TAX COURT OPINION

Case: Alexan K. Balekian
Docket Number: 3070-11S
Judge: Armen
Opinion Type: bench
Filed: 02/19/2013
Pages: 18

UNITED STATES TAX COURT WASHINGTON, DC 20217 ALEXAN K. BALEKIAN, Petitioner v. COMMISSIONER OF INTERNAL REVENUE, Respondent ) ) ) ) ) Docket No. 3070-11S. ) 3 ) ) ) ORDE R 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 Robert N. Armen, Jr. at Fresno, California, on December 5, 2012, containing 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, a decision will be entered for respondent. (Signed) Robert N. Armen, Jr. Special Trial Judge Dated: Washington, D.C. February 19, 2013 SERVED FEB 2 0 2013 . Capital Reporting Company Alexan K. Balekian 12-05-2012 3 1 Bench Opinion·By SPECIAL TRIAL JUDGE ROBERT N. ARMEN JR 2 December 5, 2012 3 Alexan K. Balekian v. Commissioner 4 Docket No.: 3070-11S 5 THE COURT: The Court has decided to render 6 oral findings of fact and opinion in this case, and 7 8 the following represents the court's oral findings of fact and opinion. The oral findings of fact and 9 opinion shall not be relied upon as precedent in any 10 other case. See Rule 152(c), Tax Court Rules of 11 Practice and Procedure. 12 13 Two, this proceeding was heard as a Small Tax Case pursuant to the provisions of section 7463 14 of the Internal Revenue Code of 1986, as amended, and 15 Rules 170 through 175 of the Tax Court Rules of 16 Practice and Procedure. 17 18 Three, this bench opinion is made pursuant to the authority granted by section 7459(b) of the 19 Internal Revenue Code of 1986, as amended, and Rule 20 21 152 of the Tax Court Rules of Practice and Procedure. Hereinafter in this bench opinion, and 22 unless otherwise indicated, all section numbers refer 23 24 to the. Internal Revenue·Code of 1986, as amended and in effect for 2007, 2008, and 2009, the taxable years 25 in issue, and all Rule numbers refer to the Tax Court (866) 448 - DEPO www.CapitalReportingCompany.com 2012 Capital Reporting Company Alexan K. Balekian 12-05-2012 1 Rules of Practice and Procedure. 4 2 3 4 5 Four, Alexan K. Balekian appeared on his own behalf. Samuel A. Naylor appeared on behalf of respondent. Five, respondent determined deficiencies in 6 petitioner's Federal income taxes for 2007, 2008, and 7 8 9 10 11 12 13 14 15 2009 in the amounts of $3,620, $4,058, and $4,708, respectively. Six, the issues for decision by the Court are as follows: One, whether petitioner is entitled to itemized deductions for employee business expenses and union/professional dues for 2007, 2008, and 2009 in the amounts of $19,540, $19,690, and $26,705, respectively; Two, whether petitioner is entitled to 16 itemized deductions for cash and non-cash charitable 17 contributions for 2007, 2008, and 2009 in the amounts 18 of $1,510, $1,510, and $500, respectively; 19 Three, whether petitioner is entitled to a 20 . so-called above-the-line" deduction for tuition and O 21 22 23 24 25 fees for 2007 and 2008 in the amount of $555 for each such year; and Four, whether petitioner failed to report on his 2007 return a refund of State income tax of $176 that he deducted in a prior year. (866) 448 - DEPO www.CapitalReportingCompany.com 2012 Capital Reporting Company Alexan K. Balekian 12-05-2012 1 Other adjustments made in the notice of 5 2 deficiency are mechanical in nature. 3 Seven, some of the facts have been 4 stipulated, and they are so found. 5 Petitioner resided in the State of 6 California at the time that his petition was filed 7 with the Court. 8 9 During 2007, 2008, and 2009, petitioner was employed as a television sports reporter and anchor 10 by KSEE Television, Inc., an NBC affiliate,.in 11 Fresno, California and received wages in exchange for 12 his services. When petitioner's employment with KSEE 13 ended in 2009, petitioner obtained similar employment 14 with Peak Broadcasting, LLC, and Pappas Telecasting, 15 Inc., and continued to receive wages in exchange for 16 his services. Petitioner received wages of $50,291, 17 18 $56,121, and $54,747 in 2007, 2008, and 2009, respectively. This constituted virtually all of 19 petitioner's income for those years.. 