The opinion
United States Tax Court
T.C. Memo. 2022-81
CHARLES G. KINNEY,
Petitioner
v.
COMMISSIONER OF INTERNAL REVENUE,
Respondent
—————
Docket No. 17664-19. Filed July 28, 2022.
—————
Charles G. Kinney, pro se.
Nchekube U. Onyima and Brian A. Pfeifer, for respondent.
MEMORANDUM FINDINGS OF FACT AND OPINION
WEILER, Judge: With respect to petitioner’s federal income tax
for 2016, the Internal Revenue Service disallowed deductions for other
expenses of $12,522 and car and truck expenses of $16,201 reported on
Schedule C, Profit or Loss From Business. By statutory notice of
deficiency, dated July 3, 2019, respondent determined a deficiency in
petitioner’s federal income tax and an accuracy-related penalty
pursuant to section 6662(a) 1 for the tax year at issue of $5,883 and
$1,177, respectively. Respondent disallowed those deductions on the
grounds that petitioner “did not establish that the business expense
shown on [his] tax return was paid or incurred during the taxable year
and that the expense was ordinary and necessary to [his] business.”
1 Unless otherwise indicated, all statutory references are to the Internal
Revenue Code (Code), Title 26 U.S.C., in effect at all relevant times, all regulation
references are to the Code of Federal Regulations, Title 26 (Treas. Reg.), in effect at all
relevant times, and all Rule references are to the Tax Court Rules of Practice and
Procedure. All dollar amounts are rounded to the nearest dollar.
Served 07/28/22
2
[*2] After concessions, 2 the issues for decision are whether petitioner
is entitled to deduct Schedule C (1) other expenses of $12,522 and (2) car
and truck expenses of $16,201 reported on his 2016 tax return. As
discussed below, we find for respondent with respect to both issues.
FINDINGS OF FACT
This case was tried during the Court’s Los Angeles, California,
remote trial session. At trial the parties stipulated to most of the facts,
which are so found. Petitioner resided in California when he timely filed
his Petition.
On his 2016 Schedule C petitioner reported his principal business
as providing “consulting, teaching, and technical services.” During 2016
petitioner’s business had gross receipts of $16,476, and he claimed
deductions for Schedule C car and truck expenses of $16,201, insurance
expenses (other than health) of $1,448, utilities expenses of $725, and
other expenses of $12,522. 3 For 2016 petitioner reported that his
Schedule C business activities did not generate a profit; rather, his
activities generated expenses totaling $30,896 resulting in a loss of
$14,420.
I. Petitioner’s Background
From 1975 until 2014 petitioner worked as an attorney licensed
in California. In 2008 the Los Angeles County Superior Court declared
petitioner to be a vexatious litigant for commencing, prosecuting, and
maintaining numerous unmeritorious litigations. As a result of being
declared a vexatious litigant petitioner was ordered to post security of
$20,000 and became subject to a prefiling order preventing him from
litigating a case in which he was a party without first obtaining judicial
leave to do so. Among the reasons for declaring petitioner a vexatious
litigant were baseless property lawsuits petitioner brought against his
neighbor in Laguna Beach, California. Petitioner sued his neighbor (and
lost) for the denial of the use of a purported property easement, claiming
his neighbor had wrongly erected a fence. Petitioner unsuccessfully
appealed the state court’s decision, and the California Court of Appeal,
2 Respondent conceded that petitioner is not liable for the accuracy-related
penalty under section 6662(a).
3 Except as otherwise noted, all dollar amounts relate to petitioner’s 2016 tax
return and his original Schedule C filed.
3
[*3] Fourth Appellate District, found that petitioner had “no interest in
the [property] that would support any of his causes of action.”
Petitioner’s lawsuits against his neighbors continued with a
house that he had purchased along with Kimberly Kempton, as tenants
in common, on Fernwood Avenue in the Silver Lake neighborhood of Los
Angeles, California. 4 Similar to the lawsuits brought against petitioner’s
neighbor in Laguna Beach, the lawsuits concerning the Fernwood
property involved property disputes—that is, a fence and a purported
property easement having to do with a driveway. The lawsuits were
brought against a neighbor, Cooper, and the former owner of the
Fernwood property, Clark. Petitioner was unsuccessful in the initial
lawsuits brought against Cooper and Clark, as well as in the subsequent
appeals. Petitioner used Kempton as a strawman to circumvent the 2008
vexatious litigant order, and he stood to personally benefit from the
Fernwood property litigation since he was an owner of the property at
issue. Petitioner was again declared a vexatious litigant by the
California Court of Appeal for bringing the aforementioned lawsuits.
