DocketNumber: Docket No. 24601-10.
Citation Numbers: 2013 T.C. Memo. 71, 105 T.C.M. 1448, 2013 Tax Ct. Memo LEXIS 71
Judges: MORRISON
Filed Date: 3/12/2013
Status: Non-Precedential
Modified Date: 4/18/2021
Decision will be entered under
MORRISON,
*72 Rehman claimed several deductions on Schedule A, Itemized Deductions, and Schedule C, Profit or Loss From Business, of his return. The IRS disallowed three Schedule A deductions (all of which were disallowed in full) and eight Schedule C deductions (some of which were disallowed in full, some of which were disallowed in part). Listed in the table below are all the deductions that the IRS disallowed, fully or partially, in the notice of deficiency—with the exception of a $4,929 interest deduction Rehman claimed on his Schedule C that is no longer at issue.1*72 Also listed are the amount that Rehman claimed for each deduction, the amount of the deduction the IRS allowed, and the amount at issue.
Medical and dental expenses | $23,283 | -0- | $23,283 |
Charitable contribution | 5,500 | -0- | 5,500 |
Unreimbursed employee business | 9,440 | -0- | 9,440 |
expenses |
*73 | |||
Utilities | $960 | -0- | $960 |
Meals and entertainment | 2,387 | -0- | 2,387 |
Travel | 7,490 | -0- | 7,490 |
Supplies | 6,810 | $3,047 | 3,763 |
Legal and professional services | 2,750 | 434 | 2,316 |
Advertising | 850 | -0- | 850 |
Other expenses: | 12,989 | 4,090 | 8,899 |
"Books Magazines for business" | 1,250 | -0- | 1,250 |
"Subscription for Trading Tips" | 1,299 | -0- | 1,299 |
"Educational Expenses" | 9,990 | 4,090 | 5,900 |
"Business Gifts" | 450 | -0- | 450 |
Rehman timely filed a petition under
The issue in this case, after concessions, is whether Rehman is entitled to any or all of the above deductions in amounts beyond those the IRS allowed in the notice of deficiency or subsequently conceded. We hold that he is not entitled to *74 any deductions in amounts greater than the amounts the IRS has already allowed in the notice of deficiency or has conceded.
Some of the facts have been stipulated; those facts are so found. At the time of filing of the petition, Rehman resided in Long Island City, New York.
From January to May of 2007, the tax year at issue, Rehman was employed as a marketing outreach representative *73 for a company called Fidelis, where he had been working since about 2000.3 Rehman's job was to help clients, especially low-income clients, sign up for assistance with New York State health insurance benefits. In that role Rehman would visit clients or potential clients in their homes to explain how Fidelis could help them get insurance, and he would help new clients fill out the necessary paperwork. On his workdays Rehman traveled to visit clients (by public transit or by taxi), and he traveled (by taxi) to restaurants to eat lunch.
Starting sometime before May 2006 and continuing into 2007, Rehman suffered from back pain, and he sought medical treatment for his back.
*75 From January 17 to 26, 2007, Rehman traveled to and stayed somewhere in Las Vegas, Nevada. A trade fair for the wood-products industry took place somewhere in the same city from January 23 to 26, 2007. On this trip and on two subsequent trips to Las Vegas (September 18 to *74 21, 2007 and December 17 to 20, 2007), Rehman gambled or attended shows at night. He saved some receipts from shows he attended and meals he purchased during the Las Vegas trips.
Rehman left his job with Fidelis in May 2007. He then began working as a self-employed securities trader4 and later created a limited liability company, Chemical & Technology Professional, LLC, for his securities-trading business. He operated the business out of his apartment. After leaving Fidelis, Rehman continued to take taxis to restaurants to eat lunch. Rehman purchased office supplies for the business, including a computer, in August.
From September 18 to 21, 2007, Rehman again visited Las Vegas. Somewhere in Las Vegas, a trade fair for the online financial-services industry began or took place the day before he arrived.
On or around December 10, 2007, Rehman used the website legalzoom.com to generate the forms necessary to file for limited-liability-company status for *76 Chemical & Technology Professional, LLC. The $434 the IRS allowed as a deduction for legal and professional services is for the expense he incurred using *75 this website.
From December 17 to 20, 2007, Rehman again visited Las Vegas.
