                   T.C. Summary Opinion 2006-4



                     UNITED STATES TAX COURT



               WALTER MICHAEL ALLEY, Petitioner v.
          COMMISSIONER OF INTERNAL REVENUE, Respondent



     Docket No. 20484-03S.              Filed January 19, 2006.


     Walter Michael Alley, pro se.

     James E. Cannon, for respondent.



     GOLDBERG, 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.    The decision to be

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

should not be cited as authority.    Unless otherwise indicated,

subsequent section references are to the Internal Revenue Code in

effect for the years in issue, and all Rule references are to the

Tax Court Rules of Practice and Procedure.
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     Respondent determined deficiencies in petitioner’s Federal

income taxes of $6,513 and $5,753 for the taxable years 2000 and

2001, respectively.   Additionally, respondent determined an

addition to tax of $654 pursuant to section 6651(a) for the

taxable year 2000.

     After concessions,1 the issue still in dispute is whether

petitioner’s stipulated truck expenses of $12,757 and $12,657 for

taxable years 2000 and 2001, respectively, should be reported on

petitioner’s Schedule A, Itemized Deductions, and therefore be

subject to the 2-percent floor of section 67, or whether such

expenses were a result of an independent trade or business and

therefore should be reported on a Schedule C, Profit or Loss From

Business.

                            Background

     Some of the facts have been stipulated and are so found.

The stipulation of facts and the attached exhibits are

incorporated herein by this reference.   Petitioner resided in


     1
      At trial, the parties agreed: (1) With respect to the 2000
tax year, petitioner is entitled to an itemized deduction for
unreimbursed employee business expenses of $24,921, which is
subject to the 2-percent floor of sec. 67; (2) with respect to
the 2001 tax year, petitioner is entitled to an itemized
deduction for unreimbursed employee business expenses of $23,487,
which is subject to the 2-percent floor of sec. 67; (3) with
respect to the 2000 tax year, petitioner substantiated truck
expenses of $12,757; (4) with respect to the 2001 tax year,
petitioner substantiated truck expenses of $12,657; and (5) that
petitioner’s 2000 Federal income tax return was delinquent and
thus petitioner is liable for the addition to tax of $654
pursuant to sec. 6651(a).
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Farmington, New Mexico, on the date the petition was filed in

this case.

      During taxable years 2000 and 2001, petitioner was employed

by Pacific Industrial Electric, Inc. (Pacific) as a field

superintendent.    As field superintendent, petitioner was

responsible for all aspects of total on-site job management and

supervision.    Petitioner’s duties included but were not limited

to:   personnel supervision, work assignments, work schedule

management, materials ordering, materials management, customer

and inspector interaction, and tool and equipment management.

      Pacific did not have a formal written expense reimbursement

policy during taxable years 2000 and 2001.    However, Pacific’s

verbal reimbursement policy, as relevant in the present case, was

to pay every employee $25 per day for the use of a personal

vehicle while driving on corporate business.

      During taxable year 2000, petitioner used his personal

vehicle, a Ford pickup truck, for 135 days while driving on

business.    In accordance with Pacific’s verbal reimbursement

policy, petitioner received payments from Pacific totaling $3,375

for the taxable year 2000.

      During taxable year 2001, petitioner used his personal

vehicle for 282 days while driving on business.    Again, in

accordance with Pacific’s verbal reimbursement policy, petitioner
                                   - 4 -

received payments from Pacific totaling $7,050 for the taxable

year 2001.

     Petitioner delinquently filed his taxable year 2000 Form

1040, U.S. Individual Income Tax Return, on April 19, 2002.2

Petitioner timely filed his taxable year 2001 Form 1040 on April

15, 2002.

     Petitioner attached to his 2000 Federal income tax return a

Schedule C.       On his Schedule C for taxable year 2000, petitioner

listed as his principal business or profession:      “Truck Lease”.

Petitioner reported $3,3753 of business income on his Schedule C

for taxable year 2000 and deducted $16,059 in business expenses.

This resulted in a reported business loss in the amount of

$12,684.    Petitioner’s Schedule C business expenses were as

follows:

     Line   10      Car and truck expenses             $12,757
     Line   16b     Interest: Other (Auto loan)            230
     Line   21      Repairs and maintenance              2,892
     Line   23      Taxes and licenses                      45
     Line   27      Other expenses                         135
     Line   28      Total expenses                     $16,059

     Petitioner attached to his 2001 Federal income tax return a

Schedule C.       On his Schedule C for taxable year 2001 petitioner


     2
      As previously noted, petitioner stipulated that his Form
1040 for taxable year 2000 was filed delinquently and conceded
the addition to tax of $654 pursuant to sec. 6651(a).
     3
      This amount represents the payments received by petitioner
from Pacific for the use of his personal vehicle in furtherance
of Pacific’s business.
                                 - 5 -

listed as his principal business or profession:   “Truck Lease”.

Petitioner reported $7,0504 of business income on his Schedule C

for taxable year 2001 and deducted $16,107 in business expenses.