In 2012 the Office of the Chief Trial Counsel of the State Bar of
California filed disciplinary charges against petitioner and charged him
with eight counts of misconduct. In 2014 the misconduct charges were
reviewed by the State Bar Court of California, Review Department
(review department), which recommended that petitioner be disbarred
from the practice of law. Some of the lawsuits referenced by the review
department in recommending petitioner’s disbarment involved disputes
between petitioner, Kempton, Cooper, and Clark. As of December 15,
2014, petitioner was no longer permitted to practice law because of the
order of inactive enrollment filed by the review department. On May 25,
2016, the Supreme Court of California filed an order disbarring
petitioner from the practice of law in California. Petitioner was officially
disbarred on June 24, 2016.
4 Petitioner initially filed a lawsuit in both his and Kempton’s names as co-
owners of the property but subsequently amended the lawsuit to withdraw himself as
a party because of the 2008 vexatious litigant order. However, petitioner remained the
attorney for the lawsuit relating to the Fernwood property.
4
[*4] II. Petitioner’s 2016 Schedule C Business Activities 5
On his 2016 return petitioner reported adjusted gross income of
$87,184 from sources separate from his Schedule C business activities.
This income was derived from Social Security benefits, dividends,
pensions and annuities, and rents from his real estate properties.
Petitioner’s Schedule C business activities for the year at issue did not
generate a profit; rather, they resulted in a loss of $14,420. Petitioner’s
claimed Schedule C business activities and associated expenses
predominantly stem from litigation relating to challenging his
disbarment in California, his prior property easement disputes, and
lawsuits that would otherwise personally benefit him. For ease of
understanding, each of the aforementioned business activity categories
will be individually described below.
A. Activities Relating to Vexatious Litigant Declaration and
Disbarment
In the tax year at issue petitioner filed a complaint in the U.S.
District Court for the Northern District of California (northern district)
seeking to reverse the prior California Court of Appeal decision
requiring petitioner to post security as a vexatious litigant. The
northern district dismissed petitioner’s cause of action with prejudice for
lack of jurisdiction. Petitioner then appealed the northern district’s
decision to the U.S. Court of Appeals for the Ninth Circuit, which
affirmed the northern district’s dismissal. In its decision the Ninth
Circuit stated that petitioner’s claim amounted to a forbidden de facto
appeal of a prior state court judgment.
5 The record is silent as to the source of the $16,476 that respondent concedes
was generated by petitioner’s Schedule C business in the tax year at issue. This silence,
coupled with the amorphic nature of petitioner’s claimed business activities, makes it
difficult to ascertain whether any of petitioner’s expenses at issue are ordinary and
necessary to his Schedule C business. Respondent argues that petitioner has not shown
which activities were engaged in for profit or how his disjointed activities are one
activity for purposes of section 183. We agree with respondent on this point. Having a
business with various different components does not, in and of itself, preclude a
taxpayer from arguing that they constitute one business for purposes of section 183.
See Treas. Reg. § 1.183-1(d)(1). However, since petitioner’s claimed expense deductions
are personal or otherwise excluded under the Code, we need not consider whether
petitioner’s 2016 Schedule C activities at issue here—either individually or
collectively—were entered into with the requisite profit motive. See Treas. Reg.
§ 1.183-2(a).
5
[*5] Furthermore, petitioner’s reported Schedule C business expenses
relating to his attempt to overturn his disbarment included filing an
additional complaint in the northern district alleging a Sherman Act
violation by the California State Bar. The northern district granted the
State Bar’s motion to dismiss. Petitioner appealed the case to the Ninth
Circuit, which affirmed the northern district’s decision.
B. Activities Relating to Prior Property Disputes
Many of petitioner’s reported Schedule C business expenses
relate to the 2008 postjudgment award Clark received for attorney’s fees
and costs associated with the residential purchase agreement of the
Fernwood property. In 2005 petitioner, along with Kempton, purchased
a residential property from Clark. The agreement that governed the
transaction included a prevailing party clause for litigation stemming
from the sale. Petitioner filed various lawsuits concerning the Fernwood
property, including a cross-action claim of unmerchantable title against
Clark. In 2008 Clark successfully defended herself and was awarded
$9,349 in attorney’s fees and costs. Petitioner and Kempton additionally
brought a lawsuit against Clark alleging that she committed fraud by
failing to disclose material defects relating to the Fernwood property.
