                  T.C. Summary Opinion 2006-13



                     UNITED STATES TAX COURT



         RICK D. LAMB AND SUSAN L. STORY, Petitioners v.
           COMMISSIONER OF INTERNAL REVENUE, Respondent



     Docket No. 10051-04S.              Filed January 30, 2006.


     Rick D. Lamb, pro se.

     Aimee R. Lobo-Berg, for respondent.




     COUVILLION, Special Trial Judge:    This case was heard

pursuant to section 7463 in effect when 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, subsequent section references
are to the Internal Revenue Code in effect for the years at
issue. All Rule references are to the Tax Court Rules of
Practice and Procedure.
                               - 2 -

     Respondent determined deficiencies of $13,627 and $12,787 in

petitioners’ Federal income taxes for 1999 and 2000,

respectively.2   The issues for decision are:   (1) Whether

petitioners are entitled to deductions for trade or business

activities in connection with a legal/medical consultation

activity of Rick D. Lamb (petitioner); (2) whether salary income

earned by petitioner as an employee can be considered as trade or

business income of the legal/medical consultation activity; and

(3) whether petitioner is entitled to a deduction for job search

expenses.

     Some of the facts were stipulated.   Those facts, with the

annexed exhibits, are so found and are made part hereof.

Petitioners’ legal residence at the time the petition was filed

was Portland, Oregon.   During the years at issue, petitioners

were residents of Helena, Montana.3


     2
      Rick D. Lamb (petitioner) and Susan L. Story were married
to each other during the years in question but were divorced at
the time of trial. Susan L. Story did not appear at trial.
Petitioner advised the Court that his former spouse had knowledge
of the trial and agreed that petitioner would present the case on
their joint behalf. Respondent did not move to dismiss for
failure to prosecute as to Susan L. Story.
     3
      Generally, the burden of proof is on the taxpayer to show
that the determinations in the notice of deficiency are in error.
Rule 142(a). Sec. 7491, under certain circumstances, shifts the
burden of proof to the Commissioner. However, for the burden to
be placed on the Commissioner, the taxpayer must comply with the
substantiation and record-keeping requirements of the Internal
Revenue Code. Sec. 7491(a)(2)(A) and (B). On this record,
petitioners have not wholly satisfied that requirement;
                                                   (continued...)
                                 - 3 -

     Several concessions were made by the parties at trial.    Some

of these concessions are noted in the opinion and are

particularized in respondent’s posttrial brief.

     Petitioner is a medical doctor.     During the years at issue,

he was employed in that capacity by the Department of Veterans

Affairs (the V.A.), an agency of the United States.    He worked at

the V.A. hospital at Helena, Montana.    In addition to holding a

medical degree, petitioner is an attorney.    He was admitted to

the Montana State bar in April 2000.

     For the 2 years at issue, petitioner’s salary with the V.A.

was $65,351 and $110,920, respectively, for 1999 and 2000.     Those

amounts were reported as income on petitioners’ joint Federal

income tax returns for 1999 and 2000.

     In addition to his full-time employment with the V.A.,

petitioner maintained in his home what he considered to be a

private medical practice and a law practice.    In addition,

petitioner maintained what he considered to be a consultation

activity wherein he offered consultation services to doctors and

lawyers with respect to reciprocal medical and legal issues.

Petitioner also was available to appear before professional

groups to address such issues.




     3
      (...continued)
therefore, the burden does not shift to respondent under sec.
7491. Higbee v. Commissioner, 116 T.C. 438 (2001).
                                 - 4 -

       As to his private medical practice, all of petitioner’s

patients were elderly and indigent.      Petitioner did not charge

for his services to them because his patients were all unable to

pay.    There is no evidence in the record that any of these

patients had medical insurance or were covered by Medicare,

Medicaid, or any other form of public assistance.      Petitioner

explained that this unusual situation came about from his days as

a private practitioner, before he began working at the V.A.

hospital.    When he accepted his full-time job with the V.A., all

of his financially capable patients went to other doctors, and

his indigent patients had nowhere to go.      Petitioner felt an

obligation to continue attending to their needs.      However,

petitioner did not see any patients at his home.      He attended to

them at either public clinics or other health/medical facilities.

