ELLIS v. COMMISSIONER

T.C. Summary Opinion 2001-52

UNITED STATES TAX COURT

ROGER F. AND CAROLYN R. ELLIS, Petitioners v.
COMMISSIONER OF INTERNAL REVENUE, Respondent

Docket No. 8894-99S. Filed April 9, 2001.

Roger F. Ellis, pro se.

Louis H. Hill, for respondent.

CARLUZZO, Special Trial Judge: This case was heard pursuant

to the provisions of section 7463 of the Internal Revenue Code in

effect at the time the petition was filed. Unless otherwise

indicated, subsequent section references are to the Internal

Revenue Code in effect for 1995 and 1996. Rule references are to

the Tax Court Rules of Practice and Procedure. The decision to

be entered is not reviewable by any other court, and this opinion

should not be cited as authority.
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Respondent determined deficiencies of $2,435 and $3,545

in petitioners’ Federal income taxes for 1995 and 1996,

respectively. The issues for decision for each year in issue

are: (1) Whether petitioners are entitled to various deductions

claimed on a Schedule C; and (2) whether petitioners are entitled

to a charitable contribution deduction greater than the amount

allowed by respondent.

Background

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

Petitioners are husband and wife. At the time the petition was

filed, they resided in Dayton, Ohio. References to petitioner

are to Roger F. Ellis.1

Petitioner holds undergraduate and graduate degrees in

electrical engineering. In 1989, at the age of 44, after 21

years of military service, petitioner retired from the United

States Air Force (USAF). While in the USAF, petitioner was

involved in the acquisition of missiles, aircraft, and, as he

testified at trial, “things of that type”. His military

assignments also included flight and systems tests.

Shortly after retiring from the military, petitioner began

1
Carolyn R. Ellis neither signed the stipulation of facts
nor appeared at trial. The case will be dismissed as to her for
lack of prosecution. The decision to be entered with respect to
her will reflect the disposition of the issues considered in this
opinion, as well as those issues agreed upon by respondent and
petitioner.
 - 3 -

to look for employment as a technical consultant or engineering

manager for private sector defense contractors. During the years

in issue, petitioner’s search for employment included driving to,

or otherwise contacting, numerous companies that might have a

need for the types of services he offered. Petitioner apparently

worked for a time during 1991, but after that he remained

unemployed until January 1999 when he was offered and accepted

employment as a civilian engineer with the USAF.

Petitioner’s records indicate that, in connection with his

search for employment, he visited the offices of Modern

Technologies Corp. in Dayton, Ohio, numerous times, perhaps as

often as once a month, during 1995. In response to an inquiry

made by respondent’s agent during the examination, that company

indicated that petitioner had not made any contacts with it

regarding employment during 1995 or 1996.

Petitioners have three daughters. During the years in

issue, one attended college in Birmingham, Alabama; one attended

college in Williamsburg, Kentucky; and the third was employed in

Columbia, Missouri. Three or four times each year, petitioner or

petitioners traveled to those cities where one of their daughters

was living.

Petitioners are, and were during the years in issue, active

members of the First Baptist Church of Fairborn, Ohio (the

Church). Carolyn R. Ellis was employed as a secretary by the
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Church during 1995 and 1996. Petitioner serves as one of its

deacons. He is the Church historian and, as such, provides

services as a photographer. Petitioners regularly attended

Church services and made cash and personal property contributions

to it during 1995 and 1996. As an official of the Church,

petitioner attended various Church meetings regularly.

During both years in issue, petitioners also made cash and

personal property donations to various other organizations. They

maintained at least one checking account (the account). Some of

the cash donations made to the Church and other organizations

were made through the account. It appears that canceled checks

drawn on the account were not routinely returned to petitioners.

Instead, a carbon copy of the check was created each time a check

was written, and petitioners retained those carbon copies. For

the year 1995, there are carbon copies of 11 checks, each for

$250, payable to the Baptist Health Foundation. According to the

records of the Baptist Health Foundation, petitioners made no

donations to that organization in 1995 or 1996.

