T.C. Summary Opinion 2009-23
UNITED STATES TAX COURT
ANDREA FARINA, Petitioner v.
COMMISSIONER OF INTERNAL REVENUE, Respondent
Docket No. 13411-07S. Filed February 18, 2009.
Andrea Farina, pro se.
Steven D. Tillem, for respondent.
DEAN, Special Trial Judge: 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 any other court,
and this opinion shall not be treated as precedent for any other
case. Unless otherwise indicated, subsequent section references
are to the Internal Revenue Code as amended, and all Rule
references are to the Tax Court Rules of Practice and Procedure.
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Respondent determined a deficiency of $4,800 in petitioner’s
Federal income tax for 2003.
Petitioner concedes that respondent’s disallowance of
$20,419 of miscellaneous deductions on Schedule A, Itemized
Deductions, is correct to the extent of $17,033. Respondent
concedes that petitioner is entitled to deduct tax preparation
fees of $225 on Schedule A. The issues remaining for decision
are whether: (1) Petitioner is entitled to deduct unreimbursed
travel and meal expenses as miscellaneous expenses; (2)
petitioner is allowed the standard deduction on Form 1040NR, U.S.
Nonresident Alien Income Tax Return; (3) respondent is estopped
to assert the deficiency due to oral representations by his
agent; and (4) petitioner is entitled to an abatement of interest
on the deficiency.
Background
Some of the facts have been stipulated and are so found.
The stipulation of facts and exhibits received in evidence are
incorporated herein by reference. At the time the petition was
filed, petitioner was living in New York.
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Petitioner is an Italian national working in the United
States for the National Institutes of Health (NIH)1 as a medical
researcher under a “J-1 Visa”.2
Petitioner filed a 2003 Form 1040NR, U.S. Nonresident Alien
Income Tax Return, claiming $23,568 of itemized deductions
including State income taxes of $4,148, U.S. charitable
contributions of $190, and job and miscellaneous expenses of
$19,230. Petitioner also claimed a tax refund of $4,553 that
respondent sent to petitioner on July 2, 2004.
Respondent subsequently requested additional information
from petitioner with respect to several items on the return,
including his status as an alien. Petitioner replied to the
request for information, but respondent issued the statutory
notice of deficiency that is the subject of this case. After the
issuance of the notice of deficiency, petitioner wrote a letter
to respondent expressing his disagreement with the notice of
deficiency. Respondent sent to petitioner in reply Letter 555
(DO), Reconsideration After Statutory Notice, stating that there
was no justification for any change in the proposed adjustments
1
NIH is an agency of the Federal Government within the
Public Health Service, which is a unit of the U.S. Department of
Health and Human Services. See 42 U.S.C. secs. 201-203 (2006).
2
A J-1 visa allows certain foreign nationals a temporary
presence in the United States to conduct certain activities,
among them studying, teaching, or assisting with research. See 8
U.S.C. secs. 1101(a)(15)(J), 1182(j) (2006); Korvah v. Brown, 66
F.3d 809, 810 (6th Cir. 1995).
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in the notice of deficiency. Petitioner, after receiving the
Letter 555 (DO), remitted to respondent $4,250 by a personal
check bearing the notation “Form 1040NR 2003 Final Settlement Tax
Liability”.
Discussion
Generally, the Commissioner’s determinations in a notice of
deficiency are presumed correct, and the taxpayer has the burden
of proving that those determinations are erroneous. See Rule
142(a); Welch v. Helvering, 290 U.S. 111, 115 (1933). In some
cases the burden of proof with respect to relevant factual issues
may shift to the Commissioner under section 7491(a). Petitioner
did not present evidence or argument that he satisfied the
requirements of section 7491(a). Therefore, the burden of proof
does not shift to respondent.
Petitioner contends that he is entitled to deductions of
$2,886 for unreimbursed business travel expenses and $275 for
unreimbursed meal expenses, or, in the alternative, the standard
deduction. Petitioner argues that he is not liable for a
deficiency because he relied on the erroneous oral advice of an
agent of respondent. Petitioner also seeks a waiver of all
interest on the proposed deficiency.