It appears that petitioner was not allowed to see private

patients at the V.A. hospital.    There is also no evidence that

petitioner offered consultation services at his home to attorneys

or other professionals about legal and medical issues.      There is

no evidence that petitioner ever addressed any legal or medical

professional associations regarding his dual professions,

although petitioner indicated that he had addressed high school

groups about his two professions.

       As to his law practice, petitioner’s legal clients were also

nonpaying.    Virtually all of his work in that area involved
                               - 5 -

habeas corpus proceedings of incarcerated clients.    Obviously, he

did not see these clients at home, and petitioner received no

fees for this activity during the 2 years at issue.   There is no

evidence that petitioner was involved in a habeas corpus

proceeding during the 2 years at issue.

     Petitioners considered these two described activities as a

trade or business for Federal income tax purposes.    His claimed

office was in his home.

     For 1999 and 2000, petitioners filed joint Federal income

tax returns, each of which included a Schedule C, Profit or Loss

from Business.   On Schedule C for 1999, petitioners reported zero

gross income, expenses of $50,312, and a net loss of $50,312.    On

the 2000 Schedule C, petitioners reported negative gross income
                              - 6 -

of $500, expenses of $43,735, and a net loss of $44,235.4   No

legal or consultation fees were reported as income.

     The following expenses were claimed as Schedule C deductions

on the 1999 and 2000 income tax returns:




     4
      The negative gross income of $500 on Schedule C, Profit or
Loss From Business, for 2000 resulted from the reporting of
$1,200 in gross receipts and cost of goods sold of $1,700,
resulting in negative gross income of $500. Part III, Cost of
Goods Sold, of Schedule C for that year listed a beginning
inventory of $10,200, an ending inventory of $8,500, and cost of
goods sold of $1,700, thus the $500 in negative gross income
reported on Part I of the return. Petitioner was questioned at
trial as to how, as a consultant, he incurred “cost of goods
sold”, since he was an attorney and a doctor and was not in the
business of buying and selling merchandise. The revenue agent’s
report makes the same observation: “I do not understand why an
attorney would have cost of goods sold * * * attorneys sell a
service, they do not manufacture, nor purchase and resell a
product.” Petitioner’s explanation at trial was that he owned a
computer that had originally cost $1,700, and it was sold during
2000 for $1,200. The revenue agent disallowed the $1,700
adjustment for cost of goods sold. Petitioner conceded the issue
at trial. Because the transaction involved the sale of an asset,
it should have been reported on Schedule D, Capital Gains and
Losses. It follows that the $1,200 reported as gross receipts on
the Schedule C for tax year 2000 was not in fact gross receipts
from petitioner’s claimed business activity as a doctor/lawyer
consultant; therefore, petitioner realized no gross income from
his activity for either 1999 or 2000.
                                - 7 -

     1999

     Car & truck expenses                           $ 1,571
     Depreciation                                     6,110
     Insurance (other than health)                    1,705
     Interest (other than mortgage)                      12
     Office expenses                                 15,740
     Taxes & licenses                                 1,752
     Travel                                          11,581
     Meals & entertainment (net)                      1,307
     Utilities                                        2,609
     Other expenses1                                  7,925
        Total                                       $50,312
     1
      A conglomeration of expenses that includes meals and
lodging, hotel rooms, fuel, books/journals, postage stamps, and
seven items for petitioner Susan Story totaling $2,017.


