                  T.C. Summary Opinion 2002-44



                     UNITED STATES TAX COURT



                   JON R. ECKER, Petitioner v.
          COMMISSIONER OF INTERNAL REVENUE, Respondent



     Docket No. 5027-00S.              Filed April 29, 2002.


     David C. Wagner (specially recognized), for petitioner.

     Stephen J. Neubeck, for respondent.




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

the provisions of section 7463 of the Internal Revenue Code in

effect at the time the petition was filed.    Unless otherwise

indicated, subsequent section references are to the Internal

Revenue Code in effect for the year at issue.    The decision to be

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

should not be cited as authority.
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     Respondent determined a deficiency of $3,940 in petitioner’s

Federal income tax for 1996.    Petitioner conceded that he is not

entitled to a deduction for education expenses relating to his

wife.   Thus, we must decide whether the expense incurred for

pilot training is deductible from petitioners’ gross income under

section 162.   We hold that it is.

                            Background

     The stipulation of facts and the accompanying exhibits are

incorporated herein by reference.    Petitioner resided in

Kingwood, Texas, at the time the petition in this case was filed.

     In the 1980s, petitioner served in the U.S. military.

Petitioner retired from the service in 1991.     While in the

service he trained on and was certified to fly helicopters.     He

served as a helicopter test pilot.      Petitioner also flew and was

familiar with the systems and operations of a U-21 aircraft, a

military version of the Beech 1900D, a fixed-wing aircraft.

     In 1984, petitioner received the Federal Aviation

Administration’s (FAA) certified fixed-wing private rating,

allowing him to fly a small single-engine aircraft such as a

Cessna or a Piper.   When petitioner left the service it was

difficult to secure employment as a pilot because the number of

pilots exceeded the number of positions available.     As a result,

petitioner sought to increase his FAA fixed-wing rating through

more classes and flight time.   On March 16, 1992, petitioner
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received his multiengine instrument rating which permits pilots

to fly multiengine aircraft like the Beech 1900D.   On May 27,

1992, petitioner received his multiengine commercial pilot rating

(CPR) which qualifies pilots to fly commercial jets for hire.     In

1994, petitioner received his airline transport pilot rating

(ATPR), the FAA’s highest rating, which authorizes a pilot to fly

as a captain with an airline company.

     From July 1995 until February 1996 petitioner worked for Era

Aviation (Era) in Lake Charles, Louisiana.   He worked as a

helicopter pilot transporting both people and equipment to and

from offshore oil rigs in the Gulf of Mexico.   At no point prior

to February 4, 1996, had petitioner flown as a commercial airline

pilot on a fixed-wing airplane.

     In late January 1996, petitioner was approached by a

Continental Express Airlines (CE) captain who suggested that

petitioner apply to be a pilot with CE.   After submitting his

application, petitioner was invited for an interview.   Shortly

after completing the interview process, a representative from CE

offered petitioner a job.   The representative informed him that

his first task was to attend the required new-hire training which

was to begin on February 4, 1996.   At the time, all new hires

were required to pay CE $7,500 for their training and

orientation.   On February 17, 1996, petitioner paid the $7,500
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training fee with a personal check made out to “Continental

Express”.

     Every pilot hired to fly with CE was required to take the

Beech 1900D training program regardless of the pilot’s level of

experience.   Pilots were required to successfully complete new-

hire training prior to their assignment to commercial flights.

The requirement that newly hired pilots complete a training

program is commonplace among commercial airlines.

     CE’s new-hire training included a substantial amount of

corporate indoctrination.   The training also took the pilots

through CE’s operations manual and 2 to 3 days of aircraft

systems training.   The systems training included “a handout of

the systems of a Beech 1900D, the air-conditioning systems, the

pressurizations, electrical hydraulic, and so forth, and * * * an

overview of the systems.”   Pilots were required to fly the

aircraft and show the instructors that they were proficient with

the aircraft’s operating systems.   Each pilot flew approximately

four night training flights, and on the fifth flight an

instructor determined whether the pilot was fit to fly for CE.

Petitioner’s instructor determined that his skills and abilities

qualified him to begin accepting regular CE piloting assignments.
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                              Discussion

Education Expense Deduction

     Petitioner invites us to reach our decision by determining

whether the FAA or the employer is the proper source to establish

“minimum educational requirements” for a pilot’s position.

Because we find that petitioner was not established in the trade

or business of being a pilot prior to beginning CE’s training, we

need not reach the issue urged by counsel.

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

necessary expenses paid or incurred by a taxpayer in carrying on

any trade or business.

     Section 262, however, expressly provides that no deduction

is allowable for personal, living, or family expenses.    Section

1.262-1(b)(9), Income Tax Regs., provides that expenditures made

by a taxpayer in obtaining an education or in furthering his

education are not deductible unless they qualify under section

162 and section 1.162-5, Income Tax Regs.    Section 1.162-5(a),

Income Tax Regs., sets forth objective criteria for deciding

whether an education expense is a business, as opposed to a

personal, expense.   This regulation provides, with certain

exceptions not relevant here, that education expenses are

deductible business expenses if the education--

          (1) Maintains or improves skills required by the
     individual in his employment or other trade or
     business, or
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          (2) Meets the express requirements of the
     individual’s employer, or the requirements of
     applicable law or regulations, imposed as a condition
     to the retention by the individual of an established
     employment relationship, status, or rate of
     compensation. [Sec. 1.162-5(a), Income Tax Regs.]

