                  T.C. Summary Opinion 2009-17


                      UNITED STATES TAX COURT



                JOSEPH H. SCHENKER, Petitioner v.
          COMMISSIONER OF INTERNAL REVENUE, Respondent



     Docket No. 5755-07S.                 Filed January 29, 2009.



     Joseph H. Schenker, pro se.

     Elizabeth Martini, 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.   Pursuant to section

7463(b), the decision to be entered is not reviewable by any

other court, and this opinion shall not be treated as precedent

for any other case.   Unless otherwise indicated, subsequent

section references are to the Internal Revenue Code (Code) in
                                - 2 -

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

Tax Court Rules of Practice and Procedure.

     The issue for decision is whether petitioner was engaged in

a trade or business during 2003, 2004, and 2005 which would allow

him to deduct expenses claimed on Schedule C, Profit or Loss From

Business, for these years.   If petitioner was not engaged in a

trade or business, then a second issue for decision arises as to

whether petitioner is entitled to deduct those expenses under any

other provisions of the Code.

                             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 New

York State when he filed his petition.

     After graduating from the Talmudical Academy of Baltimore,

Maryland, petitioner studied at and received his rabbinical

ordination from Hebron Yeshiva Knesset Israel (Hebron Yeshiva) in

Jerusalem, Israel.1   A yeshiva is a rabbinical seminary.

     1
      The prestigious Hebron (spelled alternately as Hevron or
Chevron on many documents depending on the translation from
Hebrew to English) Yeshiva originated in the 1800s in Slabodka,
Lithuania. Following the tumultuous aftermath of World War I,
the yeshiva relocated to Hebron in Palestine, which was then
under a British Mandate. In August 1929 many members of the
Hebron Jewish community, including teachers and students of the
yeshiva, were killed in a massacre. The yeshiva resettled in the
Geula section of Jerusalem and formally renamed the school the
“Hebron Yeshiva Knesset Israel” in memory of the students and
                                                   (continued...)
                               - 3 -

Petitioner returned to the United States, where he earned a

bachelor’s degree in economics from Queens College in New York

and a master’s degree in educational research from City College

in New York.   Following a brief stint as a Talmud teacher at a

yeshiva in Miami, Florida, petitioner returned to the City

College of New York, where he worked for many years in the

educational research field.   Then he rejoined the Talmudical

Academy of Baltimore as a fundraiser.

     On or about August 29, 1988, petitioner signed an employment

contract with Rabbi Chevroni, the administrator of Givat

Mordechai.   The contract called for petitioner to serve a 6-month

trial period starting September 1, 1988, as full-time executive

director of Hebron Yeshiva’s New York City office.   The New York

office has the official name “American Friends of Hebron Yeshiva

in Jerusalem, Inc.” (American Friends).   The contract stated that

petitioner’s official title was “President of the Friends of the

Yeshiva in America”, and that his principal responsibilities were

to oversee office functions such as collection, donor mailing

lists, and bookkeeping and to raise funds from supporters in the


     1
      (...continued)
teachers who died there. Because of its location, the yeshiva
became known as Hebron Yeshiva Geula (Geula). Because of its
growth, around 1975 Hebron Yeshiva opened a second, more spacious
location in the Givat Mordechai section of Jerusalem. This
second location became known as Hebron Yeshiva Givat Mordechai
(Givat Mordechai) and left Hebron Yeshiva with two branches,
Geula and Givat Mordechai, operating under one charter.
                                - 4 -

United States and Canada.   The pay was $45,000 per year.

Petitioner, in addition to his salary, was to receive 15 percent

of all income arising from new contributors to the Yeshiva that

he brought in personally.   The percentage was reduced to 10

percent if the contributor earmarked the donation for the

building fund and gave more than $100,000.

     Earlier, two American sisters from Titusville, Pennsylvania,

Rebecca and Mirrel Davis, created sizable charitable trusts

through their wills.   Each sister directed that Hebron Yeshiva

was to receive 19 percent of the trust’s annual income.

Petitioner learned of the sisters’ trusts through his position

with American Friends.

