                  T.C. Summary Opinion 2003-29



                     UNITED STATES TAX COURT



           IRWIN AND JEANNINE RADNITZ, Petitioners v.
          COMMISSIONER OF INTERNAL REVENUE, Respondent



     Docket No. 2162-01S.                 Filed March 26, 2003.



     Irwin and Jeannine Radnitz, pro se.

     Jonathan H. Sloat, for respondent.



     COUVILLION, Special Trial Judge:     This case was heard

pursuant to section 7463 of the Internal Revenue Code in effect

at the time the petition was filed.1    The decision to be entered




     1
          Unless otherwise indicated, subsequent section
references are to the Internal Revenue Code in effect for the
years at issue. Rule references are to the Tax Court Rules of
Practice and Procedure.
                                - 2 -


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

be cited as authority.

     Respondent determined deficiencies in petitioners' Federal

income taxes of $799 and $1,536, respectively, for 1997 and 1998.

After concessions by respondent, the issues for decision are:

(1) Whether, under section 280A(c), petitioners are entitled to

deductions for office expenses for the years at issue in

connection with the use of their home and two rental apartments

in their respective trade or business activities in excess of

amounts allowed by respondent, and (2) whether section 280A(c)(5)

is unconstitutional as applied to petitioners.2

     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 San Luis Obispo, California.

     Petitioners were married during the years at issue.    From

January through August 1997, they resided at a Vista Loma address

in Rancho Mirage, California.   In August 1997, petitioners moved

from the Vista Loma address to a Deepak Street address in Palm

Springs, California.   Petitioners resided at the Deepak address



     2
          At trial, respondent conceded the deductibility of a
$376 tuxedo rental expense and a $625 furniture expense for 1997.
Petitioners conceded a foreign royalties issue for 1997. Another
adjustment involving taxable Social Security benefits is a
computational adjustment.
                                - 3 -


throughout all of 1998.   Petitioners were lessees of both

properties.

     Mr. Radnitz has been engaged as a full-time freelance writer

since 1952 under the pseudonym Brad Radnitz.    Mrs. Radnitz is an

actress.   Mr. Radnitz primarily wrote screenplays for the film

and television industry and occasionally wrote novels.   He

described the nature of his work as a writer as follows:


     My work is speculative. It consists of researching and
     developing story ideas, film treatments, TV series concepts,
     scripts, and/or novels with the intent of selling them to
     prospective employers, namely, the movie studios, the
     networks, independent producers, and publishers.


By his estimate, Mr. Radnitz has written material for several

films and movies of the week and over 350 television shows,

including "The Lucy Show", "Gilligan’s Island", "My Three Sons",

"The Brady Bunch", "Ironside", and "Columbo".   He is a former

president of the Writer’s Guild of America (Writer's Guild) and

has had professional involvement with that organization.

     In the earlier part of his writing career, Mr. Radnitz wrote

and sold story ideas or screenplay treatments in the episodic

television field.   These ideas were merely outlines for the

ultimate script.    In his later career, he wrote more materials to

completion, then had an agent shop for a buyer.   His works,

therefore, were not necessarily sold in the year of completion,
                                - 4 -


and, accordingly, the compensation for his work product often

occurred months or years after the completion of a script.    Due

to the speculative nature of his writing activity, every script,

proposed idea, and treatment created remained a potential income

source depending on the interest of a buyer.    Therefore, Mr.

Radnitz retained all of his works and rented storage space for

such purpose.    He claimed no deduction for this rental expense,

which was $120 per month.

     The types of income Mr. Radnitz received from his writing

activity depended on the type of work sold and contract terms

that were negotiated.   For a new story idea requiring additional

writing, Mr. Radnitz was paid in stages as each draft or script

was completed.   In the case of more speculative projects, he

received payment only when a buyer was found for a finished work.

