T.C. Memo. 1998-23
UNITED STATES TAX COURT
PAUL M. AND JUNE S. SENGPIEHL, Petitioners v.
COMMISSIONER OF INTERNAL REVENUE, Respondent
Docket No. 18672-96. Filed January 20, 1998.
Paul M. Sengpiehl, for petitioners.
Naseem J. Khan and John Comeau, for respondent.
MEMORANDUM OPINION
GOLDBERG, Special Trial Judge: This case was heard pursuant
to section 7443A(b)(3) and Rules 180, 181, and 182.1
Respondent determined a deficiency in petitioners' Federal
income tax for 1991 in the amount of $4,828.
1
All section references are to the Internal Revenue Code in
effect for the taxable year in issue. All Rule references are to
the Tax Court Rules of Practice and Procedure.
2
After concessions,2 the issues for decision are whether
petitioners are entitled to deductions for various amounts
claimed as Schedule C expenses and whether petitioners are
entitled to a dependency exemption deduction with respect to
their married son.
Some of the facts have been stipulated and are so found.
The stipulation of facts and the attached exhibits are
incorporated herein. Petitioners resided in Oak Park, Illinois,
at the time their petition was filed.
During the taxable year in issue, Paul M. Sengpiehl
(petitioner) was a self-employed attorney. Petitioner conducted
his legal practice out of petitioners' home in Oak Park,
Illinois. Petitioner did not maintain another office during the
year in issue.
Petitioners' residence has three stories, including an
unfinished basement. The basement measures 759 square feet. In
1991, the basement contained the heater and washing machine. It
contained no living area. Petitioner used 272 square feet of the
basement to store materials used in his law practice.
2
Petitioners concede they are not entitled to deductions for
car and truck expense in the amount of $930, depreciation expense
in the amount of $1,168, and insurance expense in the amount of
$1,667. Respondent concedes that petitioners are entitled to a
deduction for office expense in the amount of $6,030, and
petitioners concede that they are not entitled to a deduction for
the remaining amount of office expense claimed in the amount of
$1,092. Respondent further concedes that petitioners are
entitled to a Schedule C deduction for other expenses in the
amount of $1,889.35.
3
The first floor is divided into five rooms. The living room
measures 299 square feet and in 1991 was furnished with two
sofas, some easy chairs, a coffee table, a lamp table, a piano,
and bookshelves. The dining room measures 159.375 square feet
and was furnished with a dining room table, chairs, and china
cabinets in 1991. The kitchen is 195.25 square feet in size and
in 1991 contained kitchen appliances, a table and chairs, and a
telephone. An enclosed porch located next to the dining room is
165 square feet and in 1991 was furnished with a sofa, easy
chairs, a wordprocessor, a copy machine, a fax machine, a file
cabinet, a television set with cable television, and one
telephone. Another enclosed porch next to the dining room
measures 105 square feet. In 1991, this porch was furnished with
a desk, chairs, credenza, two filing cabinets, and a telephone
during the year in issue. The first floor also includes a
hallway measuring 138 square feet.
The second floor of the house contains four rooms, including
a bathroom and a hallway, totaling 688.25 square feet.
Petitioner did not use any of the second floor in operating his
law practice.
Petitioners paid mortgage interest, real estate taxes, home
insurance, and utilities in the respective amounts of $2,324.97,
$4,442.01, $360, and $2,815.44 during 1991.
4
Petitioners' home had one telephone line with extensions in
the kitchen, master bedroom, and in each of the enclosed porches.
Petitioners' phone number was listed in the residential section
of the Illinois Bell Telephone Directory and in Sullivan's Law
Directory under petitioner's name. Petitioners paid telephone
expenses in the amount of $1,004 in 1991.
Petitioners' son, Jeffrey Sengpiehl, and daughter, Chrystal
Sengpiehl, resided with petitioners for part of the year in
issue. Chrystal Sengpiehl lived in their home through the end of
August 1991, at which time she left to attend college. Jeffrey
Sengpiehl married in November 1991, at which time he moved from
petitioners' home. Jeffrey Sengpiehl and his wife filed a joint
tax return Form 1040 for the tax year 1991 and reported income in
the amount of $13,351.87.
On Schedule C of their 1991 Federal income tax return,
petitioners reported gross receipts from petitioner’s legal
practice in the amount of $50,179.62. On Schedule C, petitioners
claimed a deduction for home office expense in the amount of
$4,143 based upon business usage of 41.67 percent of their home.