In 2010 Clark declared bankruptcy, in substantial part because
of the economic hardship of defending herself against petitioner’s
claims. After Clark was discharged from bankruptcy in 2012, the U.S.
Bankruptcy Court for the Central District of California issued an order
that “[a]ll of [Clark’s] right to recovery [of] attorneys’ fees and costs from
Kempton and [petitioner] arising from the . . . Fernwood [p]roperty are
deemed to have been abandoned by the Trustee.” The bankruptcy court
further stated that “the amount of fees, if any, recoverable under the
[Fernwood sale agreement] and California law ‘will be adjudicated in the
state court.’” In state court Clark prevailed on her motion for attorney’s
fees and costs in the lawsuit alleging fraud and for successfully
defending against petitioner and Kempton’s appeal therefrom.
In 2013 Clark sought to enforce the 2008 award of attorney’s fees
and costs against petitioner and Kempton. Petitioner attempted to
evade paying the award by asserting a claim of exemption—namely,
that the funds Clark sought belonged to his mother’s trust and/or estate
and not petitioner himself. Clark filed a motion to determine the validity
of petitioner’s claim of exemption, which the trial court denied, allowing
petitioner’s funds to be levied upon to pay Clark’s attorney’s fees and
6
[*6] costs award. Petitioner’s appeal of the award order on behalf of his
mother’s trust and estate was dismissed for lack of standing.
In 2014 Clark was awarded additional fees for services her
attorneys performed while attempting to enforce the 2008 attorney’s
fees and costs award. Attorneys for petitioner, for his mother’s estate,
and for Kempton appealed the award of fees, but the appeal was
dismissed as to Kempton and petitioner’s mother’s estate for lack of
standing. The California Court of Appeal, Second Appellate District,
affirmed the award of attorney’s fees and costs as to petitioner, rejecting
his argument that pending state and federal appeals automatically
stayed the action and precluded the trial court’s award of fees.
Additionally, in 2014 Clark sought to enforce a 2012 award of attorney’s
fees and costs that the trial court granted for successfully defending
herself against petitioner’s and Kempton’s appeal from the initial 2008
award. Petitioner again filed a claim of exemption, which was denied,
and his funds were allowed to be levied upon to pay the attorney’s fees
and costs award.
In the tax year at issue petitioner appealed the adverse decision
in the contractual fraud case against Clark. And, in an effort to continue
to thwart Clark’s attorney’s fees and costs award collection efforts,
petitioner filed a complaint under the Fair Debt Collection Practices Act
in the U.S. District Court for the Central District of California (central
district) in the case of Kinney v. Marcus, No. 2:16-cv-03279-PSG-JC,
2016 WL 10894315 (C.D. Cal. July 15, 2016). The central district
dismissed petitioner’s case for failure to state a claim. In its order the
central district highlighted petitioner’s “long history of filing meritless,
frivolous, and harassing litigation.” Petitioner appealed the decision to
the Ninth Circuit where in 2017 it was affirmed since it constituted a de
facto appeal of prior state court judgments. 6
C. Petitioner’s Other Activities
Petitioner claimed to have been involved in whistleblowing
activities in the tax year at issue. These activities consisted of filing a
complaint in the central district against his Laguna Beach property
neighbors and the Three Arch Bay Community Service District (TAB),
alleging violations of the Clean Water Act (CWA). TAB operates a
6 In the tax year at issue petitioner also brought lawsuits against a federal
judge and the Clerk of the California Court of Appeal, Fourth Appellate District. Both
lawsuits were dismissed for violating the doctrine of judicial immunity.
7
[*7] municipal storm sewer system. Petitioner accused TAB and his
neighbors of discharging pollutants into the ocean without a permit.
Petitioner’s CWA complaint was dismissed by the central district on
June 15, 2017, for lack of jurisdiction.
Petitioner also claimed that he used his two Toyota Corollas,
which were commercially registered (under California state law), in a
“transportation of property” for hire business. Petitioner also claimed
that he provided data entry services. Lastly, petitioner claims to be the
executor of his late mother’s estate.