     After Hebron Yeshiva established a second campus, Givat

Mordechai’s enrollment grew rapidly.    The record is not clear

about the ensuing events, but it appears that the leader of

Geula, Rabbi Sarna, and the leader of Givat Mordechai, Rabbi

Chevroni, had a dispute.    Rabbi Sarna and Rabbi Chevroni tried to

find a solution, but eventually, they went to a religious court

to resolve the matter.   Apparently, the religious court suggested

that they dissolve the unified charter, operate under separate

names, and seek civil arbitration to divide the assets and

income.

     In November 1990 for unknown reasons Rabbi Chevroni

terminated petitioner’s job with American Friends.    Petitioner,
                                 - 5 -

with his knowledge as the former director, approached Rabbi Sarna

and offered to provide information that might be valuable in the

arbitration.    On or about December 26, 1990, petitioner signed a

contract drafted by Rabbi Sarna.    The contract stated that

petitioner would have available certain information related to

American Friends’ assets, donor mailing lists, and transfers to

Hebron Yeshiva.

     As compensation for the information, the contract called for

petitioner to receive one of three percentages depending on the

reaction of Rabbi Chevroni to Rabbi Sarna’s contract with

petitioner.    If the contract caused Rabbi Chevroni to provide

previously undisclosed information to the arbitrator, then

petitioner would receive 15 percent of the amount that Geula

received over 5 years as a result of the arbitrator’s decision.

However, if Rabbi Chevroni was not forthcoming and Rabbi Sarna

needed petitioner’s information, then petitioner’s percentage

would be 30 percent.    Finally, if Rabbi Chevroni offered Geula a

fixed annual payment and Geula did not need to contact the donors

on the American Friends’ mailing lists, then petitioner’s

percentage would be one-third.    The contract also provided that

if Rabbi Sarna and petitioner were to have any other joint

projects in the future, then at that time they would agree on

petitioner’s compensation for such cooperation.
                                 - 6 -

     It turned out that Rabbi Sarna did need and petitioner did

furnish valuable information, such as donor lists and funding

figures from American Friends.    Apparently, at some point

afterwards the leadership of the two branches formally dissolved

the parent corporation through Israel’s Registrar of Corporations

and officially established two separate entities: “Hebron Yeshiva

Guela” and “Hebron Yeshiva Knesset Israel--Givat Mordechai”.    The

leaders also apparently agreed to divide donations and perhaps

certain assets, in a ratio of 70 percent to Givat Mordechai and

30 percent to Geula.

     Petitioner, who was living in Brooklyn and who was now out

of a job, tried his hand as an independent mortgage broker.     In

1990 he paid $5,200 to buy a one-bedroom cooperative (co-op)

apartment on the Upper West Side of Manhattan.    Around 1994

petitioner also entered into an oral agreement with Rabbi Sarna

to raise funds for Geula in exchange for one-third of the

donations he generated.   On occasion, petitioner would meet with

mortgage clients and fundraising donors at the co-op apartment,

but more often he would go to the client’s or donor’s location.

He would also call donors and read the New York Times for leads.

Intermittently, Rabbi Sarna would visit the United States,

sometimes for up to 6 to 7 weeks to meet with people and help

with fundraising.   Very often on these visits Rabbi Sarna would

stay at petitioner’s co-op apartment.    Petitioner did not charge
                                - 7 -

him rent.    Apparently, at some point petitioner began to include

a Schedule C with his annual income tax return to claim business

deductions for expenses related to his mortgage activities,

fundraising efforts, and co-op apartment.

     In 1998 petitioner began working full time for the New York

City Department of Finance, where he continues to work full time

to date.    Even though petitioner’s mortgage efforts ended

sometime during the first half of 2003, petitioner continued to

deduct apartment and other expenses on Schedules C through the

end of 2005.    He did not list a business name, principal

activity, or business code on the Schedules C.     Petitioner

generated donations to Geula of about $40,000, $25,000, and zero

in 2003, 2004, and 2005, respectively.     In 2003 petitioner

traveled to and stayed in Israel for 13 days, during which time

he met with Rabbi Sarna and other leaders at Geula to discuss

fundraising.    Petitioner deducted the cost of the trip on the

2003 Schedule C.

     By this time, unfortunately for petitioner, he still had not

received a penny from Geula, either under the contract or for his

subsequent fundraising activities.      Petitioner did not press his

claim because he assumed the payments would be forthcoming after

Geula started receiving funds under the agreement to split income

30/70 with Givat Mordechai.    However, in 2003 Rabbi Sarna

indicated to petitioner that Geula would not pay him for prior
                                 - 8 -

