TAX COURT OPINION

Case: Barbara Ann Scott
Docket Number: 18043-10
Judge: Whalen
Opinion Type: bench
Filed: 06/26/2012
Pages: 27

UNITED STATES TAX COURT WASHINGTON, DC 20217 BARBARA ANN SCOTT, Petitioner, . v. COMMISSIONER OF INTERNAL REVENUE, Respondent. ) ) ) ) ) Docket No. 18043-10 ) ) ) ) ) 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 petitioners and to respondent a copy of the pages of the transcript of the proceedings in the above case before the undersigned at Miami, Florida, containing the oral findings of fact and opinion rendered on May 23, 2012. In accordance with the oral findings of fact and opinion, decision will be entered for respondent. (Signed) Laurence J. Whalen Judge Dated: Washington, D.C. June 26, 2012 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 Bench Opinion by Senior Judge Laurence J. Whalen Barbara Ann Scott v. Commissioner May 22, 2012 3 Docket No. 18043-10 I. 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. II. This proceeding was heard as a regular case. See section 7453 . This bench opinion is made pursuant to the authority granted by section 7459 (b) of the Internal Revenue Code of 1986, as amended, and Rule 152 of the Tax Court Rules of Practice and procedure. Hereinafter in this bench opinion, and unless otherwise indicated, all section numbers refer to the Internal Revenue Code, as amended and in effect for 2006, 2007 and 2008, the tax years in issue, and all Rule numbers refer to the Tax Court Rules of Practice and Procedure. III. Ms. Barbara Ann Scott appeared in these proceedings on her own behalf, and John R. Bampfield, Esquire, appeared on behalf of Respondent. Heritage Reporting Corporation (202) 628-4888 IV. 4 Petitioher resided near Asheville, North Carolina, at the time she filed her petition in this Court . V- Facts: Some of the facts have been stipulated by the parties. The Stipulation of Facts and the Supplemental Stipulation of Facts, and the exhibits attached thereto, are hereby taken into evidence . Except jfor a small amount of wages the Petitioner earned during 2008, Petitioner was unemployed during each of the years in issue. . Formerly, she had been a tenured college professor at the State UniverÄity of New York at New Paltz. Petitioner retired sometime prior to 2006, and she moved to Western North Carolina. During 2008, Petitioner received wages totaling $2,500 from Warren Wilson College in Asheville, North;Carolina. In her pretrial memorandum, Petitioner states that she was hired by Warren Wilson College as an adjunct professor to teach one course for one semester.· There is nothing in the record to suggest that Petitioner wanted her employment. by Wairren Wilson College to continue after 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 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 5 2008, or took any steps to accomplish that. Petitioner filed an income tax return on Form 1040, U.S. Individual Income Tax Return, for taxable year 2006 on or about June 25, 2008. The return was filed after the due date, April 15, 2007, and was delinquent. The total income reported on that return consisted of pensions and annuities of $38,494.44, Social Securit(cid:0)570benefits of $19,662, and royalties of $18.40. In passing, we note that Petitioner's pretrial memorandum states that she published two books during her career and received occasional royalty payments from those books. Petitioner's 2006 return also reported unreimbursed employee expenses comprised of travel expenses of $4,864.32, home office expenses of $8,241.89, and other expenses of $5,570.03. After offsetting the aggregate of those amounts by two percent of adjusted gross income for the year, $1,104.10, Petitioner claimed a deduction for $17,572.14. Petiti ner filed a timely income tax return on Form 1040, U.S. Individual Income tax Return, for taxable year 2007. Subsequently, Petitioner filed an amended return for 2007, which was accepted by Respondent. Petitioner's amended return for 2007 Heritage Reporting Corporation (202) 628-4888 L W 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 reported total income consisting of pensions and annuities of $38,494.44, Social Security benefits of $20,32, and royalties of $21.68. 