenses to be deductible . under section 162, the expenses must relate to a trade or business functioning at the time the expenses were incurred . Hardy v . Commissioner , 93 T .C . 684, 687 (1989), affd . in part and remanded in part on another issue per order (1 .0th Cir ., Oct . 29, 1990)lf- sec . 1.162-1 (a), Income Tax Regs . Whether a taxpayer' s activities constitute the carrying on of a trade or business i requires an examination of the facts and circumstances of each - 6 - case . Commissioner v . Groetzinger , 480 U .S . 23, 36 (1987) ; Higgins v . Commissioner , 312 U .S . 212 (1941) ; O'Donnell v . Commissioner , 62 T .C . 781, 786 (1974), affd . without publishe d opinion 519 F .2d 1406 (7th Cir . 1975) . The U .S . Court of Appeals for the Ninth Circuit, the court to which this case would be appealable, has held that t o constitute a trade or business, "'the taxpayer's primary purpos e - for engaging inI'the activity must,be for income or profit .' " Smith v . Commissioner , 182 F .3d 927 (9th Cir . 1999) (quoting q Commissioner v . .Groetzinger , supra at 35), affg . without published opinion T .C . Memo . 1997-503 ; Warden v . Commissioner , 111 F .3d 139 (9th Cir . 1997), affg . without published opinion T .C . Memo . 1995-176 ; Barter v . Commissioner , 980 F .2d 736 (9th II. Cir . 1992), affg . without published opinion T .C . Memo . 1991-124 . An income-producing activity also must be regular and continuou s to be a trade or business . Finnegan v . Commissioner , T .C . Memo . 1997-486 (adopting the reasoning of the Tax Court), affd . without published opinion 168 F .3d 498 (9th Cir . 1999) . . Thus, for a taxpayer to be 'engaged in a trade or business, the taxpayer' s involvement in the activity must be regular and continuous and the taxpayer's primary purpose: for engaging in the activity must li. be for income or profit . Commissioner v . Groetzinger, supra at I 35 . ul, 11 11 - 7 - Petitioner argues that her activity was a continuation of a trade or business carried on previously ; i .e ., in the 1980s an d in 2000 . However, even if .her activities in the past amounted t o a trade or business, which we do not decide, there was a substantial lack of continuity between her prior work and her efforts in 2003 . Petitioner did not work as a contract attorne y between 1988 and 2000 while she worked for the department . Sh e also did not work as a contract attorney in 2001 or 2002, and he r activity in 2003 was sporadic . Accordingly, under the facts,of this case petitioner's activity in 2003 was not a continuation o f a trade or business carried on in any previous period . Petitioner did not decide to work as a contract attorne y until mid-January of 2003, and she returned to work with the, department on or around March~25 of that year . Therefore, the alleged trade or business existed only from mid-January to late March, or just over 2 months . This is not a substantial tirrle l period .' Even though petitioner expended some time and effort in Ia n attempt to find work as a contract attorney during this period , her involvement was not regular and continuous . Her only activity was her attendance at the ABA meeting for 4 days in i February, at which petitioner marketed herself to othe r ' We do not decide whether a trade or business could be found in a 2-month period under a different set of facts and circumstances . 6 -II attorneys . She did not negotiate for or perform any legal ~ I services as ,a contract attorney for any party during this period . Finally, she abandoned her efforts upon returning to th e department in late March . Accordingly, her activity was neithe r regular nor-continuous . We conclude that petitioner's activity as a contract y r attorney in 2003 was not regular and continuous . Having s o decided, we need'not decide whether petitioner's primary purpos e fo rfor engaging in the activity was to earn a profit . See Finnega n V . Commissionerl, supra (holding real estate activity was not a trade or business because time and effort devoted to it was no t regular and con tinuous and declining to decide whether there was a profit motive) . Therefore, we hold that petitioner's activity in 2003 did not amount to a trade or business . Conclusio n After reviewing all . of the facts and circumstances, we conclude that petitioner failed to prove the existence of a trad e or business as a contract attorney in 2003 . Accordingly, she i s not entitled to deduct business expenses under section 162(a) . In reaching all of our holdings herein, we have considere d all arguments made by the parties, and to the extent not mentioned above,, we find them to be irrelevant or without merit . 11 11 To reflect the foregoing, Decision will be entere d for respondent . I II II 11 Il iI II