years.   In February 2004 petitioner traveled again to Israel,

this time staying for 12 days.    He confronted Rabbi Sarna

regarding payment under the contract.       Petitioner received no

payment or commitment from Rabbi Sarna.       As a consequence, before

returning home petitioner met with and engaged an Israeli law

firm to sue Geula and Rabbi Sarna.       Petitioner deducted the

travel expenses related to the 2004 trip on Schedule C.

     After returning to New York, petitioner continued to

fundraise intermittently for Guela because he wanted to maintain

his relationship with the institution during the litigation.

However, petitioner stopped fundraising completely by the spring

of 2005, and in late October 2005 petitioner moved out of

Brooklyn and into the co-op apartment.       After October 2005

petitioner stopped claiming Schedule C deductions for apartment

expenses.

     In May 2007 the initial phase of his Israeli litigation

concluded when the District Court of Jerusalem, Israel, ruled

that petitioner was entitled to receive 7 percent of the sums

that Geula was to receive over a 5-year period from Givat

Mordechai.   Because petitioner was dissatisfied with the judicial

decision of what he believed was an unfairly low percentage, he

appealed to the Israeli Supreme Court.

     Around December 2007 a few days after a pretrial conference

with a justice of the Israeli Supreme Court, petitioner and Rabbi
                                - 9 -

Sarna reached a settlement.   They agreed petitioner is to receive

“12 percent of all monies from the Sisters’ Fund to be obtained

by Hebron Yeshiva Geula, dating on a yearly basis, back to 1986

and from the date the first monies are received for the next 5

years--22.5 percent”.   From 1986 to 2003 Givat Mordechai received

about $10 million in donations through American Friends, of which

it owes Geula about $3 million.

     The record is not clear as to the source of the donations

and whether the percentages in the settlement refer solely to

donations from the sisters’ trusts or to all funds Geula is to

receive from Givat Mordechai.    Before the settlement,

petitioner’s Israeli attorney estimated petitioner could receive

a judgment between $200,000 to $250,000.    After the settlement

petitioner estimated Geula owed him more than $400,000.     Through

the date of trial in February 2008 petitioner still had not

received any payment from Geula.

     Petitioner timely filed his 2003 through 2005 Federal income

tax returns.   He reported the following taxable income:

                                   2003     2004          2005

   Wages                        $57,409    $67,925    $71,382
   State tax refund               2,039      4,295      3,258
   Business income/(loss)       (36,509)   (27,373)   (26,327)
   Pension distribution           1,731      1,303      1,700
     Adjusted gross income       24,670     46,150     50,013
   Itemized deductions            7,973     10,159      9,853
   Personal exemption             3,050      3,100      3,200
     Taxable income              13,647     32,891     36,960
                                  - 10 -

     The detail for each Schedule C, is as follows:

                                      2003       2004       2005

  Income                              -0-         -0-        -0-
  expenses:
  Advertising                        $300          -0-       -0-
  Legal fees                          -0-      $6,000     $7,800
  Medical expenses                  2,870          -0-     3,212
  Mortgage interest                   254          183       172
  NYCERS pension buyback           18,456          -0-     2,380
  Real estate taxes                   823          -0-       642
  Travel                            1,740        1,650       -0-
                                               1
  Other expenses:                     N/A        2,774       N/A
    Apt. maintenance fees           9,544        9,544    10,470
    Newspapers, magazines             340          N/A       -0-
     Telephone                      1,483          N/A       652
  Petitioner discrepancy2             699        7,222       999
  Profit/(loss)                   (36,509)    (27,373)   (26,327)
            1
           For 2004 the Court received a transcript of
     petitioner’s account instead of a tax return. As a result,
     no breakout was available of petitioner’s “Other expenses”,
     which the transcript reported as $12,318. However, the
     stipulation of facts states that petitioner deducted $9,544
     in apartment maintenance fees, leaving $2,774 as “Other
     expenses”.
            2
           Petitioner prepared his tax returns manually. In each
     year the sum of the individual expenses did not add up to
     and were less than the total amount of expenses that
     petitioner reported on Schedule C. Petitioner did not
     explain the discrepancies.

