# UNITED STATES TAX COURT

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URL: https://www.frixlaw.com/law-library/documents/agency%3Atax-court%3A82696f75042e06d7

## Record

- **Collection:** Agency decision
- **Document type:** Agency decision

## Text

T.C. Memo. 2001-83

UNITED STATES TAX COURT

HAROUT AND MANIK GAPIKIA, Petitioners v.
COMMISSIONER OF INTERNAL REVENUE, Respondent

Docket No. 1882-00.

Filed April 5, 2001.

Harout and Manik Gapikia, pro sese.
Patricia H. Delzotti, for respondent.

MEMORANDUM OPINION
DEAN, Special Trial Judge:

Respondent determined a

deficiency of $3,611 in petitioners’ 1996 Federal income tax.
The issues for decision are:

(1) Whether petitioners are

entitled to deductions for job expenses claimed on Schedule A,
Itemized Deductions, beyond those allowed by respondent; and (2)
whether petitioners are entitled to deductions for business

- 2 expenses claimed on Schedule C, Profit or Loss From Business,
beyond those allowed by respondent.
Background
The stipulation of facts and the accompanying exhibits are
incorporated herein by reference.

Petitioners resided in

Clifton, New Jersey, at the time the petition in this case was
filed.
In 1996 petitioner Harout Gapikia (petitioner) was employed
as a car salesman by Bob Ciasulli Auto Mall, Inc. and Hudson
Toyota Inc.

His combined wage income from these two employers

was $62,4151 in 1996.

Petitioner also received $1,150 from

Toyota Motor Sales USA, Inc. in 1996 for selling extra items,
such as undercoating and alarm systems, to car buyers.
In addition, petitioner offered sales training programs to
car dealerships and attempted to arrange for the export of cars
to other countries.

Petitioner, however, did not have any gross

receipts from these activities.
Petitioners filed a joint 1040, U.S. Individual Income Tax
Return, for their 1996 taxable year.

Petitioners claimed the

following job expenses on their Schedule A:

1

All numbers have been rounded to the nearest dollar.

- 3 Uniforms and cleaning
Form 2106, employee business expenses
Vehicle expense
Parking, tolls, and transportation
Other business expenses
Meals and entertainment (50%)

$1,212
$4,151
246
1,592
2,142

Supplies
Fees
Legal and investment expenses
Job search
B/C
Familiarization expenses
Total

8,131
1,478
390
1,500
2,070
270
2,276
17,327

Petitioners filed a Schedule C for petitioner’s “auto sales”
business reporting $1,150 of gross receipts or sales and a net
loss of $7,237.

The Schedule C lists the following expenses:

Advertising and promotion
Car expenses
Legal and professional expenses
Office expenses
Supplies
Travel
Entertainment
Utilities
Total

$600
3,107
100
850
480
268
3,218
1,373
9,996

The $1,150 reported as gross receipts or sales was the amount
petitioner received as sales incentives from Toyota Motor Sales
USA, Inc. for selling extra items to car buyers.
Respondent allowed petitioners’ deductions for the following
Schedule A job expenses:

- 4 Business mileage
Cellular pager
Telephone
Printer and adding machine
Miscellaneous supplies
Meals and entertainment
Fees
Tolls

$1,158
514
113
139
86
246
390
246

Total

2,892

Respondent allowed petitioners’ deductions for the following
Schedule C expenses:
Business mileage
Legal and professional expenses
Office expenses
Supplies
Utilities

$24
100
5
189
13

Total

331

Respondent maintains that petitioners have failed to
establish that the expenses claimed on their 1996 return for
which deductions have been disallowed are ordinary and necessary
within the meaning of section 162(a) and have failed to
substantiate the expenses.2
Discussion
Generally, a taxpayer may deduct all ordinary and necessary
expenses paid or incurred during the taxable year in carrying on
a trade or business.

See sec. 162(a).

No deduction is allowed

for personal, living, or family expenses.

2

See sec. 262.

Thus,

Unless otherwise indicated, section references are to the
Internal Revenue Code in effect for the year in issue.

- 5 if an expenditure is motivated primarily by personal
considerations, no deduction generally will be allowed.

See

Henry v. Commissioner, 36 T.C. 879, 884 (1961).
An individual may engage in the trade or business of
rendering services as an employee.

See O’Malley v. Commissioner,

91 T.C. 352, 363-364 (1988), affd. 972 F.2d 150 (7th Cir. 1992);
Primuth v. Commissioner, 54 T.C. 374, 377 (1970).

Consequently,

an employee’s business expenses may be deductible under section
162.

See Johnson v. Commissioner, 115 T.C. 210, 217 (2000);

O’Malley v. Commissioner, supra; Primuth v. Commissioner, supra
at 377-378.
Deductions are strictly a matter of legislative grace, and a
taxpayer must meet the specific statutory requirements for any
deduction claimed.

See INDOPCO, Inc. v. Commissioner, 503 U.S.

79, 84 (1992); New Colonial Ice Co. v. Helvering, 292 U.S. 435,
440 (1934).

Taxpayers are required to maintain records

sufficient to substantiate their claimed deductions.
6001; sec. 1.6001-1(a), Income Tax Regs.