During 2007 Rehman paid an organization called the Online Trading Academy for training related to his securities-trading business. The $4,090 the IRS allowed as a deduction for educational expenses is for the cost of this training.
At some point between December 2007 and March 2008 Rehman paid a company called Hubco to advertise the creation of Chemical & Technology Professional, LLC, in local publications, and Hubco placed the advertisements in March 2008.
On or around February 23, 2008, Rehman filed a 2007 Form 1040, U.S. Individual Income Tax Return. On it he reported income and claimed deductions, including the deductions summarized in the tables
On or around April 11, 2008, Rehman filed a 2007 Form 1040X, Amended U.S. Individual Income Tax Return, on which he reported gains and losses from securities sales that had not been finalized at the time he filed his Form 1040. The *77 amended return did not report different amounts for any of the deductions in question.
The IRS sent Rehman a notice of deficiency determining a deficiency of $4,493. *76 The notice of deficiency did not challenge Rehman's reporting of gains and losses from the sale of securities. The notice of deficiency indicated that Rehman had earned $6 in unreported interest income, but he conceded this issue at trial. The notice also contained the redetermined deductions summarized in the tables
We address some general issues before examining the deductions disallowed in the notice.
The taxpayer generally bears the burden of proving that the determinations in the notice of deficiency are incorrect.
Under the
We now evaluate each of the disallowed deductions in turn.
An individual taxpayer is permitted a deduction for expenses paid during the tax year for medical care of the taxpayer, the taxpayer's spouse, or the *79 taxpayer's dependent, to the extent that such expenses exceed *78 7.5% of adjusted gross income.
Rehman introduced sufficient evidence through medical records and his own testimony to convince us that he received medical care for back pain, including a diagnosis at "Stand-Up MRI of Brooklyn, P.C." However, there is nothing in the record beyond his own testimony to indicate how much he paid for that treatment or in what year he made any payments. His testimony about amounts allegedly paid is implausible and unconvincing. He claimed, for example, that he paid a doctor $20,000 in cash for back surgery, but he gave inconsistent explanations of where the back surgery was performed, he failed to introduce into evidence any receipt or record of the payment for the surgery, and he testified unconvincingly that he could not find such a receipt or record because the doctor had simply disappeared. We are not required to find this self-serving and unsupported testimony to be sufficient to prove that Rehman paid any amount for back surgery in 2007 or that the surgery even took place.
Rehman also testified *79 that he paid approximately $2,500 to a dentist for bridgework but that he did not have documents or receipts for the work because, *80 again, the dentist had simply disappeared. While we are persuaded that Rehman had bridgework at some time in his life, we do not believe his explanation for the lack of documents or receipts, and we are not persuaded that he spent $2,500 on dental care in 2007. Furthermore, the record does not allow us to reasonably estimate the amount of the dental expenses that Rehman incurred in 2007. Therefore, he is not entitled to a deduction for dental expenses for 2007.
We hold that Rehman is not entitled to any deduction for medical or dental expenses for 2007.
Performing services as an employee qualifies as a trade or business; thus, an employee may deduct expenses that are ordinary and necessary to his or her employment.
The unreimbursed employee expense deductions Rehman claimed relate to the expense of traveling to and from client sites, the expense of buying lunch on the way to or from those visits, and the expense of traveling to and from the restaurants at which he ate lunch.5
Some work-related transit expenses are generally nondeductible. For instance, expenses incurred for a taxpayer's daily meals and for commuting6 between the taxpayer's residence and the taxpayer's place of business are generally nondeductible personal expenses.
However, there are at least *83 two situations8 in which commuting expenses may be deductible.
Rehman has the burden of proving that he is entitled to an exception in order to be able to deduct any commuting costs. He has introduced no evidence from which we could conclude that an exception applies. Therefore, we hold that Rehman is not entitled to deduct as commuting expenses any of the unreimbursed employee business expenses he claimed.
Traveling expenses are treated differently from commuting expenses. *85 Some traveling expenses, including amounts expended for meals and lodging, may be *85 deducted if they are incurred while the taxpayer is away from home in the pursuit of a trade or business.
Under this
*86 Because there is no evidence to show that the trips took place away from home, we need not consider whether the expenses were reasonable and necessary or whether they were incurred in pursuit of a trade or business. Rehman has not met his burden of proving that he is entitled to deductions for expenses incurred for travel away from home.
