T.C. Memo. 2008-44
UNITED STATES TAX COURT
RAYMOND J. AND MARIA V. ZBYLUT, Petitioners v.
COMMISSIONER OF INTERNAL REVENUE, Respondent
Docket No. 15269-06. Filed February 27, 2008.
Ellin Vicki Palmer, for petitioners.
Valerie L. Makarewicz, for respondent.
MEMORANDUM FINDINGS OF FACT AND OPINION
COHEN, Judge: Respondent determined a deficiency of $2,293
and an addition to tax of $573.25 for failure to file a timely
return pursuant to section 6651(a)(1) with regard to petitioners’
Federal income tax liability for 2002. After concessions, the
issues to be decided are:
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(1) Whether for the years in issue petitioners may deduct at
Federal per diem rates meal expenses that Raymond J. Zbylut
(petitioner) did not pay or incur;
(2) whether petitioners are entitled to deductions for
expenses related to petitioner’s travel to union halls in 2002;
and
(3) whether petitioners are entitled to deductions claimed
for other job-related expenses in 2002.
Unless otherwise indicated, all 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.
FINDINGS OF FACT
Some of the facts have been stipulated, and the stipulated
facts are incorporated in our findings by this reference.
Petitioners resided in Nebraska at the time they filed their
petition.
Petitioner was employed as a merchant sailor at various
times in 2002 by American Ship Management, L.L.C. (American
Ship), and by Matson Navigation Co. (Matson Navigation). During
that year, American Ship provided meals and lodging without cost
to petitioner whenever he was on active status and assigned to a
vessel for that company. Petitioner worked for American Ship
aboard a container vessel called the President Wilson for
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approximately 112 consecutive days between July and November
2002.
Petitioner incurred expenses traveling to union halls in San
Francisco, California, and Honolulu, Hawaii, in order to seek
temporary employment in 2002. Petitioner traveled to and
remained at the union hall in San Francisco in order to seek
employment from March 17 through 27, 2002. Petitioner did not
obtain a job during his March 2002 trip to San Francisco.
Petitioner traveled to the union hall in Honolulu in order to
seek employment on June 15, 2002. He remained in Honolulu until
at least June 28, 2002, during which time he was able to secure
several temporary jobs. On the following dates in 2002,
petitioner served as a port relief engineer in Honolulu for
Matson Navigation, which provided petitioner with meals when he
was serving aboard one of its vessels:
Vessel Dates
SS Chief Gadao June 19-June 21
SS Maui June 23
SS Manulani June 24-June 28
Petitioner incurred lodging expenses on all but the last 5 days
of his trip to Honolulu, during which petitioner was employed
exclusively on the SS Manulani. Petitioner incurred necessary
meal expenses on the days he was in Honolulu looking for work but
not employed on a Matson Navigation vessel.
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Petitioner did not receive a per diem cash allowance or
reimbursement for lodging, meals, or incidental expenses from
American Ship or Matson Navigation in 2002. He was not a
permanent or indefinite employee of either employer or of any
other company during 2002. He served only in temporary positions
on various vessels that year and then returned to his home in
Nebraska for vacation and during periods of unemployment.
In addition to wages from American Ship and Matson
Navigation, petitioner received unemployment compensation in 2002
from the New York State Department of Labor-Unemployment
Insurance.
Petitioners filed their Form 1040, U.S. Individual Income
Tax Return, for 2002 over 9 months late on January 28, 2004.
Petitioners did not request an extension of time to file their
2002 return.
