Elbasha v. Commissioner
T.C. Memo. 2022-1

On January 12, 2022, the Tax Court issued a Memorandum Opinion in the case of Elbasha v. Commissioner (T.C. Memo. 2022-1). The primary issues presented in Elbasha were the petitioner’s filing status and whether and to what extent the petitioner can deduct Schedule C expenses.

Background to Elbasha v. Commissioner

The petitioner, an emergency room doctor, was born in Sudan, and he had family there during 2008 and 2009—the years at issue. The petitioner’s Sudanese family included his wife, Suzan Ahmed, whom he married sometime during 2008 and remained married through the end of 2009. They had a daughter in 2009. The petitioner’s wife did not move to the United States until 2010, but during the years at issue, he lived in a condominium in Georgia. The petitioner timely filed his 2008 Form 1040, on which he claimed single filing status. He timely filed his 2009 Form 1040 claiming head of household filing status.

The petitioner lived approximately 90 miles from where he worked. For tax year 2008 and part of tax year 2009 petitioner reported the income and expenses related to his medical practice on Schedules C. He also deducted a lot of expenses, including (but not limited to) costs of goods sold (COGS), the use of a home office, interest, car and truck expenses, flights, accommodations, meals, medical, materials, gifts, entertainment, transportation, and other miscellaneous items.

The IRS did not look kindly on his deductions, and it denied most of them.

Maintenance of Records and Burden of Proof

Taxpayers must maintain records sufficient to show how they determined their tax liability.[1] This includes showing both the amount and the purpose of a claimed deduction.[2] Petitioner therefore bears the burden of proving both the amounts and the purposes of his Schedule C deductions.[3]

If, however, the IRS raises a new matter, it has the burden of proof—as to the new matter.[4] The IRS raised a “new matter” when it goes beyond the scope of the original deficiency determination.[5] At trial the IRS moved for an increased deficiency on the basis of changes in the petitioner’s filing status for both years in issue. As the IRS did not challenge the petitioner’s filing status in the notice of deficiency, this is a new matter, and it bears the burden of proof.

Filing Status in Elbasha v. Commissioner

Elbasha v. CommissionerTo file under the single filing status, it goes without saying (except to Mr. Elbasha and his return preparer) that a person must be unmarried, not a surviving spouse, and not a head of household.[6] The test to determine a taxpayer’s marital status is set out in IRC § 7703.[7] The determination of whether an individual is married is made at the close of the taxable year—unless that individual’s spouse dies during that year.[8]

A person is not considered married at the close of the taxable year if he either (a) is separated from a spouse under a decree of divorce or separate maintenance agreement, or (b) furnishes over half of the costs of maintaining a household that does not include the spouse but does include a certain child or children.[9]

As noted above, the petitioner was in fact married at the close of the 2008 tax year; however, he contends he is entitled to the single filing status because his wife lived abroad. The Tax Court was not persuaded, noting that “[s]imply having a spouse living apart or abroad is insufficient for a person to be considered not married.”

Elbasha v. CommissionerEditor’s Note: It appears that Dr. Elbasha watched the movie Road Trip too many times. Whilst on said road trip, E.L. (played brilliantly by Sean William Scott of Stiffler fame) tells Kyle (played by the mumbling, bumbling DJ Qualls of Dizzy in The New Guy fame) that

Take your situation for example: it’s not cheating. It’s never cheating when you’re in a different area code, not to mention a different state.

Not to mention a different continent.

In 2009, the petitioner filed his return as a head of household filing status because his daughter was born that year.[10] A person may file as a head of household only if the individual is not married at the close of the taxable year.[11] For purposes of the head of household filing status, a taxpayer is not considered married at the close of the taxable year if that person’s spouse is a nonresident alien.[12] The petitioner testified that at the end of 2009 he was married; however, his wife, a nonresident alien, was not present in the United States. The IRS provided no evidence to refute petitioner’s testimony, and so the petitioner won on this point.

The Schedule C Deductions

IRC § 162(a) allows a deduction for “all the ordinary and necessary expenses paid or incurred during the taxable year in carrying on any trade or business”. An expense is ordinary if it is “normal, usual, or customary” in the taxpayer’s trade or business.[13] An expense is necessary if it is “appropriate and helpful” in the taxpayer’s business, [*11] but it need not be absolutely essential.[14] Whether an expense is deductible pursuant to IRC § 162 is a question of fact to be decided on the basis of all relevant facts and circumstances.[15] No deduction is allowed for personal, living, or family expenses.[16]

Taxpayers must maintain records sufficient to show how they determined their tax liability.[17] Providing a chart of expenses to the Court is not enough to substantiate a claimed deduction.[18] If a taxpayer has proven that he paid an expense but is unable to prove the exact amount, the Court may apply the Cohan rule and estimate the deductible expense.[19]

