                       T.C. Memo. 2001-121



                     UNITED STATES TAX COURT



                   ERIN MULLIN, Petitioner v.
          COMMISSIONER OF INTERNAL REVENUE, Respondent



     Docket No. 16722-99.                      Filed May 23, 2001.




     Erin Mullin, pro se.

     G. Michelle Ferreira, for respondent.


                       MEMORANDUM OPINION

     CARLUZZO, Special Trial Judge:   Respondent determined a

deficiency of $1,436 in petitioner’s 1996 Federal income tax.

The issues for decision are whether petitioner is entitled to

trade or business expense deductions for:    (1) Home office

expenses, and (2) interest paid on student loans.
                                - 2 -

Background

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

At the time the petition was filed, petitioner resided in San

Francisco, California.

     Petitioner holds undergraduate and graduate degrees in

clinical psychology.    She received her bachelor’s degree from

Barnard College in 1987.    She received her master’s degree and

Ph.D. from the University of Michigan in 1990 and 1993,

respectively.

     From 1983 through 1993, she amassed over $40,000 in student

loans.   Approximately $15,000 of her student loans relate to the

educational expenses incurred for her bachelor’s and master’s

degrees.   The balance of the loans relate primarily to expenses

she incurred for personal therapy that she was required to take

as a Ph.D. candidate.    As of November 3, 1997, the outstanding

balance on her student loans was $41,700.69.    During 1996, she

paid $3,709.33 of interest on these loans.

     During 1996, petitioner was employed as a development

specialist by Bay Area Addiction and Treatment, Inc. in San

Francisco, California (the clinic).     Typically, she worked at the

clinic from Monday through Friday from 7:00 a.m. until 3:00 p.m.

The income she earned from the clinic is reported as wages on her

1996 Federal income tax return, and the expenses she incurred as

an employee of the clinic are deducted as miscellaneous expenses
                                - 3 -

on a Schedule A, Itemized Deductions, included with that return.

     In addition to her employment with the clinic, during 1996

petitioner also offered services as a clinical psychologist

through her private practice.    She met with her private-practice

patients two afternoons per week at an office that she rented for

that purpose in a commercial/medical building.    The income and

expenses (including the office rental expense) attributable to

her private practice are reported on a Schedule C, Profit or Loss

from Business, included with her 1996 return.

     During 1996, petitioner lived in a small (approximately 400

square feet) rented apartment in San Francisco (the apartment).

The only entry to the apartment is through a door that leads to a

short entryway.    There is a closet on the left of the entryway

and a bathroom on the right of the entryway.    The entryway opens

into an open area (approximately 13 feet by 15 feet) that is

furnished with at least a desk and a couch.    To the right of this

open area is a dining area and a kitchen (each approximately 7

feet by 8 feet).    Getting to the kitchen from the bathroom, and

vice versa, requires going through the dining area, the open area

adjacent to the entryway, and the entryway.

     Petitioner used the telephone in her apartment to schedule

appointments with, or otherwise speak to her private-practice

patients and professional colleagues.    She also maintained and
                               - 4 -

stored her business records and professional reading materials

there.   She did not meet with any of her patients at the

apartment.

     Petitioner’s 1996 Federal income tax return was timely

filed.   Various deductions claimed on her return were disallowed

by respondent in the notice of deficiency, but the parties are

now in agreement with respect to those adjustments.

Discussion

     Petitioner now claims that she is entitled to deductions for

one-quarter of the rent and utilities paid for the apartment (the

home office expenses) because she used the apartment for business

purposes in her private practice.   She also now claims that she

is entitled to a deduction for the interest paid during 1996

that relates to the portion of her student loan attributable to

obtaining her Ph.D.1 because that interest was paid in connection

with educational expenses that were deductible as trade or

business expenses.