Under Job Expenses and Most Other Miscellaneous Deductions
on their Schedule A, Itemized Deductions, for 2002, petitioners
claimed the following deductions:
Unreimbursed employee expenses $13,067
Other expenses 3,488
Petitioners attached an extensive compilation of documents
entitled “Sailor Travel Statement” to substantiate their claim
for unreimbursed employee expenses. The Sailor Travel Statement
included, among other things, the “Supplemental Sailor Travel
Schedule” reproduced below, authorities upon which petitioners
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rely in support of their tax position, and documentation showing
the respective locations of petitioner and the President Wilson
on particular dates in 2002. The Supplemental Sailor Travel
Schedule, with original emphases, that petitioners attached to
their 2002 return is reproduced in part below:
Taxpayer is a Merchant Sailor assigned to work aboard a Cargo Ship
traveling between ports located around the entire Pacific Ocean
and therefore qualifies per attached Rev Proc 2001-47’s
“Transportation Industry Employees” and attached MARIN JOHNSON TAX
COURT DECISION & IRS Publication 463 (Chapter 1 Page 5) to compute
his DEEMED SUBSTANTIATED Out-of-Town Travel Costs by using
attached Pub 1542’s Foreign OCONUS Rates and Domestic CONUS Rates
for EACH CITY as follows:
27 Days x $119 Yokohama, Japan = 3,213.
23 Days x $76 Guam, Island of = 1,748.
15 Days x $82 Qingdao , China = 1,230.
10 Days x $87 Pusan, South Korea = 870.
14 Days x $50 San Pedro , California = 700.
6 Days x $113 Nagoya, Japan = 678.
7 Days x $84 Naha , Japan = 588.
6 Days x $46 San Pedro , California = 276.
4 Days x $38 Oakland, California = 152.
--------
Total Sailor Travel Costs Allowed per OCONUS & CONUS Rates 9,455.
Taxpayer also took a Sailor Continuing Education Program. This
additional Rating is deductible since he already has other SAILOR
ratings and this course does NOT qualify him for a new occupation.
Note the Union paid the tuition in full. This is related
Educational Travel Expenses ONLY.
35 Days x $42 Easton , Maryland = 1,470.
Airfare & Other Education Related Costs = 1,272.
Less Union Education Reimbursement Per 1099 <2,712>
As a MERCHANT SAILOR, taxpayer was forced by his attached Union
Letter to personally show up at his Union Hall to look for his
next work assignment. He was NOT ALLOWED to simply phone his
Union Hall to see what new jobs were currently available. Per
attached IRS Publication 17, auto mileage and possibly other
travel-related costs back and forth to his Union Hall Looking
[sic] for work are FULLY DEDUCTIBLE as follows:
16 Days x $72 Honolulu , Hawaii = 1,152.
12 Days x $205 San Francisco, California = 2,460.
-------
Total U.S. Tax Court
& Other Sailor Travel Expenses Allowed 13,067.
In another statement attached to their 2002 return,
petitioners listed their other expenses as follows:
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Sailor required medical expenses $1,227
Sailor required supplies 655
Sailor uniforms/cleaning 692
Sailor union dues 914
======
3,488
OPINION
Section 162 permits taxpayers to deduct all ordinary and
necessary business expenses paid or incurred during the taxable
year and specifically includes traveling expenses (including
amounts expended for meals and lodging other than amounts that
are lavish or extravagant under the circumstances) while away
from home in the pursuit of a trade or business. Sec. 162(a)(2).
Section 274(d) generally disallows any deduction under section
162 for, among other things, “any traveling expense (including
meals and lodging while away from home)”, unless the taxpayer
complies with stringent substantiation requirements as to the
amount, time and place, and business purpose of the expense.
Sec. 274(d)(1). Section 274(d) authorizes the Secretary to
provide by regulations that some or all of these substantiation
requirements “shall not apply in the case of an expense which
does not exceed an amount prescribed pursuant to such
regulations.”
Under the applicable section 274 regulations, the
Commissioner is authorized to prescribe rules under which
optional methods of computing expenses, including per diem
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allowances for ordinary and necessary expenses for traveling away
from home, may be regarded as satisfying the substantiation
requirements of section 274(d). Sec. 1.274-5(j), Income Tax
Regs. Under this authority, the Commissioner issued Rev. Proc.
2001-47, 2001-2 C.B. 332 (applicable to petitioner’s travel
January through September 2002), and Rev. Proc. 2002-63, 2002-2
C.B. 691 (applicable to petitioner’s travel October through
December 2002) (collectively, the applicable revenue procedures).
