                        T.C. Memo. 2008-18



                      UNITED STATES TAX COURT



           JOZSEF AND ZSUZSANNA BALLA, Petitioners v.
          COMMISSIONER OF INTERNAL REVENUE, Respondent



     Docket No. 13632-06.            Filed January 31, 2008.



     Ellin Vicki Palmer, for petitioners.

     Valerie L. Makarewicz, for respondent.



            MEMORANDUM FINDINGS OF FACT AND OPINION


     COHEN, Judge:   Respondent determined deficiencies of $4,146

and $2,635 in petitioners’ Federal income tax for 2002 and 2003,

respectively.   After concessions by the parties, the issues for

decision are:
                              - 2 -

     (1) Whether for the years in issue petitioners may deduct at

Federal per diem rates meal expenses that Jozsef Balla

(petitioner) did not pay for or incur;

     (2) whether petitioners may deduct incidental expenses at

Federal per diem rates for 2003;

     (3) whether petitioners may deduct mileage expenses for

travel to and from a firefighting school in April 2002;

     (4) whether petitioners are entitled to deductions for other

job-related and miscellaneous expenses in 2002 and 2003.

     Unless otherwise indicated, all section references are to

the Internal Revenue Code in effect during the years in issue,

and all Rule references are to the Tax Court Rules of Practice

and Procedure.

                        FINDINGS OF FACT

     Some of the facts have been stipulated, and the stipulated

facts are incorporated in our findings by this reference.

Petitioners resided in Sarasota, Florida, at the time they filed

their petition.

     Petitioner was employed by Hornbeck Offshore Operators

(Hornbeck) as a merchant sailor during the years in issue.

Hornbeck did not provide petitioner with a per diem cash

allowance for work-related meals or incidental expenses.    When

petitioner was assigned to a vessel and on active status,

Hornbeck provided him with meals and lodging without charge.
                               - 3 -

Hornbeck also provided petitioner with uniforms and safety

equipment (including work vest, hard hat, safety goggles, safety

glasses, rain slicker, and flashlight) that it required for its

employees.   Petitioner was also required to wear steel-toe boots,

which were not provided by Hornbeck.   Hornbeck did not provide or

require its employees to have cell phones or pagers.

     In April 2002, petitioner attended a firefighting school in

Fort Lauderdale, Florida.   Hornbeck did not require or pay for

petitioner to attend the firefighting school; rather,

petitioner’s tuition was paid by his union.   He drove his own car

to Fort Lauderdale from his home in Sarasota to attend the

firefighting school.   Petitioner recorded the dates, location,

and purpose of his trip to Fort Lauderdale on his personal

calendar for 2002.   He did not keep any record regarding the

mileage traveled on his trip to the firefighting school, but the

parties have agreed that the one-way trip from petitioner’s home

in Sarasota to Fort Lauderdale is approximately 209 miles.

     Under Job Expenses and Most Other Miscellaneous Deductions

on their Schedule A, Itemized Deductions, for 2002, petitioners

claimed the following deductions:

           Unreimbursed employee expenses     $18,509
           Tax preparation fees                 1,190
           Other expenses                       3,143

Respondent allowed the deduction for tax preparation fees in

2002.   Petitioners also attached an extensive compilation of
                                  - 4 -

documents entitled “Sailor Travel Statement” to substantiate

their claim to unreimbursed employee expenses.          The Sailor Travel

Statement includes the “Supplemental Tug/Barge Sailor Travel

Schedule” reproduced below, authorities upon which petitioners

rely in support of their tax position, a 2002 port list for the

Yabucoa vessel, and a schedule listing ports where petitioner

purportedly was stationed on particular dates in 2002.            The

Supplemental Tug/Barge Sailor Travel Schedule, with original

emphases, that petitioners attached to their 2002 return is

reproduced in part below:

     Taxpayer is a Merchant Sailor assigned to work aboard a Tug Boat
     traveling between ports located on the Atlantic Ocean and
     therefore qualifies per attached Rev Proc 2001-47’s
     “Transportation Industry Employees” and attached MARIN JOHNSON TAX
     COURT DECISION & IRS Publication 463 (Chapter 1 Page 5) to compute
     his DEEMED SUBSTANTIATED Out-of-Town Travel Costs by using
     attached Pub 1542’s Standard Foreign OCONUS Rates for EACH CITY as
     follows:
           80 Days x $75 Guayama <San Juan>, Puerto Rico = 6,000.
           39 Days x $75 Arecibo <San Juan>, Puerto Rico = 2,925.
           44 Days x $57 Guayaquil, Ecuador                = 2,508.
           25 Days x $76 St. Croix, Virgin Islands         = 1,900.
           33 Days x $57 Mayaguez <Other>, Puerto Rico     = 1,881.
           18 Days x $75 San Juan, Puerto Rico             = 1,350.
            4 Days x $75 Aguirre <San Juan>, Puerto Rico =      300.
            5 Days x $57 Yabaccoa <Other>, Puerto Rico     =    285.
                                                            --------
     Total Sailor Travel Costs Allowed per OCONUS Rates      17,149.
     LESS EMPLOYER PROVIDED REIMBURSEMENTS                   <2,852>
                                                            --------
     Sailor Travel Allowance in Excess of Reimbursements     14,297.

     As a MERCHANT SAILOR, taxpayer was required by his employer to
     travel to various locations to meet his ships. Per IRS Rev Rul
     99-7 and attached Marin Johnson Tax Court Decision, his auto
     mileage and possibly other travel-related costs are FULLY
     DEDUCTIBLE as follows:
                                     - 5 -
           8 Days x $205 Boston, Massachusetts              =   1,640.
           5 Days x $142 Fort Lauderdale, Florida           =     710.
             Rental Cars & Other Travel Related Costs       =   1,175.

     Taxpayer also took a Sailor Continuing Education Program. This
     additional Rating is deductible since he already has other SAILOR
     ratings and this course does NOT qualify him for a new occupation.
     Note the Union paid the tuition in full. This is related
     Educational Travel Expenses ONLY.
           Total Mileage: 563 miles x $.365                =    205.
           6 Days x $42 Fort Lauderdale, Florida           =    252.
           5 Days x $46 New York City <Manhattan>, NY      =    230.
                                                             -------
     Total Tax Court & IRS Allowed Sailor Travel             18,509.
     & Auto Mileage                                          =======


     Petitioners concede that they are not entitled to deductions

for any of the mileage or rental car expense deductions claimed

for 2002 except the $205 claimed for the round trip mileage from

petitioner’s home in Sarasota to Fort Lauderdale, Florida, where

petitioner attended the firefighting school in April 2002.

Respondent concedes that petitioners are entitled to a

miscellaneous itemized incidental expenses deduction for 2002

equal to the per diem rates then applicable.            Respondent

performed those calculations according to methods established by

relevant revenue procedures.

     In a statement attached to their 2002 return, petitioners

listed their “other expenses” as follows:

           Sailor Req’d Medicals                         $155
           Sailor Req’d Phone/Pager                     2,345
           Sailor Req’d Supplies                          643

They provided no receipts, other documentation, or explanations

to substantiate the amounts or business purposes of the expenses

claimed.
                                  - 6 -

     On their 2003 return, petitioners claimed and respondent

disallowed the following itemized deductions under Job Expenses

and Most Other Miscellaneous Deductions:

     Unreimbursed employee expenses          $16,173
     Tax preparation fees                        595
     Other expenses--Sailor Req’d Phone/Pager 1,282

Petitioners again attached a Sailor Travel Statement to their

2003 return to substantiate their claim to unreimbursed employee

expenses for that year.     It included the Supplemental Tug/Barge

Sailor Travel Schedule reproduced below, the same authorities as

they had attached to their 2002 return, a 2003 port list for the

Yabucoa vessel, and a schedule listing ports where petitioner

purportedly was stationed on particular dates in 2003.            The

Supplemental Tug/Barge Sailor Travel Schedule, with original

emphases, that petitioners attached to their 2003 return is

reproduced in part below:

     Taxpayer is a Merchant Sailor assigned to work aboard a Tug Boat
     traveling between ports located on the Atlantic Ocean and
     therefore qualifies per attached Rev Proc 2002-63’s
     “Transportation Industry Employees” and attached MARIN JOHNSON TAX
     COURT DECISION & IRS Publication 463 (Chapter 1 Page 5) to compute
     his DEEMED SUBSTANTIATED Out-of-Town Travel Costs by using
     attached Pub 1542’s Foreign OCONUS Rates and Domestic CONUS Rates
     for EACH CITY as follows:
                                         - 7 -
           68   Days   x   $87   Sat. Croix, Virgin Islands         =    5,916.
           40   Days   x   $75   Aguirre <San Juan>, Puerto Rico    =    3,000.
           25   Days   x   $75   Guayama <San Juan>, Puerto Rico    =    1,875.
           21   Days   x   $75   Arecibo <San Juan>, Puerto Rico    =    1,575.
           30   Days   x   $42   Kingston, New York                 =    1,260.
           19   Days   x   $50   New York City <Manhattan>, NY      =      950.
           12   Days   x   $66   Puerto Plata, Dominican Rep.       =      792
           14   Days   x   $46   New Orleans, Louisiana             =      644.
            7   Days   x   $75   Mayaguez <San Juan>, Puerto Rico   =      525.
            6   Days   x   $75   San Juan, Puerto Rico              =      450.
            5   Days   x   $50   Brooklyn, New York                 =      250.
            3   Days   x   $75   Yabucoa <San Juan>, Puerto Rico    =      225.
            2   Days   x   $38   Delaware City <Wilmington>, DE     =       76.
                                                                        -------
     Total Sailor Travel Costs Allowed per OCONUS & CONUS Rates          17,538.
     LESS EMPLOYER PROVIDED REIMBURSEMENTS                              <2,772>
                                                                        -------
     Sailor Travel Allowance in Excess of Reimbursements                14,766.

     As a MERCHANT SAILOR, taxpayer was required by his employer to
     travel to various locations to meet his ships. Per IRS Rev Rul
     99-7 and attached Marin Johnson Tax Court Decision, his auto
     mileage and possibly other travel-related costs are FULLY
     DEDUCTIBLE as follows:
            12 Days x $42 Tampa, Florida                        =    504.
                  Rental Cars & Other Travel Related Costs =         903.
                                                                  -------
     Total U.S. Tax Court & Other Sailor Travel Expenses Allowed   16,173.
                                                                  =======

Petitioners concede that they are not entitled to any mileage or

rental car expense deductions claimed for 2003.                 Petitioners have

not provided any receipts, other documentation, or explanations

to substantiate the amounts or business purposes, if applicable,

of the expenses claimed for tax preparation fees and “Sailor

Req’d Phone/Pager” for 2003.

                                        OPINION

     Section 162 permits taxpayers to deduct all ordinary and

necessary business expenses paid or incurred during the taxable

year and specifically includes traveling expenses (including

amounts expended for meals and lodging other than amounts that

are lavish or extravagant under the circumstances) while away
                               - 8 -

from home in the pursuit of a trade or business.   Sec. 162(a)(2).

Section 274(d) generally disallows any deduction under section

162 for, among other things, “any traveling expense (including

meals and lodging while away from home)” unless the taxpayer

complies with stringent substantiation requirements as to the

amount, time and place, and business purpose of the expense.

Sec. 274(d)(1).   Section 274(d) authorizes the Secretary to

provide by regulations that some or all of these substantiation

requirements “shall not apply in the case of an expense which

does not exceed an amount prescribed pursuant to such

regulations.”

     Under the applicable section 274 regulations, the

Commissioner is authorized to prescribe rules under which

optional methods of computing expenses, including per diem

allowances for ordinary and necessary expenses for traveling away

from home, may be regarded as satisfying the substantiation

requirements of section 274(d).   Sec. 1.274-5(j), Income Tax

Regs.   Under this authority, the Commissioner issued Rev. Proc.