     2000

     Car & truck expenses                           $ 9,126
     Depreciation                                     6,302
     Interest (other than mortgage)                     186
     Office expenses                                 10,032
     Taxes & licenses                                 1,510
     Travel                                           9,628
     Meals & entertainment                              189
     Utilities                                        2,048
     Other expenses                                   2,707
     Expenses (business use of home)                  2,007
        Total                                       $43,735
     Negative Schedule C gross income                   500
        Total                                       $44,235


     In the notice of deficiency, respondent disallowed $47,299

of the $50,312 in deductions claimed on the 1999 Schedule C.    For

the year 2000, respondent disallowed the $1,700 adjustment for

cost of goods sold,5 which petitioner conceded at trial, and


     5
        At trial, the parties settled the Schedule D adjustment for
1999.    On their return, petitioners reported capital gain income
                                                     (continued...)
                               - 8 -

$39,193 of the $43,735 in deductions claimed on Schedule C for

that year.   The amounts that respondent did not disallow were

allowed as Schedule A, Itemized Deductions.

     On the 1999 return, petitioners reported capital gain income

of $8,853; however, no Schedule D, Capital Gains and Losses,

accompanied the return.   Respondent determined that petitioners

realized $30,270 in capital gains; however, at trial, the parties

settled this issue with petitioners’ conceding capital gains of

$21,417 for 1999.

     For the 2 years at issue, petitioners claimed Schedule A

deductions of $28,331 for 1999 and $36,950 for 2000.   Respondent

disallowed $9,253 and $13,435 of these deductions, respectively,

for 1999 and 2000.   Some of the adjustments were computational,

based on other adjustments, and others were disallowed for lack

of substantiation.   Still other adjustments, as noted earlier,

included allowance of some of the amounts disallowed as Schedule

C deductions.   Finally, miscellaneous itemized deductions of

$16,310 on the 2000 return were reduced to $12,581 for lack of

substantiation.

     On Schedule C for petitioners’ 1999 and 2000 tax years,

respondent determined that a considerable portion of the claimed



     5
      (...continued)
of $8,853. In the notice of deficiency, respondent determined
the capital gains income was $30,270. At trial, the parties
settled that issue for the amount of $21,417.
                                - 9 -

deductions were for essentially personal expenses that did not

constitute trade or business expenses.    Some of the claimed

deductions were for job search expenses, which respondent

disallowed.   To the extent any of the Schedule C deductions were

allowed, they were allowed as miscellaneous itemized deductions

on Schedule A of the returns.

     Petitioners contend that the disallowed Schedule C

deductions were all for job search expenses.    In auditing

petitioners’ returns for the 2 years at issue, respondent

determined that the expenses deducted for the 2 years at issue

were essentially and primarily personal expenses.    For example,

the Schedule C for 1999 included expenses incurred by petitioners

in the use of their motor home beginning in January through mid-

April to various places in the West and Southwest.    Petitioners

contend these were job search expenses.    Petitioner did have

between 15 and 20 interviews with doctors and at hospitals,

although no offers of employment were ever made.    Petitioner’s

journey in quest of a job included San Diego, California,

Arizona, Nevada, and the Oregon coast.    The trip, however,

included visits to vineyards and wine tasting in California, Sea

World at San Diego, the Grand Canyon in Arizona, other tourist

attractions, and a sister at Scappore, Oregon.    During the year

2000, petitioners took another extended excursion in their motor

home to New England, including Burlington, Vermont; Niagra Falls,
                              - 10 -

New York; New Hampshire; Massachusetts; and Connecticut.    These

trips included visits to Bozeman, Montana, where petitioner’s son

lived, to Missoula, Montana, where petitioner’s daughter lived,

and to Park City, Montana, where Mrs. Story’s three children

lived.   Petitioners also visited other relatives in Virginia

Beach, Virginia.   Despite the obvious personal nature of these

excursions, petitioner contends, nonetheless, that these trips

were principally in search of a job.    All expenses relating to

these trips were deducted as Schedule C trade or business

expenses for the 2 years in question.