Even if these expenses did satisfy the
For Rehman's daily log to "substantiate" his expenses under
*88 Furthermore, Rehman has not shown that he was ineligible for reimbursement from Fidelis, his employer, for his transportation expenses. Rehman did not claim that Fidelis lacked a reimbursement policy; indeed, no evidence regarding Fidelis's reimbursement policy or lack thereof is in the record at all. Thus, Rehman has failed to carry his burden of proving that he was not eligible for reimbursement from his employer and thus has failed to show that he is entitled to unreimbursed employee expense business deductions of any kind.
Thus, we hold that Rehman has not shown *89 that he is entitled to a deduction for unreimbursed employee business expenses for commuting or travel.
Although Rehman is not entitled to deduct his meals expenses under the travel-away-from-home framework, it is conceivable that, alternatively, he might be able to deduct the cost of the lunches as meals and entertainment expenses under
*89 But Rehman ate alone. He has not met his burden of showing that the lunches related to the conduct of his business at all. Thus, the lunch expenses are nondeductible personal expenses.
To deduct any portion of the expenses attributable to business use of a home,
Rehman claimed a deduction for the cost of utilities in his home, a one-bedroom apartment. He testified that he used the living room—one room out of the three rooms in his apartment—exclusively *90 for business purposes. But Rehman supplied no information about the layout of his apartment that could make this assertion seem credible, and he was not a credible witness. We need not accept his unsupported testimony.
On his Schedule C attached to his Form 1040, Rehman claimed a $2,387 deduction for meals and entertainment and a $7,490 deduction for travel. A portion of each of these amounts, Rehman claimed, was attributable to the cost of eating lunch in the New York City area. To prove he incurred these costs, Rehman relies on the daily log referred to earlier. For the period after his job with Fidelis ended the entries in the log are labeled either "Travel" or "Lunch". For all entries labeled "Lunch" the amount is given as $10. For all entries labeled "Travel" the amount is $14. We understand from Rehman's testimony that each $10 entry supposedly corresponds to a restaurant bill and that each $14 entry supposedly *91 corresponds to the taxi fare from his apartment to the restaurant and back.
There is no evidence that the restaurant lunches were related to Rehman's business. Therefore, Rehman has failed to satisfy his burden of proving that the taxi and restaurant expenses are ordinary and necessary business expenses.
Furthermore, a deduction is not allowed for meals and entertainment expenses unless the taxpayer properly substantiates: (1) the amount of such expense, (2) the time and place of the expense, (3) the business purpose, and (4) *91 the business relationship between the taxpayer and the persons being entertained.
And although the log purports to set forth the amount and the date of each expense, we are convinced the entries in the log were not made at or near the time any expenses were incurred. The timing of the entries in his daily log of expenses is suspect for several reasons. For example, Rehman initially testified that the $10 "Lunch" and $14 "Travel" expenses *92 recorded on his log for September 19 and 20 were incurred for lunches in New York, but when confronted with evidence that he was in Las Vegas from September 18 to 20, he changed his testimony to say that the log entries for those dates were actually for expenses incurred in Las Vegas.13 However, the log entries for September 19 and 20 were indistinguishable from those purportedly made on surrounding dates. Therefore we conclude that the log is not contemporaneous or reliable. A noncontemporaneous log alone does *92 not satisfy the requirements of
Accordingly, we hold that Rehman is not entitled to a meals-and-entertainment-expense deduction for the lunches in the New York area.
Rehman asserts that *93 some of the Schedule C travel, meals, and entertainment expenses he claimed on his Form 1040 are deductible expenses incurred during three trips he took to Las Vegas in 2007.
A taxpayer may claim a deduction for travel expenses that are reasonable, necessary, and directly attributable to the taxpayer's business.
Rehman traveled to Las Vegas three times for, he claims, various conferences related to his work as a securities trader. He submitted receipts for some of the expenditures *94 made in Las Vegas; all of the receipts are for meals, entertainment, or transportation. He also testified that he gambled at night while in Las Vegas. Other than his own testimony, there is nothing in the record to show that the primary purpose of the trip was business-related and not personal. Rehman introduced into evidence two announcements for trade fairs being conducted in Las Vegas around the time he was there—one in the wood products industry, and the other in the online financial-services industry—but these notices do not prove that Rehman attended the trade fairs or, if he did, that any expenses incurred to attend them were ordinary and necessary to his business as a securities trader.16 Rehman did not meet his burden of proving that the expenditures were *94 ordinary and necessary to his business. We therefore hold that he is not entitled to a deduction for travel expenses.
