                  T.C. Summary Opinion 2002-93



                     UNITED STATES TAX COURT



              JACK CHIEN CHING HUANG, Petitioner v.
          COMMISSIONER OF INTERNAL REVENUE, Respondent



     Docket No. 4726-01S.               Filed July 18, 2002.


     Jack Chien Ching Huang, pro se.

     Minakshi Tyagi-Jayasinghe, for respondent.


     ARMEN, Special Trial Judge:    This case was heard pursuant to

the provisions of section 7463 of the Internal Revenue Code in

effect at the time that the petition was filed.1   The decision to

be entered is not reviewable by any other court, and this opinion

should not be cited as authority.



     1
       Unless otherwise indicated, all subsequent section
references are to the Internal Revenue Code in effect for 1997,
the taxable year in issue, and all Rule references are to the Tax
Court Rules of Practice and Procedure.
                                - 2 -

     Respondent determined a deficiency in petitioner’s Federal

income tax and an accuracy-related penalty for 1997, as follows:


                                     Penalty
                   Deficiency      Sec. 6662(a)
                     $9,017         $1,803.40


     After concessions by the parties,2 the issues remaining for

decision are as follows:

     (1) Whether petitioner is entitled to a deduction for an

office in the home.    We hold that he is to the extent provided

herein.

     (2) Whether petitioner is entitled to a deduction for

repayment of principal on a bank loan.    We hold that he is not.

Background

     Some of the facts have been stipulated, and they are so

found.    Petitioner resided in Pasadena, California, at the time

that his petition was filed with the Court.


     2
       Respondent concedes: (1) Petitioner did not receive
unreported gross receipts; (2) petitioner is entitled to a
Schedule C, Profit or Loss From Business, deduction for interest
expense in the amount of $1,279; (3) petitioner is entitled to
additional Schedule C deductions in the amount of $3,400; (4)
petitioner is entitled to an additional Schedule C deduction for
rent expense in the amount of $787; and (5) petitioner is not
liable for the accuracy-related penalty under sec. 6662(a).
     Petitioner concedes that he is not entitled to a Schedule C
deduction for salaries and wages.
     The imposition of self-employment tax, the deduction under
sec. 164(f) for one-half of the self-employment tax, and the
earned income credit are mechanical matters the resolution of
which depends on our disposition of the disputed issues and the
parties’ concessions.
                                - 3 -

     A.   Petitioner

     During 1997, the taxable year in issue, petitioner operated

a small after-hours school, gave private violin lessons, and was

a composer of musical scores.   We examine each of petitioner’s

businesses in turn.

     B.   The Pasadena Chinese School

     In 1994, after achieving a bachelor of arts degree in music

from the University of California at Irvine, a degree in film

scoring from the University of California at Los Angeles, and a

commercial music degree from California State University at Los

Angeles, petitioner founded a small after-hours school in

Pasadena, California, called the Pasadena Chinese School.   The

City of Pasadena granted petitioner a business license for the

“Pasadena Chinese School/CIM Music Productions providing classes

of Chinese and Fine Arts” on the condition that petitioner rent

another facility outside his home for classroom use.3

     During 1997, petitioner rented classroom space at Wilson

Middle School (Wilson), a public school within the Pasadena

Unified School District.   Petitioner used this space to teach

courses in music, mathematics, martial arts, English, and Chinese

to students between the ages of 5 and 12.   The space was



     3
       Petitioner’s arrangement with the City of Pasadena did
permit petitioner to maintain an office in the home.
Petitioner’s business address, as specified on the license, was
75 South Meridith Avenue, Pasadena, CA. See infra “E”.
                                  - 4 -

available to petitioner on a daily basis, Monday through Friday,

between the hours of 2:30 p.m. and 6:00 p.m., with the exception

of the summer months of July and August when the space was

available from 8:00 a.m. to 6:00 p.m.     Enrollment in the Pasadena

Chinese School was not limited to students at Wilson, but was

open to students from neighboring schools as well.

     Petitioner’s daily classes were conducted in a specified

classroom, but petitioner had the option of using a second

classroom for courses conducted after 4:00 p.m.    Petitioner was

also afforded the use of a storage room, which he could utilize

as he wished.

     C.   Saturday Violin Lessons

     During 1997, petitioner also gave private violin lessons in

his home to a small group of children (not necessarily the same

children that petitioner taught at Wilson).    The violin lessons

were given on Saturday, with the exception of the summer months

of July and August when petitioner took a sabbatical.

     D.   CIM Music Productions

     Finally, during 1997, petitioner pursued a music writing

activity, which he called CIM Music Productions.    Petitioner

composed musical scores for a Hong Kong-based recording company.