     Respondent audited petitioner’s tax returns for 2003 through

2005 and determined that petitioner’s fundraising and other

activities did not rise to the level of an active trade or

business.       Consequently, respondent disallowed petitioner’s

Schedule C deductions.       Respondent, however, allowed petitioner’s
                              - 11 -

deductions for mortgage interest and real estate taxes on

Schedule A, Itemized Deductions.

     As a result of all of the above adjustments, respondent

issued a notice of deficiency dated December 15, 2006,

determining deficiencies of $7,410, $6,638, and $6,375 in

petitioner’s Federal income taxes for 2003, 2004, and 2005,

respectively.2   Petitioner timely petitioned this Court seeking

allowance of his Schedule C deductions.

                            Discussion

     In general, the Commissioner’s determination set forth in a

notice of deficiency is presumed correct, and the taxpayer bears

the burden of showing that the determination is in error.     Rule

142(a)(1); Welch v. Helvering, 290 U.S. 111, 115 (1933).     Under

section 7491(a), a taxpayer may shift the burden to the

Commissioner regarding factual matters if the taxpayer produces

credible evidence and meets the other requirements of the

section.   Petitioner has not raised the burden of proof as an

issue, and therefore, the burden remains with petitioner.

     Deductions are a matter of legislative grace, and the

taxpayer bears the burden of proving his entitlement to a

deduction.   INDOPCO, Inc. v. Commissioner, 503 U.S. 79, 84

(1992); New Colonial Ice Co. v. Helvering, 292 U.S. 435, 440



     2
      The Court rounded all dollar amounts in this opinion to the
nearest dollar.
                                - 12 -

(1934).   Section 6001 requires taxpayers to maintain records

sufficient to establish the amount of each deduction.     See also

sec. 1.6001-1(a), (e), Income Tax Regs.     Taxpayers may deduct

only the business expenses that they can substantiate.       Ronnen v.

Commissioner, 90 T.C. 74, 102 (1988).

     A taxpayer may deduct ordinary and necessary expenses that

he pays in connection with the operation of a trade or business.

Sec. 162(a); Boyd v. Commissioner, 122 T.C. 305, 313 (2004).       To

be “ordinary” 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).     To be “necessary” an expense must be

“appropriate and helpful” to the taxpayer’s business.        Welch v.

Helvering, supra at 113.     Additionally, the expenditure must be

“directly connected with or pertaining to the taxpayer’s trade or

business”.   Sec. 1.162-1(a), Income Tax Regs.    Section 262(a)

disallows deductions for personal, living, or family expenses.

     If a taxpayer establishes that an expense is deductible but

is unable to substantiate the precise amount, we may estimate the

amount, bearing heavily against the taxpayer whose inexactitude

is of his own making.     Cohan v. Commissioner, 39 F.2d 540, 543-

544 (2d Cir. 1930).     However, the taxpayer must present

sufficient evidence for the Court to form an estimate because

without such a basis, any allowance would amount to unguided
                                - 13 -

largesse.    Williams v. United States, 245 F.2d 559, 560-561 (5th

Cir. 1957); Vanicek v. Commissioner, 85 T.C. 731, 742-743 (1985).

I.   Whether Petitioner Was Engaged in a Trade or Business

      Respondent determined that petitioner was not engaged in

fundraising or any other activity sufficient to qualify the

expenses for 2003, 2004, and 2005 as section 162 business

deductions on Schedule C.

