T.C. Summary Opinion 2008-109
UNITED STATES TAX COURT
MICHAEL RAY TOLLESON, Petitioner v.
COMMISSIONER OF INTERNAL REVENUE, Respondent
Docket No. 15864-06S. Filed August 25, 2008.
Michael Ray Tolleson, pro se.
Paul R. Zamolo and Jon Feldhammer (specially recognized),
for respondent.
GOEKE, Judge: This case was heard pursuant to the
provisions of section 7463 of the Internal Revenue Code in effect
when the petition was filed.1 Pursuant to section 7463(b), the
decision to be entered is not reviewable by any other court, and
1
Unless otherwise indicated, all section references are to
the Internal Revenue Code, and all Rule references are to the Tax
Court Rules of Practice and Procedure.
- 2 -
this opinion shall not be treated as precedent for any other
case.
Respondent determined deficiencies in petitioner’s Federal
income taxes of $12,832 and $9,171 for 2001 and 2002,
respectively. After concessions,2 the issue before the Court is
whether petitioner is entitled to business expense deductions for
an alleged independent architectural practice claimed on his
Schedules C, Profit or Loss From Business.
Background
At the time the petition was filed, petitioner was a
resident of California.
Petitioner was employed full time by the firm of Richard
Pollack & Associates (Pollack), an architecture and interior-
design company, during 2001 and by WHL Architects Planners, Inc.
(WHL), during 2001 and 2002. Both firms issued to petitioner
Forms W-2, Wage and Tax Statement. Petitioner was occasionally
permitted to work from home, but Pollack and WHL provided him
with office space.
Petitioner included Schedules C with his 2001 and 2002
Federal income tax returns. Each Schedule C related to an
alleged architecture business with a listed address identical to
petitioner’s home address. On the Schedules C, petitioner
2
The parties agreed to the allowable amounts of short-term
capital loss deductions.
- 3 -
claimed business expense deductions of $65,563 for 2001 and
$57,743 for 2002.
On May 25, 2006, respondent mailed to petitioner a statutory
notice of deficiency that disallowed petitioner’s claimed
business expense deductions for 2001 and 2002. Petitioner timely
petitioned this Court.
Discussion
Section 162(a) provides that “There shall be allowed as a
deduction all ordinary and necessary expenses paid or incurred
during the taxable year in carrying on any trade or business”.
However, in order to be entitled to deduct business expenses on a
Schedule C, petitioner must prove that he was carrying on a trade
or business other than that of being an employee. See Weber v.
Commissioner, 103 T.C. 378, 386 (1994), affd. 60 F.3d 1104 (4th
Cir. 1995). Petitioner has not alleged or shown that section
7491(a) applies. Accordingly, petitioner bears the burden of
proving that he is entitled to the claimed business expense
deductions. See Rule 142(a); Welch v. Helvering, 290 U.S. 111,
115 (1933).
Petitioner contends that during the years at issue he was
operating an independent architectural practice and the claimed
business expenses relate to this business. Petitioner contends
that he provided services for both firms as an independent
- 4 -
contractor and that he elected employee status in lieu of
independent contractor status for personal accounting reasons.
Whether a taxpayer was an independent contractor depends on
various factors such as: (1) The degree of control exercised by
the principal over the details of the work; (2) which party
invests in the facilities used in the work; (3) the opportunity
of the individual for profit or loss; (4) whether or not the
principal has the right to discharge the individual; (5) whether
the work is part of the principal’s regular business; (6) the
permanency of the relationship; and (7) the relationship the
parties believe they are creating. Weber v. Commissioner, supra
at 387.
Petitioner provided no evidence that any of these factors
weigh in favor of a finding that he worked for Pollack or WHL as
an independent contractor. To the contrary, the presidents of
both firms testified that he was a full-time employee during the
years at issue, and petitioner has provided no evidence to the
contrary. Therefore, we find that petitioner worked for Pollack
and WHL as an employee during 2001 and 2002, not as an
independent contractor.
Petitioner also argued that while he was working for Pollack
and WHL he operated his own separate business. Petitioner
claimed that during the years at issue he was continuously
developing plans for new houses and researching vacant lots in
- 5 -
the surrounding locales in hopes of creating a base of
prospective properties to use in his independent practice.
However, petitioner purchased no properties and completed no
services during 2001 or 2002. Petitioner made no showing that he
was actively seeking contracts during 2001 and 2002.
Petitioner also claimed that he provided consulting services
to former students and took on interns during both years.
However, petitioner could not provide any invoices, pay
statements, or other documentation to substantiate those claims.
Petitioner’s only income from the years at issue was from his
work at both Pollack and WHL. See Owen v. Commissioner, 23 T.C.
377 (1954).
The only documentation petitioner provided concerning his
independent practice during 2001 and 2002 were models of
theoretical projects and ideas, and the only invoices petitioner
could provide regarding services rendered from his independent
practice were from subsequent tax years not at issue. While it
is possible that some of petitioner’s expenses may qualify as
startup expenditures deductible under section 195, there is no
evidence in the record that petitioner began a trade or business
during the years at issue.
Accordingly, we find that petitioner was not carrying on a
trade or business as an independent architect during 2001 or
2002. Therefore, we need not reach the question of whether the
- 6 -
associated expenses would qualify for a deduction under section
162.
To reflect the foregoing,
Decision will be entered
under Rule 155.