Leila Saedian

T.C. Summary Opinion 2021-23

UNITED STATES TAX COURT

LEILA SAEDIAN, Petitioner v.

COMMISSIONER OF INTERNAL REVENUE, Respondent

Docket No. 13121-17S. Filed July 29, 2021.

Solis Cooperson, for petitioner.

Justine S. Coleman and Jordan S. Musen, for respondent.

SUMMARY OPINION

CARLUZZO, Chief 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.1 Pursuant to section 7463(b), the decision to be entered is not

1

Unless otherwise indicated, section references are to the Internal Revenue

(continued...)

Served 07/29/21

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reviewable by any other court, and this opinion shall not be treated as precedent

for any other case.

In a notice of deficiency dated March 23, 2017 (notice), respondent

determined a $5,911 deficiency in petitioner’s 2014 Federal income tax and a

$1,182 section 6662(a) accuracy-related penalty.

After concessions,2 the issue for decision is whether petitioner is entitled to

deductions claimed on Schedule A, Itemized Deductions, included with

petitioner’s 2014 Federal income tax return, for home office expenses, travel-

related meals, office supplies, internet and cell phone, medical expenses, and

charitable contributions.

1

(...continued)

Code of 1986, as amended and in effect for the year in issue. Rule references are

to the Tax Court Rules of Practice and Procedure.

2

Respondent concedes that petitioner is entitled to miscellaneous itemized

deductions for: (1) tax preparation fees of $300 and (2) State and local tax of

$3,906. Petitioner concedes that she is not entitled to miscellaneous itemized

deductions for vehicle expenses of $9,617 and meals and entertainment expenses

of $2,962. Petitioner also concedes that she received but failed to report:

(1) capital gains of $1,630 (the amount respondent now claims) from

Oppenheimer & Co., Inc., and (2) dividend income of $607. In a stipulation of

settled issues filed July 23, 2021, the parties agree that petitioner is not liable for

the sec. 6662(a) penalty.

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Background

Some of the facts have been stipulated and are so found. Petitioner was a

resident of California when the petition was filed and at all other times relevant.

During the year in issue petitioner lived in a 1,288-square-foot,3 two-

bedroom apartment; she paid $27,447.76 in rent for the apartment that year.

At all times relevant petitioner was employed as an account executive for

Coca-Cola. Coca-Cola did not provide office space for petitioner. Instead, in

order to comply with Coca-Cola’s teleworking policy4 available to some of its

3

This is the size of petitioner’s apartment as reported on her 2014 return.

The parties proceeded as though this description is accurate, and we follow their

lead.

4

Specifically and in part, Coca-Cola’s teleworking policy stated that

employees otherwise eligible to telework

must have a remote office location where he/she can work safely

without interruption, distraction, or undo [sic] risk of injury to self or

third parties, and with reliable phone and internet access. * * *

Employees selected for positions that are designated as “Teleworkers

as Condition of Employment” are required to telework and must

establish their ability to meet the conditions of Teleworking,

including having a remote office location where they can work safely

without interruption, distraction, or undo risk of injury to self or third

parties, and with reliable phone and internet access.

Furthermore, according to the policy “[i]f an associate is in reasonable proximity

to a Coca-Cola * * * facility they can take home basic supplies from the facility--

any additional supplies needed should be approved by manager and purchased via

(continued...)

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employees, including petitioner, she converted one of the bedrooms in her

apartment into an office space and used that space in connection with her

employment.

As a Coca-Cola employee, petitioner was required to travel to meet with

Coca-Cola customers, and she did so approximately six days a month during the

year in issue. Coca-Cola’s travel and entertainment policy and procedures

provided reimbursement to petitioner “for all reasonable and necessary travel and

entertainment expenses in compliance with this policy.”

The travel and entertainment policy further provided for reimbursement to

Coca-Cola employees for “meal expenses while traveling on Company business”,

including “for meals purchased during a same day/1 day business trip outside of

their normal work city, provided the travel resulted in a longer than normal work

day of at least 10 hours.”

In accordance with Coca-Cola’s travel and entertainment policy, petitioner

was entitled to reimbursement for employment-related travel expenses upon the

submission of expense reports “within 7 days after incurring expenses”, and

approval by one of Coca-Cola’s “authorized approvers”.

4

(...continued)

normal company purchasing guidelines.”

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Coca-Cola’s records show that petitioner regularly claimed reimbursement

for travel and entertainment expenses and that those claims were paid. Petitioner

did not request reimbursement for certain expenses that she was otherwise entitled

to, including certain meals and office supplies.