See sec.

Under certain

circumstances, if claimed deductions are not adequately
substantiated, we may estimate them, provided we are convinced
that the taxpayer has incurred such expenses and we have a basis
upon which to make an estimate.

See Cohan v. Commissioner, 39

F.2d 540, 543-544 (2d Cir. 1930); Vanicek v. Commissioner, 85
T.C. 731, 743 (1985).

- 6 Certain business deductions described in section 274,
however, are subject to strict substantiation.
allowed with respect to:

No deduction is

(1) Any traveling expense (including

meals and lodging while away from home); (2) any item with
respect to an activity which is of a type generally considered to
constitute entertainment, amusement, or recreation; (3) any
expense for gifts; or (4) the use of any “listed property”, as
defined in section 280F(d)(4), unless certain elements are
substantiated.

See sec. 274(d).

Passenger automobiles are

listed property under section 280F(d)(4)(A)(i).
Petitioners presented no records at trial to substantiate
any of the expenses at issue.

Furthermore, they provided little

testimony from which we could determine their entitlement to
deductions for the expenses.
Petitioner testified that he took three sales-training
courses in 1996 at his own expense; however, he did not provide
any information as to the amount of his expense.

With regard to

the expenses petitioner claimed for uniforms and cleaning,
petitioner testified that the expenses were for business suits he
was required to wear to his job.

The expense of uniforms is

deductible under section 162(a) only if:

(1) The uniforms are of

a type specifically required as a condition of employment; (2)
the uniforms are not adaptable to general usage as ordinary
clothing; and (3) the uniforms are not so worn.

See Yeomans v.

- 7 Commissioner, 30 T.C. 757, 767-769 (1958); Udoh v. Commissioner,
T.C. Memo. 1999-174; Beckey v. Commissioner, T.C. Memo. 1994-514.
Petitioner’s testimony indicates that the articles of clothing
claimed as expenses were adaptable to general use.

Therefore,

petitioner’s clothing expenses are personal expenses and are not
deductible.
Petitioner testified that he was entitled to larger
deductions for vehicle expenses related to business mileage than
allowed by respondent.

Petitioners, however, presented no

evidence other than a summary of the expenses claimed on their
Schedules A and C.

Under section 274(d), the elements that must

be substantiated to deduct business use of an automobile are:
(1) The amount of the expenditure; (2) the mileage for each
business use of the automobile and the total mileage for all use
of the automobile during the taxable period; (3) the date of the
business use; and (4) the business purpose of the use of the
automobile.

See sec. 1.274-5T(b)(6), Temporary Income Tax Regs.,

50 Fed. Reg. 46014 (Nov. 6, 1985).

Petitioners failed to

substantiate any of these elements at trial.
Although petitioners did not claim deductions for child care
on their 1996 return or assert their entitlement to such
deductions in their petition, petitioner raised this issue at
trial.

Generally, we do not consider issues raised for the first

time at trial.

See Vetco Inc. v. Commissioner, 95 T.C. 579, 589

- 8 (1990).

Even if petitioners had properly raised this issue,

petitioner’s testimony was unclear, and no documentary evidence
was presented.

Thus, petitioners have not substantiated any

expense they may have incurred for child care.
Petitioner also presented argument at trial that expenses
related to his employment as a car salesman should be Schedule C
expenses rather than Schedule A expenses.

He argues that these

expenses should be deducted from his gross income in order to
arrive at his adjusted gross income.

We disagree.

Section 62, which defines adjusted gross income, lists the
deductions from gross income which are allowed for the purpose of
computing adjusted gross income.

Section 62(a)(1) states the

general rule that trade or business deductions are allowed for
the purpose of computing adjusted gross income “if such trade or
business does not consist of the performance of services by the
taxpayer as an employee”.

Expenses of employment, if incurred by

performing artists or State or local government officials, or
under a reimbursement arrangement with the employer, are
deductible in computing the employee’s adjusted gross income.
See sec. 62(a)(2).

Otherwise, employed individuals with

unreimbursed trade or business expenses of their employment must
itemize deductions for such expenses.

See secs. 161 and 162.

Under section 67 these itemized deductions are subject to a 2percent floor.

- 9 Petitioner acknowledges that his employers did not reimburse
him for any expense he incurred related to his employment.

Thus,

his employment-related expenses must be reported on Schedule A.
In their petition, petitioners alleged that respondent bears
the burden of discrediting their claimed deductions.

Section

7491, effective for court proceedings arising in connection with
examinations commencing after July 22, 1998, shifts the burden of
proof to the Commissioner, under certain circumstances, where a
taxpayer introduces credible evidence with respect to factual
issues relevant to ascertaining the taxpayer's liability for tax.
See Internal Revenue Service Restructuring & Reform Act of 1998,
Pub. L. 105-206, sec. 3001, 112 Stat. 685, 724.

Respondent

argues that the examination of petitioner’s 1996 income tax
liability began on June 22, 1998.
this issue at trial.

Petitioners did not address

Furthermore, petitioners have failed to

present credible evidence with respect to the deductions at issue.
Accordingly, we uphold respondent’s determinations.
To reflect the foregoing,
Decision will be entered
for respondent.

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