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Expenses for Meals and Travel
Business or Personal Expenses
Section 162 generally allows a deduction for ordinary and
necessary expenses paid or incurred during the taxable year in
carrying on a trade or business. Generally, no deduction is
allowed for personal, living, or family expenses. See sec. 262.
An employee’s trade or business is earning his compensation, and
generally only the expenses that are related to the continuation
of his employment are deductible. Noland v. Commissioner, 269
F.2d 108, 111 (4th Cir. 1959), affg. T.C. Memo. 1958-60. The
taxpayer must show that any claimed business expenses were
incurred primarily for business rather than social reasons. See
Rule 142(a); Walliser v. Commissioner, 72 T.C. 433, 437 (1979).
To show that the expense was not personal, the taxpayer must
demonstrate that the expense was incurred primarily to benefit
his business on the continuation of his employment and there must
have been a proximate relationship between the claimed expense
and his business. See Walliser v. Commissioner, supra at 437.
Section 274 Expenses
Certain business deductions described in section 274 are
subject to strict rules of substantiation that supersede the
doctrine in Cohan v. Commissioner, 39 F.2d 540 (2d Cir. 1930).
See sec. 1.274-5T(a) through (c), Temporary Income Tax Regs., 50
Fed. Reg. 46014 (Nov. 6, 1985). Section 274(d) provides that no
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deduction shall be allowed with respect to: (a) Any traveling
expense, including meals and lodging away from home; (b) any item
related to an activity of a type considered to be entertainment,
amusement, or recreation; or (c) the use of any “listed
property”, as defined in section 280F(d)(4), unless the taxpayer
substantiates certain elements.
To meet the requirements of section 274(d), the taxpayer
must present adequate records, or sufficient evidence to
corroborate the taxpayer’s own testimony, to establish: (1) The
amount of the expenditure or use based on the appropriate measure
(mileage may be used in the case of automobiles), (2) the time
and place of the expenditure or use, (3) the business purpose of
the expenditure or use, and (4) the business relationship to the
taxpayer of each expenditure or use in the case of an
entertainment expense.
In general, “adequate records” means an account book, diary,
log, or similar record and documentary evidence which in
combination are sufficient to establish each element of an
expenditure. Sec. 1.274-5T(c)(2), Temporary Income Tax Regs., 50
Fed. Reg. 46017 (Nov. 6, 1985). Corroborative evidence required
to support records not made at or near the time of the
expenditure must have a high degree of probative value. Sec.
1.274-5T(c)(1), Temporary Income Tax Regs., 50 Fed. Reg. 46016
(Nov. 6, 1985).
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Reimbursement by Employer
In addition to the above requirements, business expenses of
the employer cannot be converted into the employee’s business
expenses by the mere failure of an employee to seek
reimbursement. Kennelly v. Commissioner, 56 T.C. 936, 943
(1971), affd. without published opinion 456 F.2d 1335 (2d Cir.
1972); Stolk v. Commissioner, 40 T.C. 345, 356 (1963), affd. per
curiam 326 F.2d 760 (2d Cir. 1964). The employee has the burden
of establishing that the employer would not reimburse the expense
had the employee requested reimbursement. Podems v.
Commissioner, 24 T.C. 21, 22-23 (1955).
Petitioner’s Evidence
Petitioner offered as evidence of his meals and travel
expenses: (a) An Air France receipt and boarding pass for a
$2,063 round trip flight between Washington, D.C., and Rome,
Italy, in April 2003; (b) an Air France receipt for an $823.40
round trip flight between Washington, D.C., and Rome, Italy, in
December 2003; and (c) a handwritten letter dated August 8, 2007,
purporting to be from a Dr. Giulia Piaggio (Dr. Piaggio), staff
scientist, experimental oncology department, “Molecular
Oncofluesis Laboratory”, in Rome, Italy. According to the letter
from Dr. Piaggio, petitioner “visited my laboratory for work
related issues” on dates at or near the time of the flights for
which petitioner produced his receipts.
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Petitioner testified that he had no documentation from NIH
to show that either of his trips to Rome was taken as part of his
employment. Petitioner admitted that “we were able to get plane
tickets [from NIH] when going to meetings.” When he was asked by
the Court why he did not get his tickets from NIH, he replied:
“I don’t know.”