Elbasha Hill

In applying the Cohan doctrine, the Court “bear[s] heavily” against the taxpayer whose difficulty in substantiating his deductions is of his own making.[20] The Tax Court generally will not estimate a deductible expense, however, unless the taxpayer presents sufficient evidence to provide some basis upon which an estimate may be made.”[21] Taxpayers have an ever tougher hill to climb and row to hoe with IRC § 274(d), which provides stricter guidelines for a number of claimed deductions.[22]

Under IRC § 274, a deduction is generally disallowed for travel, meals and entertainment, gift, and listed property expenses unless the taxpayer can prove by adequate records or sufficient evidence corroborating:

  1. the amount of such expense or other item;
  2. the time and place of the travel, entertainment, amusement, recreation, or use of the facility or property, or the date and description of the gift;
  3. the business purpose of the expense or other item, and
  4. the business relationship to the taxpayer of persons entertained, using the facility or property, or receiving the gift.[23]

Generally, a deduction which falls under the strict substantiation rules must be disallowed in full unless the taxpayer meets all four elements. While a contemporaneous log may not be required to meet these elements, the taxpayer should put forth “corroborative evidence used to support a taxpayer’s reconstruction of the expenditure [which] ‘must have a high degree of probative value to elevate such statement’ to the level of credibility of a contemporaneous record.”[24]

In the absence of adequate records, a taxpayer may provide detailed testimony (oral or written) as to each element.[25] Even an otherwise deductible expense may be denied without sufficient substantiation. Id. We do not estimate expenses using the Cohan doctrine for IRC § 274 expenses.[26]

Continuing Education Expenses

Continuing education expenses are generally deductible.[27] Travel expenses for continuing education may also be deductible.[28] That being said, travel and related expenses are subject to the strict substantiation requirements of IRC § 274(d). Because these expenses are subject to the strict substantiation requirements, the Cohan doctrine does not apply. The petitioner submitted charts that listed his expenses, but the Tax Court held that charts alone do not substantiate his expenses.[29] As a result, the Tax Court disallowed these deductions in full.

Home Office Expenses

Taxpayers may deduct home office expenses relating to a portion of the home that is used exclusively and regularly:

  1. as the principal place of business for any trade or business of the taxpayer;
  2. 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
  3. in the case of a separate structure which is not attached to the dwelling unit, in connection with the taxpayer’s trade or business.[30]

The petitioner used his home office to do paperwork related to his emergency room duties. He did not meet with patients in his condominium. As the petitioner’s home office is not a separate structure from his dwelling unit, and no “patients, clients, or customers” met or dealt with him at his home office, the only test he may satisfy is the “principal place of business” test.[31]

Elbasha Work here

The term “principal place of business” may include “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.”[32]

While a home office deduction is not subject to the strict substantiation requirements of IRC § 274(d), the taxpayer has a “heavy burden to establish the deductibility of expenses related to a home office.”[33] When determining the proper amount of a reported home office expense, taxpayers should provide some proof of how they calculated the deduction.[34]

The Tax Court has held on numerous occasions that when most of the services a taxpayer performs for patients are performed at hospitals with some follow-up at the home office, the home office does not constitute a principal place of business.[35] Moreover, the petitioner also failed to substantiate the amount of his deduction. He could not remember how he calculated the $18,000 home office deduction, and he did not maintain sufficient records to decipher it.[36]

The Tax Court found that there was no corroborating evidence to show that the petitioner’s home office occupied half of his condominium. He did not provide the Tax Court with pictures, floorplans, diagrams, or blueprints of his condominium or home office. The court could not, therefore, know the layout or the percentage of his condominium used as a home office. There is insufficient evidence in the record to form a basis for an estimate. As such, the petitioner failed to prove his entitlement to a home office deduction.

Travel Deductions

A taxpayer may deduct travel expenses while away from home if the expenses are ordinary, necessary, and attributable to the business of the taxpayer.[37] Travel expenses are subject to the IRC § 274(d) strict substantiation requirements.[38]

Query: Could a stripper deduct this as an ordinary and necessary business expense? I would love to make the argument some day.

A taxpayer may deduct lodging expenses while away from home in pursuit of a trade or business if that pursuit is temporary.[39] A taxpayer’s pursuit of a trade or business is no longer temporary after one year.[40] The petitioner began working at the hospital in June or July 2007. Once he had worked there for one year, his work was no longer considered temporary.[41] Furthermore, he did not provide adequate records or sufficient evidence corroborating the amount spent on hotels.[42]

Car and Truck Expenses

Commuting expenses are generally not deductible.[43] Because the Tax Court determined that the petitioner’s home office was not his principal place of business within the meaning of IRC § 280A(c)(1)(A), he is not excepted from this general rule by traveling office-to-office.[44] Further, the petitioner’s car and truck expenses do not appear to be ordinary and necessary business expenses under IRC § 162.