2001-47, 2001-2 C.B. 332 (applicable to petitioner’s travel

January through September 2002); Rev. Proc. 2002-63, 2002-2 C.B.

691 (applicable to petitioner’s travel October 2002 through

October 2003); and Rev. Proc. 2003-80, 2003-2 C.B. 1037

(applicable to petitioner’s travel November and December 2003)

(collectively, the applicable revenue procedures).   Under the
                              - 9 -

applicable revenue procedures, taxpayers may elect to use, in

lieu of substantiating actual expenses, certain authorized

methods for deemed substantiation of employee lodging, meal, and

incidental expenses incurred while traveling away from home.

Rev. Proc. 2002-63, sec. 1, 2002-2 C.B. at 691, and Rev. Proc.

2003-80, sec. 1, 2003-2 C.B. at 1037, each provide the following

introduction:

     SECTION 1.   PURPOSE

           This revenue procedure updates * * * [the previous
     revenue procedure relating to per diem allowances] by
     providing rules under which the amount of ordinary and
     necessary business expenses of an employee for lodging,
     meal, and incidental expenses or for meal and
     incidental expenses incurred while traveling away from
     home will be deemed substantiated under section 1.274-5
     of the Income Tax Regulations when a payor (the
     employer, its agent, or a third party) provides a per
     diem allowance under a reimbursement or other expense
     allowance arrangement to pay for the expenses. In
     addition, this revenue procedure provides an optional
     method for employees and self-employed individuals who
     pay or incur meal costs to use in computing the
     deductible costs of business meal and incidental
     expenses paid or incurred while traveling away from
     home. This revenue procedure also provides an optional
     method for use in computing the deductible costs of
     incidental expenses paid or incurred while traveling
     away from home by employees and self-employed
     individuals who do not pay or incur meal costs and who
     are not reimbursed for the incidental expenses. Use of
     a method described in this revenue procedure is not
     mandatory, and a taxpayer may use actual allowable
     expenses if the taxpayer maintains adequate records or
     other sufficient evidence for proper substantiation.
     * * *
                                - 10 -

Rev. Proc. 2001-47, sec. 1, 2001-2 C.B. at 332, is almost

identical to the passage quoted above, but the following sentence

is omitted:

     This revenue procedure also provides an optional method
     for use in computing the deductible costs of incidental
     expenses paid or incurred while traveling away from
     home by employees and self-employed individuals who do
     not pay or incur meal costs and who are not reimbursed
     for the incidental expenses. * * *

     Rev. Proc. 2002-63, sec. 4.05, 2002-2 C.B. at 694, and Rev.

Proc. 2003-80, sec. 4.05, 2002-2 C.B. at 1040, expressly provide

that taxpayers who do not pay or incur meal expenses when

traveling away from home may use, in lieu of providing actual

receipts to substantiate incidental expenses, an established per

diem rate of $2 or $3, depending on which revenue procedure is

applicable for the date of travel.       Rev. Proc. 2001-47, sec. 4,

2001-2 C.B. at 333-334, which provides specific rules for the per

diem substantiation method, does not contain a similar provision.

However, we have previously held that the incidental portion of

the M&IE per diem rates may be used as deemed substantiation of

incidental expenses when meals are provided by a taxpayer’s

employer.     Johnson v. Commissioner, 115 T.C. 210, 210-211 (2000).

     Rev. Proc. 2001-47, sec. 6.01, 2001-2 C.B. at 337; Rev.

Proc. 2002-63, sec. 6.01, 2002-2 C.B. at 698; and Rev. Proc.

2003-80, sec. 6.01, 2003-2 C.B. at 1043, each provide that the

Federal M&IE rate will be applied, with stated exceptions, in the

same manner as applied under the Federal Travel Regulations, 41
                              - 11 -

C.F.R. secs. 301-311, in effect at the time each respective

revenue procedure was released.

Deductions for Meals and Incidental Expenses

     Petitioner’s employer, Hornbeck, furnished him with lodging

and meals without charge while he worked on its vessel during the

years in issue.   Hornbeck also provided to petitioner uniforms

and safety equipment required in his employment.     Although

petitioner did not pay for his meals while at sea or while docked

in ports, petitioners deducted the full M&IE rate for each day

that petitioner worked aboard the tugboat during the years in

issue.