Under the applicable revenue procedures, taxpayers may elect to
use, in lieu of substantiating actual expenses, certain
authorized methods for deemed substantiation of employee lodging,
meal, and incidental expenses incurred while traveling away from
home. Rev. Proc. 2002-63, sec. 1, 2002-2 C.B. at 691, provides
the following introduction:
SECTION 1. PURPOSE
This revenue procedure updates Rev. Proc. 2001-47,
2001-2 C.B. 332, by providing rules under which the
amount of ordinary and necessary business expenses of
an employee for lodging, meal, and incidental expenses
or for meal and incidental expenses incurred while
traveling away from home will be deemed substantiated
under section 1.274-5 of the Income Tax Regulations
when a payor (the employer, its agent, or a third
party) provides a per diem allowance under a
reimbursement or other expense allowance arrangement to
pay for the expenses. In addition, this revenue
procedure provides an optional method for employees and
self-employed individuals who pay or incur meal costs
to use in computing the deductible costs of business
meal and incidental expenses paid or incurred while
traveling away from home. This revenue procedure also
provides an optional method for use in computing the
deductible costs of incidental expenses paid or
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incurred while traveling away from home by employees
and self-employed individuals who do not pay or incur
meal costs and who are not reimbursed for the
incidental expenses. Use of a method described in this
revenue procedure is not mandatory, and a taxpayer may
use actual allowable expenses if the taxpayer maintains
adequate records or other sufficient evidence for
proper substantiation. * * *
Rev. Proc. 2001-47, sec. 1, 2001-2 C.B. at 332, is almost
identical to the passage quoted above, but the following sentence
is omitted:
This revenue procedure also provides an optional method
for use in computing the deductible costs of incidental
expenses paid or incurred while traveling away from
home by employees and self-employed individuals who do
not pay or incur meal costs and who are not reimbursed
for the incidental expenses. * * *
Rev. Proc. 2002-63, sec. 4.05, 2002-2 C.B. at 694, expressly
provides that taxpayers who do not pay or incur meal expenses
when traveling away from home may use, in lieu of providing
actual receipts to substantiate incidental expenses, an
established rate of $2 per day. Rev. Proc. 2001-47, sec. 4,
2001-2 C.B. at 333-334, which provides specific rules for the per
diem substantiation method, does not contain a similar provision.
However, we have held previously that the incidental portion of
the per diem rates for meals and incidental expenses (M&IE) may
be used as deemed substantiation of incidental expenses when
meals are provided by a taxpayer’s employer. Johnson v.
Commissioner, 115 T.C. 210, 210-211 (2000).
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Rev. Proc. 2001-47, sec. 6.01, 2001-2 C.B. at 337, and Rev.
Proc. 2002-63, sec. 6.01, 2002-2 C.B. at 698, each provide that
the Federal M&IE rate will be applied, with stated exceptions, in
the same manner as applied under the Federal Travel Regulations,
41 C.F.R. sec. 301-11, in effect at the time each respective
revenue procedure was released.
Deductions for Meals and Incidental Expenses
American Ship furnished petitioner with lodging and meals
without charge while he worked on the President Wilson in 2002.
Matson Navigation provided meals to petitioner without charge
while he worked as a relief port engineer on its vessels docked
in Honolulu for several days in 2002. Although petitioner did
not pay for his meals while at sea or while docked in ports,
petitioners deducted the full M&IE rate for each day that
petitioner worked aboard a vessel in 2002.
Petitioners argue that the applicable revenue procedures,
which are cited above, in conjunction with the Federal Travel
Regulations, permit them to deduct the full applicable M&IE rate
for work-related travel even though all of petitioner’s meals
were provided to him free of charge by his employers. Section
301-11.17 of the Federal Travel Regulations provides that a meal
provided by a common carrier or a complimentary meal provided by
a hotel or motel does not affect a taxpayer’s otherwise allowable
per diem expense deduction for meals. 41 C.F.R. sec. 301-11.17
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(2000); 41 C.F.R. sec. 301-11.17 (2002). None of the vessels on
which petitioner worked were common carriers, and he did not
receive meals from a hotel or motel. Additionally, the Federal
Travel Regulations require that a Federal employee’s M&IE rate be
adjusted for meals provided by the Government by deducting
appropriate amounts for each meal provided. Johnson v.