     E.   75 South Meridith Avenue

     At all relevant times, petitioner’s father owned a duplex

residence located at 73-75 South Meridith Avenue in Pasadena,
                                     - 5 -

California.       Petitioner’s father and mother resided at 73 South

Meridith, whereas petitioner and his younger brother resided at

75 South Meridith.      Petitioner paid his father rent for the use

of the property.

     The residence at 75 South Meridith consisted of a combined

living and dining room area, a kitchen, three bedrooms, and a

bathroom.     Petitioner and his brother jointly used the common

space; i.e., the combined living and dining room area, the

kitchen, and the bathroom.         Petitioner also used two of the three

bedrooms; his brother used the remaining bedroom.

             1.    “Home Office”

     Petitioner referred to one of his two bedrooms as a “home

office”.    This room measured 9 feet 8 inches in width by 13 feet

4 inches in length.      The room included a folding sofa, a dresser,

and a tea stand, which petitioner used to organize his students’

papers.    Petitioner generally converted the folding sofa into a

bed in the evening.

     Based on the photograph that petitioner introduced at trial,

the room did not appear to be set up as a typical office in that

there was no indication of any desk, filing cabinets, or office

equipment.    However, petitioner occasionally used this room to

give his Saturday violin lessons.        Petitioner used the closet in

the room to store both personal and business belongings.
                                - 6 -

            2.   “Studio”

     Petitioner referred to the second of his two rooms as a

“studio”.    This room measured 11 feet 2 inches in width by 15

feet in length.    The room included an electronic musical

keyboard, sound recording equipment, loud speakers, a computer

(with a musical instrument digital interface) and monitor, and

shelves containing a multitude of music tapes.    The room also

included a folding sofa, which petitioner would use as a bed if

he worked late at night composing music.    Finally, there was a

closet, which petitioner used to store both personal and business

belongings.

     Petitioner exclusively used a clearly defined portion of

this room, equal to three-quarters of its square footage, to: (1)

Prepare lesson plans and perform other tasks related to his

duties as the administrator/teacher at the Pasadena Chinese

School; (2) compose music for CIM Music Productions; and (3)

teach most of his Saturday violin lessons.

     F.   Loan Repayment

     Petitioner maintained an account with Providian Bank in the

form of a line of credit.    Petitioner borrowed against this line

of credit in order to pay operating expenses of the Pasadena

Chinese School.    Petitioner deducted such operating expenses on

his Schedule C, which deductions were allowed by respondent.

     In March 1997, petitioner borrowed $5,000 from his mother.
                                 - 7 -

Petitioner used this loan to pay down the then outstanding

balance on his line of credit with Providian Bank.

     In September 1997, petitioner borrowed another $5,000 from

his mother and $3,000 from his aunt.     Petitioner used $7,540 of

these loans to pay down the then outstanding balance on his line

of credit with Providian Bank.

     G.   Petitioner’s 1997 Income Tax Return

     Petitioner filed Form 1040, U.S. Individual Income Tax

Return, for 1997.   Petitioner attached to his return a Schedule

C, Profit or Loss From Business, and claimed deductions for

various expenses in the total amount of $77,042.    Included in

this amount was a deduction for rent in the amount of $14,815 and

a deduction for “other expenses” in the amount of $21,091.

     Included in the deduction for rent was $8,028, representing

expenses for the business use of petitioner’s home.    Included in

the deduction for “other expenses” was $12,540, representing the

repayment of principal on the loan from his line of credit with

Providian Bank.

     H.   Notice of Deficiency

     Respondent determined a deficiency in petitioner’s income

tax for 1997.   In the notice of deficiency, respondent

determined, inter alia, that petitioner is not entitled to any

deduction for an office in the home or for repayment of principal

on the loan from his line of credit with Providian Bank.
                                 - 8 -

Discussion4

A.   Home Office Deduction

     Petitioner contends that he is entitled to a deduction for

an office in the home because his “home office” and “studio” were

used for business purposes.    Respondent contends that petitioner

is not entitled to this deduction because neither petitioner’s

“home office” nor his “studio” was used exclusively for business

purposes.     Respondent also contends that 75 South Meridith Avenue

was not the principal place of business for the Pasadena Chinese

School.5

     Section 162(a) allows as a deduction all ordinary and

necessary expenses paid or incurred during the taxable year in

carrying on a trade or business.    However, in the case of

expenses paid or incurred in connection with the business use of

a home, section 280A serves to restrict the deductibility rule of

section 162(a).    Thus, section 280A(a) generally provides that no

deduction otherwise allowable shall be allowed with respect to

the business use of a taxpayer’s residence.