Petitioners also claimed a deduction for other expenses in the
amount of $6,895, including telephone expense in the amount of
$1,004. On their 1991 return, petitioners claimed a dependency
exemption deduction with respect to both Chrystal and Jeffrey.
Petitioners also claimed an earned income credit for 1991.
5
In the notice of deficiency, respondent disallowed $3,357 of
petitioners' home office deduction. The balance was allowed
based upon business usage of the two enclosed porches or 7.15
percent of their home. Respondent allowed petitioners additional
itemized deductions for the portion of the disallowed home office
expense which represents mortgage interest and real estate taxes
in the amount of $2,459. Respondent disallowed petitioners'
other expenses in the amount of $5,518 because petitioners had
not shown that this amount was for ordinary and necessary
business expenses. Respondent further disallowed petitioners'
dependency exemption deduction claimed with respect to their son
Jeffrey because he filed a joint return for the year in issue.
As a computational result of respondent's other adjustments,
respondent disallowed petitioners' claimed earned income credit.
Respondent's determinations are presumed correct, and
petitioners bear the burden of proving them erroneous. Rule
142(a); Welch v. Helvering, 290 U.S. 111, 115 (1933). Further,
deductions are a matter of legislative grace, and petitioners
must prove entitlement to any deductions claimed. INDOPCO, Inc.
v. Commissioner, 503 U.S. 79, 84 (1992).
Schedule C Deductions
A. Home Office Expenses
Section 280A generally prohibits deduction of otherwise
allowable expenses with respect to the use of an individual
6
taxpayer's home. As an exception, this restriction does not
apply to any item that is allocable to a portion of the home that
is exclusively used on a regular basis as the principal place of
business for the taxpayer's trade or business. Sec. 280A(c).
Section 280A(c) requires that the taxpayer use the portion of the
home solely for the purpose of carrying on a trade or business
and that there be no personal use of that part of the home. See
Cadwallader v. Commissioner, 919 F.2d 1273, 1275 (7th Cir. 1990),
affg. T.C. Memo. 1989-356; Sam Goldberger, Inc. v. Commissioner,
88 T.C. 1532, 1556-1557 (1987). The legislative history of
section 280A provides:
Exclusive use of a portion of a taxpayer's dwelling unit
means that the taxpayer must use a specific part of a
dwelling unit solely for the purpose of carrying on his
trade or business. The use of a portion of a dwelling unit
for both personal purposes and for the carrying on of a
trade or business does not meet the exclusive use test.
Thus, for example, a taxpayer who uses a den in his dwelling
unit to write legal briefs, prepare tax returns, or engage
in similar activities as well as for personal purposes, will
be denied a deduction for the expenses paid or incurred in
connection with the use of the residence which are allocable
to these activities.
Sam Goldberger, Inc. v. Commissioner, supra (quoting S. Rept. 94-
938 (1976), 1976-3 C.B. (Vol. 3) 49, 186; H. Rept. 94-658 (1975),
1976-3 C.B. (Vol. 2) 695, 853).
The general rule of section 280A(a) does not apply to any
item that is allocable to space that is used on a regular basis
for storage of the taxpayer's inventory held for use in the
7
taxpayer's trade or business of selling products at retail or
wholesale. Sec. 280A(c)(2).
There is no dispute that petitioner's principal place of
business was located in petitioners' home. The issue is with
respect to what portion of petitioners' home are petitioners
entitled to claim a deduction for home office expenses. The
parties have presented their arguments on a room-by-room basis,
and we use this framework in our analysis. Petitioners argue
that they are entitled to a deduction for home office expenses
allocable to 51 percent business use of their home.
By way of background, we note that petitioner contends that
his family did no entertaining at home and that his wife and
children made no use of any of the rooms in the house aside from
the bedrooms, bathroom, and kitchen, and the dining room on a
extremely limited number of occasions. Furthermore, with respect
to the use of several rooms at issue, specifically the dining
room, kitchen, and bathroom, petitioners advance the argument
that "exclusive" business use during business hours is sufficient
to satisfy section 280A(c), regardless of any personal use after
hours. We do not agree. The use of a portion of a home for both
personal and business purposes does not meet the exclusive use
requirement of section 280A(c). Sam Goldberger, Inc. v.