20 21 22 23 Petitioner's employment as a television sports reporter and anchor required that he be well dressed and well groomed. Indeed, at trial 'petitioner testified that how you look" was 80 24 percent of the job. "Looking good" necessitated that 25 petitioner purchase suits, ties, and other business (866) 448 - DEPO www.CapitalReportingCompany.com 2012 . Capital Reporting Company Alexan K. Balekian 12-05-2012 6 1 apparel, which he did at stores such as Macy's, 2 Nordstrom's, and the Men's Wearhouse. 3 4 5 6 7 8 As a sports reporter, petitioner attended various athletic contests, as well as team practice sessions, where he would interview coaches and .players. Although most of the venues were local to the Fresno area and involved high school and college teams (e.g., Fresno State), petitioner also had 9 occasion to travel to San Francisco and Los Angeles 10 to attend professional games in those cities. 11 Petitioner typically used his personal automobile for 12 both local and more distant travel. 13 14 15 Petitioner timely filed Federal income tax returns (Forms 1040) for the years in issue and, for each such year, claimed itemized deductions by 16 attaching a Schedule A to his return. 17 18 On his Schedule A for 2007, petitioner claimed various miscellaneous deductions, 19 specifically including $19,156 for unreimbursed 20 employee business expenses and $384 for 21 union/professional dues. Also on his 2007 Schedule 22 A, petitioner deducted cash gifts to charity in the 23 24 25 amount of $1,010 and non-cash gifts to charity in the amount of $500. On his Schedule A for 2008, petitioner (866) 448 - DEPO www.CapitalReportingCompany.com 2012 Capital Reporting Company Alexan K. Balekian 12-05-2012 7 1 claimed various miscellaneous deductions, 2 specifically including $17,972 for unreimbursed 3 employee business expenses and $1,718 for 4 union/professional dues. Also on his 2008 Schedule 5 A, petitioner deducted (exactly as he had in 2007) 6 cash gifts to charity in the amount of $1,010 and 7 non-cash'gifts in the amount of $500. 8 9 On his Schedule A for 2009, petitioner claimed various miscellaneous deductions, 10 specifically including $26,705 for unreimbursed 11 employee business expenses (but nothing specifically 12 for union/professional dues). Also on his 2009 13 Schedule A, petitioner deducted non-cash gifts to 14 charity.in the amount of $500 (but no cash gifts to 15 charity) . 16 17 18 On Line 34 of each of his Forms 1040 for 2007 and 2008 petitioner claimed a so-called "above- the-line" deduction for tuition and fees in the 19 amount of $555 for each such year. 20 In the notice of deficiency, respondent 21 disallowed all of the aforementioned deductions and 22 allowed instead the standard deduction for each of 23 the years in issue. Respondent also determined that 24 petitioner received a State income täx refund in 2007 25 of $343, of which petitioner reported $167 but failed (866) 448 - DEPO www.CapitalReportingCompany.com 2012 Capital Reporting Company Alexan K. Balekian 12-05-2012 8 1 2 to report.the balance, or $176. At trial, the parties stipulated that 3 petitioner provided receipts, and substantiated 4 5 payment, for the following expenses (rounded to the closest dollar) incurred in 2007: Clothing, $896; 6 Clothing Cleaning, $192; Haircuts, $135; Grooming 7 Supplies, $103; Restaurants, $321; Gasoline, $324; 8 Travel/Lodging, $206. 