T.C. Summary Opinion 2004-126
UNITED STATES TAX COURT
MARK W. AND ANITA P. FRANKLIN, Petitioners v.
COMMISSIONER OF INTERNAL REVENUE, Respondent
Docket No. 7161-03S. Filed September 9, 2004.
Mark W. and Anita P. Franklin, pro sese.
Margaret Rigg, for respondent.
GOLDBERG, 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, and all Rule references are to the
Tax Court Rules of Practice and Procedure.
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Respondent determined a deficiency in petitioners’ Federal
income tax of $2,242, and an addition to tax of $488.25 under
section 6651(a)(1), for the taxable year 1998.
The issues for decision are: (1) Whether petitioners are
entitled to certain miscellaneous itemized deductions in the
amount of $14,971.38 for “job seeking expenses”; and (2) whether
petitioners are liable for an addition to tax under section
6651(a)(1) for failing to file timely their Federal income tax
return.
Some of the facts have been stipulated and are so found.
The stipulation of facts and the attached exhibits thereto are
incorporated herein by this reference. Petitioners resided in
San Francisco, California, on the date the petition was filed in
this case.
During 1998, Mark W. Franklin (petitioner) was employed as a
production specialist1 for United Airlines. His employment
location was the United Airlines facility at the San Francisco
International Airport.
Between January and the end of March 1998, Anita P. Franklin
(petitioner wife) was unemployed and had been unemployed for the
previous 4 years. At the end of March, she began working for the
County of Alameda in Oakland, California, in an administrative
1
Petitioner also described his job as a “computer terminal
technician position”.
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capacity. She remained in this position for the remainder of
1998 and was still working there at the time of trial.
Petitioners testified that in January they decided that
petitioner would look for a new job2 with United Airlines or
another company in a different city where petitioner wife might
also find administrative work. However, petitioners never set up
any appointments or arranged any interviews in these destination
cities. Petitioners also were unclear about what job positions
or vocations they were seeking.
From January 4 to 8, 1998, petitioners traveled from San
Francisco, California, to Miami, Florida, in search of employment
for both of them. Petitioner was seeking employment with his
current employer or another airline company in Miami, while
petitioner wife conducted a “cold canvas search” with various
employers in Miami, Palm Springs, Plantation, Port Everglades,
Fort Lauderdale, Davie, Dania, Hollywood, and Hallandale,
Florida. The total expense of this employment search was
allegedly $2,937. Of this amount petitioners calculated $509 for
hotel expenses; $356 for meal expenses; $210 for car rental
expenses; $70 for gas expenses; $1,772 for air fare expenses; and
$20 for parking expenses.
2
Petitioner’s testimony is unclear as to what type of job
position he was seeking.
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The second trip occurred from January 18 to 22, 1998, when
petitioners traveled from San Francisco, California, to Los
Angeles, California, again in search of employment for both of
them. Petitioner was seeking employment with his current
employer or another airline company in Los Angeles, while
petitioner wife conducted a “cold canvas search” with various
employers in Los Angeles, Long Beach, Santa Ana, Pasadena,
Anaheim, Riverside, Irvine, and Burbank, California. The total
expense of this employment search was allegedly $1,592. Of this
amount petitioners calculated $515 for hotel expenses; $287 for
meal expenses; $234 for car rental expenses; $100 for gas
expenses; $430 for air fare expenses; and $56 for parking
expenses.
The third trip occurred from February 1 to 5, 1998, when
petitioners traveled from San Francisco, California, to
Washington, D.C., in search of employment for both of them.
Petitioner was seeking employment with his current employer or
another airline company in Washington, D.C., while petitioner
wife conducted a “cold canvas search” with various employers in
Washington, D.C.; Fairfax, Vienna, Reston, Arlington, and McLean,
Virginia; and Silver Spring, Oxon Hill, Adelphi, and Bethesda,
Maryland. The total expense of this employment search was
allegedly $2,927. Of this amount petitioners calculated $569 for
hotel expenses; $418 for meal expenses; $253 for car rental
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expenses; $85 for gas expenses; $1,572 for air fare expenses; and
$30 for parking expenses.
The fourth trip occurred from February 22 to 26, 1998, when
petitioners traveled from San Francisco, California, to Chicago,
Illinois, in search of employment for both of them. Petitioner
was seeking employment with his current employer or another
airline company in Chicago, Illinois, while petitioner wife
conducted a “cold canvas search” with various employers in
Chicago, Oak Park, Oak Brook, Englewood, Norridge, and Oak Lawn,
Illinois. The total expense of this employment search was
allegedly $2,879. Of this amount petitioners calculated $639 for
hotel expenses; $448 for meal expenses; $336 for car rental
expenses; $120 for gas expenses; $1,298 for air fare expenses;
and $38 for parking expenses.
