T.C. Summary Opinion 2006-3
UNITED STATES TAX COURT
MICHAEL DAVON WESTBROOK, Petitioner v.
COMMISSIONER OF INTERNAL REVENUE, Respondent
Docket No. 8170-04S. Filed January 3, 2006.
Michael Davon Westbrook, pro se.
Frank J. Jackson, 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 2000. Rule references are to the Tax
Court Rules of Practice and Procedure. The decision to be
- 2 -
entered is not reviewable by any other court, and this opinion
should not be cited as authority.
Respondent determined a deficiency of $1,760 in petitioner’s
2000 Federal income tax and a $352 accuracy-related penalty under
section 6662(a).
The issues for decision are: (1) Whether petitioner is
entitled to various deductions claimed on Schedule A, Itemized
Deductions; and (2) whether the underpayment of tax required to
be shown on petitioner’s 2000 Federal income tax return is due to
negligence or intentional disregard of rules or regulations.
Background
Some of the facts have been stipulated and are so found. At
the time the petition was filed, petitioner resided in New York,
New York.
Petitioner holds a bachelor’s degree from the University of
Idaho. In 1993 he began employment with Cooper Union School of
Engineering (Cooper Union) as a technician in the chemistry
department. While employed by Cooper Union, petitioner enrolled
in its graduate program and in 1998, he was awarded a master’s
degree in engineering.
While working and attending classes at Cooper Union,
petitioner incorporated Suffola, Inc. (Suffola), a corporation
organized under the laws of Idaho. At all relevant times,
petitioner was the sole owner of all of Suffola’s outstanding
- 3 -
stock, to the extent that any stock had been issued and was
outstanding. Suffola generated no income during 2000, and the
corporation did not file a Federal income tax return for that
year. The record is unclear with respect to the exact services
that petitioner might have provided to Suffola during the year in
issue, but whatever they were, he did not receive a salary or any
other form of compensation as a result.
Petitioner’s employment with Cooper Union continued
throughout 2000, as did his formal education there. He took
several courses in pursuit of a doctorate degree that year.
According to petitioner, his education was geared towards
advancing the corporate goals of Suffola, although those goals
are less than clearly stated in the record. Nevertheless, in
pursuit of his doctorate degree, petitioner incurred tuition
expenses, as well as expenses for books and supplies. During
2000, petitioner also purchased a laptop computer, a scanner, and
a digital camera.
During 2000, petitioner contributed financially to the care
and maintenance of his mother, who was ill and cared for by his
sister.
Petitioner’s 2000 Federal income tax return was timely
filed. That return includes a Schedule A on which, as relevant
- 4 -
here, deductions for home mortgage interest of $2,0401,
charitable contributions of $1,300, job expenses of $1,290, and
other miscellaneous itemized deductions of $7,575 are claimed.
In the notice of deficiency, respondent disallowed the
Schedule A deductions listed above. Respondent further
determined that petitioner is liable for an accuracy-related
penalty under section 6662(a). Because allowable itemized
deductions were less than the standard deduction, respondent
disallowed those otherwise allowable itemized deductions and
allowed petitioner the standard deduction. Respondent also
allowed petitioner a Lifetime Learning Credit of $746.
Discussion
The issues in this case arise from the disallowance of
itemized deductions claimed on petitioner’s Federal income tax
return.2 As has been noted in countless cases, deductions are a
matter of legislative grace and are allowable only as
specifically provided by statute. See INDOPCO, Inc. v.
1
Petitioner lived in a rented apartment during 2000. The
home mortgage interest deduction claimed on his return consists,
in part, of tuition expenses, books, supplies, and instruments.
Petitioner now concedes that he is not entitled to the deduction.
2
Respondent bears the burden of production with respect to
the imposition of the sec. 6662(a) penalty. Sec. 7491(c).
Otherwise, under the circumstances, petitioner bears the burden
of proof on the issues here in dispute. Sec. 7491(a); Rule
142(a).
- 5 -
Commissioner, 503 U.S. 79, 84 (1992); Interstate Transit Lines v.
Commissioner, 319 U.S. 590, 593 (1943); Deputy v. du Pont, 308
U.S. 488, 493 (1940); New Colonial Ice Co. v. Helvering, 292 U.S.
435, 440 (1934).
Job Expenses and Other Miscellaneous Itemized Deductions
Section 162(a) provides that a taxpayer may deduct all
ordinary and necessary expenses paid or incurred during the
taxable year in carrying on any trade or business, including the
trade or business of being an employee. Kurkjian v.