      To be engaged in a trade or business within the meaning of

section 162(a), an individual taxpayer must be involved in the

activity with continuity and regularity, and with the primary

purpose of deriving a profit.     Commissioner v. Groetzinger, 480

U.S. 23, 35 (1987); Ranciato v. Commissioner, 52 F.3d 23, 25 (2d

Cir. 1995), vacating and remanding T.C. Memo. 1993-536.    Whether

the taxpayer is carrying on a trade or business requires an

examination of all of the facts and circumstances in each case.

Commissioner v. Groetzinger, supra at 36; Ranciato v.

Commissioner, supra at 25.

      Although a reasonable expectation of a profit is not

required, the taxpayer’s profit objective must be actual and

honest.     Ranciato v. Commissioner, supra at 25; Dreicer v.

Commissioner, 78 T.C. 642, 644-645 (1982), affd. without

published opinion 702 F.2d 1205 (D.C. Cir. 1983); sec. 1.183-

2(a), Income Tax Regs.    Whether a taxpayer has an actual and

honest profit objective is a question of fact to be answered from
                                - 14 -

all of the relevant facts and circumstances.    Ranciato v.

Commissioner, supra at 26.     Hastings v. Commissioner, T.C. Memo.

2002-310; sec. 1.183-2(a), Income Tax Regs.

     The pertinent regulations set forth a nonexhaustive list of

factors that may be considered in deciding whether a profit

objective exists.   These factors include:   (1) The manner in

which the taxpayer carries on the activity, (2) the expertise of

the taxpayer or his advisers, (3) the time and effort the

taxpayer expended in carrying on the activity, (4) the taxpayer’s

expectation that assets he used in the activity would appreciate

in value, (5) the success of the taxpayer in carrying on other

similar or dissimilar activities, (6) the taxpayer’s history of

income or losses with respect to the activity, (7) the amount of

occasional profits, if any, which the taxpayer earned, (8) the

financial status of the taxpayer, and (9) the elements of

personal pleasure or recreation.     Golanty v. Commissioner, 72

T.C. 411, 426 (1979), affd. without published opinion 647 F.2d

170 (9th Cir. 1981); sec. 1.183-2(b), Income Tax Regs.    No single

factor or group of factors is determinative.     Golanty v.

Commissioner, supra at 426.    A final determination is made only

after a consideration of all of the relevant facts and

circumstances.

     Sometime during the first half of 2003 petitioner ended his

mortgage brokerage activity.    He did not receive any income from
                              - 15 -

the mortgage business during the years in dispute.    Therefore at

the outset we conclude on the basis of the above factors that

petitioner was not in the trade or business of being a mortgage

broker during the years at issue.

     Petitioner’s fundraising activities require greater

analysis.   Petitioner received no payments for his fundraising

efforts during 2003, 2004, or 2005.    Petitioner spent the bulk of

his working hours maintaining his full-time job with the city.

In 2003 petitioner’s fundraising efforts were infrequent and

petitioner did not conduct his efforts with the continuity or

regularity that section 162 requires.   Petitioner curtailed his

fundraising activities even further after February 2004 when he

started suing Geula and Rabbi Sarna, and he ceased fundraising

entirely by spring 2005.   Importantly, the law holds that a

sporadic activity does not qualify as a trade or business.

Commissioner v. Groetzinger, supra at 35.

     Petitioner has not established a profit objective for his

fundraising activity on behalf of Geula.    We observe that

petitioner did not receive any payment for his efforts during the

years at issue and that he did not conduct the activity on a

regular basis.   Further, petitioner, as a rabbi, may find it a

righteous deed to help Jewish causes and raise funds for his alma

mater.   Likewise, petitioner’s efforts in trying to gain payment

from the contract was not an ongoing trade or business within the
                                - 16 -

meaning of section 162 but rather was an activity that fits well

under the definition of section 212 as an endeavor petitioner

pursued for the collection of income due him.

      For all the foregoing reasons, we hold that petitioner’s

fundraising activity was not a trade or business during 2003

through 2005.    Although petitioner may not deduct his expenses as

section 162 trade or business expenses on Schedule C, other

sections allow deductions for some of the expenses as itemized

deductions on Schedule A.    We now discuss each of the disputed

expenses.