9 Also at trial, the parties stipulated that 10 petitioner provided receipts, and substantiated 11 12 payment, for the following expenses (rounded to the closest dollar) incurred in 2008: Clothing, $891; 13 Clothing Cleaning, $168; Haircuts, $180; Massage, 14 $55; Restaurants, $448; Gasoline, $290; 15 Travel/Lodging, $329. 16 Also at trial, the parties stipulated that 17 petitioner provided receipts, and substantiated 18 payment, for the following expenses (rounded to the 19 closest dollar) incurred in 2009: Clothing, $712; 20 Clothing Cleaning, $189; Groomsman Rental, $184; 21 Haircuts, $180; Restaurants, $962; Gasoline, $111; 22 Travel/Lodging, $120; Electronics, $215. 23 · Finally at trial, the parties stipulated 24 that petitioner provided receipts showing donations 25 to the Salvation Army of: One, five bags of clothes (866) 448 - DEPO www.CapitalReportingCompany.com 2012 Capital Reporting Company Alexan K. Balekian 12-05-2012 9 1 in 2008; two, clothes in 2009; and three, a large 2 entertainment center in 2009. The receipt for the 3 4 5 6 clothes in 2009 lists a value of $5, whereas neither the receipt for the five bags of clothes nor the receipt for the entertainment center lists a value. Other than the aforementioned receipts that 7 were stipulated, petitioner introduced no documentary 8 evidence at trial in support of any of the disallowed 9 deductions . 10 Eight, we begin with several fundamental 11 principles of tax litigation that inform our 12 disposition of the disputed issues in·the instant case. 13 14 First, as a general rule, the 15 Commissioner's determinations are presumed correct, 16 and the taxpayer bears the burden of proving that 17 those determinations are erroneous. Rule 142(a). 18 This principle was firmly established by the United 19 States Supreme Court as early as 1933 and has been 20 reaffirmed by the Supreme Court as recently as 1992. 21 22 23 See INDOPCO Inc. V. Commissioner, 503 U.S. 79, 84 (1992) ; Welch v. Helvering, 290 U. S. 111, 115 (1.933) . The relatively recent enactment of section 24 7491, effective for court proceedings arising in 25 connection with examinations commencing after July (866) 448 - DEPO www.CapitalReportingCompany.com 2012 Capital Reporting Company Alexan K. Balekian 12-05-2012 10 1 2 3 4 22, 1998, does not affect the application of the foregoing principle in the present case. See section 7491(a) (1), requiring the taxpayer to produce credible evidence with respect to a factual issue, 5 which petitioner did not do; see also section 6 7491 (a) (2) (A) and (B), requiring both compliance with 7 statutorily-imposed substantiation and record keeping 8 9 requirements and cooperation with reasonable requests by the Commissioner for information, documents, 10 meetings, and interviews, which are additional 11 prerequisites to the application of the section that 12 petitioner did not satisfy. In addition, petitioner 13 14 failed to even raise section 7491 as an issue. See and compare Rule 34 (b) (4), providing that "Any issue 15 not raised in the assignments of error shall be 16 deemed to be conceded"; McNeil v. Commissioner, T. C. 17 Memo. 2011-150, at n. 3, stating that issues not 18 19 20 raised on brief or at trial are deemed to be conceded. . Accordingly, petitioner bears the burden of 21 proof. 22 Second, deductions.are a matter of 23 legislative grace, and the taxpayer bears the burden 24 of proving that he or she is entitled to any 25 deduction claimed. Rule 142(a); Deputy v. DuPont, (866) 448 - DEPO www.CapitalReportmgCompany.com 2012 Capital Reporting Company Alexan K. Balekian 12-05-2012 11 1 308 U.S. 488, 493 (1940); New Colonial Ice Co. V. 2 Helvering, 292 U.S. 435, 440 (1934); Welch v. 3 Helvering, supra. This includes the burden of 4 5 substantiation. Hradesky v. Commissioner, 65 T.C. 87, 90 (1975), affd. Per curiam 540 F.2d 821 (5th 6 Cir. 1976). 