T.C. Summary Opinion 2005-113
UNITED STATES TAX COURT
PHILIP M. CAVANAGH, Petitioner v.
COMMISSIONER OF INTERNAL REVENUE, Respondent
Docket No. 18772-04S. Filed August 4, 2005.
Philip M. Cavanagh, pro se.
John W. Stevens, for respondent.
DEAN, 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 the year in issue, and 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 for 2002 a deficiency in petitioner’s
Federal income tax of $3,157.88. After a concession,1 the issue
for decision is whether petitioner’s business transportation
expenses should be included on Schedule A, Itemized Deductions,
or on Schedule C, Profit or Loss from Business. At the time the
petition in this case was filed, petitioner resided in Redford,
Michigan.
This case was deemed to be submitted fully stipulated under
Rule 122, and the facts stipulated are so found.2
Background
During 2002, petitioner held two jobs, one as a commissioner
for the County of Wayne (the county), and the other as a sales
representative for West Publishing Corp. (West). During a
workday, petitioner would drive to various locations, performing
duties for both positions.
Petitioner timely filed with the Internal Revenue Service a
Form 1040, U.S. Individual Income Tax Return, for 2002.
Attached to the return were various forms including a Schedule A
and two Forms 2106, Employee Business Expenses.
1
Respondent concedes that petitioner is entitled to a
deduction of $3,889 for additional State and local income taxes
and real estate taxes.
2
The facts are not in dispute, and the issue is primarily
one of law. Sec. 7491, concerning burden of proof, has no
bearing on this case.
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On the Form 2106 relating to petitioner’s employment with
West, petitioner reported the following expenses:
Expense Amount
Vehicle expenses $7,323
Parking fees, tolls
& transportation, etc. 199
Expenses away from home overnight 1,766
Other business expenses 2,048
Total 11,336
On the Form 2106 relating to petitioner’s employment with
the county, petitioner reported the following expenses:
Expense Amount
Vehicle expenses $1,830
Expenses away from home overnight 442
Other business expenses 552
Total 2,824
These expenses, totaling $14,130, were deducted by
petitioner as unreimbursed employee expenses on his Schedule A.
By letter, respondent notified petitioner of a proposed
adjustment in petitioner’s 2002 Federal income taxes resulting
from the application of the alternative minimum tax. Respondent,
however, indicated that petitioner had an overpayment of
$1,197.12 resulting from the payment of excess Social Security
taxes of $4,355.
Petitioner filed a Form 1040X, Amended U.S. Individual
Income Tax Return, for 2002. Attached to the Form 1040X were
various forms including two Schedules C and two Forms 2106.
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Petitioner moved from Schedule A to Schedule C the following
expenses relating to his employment with West:
Expense Amount
Vehicle expenses $7,323
Parking fees, tolls
& transportation, etc. 199
Total 7,522
Petitioner did not move his earnings from his employment with
West to the new Schedule C.
Petitioner also moved from Schedule A to the second Schedule
C vehicle expenses of $1,830 relating to his employment with the
county. Petitioner did not move his earnings from his employment
with the county to the new Schedule C. Petitioner also reported
an additional Schedule A deduction of $3,889 for additional State
and local taxes and real estate taxes.
Subsequently, respondent sent petitioner a notice of
deficiency for 2002 determining a deficiency of $3,157.88
resulting from the application of the alternative minimum tax.
Respondent also determined that petitioner had an overall
overpayment of $1,197.12 resulting from the payment of excess
Social Security taxes of $4,355.
Additionally, respondent determined that petitioner’s
transportation expenses of $7,522 and $1,830 should be included
on Schedule A, not Schedule C.
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Discussion
Section 162(a) authorizes a deduction for all ordinary and
necessary expenses paid or incurred during a taxable year in
carrying on a trade or business. A “trade or business” includes
the trade or business of being an employee. O’Malley v.
Commissioner, 91 T.C. 352, 363-364 (1988); Primuth v.
Commissioner, 54 T.C. 374, 377-378 (1970). The costs of going
between one business location and another business location
generally are deductible under section 162(a). Rev. Rul. 55-109,
1955-1 C.B. 261.
The parties disagree as to whether petitioner’s
transportation expenses should be reported on Schedule A or
Schedule C. Respondent contends that petitioner, as an employee,
must claim the expenses at issue on his Schedule A as
miscellaneous itemized deductions and that they are limited to
the amount that exceeds the 2-percent floor imposed by section
67.
Section 62(a)(1) allows taxpayers to deduct from gross
income trade or business expenses “which are attributable to a
trade or business carried on by the taxpayer, if such trade or
business does not consist of the performance of services by the
taxpayer as an employee.” (Emphasis added.) Expenses excluded
under the section 62(a)(1) employee expense limitation are
treated as itemized deductions under section 63(d). Under
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section 67(b), “Miscellaneous itemized deductions”, defined as
all itemized deductions other than those specifically enumerated
therein, are subject to a 2-percent floor and are allowable “only
to the extent that the aggregate of such deductions exceeds 2
percent of adjusted gross income.” Sec. 67(a). Because trade or
business expenses subject to section 62(a)(1), such as
petitioner’s unreimbursed transportation expenses, are not among
the deductions listed in section 67(b), they are miscellaneous
itemized deductions subject to the 2-percent floor. Secs. 62,
67, 162; see also Alexander v. Commissioner, 72 F.3d 938, 946
(1st Cir. 1995), affg. T.C. Memo. 1995-51.
Further, Rev. Rul. 90-23, 1990-1 C.B. 28, 30,3 advises
petitioner to report his transportation expenses as miscellaneous
itemized deductions. For a taxpayer with one or more regular
places of business: “If the taxpayer is an employee, the
taxpayer may deduct * * * daily transportation expenses only as a
miscellaneous itemized deduction subject to the 2-percent floor
provided in section 67 of the Code.” Id. (emphasis added).
3
Although revenue rulings are not binding on the courts, see
e.g., Stubbs, Overbeck & Associates v. United States, 445 F.2d
1142, 1146-1147 (5th Cir. 1971), they may be helpful and
persuasive, Twin Oaks Cmty., Inc. v. Commissioner, 87 T.C. 1233,
1252 (1986).
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On the basis of the foregoing, the Court concludes that
petitioner must report his transportation expenses as
miscellaneous itemized deductions on Schedule A.
Reviewed and adopted as the report of the Small Tax Case
Division.
Decision will be entered
under Rule 155.
[Reporter’s Note: This opinion was amended by Order dated August
16, 2005.]