     Implicit in both section 162 and the regulations is that the

taxpayer must be established in a trade or business before any

expenses are deductible.    Link v. Commissioner, 90 T.C. 460

(1988), affd. without published opinion 869 F.2d 1491 (6th Cir.

1989); Jungreis v. Commissioner, 55 T.C. 581 (1970).    The

question of whether petitioner was established in a trade or

business is one of fact which we must discern from evidence in

the record.    Link v. Commissioner, supra; sec. 1.162-5(b)(2),

Income Tax Regs.    Petitioner was employed by CE on February 4,

1996.    One of the questions presented in this case is whether at

that point he was established in the trade or business of

piloting fixed-wing aircraft.

     For the 7 months prior to joining CE, petitioner flew

helicopters for Era in the Gulf of Mexico.    His work at Era leads

us to conclude that as of February 4, 1996, petitioner was

established in the trade or business of piloting helicopters.

This Court has held that a helicopter pilot is engaged in a

different trade or business than an airline pilot.     Lee v.

Commissioner, T.C. Memo. 1981-26, affd. 723 F.2d 1424 (9th Cir.

1984).    Prior to February 4, 1996, petitioner had never flown for

or been hired by an airline.    There is no evidence in the record
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indicating that petitioner had flown any airplane aside from his

time in the service and those on which he trained when working

towards his FAA certifications.

     Prior to new-hire training petitioner had taken courses and

received the highest level of FAA fixed-wing certification.

Petitioner, however, had never worked for an airline.    In

Wassenaar v. Commissioner, 72 T.C. 1195 (1979), this Court held

that being a certified member of a profession is not the same as

carrying on that profession for the purpose of section 162(a).

While it is possible to argue, because he was hired by CE prior

to the commencement of training and because of his FAA

certifications, that he was engaged in the trade or business of

being a fixed-wing airline pilot for purposes of section 162,

“the statute has consistently been construed to require activity

prior to the outlay for education.”    Kohen v. Commissioner, T.C.

Memo. 1982-625.   Petitioner’s first day of employment was the

same day training started.   The mere establishment of an

employer-employee relationship is insufficient for purposes of

section 1.162-5, Income Tax Regs.   While no minimum period of

activity is articulated by the statute or its regulations, it is

clear that one day of employment lacks the essential

characteristics of being established in a particular trade or

business.   See Link v. Commissioner, 90 T.C. at 464.
                                - 8 -

     Thus, we find that petitioner was not established in the

trade or business of piloting fixed-wing aircraft prior to

incurring the expense of new-hire training and therefore is not

eligible for an education expense deduction.

Unreimbursed Business Expense

     Section 162, of course, allows the deduction of business

expenses other than education expenses.   Generally, a taxpayer is

entitled to deduct from gross income ordinary and necessary

business expenses that are directly connected with or pertain to

the taxpayer’s trade or business.   Sec. 1.162-1(a), Income Tax

Regs.   An individual may engage in the trade or business of being

an employee.    Gapikia v. Commissioner, T.C. Memo. 2001-83.    Trade

or business expense deductions are allowed for those taxpayers

who are not reimbursed for expenses incurred because of their

employment.    Primuth v. Commissioner, 54 T.C. 374, 377 (1970).

If, as a condition of employment, an employee is required to

incur unreimbursed expenses, the employee is entitled to a

deduction for those expenses.    Fountain v. Commissioner, 59 T.C.

696, 708 (1973); Spielbauer v. Commissioner, T.C. Memo. 1998-80;

Scalley v. Commissioner, T.C. Memo. 1992-123.

     During 1996, and upon commencing training, petitioner was an

employee of CE.   CE required petitioner, as well as all other

newly hired pilots as a condition of employment to attend and pay

for new-hire training.   CE had two purposes for its new-hire
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training, to ensure that the new pilots were proficient with its

aircraft, and to ensure the safety of its passengers.    The

evidence in the record clearly establishes that petitioner

incurred unreimbursed expenses as a requirement of his employment

as a pilot with CE.

     The expense petitioner incurred for new-hire training is an

unreimbursed employee expense.    The miscellaneous business

expense deduction, which includes unreimbursed employee expenses,

to which petitioner is entitled is deductible on petitioner's

Schedule A, Itemized Deductions.    Sec. 162(a); see also sec.

1.162-17, Income Tax Regs.   As an itemized deduction, it is

subject to the 2-percent floor; that is, only the amount in

excess of 2-percent of petitioner's adjusted gross income may be

deducted.   Sec. 67(a); sec. 1.67-1T(a)(1)(i), Temporary Income

Tax Regs., 53 Fed. Reg. 9875 (Mar. 28, 1988).

     Thus, we find that respondent’s determination denying

petitioner’s deductions was made in error.    We hold that the

expense petitioner incurred for new-hire training was a

deductible unreimbursed business expense.

     Reviewed and adopted as the report of the Small Tax Case

Division.
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To reflect the foregoing,

                                  Decision will be entered

                             under Rule 155.