Petitioners filed a timely joint Federal income tax return

for each year in issue. Included with each return is a Schedule

C, Profit or Loss from Business, on which they reported the

following items:
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1995 1996

Gross income - 0 - - 0 -

Advertising $53 $82
Car & truck 4,756 4,559
Depreciation 2,431 1,091
Insurance 178 113
Legal & prof. svcs. 139 204
Office expense 799 635
Repairs & maintenance 295 52
Supplies 325 603
Taxes & licenses 158 121
Travel 1,100 1,722
Meals & ent. (less 50%) 719 694
Utilities 2,093 2,296
Total loss 13,046 12,172

The Schedules C relate to petitioner’s activities in seeking

employment as a consulting engineer. The deductions claimed for

travel and meals include trips taken by petitioner, or

petitioners, to Birmingham, Alabama, Williamsburg, Kentucky, and

Columbia, Missouri. The deductions for utilities relate to the

use of a portion of petitioners’ residence as an office. The

deductions for car and truck expenses were computed by using the

applicable standard mileage rate. For each year, petitioner’s

records indicate that he typically drove 35 to 50 miles per day,

5 days a week, in order to make personal contact with prospective

employers.

For each year, petitioners elected to itemize deductions and

included a Schedule A, Itemized Deductions, with each return.

Among other deductions claimed on the Schedules A, petitioners

claimed deductions of $8,328 and $10,827 for 1995 and 1996,
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respectively, for cash gifts to charities.

In the notice of deficiency, respondent disallowed:

(1) All of the deductions claimed on the Schedules C; (2) $2,245

of the charitable contribution deduction claimed for 1995; and

(3) the entire charitable contribution deduction claimed for

1996. Among other reasons, the disallowances were based upon

lack of substantiation. Other adjustments made in the notice of

deficiency are not in dispute.

Discussion

A. Schedule C Deductions

For each year, petitioners claimed numerous deductions on a

Schedule C. All of the deductions were disallowed in the notice

of deficiency. Petitioners claim that they are entitled to the

deductions because the underlying expenses were incurred by

petitioner in carrying on a trade or business as a self-employed

professional engineer. See sec. 162(a). We disagree.

Petitioner did not earn any income or provide any services

as an engineer during either year in issue. The expenses

deducted on the Schedules C relate primarily to his attempts to

find employment. As we view the matter, the expenses that

underlie the Schedule C deductions are properly characterized as

job hunting expenses. During temporary periods of unemployment,

job hunting expenses can be considered and deducted as trade or

business expenses if the expenses are incurred during “a
 - 7 -

reasonable period of transition” between leaving one position and

obtaining another. Haft v. Commissioner, 40 T.C. 2, 6 (1963);

see also Sherman v. Commissioner, T.C. Memo. 1977-301.

In this case, petitioner retired as an engineer from the

USAF in 1989. He apparently was employed in some capacity as an

engineer for an undisclosed period in 1991, and he remained

unemployed from then throughout the years in issue until January

1999, when he was again employed as an engineer by the USAF, this

time as a civilian. As of the beginning of 1995, petitioner had

been unemployed for at least 3 years. We think that the

“reasonable period of transition” that began at the conclusion of

petitioner’s 1991 job expired sometime before the beginning of

1995. Consequently, as of the beginning of 1995, petitioner

would no longer be considered to be carrying on a trade or

business within the meaning of section 162(a).

Moreover, even if we were to find that petitioner was

engaged in a trade or business during the years in issue, other

grounds exist for disallowing particular deductions. For

example, because petitioners reported no gross income from that

trade or business, no deductions attributable to the office in

petitioners’ home would be allowable. See sec. 280A. The

deductions claimed for travel and meals expenses relate primarily

to several trips each year to Birmingham, Alabama, Williamsburg,

Kentucky, and Columbia, Missouri. According to petitioner, those
 - 8 -

trips were taken for employment-related purposes. On those

occasions when Carolyn R. Ellis accompanied petitioner, he

explained that she did so as his “advisor”. We think it more

likely than not that the trips were taken primarily for personal

purposes; that is, so that one or both petitioners could visit

their children. The expenses of those trips constitute

nondeductible personal or family expenses. See sec. 262.

The car expense deduction is allowable only if petitioner

maintained substantiating records. See secs. 274(d), 280F.

Assuming, without finding, that petitioner’s records otherwise

satisfy the requirements of section 274(d) and the regulations

promulgated thereunder, we reject them as unreliable.