Petitioners also contend that on January 2, 12-16, 23-26,
February 9-20, and March 2-13, 1998, petitioner wife conducted a
“cold canvas search” with various employers in San Francisco,
Walnut Creek, San Jose, Marin, San Rafael, Oakland, Sacramento,
Berkeley, San Mateo, Sunnyvale, Concord, and Hayward, California.
The total expense of this employment search was allegedly $738.
Of this amount, petitioners calculated $425 for gas expenses, $52
for toll expenses, $95 for parking expenses, $15 for newspaper
expenses, $30 for copying expenses, $32 for paper supplies, $64
for postage, and $25 for envelopes.
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Petitioners claimed that all receipts and documents which
substantiated the aforesaid job seeking expenses were destroyed
by water damage that occurred in their San Francisco home.
Petitioners filed a joint Federal income tax return for the
taxable year 1998, which included a Schedule A, Itemized
Deductions. Petitioners’ Schedule A listed miscellaneous
itemized deductions, which included “job seeking expenses” in the
amount of $14,971.38.
Petitioners testified that they mailed their 1998 Federal
income tax return to the Internal Revenue Service (IRS) office in
Fresno, California, in October of 1999, after the expiration of
an extension date. However, respondent contends that petitioners
mailed their return on or about April 4, 2000, and said return
was received by the IRS on April 6, 2000.
In the notice of deficiency for the taxable year 1998,
respondent determined that petitioners: (1) Are not entitled to
deduct the $14,971.38 claimed as “job seeking expenses”; and (2)
are liable for an addition to tax of $488.25 pursuant to section
6651(a)(1) for failure to file their 1998 tax return by the
prescribed due date.
Miscellaneous Itemized Deduction--Job Seeking Expenses
Section 162(a) allows a deduction for ordinary and necessary
business expenses paid or incurred during the taxable year in
carrying on any trade or business. To be “ordinary” the
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transaction which gives rise to the expense must be of a common
or frequent occurrence in the type of business involved. Deputy
v. du Pont, 308 U.S. 488, 495 (1940). To be “necessary” an
expense must be “appropriate and helpful” to the taxpayer’s
business. Welch v. Helvering, 290 U.S. 111, 113-114 (1933). The
performance of services as an employee constitutes a trade or
business. See sec. 1.162-17(a), Income Tax Regs. The employee
must show the relationship between the expenditures and the
employment. See Evans v. Commissioner, T.C. Memo. 1974-267.
Such deductible expenses include those incurred in searching
for new employment in the employee’s same trade or business.
Cremona v. Commissioner, 58 T.C. 219 (1972); Primuth v.
Commissioner, 54 T.C. 374 (1970). It does not matter whether the
search is successful, or even whether the taxpayer accepts a new
position when it is obtained. See Cremona v. Commissioner, supra
at 221-222; Kenfield v. Commissioner, 54 T.C. 1197, 1199-1200
(1970). It does not matter that the taxpayer is temporarily
unemployed while searching, or that the taxpayer is temporarily
engaged in a different trade or business while searching for a
new position in the trade or business previously conducted by the
taxpayer. See Primuth v. Commissioner, supra at 378; Charlton v.
Commissioner, T.C. Memo. 1988-515. Job search expenses include
resumé preparation expenses, postage, and travel and
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transportation expenses. See Murata v. Commissioner, T.C. Memo.
1996-321.
If the employee is seeking a job in a new trade or business,
however, the expenses are not deductible under section 162(a).
Dean v. Commissioner, 56 T.C. 895 (1971); Frank v. Commissioner,
20 T.C. 511, 513 (1953); Hobdy v. Commissioner, T.C. Memo. 1985-
414; Evans v. Commissioner, T.C. Memo. 1981-413; see Carter v.
Commissioner, 51 T.C. 932, 934 (1969); sec. 1.212-1(f), Income
Tax Regs. A taxpayer who has been unemployed for more than a
reasonably temporary period is not in the trade or business of
being employed, and thus the expenses of searching for a job are
not deductible. Miller v. United States, 362 F. Supp. 1242,
1247-1248 (E.D. Tenn. 1973).
Due to the fact that petitioner wife was unemployed during
the period of time in 1998 in which petitioners conducted their
“job search” and had been unemployed for the 4 years prior to
1998, she is considered not in the trade or business of being
employed, and thus her expenses of searching for a job in the San
Francisco area and on the four job search trips are not
deductible. Id.
