TAX COURT OPINION

Case: Julie A. Henderson
Docket Number: 20355-09
Judge: Colvin
Opinion Type: bench
Filed: 11/23/2010
Pages: 9

UNITED STATES TAX COURT WASHINGTON, DC 20217 RMM JULIE A. HENDERSON, Petitioner, v. ) Docket No. 20355-09 COMMISSIONER OF INTERNAL REVENUE, Respondent. O R D E R Pursuant to Rule 152 (b) , Tax Court Rules of Practice and Procedure, it is ORDERED that the Clerk of the Court shall transmit the to petitioner and to respondent a copy of transcript of proceedings of L. Kroupa at San Francisco, California on October 26, 2010, containing her oral the above case before Judge Diane the pages of findings of fact and opinion. In accordance with the oral findings of fact and opinion, decision will be entered pursuant to Rule 155. (Signed) Diane L. Kroupa Judge Dated: Washington, D.C. November 23, 2010 SERVED Nov 24 2010 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 3 Bench Opinion by Judge Diane L. Kroupa October 26, 2010 Julie A. Henderson v. Commissioner Docket No. 20355-09 THE COURT: 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 bench opinion is made pursuant to the authority granted by section 7459(b) and Rule 152. All section references are to the Internal Revenue Code for 2007, and all rule references are to the Tax Court Rules of Practice & Procedure. Dr. Julie Henderson appeared on her own behalf, and Katrine Shelton appeared on behalf of Respondent. FINDINGS OF FACT Certain facts have been stipulated. The stipulation of facts the parties filed with accompanying exhibits is incorporated by this reference. The facts are so found. Petitioner resided in Oakland, California, at the -time she filed the petition. Petitioner was the principal of Sherman Oaks charter school for the spring term of 2007, and then was a professor at Stanford the fall term of 2007. She earned over a hundred thousand dollars as a school principal but Heritage Reporting Corporation (202) 628-4888 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 4 earned no money from Stanford in 2007. She failed to provide an employment agreement from either the Sherman Oaks charter school or Stanford University. She also failed to provide a copy of either the Sherman Oaks employee reimbursement policy or the employee reimbursement policy for Stanford. Petitioner prepared a return for 2007. Respondent examined the return and issued a deficiency notice to Petitioner determining a $15,308 deficiency in income tax and an accuracy-related penalty of $2389.60. The parties resolved all issues in the deficiency notice in a partial stipulation of settled issue. The only amount remaining is $8296 in unreimbursed employee business expenses on line 4 of form 2106 that Petitioner claimed as unreimbursed employee business expenses on Schedule A, itemized deductions, on her federal income tax return for 2007. Petitioner claimed expenses for business meals, gifts, supplies, and travel expenses in connection with her employment as a charter school principal. Petitioner provided no receipts of any expenses incurred. Rather, she provided a master four-page summary for each category of expenses asserted. She prepared this master summary not from contemporaneous records, but rather from looking during her IRS audit at her bank statements. Heritage Reporting Corporation (202) 628-4888 I 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 5 There was no itemization of the items purchased. Instead, Petitioner included groceries she purchased at Safeway if there was a Safeway entry on her bank statement. At trial, she explained she bought the groceries to host professional development lunches for schoolteachers during lunchtime rather than have meetings before or after school. Similarly, Petitioner included books purchased at Borders or Barnes & Noble if there was a Borders or Barnes & Noble entry on her bank statement. At trial she explained she bought the supplies for a science fair held in April 2007 and for after-school camps. There was no itemization of what materials she purchased at these bookstores, Lakeland Learning stores, or Blockbuster store, and no explanation of the business purpose written on an actual receipt. Petitioner also claimed she bought gifts for teachers to motivate them and to show her appreciation to them during 2007. She did not show the name of the recipient teacher, however, and was unable to demonstrate she stayed within the $25-per-teacher limit for the year. Petitioner also incurred travel expenses for a trip to San Diego and a trip to Los Angeles. Again, Petitioner failed to provide any actual receipts. She merely showed hotel charges and airline charges on her master list. Heritage Reporting Corporation (202) 628-4888 1 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 6 At trial she explained that the San Diego trip involved a medical mentee program and the trip to Los Angeles was related to her experience at the charter school earlier in the year, even though she was at Stanford when she incurred the cost. The Court is uncertain how these items were employee-related. Petitioner timely filed a petition to contest the numerous adjustments made in the deficiency notice. As previously explained, the parties resolved all issues in the deficiency notice by executing the partial stipulation of settled issues, which the Court filed. After these concessions, we must decide whether Petitioner is entitled to