7 The fact that a taxpayer reports a 8 deduction on the taxpayer's income tax return and 9 attaches some IRS-prescribed form in support of that 10 ·deduction is not sufficient to substantiate the 11 deduction claimed on the return. Wilkinson v. 12 Commissioner, 71 T.C. 633, 639 (1979); Roberts v. 13 Commissioner, 62 T.C. 834, 837 (1974) . A tax return 14 15 is merely a statement of the taxpayer's claim; the return is not presumed to be correct. Wilkinson v. 16 Commissioner, supra at 639; Roberts v. Commissioner, 17 supra at 837; see also Seaboard Commercial Corp. V. 18 Commissioner, 28 T.C. 1034, 1051 (1957) (a taxpayer's 19 income tax return is a self-serving declaration that 20 may not be accepted as proof for the deduction or 21 exclusion claimed by the taxpayer); Halle v. 22 Commis sioner, 7 T . C. 245 (194 6) (a taxpayer ' s return 23 is not self-proving as to the truth of its contents), 24 affd. 175 F.2d 500 (2d Cir. 1949). 25 Rather, a taxpayer is required to maintain (866) 448 - DEPO www.CapitalReportingCompany.com 2012 Capital Reporting Company Alexan K. Balekian 12-05-2012 12 1 2 3 4 5 6 records sufficient to substantiate deductions claimed by the taxpayer on his or her return. See generally sec. 6001 ("Every person liable for any tax imposed by this title, or for the collection thereof, shall keep such records, and comply with such rules and regulations as the Secretary may from time to time 7 prescribe . ") ; sec. 1. 6001-1 (a) , Income Tax Regs . 8 9 ("Any person subject to tax, shall keep such permanent books of account or records, as are 10 sufficient to establish the amount of deductions."); 11 12 13 14 15 sec. 1. 6001-1 (e ), Income Tax Regs . ("The books or records required by this section shall be kept at all times available for inspection by authorized internal revenue officers or employees, and shall be retained so long as the contents thereof may become material 16 in the administration of any internal revenue law. ") . 17 As a general rule, if, in the absence of 18. such required records, a taxpayer provides sufficient 19 evidence that the taxpayer has incurred a deductible 20 21 22 expense, but the taxpayer is unable to adequately substantiate the amount of the deduction to which he or she is otherwise entitled, the Court may estimate 23 the amount of·such expense and allow the deduction to 24 that extent. Cohan v. Commissioner, 39 F.2d 540, 25 543-544 (2d Cir. 1930). However, in order for the (866) 448 - DEPO www.CapitalReportingCompany.com 2012 Capital Reporting Company Alexan K. Balekian 12-05-2012 13 1 Court to estimate the amount of an expense, we must 2 have some basis upon which an estimate may be made. 3 Vanicek v. Commissioner, 85 T. C. 731, 743 (1985) . 4 Without such a basis, any allowance would amount to 5 unguided largesse. Williams v. United States, 245 6 F.2d 559, 560 (5th Cir. 1957). 7 8 However, in the case of certain expenses, section 274 (d) overrides the so-called Cohan 9 doctrine. Sanford v. Commissioner, 50 T.C. 823, 827 10 11 (1968), affd. Per curiam 412 F.2d 201 (2d Cir. 1969); sec. 1.274-5T (a), Temporary Income Tax Regs ., 50 Fed. 12 Reg. 46014 (Nov. 6, 1985). Specifically, and as 13 pertinent herein, section 274 (d) provides that no 14 deduction is allowable for traveling expenses 15 (including meals and lodging while away from home) or 16 entertainment expenses or with respect to listed 17 property as defined in section 280F(d) (4), unless the 18 deduction is substantiated in accordance with the 19 strict substantiation requirements of section 274 (d) 20 and the regulations promulgated thereunder. Included 21 within the definition of listed property in section 22 280F(d) (4) is any passenger automobile or other 23 property used as a means of transportation. Sec. 24 280F (d) (4) (A) (I), (ii), (5); sec. 1.280F-6, Income 25 Tax Regs . (866) 448 - DEPO