     4
       We decide the issues in this case without regard to the
burden of proof. Accordingly, we need not decide whether the
general rule of sec. 7491(a)(1) is applicable in this case. See
Higbee v. Commissioner, 116 T.C. 438 (2001).
     5
        Respondent does not contend that the principal place of
business for either petitioner’s music composition business or
petitioner’s violin teaching business is not at 75 South Meridith
Avenue.
                               - 9 -

     Section 280A(c) provides exceptions to the general rule of

section 280A(a).   Thus, as relevant herein, section 280A(a) does

not apply to any item to the extent that such item is allocable

to a portion of the dwelling unit that is exclusively used on a

regular basis as the principal place of business for any trade or

business of the taxpayer.   See sec. 280A(c)(1)(A).   Accordingly,

in order to qualify under section 280A(c), a portion of

petitioner’s dwelling must be exclusively used on a regular basis

as the principal place of business for his trade or business.

See Hamacher v. Commissioner, 94 T.C. 348, 353 (1990).

     Exclusive use of a portion of a taxpayer’s dwelling unit

means that the taxpayer must use a specific part of the dwelling

unit solely for the purpose of carrying on his trade or business.

The use of a portion of the dwelling unit for both personal

purposes and for the carrying on of a trade or business does not

meet the exclusive use test.   Gomez v. Commissioner, T.C. Memo.

1980-565.   However, “The exclusive use test does not require that

the portion of a room used for business must be separated

physically from the rest of the room by a wall, partition, or

other demarcation, but only that the absence of such a physical

separation be a factor for the Court to weigh.”   Williams v.

Commissioner, T.C. Memo. 1991-567.
                               - 10 -

     We begin by applying these principles to petitioner’s “home

office”.   Here it is clear that petitioner used this room for

personal purposes and that business use was secondary, if not

incidental.   Indeed, the photograph of the room that petitioner

introduced at trial did not reveal any indicia of business use;

moreover, the main piece of furniture in the room was a folding

sofa that petitioner used as his bed on most nights.   It is

equally clear that no portion of this room was used exclusively

for business purposes.   Accordingly, we hold that petitioner is

not entitled to any deduction in respect of his “home office”.

See Cook v. Commissioner, T.C. Memo. 1997-378.

     We turn now to petitioner’s “studio”.   Here the situation is

different.    Although there was some personal use of a portion of

this room, petitioner used a clearly defined portion thereof

exclusively as the principal place of business for his music

composition and violin teaching businesses, as well as a place of

business for the Pasadena Chinese School.    Accordingly, we hold

that petitioner is entitled to a deduction equal to three-

quarters of the expense allocable to his “studio”.   See Hewett v.

Commissioner, T.C. Memo. 1996-110.

B.   Repayment of Principal on Loan From Providian Bank

     During the year in issue, petitioner borrowed money from his

mother and aunt in order to pay down the outstanding balance on

his line of credit with Providian Bank.   At trial, petitioner
                               - 11 -

testified that he borrowed from his relatives to pay the bank in

order to “maintain [his] good credit”.    In this regard,

petitioner candidly admitted that his relatives were more

flexible (and forgiving) as creditors than was the bank.

     At trial, respondent conceded that petitioner was entitled

to a Schedule C deduction for interest expense in the amount of

$1,279.   See supra note 2.   However, respondent contends that the

repayment of principal on the loan from Providian Bank is not

deductible.   We agree.

     As we said many years ago, “Deductions are not permitted on

account of the repayment of loans.”     Crawford v. Commissioner, 11

B.T.A. 1299, 1302 (1928); see Brenner v. Commissioner, 62 T.C.

878, 883 (1974); Osborne v. Commissioner, T.C. Memo. 2002-11;

Clark v. Commissioner, T.C. Memo. 1994-120, affd. without

published opinion 68 F.3d 469 (5th Cir. 1995).

     In the context of the present case, the rationale for the

foregoing rule is readily apparent.     Petitioner borrowed against

his line of credit in order to pay operating expenses of the

Pasadena Chinese School; petitioner then deducted such operating

expenses on his Schedule C, which deductions were allowed by

respondent.   To allow petitioner to deduct the repayment of

principal would allow him “the practical equivalent of double

deduction.”   Ilfeld Co. v. Hernandez, 292 U.S. 62, 68 (1934).    As

we have previously held, “The Code ‘should not be interpreted’ to
                             - 12 -

allow double deductions for the same amount ‘absent a clear

declaration of intent by Congress,’ * * * and we not think

section 162(a) reflects any such intent.”    Brenner v.

Commissioner, 62 T.C. 878, 885 (1975) (quoting United States v.

Skelly Oil Co., 394 U.S. 678, 684 (1969)).

     In view of the foregoing, we sustain respondent’s

determination and hold that petitioner is not entitled to any

deduction for repayment of principal on the loan from Providian

Bank.

C.   Conclusion

     Reviewed and adopted as the report of the Small Tax Case

Division.

     To give effect to our disposition of the disputed issues, as

well as the parties’ concessions, see supra note 2,



                                        Decision will be entered

                                   under Rule 155.