     Petitioners argue that the applicable revenue procedures, in

conjunction with the Federal Travel Regulations, 41 C.F.R. sec.

301-11.17, permit them to deduct the full applicable M&IE rate

for work-related travel even though all of petitioner’s meals

were provided to him free of charge by his employer.     The Federal

Travel Regulations provide that a meal provided by a common

carrier or a complimentary meal provided by a hotel or motel does

not affect a taxpayer’s otherwise allowable per diem expense

deduction for meals.   41 C.F.R. sec. 301-11.17 (2000); 41 C.F.R.

sec. 301-11.17 (2002); 41 C.F.R. sec. 301-11.17 (2003).

Petitioner’s tugboat is not a common carrier, and he did not

receive meals at a hotel or motel.     Additionally, the Federal

Travel Regulations require that a Federal employee’s M&IE rate be
                                - 12 -

adjusted for meals provided by the Government by deducting

appropriate amounts for each meal provided, but not to less than

the amount allowed for incidental expenses.    Johnson v.

Commissioner, supra at 227-228; Federal Travel Regulations, 41

C.F.R. sec. 301-11.18 (2000); 41 C.F.R. sec. 301-11.18 (2002); 41

C.F.R. sec. 301-11.18 (2003).    Because, as petitioners

acknowledge, the revenue procedures regarding M&IE rate

deductions for non-Government employees are to be applied

according to the Federal Travel Regulations for Federal

employees, the regulations require that petitioner decrease the

M&IE rate deduction otherwise allowable to account for meals

provided by petitioner’s employer.

     Petitioners also argue that this issue is novel to the

Court.   We disagree.   In Johnson v. Commissioner, supra, the

taxpayer, also a merchant seaman, deducted the full Federal M&IE

rates on his return, even though all of his meals were provided

to him free of charge by his employer.    We held that, because the

taxpayer’s actual expenses consisted solely of incidental

expenses, his use of the M&IE rates to calculate his deductions

for business expenses due to travel away from home was limited to

the incidental portion of those rates.    Id. at 210-211.   The

taxpayer established that he had incurred incidental expenses

during his travel away from home and was allowed to use the

incidental portion of the M&IE rates to substantiate those
                              - 13 -

expenses in lieu of providing actual receipts.   The purpose of

the Federal per diem rates is to ease the burden of

substantiating travel expenses away from home, not to eliminate

the requirement that those expenses be incurred before they can

be claimed as deductions from income.   Although petitioners

contend that the Court has not yet addressed this issue, we

explicitly stated in Johnson v. Commissioner, supra at 227:     “We

do not read the revenue procedures to allow a taxpayer to use the

full M&IE rates when he or she incurs only incidental expenses.”

     In her opening statement at trial, respondent’s counsel

conceded that petitioners were entitled to incidental expense

deductions.   We will not, therefore, address respondent’s

arguments in posttrial briefs challenging petitioner’s

entitlement to a deduction for incidental expenses for 2003.    As

discussed above, the Federal Travel Regulations provide that a

taxpayer to whom the regulations apply and who is not reimbursed

for incidental expenses will be entitled to deduct at least the

incidental expense portion of the M&IE rate.   41 C.F.R. sec. 301-

11.18 (2002); 41 C.F.R. sec. 301-11.18 (2003).

     Petitioner is entitled to a deduction for his deemed

substantiated incidental expenses for 2003 even though his meals

and lodging were provided free of charge by his employer.    See

Johnson v. Commissioner, supra.   Those incidental expenses shall

be calculated at $2 per diem for the months January through
                                - 14 -

October 2003 and at $3 per diem for the months November and

December 2003, in accordance with the applicable revenue

procedures.    See Rev. Proc. 2002-63, sec. 4.05; Rev. Proc. 2003-

80, sec. 4.05.    The pay schedule provided by Hornbeck shall be

used to calculate the number of days that petitioner worked, all

of which were away from home, during 2003.