The Court finds that petitioner has not shown that his meal
and travel expenses were business and not personal expenses, that
he has substantiated the expenses as required by section 274, or
that his employer would not have reimbursed him for the expenses
had he properly requested reimbursement.
The Standard Deduction
Petitioner argues alternatively that should he not be
entitled to his claimed itemized deductions, he is entitled to
the standard deduction allowed by section 63(b). Respondent
counters by pointing out that section 63(c)(6)(B) provides that
the standard deduction, in the case of nonresident individuals,
is zero. To avoid the consequences of section 63(c)(6)(B),
petitioner argues that its application to him would violate
article 24 of the United States-Italy Income and Capital Tax
Convention, April 17, 1984, T.I.A.S. 11064 (treaty).
The language on which he relies states that nationals of a
contracting State shall not be subjected in the other State to
more burdensome taxation and related requirements than those to
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which nationals of the other State, under the same circumstances,
are or may be subject. Petitioner’s argument assumes that he is
in the same circumstance as a U.S. citizen or resident, persons
who are generally allowed the standard deduction.
Respondent, however, points out the disparate circumstances
of taxation between nonresident aliens on the one hand and U.S.
citizens and residents on the other. In general, U.S. citizens
and residents are taxable on their income from both within and
without the United States. Sec. 1; sec. 1.1-1(b), Income Tax
Regs. Nonresident aliens, however, are generally taxable only on
their U.S. source income, sec. 872(a), at either a flat rate of
30 percent or at graduated rates, depending on the type of
income, see secs. 871(a) though (c), 1441(b).
Respondent also points out that the Committee on Foreign
Relations report on the treaty states with regard to article 24
that “for the purposes of U.S. tax, a U.S. citizen who is not a
resident of the United States and an Italian national who is not
a resident of the United States are not in the same
circumstances, because the U.S. citizen is subject to U.S. tax on
his worldwide income.” S. Exec. Rept. 99-6 (1985), 1992-1 C.B.
452, 469.
The Court agrees with respondent. The prohibition against
the allowance of the standard deduction to nonresident aliens is
not in violation of article 24 of the treaty.
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The parties have stipulated that during the year 2003
petitioner was a “nonresident alien”. The stipulation is a legal
conclusion rather than a fact. While the parties are free to
stipulate the facts of their case, they may not stipulate the
legal conclusions to be reached from those facts by the Court.
Saviano v. Commissioner, 765 F.2d 643, 645 (7th Cir. 1985), affg.
80 T.C. 955 (1983); Barnette v. Commissioner, T.C. Memo. 1992-
595, affd. without published opinion sub nom. Commissioner v.
Allied Mgmt. Corp., 41 F.3d 667 (11th Cir. 1994).
Article 4 of the treaty defines “resident” of a State, in
the case of a person, as one who is liable to tax under the laws
of that State because of his domicile or residence rather than
the source of his income. Section 7701(b)(1)(B) provides that a
nonresident alien is a person who is not a citizen or resident of
the United States within the meaning of section 7701(b)(1)(A).
Under section 7701(b)(1)(A)(ii), a person who meets the
“substantial presence test” is a resident of the United States.
Petitioner states on his tax return for 2003 that he was
present in the United States for 329 days in 2003, 341 days in
2002, and 348 days in 2001. Petitioner’s presence as described
in his tax return meets the definition of substantial presence,
which would in turn cause him to be a resident alien for 2003.
Sec. 7701(b)(1)(A)(ii), (3). But an individual is not treated as
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being present in the United States on any day on which he is an
“exempt individual”. Sec. 7701(b)(3)(D).
Section 7701(b)(5) describes exempt individuals to include
teachers, trainees, or students. Petitioner, however, cannot be
an exempt “teacher or trainee” for 2003 if he was an exempt
teacher, trainee, or student for 2 of the 6 previous calendar
years. See sec. 7701(b)(5)(E)(i). But petitioner had not
reached the limitation on “students” in 2003. See sec.
7701(b)(5)(E) (ii). The term “student” includes any person
temporarily present in the United States under a J-1 visa. Sec.