Mr. Radnitz also received royalty and residual payments, referred

to as income from residuals, for reruns of shows he had written

in the past.    During the years at issue, he also received income

from a pension fund established by the Writer’s Guild.

     Mr. Radnitz reported taxable pension income of $34,550 and

$41,329, respectively, in 1997 and 1998, none of which is at

issue in this case.   He received wage income from residuals of

$980 in 1997 and $1,503 in 1998.   He did not receive income from

current writings during 1997 and 1998, as he was drafting

speculative screenplays during those years.    Mrs. Radnitz
                                 - 5 -


received wage income of $800 in 1997 and $3 in 1998.      The

relationship of Mr. Radnitz with the film and television industry

for whom his writings were created and sold was that of an

employee and was not an independent contractor relationship.

Respondent does not challenge that characterization.

Accordingly, the moneys Mr. Radnitz received for his work

products were reflected on Forms W-2, Wage and Tax Statement.

     Screenwriters are generally not provided office space in

which to do their writing.   They are expected to provide their

own offices.   As a result, during the years at issue, Mr. Radnitz

provided himself with office space for his compositions.        The

type and location of the spaces depended on various factors,

including cost, convenience, the length of the writing project,

and the need for privacy and quiet.      For the majority of the

time, Mr. Radnitz used his residence as an office.      However, for

two 3-month periods during 1998, he used rented spaces that were

outside of his main residence.

     During 1997, Mr. Radnitz spent most of his time writing a

screenplay entitled "Home Again".    His office was exclusively at

his residence at the Vista Loma address for the first part of the

year and at the Deepak address in the latter part.      In 1998, Mr.

Radnitz used the office at the Deepak residence in January and

February, again from June through August, and in December.        From

March through May 1998, he used a rented apartment on North
                               - 6 -


Indian Avenue in Palm Springs, California, as his office.    From

September through November 1998, he used another rented apartment

on Ravenspur in Rancho Palos Verdes, California, as his office.

Both rented apartments are referred to hereafter as the North

Indian Avenue and Ravenspur apartments.

     When Mr. Radnitz worked out of an office in his residence,

as he has done for 40 years, he set aside one room for the

exclusive use of his work.   In 1997 and 1998, that room occupied

20 percent of the total space of his residence.   The room

contained novels, dictionaries, encyclopedias, research books,

computer equipment, a typewriter, a desk, one or two chairs,

lamps, a corkboard, a television set, and a video cassette

recorder (VCR).   No one in Mr. Radnitz’s family was allowed to

use the room, and it was locked when visitors came.   There was no

bed in the room, and no one slept there.   Mr. Radnitz used the

television and VCR in the research aspect of his work to record

or watch broadcasts that were related to his writing projects.

The subject equipment was not used for personal or family

enjoyment.   Mr. Radnitz generally worked alone and occasionally

met with collaborators to work on projects.

     Mr. Radnitz rented both the North Indian Avenue and the

Ravenspur apartments in March 1998 because, as he stated:    “we

had a house full of relatives and suddenly having that office

[within his residence] wasn’t going to work, even though I locked
                                 - 7 -


the door.”   He used the North Indian Avenue apartment to work on

a script called "In for the Kill" from March through May 1998.

He used the Ravenspur apartment from September through November

1998 to finish and rewrite that script.    Prior to Mr. Radnitz’s

use of the Ravenspur apartment, Mrs. Radnitz used it from March

through August 1998.   Mr. Radnitz explained that the earlier “use

of that site was by my wife who is pursuing her career as an

actress, and it was used as her office.”   No further evidence of

Mrs. Radnitz’s use was provided at trial; however, petitioners

claimed no deductions for Mrs. Radnitz’s use of the Ravenspur

space during this time period.