This resulted in a reported business loss in the amount of

$9,057.    Petitioner’s Schedule C business expenses were as

follows:

     Line   10    Car and truck expenses            $12,657
     Line   16    Insurance (other than health)         867
     Line   16b   Interest: Other (Auto loan)           559
     Line   21    Repairs and maintenance               904
     Line   23    Taxes and licenses                    985
     Line   27    Other expenses                        135
     Line   28    Total expenses                    $16,107

     On October 31, 2003, respondent issued a notice of

deficiency to petitioner for the 2000 and 2001 taxable years.    In

the notice of deficiency, respondent denied petitioner the

reported business losses from his alleged trade or business for

both taxable years 2000 and 2001 and disallowed all Schedule C

claimed deductions.5




     4
      As previously noted, this amount represents the payments
received by petitioner from Pacific for the use of his personal
vehicle in furtherance of Pacific’s business.
     5
      As previously noted, the parties have agreed that
petitioner incurred truck expenses of $12,757 and $12,657 for the
taxable years 2000 and 2001, respectively.
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                             Discussion6

     As previously stated, on his Schedule C for taxable years

2000 and 2001 petitioner deducted business expenses of $16,059

and $16,107, respectively.   The parties agreed, at trial, that

petitioner substantiated truck expenses of $12,757 and $12,657

for the taxable years 2000 and 2001, respectively.

     As we understand it, petitioner’s principal contention is

that he was individually and independently in the business of

leasing his truck to his employer, and that the agreed-upon

expenses incurred for maintenance and repairs of his truck were

deductible as ordinary and necessary expenses of conducting that

business and thus were above-the-line Schedule C deductions.

     On the other hand, respondent contends that the agreed-upon

expenses are deductible as unreimbursed employee business

expenses and thus are itemized deductions subject to the 2-

percent floor of section 67.

     It is well established that a taxpayer is engaged in a trade

or business if the taxpayer is involved in the activity (1) with

continuity and regularity, and (2) with the primary purpose of

making a profit.   Commissioner v. Groetzinger, 480 U.S. 23, 35

(1987); Antonides v. Commissioner, 893 F.2d 656, 659 (4th Cir.


     6
      We decide the issue 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).
                               - 7 -

1990), affg. 91 T.C. 686 (1988).   Petitioner has the burden of

proving that he was engaged in a trade or business.   Rule 142(a);

INDOPCO, Inc. v. Commissioner, 503 U.S. 79, 84 (1992); New

Colonial Ice Co. v. Helvering, 292 U.S. 435, 440 (1934); Welch v.

Helvering, 290 U.S. 111 (1933).

     This Court in Kurkjian v. Commissioner, 65 T.C. 862, 868

(1976) (quoting Hirsch v. Commissioner, 315 F.2d 731, 736 (9th

Cir. 1963), affg. T.C. Memo. 1961-256), stated:

          From the very import of Section 23 [referring to sec.
     23(a)(1)(A), the 1939 Code predecessor of sec. 162(a)],
     which presupposes that the taxpayer has received taxable
     income before deductions can be taken therefrom, it is clear
     that Congress intended that the profit or income motive must
     first be present in and dominate any taxpayer’s “trade or
     business” before deductions may be taken. While the
     expectation of the taxpayer need not be reasonable, and
     immediate profit from the business is not necessary,
     nevertheless, the basic and dominant intent behind the
     taxpayer’s activities, out of which the claimed expenses or
     debts were incurred, must be ultimately to make a profit or
     income from those very same activities. * * * Absent that
     basic and dominant motive, the taxpayer’s activities, no
     matter how intensive, extensive or expensive, have not been
     construed by the Courts as carrying on a trade or business
     within the purview of Section 23. * * *

We therefore must determine whether petitioner entered into a

lease with his employer and, if so, whether petitioner entered

into said lease with the intent to make a profit.

     During taxable years 2000 and 2001, petitioner did not lease

any other vehicles.   Petitioner testified:   (1) He did not try to

lease his truck to any other individual; and (2) there was no

formal written lease between himself and his employer.
                                - 8 -

Furthermore, petitioner did not negotiate leasing terms with his

employer; instead, he was paid a flat rate of $25 per day for the

use of his personal vehicle in furtherance of Pacific’s business.

The flat rate of $25 per day could be received by any employee of

Pacific who used his or her personal vehicle in furtherance of

Pacific’s business.

     Based upon on the record in this case, we conclude that

petitioner did not possess the required profit or income motive

when he used his personal vehicle in furtherance of Pacific’s

trade or business.    In fact, we find that petitioner did not

enter into any lease with his employer.    Further, we conclude

that petitioner’s use of his personal vehicle in furtherance of

Pacific’s trade or business was within the scope of his

activities as an employee of Pacific and that petitioner was not

individually and independently in the business of leasing his

truck to his employer.

     It is clear that an individual may be in the trade or

business of being an employee and that ordinary and necessary

expenses incurred in that trade or business are deductible under

section 162.   See sec. 1.162-17(a), Income Tax Regs.   Section

162(a) allows a taxpayer to deduct all ordinary and necessary

business expenses paid or incurred during the taxable year in

carrying on a trade or business.    To be “necessary” an expense

must be “appropriate and helpful” to the taxpayer’s business.
                               - 9 -

Welch v. Helvering, supra at 113-114.     To be “ordinary” the

transaction which gives rise to the expense must be of a common

or frequent occurrence in the type of business involved.      Deputy

v. Du Pont, 308 U.S. 488, 495 (1940).

     We hold that the agreed-upon expenses of $12,757 and $12,657

for taxable years 2000 and 2001, respectively, are unreimbursed

employee business expenses properly deducted on Schedule A and

thus are itemized deductions subject to the 2-percent floor of

section 67.

     In view of the foregoing, we sustain respondent’s

determination on this issue.

     Reviewed and adopted as the report of the Small Tax Case

Division.

                                       Decision will be entered

                               under Rule 155.
