Joe D. and Maura F. White v. Commissioner ( 2003 )

T.C. Summary Opinion 2003-18UNITED STATES TAX COURT
JOE D. AND MAURA F. WHITE, Petitioners v.
COMMISSIONER OF INTERNAL REVENUE, Respondent
Docket No. 11161-01S. Filed March 12, 2003.
Joe D. White, pro se.
Gerald L. Brantley, for respondent.
COUVILLION, Special Trial Judge: This case was heard
pursuant to section 7463 of the Internal Revenue Code in effect
at the time the petition was filed.1 The decision to be entered
is not reviewable by any other court, and this opinion should not
be cited as authority.
1
Unless otherwise indicated, subsequent section
references are to the Internal Revenue Code in effect for the
year at issue. All Rule references are to the Tax Court Rules of
Practice and Procedure.
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Respondent determined a deficiency of $654 in petitioners'
Federal income tax for 1999.
Following concessions by the parties noted hereafter, the
issue remaining for decision is whether petitioners are entitled
to deductions for a trade or business expense activity under
section 162(a) in excess of amounts conceded by respondent. More
specifically, the issue is whether petitioners are entitled to
deductions for car and truck expenses and home office expenses.
Some of the facts were stipulated. Those facts, with the
annexed exhibits, are so found and are incorporated herein by
reference. At the time the petition was filed, petitioners were
legal residents of Del Rio, Texas.
Petitioners filed a Federal income tax return for 1999 on a
Form 1040A, U.S. Individual Income Tax Return. On line 7 of the
return, for wages, salaries, tips, etc., petitioners reported
$25,746.66, which included wage and salary income reflected on
five Forms W-2, Wage and Tax Statement, totaling $14,944.63 and
other income from other sources totaling $10,802.03. These other
sources were $5,807 in unemployment compensation benefits
reflected on Form 1099-G, Certain Government Payments, and
$4,995.03 in self-employment income paid to Joe D. White
(petitioner) reflected on three Forms 1099-MISC, Miscellaneous
Income. In addition, on line 8a of the return, petitioners
reported taxable interest income of $12.31.
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Petitioners did not include with their return a Schedule C,
Profit or Loss From Business, with respect to the $4,995.03 in
self-employment income, nor did they claim deductions for
expenses in connection with the activity or compute self-
employment taxes on the income. The three sources of this income
reflected on the Forms 1099-MISC earned by petitioner were from
the following sources:
Xprezzo Caffe Club, 11c $1,328.03
Villa Del Rio 1,662.00
Rio Grande Property Management 2,005.00
Total $4,995.03
In the notice of deficiency, respondent determined a
deficiency of $654 in taxes, representing self-employment taxes
due under section 1401(a) and allowing petitioners a deduction
for one-half of the taxes under section 164(f). Respondent's
determination, however, was based only on two of the Forms 1099-
MISC identified above, $1,662 from Villa Del Rio, and $2,005 from
Rio Grande Property Management, totaling $3,667. Respondent's
determination failed to include the $1,328.03 shown above in the
deficiency determination.
In preparation for trial, petitioners prepared and submitted
to respondent an income tax return, Form 1040, for 1999, on which
they correctly reported their income from the various sources
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recited above. The return included a Schedule C, on which
petitioners reported the following income and expenses:
Gross income $4,995.03
Expenses:
Car & truck $938.43
Depreciation 253.43
Other expenses 351.77
Home office 941.43
Total expenses 2,485.06
Net profit $2,509.97
The return also included the schedule for self-employment taxes,
which amounted to $354.46. Elsewhere on their return,
petitioners claimed a deduction for one-half of the self-
employment taxes allowable under section 164(f). This tax return
was admitted into evidence at trial. Even though the deficiency
determined in the notice of deficiency was based only on two of
the Forms 1099-MISC, totaling $3,667, petitioners conceded at
trial that their self-employment income totaled $4,995.03, based
on the three Forms 1099-MISC described earlier.
At trial, respondent conceded petitioners' entitlement to a
deduction for the following expenses shown on petitioners'
corrected 1999 income tax return: (1) $100 of the $938.43 in car
and truck expenses; (2) $253.43 in depreciation; and (3) $351.77
in other expenses, leaving at issue $838.43 in car and truck
expenses and $941.43 claimed as expenses for the business use of
petitioners' home.
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For the first part of 1999, petitioner was unemployed and
received the reported $5,807 in unemployment compensation
benefits. In June 1999, petitioner began working for an
individual who owned three businesses (which businesses issued
the Forms 1099-MISC identified above). One of the entities was a
restaurant, one was a bed and breakfast activity, and one was a
real estate management activity involving rental apartments and
houses. Petitioner performed a variety of services for these
entities, such as landscaping, cutting grass, gardening,
carpentry, repairs, and generally "fixing things". Petitioner
described himself as a handyman. He was considered self-
employed, a status that respondent has not challenged.
Respondent challenges petitioners' entitlement to two
expenses claimed by petitioners with respect to the self-
employment activity: the home office expenses of $941.43 and
$838.43 of the $938.43 in car and truck expenses.
With respect to the home office expenses, petitioner used
one room of his home, a mobile home, in connection with his
activity. In this room, he had a computer, telephone, filing
cabinet, desk, chairs, etc. He received no clients or customers
at his home, nor did he solicit business from others, except for
the three entities described above. Outside his home, petitioner
had a shed where he stored the equipment used in his activity.
Petitioner did not advertise. For all intents and purposes,
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petitioner worked for the three enterprises previously discussed.
Between assignments, he was reached at home to attend to one or
more of the projects that required his services; however, he also
received assignments while he was at a work site.
