Court Opinion

ID: 4337508
Source: CourtListenerOpinion
Date Created: 2018-11-14 03:24:39.608366+00
Date Added: 2024-06-11T14:19:53.337350
License: Public Domain

T.C. Summary Opinion 2009-46

                     UNITED STATES TAX COURT

                  ISABEL ATIZOL, Petitioner v.
          COMMISSIONER OF INTERNAL REVENUE, Respondent

     Docket No. 13227-07S.             Filed March 30, 2009.

     Isabel Atizol, pro se.

     Anna Kozoulina, for respondent.

     DEAN, Special Trial Judge:   This case was heard pursuant to

the provisions of section 7463 of the Internal Revenue Code

(Code) in effect when the petition was filed.    Pursuant to

section 7463(b), the decision to be entered is not reviewable by

any other court, and this opinion shall not be treated as

precedent for any other case.   Unless otherwise indicated,

subsequent section references are to the Code in effect for the
                               - 2 -

year in issue, and all Rule references are to the Tax Court Rules

of Practice and Procedure.

     For 2004 respondent determined a $2,640 deficiency in

petitioner’s Federal income tax.   The issue for decision is

whether petitioner is entitled to her claimed deduction for

unreimbursed employee expenses.1

                             Background

     Some of the facts have been stipulated and are so found.

The stipulation of facts and the exhibits received into evidence

are incorporated herein by reference.     When the petition was

filed, petitioner resided in New York.

     During 2004 petitioner was employed with a New York City

public high school as a math teacher.     The New York City

Department of Education required petitioner to obtain a master’s

degree in order to be certified in her subject area.     She

attended classes at Lima College in New York and the University

of Santo Domingo during the years 1998 through 2003.     Petitioner

traveled to the Dominican Republic and to various U.S. locations,

such as Florida, in order to attend class and to meet with her

professors.   She completed the requirements for her master’s

     1
      Petitioner filed a “Motion To Restrain Assessment and
Collection & Motion to Entry Decision”. The motion to restrain
assessment and collection will be denied because it is precluded
by law. See sec. 7421. The motion for entry of decision will be
denied as moot on account of the Court’s decision.
                               - 3 -

degree on November 28, 2003.   The degree was “Given in Santo

Domingo * * * on December 08, 2003.”

     Petitioner was not reimbursed by the high school or the New

York State Department of Education for her expenses incurred in

pursuit of her master’s degree or her expenses related to her

profession as a teacher.2   Instead, petitioner claimed $20,800 in

miscellaneous itemized deductions for unreimbursed employee

expenses on her Schedule A, Itemized Deductions (before the 2-

percent floor).   She also claimed the following itemized

deductions for 2004:   (1) $2,300 in medical or dental expenses;

(2) $5,081 in State and local income tax; (3) $33,539 in home

interest expense; and (4) $1,076 in charitable contributions.    In

sum, petitioner claimed total itemized deductions of $59,223, yet

she reported an adjusted gross income of just $63,665 on her 2004

Form 1040, U.S. Individual Income Tax Return.

     Respondent issued a notice of deficiency to petitioner on

May 14, 2007.   Respondent did not make any adjustments to

petitioner’s claimed itemized deductions except to disallow her

claimed deduction for unreimbursed employee expenses because she

had not verified it.   At trial respondent asserted that

petitioner’s deduction for unreimbursed employee expenses was

denied because:   (1) The items were deductible in 2003, the year

     2
      Petitioner did not claim deductions under sec. 62(a)(2)(D)
for any of her expenditures with respect to materials used in her
classroom.
                                   - 4 -

in which petitioner completed her master’s degree; (2) the

expenses were personal expenses of petitioner, her daughter, or

someone else because the credit card statements were in the name

of petitioner’s daughter and “rarely” were any receipts in

petitioner’s name; and (3) the amounts were not properly

substantiated.

                                Discussion

I.    Burden of Proof

       The Commissioner’s determinations in a notice of deficiency

are presumed correct, and the taxpayer bears the burden to prove

that the determinations are in error.        See Rule 142(a); Welch v.

Helvering, 290 U.S. 111, 115 (1933).         But the burden of proof on

factual issues that affect the taxpayer’s tax liability may be

shifted to the Commissioner where the taxpayer introduces

credible evidence with respect to the issue and the taxpayer has

satisfied certain conditions.       See sec. 7491(a)(1).   Petitioner

has not alleged that section 7491(a) applies, and she has neither

complied with the substantiation requirements nor maintained all

required records.       See sec. 7491(a)(2)(A) and (B).    Accordingly,

the burden of proof remains on her.