The record is unclear as to the type of employment
petitioner was seeking in 1998. The Court is not certain as to
whether petitioner was looking for the same position elsewhere or
another type of job. Nevertheless, we give petitioner the
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benefit of the doubt and assume that he was seeking the same job
at another location.
Petitioners claimed a $14,971.38 deduction for traveling
expenses that they claim they incurred in seeking employment. Of
this amount, petitioners argue that $2,937 is attributable to
their Miami, Florida, job search; $1,592 is attributable to their
Los Angeles, California, job search; $2,927 is attributable to
their Washington, D.C., job search; $2,879 is attributable to
their Chicago, Illinois, job search; and $738 is attributable to
their local job search.
As a general rule, the determinations of the Commissioner in
a notice of deficiency are presumed correct, and the taxpayer
bears the burden of proving the Commissioner’s determinations in
the notice of deficiency to be in error. Rule 142(a); Welch v.
Helvering, supra at 115. Section 7491(a), which shifts the
burden of proof to the Commissioner under certain circumstances,
does not apply with respect to this factual circumstance because
petitioners neither alleged that section 7491 was applicable nor
established that they fully complied with the statutory
substantiation requirements of section 7491, as shown below.
Sec. 7491(a)(2)(A) and (B).
Moreover, deductions are a matter of legislative grace, and
the taxpayer bears the burden of proving that he or she is
entitled to any deduction claimed. Rule 142(a); New Colonial Ice
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Co. v. Helvering, 292 U.S. 435, 440 (1934). This includes the
burden of substantiation. Hradesky v. Commissioner, 65 T.C. 87,
89-90 (1975), affd. per curiam 540 F.2d 821 (5th Cir. 1976).
Section 6001 and the regulations promulgated thereunder
require taxpayers to maintain records sufficient to permit
verification of income and expenses. As a general rule, if the
trial record provides sufficient evidence that the taxpayers have
incurred a deductible expense, but the taxpayer is unable to
adequately substantiate the precise amount of the deduction to
which he or she is otherwise entitled, the Court may estimate the
amount of the deductible expense bearing heavily against the
taxpayer whose inexactitude in substantiating the amount of the
expense is of his own making and allow the deduction to that
extent. Cohan v. Commissioner, 39 F.2d 540 (2d Cir. 1930).
However, in order for the Court to estimate the amount of an
expense, the Court must have some basis upon which an estimate
may be made. Vanicek v. Commissioner, 85 T.C. 731, 742-743
(1985). Without such a basis, any allowance would amount to
unguided largesse. Williams v. United States, 245 F.2d 559, 560-
561 (5th Cir. 1957).
In the case of travel expenses, specifically including meals
and entertainment, as well as certain other expenses, section
274(d) overrides the so-called Cohan doctrine. Sanford v.
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Commissioner, 50 T.C. 823, 827-828 (1968), affd. per curiam 412
F.2d 201 (2d Cir. 1969).
Nearly all of the claimed job search expenses are travel
expenses subject to the strict substantiation requirements
imposed by section 274(d). Under section 274(d), no deduction
may be allowed for expenses incurred for travel, or certain other
expenses, on the basis of any approximation or the unsupported
testimony of the taxpayer. Section 274(d) imposes strict
substantiation requirements to which taxpayers must strictly
adhere. Thus, section 274(d) specifically proscribes deductions
for travel expenses in the absence of adequate records, or of
sufficient evidence corroborating the taxpayer’s own statement.
At a minimum, the taxpayer must substantiate: (1) The amount of
such expense; (2) the time and place such expense was incurred;
and (3) the business purpose for which such expense was incurred.
Petitioners claim that they kept adequate records and
receipts to substantiate their claimed expenses, but that such
records and receipts were allegedly destroyed by water damage.
Petitioners offered and the Court received into evidence an
expense log. Petitioners’ expense log was based on their
recollection of the expenses and travel dates, but no receipts or
documents were used in its preparation. The total expense
claimed in the log was $11,073. We do not accept this log as
reliable evidence because it was prepared approximately 2 months
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before trial, about 6 years after the year in issue, and it was
prepared in contemplation of litigation. Also, petitioners’
testimony supporting such expenses is vague and unclear. Under
the circumstances this log cannot be given any weight by this
Court.