Commissioner, supra.
8
Petitioners also argue that the claimed allocation
percentage is proper based on the amount of time that the rooms
were purportedly devoted to use in petitioner's legal practice.
In this respect, petitioners rely on Neilson v. Commissioner, 94
T.C. 1 (1990), and Gino v. Commissioner, 60 T.C. 304 (1973),
revd. 538 F.2d 833 (9th Cir. 1976), wherein the Court compared
the number of hours the space in issue was used for business
purposes as opposed to the number of hours it was used for other
purposes. Petitioners' reliance is misplaced. The facts in
Neilson v. Commissioner, supra, involved a day-care operation in
the taxpayers' home, and, thus, section 280A(c)(4) applied.
Petitioners do not argue, nor would we agree, that section
280A(c)(4) applies in these circumstances. The second case, Gino
v. Commissioner, supra, was decided prior to the enactment of
section 280A.
Petitioner argues that the portion of his home allocable to
his business use included the dining room. Petitioners contend
that any use of the dining room "after hours" does not negate the
use of the room for business purposes because personal activities
may go on at outside law offices after hours. Respondent argues
that petitioners have failed to prove that the area was used
exclusively for business purposes, and, therefore, cannot
allocate the expenses to business use.
9
Petitioner testified that he used the dining room to conduct
conferences and to execute various documents. Petitioner also
testified that he stored current legal files in the dining room
piled on the floor and on the furniture, although the only filing
cabinets were in one of the other rooms. Two of petitioner's
clients testified to meeting with petitioner in the dining room
area. Petitioner admitted that his family used the dining room
for family dinners but testified that this occurred on Saturdays
and Sundays only, on three birthdays, and on Thanksgiving.
Although the testimony convinces us that petitioner used the
dining room for some business purposes, petitioner has not
established that this room was used exclusively for business
purposes. Based on the record, we do not believe that the
personal use of the dining room was de minimis. See, e.g., Culp
v. Commissioner, T.C. Memo. 1993-270; Hughes v. Commissioner,
T.C. Memo. 1981-140. Petitioners are not entitled to deduct the
expenses attributable to this portion of their home.
Petitioner argues that the portion of his home allocable to
his business included the living room. Respondent argues that
petitioner has failed to prove that the area was used exclusively
for business purposes. Respondent contends that petitioner's
testimony is not credible and that we should infer from the
manner in which the room was furnished that petitioners and their
children made personal use of their living room, citing Hefti v.
10
Commissioner, T.C. Memo. 1988-22, affd. without published opinion
894 F.2d 1340 (8th Cir. 1989).
Petitioner testified that he used the living room as an
informal meeting area and as a conference room in his legal
practice. Petitioner testified that he met with at least 54
clients in this room during 1991. Petitioner testified that he
and Mrs. Sengpiehl usually did not entertain at home and that
their children never had guests at the house. He further
testified that he was the only member of the family who played
the piano and that he did not do so during the year in issue.
Two of petitioners' clients testified that when they met with
petitioner, they had free access to the entire first floor, and
testified to meeting with petitioner in the living room.
We found the witnesses' testimony credible concerning the
use of the living room for business purposes. We have no basis
for doubting petitioner's testimony that the living room was not
used for personal reasons when petitioner admitted to making
personal use of other rooms. Therefore, we find that petitioners
have satisfied the requirements of section 280A(c)(1) with regard
to the living room.
Petitioners argue that one-half of the kitchen space is part
of petitioner's home office. Respondent contends petitioners
have failed to prove that any part of the kitchen was used
exclusively for business purposes. We agree with respondent.
11
Petitioner testified that Mrs. Sengpiehl was available to
serve his clients refreshments. One of petitioner's clients
testified that she made phone calls from the kitchen. Petitioner
also testified that his family would get coffee from the kitchen
and that dinner was eaten in half of the kitchen.
Petitioners have not established that any part of the
kitchen was used exclusively in petitioner's business.
Petitioners are not entitled to a deduction for the expenses
allocable to the kitchen.
Petitioners argue that petitioner's home office included the
bathroom. Respondent counters that petitioners used the bathroom
for personal purposes and have failed to meet the requirements of
section 280A(c). We agree with respondent.
Petitioner testified that the bathroom was available for his
clients' use, and that his children were not present in the house
during the normal business hours of his law practice.