     During 1997, when Mr. Radnitz used his two residences (Vista

Loma and Deepak) as offices for his writing activity, petitioners

determined that 20 percent of the floor space of each home was

devoted to the home office.   Respondent has not challenged this

determination.   Based on expenses for both homes totaling $30,002

for 1997, petitioners deducted 20 percent of that amount less an

additional 10 percent of the resulting figure “for possible

overage”.3   Thus, on the 1997 return, petitioners claimed a

deduction for an office in the home of $5,400.   In the notice of

deficiency, respondent allowed petitioners a $980 home office



     3
          The total annual home expenses of $30,002 for 1997
consisted of rent, $22,400; gas, $2,268; electricity, $3,852;
water, $876; television cable, $540; and disposal, $66.
                               - 8 -


expense deduction.   At trial, respondent took the position that

the $980 had been erroneously allowed; however, respondent did

not move to disallow that amount or to increase the deficiency in

taxes attributable to the $980.   The record is not clear as to

the basis upon which the $980 was allowed, nor as to the basis

for respondent’s claim at trial that the allowed $980 was in

error.

     For the year 1998, petitioners again determined that 20

percent of their Deepak residence constituted the home office for

the writing activity of Mr. Radnitz.   However, since petitioners

agree that their residence was used only for 6 months, on their

1998 return, they only deducted expenses for one-half of that

year for Mr. Radnitz’s writing activity.   For this 6-month

period, petitioners deducted $3,740 as a home office expense on

their 1998 return.   In the notice of deficiency, respondent

allowed $1,503.   As with regard to the 1997 year, respondent

claimed at trial that the amount allowed for 1998 was erroneous

but did not move at trial to disallow that amount or to increase

the deficiency.

     Also for 1998, petitioners deducted expenses for the two

rented apartments (the North Indian Avenue and the Ravenspur

apartments), which were used by Mrs. Radnitz and Mr. Radnitz.

The North Indian Avenue apartment was used by Mr. Radnitz for 3

months during 1998 and the total expenses incurred for that time
                                  - 9 -


period, $2,495, were claimed as an unreimbursed employee business

expense deduction on petitioners’ 1998 return.          With respect to

the Ravenspur apartment, petitioners claimed an unreimbursed

employee expense deduction of $4,138 for the 3 months Mr. Radnitz

used the apartment during 1998.       As noted earlier, Mrs. Radnitz

also used the Ravenspur apartment during 1998 for 6 months in

connection with her activity as an actress; however, petitioners

did not claim any expense deduction on their 1998 tax return for

that period.

     In summary, petitioners deducted the following home office

and employee business expenses related to the three described

dwellings on their 1998 return:


  Home office expense for Deepak residence (6 months)            $ 3,740

  Unreimbursed employee business expenses for the North
   Indian Ave. rented apartment (3 months' use by Mr. Radnitz)    2,495

  Unreimbursed employee business expenses for the Ravenspur
   rented apartment (3 months' use by Mr. Radnitz)                4,138

    Total                                                        $10,373


The above expenses were essentially all for rent, gas,

electricity, and cable television.4


     4
          For 1998, the claimed Deepak apartment expenses of
$3,740, as prorated, consisted of rent, $2,040; gas, $512;
electricity, $900; and television cable, $288. The claimed North
Indiana Avenue apartment expenses of $2,495 consisted of rent,
$1,590; gas, $450; electricity, $254; and television cable, $201.
The claimed Ravenspur apartment expenses of $4,138 consisted of
rent, $3,825; electricity, $189; and television cable, $124.
                               - 10 -


     In addition to the rent and utilities expenses, petitioners

deducted expenses for furnishing the North Indian Avenue and

Ravenspur apartments during 1998 totaling $1,371.   In the notice

of deficiency, respondent disallowed the $1,371 on the ground

that, although substantiated, the claimed amount did not

constitute deductible ordinary and necessary business expenses.