Petitioner’s records indicate that he drove to the offices of one

prospective employer numerous times during 1995; the prospective

employer claims no contacts were made. Similarly, other

prospective employers could not confirm petitioner’s claims to

have contacted them during the years in issue. Rejecting

petitioner’s substantiating records, in effect, operates to deny

any deduction for car expenses.

We could continue to discuss other deductions claimed on the

Schedules C, but given our conclusion that the expenses are not

deductible as trade or business expenses in the first place, we

see little purpose in doing so. Respondent’s adjustments
 - 9 -

disallowing all of the deductions claimed on the Schedules C are

sustained.

B. Charitable Contribution Deductions

Petitioners claimed charitable contribution deductions of

$8,382 and $10,827, for 1995 and 1996, respectively, on the

Schedules A included with their returns for those years. For

each year, they indicated that the contributions were made in

cash; but at trial, they claimed that some contributions

consisted of donations of personal property and some portion of

the deductions was attributable to transportation expenses.

In general, a taxpayer is allowed to deduct any

contributions or gifts made to qualifying organizations for their

use. See sec. 170(a). Subject to various exceptions, if

property other than money is donated, “the amount of the

contribution is the fair market value of the property at the time

of the contribution”. Sec. 1.170A-1(c)(1), Income Tax Regs.

Fair market value is defined as “the price at which the property

would change hands between a willing buyer and a willing seller,

neither being under any compulsion to buy or sell and both having

reasonable knowledge of relevant facts.” Sec. 1.170A-1(c)(2),

Income Tax Regs.

Section 1.170A-13(a)(1), Income Tax Regs., requires that

charitable contribution deductions be substantiated by at least

one of the following:
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(i) A canceled check.

(ii) A receipt from the donee charitable organization
showing the name of the donee, the date of the
contribution, and the amount of the contribution. A
letter or other communication from the donee charitable
organization acknowledging receipt of a contribution
and showing the date and amount of the contribution
constitutes a receipt * * *.

(iii) In the absence of a canceled check or receipt
from the donee charitable organization, other reliable
written records showing the name of the donee, the date
of the contribution, and the amount of the
contribution.

If the donation is a small amount, any written or other evidence

from the donee charitable organization acknowledging receipt is

generally sufficient. The reliability of the records is

determined on the basis of all relevant facts and circumstances.

See sec. 1.170A-13(a)(2)(i)(C), Income Tax Regs.

At trial, petitioners did not indicate how much of the

claimed deduction for each year consisted of cash donations and

how much consisted of donations of personal property. Instead,

in addition to petitioner’s generalized testimony regarding their

contributions practices, they produced as substantiation for the

deductions: (1) Computer-generated summaries; (2) carbon copies

of checks written to various organizations, including, among

others, the Church and the Baptist Health Association; (3)

receipts for donations to various organizations, including the
 - 11 -

Church, the Christian Coalition, the Family Research Council,

Focus on the Family, the Forest Ridge Cub Scouts, and Goodwill

Industries; and (4) receipts for the purchase of various items of

personal property, which according to petitioners, were donated

directly to needy families, or to organizations that distributed

the donated property to needy families. Also, at trial

petitioners claimed that a portion of their charitable

contribution deduction for each year consists of transportation

expenses that petitioner incurred to fulfill his obligations as

an official of the Church.

We question the reliability of the carbon copies of checks

presented as substantiation for various cash contributions. For

the year 1995, there are carbon copies of 11 checks, each for

$250, made payable to the Baptist Health Foundation. According

to that organization, no donations were made by petitioners

during that year. Petitioner did not explain this inconsistency

at trial. Ignoring the carbon copies of the checks, and taking

into account the receipts from the various organizations, we find

that for the year 1995, petitioners are not entitled to a

charitable contribution deduction greater than the amount allowed

by respondent. We further find that petitioners are entitled to

a charitable contribution deduction for the year 1996 in an

amount computed as follows:
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Cash contributions to the Church $3,705.00
Cash donations to other organizations 863.48
Transportation expenses
(see sec. 1.170A-1(g), Income Tax Regs.;
Rev. Proc. 95-54, 1995-2 C.B. 450) 463.20
Personal property donated to the Church 659.99
Personal property donated to other
organizations 571.25
Total 6,262.92

Reviewed and adopted as the report of the Small Tax Case

Division.

To reflect the foregoing and respondent’s concession of the

section 6663 penalty for each year,

An appropriate order

will be issued, and decision

will be entered under Rule

155.