T.C. Summary Opinion 2001-143
UNITED STATES TAX COURT
JANE ANNE JEFFRIES, Petitioner v.
COMMISSIONER OF INTERNAL REVENUE, Respondent
Docket No. 10063-99S. Filed September 14, 2001.
Jane Anne Jeffries, pro se.
Angelique M. Neal, for respondent.
PAJAK, 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. The decision to be
entered is not reviewable by any other court, and this opinion
should not be cited as authority. Unless otherwise indicated,
subsequent section references are to the Internal Revenue Code in
effect for the year in issue.
- 2 -
Respondent determined a deficiency in petitioner’s 1994
Federal income tax in the amount of $6,337. Respondent
disallowed petitioner’s deduction of $30,684 for expenses claimed
on a Schedule C, Profit or Loss From Business, on the grounds
that petitioner did not engage in an activity for the purpose of
making a profit. An automatic adjustment was made.
This Court must decide whether petitioner engaged in a
tutoring activity for profit within the meaning of section 183.
Some of the facts in this case have been stipulated and are
so found. Petitioner resided in Los Angeles, California, at the
time she filed her petition.
During 1994, petitioner was employed as a teacher with the
Los Angeles Unified School District (LAUSD). She earned wages of
$54,610. Petitioner taught at Richland Elementary School
(Richland). As a teacher at Richland, petitioner taught first
grade students from January through June 1994, and third and
fourth grade students from September through December 1994.
On her Federal income tax return for 1994, petitioner
claimed deductions for an alleged activity she called
Conversation with Connection (CWC). In the alleged activity CWC,
petitioner claimed she tutored students (not at or from Richland)
about the use of computers. The year at issue was the second
year that petitioner’s tax returns reflected the alleged activity
called CWC.
- 3 -
Petitioner owned a condominium located at 410 N. Market
Street, Apt. 17, Inglewood, California 90302. She alleged she
operated CWC from that condominium.
During 1994, petitioner did not maintain a roster, syllabus,
or any other documentation, to show who the students were who
were purported clients of CWC. There was no documentation for
the lessons that were allegedly taught to them. During 1994,
petitioner did not maintain a log, or other documentation, of any
hours she spent on CWC.
Petitioner did not obtain a business license for CWC. She
did not maintain any business books and records for CWC.
Petitioner did not maintain a separate business checking account
for CWC. She did not advertise the services available through
CWC.
Petitioner reported gross receipts and losses for CWC on her
Federal individual income tax returns for the tax years 1993
through 1996 as follows:
Gross Receipts
Tax Year Reported Loss Claimed
1993 -0- $13,150
1994 -0- 30,684
1995 -0- 24,359
1996 -0- 16,291
Petitioner did not charge her alleged students because she
said they could not afford to pay. When asked when she could
make a profit, petitioner answered: “I expected to make a profit
- 4 -
when I could be working with people who could afford to pay for
my services.” She further stated: “I intended to have a
business called Conversation With Connection. It will be when I
retire from the school district.” Petitioner is not retired from
the school district.
Petitioner deducted on her Schedule C expenses which were
personal expenses not deductible under section 262. She deducted
moneys paid to a handyman to paint her house. She deducted
moneys paid for a carpet delivered to her house. She deducted a
gift (a membership in the Screen Actor’s Guild) to a friend’s
daughter. She deducted payments to a person who repaired her
personal automobile. She deducted payments for assistance during
a funeral. Thus, petitioner’s use of her Schedule C allowed her
to claim deductions for many nondeductible personal expenses.
Section 183(a) disallows any deductions attributable to
activities not engaged in for profit except as provided under
section 183(b). A taxpayer need not have a reasonable
expectation of profit. However, the facts and circumstances must
demonstrate that he or she entered into the activity, or
continued the activity, with the actual and honest objective of
making a profit. Taube v. Commissioner, 88 T.C. 464, 478 (1987);
Dreicer v. Commissioner, 78 T.C. 642, 645 (1982), affd. without
opinion 702 F.2d 1205 (D.C. Cir. 1983); sec. 1.183-2(a), Income
Tax Regs. The taxpayer's objective to make a profit must be
- 5 -
analyzed by looking at all the surrounding facts. Dreicer v.
Commissioner, supra at 645. These facts are given greater weight
than the taxpayer’s mere statement of intent. Id.
Section 1.183-2(b), Income Tax Regs., provides a
nonexclusive list of relevant factors which should be considered
in determining whether the taxpayer has the requisite profit
objective. The factors are: (1) The manner in which the taxpayer
carries on the activity; (2) the expertise of the taxpayer or
advisers; (3) the time and effort expended by the taxpayer in
carrying on the activity; (4) the expectation that the assets
used in the activity may appreciate in value; (5) the success of
the taxpayer in carrying on other similar or dissimilar
activities; (6) the taxpayer’s history of income or losses with
respect to the activity; (7) the amount of occasional profits, if
any, which are earned; (8) the financial status of the taxpayer;
and (9) any elements indicating personal pleasure or recreation.
Sec. 1.183-2(b), Income Tax Regs. These factors are not
applicable or appropriate in every case. Abramson v.
Commissioner, 86 T.C. 360, 371 (1986).
Petitioner did not carry on a business in a businesslike
fashion. She had no books or records, no records of students,
and no business plans. She had no gross receipts. She could not
make a profit because she did not charge for the alleged
services. She admitted that she intended to go into business
- 6 -
after she retired. There is no credible evidence that she spent
time on this activity. Petitioner has a history of substantial
losses, with no prospect for any gain. Petitioner deducted
personal expenses nondeductible under section 262 on her Schedule
C. Upon a review of the facts in the record, we conclude that
petitioner did not engage in the CWC activity with an actual and
honest objective of making a profit, and that under section 183
she is not entitled to claim the deductions in issue.
Respondent’s determination is sustained.
Reviewed and adopted as the report of the Small Tax Case
Division.
Decision will be entered
for respondent.