II.   Deductibility of Expenses

      A.    Advertising

      Petitioner sent a $300 check dated April 16, 2003, to his

synagogue in New York to display the name of his mortgage

business in an advertising brochure printed for the synagogue.

Instead, the synagogue listed petitioner’s personal name on a

one-page “Scroll of Honor” for a June 2003 luncheon.    Petitioner

deducted the $300 on Schedule C in 2003 as an advertising

expense.

      Because we have already concluded that petitioner was not in

the trade or business of mortgage brokering during 2003, he may

not deduct the payment as an “above the line” advertising

expense.     Similarly, because petitioner did not write the check

with detached and disinterested generosity, the payment is not
                              - 17 -

deductible as a Schedule A charitable contribution.    See Sklar v.

Commissioner, 125 T.C. 281, 291-292 (2005), affd. 549 F.3d 1252

(9th Cir. 2008).   If petitioner had received any income from his

mortgage activity, he would have had to report the income.

Therefore, petitioner may deduct the $300 as a section 212

miscellaneous itemized deduction incurred for the production of

income subject to the 2-percent floor that section 67(a) imposes

on section 212 expenses.

     B.   Legal Fees

     Petitioner deducted $6,000 and $7,800 for 2004 and 2005,

respectively, on Schedules C for payments to an Israeli law firm.

Petitioner had engaged the firm to press his legal claim against

Geula and Rabbi Sarna for payment under the contract.

Petitioner’s only substantiation for the expenses was a letter

from the Israeli law firm stating that pertaining to the

litigation, petitioner paid $7,000 in 2004 and $5,800 in 2005.

     Because petitioner’s litigation expenses arose from a

contract right generating income, he may deduct the legal fees

under section 212(1) as miscellaneous itemized deductions

incurred for the production or collection of income.    See United

States v. Gilmore, 372 U.S. 39, 48 (1963); Commissioner v.

Doering, 335 F.2d 738, 741 (2d Cir. 1964), affg. 39 T.C. 647

(1963).   Respondent acknowledged that petitioner’s legal fees are
                                - 18 -

deductible under section 212 but disallowed the deduction because

petitioner did not substantiate the fees.

     We find the law firm’s letter to be credible evidence, and

therefore we hold that petitioner may deduct the legal fees the

law firm reported, subject to the 2-percent limitation that

section 67(a) imposes on section 212 expenses.   See Knight v.

Commissioner, 552 U.S. __, __, 128 S. Ct. 782, 785 (2008); sec.

1.67-1T(a)(1)(ii) and (2), Temporary Income Tax Regs., 53 Fed.

Reg. 9875 (Mar. 28, 1988).

     C.   Medical Expenses

     Petitioner deducted $2,870 and $3,212 for 2003 and 2005,

respectively, on Schedules C for medical expenses.   He may have

also claimed medical expenses in 2004 on Schedule C which

respondent’s transcript may have included in “Other Expenses”, or

which petitioner may have included as part of the discrepancy in

adding up his total expenses.

     Section 213 permits a deduction for medical expenses that

taxpayers incur and which insurance does not cover, but only to

the extent that the expenses exceed 7.5 percent of the taxpayer’s

adjusted gross income.   Further, section 1.213-1(h), Income Tax

Regs., requires taxpayers to substantiate their medical expenses

by providing the names and addresses of the persons or

organizations to whom they made payment and the amounts and dates

of the payments.
                               - 19 -

     We have some leeway because of Cohan v. Commissioner, 39

F.2d 543-544 (2d Cir. 1930).   However, petitioner has not

provided doctors’ invoices, printouts from pharmacies, or any

other evidence from which we can form a reasonable estimate of

the expenses he paid.   Moreover, petitioner would have to

establish that his payments went for qualifying medical expenses

and that insurance did not cover or reimburse the payments.     For

the foregoing reasons, petitioner may not deduct medical expenses

for 2003, 2004, or 2005.

     D.   NYCERS Pension Buyback

     During 2003 and 2005 petitioner paid $18,456 and $2,380,

respectively, to “buy back” pension credits with the New York

City Employee Retirement System (NYCERS).   The buy back program

is an option for NYCERS members who previously worked for a

public employer within New York State and who at that time did

not participate in NYCERS.   Eligible members may buy pension

credits in NYCERS for their prior State employment.    Petitioner

funded his buy backs by writing a $16,784 check in 2003 and by

paying for the remaining 2003 and 2005 buy backs through payroll

withholdings.