1 A Petitioner's amended return for 2007 also reported unreimbursed employee expenses comprised of union dues of $34, home office expenses of $6,817.23, and other expenses of $3,876.55. After offsetting the aggregate of those amounts by two percent of adjusted gross income, $1, 111, Petitioner claimed an aggregate deduction of $9,616.76. Petitioner filed an income tax return on Form 1040, U.S. Individual Income Tax Return, for taxable year 2008 on or about June 15, 2009. The return was filed after the due date, April 15, 2009, and was delinquedt. The total income reported on that return consisted of wages of $2,500, described above, taxable refunds of $3,706, pensions and annuities of $38,858.52, and Social Security benefits of $20,788. Petitioner's 2008 return also reported unreimbursed employee expenses comprised of travel expenses and othér business expenses totaling $9, 340 . 41, home of f ice expenses of $7, 758 . 93, and tax preparation fees of $100. After offsetting the aggregate of those amounts by two percent of adjusted gross income, $1!,249.70, Petitioner claimed a Heritiage 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 deduction of $15,949.64. Travel Èxpenses: Petitioner's return for 2006 lists the following five items for which Petitioner claimed aggregate travel expenses of $4,864.32: Attend and speak at Biannual Meetings of International Peace Research Association, Calgary, Canada, June 25 to July 1, 2006. Attend. ánd speak at The Nation magazine seminar week; December 16-23, 2006. Attend jand serve as a panelist at the annual meeting of the Peace and Justice Studies Association, New York City, Ngw York, October 6-10, 2006. Attend conference at Duke Êiversity, Durham, North Carolina, February 17, 2006. Attend academic meetings, conferences, public lectures at University of North Carolina, Asheville: January 18, 23, 30; February 6, 13; March 14, 21, 27, 31; April 3, 10, 17, 21, 26; May 2, 8, 17; June 18; July 24 27; August 17; September 18, 22, 26; October 3, 19, 24, 30; November 2, 6, 9, 2006. Petiti ner's return for 2008 lists the following eight items for which Petitioner claimed aggregate travel expenses of $3,002.91: Trip to Duke University, Durham, North 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 Carolina, July 1 nd 2, 2008. At tend Southeastern · Women' s Conf erence, Asheville, North Carolina June 20, 21, 22, 2008. Participate in 5th Medial Reform Congress, Minneapolis, Minnesota June 3-9, 2008. Trip to Brown University, Providence, Rhode Island [May 24 to 29, 2008]. Trip to Tryon, North Carolina Culture Center Program, April 17, 2008. Trip to Charlotte, North Carolina Belk Center Conference February 16-18, 2008. Travel to Asheville, North Carolina to attend and chair bi-weekly meeting of The Natio -- magazine discussion group: 21 meetings from February through December, 2008. Attend public lectures (13) at University of North Carolina, Asheville, North Carolina and at Warren Wilson College (10). Petitioner did not claim travel expenses on her amended return for 2007. Home Of f ice Expenses : There are two components of the home office expenses claimed by Petitioner. First, Petitioner computed depreciation on the portion of her home that, she claims, was used as a home officer. For this computation, she started 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 with $36,000, the amount of the constructive annual depreciation on her home. To compute that amount, she multiplied the value of her home, 300, 000, by an "accelerated" annual depreciation rate of 12 percent . Because there are seven rooms in Petitioner' s house, Petitioner divided $36, 000 by seven, to arrive at $5,142.86, the amount, she claims, is the annual depreciation on her home office. The sec:ond component of Petitioner' s home office expense is an allocation of various expenses to the use of her home office. The following are the expenses thÓ Petitioner allocated: [ U \A/ ct(cid:16)040 i A \\ \\ \\ \\ \\ \\ \\ \\ \\ \\ \\ \\ \\ 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 Expense 2006 2007 2008 Telephone 2,090.32 3,558.77 1,331.93 Homeowners Ins. 624.00 521.00 2,435.00 Electricity 2,339.98 2,654.55 2,704.23 Material and 3, 023 . 69 1, 442 . 52 , 747 . 82 equipment Home renova- 10,944.15 2,707.95 tion and repair Fixtures, 2,671.08 352.40 Hardware, etc. Dishwasher Repairs Household labor 340 . 48 1, 027. 2,175.53 A Direct TV . 2,033.00 Totals 21,693.22 11,720.56 18,312.33 One-seventh 3,099.03 1,674.37 2,616.05 Petitioner totaled the above expenses for each year and divided the total by seven. Petitioner then added the qµotient of that division to the depreciation, discussed above. In this way, Petitioner computed home office expenses of $8,241.89 for 2006 (i.e., $5,142.86 plus $3,099.03), $6,817.23 for 2007 (i.e., $5,142.86 plus $1,674.37), and $7,758.91 for 2008 (i.e., $5,142.86 plus $2,616.05) . 