     The Court first addresses petitioners’ entitlement to the

deductions claimed for 1997 and 1998 relating to their residences

(Vista Loma and Deepak) and next considers the deductions claimed

for 1998 relating to the two rented apartments (North Indian

Avenue and Ravenspur).5

     Under section 162(a), a taxpayer is allowed to deduct all

ordinary and necessary expenses paid or incurred in carrying on a

trade or business.    However, section 280A(a) generally disallows

deductions with respect to the use of a dwelling unit that is

used by a taxpayer as a residence during the taxable year, with

certain exceptions.   One of those exceptions applies to use of a

home office.   The home office exception, sec. 280A(c), provides:



     5
          Generally, the burden of proof is on a taxpayer to
establish entitlement to deductions, which are a matter of
legislative grace. New Colonial Ice Co. v. Helvering, 292 U.S.
435, 440 (1934). In certain circumstances, however, sec. 7491
shifts this burden of proof with respect to examinations of
returns commencing after July 22, 1998. There is no evidence in
the record regarding the date the examination of petitioners’
returns commenced, and petitioners do not contend that sec. 7491
applies. In any event, the Court decides this case without
regard to the burden of proof.
                             - 11 -



          SEC. 280A(c). Exceptions for Certain Business or
     Rental Use; Limitation on Deductions for Such Use.--

                 (1) Certain business use.-–Subsection (a) shall
          not apply to any item to the extent such item is
          allocable to a portion of the dwelling unit which is
          exclusively used on a regular basis-–

                    (A) as the principal place of business for
                 any trade or business of the taxpayer,

                    (B) as a place of business which is used by
                 patients, clients, or customers in meeting or
                 dealing with the taxpayer in the normal course
                 of his trade or business, or

                    (C) in the case of a separate structure which
                 is not attached to the dwelling unit, in
                 connection with the taxpayer’s trade or
                 business.

     In the case of an employee, the preceding sentence shall
     apply only if the exclusive use referred to in the preceding
     sentence is for the convenience of his employer. For
     purposes of subparagraph (A), the term “principal place of
     business” includes a place of business which is used by the
     taxpayer for the administrative or management activities of
     any trade or business of the taxpayer if there is no other
     fixed location of such trade or business where the taxpayer
     conducts substantial administrative or management activities
     of such trade or business.


For a deduction to be allowed under section 280A(c)(1), the

taxpayer must establish that a portion of the dwelling unit is

(1) exclusively used; (2) on a regular basis; (3) for the

purposes enumerated in subparagraphs (A), (B), or (C) of section

280A(c)(1); and (4) if the taxpayer is an employee, the office is

maintained for the convenience of the employer.   Hamacher v.

Commissioner, 94 T.C. 348, 353-354 (1990).
                               - 12 -


     The Court finds that Mr. Radnitz’s use of home offices at

the Vista Loma and Deepak residences satisfies the tests of

section 280A(c)(1).    First, petitioners met the exclusive use

test with respect to the office portions of their personal

residences.    Mr. Radnitz allowed no personal use of the space

that was used in their home as his office.     Second, the offices

were used on a regular basis, and Mr. Radnitz worked full time as

a writer.   Third, the offices represented Mr. Radnitz’s principal

place of business.    During 1997 and half of 1998, the home space

was the only office space he used.

     Since Mr. Radnitz was an employee, section 280A further

requires that the home office space must be for the convenience

of the employer.    That test has been met.   Mr. Radnitz was a

speculative writer who was on his own in creating the work that

he sold or later hoped to sell.    He was never provided with

office space by his employers.    In such a situation, the home or

self-funded office can only be said to be for the employer’s

convenience.    See Soliman v. Commissioner, 94 T.C. 20 (1990),

affd. 935 F.2d 52 (1991), revd. on other grounds 506 U.S. 168

(1993); cf. Gestrich v. Commissioner, 74 T.C. 525 (1980), affd.

without published opinion 681 F.2d 805 (3d Cir. 1982).     On this

record, the Court holds that petitioners are allowed deductions

for their rent and utilities expenses for the use of the home

offices at their Vista Loma and Deepak residences to the extent
                               - 13 -


the amounts claimed do not exceed the gross income limitations of

section 280A(c)(5).