A taxpayer may deduct the cost of supplies if the cost is an ordinary and necessary expense directly connected with the taxpayer's business.
To *95 support his claim for a deduction for supplies, Rehman introduced a list of expenses that showed: (1) the date, (2) a description, and (3) the amount he spent on various purchases. However, the list does not show that the expenses were related to Rehman's business as a securities trader. Rehman did not testify that the expenses were related to his business. Without further evidence of the relationship to his business, Rehman has failed to satisfy his burden of proving he is entitled to deduct the $3,763 at issue for supplies.
A taxpayer may deduct the costs of legal and professional services if the costs are ordinary and necessary and directly connected with the taxpayer's business.
*95 The IRS has already allowed a deduction for the $434 that Rehman spent generating necessary paperwork for the creation of an LLC on legalzoom.com. Rehman asserts that he also made a cash payment to a lawyer who he can no longer contact or find. He has introduced no receipt, invoice, or bill, and he did not explain what the payment was for. His *96 testimony is not credible, and there is no other evidence that Rehman spent any more money on legal and professional services related to his business than the $434 the IRS already allowed.17 Rehman has not met his burden of proof. We hold that Rehman is not entitled to any greater deduction for legal and professional services expenses than the $434 the IRS allowed.
A taxpayer may deduct the cost of advertising if the cost is an ordinary and necessary expense directly connected with the taxpayer's business.
Rehman introduced into evidence a price quote from a legal services company, Hubco, stating that $799.95 was the price for Hubco to (1) advertise the *96 creation of Rehman's LLC and (2) file affidavits of publication with the New York Department of State. The Hubco document read, in part: "If you would like for us to complete the publishing, please *97 fill out the Credit Card information below & sign off on the proof." Rehman's signature and credit card information appear on the bottom of the page. Rehman also introduced a copy of a newspaper clipping and an affidavit of publication indicating that the advertisement ran from March 27 to May 1, 2008. He thus makes a plausible case that he incurred $799.95 (though not the full $850 he claimed) in advertising expenses connected with his business. However, there is no documentary evidence to indicate that the expenditure took place in 2007, the tax year at issue. Because the dates of publication were in 2008, not 2007, and because on cross-examination Rehman evaded questions about the date he paid Hubco and why he could not document the date of payment, we cannot conclude that the expenditure took place in 2007. Rehman has not met his burden of proving that he is entitled to a deduction for advertising for 2007.
Rehman claimed a Schedule C deduction for "Other expenses", listing the following categories and amounts both in a handwritten log and on his Schedule C: *97 • $1,250 for "BOOKS MAGAZINES AND DISC" (on the log, and "Books Magazines for business" *98 on the Schedule C); • $1,299 for "SUBSCRIPTION FOR TRADING TIPS"; • $9,990 for "EDUCATIONAL EXPENSES"; and • $450 for "GIFT" and "GIFT CARD" (on the log, and "Business Gifts." on the Schedule C).
Regarding the first, second, and fourth categories, we observe that Rehman's log contained entries corresponding to these categories. However, Rehman did not testify about the expenditures. He did not submit any other evidence about the expenditures, such as invoices or credit card receipts. The log featured nonchronological entries, suggesting it was not made contemporaneously with the expenditures. Under these circumstances, the log entries do not convince us that Rehman incurred the expenses. Rehman has not met his burden to show he is entitled to deductions for "BOOKS MAGAZINES AND DISC", "SUBSCRIPTION FOR TRADING TIPS", or "GIFT"/"GIFT CARD".
We now consider Rehman's claim that he is entitled to a deduction for "EDUCATIONAL EXPENSES". Expenses that a taxpayer incurs "in obtaining an education or in furthering * * * [the taxpayer's] education are not deductible unless they qualify under
The IRS has conceded that Rehman is entitled to $4,090 of the $9,990 deduction he claimed for educational expenses. Thus, the amount in dispute is $5,900. Rehman's deduction relates to his alleged purchase of three sets of compact discs and digital video discs entitled, respectively: "Ultimate Professional Trader Plus CD Library", "Professional Trader CD/DVD Set Days One Through Three", and "Professional Trader CD/DVD Set Days Four Through Seven". Rehman possessed these discs at trial. However, his testimony about the purchase price of the discs was vague, unclear, internally inconsistent, and unsupported by any corroborating receipts or other documentary evidence. We are not persuaded that Rehman spent $5,900 on educational expenses beyond the $4,090 the IRS conceded. We cannot reasonably estimate any amount that he spent in excess of $4,090.