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 11 Other Eupenses: Petitioner claimed other "business" expenses as a deduction on Schedule A in each of the years in issue for expenditures on such things as books, new(cid:0)541papers,journals, professional association dues, office supplies, equipment, et cetera. The totål amount deducted for each year is $5,570.03 in 2006, $3,876.55 in 2007, and $6,337.50 in 2008. VI. Notice of Deficiency: In the notice of deficiency issued on May 6, 2010, Respondent determined: (1) a tax deficiency of $2,538 in Petitioner's 2006 tax, together with a delinquency penalty under section 6651(a) (1) of $698, (2), a tax deficiency of $1,455 in Petitioner's 2007 tax, and (3) a tax deficiency, of $2,094 in Petitioner's 2008 tax, together with a Üelinquency penalty under section 6651(a) (1) of $209.40. The principal adjustment to each of Petitioner's returns made by the notice of deficiency is to disallow the miscellaneous itemized deductions that were claimed on Petitioner's return. The notice determined, as follows: "The deductions of $17,572.00, $9,616.36, and $15,949.00 shown on your 2006, 2007, and 2008 returns, respectively, as Schedule A Heritage Reporting Corporation (202) 628-4888 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 Miscellaneous Deductions after the two percent _.. 12 limitation are not allow ." VII. Amended Returns for 2006 and 2007: In June of 2011, well after the notice of deficiency had been issued on May 6, 2010, and after this case had been pending for apprc$ximately one year, Petitioner submitted to ResÒondent's counsel amended returns for 2006 and 2007, but not for 2008. Each of the amended returns includesia Schedule C, Profit and Loss From Business, for a sole proprietor entitled "Consultant: War/Peace and thé Media." Although Petitioner had signed her original tax returns under penalty of perjury, Petitioner included on each Schedule C the deductions that had been claimed as unreimbursed employee expenses on the Schedule A of the original return. We note that the "'treatment of amended returns is a matter .of internal admini.stration, and solely within the discretion of the Commissioner.'" Evans Cooperage Co. v. United States, 712 F.2d 199, LJ w 204 (5th . 1983) 3o1 n.5 (3¼ CM. 1972.) (quoting Badaracco v. Commissioner, revg- T-C- Memo. 891- 693 F.2d 298, We also note that "the , 404 . Internal Revenue Code does not explicitly provide for A a taxpayer's filing or for the Commissioner's 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 13 acceptance, of an amended return; instead, an amended return is a creature df administrative origin and grace." Badaracco v. Commissioner, 464 U.S. 386, 393 Furthermore, in this case, the deficiencies were issued before Petitioner attempted to submit her amended returns, and the amended returns do not vitiate the defiÒiencies that had already been issued. See, e.g., Colvin v. Commissioner, 122 Fed. Appx. 7883 A LTW 790 (5+h CJr 2.005) ,°FF9· T'C. Me-o. 2.o04 - 67. VIII . Petitioner's Position: In a statement attached to the petition, Petitioner claims that the notice of deficiÑncy "is in violation of my Constitutional rights". Petitioner asserts that it violates the Equal Protection Clause by denying her "the right to deduct professionally related expenses (for travel, home office, books and journal subscriptions, etc.) just because [she is] . . . a· retired professor, and it privileges the class of taxpayers who happen to be drawing a pay check as ' employee s . ' " Petitioner also claims that the "intellectual labor" she performs as a retired college professor' "are activities which .have economic value which, in turn,, contributes to the calculus of the Herïtage 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 Gross National PrÒduct of the U.S." Petitioner asserts that her intellectual labor consists of "researching and writing journal articles and books, 14 attending profess.ional association meetings (for sociology, peacyl studies and -med+ee-1--the three areas e, me, A t Tw of [her] ... professional expertise), participating in panels and workshops, public speaking, and serving as a consultant and occasional journalist for non-profit newsweekly." Finally, Petitioner claims that the notice of deficiency is discriminatory in failing to grant modest tax relief for work-related expenses for retired taxpayers who are not in the paid labor force, yet contributing to the well-being of the U.S. economy. At trial, Petitioner submitted a pretrial memorandum in which she set out a modification of the above argument. As modified, Petitioner does not seek the application of her equal protection