     By contrast, the limitations of section 280A(a) do not apply

to the rent and utilities expenses for the office space at the

North Indian Avenue apartment because that space was not used by

petitioners as a residence.    Section 280A limits deductions “with

respect to the use of a dwelling unit which is used by the

taxpayer during the taxable year as a residence.”   Although the

North Indian Avenue space was technically an apartment, and thus

falls within the definition of “dwelling unit” under section

280A(f), petitioners did not use the space as a residence during

1998.   It was used exclusively by Mr. Radnitz in his writing

activity.   Petitioners’ expenses in maintaining and furnishing

the North Indian Avenue apartment are deductible as ordinary and

necessary business expenses.

     Similarly, the limitations of section 280A(a) do not apply

to the rent and utilities expenses for the office space at the

Ravenspur apartment.   There is no evidence in the record that the

Ravenspur apartment was used as a residence or for any personal

purposes by either Mr. Radnitz or Mrs. Radnitz during 1998.

Petitioners were not separated from each other, and neither Mr.

Radnitz nor Mrs. Radnitz used the apartment as a place of

personal abode during this period or any other period during

1998.   No other possible motives for rental of this apartment
                              - 14 -


were established at trial other than the use thereof by

petitioners in their professional careers.   Accordingly, the

Court holds that the only and exclusive use of that apartment

during 1998 was for trade or business purposes.   The limitations

of section 280A(c), therefore, are not applicable.   Petitioners’

expenses in maintaining and furnishing the Ravenspur apartment

are deductible as ordinary and necessary business expenses.

     The Court next addresses whether the expenses deducted by

petitioners have been substantiated.   The Court notes that Mr.

Radnitz testified credibly regarding his usage of offices both

within his residence and at the two outside locations.    Moreover,

petitioners cooperated with respondent throughout the examination

of their returns and produced sufficient documentation of their

utilities expenses to convince the Court of their veracity.

     Petitioners provided the Court with a summary of their

utilities expenses but provided only partial expense records to

support their summary.   They incorrectly assumed that, since they

had provided the complete set of bills and expense records to

respondent during the audit, reproducing them in Court was not

necessary.   In the absence of adequate substantiation, this Court

may estimate the amount of deductible expenses incurred, bearing

heavily against the taxpayer whose inexactitude in substantiating

the amount of the expense is of his own making.   Cohan v.

Commissioner, 39 F.2d 540, 543-544 (2d Cir. 1930).   However,
                               - 15 -


there must be sufficient evidence on which to base such an

estimate.   Vanicek v. Commissioner, 85 T.C. 731, 743 (1985).

     Considering the evidence as a whole, the Court finds that

petitioners paid the following amounts with respect to utilities

expenses.   For 1997, the Court finds as a utilities expense $700

for the combined usage of the Vista Loma and Deepak spaces.       For

1998, the Court finds as utilities expenses $300 for the Deepak

apartment, $900 for the North Indian Avenue apartment, and $300

for the Ravenspur apartment.   As respondent made no issue of the

rents paid, the Court finds that petitioners paid rent expenses

in the amounts deducted on their 1997 and 1998 returns.     For

1998, the Court also finds that petitioners paid furnishings

expenses of $1,371 with respect to the North Indian Avenue and

Ravenspur apartments, as petitioners provided sufficient evidence

to substantiate these expenditures.