deduct unreimbursed employee business expenses. OPINION We begin with two fundamental principles of tax litigation. First, the Commissioner's determinations are generally presumed correct and the taxpayer bears the burden of proving that those determinations are erroneous. Rule 142(a). Second, deductions are a matter of legislative grace and the taxpayer must show that he or she is entitled to any deduction claimed. Rule 142(a). Welch v. Helvering, 294 US 111 (1933). This includes the burden of substantiation. Hradesky ¢. Commissioner, 65 TC 87, 90 (1975); affd. per Heritage Reporting Corporation (202) 628-4888 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 7 curiam 540 F.2d 821 (5th Circ. 1976). Substantiation means that a taxpayer shall keep such permanent records or books of account as are sufficient to establish the deductions claimed on the return. Sec. 6001. Sec. 1.6001-1(a), (e), Income Tax Regs. The Court need not accept a taxpayer's self- serving testimony when the taxpayer fails to present other probative evidence. Beam v. Commissioner, TC Memo 1990-304 (citing Tokarski v. Commissioner, 87 TC 74, 77 (1986)). We now consider Petitioner's claimed unreimbursed employee business expenses. A taxpayer is entitled to deduct all ordinary and necessary expenses paid or incurred in carrying on a trade or business. Sec. 162. An employee's trade or business is earning compensation and generally only those expenses that are related to the continuation of the employee's employment are deductible. Noland v. Commissioner, 269 F.2d 108, 111 (4th Circ. 1959). If an expenditure qualifies as 'ordinary and necessary', an employee may deduct unreimbursed employee expenses. An employee may not deduct such expenses, however, if the expenses are not substantiated or if the employee has a right to, but fails to seek, reimbursement from the employer. Kennelly v. Commissioner, 56 TC 936, 943 (1971). Heritage Reporting Corporation (202) 628-4888 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 8 In addition, personal expenses are not deductible. Sec. 162(a) and 262(a). Moreover, not all employee business expenses are deductible. There are certain expenses that are helpful, even necessary, but are not deductible because they are personal in nature. For example, commuting expenses. Sec. 262. Green v. Commissioner, 59 TC 456 (1972). Respondent argues, and we agree, that Petitioner failed to show that the purpose of the expenditures was primarily business rather than personal. There was no itemization of receipt that showed what part of the groceries were personal versus 'business'. The Court does not believe that all groceries bought on those specified days contained no groceries for personal use. Without any contemporaneous record of what was purchased, Petitioner is asking us to believe that groceries bought at Safeway, books bought at Border or Barnes & Noble and movies rented from Blockbuster were business-related and not personal. Petitioner had no supporting documents or receipts to substantiate any of her business meals, gift, or travel. All she had was a master summary she prepared after the fact from her bank statements. A taxpayer must meet strict substantiation requirements when claiming expenses for certain items such as travel, meals, and gifts. Sec 274(d). Heritage Reporting Corporation (202) 628-4888 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 9 Petitioner also failed to provide a copy of her employment agreements or provide a copy of her employer's reimbursement policies to show how the items were first related to her employment and thus eligible for reimbursement, and second, that she did not get reimbursed for such cost. A taxpayer's uncorroborated statements are insufficient to allow deductions for unsubstantiated amounts claimed. Mitchell v. Commissioner, TC Memo 1996-217. Petitioner failed to present evidence sufficient to substantiate that her expenses for meals, gifts, and travel were ordinary and necessary business expenses rather than personal expenses. The materials and supply deductions included purchases at Borders books and Barnes & Noble for science camp books. Even if the Court accepts Petitioner's testimony that such purchases were for a science camp, it is not enough that the supplies are helpful to the students and appropriate for use in the classroom. The supplies must also be directly related to the taxpayer's job as a teacher and a necessary expense of being a teacher. See Wheatland v. Commissioner, TC Memo 1964-95. Petitioner failed to show the Court that these expenses were directly related to her job as a high school principal. We laud Petitioner's generosity and dedication to the teaching profession. We simply cannot, however, Heritage Reporting Corporation (202) 628-4888 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 10 allow Petitioner to recreate her expenses from bank statements with no underlying receipts. Her master list lacks the contemporaneousness and specificity needed to substantiate business expenses. To reflect the foregoing and the partial stipulation of settled issues, a decision will be entered under Rule 155. This concludes the Court's oral findings of fact and opinion in this case. (Whereupon, at 12:40 p.m., the bench opinion in the above-entitled matter was concluded.) // // // // // // // // // // // // // // Heritage Reporting Corporation (202) 628-4888