argument in the case of all retirees. Rather, her position is that tþf equal rotection should be applied only to "a subset of the educated professional labor forc L T namely, "college professors specifically teaching at top tier research universities or second tier 4-year colleges with, at least, master's degree graduate 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 15 study programs." As we understand Petitioner's modified position, she believes that it is a violation of equal protection to deny retired college professors at the universities described above, the right to deduct professionally-related expenses because, in retirement, those professors are expected to--indeed, ed obligebed-to--engage in the "life of the.mind" by L A "reading books, newspapers and academic journals, attending professional meetings, participating in panels, conversing with colleagues, giving public lectures, researöhing and writing books and journal articles" without regard to whether they are being paid. On the other hand, according to Petitioner, it is not an equal protection violation to deny other retirees, such as doctors, lawyers, architects, journalists, other college professors, et cetera, the same right to deduct professionally-related expenses. Presumably, such other retirees are not obligated to engage in the "life of the mind." Petitioner does not explain the source of that obligation. Furthermore, Petitioner points to the Stipulation of Facts and the Supplemental Stipulation of Facts and the attached exhibits, and she argues Heritage Reporting Corporation (202) 628-4888 16 1 2 3 4 5 6 7 8 9 10 11 12 13 that she has provided sufficient substantiation to be allowed the deductions claimed on her returns . However, we note that Petitioner's testimony at trial was general. She did not testify as to any of the specific expenditures claimed as deductions on her returns. Significantly, she did not explain how her "Consultant: War/Peac and the Media" trade or business relates to any specific expenditure or relates to the trade or business of being a college professor. Finally, Petitioner argues that the failure to file penalties should not be imposed. She asserts that she filed her returns late because of certain 14 - health problems. 15 16 17 18 19 20 21 22 23 24 25 IX. Expense Deductions: Deductions are a matter of legislative grace, and the taxpayer must maintain adequate records to substantiate the amounts of any deductions or credits claimed. SEC. 6001; e4 Ocm)· INDOPCO, Inc. v. Commissioner, 503 U.S. 99, t :::tw , SEC. 1. 60 01-1 (a) , Inäome Tax Regs . Taxpayers must maintain records relating to their income and expenses and must prove their entitlement to all claimed deductions, credits, and expenses in controversy. See sec. 6001. Section 162 (a) authorizes a deduction for 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 17 "all the ordinary. and necessary expenses paid or incurred during the taxable year in carrying on any trade or business;." Generally, no deduction is allowed for personal, family, or living expenses. See sec. 262. The taxpayer must show that any claimed business expenses were incurred primarily for business rather than personal reasons. See Rule 142(a); 9 Wallister v. Commissioner, 72 T.C. 433. To show hat t the expense was not for personal reasons, the taxpayer must sh w that the expense was incurred primarily to benefit his or her business, and there must have been a proximate relationship between the claimed expenses and the business. See Wallister v. Commissioner, su ra at 437. In addition, any amount claimed as a business expense must be substantiated. Sec. 6001; G915) off;d. Hradesky v. Commissioner, 65 T.C. 87, 89-90, 44s- 54 O F. 24 921 (5 m Cir . R Vo). 4m4mme, The taxpayer bears the burden of proving that the claimed expenses were ordinary and necessary, as required by section 162. Rule 142(a); sec. 1.6001- 1(a), Income Tax Regs. A trade or business expense is "ordinary" for purposes of section 162 if it is normal or customary within a particular trade, business, or industry, and it is "necessary" if it is appropriate and helpful for!the development of the business. 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 . 18 Commissioner v. Heininger, 320 U.S. 467 (1943); Deputy v . du Pon t , -e.t--eediwise,- soF u.s. 4(cid:16)254, A If a taxpayer claims a business expense, +95 G4 40)- the Court may allow a deduction even where the taxpayer is unable to fully document the expense, provided the Court has an evidentiary basis for doing so. Cohan v. 543 - 544 (24 CJr . 