II.    Unreimbursed Employee Expenses for Education

       As a general rule, section 162(a) authorizes a deduction for

all the ordinary and necessary expenses paid or incurred during

the taxable year in carrying on any trade or business.        An
                                - 5 -

individual’s education expenditures are deductible as ordinary

and necessary business expenses if the education:    (1) Maintains

or improves skills required by the individual in her trade or

business; or (2) meets the express requirements of the

individual’s employer or applicable law or regulation, which is

imposed as a condition to the retention by the individual of an

established employment relationship, status, or rate of

compensation.    Sec. 1.162-5(a), Income Tax Regs.

     A.   Expenditures Before 2004

     Petitioner provided a record she entitled “Educational

Expenses 2003-2004” and certain receipts described as follows:3

          Date             Description                 Amount

      3/03            Lehman College                 $1,227.50
      6/03            Hotel Green House                 181.30
      6/03            Hotel 960                         128.00
      6/03            Car rentals                       377.00
      9/03            Title fees UNPHU                   43.33
      9/03            Fees UNPHU                          8.33
     10/03            UASD                            1,036.53
     11/03            UASD                            1,036.53
     11/03            SEESCYI                            30.00
     12/03            State Education Department        300.00
     12/03            Tuition USAD professor          2,000.00
     12/03            USAD                            1,500.00
     12/03            Authentication fees                90.00
     Not dated        Authentication                     90.00
     Illegible        Document with seal             Illegible
     Illegible        UASD                                5.00
     10/15/03         Universidad Autonomade
                        Santo Domingo                Illegible
     Illegible        Universidad Autonomade
                        Santo Domingo                Illegible

     3
      Copies of several receipts are illegible because of poor
quality.
                                - 6 -

        9/06/03      Universidad Nacional Pedro
                       Henriquez Urena                1,800.00
        6/11/03      Secretaria De Estado De
                       Educacion Superior               900.00
        9/05/03      Air waybill/Shipping invoice        32.00

     Petitioner testified that she had made the expenditures

during the years 1998 through 2004.     But she did not claim

deductions for the expenditures on her Federal income tax returns

until 2004 on account of the “accrual [method of accounting].”

     Petitioner’s daughter testified that the academic year

started in June 2003 and extended to June 2004.     Therefore,

petitioner did not claim the expenses in March when she filed her

return because she had not received information about her

expenses from the university.   Thus, according to petitioner’s

daughter, the expenses are deductible in 2004.

     Section 446(a) provides that taxable income shall be

computed under the method of accounting used by the taxpayer in

regularly computing the taxpayer’s income.     Methods of accounting

include the cash method, the accrual method, or any combination

of those methods.   See sec. 446(c); sec. 1.446-1(a), Income Tax

Regs.

     Section 461(a) provides that deductions are to be taken in

the taxable year that is the proper taxable year under the method

of accounting used in computing the taxpayer’s taxable income.

Cash method taxpayers are generally entitled to a deduction in

the taxable year when the amounts are paid.      Sec. 1.461-1(a)(1),
                                - 7 -

Income Tax Regs.    Accrual method taxpayers generally become

entitled to a deduction when all events have occurred that

establish the fact of liability and the amount of the liability

can be determined with reasonable accuracy.    Sec. 461(h)(4); sec.

1.461-1(a)(2), Income Tax Regs.4    But the “all events” test is

not treated as met until economic performance with respect to the

item occurs.   Sec. 461(h); Restore, Inc. v. Commissioner, T.C.

Memo. 1997-571 n.5, affd. without published opinion 174 F.3d 203

(11th Cir. 1999).    If a person provides services to the taxpayer,

then economic performance occurs as the person provides the

services.   Sec. 461(h)(2)(A)(i).

     The Court need not decide whether petitioner computed her

taxable income on the cash method, the accrual method, or some

combination of those methods.    Petitioner’s entitlement to her

deductions for educational expenses arose in 1998 through 2003

either when the amounts were paid (under the cash method) or when

the university provided classes or lectures to petitioner and she

could no longer request a refund of her tuition from the

university (under the accrual method).    See Mitchell v.

Commissioner, 131 T.C. __, __ (2008) (slip op. at 41) (Holmes,

     4
      To be properly accruable under the “all events test”:
(1) The liability must be binding and enforceable, (2) the
liability must not be contingent on a future event, (3) the
liability must be certain as to amount, and (4) the debtor must
have a reasonable belief that the liability will be paid. United
Control Corp. v. Commissioner, 38 T.C. 957, 967 (1962).
                                  - 8 -

J., concurring) (for most people our tax system requires an

annual reporting of income and deductions for each calendar year

separately).      But to the extent that petitioner might have used

the accrual method for her educational expenses, she has not

proven that economic performance did not occur until 2004.5     See

INDOPCO, Inc. v. Commissioner, 503 U.S. 79, 84 (1992) (stating

that deductions are strictly a matter of legislative grace and

taxpayers bear the burden of proving that they are entitled to

claim the deduction).      The fact that petitioner might not have

physically received her diploma until 2004 is irrelevant--she had

completed the prerequisites for and was awarded her degree in

2003.     Therefore, the Court holds that petitioner is not entitled

to a deduction in 2004 for educational expenses paid or incurred

during 1998 through 2003.      Respondent’s determination is

sustained.