www.CapitalReportingCompany.com 2012 Capital Reporting Company Alexan K. Balekian 12-05-2012 14 1 Thus, under section 274 (d), no deduction is 2 allowable for expenses incurred in respect of listed 3 property on the basis of any approximation or the 4 unsupported testimony of the taxpayer. See, e.g., 5 Murata v. Commissioner, T.C. Memo. 1996-321; Golden 6 v. Commissioner, T.C. Memo. 1993-602. In other 7 words, in the absence of adequate records or 8 sufficient evidence corroborating the taxpayer's own 9 statement, any deduction that is subject to the 10 stringent substantiation requirements of section 11 274 (d) is proscribed. 12 13 14 15 Third, the Court is not bound to accept as gospel the unverified and undocumented testimony of a taxpayer. Hradesky v. Commissioner, supra; Tokarski v. Commissioner, 87 T.C. 74, 77 (1986) . Indeed, in 16 Krupp v. Commissioner, T.C. Memo. 2000-148, we stated 17 18 that, "As a trier of fact, it is our duty to listen to the testimony, observe the demeanor of the 19 witnesses, weigh the evidence, and determine what we 20 believe. " In Diaz v. Commissioner, 58 T. C. 560, 564 21 (1972), we observed similarly that the process of 22 distilling truth from the testimony of witnesses, 23 whose demeanor we observe and whose credibility we 24 evaluate, is the daily grist of judicial life. 25 Nine, we turn now to the deductions in (866) 448 - DEPO www.CapitalReportingCompany.com 2012 Capital Reporting Company Alexan K. Balekian 12-05-2012 15 1 issue, employee.business expenses. Much of the trial 2 of this case was devoted to petitioner's description 3 of his need to appear well-dressed and well-groomed, 4 which testimony we accept. However, it is clear that 5 many expenses that are incurred by a taxpayer because 6 of his or her trade or business are so inherently 7 personal in nature as to prohibit their 8 9 characterization as business expenses. Indeed, section 262 (a) expressly provides that "no deduction 10 shall be allowed for personal, living, or family 11 expenses . " Thus, for example, clothing that is 12 adaptable to general wear is not deductible. Yeomans 13 v. Commissioner, 30 T.C. 757, 767 (1958). The same 14 may be said of grooming expenses. Drake v. 15 Commissioner, 52 T.C. 842, 844 (.1969) . 16 The fact that petitioner did not typically 17 wear a suit while away from work is irrelevant, as 18 19 that is not the test. Rather, what is determinative and what makes the cost of petitioner's clothing 20 nondeductible, is the fact that his clothing was 21 adaptable to general use and wear, e.g., suitable to 22 23 such personal occasions as going to church, going to a wedding, going to a funeral, or going anywhere 24 where one might wish to be a bit more formally 25 attired than merely wearing blue jeans or sweats. (866) 448 - DEPO www.CapitalReportingCompany.com 2012 Capital Reporting Company Alexan K. Balekian 12-05-2012 1 2 3 Indeed, petitioner's clothing was no different than that of most businessmen and other professionals, such as lawyers and bankers, as well as a myriad of 4 other employees, such as court clerks and hotel desk 16 5 cler ks . 6 7 Accordingly, as a matter of law, petitioner is not entitled to any deduction for" clothing, 8 clothing cleaning, grooming supplies, and haircuts, 9 nor he is entitled to any deduction for a massage, as 10 11 12 13 14 that, too, is inherently personal and, regardless, has not been shown to be medically necessary. See sec. 213. Insofar as union and professional fees are concerned, there is nothing in the record -- either 15 of a testimonial or documentary nature -- to 16 demonstrate that petitioner incurred any such expense. 