1930) Commissioner, 39 .F.2d 540; Vanicek v. Commissioner, 85 142. -14S (t%5). T . C . 7317 But · see sec . 1. 274 -5T (a) , Temporary Income Tax Regs . Fe,cl. ÑES- 46014 (Nlov/. 6, 1985). n such an Instance, the Court 1s perm1tted to approximate the allowable expense, bearing heavily against the taxpayer whose inexactitude is of his or her own making. Cohan v. Commissioner, supra at 544. The record must contain sufficient evidence to provide a basis upon which the estimate may be made and to permit us to sa-l.eu-lè+e- that C.or,c W d6 those expenses were L- deductible expenses, rather than nondeductible personal expenses. Williams v. United States, 245 560 (5+h Cir . 195"/) ; F.2d 559, ct 1;Læ, Vanicek v. Commissioner, supra at L 742-743. In certain circumstances, the taxpayer must . meet specific substantiation requirements in addition to'those of section 162, which are not subject to the Cohan doctrine.) See, e.g., secs. 274 and 280A. To satisfy the adequate records requirement of section 274, a taxpayeri must maintain records and documentary 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 evidence that in combination are suf f icient to establish each element of an expenditure or use. Sec. 1. 274-5T (c) (1) ar d (2)., Temporar Re9. 46016, 460F7 (W ov/·, 5 (cid:16)042 Although a contemporaneous log 1s not required, Income Tax Regs . ,50 Ped L T 19 corroborative evidence to support a taxpayer's reconstruction "of the elements * * * of the expenditure or use must have a high degree of probative value to elevate such statement" to the level of credibility of a contemporaneous record. Sec . 1. 274 -5T (c) (1) , Temporary Income Tax Regs . , supra. Travel expenses, including meals and lodging, entertainment expenses, and expenses with respect to listed property must be substantiated by adequate records or sufficient evidence corroborating the taxpayer's own statement showing the: (1) Amount of each expenditure, (2) time and place of the travel or entertainment, (3) business purpose of the expense, and (4) in the case of entertainment expenses, the business relationship to the taxpayer of the person being entertainëd. Sec. 274(d); sec. 1.274-5T(a) and L_~T\/\ ) , Temporary ;[ncome Tax Regs . 50 Fed . Reg . 460¼ (N ov. 6 Sec. 280A(a) generally disallows deductions for expenses with respect to a "dwelling unit" used by a taxpayer as at residence unless an exception applies . 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 20 Sec. 280A(c) exempts from the general disallowance rule expenses attributable to a dwelling unit which is exclusively used ion a regular basis as a principal place of business for any trade or business of the taxpayer. Because business and personal motives may be intertwïned in connection with expenses related to Petitioner's residence, it is important to determine what portion of þhe residence was used regularly and exclusively for Petitioner's business. See Intl. Trading Co. v. Commissioner, 275 F.2d 578, 584-587 (7·% C r. :t 2222: 1%O aff T,c(cid:16)042Memo. R58- t o4 (cid:16)042 Dei l'v. ommissioner, T.C. MeÊo 2005-287. ^ Combined personal and bus;iness use of a section of the residence precludes deductibility. See generally Sam Goldberger, Inc. v. Commissioner, 88 T.C. 1532, 155 7. Furthermore, there are limits to the deductions alloüed by section 280 (c). Section L V 280A(c) (5) limits a taxpayer's deductions for the business use of a dwelling to the amount by which the gross income generated from the business activity conducted in the dwelling exceeds the sum of the deductions for expenses allocable to such activity, whether or not the dwelling is so used and the deductions allobable to the trade or business in which the use occurs but not allocable to súch use. See Heritage Reporting Corporation (202) 628-4888 1 2 3 4 5 Martin v. Commissioner, T.C. Memo. 1996-503 C4fiOrv5. Wi+ho¢t publiShed OPwon 155 F.3d É^54 (+ words, no deduction for use of a dwelling may be In other CJr. M%. claimed if the deduction would give rise to, or increase, a net 1)oss from the business to which the deduction relates. Id. (Citing Grinalds v. . 6 Commissioner, T.C. Memo. 1993-66) . 