     B.     Expenditures During 2004

             1.   Petitioner’s Evidence of Her Expenditures

     Petitioner has submitted a record of her purported

unreimbursed expenses, credit card statements, and certain

receipts to substantiate her expenditures for January through

     5
      The Court notes that petitioner’s income would not be
clearly reflected if petitioner were allowed to report her
teacher’s salary under the cash method of accounting in each of
1998 through 2003 and to accrue her education expenses and claim
deductions for unreimbursed employee expenses in 2004 under the
accrual method of accounting. See sec. 446(b).
                               - 9 -

December 2004.6   Petitioner’s purported expenditures are

summarized as follows:

         Month                 Description                  Amount

  Jan.                   Metro PCS (conference calls)      $50.00
  Jan., Nov.             Photocopies                       266.35
  Jan., June, Sept.      Travel (airline tickets/fees)   4,199.65
    through Dec.
  Jan, Sept.             Travel (hotels)                   221.47
  Jan.                   Luggage (“wheelbag”)               89.36
  Jan., Feb.             Meals and entertainment           270.15
  Jan., July, Aug.,      Office products/supplies        1,328.62
    Sept., Nov., Dec.
  Feb.                   Travel (car rental)                  5.00
  Feb.                   Locks                                5.57
  Feb., May, Sept.,      Postage                             98.14
    Nov.
  Feb., Mar., Sept.,     Office furniture                1,531.86
    Dec.
  Feb.                   Gold Coast Real Estate
                          School (classes & materials)    488.60
  Feb., Sept., Dec.      Books                            485.91
  Mar., May, June        TJ Max (educational software) 1,138.36
  Apr.                   Office equipment (printer)       367.10
  May through Oct.       Storage                        1,089.40
  May, Dec.              T-Mobile (cellphone)             514.99
  July, Aug.             Books (Word of Life)             139.10
  Oct.                   Money order (tuition)            701.25
  Nov.                   Office moving supplies & rental 690.50

     6
      Petitioner’s daughter testified that she did not create the
record until 2006. Therefore, the Court accords little weight to
the record. See also sec. 1.274-5T(c)(1) (for some of the
expenses the corroborative evidence required to support a
statement made at or near the time of the expenditure or use must
have a high degree of probative value to elevate the statement
and evidence to the level of credibility reflected by a record
made at or near the time of the expenditure or use supported by
sufficient documentary evidence) and (2)(ii) (records of certain
expenditures must be prepared or maintained in such manner that
each recording of an element or use is made at or near the time
of the expenditure or use), Temporary Income Tax Regs., 50 Fed.
Reg. 46016-46017 (Nov. 6, 1985).
                             - 10 -

     Petitioner testified that:   (1) Her January 2004 travel and

Red Lobster expense were incurred on account of meetings with

professors to discuss her thesis; (2) her May and December 2004

cell phone expenses also related to discussions with professors

about her thesis; (3) her storage expenses for May through

October 2004 were incurred for the purposes of storing her

“things” in Florida while she was studying for her master’s

degree; (4) she purchased educational software for her students

in Florida during March, May, and June 2004; and (5) her

“business is education” and she used the computer printer

purchased in April 2004 in her business and for her master’s

degree.7

     Petitioner’s daughter testified that:   (1) Neither the

University of Santo Domingo nor Lima College had a campus in New

York or Florida; consequently, places such as Golden Coast were

rented so professors could talk with and assess their students

and the expense had to be paid out of petitioner’s pocket; (2)

notwithstanding that petitioner’s diploma shows that she had

satisfied the requirements for a master’s degree in November

     7
      The Court notes that the credit card statements and
receipts submitted to substantiate petitioner’s deductions are in
the name of petitioner’s daughter. The Court also notes that the
dates of purchase for certain items in Florida, i.e., the
software and the printer, occurred during the New York school
year (and for months for which petitioner did not claim travel
expenses); i.e., March, April, and May. Petitioner appears to
have been in two places simultaneously.
                                 - 11 -

2003, she continued to work on her thesis through January,

“modifying it until they [approved it]”; and (3) petitioner’s

expenses were incurred in part for her thesis and in her work in

education:   she left her “equipment in storage in Florida so she

could work here when she came here” because she has certain

requirements that must be done before she starts the next school

year.8

     2.   The Court’s Analysis

     As stated supra, ordinary and necessary expenses paid or

incurred during the taxable year in carrying on any trade or

business are generally deductible.        Sec. 162(a).   A trade or

business expense is “ordinary” if it is normal or customary

within a particular trade, business, or industry and is

“necessary” if it is appropriate and helpful for the business.