  1. Deduction for Home Office Expenses

     During 1996, petitioner spoke over the telephone with

patients and professional colleagues from her apartment,

she scheduled appointments from her apartment, she maintained

and stored business records there, and she read professional



     1
       Petitioner estimates that 63 percent of the student loans
were made to obtain her Ph.D.
                               - 5 -

materials there.   She did not, however, meet with any of her

patients at the apartment.   She rented separate office space in a

commercial/medical building for that purpose.

     Section 162 generally allows a deduction for all ordinary

and necessary expenses paid or incurred during the taxable year

in carrying on a trade or business.2   Section 280A(a), however,

provides that deductions otherwise allowable to an individual are

generally not allowed with respect to the use of a dwelling unit

used by the individual as a residence during the taxable year.

Petitioner’s apartment, a “dwelling unit” for purposes of section

280A, was used as her residence during 1996.    Sec. 280A(d),

(f)(1).

     Exceptions to the general rule set forth in section 280A(a)

nevertheless permit a deduction if a portion of the residence is

“exclusively used on a regular basis” as either “the principal

place of business for any trade or business of the taxpayer,” or

“as a place of business which is used by patients * * * in

meeting or dealing with the taxpayer in the normal course of his

trade or business”.   Sec. 280A(c)(1)(A) and (B).   Given the size

and layout of petitioner’s apartment, we fail to see how any

portion of it could have been used “exclusively” for business




     2
       Unless otherwise indicated, section references are to the
Internal Revenue Code in effect for 1996, and Rule references are
to the Tax Court Rules of Practice and Procedure.
                               - 6 -

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

area of the apartment used for business purposes was also the

main passageway through the apartment.   Furthermore, we have

serious doubts whether petitioner’s apartment qualifies as the

principal place of her private practice.    See Commissioner v.

Soliman, 506 U.S. 168 (1993); Strohmaier v. Commissioner, 113

T.C. 106, 112-113 (1999).   Nor did petitioner use the apartment

to meet with her private-practice patients.    Consequently,

petitioner is not entitled to a deduction for the home office

expenses.

  2. Deduction for Interest on Student Loans

     During 1996, petitioner paid interest on student loans made

in connection with pursuing and obtaining her undergraduate and

graduate degrees.   She now claims that she is entitled to a

deduction for a portion of that interest.

     In general, there is “allowed as a deduction all interest

paid or accrued within the taxable year on indebtedness.”      Sec.

163(a).   Nevertheless, an individual is not entitled to a

deduction for personal interest.   See sec. 163(h).   Certain

interest, including “interest paid or accrued on indebtedness

properly allocable to a trade or business (other than a trade or

business of performing services as an employee)” is not personal
                                   - 7 -

interest.    Sec. 163(h)(2)(A).3    The deductibility as a business

expense of interest on a loan obtained for educational expenses

depends, at least in part, upon whether the educational expenses

themselves are deductible business expenses.         See Holmes v.

Commissioner, T.C. Memo. 1993-387.

     Petitioner has not established that any expenses she

incurred to obtain her Ph.D., which are, at least in part, the

expenses to which the student loan interest relates, were

deductible education expenses.      See sec. 1.162-5, Income Tax

Regs.    Consequently, she is not entitled to deduct as a trade or

business expense any portion of the interest paid in 1996 on her

outstanding student loans.    See Holmes v. Commissioner, supra.

     To reflect the foregoing and to take into account the

Stipulation of Settled Issues,

                                                Decision will be entered

                                           under Rule 155.




     3
       Sec. 221 allowing a deduction for interest paid on
educational loans was not in effect during the year in issue.
That section was added by the Taxpayer Relief Act of 1997, Pub.
L. 105-34, sec. 202(a), 111 Stat. 806, effective for interest
payments due and paid on any qualified education loan after
December 31, 1997. In addition, sec. 163(h)(2)(F) was added
later to clarify the fact that interest allowable as a deduction
under sec. 221 is not considered personal interest. See the
Omnibus Consolidated and Emergency Supplemental Appropriations
Act of 1999, Pub. L. 105-277, sec. 4003(a)(1), 112 Stat. 2681-
908, effective as if included in the 1997 Act.