Commissioner, supra at 227-228; Federal Travel Regulations, 41
C.F.R. sec. 301-11.18 (2000); 41 C.F.R. sec. 301-11.18 (2002).
Because, as petitioners acknowledge, the revenue procedures
regarding M&IE rate deductions for non-Government employees are
to be applied according to the Federal Travel Regulations for
Federal employees, the regulations require that petitioner
decrease the M&IE rate deduction otherwise allowable to account
for meals provided by petitioner’s employers.
Petitioners also argue that this issue is novel to the
Court. We disagree. In Johnson v. Commissioner, supra, the
taxpayer, also a merchant seaman, deducted the full Federal M&IE
rates on his return, even though all of his meals were provided
to him free of charge by his employer. We held that, because the
taxpayer’s actual expenses consisted solely of incidental
expenses, his use of the M&IE rates to calculate his deductions
for business expenses due to travel away from home was limited to
the incidental portion of those rates. Id. at 210-211. The
taxpayer in that case established that he had incurred incidental
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expenses during his travel away from home and was allowed to use
the incidental portion of the M&IE rates to substantiate those
expenses in lieu of providing actual receipts. The purpose of
the Federal per diem rates is to ease the burden of
substantiating travel expenses away from home, not to eliminate
the requirement that those expenses be incurred before they can
be claimed as deductions from income. Although petitioners
contend that the Court has not yet addressed this issue, we
explicitly stated in Johnson v. Commissioner, supra at 227: “We
do not read the revenue procedures to allow a taxpayer to use the
full M&IE rates when he or she incurs only incidental expenses.”
Respondent concedes that petitioners are entitled to a
miscellaneous itemized incidental expenses deduction for 2002
equal to the per diem rate then applicable for each day
petitioner was traveling away from home for business. Respondent
performed those calculations according to methods established by
relevant revenue procedures.
Petitioners may, as respondent has conceded, deduct the
incidental portion of the M&IE per diem rate for days that
petitioner worked away from home for which they have
substantiated the time, place, and business purpose of
petitioner’s travel. Johnson v. Commissioner, supra at 225; see
also Westling v. Commissioner, T.C. Memo. 2000-289. In
accordance with the applicable revenue procedures, respondent
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calculated petitioner’s deemed substantiated incidental expenses
using the incidental expense portion of applicable M&IE rates
based on petitioner’s substantiated work locations for January
through September 2002 and a fixed per diem rate of $2 for
incidental expenses for October through December 2002. We
sustain respondent’s calculations regarding petitioner’s deemed
substantiated incidental expenses for 2002.
Travel to Union Halls
Section 162 generally allows a taxpayer to deduct “all the
ordinary and necessary expenses paid or incurred during the
taxable year in carrying on any trade or business”, including
travel expenses while the taxpayer is “away from home in the
pursuit of a trade or business”. Sec. 162(a)(2). A taxpayer’s
“home”, for purposes of section 162(a)(2), is generally
considered as the vicinity of his principal place of employment
rather than his personal residence. Mitchell v. Commissioner, 74
T.C. 578, 581 (1980); Daly v. Commissioner, 72 T.C. 190 (1979),
affd. 662 F.2d 253 (4th Cir. 1981). Accordingly, expenses
incurred in commuting from a taxpayer’s personal residence to a
taxpayer’s business or place of employment are generally
nondeductible personal expenses. Gilberg v. Commissioner, 55
T.C. 611, 616-617 (1971); sec. 1.262-1(b)(5), Income Tax Regs.
Where a taxpayer does not have a permanent place of business, but
rather is employed temporarily by various employers at different
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locations, we generally deem the situs of the taxpayer’s
permanent residence to be his or her tax home, and the taxpayer’s
traveling expenses from his residence to those temporary places
of employment may be deductible. Johnson v. Commissioner, 115
T.C. at 221, 223; Dean v. Commissioner, 54 T.C. 663, 667-668
(1970); see Case v. Commissioner, T.C. Memo. 1985-530 (holding
that taxpayer, a merchant sailor who incurred expenses traveling
to a union hall in order to seek employment, could deduct
traveling expenses related to his business affairs at the union
hall because he was not employed by the union hall, his
employment with each employer that he met through the union hall
was temporary, and thus his expenses were not related to
commuting).