III. Petitioner’s 2016 Schedule C Business Expenses 7
On petitioner’s original Schedule C respondent disallowed his
claimed deduction for car and truck expenses of $16,201, which relate to
petitioner’s vehicles used in his purported transportation business.
Respondent disallowed petitioner’s deductions for other expenses of
$12,522. 8 The following were reported as “other expenses.” 9
A. Court Filing Fees and Associated Expenses
Petitioner claimed a deduction of $4,649 for court fees. The court
fees comprise the costs of copying, printing, and filing petitioner’s
various lawsuits and appeals having to do with his vexatious litigant
declaration, disbarment, and personal property disputes. Petitioner also
7 After respondent issued the notice of deficiency, petitioner submitted two
revised Schedules C on which he seeks deductions for expenses in addition to those
already claimed on the original Schedule C filed with his 2016 tax return. Respondent
argues that he could not have made any concessions with respect to the newly claimed
expenses in the notice of deficiency. We agree with respondent on this point.
Petitioner’s latest revised Schedule C increased the reported other expenses from
$12,522 to $36,220. Seemingly, in an effort to justify the newly added expenses,
petitioner changed the description of his business on his latest Schedule C from
“Consulting, Teaching, and Technical Services” on his original Schedule C to “Data
Entry, Consulting, Tech. Serv., [and] Whistle-Blower.” Petitioner did not amend his
2016 tax return to claim these additional deductions.
8 The combined total of petitioner’s 2016 Schedule C other expenses as listed
herein is $12,521, rather than $12,522 (as reflected on his 2016 tax return). This
discrepancy results from petitioner’s claiming an additional deduction of $1, which he
used as a placeholder to add additional expenses and does not relate to an actual
expense.
9 To support these deductions petitioner provided receipts and invoices.
8
[*8] claimed a deduction of $405 for the cost of postage and delivery
charges related to the aforementioned lawsuits and appeals.
B. Insurance Expenses
Petitioner claimed a deduction of $2,200 for a Northwestern
Mutual life insurance policy. Petitioner also claimed a deduction of $284
for a State Farm personal liability umbrella insurance policy, which
provides dwelling, personal property, loss of use, and personal liability
protection. Lastly, petitioner claimed a deduction of $80 for a Diver’s
Alert Network supplemental insurance policy that covers diving,
nondiving, and named water sports accidents and injuries.
C. Miscellaneous Expenses
Petitioner claimed a deduction for the following expenses:
(1) three Turbo Tax subscriptions of $135; (2) a preparer tax
identification number (PTIN) registration of $50; (3) a landline
telephone, a fax number, two cell phones, and internet access of $2,436;
(4) a CourtCall Appearance fee of $86; (5) access to the Public Access to
Court Electronic Records (PACER), which provides electronic public
access to federal court records, of $41; (6) a Bank of America safe deposit
box of $51; (7) Waste Management garbage disposal of $487; (8) Pacific
Gas and Electricity (PG&E) gas and electricity bills of $241; and
(9) Amezcua-Moll & Associates, P.C., legal fees of $1,376.
OPINION
I. Burden of Proof
In general, the Commissioner’s determinations set forth in a
notice of deficiency are presumed correct, and the taxpayer bears the
burden of proving otherwise. Rule 142(a); Welch v. Helvering, 290 U.S.
111, 115 (1933). Deductions are a matter of legislative grace, and the
taxpayer generally bears the burden of proving entitlement to any
deduction claimed. INDOPCO, Inc. v. Commissioner, 503 U.S. 79, 84
(1992); New Colonial Ice Co. v. Helvering, 292 U.S. 435, 440 (1934). The
taxpayer is required to maintain records that are sufficient to enable the
Commissioner to determine his correct tax liability. I.R.C. § 6001. In
addition, “the taxpayer bears the burden of substantiating the amount
and purpose of the claimed deduction.” Higbee v. Commissioner, 116
T.C. 438, 440 (2001).
9
[*9] When a taxpayer establishes that he or she paid or incurred a
deductible expense but fails to establish the amount of the deduction,
the Court may sometimes estimate the amount allowable as a deduction.
Cohan v. Commissioner, 39 F.2d 540, 543–44 (2d Cir. 1930); Vanicek v.