Commissioner v. Heininger, 320 U.S. 467, 471 (1943); Deputy v. du

Pont, 308 U.S. 488, 495 (1940).     In contrast, personal, living,

or family expenses are generally not deductible.         Sec. 262(a).

     Petitioner has not proven that it is an ordinary and

necessary expense of a math teacher to acquire office furniture

and supplies for an out-of-State office, to maintain a storage

     8
      The Court notes, however, that petitioner’s motion, which
was prepared by petitioner’s daughter, states that the storage
fees and expenditures for office supplies, furniture, and
equipment were incurred so that petitioner could “modify and
complete the thesis work while in Florida.” The Court,
therefore, accords little weight to the inconsistent testimony of
petitioner’s daughter.
                              - 12 -

shed in which to store the items of a second office, or to pay

the moving expenses9 of a second office while the teacher is

visiting10 or otherwise traveling between two States.    Similarly,

the Court is hard pressed to find that it is an ordinary and

necessary expense of a math teacher to acquire books with

religious subject matter, e.g., Word of Life, for use in math

classes.

     Although petitioner claims that she expended $1,138.36 at TJ

Max for educational software, the credit card statements do not

prove that the amounts were expended for that purpose.    Without

other corroborative evidence, such as a receipt, the Court does

not accept her self-serving testimony that she purchased software

for use in class.   See Urban Redev. Corp. v. Commissioner, 294
F.2d 328, 332 (4th Cir. 1961), affg. 34 T.C. 845 (1960); Tokarski

v. Commissioner, 87 T.C. 74, 77 (1986).

     Petitioner also failed to prove that the following

expenditures were incurred in either her teaching profession or

in her master’s program:   $485.91 for “Books”, $98.14 for

postage, $266.35 for photocopies, $5.57 for locks, $701.25 for

     9
      Although petitioner claimed a $690.50 deduction for costs
incurred in moving her Florida office, she testified that she
moved “nothing” to her New York home and that she had to purchase
the items twice.
     10
      Petitioner testified that she travels to Florida
frequently: “If I have time to go. Sometimes in May, and June,
and December.”
                                - 13 -

tuition, $488.60 for classes and materials for Gold Coast Real

Estate School, $89.36 for luggage, and $50 for “Metro PCS”

conference calls.

     To the extent that petitioner claims that her 2004

expenditures were incurred in the pursuit of her master’s degree,

the Court finds that she has not shown that they were in fact

incurred for that purpose in view of the fact that she completed

the requirements of her master’s degree in November 2003 and it

was awarded in December 2003.    In addition, when questioned by

respondent’s counsel about certain expenditures incurred in

February 2004, petitioner replied several times:    “I don’t

remember”, “I can’t say”, or “I don’t know”.    Therefore, the

Court accords little weight to petitioner’s testimony.

     Moreover, petitioner has not substantiated her 2004

expenditures for travel, entertainment and meals, or “listed

property”11 as required by section 274 and the regulations

thereunder.   In pertinent part, section 274(d) provides that no

deductions or credits are allowed for:    (1) Any traveling

expense, including meals and lodging away from home;

(2) entertainment, amusement, or recreation; or (3) the use of

listed property, unless such expenditures are substantiated.     The

taxpayer must substantiate by adequate records or sufficient

     11
      Listed property is defined to include passenger
automobiles, computers and peripheral equipment, and cell phones.
Sec. 280F(d)(4).
                                - 14 -

evidence to corroborate the taxpayer’s own testimony:   (1) The

amount of the expenditure or use; (2) the time of the expenditure

or use; (3) the place of the expenditure or use; (3) the business

purpose of the expenditure or use; and (4) the business

relationship to the taxpayer of the expenditure or use in the

case of entertainment.   Sec. 274(d); see also sec. 1.274-5T(a)

and (b), Temporary Income Tax Regs., 50 Fed. Reg. 46014 (Nov. 6,

1985); supra note 6.

     Simply put, the Court holds that petitioner is not entitled

to her claimed deductions for 2004, and respondent’s

determinations are sustained.

     Other arguments made by the parties and not discussed herein

were considered and rejected as irrelevant, without merit, and/or

moot.

     To reflect the foregoing,

                                          An appropriate order will

                                     be issued, and decision will

                                     be entered for respondent.