7701(b)(5)(D).
The Court concludes that petitioner was a nonresident alien
not entitled to the standard deduction for 2003.
Erroneous Advice of Respondent’s Agent
Petitioner alleges that his return preparer was misled by
respondent’s agent into thinking that the deductions on his 2003
Form 1040NR were proper. Petitioner’s argument that he was
misled by respondent’s representative into taking improper
deductions is essentially one of estoppel. Equitable estoppel is
a judicial doctrine that “‘precludes a party from denying his own
acts or representations which induced another to act to his
detriment.’” Hofstetter v. Commissioner, 98 T.C. 695, 700 (1992)
(quoting Graff v. Commissioner, 74 T.C. 743, 761 (1980), affd.
673 F.2d 784 (5th Cir. 1982)). This Court has held that it will
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apply the doctrine of equitable estoppel against the Government
with the utmost caution and restraint. Kronish v. Commissioner,
90 T.C. 684, 695 (1988) (citing Boulez v. Commissioner, 76 T.C.
209, 214-215 (1981), affd. 810 F.2d 209 (D.C. Cir. 1987)); see
Cavanaugh v. Commissioner, T.C. Memo. 1991-407, affd. without
published opinion 986 F.2d 1426 (10th Cir. 1993).
“[T]hose who deal with the government are charged with
knowledge of applicable statutes and regulations.” Boulez v.
Commissioner, 810 F.2d at 218 n.68; see also FCIC v. Merrill, 332
U.S. 380, 384 (1947). The doctrine of estoppel applies to
statements of fact, not statements of law or opinion. See
McCorkle v. Commissioner, 124 T.C. 56, 68 (2005); Miller v.
Commissioner, T.C. Memo. 2001-55.
Petitioner testified that the agent told his return preparer
by telephone “What she should include on the 1040NR.” The
deductibility of the items at issue requires legal
determinations. Even if an agent of respondent (petitioner
presented no evidence on the issue other than his own vague
testimony) made statements as to what to include on the Form
1040NR,3 respondent is not bound by them. “The government could
3
Petitioner submitted an affidavit from his return preparer
stating that an Internal Revenue Service “officer” gave her
“specific instructions to file Form 1040NR.” [Emphasis added.]
In the affidavit the return preparer also states that “Form
1040NR does not allow the Standard Deduction. A non-resident
taxpayer can only claim Itemized Deductions.”
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scarcely function if it were bound by its employees’ unauthorized
representations.” Goldberg v. Weinberger, 546 F.2d 477, 480-481
(2d Cir. 1976); see also FCIC v. Merrill, supra at 384.
Respondent is not estopped to assert a deficiency against
petitioner.
Abatement of Interest on the Deficiency
Petitioner contests in the petition “the high rate of
interest” and states in his pretrial memorandum that an
unjustified and unreasonably long examination process has
contributed to the “escalation of the exhorbitant [sic] compound
interest.” The Court interprets petitioner’s statements as a
request for an abatement of interest.
Section 6404(e) authorizes the Commissioner to abate an
assessment of interest that is computed on the basis of any
deficiency or payment of tax that is attributable in whole or in
part to any unreasonable error or delay by an officer or employee
of the Internal Revenue Service in performing a ministerial or
managerial act.
Section 6404(h) provides in pertinent part that the Tax
Court shall have jurisdiction over any action brought by a
taxpayer to determine whether the Secretary’s failure to abate
interest under this section was an abuse of discretion. The
Court may order an abatement if an action is brought within 180
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days after the date of the mailing of the Secretary’s final
determination not to abate such interest.
Petitioner has not filed a formal request for abatement of
interest with respondent. See Rev. Proc. 87-42, sec. 4.01, 1987-
2 C.B. 589, 589 (requests for abatement of assessment of interest
should be made on Form 843, Claim for Refund and Request for
Abatement). Absent a notice of final determination not to abate
interest on the deficiency or payment from respondent, petitioner
may not invoke the Court’s jurisdiction under section 6404(h).
See Bourekis v. Commissioner, 110 T.C. 20 (1998).
To reflect the foregoing,
Decision will be entered
under Rule 155.