Court Opinion

ID: 4337177
Source: CourtListenerOpinion
Date Created: 2018-11-14 03:13:10.922487+00
Date Added: 2024-06-11T14:48:06.200698
License: Public Domain

131 T.C. No. 3

                     UNITED STATES TAX COURT

      CARL H. JONES III AND RUBIELA SERRATO, Petitioners v.
           COMMISSIONER OF INTERNAL REVENUE, Respondent

     Docket No. 10434-06.                Filed July 28, 2008.

          P-H was eligible for retirement when he was laid off in
     2002. Later that year P-H began day trading. In 2003 P-H
     traveled approximately 750 miles to Georgia from his home in
     Florida to take a 5-day one-on-one course in day trading. P
     claimed deductions pursuant to sec. 212(1), I.R.C., for the
     expenses relating to the course.

          Held: Sec. 274(h)(7), I.R.C., prohibits the expenses
     relating to the course from being deducted under sec.
     212(1), I.R.C., because the course is a convention, seminar,
     or similar meeting.

     James R. Monroe, for petitioners.

     Monica J. Miller, Laura A. Price, and Francis C. Mucciolo,

for respondent.
                               - 2 -

     VASQUEZ, Judge:   Respondent determined a $2,209 deficiency

in petitioners’ 2003 Federal income tax.    After concessions, the

issue for decision is whether petitioners are allowed to deduct

the cost of a one-on-one course in day trading pursuant to

section 212(1).1

                         FINDINGS OF FACT

     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.   At the time they filed

the petition, petitioners resided in Florida.

     Carl H. Jones III (petitioner), an electrical engineer

eligible for retirement, was laid off in 2002.   Petitioner began

day trading in 2002 but had invested in stocks for 35 years.

Petitioner spent approximately 6.5 hours a day Monday through

Friday reviewing, studying, and executing trades.   In order to

improve his day trading abilities, petitioner signed up for a 5-

day one-on-one course called DayTradingCourse.com (the course)

that he had read about online.2   The course was held in

Cartersville, Georgia, approximately 750 miles from petitioner’s

home in Florida.   Petitioner drove by himself to the course.

     1
        Unless otherwise indicated, all section references are to
the Internal Revenue Code, and all Rule references are to the Tax
Court Rules of Practice and Procedure.
     2
         The course is also known as Etowah Valley, Inc.
                               - 3 -

Petitioner stayed at a modest local hotel just off the interstate

highway approximately 5 miles from the course location.

     The course consisted of 5 days of intensive training and

instruction taught by Paul Quillen.    Monday through Thursday

petitioner received 8 hours of instruction daily, and on Friday

petitioner received 5 hours.   During the course petitioner

learned strategies about day trading, studied Japanese

candlestick patterns,3 and took a psychological exam.    During his

time in Cartersville petitioner did not participate in

recreational activities.   In 2003 and as of the date of trial

petitioner continued his day trading activity.    Petitioners

concede that they are not in the trade or business of day

trading.

     Petitioners claimed $17,563 as miscellaneous itemized

deductions on their 2003 joint Federal income tax return.     Of

that amount $6,053.06 was for the course and related expenses.

The total of $6,053.06 consisted of:    $5,247 for the course,

$416.64 for lodging, $224.10 for round trip travel from

petitioner’s home to and from Cartersville, Georgia, where the

course was held, $145.32 for food, and $20 for a course book.      On

or about March 31, 2006, respondent issued petitioners a notice

of deficiency.   Petitioners timely petitioned the Court.

     3
        Japanese candlestick trading is a method where the trader
looks for patterns in the price of the stock over a period.
                                - 4 -

                               OPINION

     Petitioners have neither claimed nor shown that they

satisfied the requirements of section 7491(a) to shift the burden

of proof to respondent with regard to any factual issue.