Moreover, even if petitioner’s mileage were deductible, he has failed to meet his burden of proof. Car and truck expenses are subject to the strict substantiation requirements of IRC § 274(d).[45] To substantiate mileage, a taxpayer must show:

  1. the mileage;
  2. the time and place of the car’s use; and
  3. the business purpose of the car’s use.[46]

The taxpayer should maintain a contemporaneous mileage log.[47] A summary of monthly miles driven, without more, is insufficient.[48] The petitioner’s computerized monthly mileage log, therefore, does not meet the strict substantiation requirements of IRC § 274(d).

(T.C. Memo. 2022-1) Elbasha v. Commissioner

  1. IRC § 6001; Treas. Reg. § 1.6001-1(a).
  2. Higbee v. Commissioner, 116 T.C. 438, 440 (2001).
  3. Id.
  4. Rule 142(a); Tabrezi v. Commissioner, T.C. Memo. 2006-61, slip op. at *8 (citing Shea v. Commissioner, 112 T.C. 183, 190-91 (1999)).
  5. Id.
  6. See IRC § 1(c).
  7. IRC § 1(a)(1).
  8. IRC § 7703(a)(1).
  9. IRC § 7703(a) and (b).
  10. See IRC § 2(b).
  11. See IRC § 2(b)(1).
  12. IRC § 2(b)(2)(B).
  13. Deputy v. du Pont, 308 U.S. 488, 495 (1940).
  14. Commissioner v. Tellier, 383 U.S. 687, 689 (1966) (quoting Welch v. Helvering, 290 U.S. 111, 113 (1933)).
  15. Cloud v. Commissioner, 97 T.C. 613, 618 (1991).
  16. IRC § 262(a).
  17. IRC § 6001; DeLima v. Commissioner, T.C. Memo. 2012-291; Treas. Reg. § 1.6001-1(a).
  18. See G.D. Parker, Inc. v. Commissioner, T.C. Memo. 2012-327, at *50 (holding that “a simple chart of expenses paid without documentation of the actual payments is not enough to substantiate the expenses”).
  19. See Cohan v. Commissioner, 39 F.2d 540, 543-544 (2d Cir. 1930); Robinson v. Commissioner, T.C. Memo. 2011-99.
  20. Robinson, T.C. Memo. 2011-99, slip op. at *19-*20.
  21. Id.
  22. See Leschke v. Commissioner, T.C. Memo. 2001-18.
  23. IRC § 274(d).
  24. Robinson, T.C. Memo. 2011-99, slip op. at *21 (quoting Larson v. Commissioner, T.C. Memo 2008-187, slip op. at *11).
  25. Id., slip op. at *22.
  26. Id.
  27. Treas. Reg. § 1.162-5(a).
  28. Treas. Reg. § 1.162-5(e).
  29. See G.D. Parker, Inc. v. Commissioner, T.C. Memo. 2012-327.
  30. IRC § 280A(a), (c)(1).
  31. See IRC § 280A(c)(1)(A).
  32. IRC § 280A(c) (flush language).
  33. Crawford v. Commissioner, T.C. Memo. 1993-192, *4.
  34. See Margolis v. Commissioner, T.C. Memo. 1999-24 (using the taxpayer’s annual rent and the square footage of the home and office space to determine the amount of the allowed deduction), aff’d without published opinion, 213 F.3d 636 (4th Cir. 2000).
  35. Crawford, T.C. Memo. 1993-192, at *6.
  36. See IRC § 6001; DeLima, T.C. Memo. 2012-291, at *23 (citing Tokarski v. Commissioner, 87 T.C. 74, 77 (1986)); Treas. Reg. § 1.6001-1(a); see also Hradesky v. Commissioner, 65 T.C. 87, 90 (1975).
  37. IRC § 162(a)(2); Crawford v. Commissioner, T.C. Memo. 2014-156, *12.
  38. IRC § 274(d)(1).
  39. IRC § 162(a)(2); Chappuis v. Commissioner, T.C. Memo. 1968-48.
  40. IRC § 162(a); see Rev. Rul. 99-7.
  41. See Rev. Rul. 99-7.
  42. See IRC § 274(d).
  43. Treas. Reg. §§ 1.162-2(e), 1.262-1(b)(5).
  44. See Curphey v. Commissioner, 73 T.C. 766, 777-778 (1980); Rev. Rul. 99-7.
  45. See Renner v. Commissioner, T.C. Memo. 2015-102, *9.
  46. Id.
  47. Id. at *8.
  48. See id. at *8-*12 (stating the taxpayer’s monthly mileage logs did not appear to be prepared contemporaneously with the taxpayer’s travel).


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