Furthermore, petitioners have failed to account for the
discrepancy between their total expenses in their expense log
($11,073) and their Schedule A claimed “job seeking expenses”
($14,971.38). Although most of the expenses were charged to
personal credit cards, petitioners have not provided any
contemporaneous records or documents to show that they paid such
expenses in the amounts set forth. For example, petitioners have
not shown that they requested copies of airfare ticket vouchers,
hotel bills, car rental agreements, or credit card statements to
substantiate their claimed deductions. Petitioners admitted that
the amounts for “job seeking” expenses on the Schedule A are
estimates, and that they cannot provide the supporting documents
that were used to arrive at the amounts of the expenses shown
thereon.
Petitioners have failed to satisfy the requirements of
section 274(d) with respect to any traveling expense that they
might have incurred in seeking employment. Therefore, we
conclude that petitioners have failed to substantiate the
disallowed claimed deduction. See sec. 6001; sec. 1.6001-1(a),
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(e), Income Tax Regs. Respondent’s disallowance of the deduction
is sustained.
Failure To File, Addition To Tax
Respondent determined an addition to tax as a result of
petitioners’ failure to timely file their Federal income tax
return for the year in issue. Section 6651(a)(1) provides for an
addition to tax in the event a taxpayer fails to file a timely
return (determined with regard to any extension of time for
filing). The amount of the addition is equal to 5 percent of the
amount required to be shown as tax on the delinquent return for
each month or fraction thereof during which the return remains
delinquent, up to a maximum addition of 25 percent for returns
more than 4 months delinquent. Sec. 6651(a)(1).
Petitioners’ 1998 Federal income tax return was due on April
15, 1999. See sec. 6072(a); sec. 1.6072-1(a), Income Tax Regs.
Section 6081(a) allows for a reasonable extension for the filing
of a tax return; the extension may not exceed 6 months. See sec.
6081. Petitioners requested an extension to August 15, 1999, to
file their 1998 return. Petitioners obtained such extension for
filing their return. However, petitioners testified that their
1998 return was filed in October of 1999, while respondent
contends that petitioners’ 1998 return was received by respondent
on April 6, 2000.
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Respondent has the burden of production with respect to any
penalty, addition to tax or an additional amount imposed, and
petitioners bear the burden of proving the addition to tax does
not apply. Sec. 7491(c); Higbee v. Commissioner, 116 T.C. 438,
446-47 (2001).
Respondent contends that petitioners mailed their return on
or about April 4, 2000, and said return was received by the IRS
on April 6, 2000. Respondent offers as evidence to carry his
burden of production, a copy of the original 1040 form filed by
petitioners, which has stamped on its second page an IRS date
receipt stamp. Such an IRS date stamp, which has been applied in
the ordinary course of business, has been held to be sufficient
evidence to establish receipt of a return. See Schentur v.
United States, 4 F.3d 994 (6th Cir. 1993).
Respondent also offers as evidence, and the Court has
received into evidence, a copy of the envelope which respondent
claims contained petitioners’ 1998 return. Said envelope is
addressed to the IRS office in Fresno, California; it is
postmarked with the date of April 4, 2000; and it bears the
petitioners’ return address. It is also pertinent to note that
the envelope was mailed from Oakland, California. This Court
finds it to be more then coincidental that the envelope
containing the purported return bore the date of April 4, 2000,
and the IRS stamp date was April 6, 2000--this appears to be the
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ordinary Postal Service time for delivery of mail from Oakland,
California, to Fresno, California.
Petitioners admit they did not file their return by the
proper filing date as extended but claim they mailed their return
no later then October. Petitioners have failed to offer any
evidence to contradict respondent’s above evidence, except
unsubstantiated trial testimony.3
This Court finds petitioners’ testimony vague, unclear, and
unpersuasive. We reject petitioners’ testimony that their 1998
return was filed in October of 1999 and that the copy of the
envelope offered into evidence is not the proper envelope which
contained petitioners’ 1998 return.
Petitioners’ only dispute with the application of section
6651(a)(1) is with the date they filed their return. Petitioners
failed to file timely their Federal income tax return for 1998.
Petitioners have not argued, and there is nothing in the record
to indicate, that such failure was due to reasonable cause and
not to willful neglect. Respondent’s determination that
petitioners filed their return in April of 2000, and therefore
3
Sec. 7502 describes two examples of evidence that could
have been used by petitioners. First, if any return is required
to be filed by a certain date, and is received after that date,
the date of the U.S. postmark shall be deemed the date of
delivery. Second, if a document is sent by registered or
certified mail, such registration or certification shall be prima
facie evidence that the document was delivered on the date of the
postmark. See sec. 7502.
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petitioners are liable for the addition to tax under 6651(a), is
sustained.
Reviewed and adopted as the report of the Small Tax Case
Division.
Decision will be entered
for respondent.