Petitioner regularly attended religious services at St. Bernardine’s Church

during 2014; she also donated some property to Goodwill. She has no receipts

from the donees or canceled checks that show any amounts that she might have

contributed or donated.

The medical expenses that petitioner paid during 2014 do not exceed 10%

of her adjusted gross income for that year.

Petitioner’s timely filed 2014 Federal income tax return was prepared by a

paid income tax return preparer. The Schedule A included with the return shows

various deductions, including, as relevant here, medical and dental expenses,

charitable contributions, and unreimbursed employee business expenses.

The deduction for unreimbursed employee business expenses relates to

petitioner’s employment with Coca-Cola. Also included with petitioner’s return is

Form 2106, Employee Business Expenses, that shows the detail of the

unreimbursed employee business expense deduction as follows:

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Expense Amount

Vehicle $9,617

Travel 228

Business 13,848

Meals and entertainment 1,481

Total 25,174

In the notice and as relevant respondent disallowed all the Schedule A

deductions claimed on the return. As noted, some of the adjustments made in the

notice have been agreed to between the parties or conceded by one or the other of

them; other adjustments are computational. Those adjustments will not be

discussed.

Discussion

As a general rule, the Commissioner’s determination of a taxpayer’s Federal

income tax liability in a notice of deficiency is presumed correct, and the taxpayer

bears the burden of proving that the determination is erroneous. Rule 142(a);

Welch v. Helvering, 290 U.S. 111, 115 (1933).5

5

Petitioner does not claim and the record does not otherwise demonstrate

that the provisions of sec. 7491(a) need be applied here, and we proceed as though

they do not.

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Schedule A Deductions

As we have observed in countless opinions, deductions are a matter of

legislative grace, and the taxpayer bears the burden of proving entitlement to any

claimed deduction. Rule 142(a); INDOPCO, Inc. v. Commissioner, 503 U.S. 79,

84 (1992); New Colonial Ice Co. v. Helvering, 292 U.S. 435, 440 (1934). This

burden requires the taxpayer to substantiate expenses underlying deductions

claimed by keeping and producing adequate records that enable the Commissioner

to determine the taxpayer’s correct tax liability. Sec. 6001; Hradesky v.

Commissioner, 65 T.C. 87, 89-90 (1975), aff’d per curiam, 540 F.2d 821 (5th Cir.

1976); Meneguzzo v. Commissioner, 43 T.C. 824, 831-832 (1965). A taxpayer

claiming a deduction on a Federal income tax return must demonstrate that the

deduction is allowable pursuant to some statutory provision and must further

substantiate that the expense to which the deduction relates has been paid or

incurred. See sec. 6001; Hradesky v. Commissioner, 65 T.C. at 89-90; sec.

1.6001-1(a), Income Tax Regs.

Taxpayers may deduct ordinary and necessary expenses paid in connection

with operating a trade or business. Sec. 162(a); Boyd v. Commissioner, 122 T.C.

305, 313 (2004). Generally, the performance of services as an employee

constitutes a trade or business. Primuth v. Commissioner, 54 T.C. 374, 377

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(1970). If, as a condition of employment, an employee is required to incur certain

expenses, then the employee is entitled to a deduction for those expenses unless

entitled to reimbursement from his or her employer. See Fountain v.

Commissioner, 59 T.C. 696, 708 (1973); Spielbauer v. Commissioner, T.C. Memo.

1998-80.

As a general rule, if a taxpayer provides sufficient evidence that the

taxpayer has incurred a trade or business expense contemplated by section 162(a)

but is unable to adequately substantiate the amount, the Court may estimate the

amount and allow a deduction to that extent. Cohan v. Commissioner, 39 F.2d

540, 543-544 (2d Cir. 1930). However, in order for the Court to estimate the

amount of an expense, there must be some basis upon which an estimate may be

made. Vanicek v. Commissioner, 85 T.C. 731, 742-743 (1985).

Keeping in mind these guiding principles, we turn our attention to the

deductions that remain in dispute.

A. Unreimbursed Employee Business Expenses

1. Home Office

We find that petitioner used a portion, namely a bedroom, of her residence

as her office and that the office was used exclusively on a regular basis as her

principal place of business. See sec. 280A(c)(1)(A) and (B); see also

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Commissioner v. Soliman, 506 U.S. 168, 172-173 (1993). That being so, she is

entitled to a deduction for the business use of her residence, but not in the amount

claimed on the return.