Commissioner, 85 T.C. 731, 742–43 (1985). However, there must be
sufficient evidence in the record to permit the Court to conclude that a
deductible expense was paid or incurred in at least the amount allowed.
Williams v. United States, 245 F.2d 559, 560 (5th Cir. 1957).
The burden of proof may shift to the Commissioner if the taxpayer
introduces credible evidence with respect to any factual issue relevant
to ascertaining the proper tax liability and establishes that he or she
complied with the requirements of section 7491(a)(2)(A) and (B) to
substantiate items, to maintain required records, and to cooperate with
the Commissioner’s reasonable requests. I.R.C. § 7491(a)(1) and (2).
While the documentation petitioner provided shows that certain
expenses were paid, there was no credible evidence introduced as to the
business purpose of the expenses or that the expenditures were ordinary
and necessary for the purpose indicated. Accordingly, the burden will
remain with petitioner. See id.
II. Summary of the Parties’ Arguments
Petitioner maintains that he paid all business expenses reported
on his original Schedule C and also seeks a deduction for additional
expenses for the tax year at issue on the basis of a revised Schedule C
offered at trial. Petitioner avers that his expenses incurred were
“ordinary and necessary” to protect his business from “destruction by
those taking advantage of void orders and/or improper rulings to the
detriment of [petitioner’s] ongoing business, goodwill and properties.”
Finally, petitioner claims that his vehicles were used for his business
operations, noting that the vehicles were registered in California as
commercial vehicles.
In response, respondent argues that petitioner is not entitled to
deduct any Schedule C other expenses or car and truck expenses for the
tax year at issue. Respondent contends that petitioner has failed to show
that the deductions sought meet the requirements of section 162(a).
Further, respondent argues that petitioner has not established that he
engaged in any business activities for profit during the tax year at issue.
Finally, respondent contends that petitioner has failed to meet the strict
substantiation requirements with respect to travel and vehicle or
10
[*10] mileage expenses required under section 274(d), since no
documentation of these expenses was provided.
III. Legal Background
Section 162(a) allows as a deduction “all the ordinary and
necessary expenses paid or incurred during the taxable year in carrying
on any trade or business.” To be entitled to a deduction under this
section, the taxpayer must show that he or she engaged in the activity
with an “actual and honest objective of making a profit.” Hulter v.
Commissioner, 91 T.C. 371, 392 (1988) (quoting Ronnen v.
Commissioner, 90 T.C. 74, 91 (1988)); see also Magassy v. Commissioner,
140 F. App’x 450, 455 (4th Cir. 2005), aff’g T.C. Memo. 2004-4; Vest v.
Commissioner, T.C. Memo. 2016-187, at *10, aff’d, 690 F. App’x 210 (5th
Cir. 2017). No deduction is allowed for “personal, living, or family
expenses.” I.R.C. § 262(a).
Whether an expenditure satisfies the requirements for
deductibility under section 162 is a question of fact. See Commissioner
v. Heininger, 320 U.S. 467, 475 (1943). An ordinary expense is one that
commonly or frequently occurs in the taxpayer’s business, Deputy v. du
Pont, 308 U.S. 488, 495 (1940), and a necessary expense is one that is
appropriate and helpful in carrying on the taxpayer’s business,
Commissioner v. Heininger, 320 U.S. at 471; Treas. Reg. § 1.162-1(a).
The deductibility of legal fees depends on the origin and character
of the claim for which the expenses were incurred and whether the claim
bears a sufficient nexus to the taxpayer’s business or income-producing
activities. See United States v. Gilmore, 372 U.S. 39, 48–49 (1963). The
Supreme Court stated that “the origin and character of the claim with
respect to which an expense was incurred, rather than its potential
consequences upon the fortunes of the taxpayer, is the controlling basic
test.” Id. at 49. Therefore, in order for petitioner’s legal fees to be
deductible on his Schedule C, they must have originated in his work as
a licensed attorney and not in personal matters. Section 262 takes
precedence over section 162. Commissioner v. Idaho Power Co., 418 U.S.
1, 17 (1974); Sharon v. Commissioner, 66 T.C. 515, 522–23 (1976), aff’d
per curiam, 591 F.2d 1273 (9th Cir. 1978). Consequently, if the origin of
petitioner’s claimed deductions is personal as defined under section 262,
we need not consider whether they are ordinary and necessary to his
Schedule C business activities.