7 8 9 10 11 12 13 14 15 16 17 18 1.9 20 21 22 23 24 25 X. Trade r Business; The principal question for decision in this case is whether Petitioner was "carrying on" a t-rade or business during taxable years 2006, 20073 and 2008. Section 162 provides that "there shall be allowed: as a deduction all the ordinary and necessary expenses paid or incurred during the taxable year in carrying on any trade or business . " The Supreme Court GRe t U.S. 23, 35, ld in Commissioner v. Groetzinger, 480 t to be considered to be carrying on a L_T\A trade or business within the meaning of section 162, . "the taxpayer must be involved in the activity with continuity and regularity and * * * the taxpayer's primary purpose for engaging in the activity must be for income or p¾ofit." This Court has long followed the maxim that "every person who works. for compensation is engaged in LT\^ the business of earning his pay. " Noland v. (4+W Cd r . R59) , o#3. T-C(cid:16)042Memo. Commissioner, 269 F.2d 108, 11 . Therefore, a Heritage Reporting Corporation (202) 628-4888 22 taxpayer who is an employee may deduct "all the ordinary and necessary expenses paid or incurred during the taxable year" in earning her pay, provided that she meets the substantiation requirements discussed above. See secs. 162(a), 274. Whether a taxpayer is engaged in carrying on a trade or business is a question of fact. See- Ô419 Reisinger v. Commissioner, 71 T.C. 568; For v. L L T W Commissioner, 56 T.C. 1300, affd. 48 F.2d 1025; Corbett -v. Commissioner, 55 T.C. 884; Furner v. Commissioner, 393 F.2d 292 (7* Cir. 1968), .meey. 47 T.C. (C4 - Cl- R65) 165; Ca ter v. Uilited States, 354 F,2d 352. -In order A (1966 A L W for an expenditure to be deductible as a business expense, such expenditure.must relate to activities which amount to the present carrying on of an existing bus ines s . Koons v . Commis s ioner, 35 T . C . 10 92 3 1100 6 . Although currently unemployed, a taxpayer can still be engaged in a trade or business if he or she was previously involved in, and intends to return 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 .20 to, that trade or business. Haft v. Commissioner, 40 21 22 23 24 25 T.C. 2, 6 (1963). However, amounts expended in preparation for the resumption of business at some indefinite future time are not deductible, Frank v. Commissioner, 20 T.C. 511 and mer membership in good 514 G453 , LJW standing in a profession does not constitute carrying 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 23 on a trade or business . Owen v. Commissioner, supra at 381. We have held that a taxpayer who temporarily ceases active participation in a trade or business during a transition period between leaving one position and obtaining another may be 'carrying on' a trade or business during the transition period. Haft v. Commissioner, 140 T.C. 2. Also see, Furner v. (R 63) Commissioner, 393 F.2d 292, or v. Comm1ssloner, 56 ^(g6g ress.47.Y.ç. t65 Ô466 T.C. 1300. A On the other hand, when a taxpayer leaves her trade or business for a prolonged period with no apparent continuing connection with either her former job or any clear indication of an intention to resume the same trade or business, the taxpayer is not L JW LJW M13 "carrying on" her trade or bu iness. Canter v. United (ca. ct 1965 States, 354 F,2d 352 (a nurse 1scontinued nursing L- activities for more than four years while obtaining Bachelor' s and Master' s degrees in nursing) ; Corbett v. Commissioner, 55 T.C. 884 (a teacher discontinued L..3\A teaching and commenced full-time study leading to a Ph.D., and four years later at time of trial was still a full-time student). On the facts in this case, we find that Petitioner was not "carrying on" her trade or business 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 24 of being a college professor during the years in issue. XI. Equal Pirotection Principles(cid:16)041Petitioner L argues that equal protection principles are violated in her case to the extent that section 162(a), or presumably any other provision .Ceder such as section 27 or section 280A, is LT\ interpreted to deny her, a retired college professor who is obligated to live the "life of the mind", any tax deduction necessary for her "work." We noté that the 14* Amendment to the Constitution of the United States does not apply to L W Federal statutes. Labay v. Commissioner, 55 T.C. 6, (sts car, m1Q A O L affd. 450 F.2d 280; Cole v. Commissioner, T.C. Memo. 1975-144. With regard to Federal statutes,. the Due rocess Clause of the 5* Amendment embraces the principles of the Equal rotection Clause of the 14 Amendment. Johnson v. Robison, 415 U.S. 361, 364-365; Caputi v. Commissioner, T.C. Memo.2004-283. Under the Fifth Amendment, a statutory classification generally is valid if it bears a rational relation to a legitimate Government interest and it does not implicate a suspect classification or interfere with a fundamental right, and legislatures have especially 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 25 broad latitude in creating classifications