     Petitioner makes two arguments to support the validity of

the deductions.   First, petitioner contends that his payments

should qualify as deductible employer contributions.   However, as

noted above, petitioner has not established that he was operating
                             - 20 -

a business during 2003 through 2005; and further, he made the

contributions as an employee of New York City, not as an

employer.

     Secondly, petitioner contends that the combination of the

following two sentences in NYCERS’s brochure Buy Back No. 901, at

2, disallows a deduction only when an employee pays for the buy

back through payroll withholdings:    (1) “Members generally have

three options to purchase Previous Service: lump sum, payroll

deductions, or roll over funds from a 457 or 403(b) Deferred

Compensation Plan”; and (2) “If you pay for your Previous Service

through payroll deductions, those deductions are subject to

Federal, State, and local income taxes.”   However, to the extent

that those sentences are relevant, they focus narrowly on the

taxation of payroll withholdings and do not overcome the broader

and more pertinent language in the brochure which states

explicitly that “There is no tax advantage to buying-back time.”

     Moreover, from a legal standpoint it is long settled that

employee contributions to a pension plan are not deductible under

section 162 (business expenses), section 212 (expenses for the

production of income), or any other section of the Code.    Miller

v. Commissioner, 144 F.2d 287 (4th Cir. 1944), affg. Taylor v.

Commissioner, 2 T.C. 267 (1943); Sims v. Commissioner, 72 T.C.

996, 1005 (1979); Davidson v. Commissioner, 42 T.C. 766, 769

(1964).
                                - 21 -

     The courts have held that two main reasons explain why

employee contributions are not deductible.     First, one can view

an employee’s contributions to a pension plan as a capital

contribution that the employee recovers without tax after he or

she begins to receive the pension benefit.     Sims v. Commissioner,

supra at 1005.     Secondly, if the contributions are an expense,

then they are a nondeductible section 262 payment for personal,

living, or family expenses.     Id.

     For all the foregoing reasons, petitioner may not deduct his

buy back payments.

     E.   Travel

     Petitioner deducted travel expenses of $1,740 and $1,650 for

13- and 12-day stays in Israel in April through May 2003 and in

February 2004, respectively.     These expenses consisted of $975

and $767 for airfare, respectively, with the remainder for each

year going to meals and incidentals which petitioner computed

using a per diem rate of approximately $50 per day.     Petitioner

testified that during the 2003 trip he discussed fundraising with

Rabbi Sarna and other leaders at Geula, and that during the 2004

trip he confronted Rabbi Sarna and engaged an Israeli law firm to

try to collect payment from the contract.     Because petitioner was

not engaged in the trade or business of fundraising during 2003

or 2004, none of the travel expenses are deductible as section

162 business expenses.     However, regarding the 2004 trip, we
                                - 22 -

discuss below whether the travel expenses are deductible under

section 212.

     Section 212 allows a deduction for travel expenses that

taxpayers incur for the production or collection of income;

however, section 274(d) requires substantiation before a

deduction can be allowed.    When a trip consists of personal and

business activities the taxpayer may deduct the travel expenses

only if the trip is related primarily to the business purpose,

which is a facts and circumstances inquiry.     Rudolph v. United

States, 370 U.S. 269, 275-276 (1962).    For travel outside the

United States, section 274(c)(1) generally disallows a deduction

for the portion of the expense that is not allocable to the

income-producing activity.    However, section 274(c)(2) provides

an exception to section 274(c)(1) if the trip qualifies under one

of two exceptions:   (A) The trip does not exceed 1 week, or (B)

the portion of the trip not attributable to the taxpayer’s

section 212 activities constitutes less than 25 percent of the

total time of the stay.     Hintze v. Commissioner, T.C. Memo.

2001-70.