11
[*11] Section 274(d) prescribes more stringent substantiation
requirements to be met before a taxpayer may deduct certain categories
of expenses, including travel expenses, meals and lodging while away
from home, and expenses with respect to listed property as defined in
section 280F(d)(4). See Sanford v. Commissioner, 50 T.C. 823, 827
(1968), aff’d per curiam, 412 F.2d 201 (2d Cir. 1969). Consequently, even
if such an expense would otherwise be deductible, section 274 may still
preclude a deduction if the taxpayer does not present sufficient
substantiation. Temp. Treas. Reg. § 1.274-5T(a). 10 Among other
categories referenced above, the heightened substantiation
requirements of section 274(d) apply to “listed property” 11 as defined in
section 280F(d)(4), which includes passenger automobiles.
Temporary Treasury Regulation § 1.274-5T(c)(2) provides in
relevant part that “adequate records” generally consist of an account
book, a diary, a log, a statement of expenses, trip sheets, or a similar
record made at or near the time of the expenditure or use, along with
supporting documentary evidence. The Court may not use the rule
established in Cohan to estimate expenses covered by section 274(d).
Sanford, 50 T.C. at 827; Temp. Treas. Reg. § 1.274-5T(a). Taxpayers
lacking a contemporaneous log are expected to maintain a record created
as near in time as possible to the particular expenditure (including the
above-mentioned elements), supported by corroborative documentary
evidence that carries with it a high degree of probative value. Temp.
Treas. Reg. § 1.274-5T(c)(1). If a taxpayer does not satisfy the adequate
records requirement with respect to one or more elements, he or she may
substantiate those elements with his or her own detailed statement and
with other corroborative evidence. Id. subpara. (3).
Moreover, deductions are not allowed for premiums paid on any
life insurance policy if the taxpayer is directly or indirectly a beneficiary
10 To be entitled to a deduction for these expenses, the taxpayer must
substantiate by adequate records or by sufficient evidence corroborating the taxpayer’s
own statement (1) the amount of the expense, (2) the time and place of the expense,
and (3) the business purpose of the expense. I.R.C. § 274(d); Temp. Treas. Reg. § 1.274-
5T(a), (b), and (c).
11 “Listed property” as defined in section 280F(d)(4) includes passenger
automobiles, which are defined as four-wheeled vehicles weighing under 6,000 pounds
and manufactured primarily for use on public streets and highways. I.R.C.
§ 280F(d)(5)(A). A passenger automobile does not include any ambulance, hearse, or
vehicle used by the taxpayer directly in a trade or business of transporting persons or
property for compensation or hire. See I.R.C. § 280F(d)(5)(B); Hatte v. Commissioner,
T.C. Memo. 2019-109, at *7 n.3.
12
[*12] under the policy or contract. I.R.C. § 264(a)(1); see Ong v.
Commissioner, T.C. Memo. 2012-114, 2012 WL 1409329, at *5 (stating
that the taxpayer has the burden of proof to provide a copy of the
insurance policy or other documentation listing beneficiaries).
IV. Analysis
A. Schedule C Other Expense Deductions Disallowed
1. Petitioner’s Schedule C Litigation Expenses
Petitioner argues that the litigation expenses at issue arose when
he was engaged in a professional capacity as an attorney representing
his client’s interests rather than his own. Respondent contends
petitioner’s expenses (court filings fees and copying, printing, and
mailing costs) are personal and nondeductible since they are associated
with petitioner’s disbarment, vexatious litigant declaration, and prior
property disputes with his neighbors. See I.R.C. § 262(a). We agree with
respondent.
After carefully reviewing the record and considering all the facts,
we find that the origin of the claim underlying petitioner’s disbarment,
vexatious litigant declaration, and prior property disputes is personal
and the litigation expenses at issue here are nondeductible. See I.R.C.
§ 262(a); Gilmore, 372 U.S. at 48–49.
Petitioner also argues that the lawsuits and appeals were filed 12
to protect his Schedule C self-employment business from destruction, on
the basis of his assertion that the vexatious litigant orders were void
and used to “justify, excuse, absolve, support or rationalize subsequent
acts that continued the attempted ‘destruction’ [his] business,” therefore
concluding that the associated expenses (e.g., the court filings fees and
copying, printing, and mailing costs) were ordinary and necessary
expenses associated with his self-employment business. We find
petitioner’s argument to be without merit. Nothing in the record
suggests that individuals were taking advantage of or threatening to
destroy petitioner’s business. It was petitioner who chose to make full
use of the judicial system to challenge his vexatious litigant declaration
12 No court has yet overturned either the vexatious litigant declaration or the
disbarment that petitioner claims to be invalid. Petitioner testified at trial that all of
the appeals filed in 2016 were dismissed.