     Finally, the Court addresses the gross income provisions of

section 280A(c)(5).   Even if the requirements of section

280A(c)(1) are met, the deductions allowed are limited by section

280A(c)(5).   That section provides:


          Sec. 280A(c)(5). Limitation on deductions.-–In the
     case of a use described in paragraph (1), (2), or (4), and
     in the case of a use described in paragraph (3) where the
     dwelling unit is used by the taxpayer during the taxable
     year as a residence, the deductions allowed under this
     chapter for the taxable year by reason of being attributed
     to such use shall not exceed the excess of-–
                              - 16 -


                  (A) the gross income derived from such use for
           the taxable year, over

                  (B) the sum of-–

                     (i) the deductions allocable to such use
                  which are allowable under this chapter for the
                  taxable year whether or not such unit (or
                  portion thereof) was so used, and

                     (ii) the deductions allocable to the trade or
                  business (or rental activity) in which such use
                  occurs (but which are not allocable to such use)
                  for such taxable year.

     Any amount not allowable as a deduction under this chapter
     by reason of the preceding sentence shall be taken into
     account as a deduction (allocable to such use) under this
     chapter for the succeeding taxable year. Any amount taken
     into account for any taxable year under the preceding
     sentence shall be subject to the limitation of the 1st
     sentence of this paragraph whether or not the dwelling unit
     is used as a residence during such taxable year.


This Court has held on several occasions that the home office

deduction of a writer is limited to the gross income from

writing.   Gestrich v. Commissioner, 74 T.C. 525 (1980); Warganz

v. Commissioner, T.C. Memo. 1981-403, affd. without published

opinion 696 F.2d 987 (3d Cir. 1982); Parker v. Commissioner, T.C.

Memo. 1984-233.

     Section 280A(c)(5) thus limits petitioners’ deduction of

their office expenses attributable to the Vista Loma and Deepak

addresses.   Their deduction is limited to the amount of

petitioners’ gross income derived from Mr. Radnitz’s use of the

home offices reduced by the deductions allowable without regard
                              - 17 -


to such business use.   Scott v. Commissioner, 84 T.C. 683, 692

(1985).   Petitioners have already been allowed home office

expense deductions to the extent of Mr. Radnitz’s income from

residuals in both 1997 and 1998.   His pension income, as

respondent points out, is in the nature of deferred compensation

and therefore is not considered income attributable to the use of

those spaces.   Estate of Sussman v. Commissioner, T.C. Memo.

1978-344 n.3 (pension income was not from taxpayer’s trade or

business, but rather was “merely deferred compensation for his

earlier services and * * * properly allocable to * * * [his]

active employment prior to retirement”).    Moreover, since

petitioners rented the Vista Loma and Deepak apartments, there do

not appear to be any deductions otherwise allowable with respect

to them, such as mortgage interest or real property taxes.      Green

v. Commissioner, T.C. Memo. 1989-599 n.6.     As a result, under

section 280A(c)(5), petitioners are not entitled to greater home

office deductions for the Vista Loma and Deepak apartments than

the amounts respondent has already allowed.

     Petitioners raised a constitutional issue with respect to

section 280A(c)(5), which the Court next addresses.     Petitioners

objected to the application of the income limitation of section

280A(c)(5) to them based on equal protection and fairness

principles.   They argued that they may never be able to deduct

the expenses of Mr. Radnitz’s home office because he may not
                                - 18 -


realize income on his speculative writings for years after they

are completed.   In essence, petitioners contend that section 280A

departs from the traditional principle of matching income and

expenses and that the application of that section is

unconstitutionally unfair to authors of speculative works.

     Section 280A applies to all taxpayers and treats speculative

authors no differently from all other citizens who maintain

offices in their residences.    Cook v. Commissioner, T.C. Memo.

1997-378.   Moreover, section 280A(c)(5) contains a carryover

provision for disallowed deductions.     The Court rejects

petitioners’ constitutional arguments.     Respondent is sustained

with respect to the application of section 280A(c)(5).       As noted

earlier, the limitation provisions of section 280A(c)(5) are not

applicable to petitioners’ expenses relating to the North Indian

Avenue and Ravenspur offices.

     Reviewed and adopted as the report of the Small Tax Case

Division.



                                           Decision will be entered

                                     under Rule 155.