Commissioner, 65 T.C. 862, 869 (1976). Expenditures for
personal, living, or family expenses are not allowable as
deductions. See sec. 262(a).
On his 2000 Schedule A, petitioner claimed a job expenses
deduction and other miscellaneous itemized deductions of $1,290
and $7,575, respectively. These deductions include expenses for
postage, journals, checking account fees, a laptop, a scanner,
and a digital camera incurred by petitioner in connection with
Suffola’s business activity.
A corporation is treated as a separate entity from its
shareholders for tax purposes. Moline Props., Inc. v.
Commissioner, 319 U.S. 436 (1943). The voluntary payment of
corporate expenses by officers, employees, or shareholders may
not be deducted on the taxpayer’s individual return. Deputy v.
du Pont, supra at 494; Noland v. Commissioner, 269 F.2d 108 (4th
- 6 -
Cir. 1959), affg. T.C. Memo. 1958-60; Rink v. Commissioner, 51
T.C. 746, 751 (1969). Accordingly, these expenses are not
deductible by petitioner.
Petitioner also included educational expenses in the job
expenses deduction and other miscellaneous itemized deductions
claimed on the Schedule A.
Education expenses may qualify for deduction as a trade or
business expense under section 162(a) if the education (1)
maintains or improves the skills required in the taxpayer’s
employment or other trade or business, or (2) meets the express
requirements of the taxpayer’s employer, or of applicable law or
regulations, imposed as a condition to the retention by the
taxpayer of an established employment relationship, status, or
rate of compensation. Sec. 1.162-5(a), Income Tax Regs. There
is nothing in the record that indicates that petitioner’s
educational expenses, including tuition and related expenses,
fell within one of these two categories. There is no suggestion
that the education maintained or improved skills which petitioner
used in his duties at Suffola, or Cooper Union for that matter,
or that it was required in the context of his established
employment relationship, status, or rate of compensation.
Because the education expenses do not meet the requirements of
- 7 -
section 1.162-5(a), Income Tax Regs., the expenses are not
deductible under section 162.3
Respondent’s disallowances of the job expenses deduction and
other miscellaneous itemized deductions are sustained.
Charitable Contributions Deduction
Section 170(a) allows as a deduction any charitable
contribution which is made within the taxable year. A charitable
contribution is a contribution or gift to or for the use of an
organization described in section 170(c).
Petitioner claimed a charitable deduction in the amount of
$1,300, for payments made to his sister to assist in the care of
his ill mother. While we commend petitioner for contributing to
the support of his ill mother, those contributions do not qualify
for deduction under section 170. Respondent’s disallowance of
the charitable contribution deduction is sustained.
Section 6662(a) Penalty
Respondent determined that the underpayment of tax required
to be shown of petitioner’s 2000 return is due to negligence or
disregard of rules or regulations. See sec. 6662(a) and (b)(1)
and (2). Negligence is defined to include any failure to make a
reasonable attempt to comply with the provisions of the Internal
Revenue Code. Sec. 6662(c). It is further defined as the
3
We note that respondent did allow petitioner a Lifetime
Learning Credit under sec. 25A with respect to his qualified
tuition and related expenses for the taxable year 2000.
- 8 -
failure to do what a reasonable person with ordinary prudence
would do under the same or similar circumstances. Neely v.
Commissioner, 85 T.C. 934, 947 (1985). Disregard is defined to
include any careless, reckless, or intentional disregard. Sec.
6662(c). An accuracy-related penalty is not imposed with respect
to any portion of the understatement as to which the taxpayer
acted with reasonable cause and in good faith. Sec. 6664(c)(1).
Whether a taxpayer acts with reasonable cause and in good faith
depends on the relevant facts and circumstances, including the
extent of the taxpayer’s effort to properly assess the tax
liability. See sec. 1.6664-4(b)(1), Income Tax Regs.
As noted above, respondent bears the burden of production
with respect to the imposition of the section 6662(a) penalty.
Other than the disallowance of the deductions as discussed above,
nothing in the record suggests that the imposition of the penalty
is appropriate. As we view the matter, for purposes of the
imposition of the section 6662(a) penalty upon the ground of
negligence, the mere disallowance of a deduction, in and of
itself, is not sufficient to satisfy the burden of production
imposed upon respondent by section 7491(c). Petitioner is not
liable for the section 6662(a) penalty.
Reviewed and adopted as the report of the Small Tax
Division.
- 9 -
To reflect the foregoing,
Decision will be entered
for respondent with respect to
the deficiency and for
petitioner with respect to the
section 6662(a) penalty.