     Regarding petitioner’s 2004 trip to Israel, we note that

because he is an Orthodox rabbi, and because he studied for and

received his ordination in Israel, he had religious and personal

reasons for visiting there.    Out of his 12 days in Israel, we

give petitioner the benefit of the doubt and estimate that he
                              - 23 -

spent 3 days (25 percent of his stay) discussing the 1990

contract with Rabbi Sarna and with the Israeli law firm.    Because

3 out of 12 days is well less than 75 percent of the time he

stayed in the country, petitioner’s 2004 trip was primarily

personal, and therefore, he may not deduct his airfare.

     However, under section 274(c)(1) the portion of his expenses

allocable to his section 212 activities may be deductible.     Sec.

274(c)(2).   The Commissioner, under authority of section 274(d),

issues annual revenue procedures that rely on monthly rates

published by the U.S. Department of State, Bureau of

Administration, to allow a combined per diem meal and incidental

rate for Jerusalem, Israel, of $84 per day for April and May

2003, as well as $84 per day for February 2004.   Johnson v.

Commissioner, 115 T.C. 210, 217 (2000); sec. 1.274-5(j), Income

Tax Regs.; Rev. Proc. 2002-63, 2002-2 C.B. 691 (for the 2003

trip); Rev. Proc. 2003-80, 2003-2 C.B. 1037 (for the 2004 trip).

Consequently, petitioner is entitled to a 2004 deduction for

meals and incidental expenses of $252 ($84 x 3 days), subject to

the 50-percent limitation on meals and entertainment that section

274(n) imposes, and subject to 2-percent floor that section 67(a)

imposes on section 212 expenses.   See Johnson v. Commissioner,

supra at 215.
                               - 24 -

     F.   Co-Op Apartment Maintenance Fees, Newspaper and Magazine
          Subscriptions, and Telephone Expenses

     On Schedules C for 2003, 2004, and 2005 petitioner deducted

$9,544, $9,544, and $10,470, respectively, for co-op maintenance

fees on his Upper West Side co-op apartment.    Likewise,

petitioner deducted $1,483 and $652 on Schedules C for telephone

service at the co-op apartment for 2003 and 2005, respectively.

Petitioner also deducted $340 on Schedule C for 2003 for a

subscription to the New York Times newspaper, and briefly, to New

York Magazine.    Petitioner testified that on occasion, he met

with potential donors at the apartment, Rabbi Sarna on occasion

stayed there, about 80 percent of the telephone usage was for

fundraising, and he read the newspaper for fundraising leads.

     Section 262(a) disallows a deduction for personal, living,

or family expenses.    The taxpayer bears the burden of proving

that an expense was for a business or income-producing purpose

rather than for personal reasons.    Walliser v. Commissioner, 72

T.C. 433, 437 (1979).    For an expense to be deductible, the

taxpayer must show that he incurred the expense primarily to

benefit his business, and the expense must have had a proximate

rather than a remote or incidental relationship to the taxpayer’s

business.   Id.

     Specifically, the purchase of general circulation newspapers

is a personal expense that taxpayers may not deduct.    Stemkowski

v. Commissioner, 690 F.2d 40 (2d Cir. 1982), affg. in part and
                              - 25 -

revg. in part 76 T.C. 252 (1981).    As to the telephone expenses,

petitioner moved into the co-op apartment in October 2005.

Because petitioner has not substantiated the pre-residential

income-producing use, the claimed deduction must be disallowed

under section 262(a).   Further, once the apartment became

petitioner’s residence near the end of 2005 the telephone

expenses would become subject to section 262(b), which disallows

a deduction with respect to the first telephone line to a

taxpayer’s residence.

     Moreover, as we have previously discussed, petitioner was

not conducting fundraising during 2003 through 2005 with

sufficient continuity and regularity to qualify his expenses as

deductible section 162 trade or business expenses on Schedules C.

Further, petitioner has not shown how these expenses are

proximately and not incidentally related to his attempts to

collect payment from the contract.

     For all the foregoing reasons, petitioner may not deduct the

apartment maintenance fees, telephone charges, or newspaper

subscriptions.

                            Conclusion

     To reflect our disposition of the issues,


                                           Decision will be entered

                                       under Rule 155.
