TAX COURT OPINION

Case: Steven Frank & Jean Ann Jacobsen
Docket Number: 15321-09S
Judge: Colvin
Opinion Type: bench
Filed: 05/26/2010
Pages: 5

5Db- K,rt'"OlP a- UNITED STATES TAX COURT WASHINGTON, D.C. 2021 7 Steven Frank & Jean Ann Jacobsen , Petitioners, v . ) Docket . No . 15321-09 S COMMISSIONER OF INTERNAL REVENUE, . Respondent . O R D E R Pursuant to Rule 152(b), Tax Court Rules of .Practice and Procedure, it i s ORDERED that the Clerk of the Court shall transmit to petitioners and to respondent a copy of the pages of the transcript of the proceedings of the above case before Judge Diane L . Kroupa at Des .Moines, Iowa, on May 13, 2010, containing her oral 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 Date : Washington, D .C . May 26, 2010 SERVED MAY 2 8 2010 3 1 Bench Opinion of Judge Diane L . Kroupa May 13, 201 0 Jacobsen v . Commissioner Docket No . 15321-09S THE COURT : The Court has decided to render ora l 4 findings of fact and opinion in thus case and the followin g represents the Court's oral findings of fact and opinion . The oral findings of fact and opinion shall not be relie d 7 upon as precedent in any other case . 8 This proceeding was heard as a small tax case pursuant to the provisions of section 7463 and Rules 17 0 10 through 175 . All section references are to the Internal 11 12 Revenue Code for 2004, 2005 and 2006, which shall b e referred to as the years at issue, and all Rule references 13 are to the Tax Court Rules of Practice and Procedure . This 14 bench opinion is made pursuant to the authority granted by 15 section 7459(b) and Rule 152 . 16 Steve Jacobsen appeared on behalf of petitioners, 17 and Susan Bollman .appeared .on, .behalf of respondent . 18 FINDINGS OF FACT AND OPINION 19 Certain facts have been stipulated . Th e 20'i stipulation of facts filed by the parties, with accompanying 21 exhibits, is incorporated . by this reference . Petitioner s 22 resided in Iowa at the time they filed the petition in this 23' case . Petitioner wife is a party because they filed a joint 24 Federal tax return for the years at issue . All relevan t 25 facts relate to petitioner husband who shall be referred to Heritage Reporting Corporation (202) 628-4888 4 as the petitioner individually . Petitioner co-founded Employee Benefits Services (EBS), an insurance underwriter, in the 1990s . EBS was operated as an S corporation . EBS contracted with numerous insurance salesmen as independent contractors . A salesman would receive 70-percent commission for each sale , and EBS would receive 30 percent . EBS used its share of the commissions to pay for staff and cover other overhead costs . 9 EBS grew to 100 insurance agents and $2 million in revenue . 10 EBS suffered a major setback when its bigges t 11 client, Wellmark, Inc ., decided to end its busines s 12, relationship with EBS in 2004 . This devastated bot h 13 petitioner and EBS . EBS ' s revenue plummeted *1150,000 . 14 ; The world that petitioner had known had changed and h e 15 suffered from severe depression . 16 Petitioner was unable to file the return for 2004 17 timely . He previously has an accountant prepare their joint 18 Federal tax returns but decided he could not afford hi s 19 accountant's services anymore . He personally completed the 201 returns for the years at issue . 21 . Petitioner reviewed the returns his accountan t 22 prepared in previous years to guide his preparation for the 23 joint Federal tax returns for the years, . at issue . 24 Petitioners reported business income from EBS (shown on a K- 25 : 1) on Schedule E and claimed business expenses on Schedule C Heritage Reporting Corporatio n (202) 628-4888 5 for each of the years at issue . Petitioner had a contract with EBS as did all other contracted salesmen that EBS would not reimburse any business expenses the salesmen incurred . 4 Petitioner claimed the expenses he incurred during the years 5 at issue as he had claimed them on the accountant prepare d 6 returns on Schedule C . Respondent determined the expenses 7, should have been claimed by EBS rather than petitioners . 8 Respondent issued petitioners a deficiency notice . Petitioners timely filed a petition contestin g 10 respondent's determinations . The parties filed a 11 Stipulation of Agreed Adjustments that resolves all issues 12 other than the Schedule C expenses and the additions to tax 13 and penalties . 14 We begin with the Schedule C expenses . Petitioner 15 16 17 18, incurred expenses in selling insurance to third partie s during the years at issue . It is well settled tha t taxpayers may deduct all ordinary and necessary busines s expenses incurred during the taxable year in carrying on any 19 trade or business . Sec . 162(a) . Respondent agrees tha t 201 petitioner incurred expenses in selling insurance to third 21 parties . Respondent disputes, however, whether petitioner 221 should claim the expenses as Schedule A expenses a s 23 unreimbursed employee business expenses subject to the two 24 percent of adjusted gross income limitation under section 25 67 . Heritage Reporting Corporation (202) 628-4888 -01 6 1 We note that petitioner reviewed the returns filed 2 by his accountant and followed the expenses deductions a s 3 5 they had been applied in previous years . Petitioner used his best judgment in determining how to deduct the business expenses related to his business of selling insurance whether it was attributable to insurance contracts tha t CJ 71 would be assigned EBS or not . We further note petitioner did not duplicate the expenses on EBS's return for the year s 9 at issue . Further, petitioner's income from EBS would have 101 been less had the expenses been claimed by EBS . We find no 11 need to adjust petitioner' s expenses from his Schedule C for 12 any of the years at issue . 13 We also conclude that petitioners' failure t o 14 timely file the return for 2004 was due to reasonable cause 15 and not willful neglect . Similarly, we find that any 161 understatement on any return for any of the years at issue 17 was due to reasonable cause and not willful neglect . 18, To reflect the foregoing and the stipulation of 19 agreed adjustments, a decision will be entered under Rule 20 155 . 21, THIS CONCLUDES THE COURT'S ORAL FINDINGS OF FACT 22A ND OPINION IN THIS CASE . 23 (Whereupon, at 3 :49 p .m ., the bench opinion in the 24, above-entitled matter was concluded . ) 25 Heritage Reporting Corporation (202) 628-4888