Petitioner testified at trial that he took trips to San
Francisco and Honolulu to seek work in 2002 and that obtaining a
job in his field required being present physically at union halls
when job opportunities were announced. Petitioner incurred
expenses traveling to union halls in San Francisco and Honolulu
in order to seek temporary employment. He was not a permanent or
indefinite employee of American Ship, Matson Navigation, or any
other company. He served only in temporary positions on various
vessels and then returned to his home in Nebraska for vacations
and during periods of unemployment.
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Petitioners deducted on their 2002 return as unreimbursed
employee expenses the following amounts for “auto mileage and
possibly other travel-related costs back and forth to his Union
Hall looking for work”:
16 Days x $72 Honolulu , Hawaii = 1,152.
12 Days x $205 San Francisco, California = 2,460.
Although petitioners’ statement attached to their return
attributes the deductions to auto mileage and other travel-
related expenses, the rate petitioners used to calculate the
expenses for Honolulu was the applicable M&IE rate for June 2002.
The rate they used to calculate expenses for San Francisco was
the applicable maximum per diem rate, which includes standard
deemed substantiated expense allowances for lodging, meals, and
incidental expenses. Respondent argues that petitioners are not
entitled to the expense deductions claimed for petitioner’s
travels to San Francisco and Honolulu for several reasons.
In respondent’s opening brief, respondent argues that
Nebraska was petitioner’s personal residence and advances the
argument that expenses for travel to San Francisco and Honolulu
were nondeductible commuting expenses to and from his places of
work. Respondent argues that petitioners should not be allowed
deductions for these commuting expenses because they were free to
choose the location of their personal residence and chose to live
far from petitioner’s various places of work. Respondent’s
implicit argument is that petitioner’s union halls, rather than
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his personal residence in Nebraska, should be considered
petitioner’s tax home. However, as we explained in Johnson v.
Commissioner, supra, because petitioner was employed by various
employers in various locations, he had no principal place of
business, and his personal residence is his tax home. See
Johnson v. Commissioner, supra at 221-224. Thus, petitioner’s
travel between his personal residence and his union halls and
various places of employment is business-related travel away from
home.
In respondent’s reply brief, respondent argues that, because
petitioner received unemployment compensation from the State of
New York and did not testify explicitly that he resided in
Nebraska during 2002, petitioners have not established that
Nebraska was their permanent residence and tax home. Such an
argument is inconsistent with arguments in respondent’s opening
brief that assume that Nebraska was petitioner’s home and
permanent residence. Respondent never questioned petitioner at
trial about where he resided in 2002 or about his receipt of
unemployment compensation from the State of New York. The
parties stipulated that petitioners resided in Nebraska at the
time they filed their petition. Petitioner’s permanent residence
was not an issue presented before or during trial, and the
argument that Nebraska was not petitioner’s permanent residence
was first made in respondent’s reply brief. Until respondent’s
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reply brief, neither we nor petitioners were aware that
respondent did not consider Nebraska petitioner’s permanent
residence. Because their residence was not an issue presented
until respondent’s reply brief, we are not persuaded by
respondent’s argument that, because they did not explicitly
establish that Nebraska was their permanent residence and tax
home at trial, petitioners may not treat their personal residence
as their tax home. We find that petitioners did have a permanent
residence and tax home for 2002 in Nebraska, where petitioners
maintained their personal residence, and we hold that
petitioner’s traveling and living expenses related to trips to
union halls in order to seek temporary employment are not
commuting expenses but may be deductible expenses for business-
related travel away from home.
Respondent also argues that petitioner’s trips to San
Francisco and Honolulu do not constitute ordinary and necessary
business trips and thus are not deductible under section 162
because petitioners have not shown that petitioner’s employers
required petitioner to stop at the union halls. Petitioner
testified credibly that he was notified of job opportunities only
if he was physically present at a union hall, where potential
employers announced their current needs. Petitioners have
adequately established that petitioner’s trips to union halls in
2002 were ordinary and necessary business expenses.