Petitioner claimed a home office expense deduction of $9,328, which is

one-third of the total amount that petitioner claims to have paid for rent, utilities,

and rental insurance.6 According to petitioner, 33% of her apartment was used as

her office. We are at a loss with respect to how petitioner arrived at that

percentage. She was unsure of the dimensions of the bedroom used as her office

but roughly estimated it to be 300 square feet. Simple math reduces the

percentage to 23%,7 and from the photographs submitted into evidence, we suspect

that the office/bedroom might have been smaller than that.

All things considered, we estimate and find that petitioner used 20% of the

apartment for her home office. See Cohan v. Commissioner, 39 F.2d at 544. She

is entitled to a home office deduction of $5,634.83, which is 20% of the total

expenses, $28,174.13, paid to live in and maintain her apartment during the year in

6

Petitioner has established that she paid $27,447.76 in rent and $726.37 in

utilities during 2014. She has not shown that she paid any amount for renters

insurance.

7

Assuming without finding that petitioner’s home office was 300 square

feet, in an apartment with total square footage of 1,288, the space allocable to the

home office is 23%.

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issue. See sec. 280A(c)(1); see also Culp v. Commissioner, T.C. Memo. 1993-

270.

2. Travel-Related Meals and Office Supplies

The unreimbursed employee business expense deduction that remains in

dispute includes travel-related meals of $3,600 and office supplies of $941.

Petitioner did not explain why she did not seek reimbursement for supplies. At

trial she seemed to agree that she could have been reimbursed for the meals but did

not seek reimbursement because at the time she misinterpreted Coca-Cola’s

reimbursement policy. Nonetheless, Coca-Cola’s policies clearly provided

reimbursement for “meal expenses while traveling on Company business” and

supplies. See Podems v. Commissioner, 24 T.C. 21, 22-23 (1955); Noz v.

Commissioner, T.C. Memo. 2012-272. Accordingly, petitioner is not entitled to a

deduction for travel-related meals or office supplies.

3. Internet and Cell Phone

The unreimbursed employee business expense deduction that remains in

dispute includes internet and cell phone expenses of $2,305.

Petitioner’s records substantiate that the internet and cell phone expenses

have been paid. See sec. 6001; Hradesky v. Commissioner, 65 T.C. at 90; sec.

1.6001-1(a), Income Tax Regs. Petitioner testified that her internet was used 85-

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90% for business purposes, but she did not distinguish between business and

personal use with respect to her cell phone. We consider it reasonable that 75% of

petitioner’s internet and cell phone use was related to her employment with

Coca-Cola, and therefore she is entitled to a $1,728.75 deduction for internet and

cell phone expenses. See Cohan v. Commissioner, 39 F.2d at 543-544.

B. Medical and Dental Expenses

Medical expenses which are “not compensated for by insurance or

otherwise” are deductible, subject to computational limitations. See sec. 213(a)

(for tax years 2013 through 2015, such expenses are deductible to the extent that

they exceed 10% of the taxpayer’s adjusted gross income).

Petitioner’s records establish that she incurred and paid medical expenses

during the year in issue. However, the amount substantiated does not exceed 10%

of petitioner’s adjusted gross income. Accordingly, we sustain respondent’s

disallowance of her claimed deduction.

C. Charitable Contributions

Petitioner claimed a $1,500 charitable contribution deduction on her 2014

return, consisting of $1,200 in cash contributions and $300 in noncash

contributions. According to petitioner, the cash contributions relate to donations

made to her church, and the noncash contributions relate to donations of clothes,

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shoes, and purses to Goodwill. According to respondent, petitioner is not entitled

to a charitable contribution deduction because she failed to substantiate the

amounts claimed.

Section 170 allows deductions for contributions made during a taxable year

to qualifying organizations. Cash contributions must be substantiated by:

(1) canceled checks or (2) receipts from the donee (showing the donee’s name and

the date and amount of the donation). Sec. 170(f)(17). In general, a gift of

property must be substantiated by a receipt from the donee showing the donee’s

name, the date and location of the contribution, and a description of the property

contributed. Sec. 1.170A-13(b)(1), Income Tax Regs.

Petitioner did not provide any documentation to substantiate cash donations

made in 2014. Likewise, petitioner did not provide a donation receipt or other

documentation from Goodwill substantiating the noncash contributions.

Accordingly, she is not entitled to a deduction for cash and noncash charitable

contributions for 2014.

To reflect the foregoing,

Decision will be entered under

Rule 155.