T.C. Memo. 2007-174
UNITED STATES TAX COURT
RONALD Z. THOMPSON, Petitioner v.
COMMISSIONER OF INTERNAL REVENUE, Respondent
Docket No. 24178-05. Filed July 3, 2007.
Anthony V. Diosdi, for petitioner.
Kaelyn Romey, for respondent.
MEMORANDUM FINDINGS OF FACT AND OPINION
HAINES, Judge: Respondent determined a deficiency in
petitioner’s 2002 Federal income tax of $3,663, as well as a
penalty under section 6662(a) of $733.1
1
Unless otherwise indicated, all section references are to
the Internal Revenue Code, as amended. Amounts are rounded to
nearest dollar.
- 2 -
The issues for decision are: (1) Whether petitioner is
entitled to deduct the expense of flight school as an educational
expense under section 162(a); and (2) whether petitioner is
liable for the accuracy-related penalty under section 6662(a).
FINDINGS OF FACT
The parties’ stipulation of facts and the attached exhibits
are incorporated herein by this reference, and the facts
stipulated are so found. At the time the petition was filed,
petitioner resided in Castro Valley, California.
Petitioner graduated from San Jose State University with a
bachelor of science degree in aviation operations. Petitioner is
currently employed as an aeronautical engineer2 with Planners
Collaborative, Inc. (Planners), a subcontractor which provided
engineering and technical management services to support the
National Aeronautics and Space Administration’s (NASA) Ames
Research Center. Prior to his employment with Planners, from
August 2000 through October 2004, petitioner was employed as an
aeronautical engineer with Teculan Inc. (Teculan), a
subcontractor which also provided engineering and technical
management services to NASA.
2
The parties also referred to petitioner as a systems
engineer.
- 3 -
Petitioner’s duties for Teculan required him to: (1)
Identify, collect, organize, and document engineering
requirements and drawings; (2) maintain configuration control
processes to ensure traceability of baseline documentation; (3)
test and evaluate aircraft flight systems software, cockpit
ergonomics, and other related engineering modalities; and (4)
perform engineering studies and provide technical assistance,
including problem solving and formulation of tradeoffs and
recommendations.
While working at Teculan, on October 1, 2001, petitioner
began attending a commercial pilot training program offered by
Sierra Academy of Aeronautics (Sierra Academy) to pursue a
commercial pilot’s certificate for both single-engine and
multiengine airplanes (commercial pilot certificates). To
receive a commercial pilot certificate for either single-engine
or multiengine airplanes, petitioner was required to complete
three programs: (1) personal pilot’s certification; (2) pilot
instrument rating; and (3) commercial pilot certificate.
Petitioner completed these three programs and received his
commercial pilot certificates on March 1, 2004.
The parties stipulated that petitioner was not required to
attend flight school to meet the minimum education requirements
necessary to qualify as an aeronautical engineer by his former
- 4 -
employers or by any law or regulation. Petitioner was not
reimbursed for the expenses paid to attend Sierra Academy.
In 2002, petitioner paid Sierra Academy $17,826 for tuition
and $929 for required books, equipment, and uniforms. He
reported $18,755 as educational expenses on his Schedule A,
Itemized Deductions, for 2002. Petitioner prepared his 2002
Federal income tax return using tax preparation software.
On November 15, 2005, respondent mailed petitioner the
notice of deficiency with respect to 2002 which denied
petitioner’s deductions for educational expenses. Petitioner
timely filed his petition on December 22, 2005.
OPINION
Section 162(a) allows a deduction for all ordinary and
necessary expenses paid or incurred during the taxable year in
carrying on any trade or business. Generally, expenditures made
by an individual for education are deductible under section
162(a) if the education maintains or improves skills required of
the individual in his employment or other trade or business or
meets the express requirements of the individual’s employer.
Sec. 1.162-5(a), Income Tax Regs. However, even if the general
rule is satisfied, expenses for education are nondeductible if
the education is part of a program of study which will lead to
qualifying an individual for a new trade or business. Sec.
1.162-5(b)(1), (3), Income Tax Regs.
- 5 -
An individual who, through education, improves his skills in
an existing trade or business may also become qualified for a new
trade or business. Educational expenses incurred to qualify for
a new trade or business are nondeductible even if the individual
does not engage in the new activity. See sec. 1.162-5(b)(3)(ii)
Example (2), Income Tax Regs. The mere capacity to engage in a
new trade or business is sufficient to disqualify the expenses
for the deduction. Weiszmann v. Commissioner, 52 T.C. 1106, 1111
(1969) affd. per curiam 443 F.2d 29 (9th Cir. 1971); see sec.
1.162-5(b)(3), Income Tax Regs.
The Court agrees with petitioner’s contention that his
training improved his aeronautical engineering skills. By taking
flight lessons petitioner likely improved his ability to evaluate
cockpit ergonomics and design and troubleshoot future flight
concepts. The training also likely improved his skills in
testing and evaluating aircraft flight systems software.
However, the education undertaken by petitioner was a course of
study that led to his receipt of commercial pilot certificates.
As a result, this Court must decide whether petitioner became
qualified for new trade or business by attaining these
certificates.
Even though petitioner did not intend to work as a
commercial pilot, the commercial pilot certificates qualified him
to be employed as a pilot-in-command of an aircraft for single
- 6 -
and multiengine airplanes for compensation,3 qualified him to
serve as a second-in-command pilot for an airline,4 and enabled
petitioner to engage in a trade or business for which he was
previously unqualified. Robinson v. Commissioner, 78 T.C. 550,
557 (1982); Bodley v. Commissioner, 56 T.C. 1357, 1361 (1971).
Therefore, this Court finds that petitioner’s commercial pilot
training was part of a program of study which qualified him for a
new trade or business, and the expenses paid in 2002 to attend
the program are nondeductible under section 162. See sec. 1.162-
5(b)(3), Income Tax Regs.
Respondent contends petitioner is liable for a section 6662
penalty because the underpayment of tax was attributable to
negligence. Section 6662(a) imposes a 20-percent accuracy-
related penalty on the portion of any underpayment attributable
to negligence. Sec. 6662(b). The term “negligence” includes any
failure to make a reasonable attempt to comply with the
provisions of the internal revenue laws or to exercise ordinary
and reasonable care in the preparation of a tax return. Sec.
6662(c); sec. 1.6662-3(b)(1), Income Tax Regs.
3
See Roussel v. Commissioner, T.C. Memo. 1979-125; 14
C.F.R. sec. 61.133(a) and (b) (2002).
4
See 14 C.F.R. sec. 61.55 (2002). Because petitioner did
not earn an airline transport pilot rating, he would not be
allowed to captain an airplane for an airline company.
- 7 -
On this entire record, the Court finds that petitioner made
a reasonable attempt to comply with the internal revenue laws
and exercised ordinary and reasonable care by obtaining software
to aid him in the preparation of his 2002 Federal income tax
return. Therefore, the Court is satisfied that the section
6662(a) accuracy-related penalty for negligence should not be
imposed.
The Court, in reaching its holding, has considered all
arguments made and concludes that any arguments not mentioned
above are moot, irrelevant, or without merit.
To reflect the foregoing,
Decision will be
entered under Rule 155.