Section 162(a) allows a taxpayer to deduct all ordinary and
necessary expenses paid or incurred in carrying on a trade or
business. Under section 280A, however, deductions associated
with a home office are generally disallowed unless the home
office is used exclusively and regularly as the principal place
of business of the taxpayer. Petitioner contends his home was
his principal place of business because he was required to
perform his services at three different locations. He alleges
that, because he received his orders and directions for his
services at his home, his home was, therefore, the focal point of
his activity. In addition, petitioner stored equipment used in
his activity at his home.2
Section 280A(a) provides that no deduction otherwise
allowable shall be allowed with respect to the use of a dwelling
unit which is used by the taxpayer during the taxable year as a
residence. Section 280A(c), however, provides an exception if a
portion of the residence is exclusively used on a regular basis:
2
Sec. 7491, in certain instances, places the burden of
proof upon the Commissioner. The parties have not alleged that
sec. 7491 would be applicable in this case. The Court,
nonetheless, decides this case without regard to the burden of
proof.
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(1) as the principal place of business for any trade or
business of the taxpayer (sec. 280A(c)(1)(A));
(2) as a place of business used by patients, clients, or
customers in meeting or dealing with the taxpayer in the normal
course of his trade or business (sec. 280A(c)(1)(B)); or
(3) in the case of a separate structure which is not
attached to the dwelling unit, in connection with the taxpayer's
trade or business (sec. 280A(c)(1)(C)).
Where a taxpayer's business is conducted in part in the
taxpayer's residence and in part at another location, the
following two primary factors are considered in determining
whether the home office qualifies under section 280A(c)(1)(A) as
the taxpayer's "principal" place of business: (1) The relative
importance of the functions or activities performed at each
business location, and (2) the amount of time spent at each
location. Commissioner v. Soliman, 506 U.S. 168, 175-177 (1993).
Whether the functions or activities performed at the home
office are necessary to the business is relevant but not
controlling, and the location at which goods and services are
delivered to customers generally will be regarded as the
principal place of a taxpayer's business. Id. at 176. The
relative importance of business activities engaged in at the home
office may be substantially outweighed by business activities
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engaged in at another location. The Supreme Court has explained
as follows:
If the nature of the business requires that its services are
rendered or its goods are delivered at a facility with
unique or special characteristics, this is a further and
weighty consideration in finding that it is the delivery
point or facility, not the taxpayer's residence, where the
most important functions of the business are undertaken.
Id. at 176.
In petitioner's situation, none of his services were
performed at home. His services were all performed at the three
business locations of his principal. He received orders at those
locations to perform services at one or two of the other
businesses of his principal. To be sure, petitioner occasionally
received orders at home. On this record, it is evident that the
most important parts of petitioner's activities were performed
away from his home at the business locations of his client.
Section 280A(c)(1), with respect to tax years beginning after
December 31, 1998, provides, in pertinent part:
For purposes of subparagraph (A), the term "principal place
of business" includes a place of business which is used by
the taxpayer for the administrative or management activities
of any trade or business of the taxpayer if there is no
other fixed location of such trade or business where the
taxpayer conducts substantial administrative or management
activities of such trade or business.
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Petitioner did not establish that he conducted substantial
administrative or management activities of his trade or business
at his home. Except for occasional telephone calls he received
at home with respect to some of his work assignments, there was
no other evidence presented that would satisfy the Court that
petitioner's home was the situs of management or administrative
activity related to his activity.
Petitioner also contended that, because he stored equipment
used in his business activity in a shed on his home premises,
such fact entitles petitioners to a home office deduction.
Section 280A(c)(1) provides, in pertinent part:
(1) Certain business use.–-Subsection (a) shall not
apply to any item to the extent such item is allocable to a
portion of the dwelling unit which is exclusively used on a
regular basis--
* * * * * * *
(C) in the case of a separate structure which is not
attached to the dwelling unit, in connection with the
taxpayer's trade or business.
However, none of the expenses petitioners claimed with respect to
their home office related to the shed. All of the claimed
expenses related to the room in petitioners' home. Petitioners,
therefore, are not entitled to a deduction for home office
expenses.
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The remaining expenses relate to petitioner's car and truck
expenses. As noted earlier, petitioners claimed $938.43. At
trial, respondent conceded petitioners' entitlement to a
deduction of $100 for such expenses, leaving at issue $838.43.
The expenses claimed relate to petitioner's use of his
vehicle in going to and from his home to each of the places where
he performed his services, including the use of his vehicle in
going from one business place to another business place. The
$100 respondent conceded as a car expense represents the amount
respondent determined was incurred by petitioner in going from
one location of his business to other locations. The remainder
represents petitioner's transportation expenses to and from his
home to each business location where he performed his self-
employment activity.
The Court finds it unnecessary to decide whether petitioner
substantiated the amount at issue. Petitioner contends that,
because his home was his principal place of business, he is
entitled to a deduction for car and truck expenses incurred from
his home to each place of business and his return home.
Petitioners' home, however, was not his principal place of
business; therefore, section 262 governs in this situation. As a
general rule, section 262 disallows expenses for personal,
living, or family expenses. Transportation expenses ordinarily
incurred between one's residence and one's principal place of
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business, typically referred to as commuting expenses, are
nondeductible personal expenses under section 262. Fausner v.
Commissioner, 413 U.S. 838 (1973); Commissioner v. Flowers, 326
U.S. 465 (1946). The expenses at issue were incurred by
petitioner as commuting expenses and, therefore, are not
deductible.
Reviewed and adopted as the report of the Small Tax Case
Division.
Decision will be entered
under Rule 155.