     Respondent’s position is that, because petitioner realized

no income from his claimed activity for the 2 years at issue, he

was not engaged in a trade or business; therefore, none of the

Schedule C expenses are deductible as trade or business expense,

and, to the extent that any of the claimed expenses were

deductible, an appropriate allowance was made for such expenses

as itemized deductions.   The Court further notes that none of the

job search expenses claimed related to a relocation of

petitioner’s claimed self-employment medical/legal consultation

activity.   All of the job searching endeavors were directed to

petitioner’s employee status as a medical doctor.

     The Court agrees with respondent’s argument.   The law is

well settled that a business is a course of activities engaged in

for profit.   Activities that are for a purpose other than profit
                              - 11 -

do not evidence business engagement.     Indus. Research Prods.,

Inc. v. Commissioner, 40 T.C. 578 (1963).    In Evan v.

Commissioner, T.C. Memo. 2004-180, the Court disallowed

deductions claimed for Schedule C business expenses where the

only income realized was from an employment relationship and not

from a Schedule C trade or business.

     The Court rejects petitioner’s argument that his salary from

the V.A. should be aggregated or attributed to his Schedule C

activities as a counterargument to respondent’s determination

that, because there was no trade or business income, the expenses

related thereto are not deductible.    Petitioners cited no

authority to support this argument.    Petitioner was an employee

of the V.A., and, as such, his wages or salary were subject to a

treatment different from income from or losses from a self-

employed trade or business activity.    As an employee with the

V.A., he was issued Forms W-2, Wage and Tax Statement, which

reflected deductions for Social Security taxes and other

deductions that would not be applicable in a self-employed

activity.   The Court, therefore, rejects that argument.   An

employer-employee relationship is not a self-employment activity.

     The Court finally considers whether petitioners are entitled

to deductions for job search expenses.    Such expenses were

claimed by petitioner as Schedule C trade or business expenses.

However, it is obvious, as noted earlier, that, if petitioner was
                              - 12 -

in fact seeking a job, it was not in connection with his claimed

self-employment activity.   All of the interviews petitioner had

related to the practice of medicine, as an employee.    Therefore,

to the extent petitioner incurred any job search expenses, those

expenses would not be a Schedule C trade or business expense.

The expense would be an employee business expense that would be

claimed on Schedule A of the tax return.

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

business expenses.   It is recognized that such deductible

expenses include those incurred searching for new employment in

the employee’s same trade or business.     Cremona v. Commissioner,

58 T.C. 219 (1972); Primuth v. Commissioner, 54 T.C. 374 (1970).

The evidence in this case shows that petitioner was interviewed

on several occasions for employment as a medical doctor (and not

as an unpaid consultant/adviser).   As also noted and described,

petitioner’s job search consisted of two extended trips he and

his wife took, by mobile home, during 1999 and 2000, which

included essentially the east and west coasts of the United

States.   On each of these trips, petitioners visited members of

their families and numerous tourist attractions.    The job

interviews petitioner had were, in the Court’s view, incidental

to the main purpose of the trips--to visit family and tourist

attractions.   Petitioners essentially took a vacation and claimed

the expenses as tax deductions.   The regulations provide that
                              - 13 -

travel expenses are deductible only if the travel is related

primarily to the taxpayer’s business.   Sec. 1.162-2(b)(1), Income

Tax Regs.   An important factor in this regard is the amount of

time spent on personal activities compared to the time spent on

activities related to the taxpayer’s trade or business.   Sec.

1.162-2(b)(2), Income Tax Regs.   The Court holds that the

expenses deducted by petitioners in this regard do not meet the

tests of section 1.162-2(b)(1), Income Tax Regs.   Petitioners’

trips were primarily personal, and the job interviews petitioner

had while on these trips were incidental and not the primary

reason for the trips.   Petitioners, therefore, are not entitled

to job searching expenses in excess of any amounts that may have

been allowed by respondent.

     As noted earlier, respondent made several concessions.

Those concessions and the amounts are highlighted in respondent’s

Brief in Answer, which was filed by respondent after trial.

Those concessions will be reflected in the decision to be

entered.

     Reviewed and adopted as the report of the Small Tax Case

Division.



                                        Decision will be entered

                                    under Rule 155.