13
[*13] and disbarment, and no evidence was presented as to how his
status as a disbarred attorney affects his self-employment business.
Additionally, petitioner argues that none of his 2016 expenses
relate to regaining his status as an attorney. This assertion contradicts
evidence in the record. In any event, section 162(a) does not allow for
the deduction of fees paid and costs incurred to gain admission to a state
bar. See Sharon, 66 T.C. at 527; Ryman v. Commissioner, 51 T.C. 799,
801–03 (1969). Moreover, expenses incurred with the goal of protecting
one’s reputation are also irrelevant and nondeductible. See Vannier v.
Commissioner, T.C. Memo. 1997-370, 1997 WL 459741, at *4.
Consequently, even if we determined that the origin of petitioner’s
disbarment was not personal (and litigation stemming therefrom
deductible), the expenses would nonetheless be nondeductible since they
fail to satisfy section 162(a).
Petitioner claims to have been a whistleblower in the tax year at
issue and claimed a deduction for litigation expenses pertaining to his
lawsuit against TAB for purported violations of the CWA. Petitioner
argues that he should be allowed to deduct his whistleblowing litigation
expenses, similarly to the taxpayer in Bagley v. United Sates, 963 F.
Supp. 2d 982 (C.D. Cal. 2013). Petitioner’s reliance on Bagley is
inappropriate. 13 Unlike the taxpayer’s expenses in Bagley, petitioner’s
whistleblowing expenses are personal and nondeductible, since his
whistleblowing activities were merely a continuation of his personal
lawsuits against his Laguna Beach neighbors brought under the guise
of alleging a CWA violation and not business expenses under section
162. See id. at 1001; Kinney v. Three Arch Bay Cmty. Servs. Dist., 2017
WL 2999684, at *1 (C.D. Cal. June 15, 2017), aff’d, 723 F. App’x 553 (9th
Cir. 2018).
Petitioner also claimed a deduction for expenses associated with
lawsuits he filed against a federal judge and the Clerk of the California
Court of Appeal, Fourth Appellate District. Respondent argues that
these expenses are personal and nondeductible under section 162, and
we agree. See I.R.C. § 262(a).
13 The court in Bagley analyzed whether the taxpayer’s whistleblowing
activities with respect to his False Claim Act lawsuit were entered into for profit under
the nine factors listed in Treasury Regulation § 1.183-2(b). See Bagley, 963 F. Supp. 2d
at 995. Moreover, the court noted that the deductibility of litigation expenses under
section 162 depends on the origin of the claim. Id. at 1000.
14
[*14] Accordingly, respondent’s disallowance of petitioner’s deduction
for litigation expenses is sustained.
2. Insurance Expenses
Petitioner is not entitled to deduct the cost of his Northwestern
Mutual life insurance policy since he did not provide proof that he was
not directly or indirectly a beneficiary of the policy. See Ong v.
Commissioner, 2012 WL 1409329, at *5. Petitioner provided only an
invoice for his life insurance policy, which did not identify the policy’s
beneficiaries. Therefore, petitioner has not met his burden of proof with
respect to the life insurance policy, and respondent’s disallowance of the
deduction is sustained. Nor is petitioner entitled to deduct the cost of his
State Farm personal liability umbrella insurance policy. See Minick v.
Commissioner, T.C. Memo. 2010-12, 2010 WL 199954, at *6 (stating that
personal insurance premiums are not deductible as business expenses).
Similarly, petitioner is not entitled to deduct the cost of his Diver’s Alert
Network insurance policy since nothing in the record would suggest that
a supplemental diver’s insurance policy is an ordinary and necessary
expense related to petitioner’s Schedule C business.
Consequently, respondent’s disallowance of petitioner’s deduction
for insurance expenses is sustained.