Accordingly, the burden of proof is on petitioners to show that

respondent’s determination set forth in the notice of deficiency

is incorrect.   Rule 142(a)(1); Welch v. Helvering, 290 U.S. 111,

115 (1933).   Deductions are a matter of legislative grace;

petitioners have the burden of showing that they are entitled to

any deduction claimed.    Rule 142(a); New Colonial Ice Co. v.

Helvering, 292 U.S. 435, 440 (1934).

     Petitioners claimed the deductions pursuant to section

212(1).   Section 212(1) allows as a deduction all the ordinary

and necessary expenses paid or incurred during the taxable year

for the production or collection of income.   Petitioners argue

that the course was necessary in order for petitioner to become a

better day trader and to maximize profits and minimize losses on

his trading activity.

     Section 274(h)(7) provides that no deduction shall be

allowed under section 212 for expenses allocable to a convention,

seminar, or similar meeting.    Petitioners argue that the course

is not a convention, seminar, or similar meeting as contemplated

by section 274(h)(7).    We disagree.
                               - 5 -

     In Gustin v. Commissioner, T.C. Memo. 1983-592, we held that

a taxpayer who lived in Wisconsin was allowed deductions pursuant

to section 212 for expenses related to attending conventions

sponsored by an association of investment clubs in San Diego,

Cleveland, and Amsterdam.   We were satisfied that the expenses

bore the requisite connection with her income-producing

activities as an investor in a portfolio of stocks because her

primary purpose in going to the conventions was to learn strategy

and information that she put directly to use in her investment

decisions.

     Thereafter in 1986 Congress, in effect overruling Gustin,

enacted section 274(h)(7) to curb taxpayers from claiming

deductions under section 212 for expenses related to conventions,

seminars, or other meetings related to financial planning.   The

accompanying House and Senate committee reports observed that

individuals had claimed deductions for attending seminars about

investments in securities or tax shelters, and that in many cases

those seminars were held in locations that were attractive for

vacation purposes and scheduled in ways to allow substantial

recreation time.   H. Conf. Rept. 99-841 (Vol. II), at II-31 to

II-32 (1986), 1986-3 C.B. (Vol. 4) 1, 31-32.   The disallowance of

expenses is intended to extend to registration fees, travel and

transportation costs, and meal and lodging expenses, among other

costs attributable to attending a convention, seminar, or similar
                                - 6 -

meeting.    S. Rept. 99-313, at 75 (1986), 1986-3 C.B. (Vol. 3) 1,

75.

      The fact that petitioner did not engage in recreational

activities during the course is not determinative.    Petitioner

traveled nearly 750 miles to take a course on investing in

securities.    Whether petitioner stayed at a modest motel or a

luxury hotel is also not determinative.    The one-on-one nature of

the course is not determinative.    Section 274(h)(7) is broad and

disallows deductions pursuant to section 212 for the costs,

including registration fees, travel, meals, and lodging, incurred

to attend a convention, seminar, or similar meeting even if the

personal benefits of the trip are secondary to the investment

benefits.    Merriam-Webster’s Collegiate Dictionary (9th ed. 1985)

defines a seminar as a meeting for giving and discussing

information.    Over 5 days petitioner received hours of

information about day trading in the course taught by Mr.

Quillen.    In the light of the terms and purpose of section

274(h)(7), we conclude that the course was a seminar, or a

similar meeting within the scope of that statute, and therefore

the expenses relating to the course cannot be deducted pursuant

to section 212(1).

      It is important to note that section 274(h)(7) does not

preclude deductions pursuant to section 162 (trade or business

expenses) for conventions, seminars, or similar meetings.
                                 - 7 -

Petitioners concede they were not in the trade or business of day

trading and cannot deduct the expenses relating to the course

pursuant to section 162.

     In reaching our holding herein, we have considered all

arguments made by the parties, and to the extent not mentioned

above, we find them to be irrelevant or without merit.

     To reflect the foregoing,

                                              Decision will be entered

                                         under Rule 155.