We need not consider *100 the additional requirements of the regulations, because Rehman has failed to satisfy his burden of proving that he is entitled *99 under
We have considered all other arguments the parties have made, and to the extent that we have not discussed them, we find them to be moot, irrelevant, or without merit.
To reflect the foregoing,
1. This deduction was disallowed in full in the notice of deficiency. The IRS later conceded, by stipulation, that Rehman was entitled to $925.43 of the deduction. As to the remaining claim of $4,003.57, Rehman conceded at trial that he was not entitled to the deduction.
2. All section references are to the Internal Revenue Code as in effect for the 2007 tax year. All Rule references are to the Tax Court Rules of Practice and Procedure.↩
3. The parties stipulated that Rehman's employer was Fidelis; Rehman also testified that his employer was Fidelis. However, for some reason Rehman's 2007 Form W-2, Wage and Tax Statement, named "New York State Catholic Health Plan, Inc." as his employer.↩
4. He had begun working as a self-employed securities trader no later than August 2007.↩
5. The travel costs were the cost of taxis and Metropolitan Transit Authority fares.
Although Rehman claimed the expenses of traveling to and from client sites and to and from lunch (and the costs of lunch) throughout the year, we evaluate the deductibility of these expenses as unreimbursed employee business expenses only for the period from January 1, 2007 to May 3, 2007, the period he was employed by Fidelis.↩
6. From Rehman's testimony and brief it is not clear whether he is seeking a deduction for commuting expenses or for expenses attributable to travel away from home. We consider both alternatives.↩
7. Expenses incurred on transportation between two separate places of business, on the other hand, are deductible as ordinary and necessary business expenses.
8. A third potential route toward deducting commuting expenses, the so-called regular-work-location exception, can be found in
9. This "trips-away-from-home" analysis from
10. Expenditures related to "listed property", which includes passenger vehicles, must also satisfy these strict substantiation requirements.
11. Rehman also introduced into evidence what he said was a list of his clients. The list, however, does not contain any of the information required by
12. That is, 50%-deductible under
13.
14. These log entries are largely unsupported by outside evidence. Rehman testified unconvincingly that the expenses listed in the log would have been substantiated with receipts but that they had been in a briefcase that was stolen in February 2008.↩
15. In addition to the requirements of
16. Indeed, the financial-services fair seems to have taken place or at least begun the day before Rehman arrived in Las Vegas.↩
17. Rehman introduced a log containing an entry which reads "Harpireet Singh Professional Services—$2,750.00". Rehman did not testify about the expenditure or in any way indicate what the service was. He did not establish that the expenditure was ordinary and necessary to his business.↩
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Cohan v. Commissioner of Internal Revenue , 39 F.2d 540 ( 1930 )
William W. Steinhort and Mildred Steinhort v. Commissioner ... , 335 F.2d 496 ( 1964 )
William L. Heuer, Jr. And Lucille M. Heuer v. Commissioner ... , 283 F.2d 865 ( 1960 )
Frank J. Hradesky v. Commissioner of Internal Revenue , 540 F.2d 821 ( 1976 )
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Commissioner v. Heininger , 64 S. Ct. 249 ( 1943 )
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Commissioner v. Tellier , 86 S. Ct. 1118 ( 1966 )
United States v. Correll , 88 S. Ct. 445 ( 1967 )
Heuer v. Commissioner , 32 T.C. 947 ( 1959 )
Podems v. Commissioner , 24 T.C. 21 ( 1955 )
Barry v. Commissioner , 54 T.C. 1210 ( 1970 )
Jackson v. Commissioner , 73 T.C. 394 ( 1979 )
Curphey v. Commissioner , 73 T.C. 766 ( 1980 )
Levenson & Klein, Inc. v. Commissioner , 67 T.C. 694 ( 1977 )
Tokarski v. Commissioner , 87 T.C. 74 ( 1986 )