T.C. Summary Opinion 2007-196
UNITED STATES TAX COURT
LUCIEN JOSEPH LARVADAIN, Petitioner v.
COMMISSIONER OF INTERNAL REVENUE, Respondent
Docket No. 6295-05S. Filed November 21, 2007.
Keith S. Blair, for petitioner.
C. Teddy Li, for respondent.
COUVILLION, Special Trial Judge:1 This case was heard
pursuant to the provisions of section 7463 of the Internal
Revenue Code in effect when the petition was filed. Pursuant to
section 7463(b), the decision to be entered is not reviewable by
1
With the consent of the parties, the Chief Judge
reassigned this case, after the death of Special Trial Judge
Carleton D. Powell, to Special Trial Judge D. Irvin Couvillion
for disposition on the existing record.
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any other court, and this opinion shall not be treated as
precedent for any other case.2
Respondent determined a deficiency of $7,106 in petitioner’s
2001 Federal income tax. The sole issue for decision is whether
petitioner is entitled to deductions for certain expenses claimed
on Schedule C, Profit or Loss From Business, for the year at
issue in excess of amounts allowed by respondent. That issue is
premised on whether petitioner conducted a trade or business
activity principally in his home.
Some of the facts were stipulated. Those facts, with the
annexed exhibits, are so found and are made part hereof.
Petitioner’s legal residence at the time the petition was filed
was Glen Burnie, Maryland.
Background
From 1974 to 1991, petitioner was an employee of the
National Oceanic & Atmospheric Administration (NOAA), a Federal
agency. Petitioner’s background is in naval navigation. He left
his employment with NOAA in 1991 and commenced a self-employment
activity which dealt essentially in the sale of charts, maps,
nautical supplies, and navigational services to boat and yacht
owners. Petitioner discontinued that activity around 1996 and
reestablished a relationship with NOAA as an independent
2
Unless otherwise indicated, subsequent section references
are to the Internal Revenue Code in effect for the year at issue.
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contractor providing navigational services and, in particular,
training NOAA employees at the U.S. Coast Guard branch facility
at Silver Spring, Maryland. Petitioner was not engaged with NOAA
as an employee. His relationship was based on a contract for
training new employees, preparation of manuals, desk reference
guides, and other navigational matters used by such employees.
Petitioner was not required to be at NOAA offices on a daily
basis and was allowed to prepare his manuals, guides, and other
contract requirements at home. The time petitioner spent at NOAA
facilities was to train employees. However, NOAA made available
to petitioner at all times office space and equipment necessary
for him to perform his services under the contract. Petitioner
estimated that during the year at issue, he was at NOAA
facilities between 35 and 40 percent of the time for the training
of NOAA employees. The remainder of his time was spent at home
where he performed his other obligations under the contract
(preparing training manuals, etc.). None of the training
activities took place at his home.
Petitioner’s contract with NOAA was obtained by bid. He was
paid by the hour. For the year at issue, petitioner contracted
to perform 976 hours of work which translated to 122 work days.
The compensation for that amount of time was $30,256.3
3
On his income tax return for the year at issue,
petitioner reported $35,222 of income from NOAA. There is no
(continued...)
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On his 2001 Federal income tax return petitioner reported
his income and expenses from the NOAA contract on Schedule C in
amounts as follows:
Income
Gross income $35,222
Cost of goods sold 1,650
Gross profit 33,572
Expenses
Advertising $400
Car & truck 10,389
Insurance 1,572
Mortgage interest 8,520
Legal/professional 360
Repairs/maintenance 2,299
Taxes/licenses 2,730
Utilities 3,690
Other expenses
Postal & shipping 420
Business calls & faxes 1,195
Computer & software
services 425
2,040
Total expenses 32,000
Net profit $1,572
In the notice of deficiency respondent disallowed the
claimed deductions for advertising expenses, car and truck
expenses, legal/professional expenses, and other expenses which
consisted of postal and shipping, business calls and faxes, and
computer and software services on petitioner’s Schedule C for
3
(...continued)
dispute as to the amount of petitioner’s income and, the Court
surmises that petitioner was paid for additional services he
performed.
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lack of substantiation. Although petitioner substantiated $1,514
for insurance, $3,027 for repairs and maintenance expenses, and
$898 for utilities, respondent disallowed those expenses as
personal in nature.
In the notice of deficiency respondent determined that
petitioner is entitled to deduct $2,010 as real estate taxes,
$12,740 as mortgage interest, and $400 as a charitable
contribution deduction on Schedule A, Itemized Deductions.
Discussion
Section 162(a) allows a taxpayer to deduct all ordinary and
necessary expenses paid or incurred in carrying on a trade or
business. Under section 280A, however, deductions associated
with a home office are generally disallowed unless the home
office is used exclusively and regularly as the principal place
of business of the taxpayer.4
Petitioner presented no evidence to substantiate deductions
claimed for advertising expenses, car and truck expenses,
legal/professional expenses, and other expenses which consisted
of postal and shipping, business calls and faxes, and computer
and software services claimed on Schedule C. Secs. 162, 274(d),
280F(d)(4). Respondent’s determination as to these adjustments
is sustained.
4
Petitioner does not argue, nor does the record establish,
that petitioner satisfied the requirements of sec. 7491(a).
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In addition, section 280A(a) provides as a general rule that
“no deduction * * * shall be allowed with respect to the use of a
dwelling unit which is used by the taxpayer during the taxable
year as a residence.” However, section 280A(c)(1) sets forth the
following exceptions to the general rule:
SEC. 280A(c). Exceptions for Certain Business or
Rental Use; Limitation on Deductions for Such Use.
(1) Certain business use.--Subsection (a) shall
not apply to any item to the extent such item is
allocable to a portion of the dwelling unit which is
exclusively used on a regular basis--
(A) the principal place of business for
any trade or business of the taxpayer,
(B) as a place of business which is used
by patients, clients, or customers in
meeting or dealing with the taxpayer in the
normal course of his trade or business, or
(C) in the case of a separate structure
which is not attached to the dwelling unit,
in connection with the taxpayer’s trade or
business.
In determining whether petitioner’s home was used
exclusively and regularly as his principal place of business,
there are several factors that militate against petitioner in
this case. First, petitioner was not required under his contract
with NOAA to perform his contract obligations at home. Second,
petitioner admitted at trial that he performed services under the
contract at NOAA’s offices from 35 to 40 percent of the time and
the remainder of his contract obligations were performed at home.
Third, employees of NOAA that petitioner trained were not
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required to report to petitioner’s home for their training, and
there is no evidence that petitioner ever trained NOAA employees
at his home.
As to the disallowed claimed deductions for insurance,
repairs and maintenance expenses, and utilities, those expenses
related to petitioner’s use of his home in connection with his
NOAA contract.
Generally, in determining whether a home constitutes the
taxpayer’s principal place of business, the Court examines the
various locations in which the activity is conducted, the
relative importance of the activities performed at each business
location, and the time spent at each place. To be sure, although
petitioner’s home was helpful and used in connection with his
NOAA contract, the evidence in this case fails to persuade the
Court that petitioner’s home was the principal place of his
business activity nor was his home exclusively used for such
activity. Rather, the Court finds that the training of the NOAA
employees was of primary importance and that the NOAA facility
was petitioner’s principal place of business. The Court,
therefore, concludes that the facts of this case do not establish
petitioner’s entitlement to deductions for home office expenses
under section 280A(c)(1). The Court sustains respondent’s
determinations.
Decision will be entered
for respondent.