17 18 Finally, insofar as travel and automobile 19 expenses are concerned, petitioner did not satisfy 20 21 the stringent substantiation requirements of section 274. (Additionally, we note parenthetically that 22 food eaten at one's desk is not deductible simply 23 because one is "working through lunch. " See sec. 24 262(a).) But even if we were to ignore the stringent 25 substantiation requirements of section 274, suffice (866) 448 - DEPO www.CapitalReportingCompany.com 2012 Capital Reporting Company Alexan K. Balekian 12-05-2012 17 1 2 it to say that there is no support in the record for a finding that allowable expenses exceed the 3 statutory threshold of 2 percent of adjusted gross 4 5 6 income as required by section 67(a) or, to the extent that such threshold might be exceeded, that such excess, in combination with other allowable itemized 7 deductions, exceeds the standard deduction for any of 8 9 the years in issue. In view of the foregoing, respondent's 10 disallowance determination is sustained. 11 12 Charitable Contributions, on each of his returns for 2007 and 2008 petitioner claimed a 13 deduction of $1,010 for cash contributions to 14 charity, and on each of his returns for 2007, 2008, 15 and 2009 he claimed a $500 deduction for non-cash 16 contributions to charity. 17 At trial, petitioner testified that, "I 18 have no idea, " when asked about the nature of the 19 $1,010 cash deductions for 2007 and 2008 and 20 essentially blamed his return preparer for scheduling 21 those deductions on his returns. 22 Regarding the non-cash contributions, the 23 only evidence in the record is that stipulated by the 24 parties. Thus, there is no evidence whatsoever for 25 2007, whereas for 2008.all that is known is that (866) 448 - DEPO www.CapitalReportingCompany.com 2012 Capital Reporting Company Alexan K. Balekian 12-05-2012 18 1 petitioner donated five bags of clothes to the 2 Salvation Army and for 2009 donated clothes and a 3 large entertainment center, also to the Salvation 4 Army. The receipt for the clothing deduction for 2009 5 6 7 lists a value of $5. There is absolutely nothing in the record to suggest a value for any of the other donated property, and although the "large 8 entertainment center" might be a "big" item, the 9 record contains no description of it or otherwise 10 11 reveals its nature. Thus, the Court is left to guess as to value, but that is discouraged, if not 12 proscribed, by the law. See Williams v. United 13 States, supra at 560; Vanicek v. Commissioner, supra 14 at 743. What we can definitively say is that 15 whatever we might allow, there is no support in the 16 record for a finding that allowable contributions, in 17 18 combination with other allowable itemized deductions, exceed the standard deduction for any of the years in 19 issue. 20 In view of the foregoing, respondent's 21 disallowance determination is sustained. 22 Tuition and fees deduction at trial, 23 petitioner introduced no persuasive evidence in 24 support of the tuition and fees deduction that he 25 claimed on each of his 2007 and 2008 returns. (866) 448 - DEPO www.CapitalReportingCompany.com 2012 Capital Reporting Company Alexan K. Balekian 12-05-2012 19 1 2 3 Indeed, the record does not even indicate what the tuition and fees may relate to. Accordingly, respondent's disallowance 4 determination is sustained. See Rule 142(a). S 6 7 State tax refund, petitioner did not address this matter at trial, and he is therefore deemed to have conceded it. See Miner v. 8 Commissioner, T . C. Memo . 2003-39. Respondent ' s 9 determination is therefore sustained. 10 Ten, in order to give effect to our 11 disposition of the disputed issues, decision will be 12 entered for respondent. Eleven, this concludes the Court's oral findings of fact and opinion in this case. (Whereupon, at 9:32 a.m., the above- entitled matter was concluded.) 13 14 15 16 17 18 19 20 21 22 23 24 25 (866) 448 - DEPO www.CapitalReportingCompany.com 2012