3. Miscellaneous Expenses
Petitioner is not entitled to deduct the cost of his three Turbo Tax
subscriptions or PTIN registration as ordinary and necessary business
expenses for his Schedule C business. Aside from petitioner’s own self-
serving trial testimony that he performs data entry services for Turbo
Tax, there is not any documentary evidence—such as a contract, invoice,
payment, or similar business record—to substantiate these expenses
under section 162. 14 Accordingly, respondent’s disallowance is
sustained.
Nor is petitioner entitled to deduct expenses for his landline
telephone, a fax number, two cell phones, internet access, Waste
Management garbage disposal, or PG&E gas and electricity bills. Aside
from invoices for the above-mentioned expenses, the only evidence in the
record supporting his contention that they are deductible business
14 We are not compelled to accept petitioner’s unsubstantiated, conclusory, and
self-serving statements without additional evidence. See Johnson v. Commissioner,
T.C. Memo. 1999-127, aff’d, 246 F.3d 674 (9th Cir. 2000).
15
[*15] expenses (rather than personal) is petitioner’s own self-serving
testimony. Therefore, respondent’s disallowance of any deduction for
these expenses is sustained.
Petitioner is not entitled to deduct expenses for costs associated
with his Bank of America safe deposit box, access to PACER, or
CourtCall Appearance. In support of his deduction of the CourtCall
Appearance fee, petitioner provided an invoice that lists him as the
attorney. It is undisputed that petitioner was suspended from the
practice of law in 2014 and then permanently disbarred in 2016;
therefore, he was legally allowed neither to represent a client in 2016
nor to deduct the expense under section 162 when his law practice was
effectively extinguished in 2014. For similar reasons, petitioner is not
entitled to deduct an expense for PACER access as nothing in the record
implies that the expense was ordinary or necessary to his purported
consulting, teaching, and technical services business. Petitioner
testified that the safe deposit box was used to store duplicate wills that
he had from his practice as an attorney. However, petitioner was under
an ethical obligation, upon his suspension from the practice of law in
2014, to return the wills to his clients. 15 Accordingly, respondent’s
disallowance of a deduction for the safe deposit box expense is sustained.
Petitioner is not entitled to deduct legal fees paid to Amezcua-
Moll & Associates. Petitioner testified that that he used Amezcua-Moll
& Associates’ legal services in an effort to remove from his properties
liens that were filed as a result of Clark’s attorney’s fees and costs
award. We have already determined that the origin of petitioner’s prior
property dispute (which resulted in Clark’s being awarded attorney’s
fees and costs) is personal and therefore expenses are nondeductible
under section 162. Accordingly, petitioner’s claimed deduction for
expenses paid to prevent Clark’s collection efforts is likewise personal
and nondeductible. See I.R.C. § 262. Thus, respondent’s disallowance of
the Amezcua-Moll & Associates legal fees deduction is sustained.
B. Schedule C Car and Truck Expense Deduction Disallowed
Petitioner (incorrectly) concludes that because his two vehicles
are registered in California as commercial vehicles they are not
passenger automobiles under the Code. The Code and applicable
regulations make no distinction between a vehicle’s state registration
and whether it is “listed property” under section 280F(d)(4). Further,
15 See Model Rules for Law. Disciplinary Enf’t r. 27 (Am. Bar Ass’n 2002).
16
[*16] petitioner did not show that his vehicles were qualified
nonpersonal use vehicles, making his vehicles otherwise exempt from
the substantiation requirements of section 274(d). See Palmer v.
Commissioner, T.C. Memo. 1997-462, 1997 WL 625468, at *3. Petitioner
has failed to present a contemporaneous travel log or other sufficient
evidence necessary to meet the strict substantiation requirements of
section 274(d). Consequently, setting aside the issue of whether the
expense is ordinary and necessary under section 162, there is
insufficient evidence to support a finding that petitioner is entitled to a
deduction for car and truck expenses for tax year 2016 under the strict
substantiation requirements of section 274. Accordingly, respondent’s
disallowance of a deduction for petitioner’s car and truck expenses is
sustained.
V. Conclusion
We have carefully reviewed the record and listened to petitioner’s
testimony at trial and find that he is not entitled to deduct any expense
in excess of what respondent already allowed.
We have considered all of the arguments that the parties made
and to the extent they are not addressed herein, we find the arguments
to be moot, irrelevant, or without merit.
To reflect the foregoing,
Decision will be entered for respondent as to the deficiency and for
petitioner as to the accuracy-related penalty under section 6662(a).