and distinctions in tax statutes. Regan v. Taxation With Representation of Wash., 461 U.S. 540, 547 Th rational basis standard dictates that a statutory provision does not violate equal protection "if any state of facts rationally justifying it is demonstrated to or perceived by the courts." United States v. Md. Savings-Share Ins. Corp., 400 U.S. 4, 6. P8QSorgabÍ(cid:16)254, Moreover, a classification that has some r,*d ~,'1, LT basis does not violate the Constitution simply because it "is not made with mathematical nicety, or because in practice it results in some inequality." Lindsley v. Natural Carbonic Gas Co., 220 U.S. 61, 78; Bryant 31 6.Ct. 331 55 v. Commissioner,· 72 T.C. 757, 764 This case does not involve a fundamental right or suspect class . Accordingly, there is no violation of equal protection if there is a rational justification for.the statute. There is no improper discrimination in denying business deductions to Petitioner in this case., and we reject Petitioner's position to the contrary. Petitioner simply was not engaged in a trade or business during the years in issue. Congress has structured the Internal Revenue Code to provide deductions for the business expenses of individuals and other persons who are engaged in a trade or 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 26 business. See secs. 162(a), 183, and 262. Under the tax sta~tute, the gross income of persons engaged in a trade or business. is offset by the expenses incurred in operating that business, with the result that only the net income of( the business is subject to tax. See sec. 162(a). Clearly, this structure is rational. Petitioner is not seeking to remedy a discrimination between retired college professors who are no longer employed, and thus are no longer engaged in the trade or business of being an employee, and persons who are employed. What Petitioner is really seeking is special treatment for herself and certain other retired college professors. In effect, she is seeking to obtain business tax deductions without having to engage in the trade or business. XII. Substantiation of Deductions: In the above discussion, we held that Petitioner was not engaged in a trade or business during the years in issue, such that Petitioner is not entitled to trade or business deductions, and that there is no equal protection violation in so holding. This is enough to dispose of the case and requires decision for Respondent. Nevertheless, we also note that we have carefully reviewed the record in this case and conclude, as 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 27 determined by Respondent in the notice of deficiency, that Petitioner is not allowed the deductions for failure to substantiate the amounts claimed. In this connection, we further note that..hideE!*Petitioner travel A expenses are subj.ect to the heightened substantiation requirements of section 274, and the home office expenses are subject to the restrictions and limitations imposed by section 80A. Petitioner's evidence is not suf f icient to meet those provisions . As to the remaining deductions for other expenses, we do not believe th Petitioner provided sufficient substantiation of those amounts. XIII. Delinquency penalty under Section 6651 (a) (1) : Section 6651 (a) (1) imposes an addition to tax on taxpayers who fail to file a timely tax return for any given tax period. There is no dispute about the fact that Petitioner's returns for 2006 and 2008 were delinquent . Accordingly, Respondent has met the burden of production under section 7491(c) with respect to the section 6651(a) (1) addition to tax. When á taxpayer's failure to timely file is due to reasonable cause and not willful neglect, an addition to tax:will not be imposed. Sec. 6651(a); Ú¶95) see United States v. Boyle, 469 U.S. 241, 245. / A L ^ 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 28 Petitioner argues, without specifics, that her failure to file timel returns was due to certain health problems and 130 ue to willful neglect . Petitioner' s L_3 N health issues appear to have been intermittent in nature. Furthermore, in view of the level of Petitioner's activities during the years in issue, we cannot find that any health issues prevented her from filing timely returns. XIV. In order to give effect to the foregoing, decision will. be entered for Respondent. XV. THIS CONCLUDES THE COURT' S ORAL FINDINGS OF FACT AND OPINION IN THIS CASE. (Whereupon, at 3:47 p.m., the bench opinion in the above-entitled matter was concluded.) // // // // // // // // // Heritage Reporting Corporation (202) 628-4888