Petitioners have failed to establish that the bathroom was
exclusively used for business purposes, and no deduction may be
allowed with respect to this portion of the house.
Petitioners contend that petitioner's home office includes a
portion of their basement used by petitioner for storage of legal
materials. Respondent argues that petitioners are not entitled
to a deduction for the storage space under section 280A(c)(2).
Petitioners argue that respondent raised this issue initially on
12
brief, and therefore has the burden of proof. We think
respondent's argument is not on point.
Petitioner testified that he used a portion of the basement,
measuring 272 square feet, to store files, law books, and estate
property. There is no suggestion that petitioner used this
portion for personal reasons. Thus, we find that this portion of
the basement satisfies the requirements of section 280A(c)(1) and
is part of petitioner's home office.
Finally, petitioners argue that petitioner's law office
includes the hallway on the first floor. Petitioners offered no
evidence to establish that this area was used exclusively for
business purposes. Therefore, petitioners are not entitled to
deduct expenses allocable to this portion of their residence.
Based on the above analysis, petitioners are entitled to an
additional home office deduction with respect to the expenses
attributable to 571 square feet.3
B. Telephone Expense
Section 262(a) provides: "Except as otherwise expressly
provided in this chapter, no deduction shall be allowed for
personal, living, or family expenses." Section 262(b) provides
that any charges, including taxes, for basic local telephone
service for the first telephone line of the taxpayer's residence
3
Computations under Rule 155 should account for respondent's
allowance of mortgage interest and real estate taxes as itemized
deductions.
13
are treated as personal expenses for the purposes of section
262(a).
Petitioners argue that the telephone expenses are deductible
as business expenses under section 162(a), and therefore the
deduction of such expenses is otherwise expressly provided.
Petitioners ignore the explicit language of section 262(b).
Petitioners failed to offer any testimony or evidence as to
whether the telephone expenses claimed include long distance
charges for business purposes. Thus, petitioners have failed to
establish that they are entitled to a deduction for telephone
expense. Respondent is sustained on this issue.
C. Other Expenses
Petitioner testified that he incurred checking account fees
during 1991. Petitioners did not argue that they are entitled to
a deduction for these fees in either of their posttrial briefs.
Moreover, petitioners have not established that the amount of
fees paid or that the fees were incurred for business purposes.
Petitioners are not entitled to a deduction for any checking
account fees.
14
Dependency Exemption
Section 151(c)(2) provides that no deduction for a
dependency exemption is allowed with respect to any dependent who
filed a joint return with his spouse for the taxable year at
issue. The language of section 151(c)(2) is clear. Petitioners
are not entitled to a deduction for a dependency exemption with
respect to Jeffrey Sengpiehl because he filed a joint return with
his wife for 1991.
Petitioners, however, contend that the instructions for
completing Form 1040EZ allow parents to claim a dependency
exemption deduction with respect to a married child. Petitioners
further contend that Jeffrey Sengpiehl did not claim a personal
exemption for the year in issue. Petitioners argue that
respondent should be estopped from arguing that petitioners are
not entitled to the deduction because the instructions contained
on Form 1040EZ indicate otherwise and Jeffrey Sengpiehl is no
longer able to amend his return due to the running of the statute
of limitations.
On brief, petitioners allege that Form 1040EZ, "Income Tax
Return for Singles and Joint Filers", contains certain
instructions for married taxpayers. We are unable to determine
where petitioners have found the language contained in their
brief. There is no copy of Form 1040EZ in the record.
Petitioners' son and daughter-in-law filed Form 1040 for 1991.
15
Our research on this issue discloses that the 1991 Form 1040EZ is
entitled "Income Tax Return for Single Filers with No
Dependents". The instruction booklet for the 1991 Form 1040EZ
provides that a filer must meet seven requirements to the form.
The first requirement is: "Your filing status is single". We do
not believe that petitioners could reasonably have been misled by
these instructions. Petitioners' interpretation is clearly
incorrect.4 Respondent is sustained on this issue.
We have considered all of the arguments of both parties,
and, to the extent not discussed herein, we find them to be
without merit or irrelevant.
To reflect the foregoing and the concessions of the parties,
Decision will be entered
under Rule 155.
4
Even if respondent's publication was erroneous or was a
misleading interpretation of the law as petitioners allege,
respondent is not bound by such publication. Green v.
Commissioner, 59 T.C. 456, 458 (1972).