The Fort Lauderdale Trip--Firefighting School

     Section 274(d) limits deductions for travel expenses

otherwise allowable under section 162 to those expenses that the

taxpayer substantiates by adequate records or sufficient evidence

corroborating the taxpayer’s own statement of the amount and

business purpose of the expense, as well as the time and place of

the travel.    Respondent argues on brief that petitioners are not

entitled to the deduction for mileage-related travel expenses for

petitioner’s Fort Lauderdale trip to attend firefighting school

because petitioners have not substantiated the business purpose

of the trip.     To support this position, respondent relies on the

absence of testimony by petitioner about why firefighting school

was ordinary or necessary for his employment or about what

business benefit petitioner derived or hoped to derive from his

attendance at the school.    Respondent also argues that, because

Hornbeck did not require or pay for the firefighting course or

expenses related to that course, it was not an ordinary or

necessary business expense to petitioner.    Hornbeck did have a
                              - 15 -

reimbursement program for mariner continuing education that

covered tuition, hotel, and meal expenses for mariner continuing

education courses, but not for travel expenses.

     On the Sailor Travel Statement attached to petitioners’

return for 2002, petitioners explained that the purpose of

petitioner’s trip to Fort Lauderdale was to attend a continuing

education program, the tuition for which was paid by petitioner’s

union.   At trial, petitioner testified that he attended a

firefighting school with colleagues.   Although given the

opportunity, respondent did not question petitioner regarding the

business purpose of the Fort Lauderdale trip or the business

benefit that petitioner hoped to derive from his attendance at

the firefighting school.   Respondent’s only question on

cross-examination regarding the Fort Lauderdale trip was whether

petitioner kept a mileage log to substantiate the miles traveled

on that trip.   Petitioner answered in the negative.

     We hold that petitioner has adequately substantiated the

business purpose of his travel expenses related to the Fort

Lauderdale trip for firefighting school.   Firefighting is related

to petitioner’s employment as a merchant sailor and engineer.

Payment for the course by petitioner’s professional union

supports petitioners’ characterization of the related travel

expenses as ordinary business expenses.    We are not persuaded by

respondent’s argument that, because petitioner did not seek
                              - 16 -

reimbursement for his mileage expenses from Hornbeck, the

firefighting course was not business related.    Petitioner has

also adequately substantiated the time, place, and amount of the

travel for which he has claimed a business expense deduction.

The date and place of the firefighting course is undisputed, and

the parties have agreed that the distance between petitioner’s

home in Sarasota and Fort Lauderdale is approximately 209 miles.

Because petitioner drove round trip to Fort Lauderdale for

business-related training and was not reimbursed for his travel

expenses, petitioner is entitled to a deduction for his April

trip to and from Fort Lauderdale, calculated using the total

mileage to which the parties have agreed, 418 miles, and using

the applicable mileage rate for 2002.   Although petitioner

testified that he also incurred unreimbursed work-related travel

expenses in the Fort Lauderdale area in transporting himself and

coworkers from their hotel to the training facility, he has not

presented a log substantiating those expenses, and his testimony

does not allow us to estimate them reasonably.

Other Job-Related and Miscellaneous Expenses

     Petitioners claimed other job expense deductions in 2002 for

medical exams, phone and pager expenses, and supplies related to

petitioner’s profession.   In 2003, petitioners claimed deductions

for tax preparation fees and again for phone and pager expenses.

However, they have provided no substantiation regarding the
                              - 17 -

amounts of these expenses or the job-related business purpose for

those expenses.   Petitioner’s employer, Hornbeck, did not require

its sailors to carry cell phones or pagers and provided its

employees with required safety equipment and supplies during the

years in issue.   Thus, even if the amounts had been

substantiated, these expenses were not ordinary or necessary

business expenses and were properly disallowed by respondent as

deductions.

     In reaching our decision, we have considered all arguments

made, and, to the extent not mentioned, we conclude that they are

irrelevant, moot, or without merit.


                                           Decision will be entered

                                      under Rule 155.