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Respondent also argues that petitioners have failed to
substantiate petitioner’s expenses related to his trips to union
halls in 2002. Petitioners claimed deductions at per diem rates
for 16 days in Honolulu and 12 days in San Francisco. Although
the per diem rates serve as an alternative method of
substantiating the amount of expenses, petitioners must still
substantiate the time, place, and business purpose of the
underlying trip to deduct the per diem rates as ordinary and
necessary business expenses. Sec. 274(d)(1); sec. 1.274-5T(b),
Temporary Income Tax Regs., 50 Fed. Reg. 46014 (Nov. 6, 1985).
Petitioner testified that the expenses related to his trips
to the union halls to seek employment are accurately represented
by credit card statements that petitioners presented as evidence
at trial. The credit card statements, which include an array of
expenditures including personal expenses, show that petitioner
was present in San Francisco approximately 11 days in March and
incurred expenses there for lodging and meals. Petitioner
asserts, and we believe, that he traveled to the San Francisco
area union hall in March 2002 in search of a job, but it appears
that he was unable to secure a job at that time. Petitioner
incurred ordinary and necessary business expenses related to his
trip to San Francisco in March 2002 and may deduct his expenses
for lodging, meals, and incidental expenses at the applicable per
diem rates for those 11 days.
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The credit card statements also show that petitioner was
present in Honolulu at least 14 days in June, during which period
he incurred expenses including some for lodging and meals.
Petitioner asserts, and we believe, that he traveled to the
Honolulu area union hall in June 2002 in search of a job, in
which endeavor he was successful. Petitioner was employed by
Matson Navigation as a port relief engineer in Honolulu on three
different ships at various times totaling 9 days. Matson
Navigation provided petitioner with meals on the days he was
working aboard a vessel, and petitioner did not incur necessary
meal expenses during the 9 days when he was employed by Matson
Navigation. Matson Navigation generally did not provide housing
for port relief engineers, and petitioner incurred lodging
expenses for the 4 days that he was employed on two of Matson
Navigation’s ships in Honolulu. However, petitioner did not
incur lodging expenses for the other 5 days he was employed by
Matson Navigation on the SS Manulani. Petitioner also incurred
lodging and meal expenses for the remaining 5 days in Honolulu
during which he was seeking employment.
Petitioners claimed deductions for meals and incidental
expenses for 16 days in Honolulu on their 2002 return.
Petitioners have shown that petitioner was present in Honolulu
and seeking employment or working for 14 days in June 2002.
Petitioners are entitled to deductions at the applicable per diem
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rate for lodging, meals, and incidental expenses for the 5 days
that petitioner was not employed but was seeking work at the
Honolulu area union hall. Petitioners are entitled only to
lodging and incidental expense deductions for the 4 days that
petitioner worked on two of Matson Navigation’s ships and was
provided meals but incurred lodging expenses. See Federal Travel
Regulations, 41 C.F.R. sec. 301-11.18 (2002). For the 5 days
between June 24 and June 28, during which petitioner worked for
Matson Navigation on the SS Manulani and did not incur any
lodging or meal expenses, petitioners may deduct the applicable
per diem rate for incidental expenses only. See Johnson v.
Commissioner, 115 T.C. at 210-211; Federal Travel Regulations, 41
C.F.R. sec. 301-11.18 (2002).
Other Job-Related and Miscellaneous Expenses
Petitioners claimed other job expense deductions in 2002 for
medical exams, supplies, uniform expenses, and union dues.
Respondent has allowed a deduction of $718.45 for petitioner’s
union dues paid in 2002. Petitioners have not established that
they paid more than the amount respondent has allowed for
petitioner’s union dues in 2002. Petitioners have not
substantiated the amount of any of the other miscellaneous
expenses they claimed on their 2002 return. Although petitioners
presented copies of their credit card statements for 2002, the
statements do not list any items purchased by petitioner and
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include charges for patently personal expenses. Petitioners are
not entitled to deductions for “other expenses” beyond those
conceded by respondent.
In reaching our decision, we have considered all arguments
made, and, to the extent not mentioned, we conclude that they are
irrelevant, moot, or without merit.
Decision will be entered
under Rule 155.