Soliman v. Comm'r of Internal Revenue

• Decision Date: 18 January 1990
• Docket Number: Docket No. 35698-87.
• Citation: 94 T.C. No. 3,94 T.C. 20
• Parties: NADER E. SOLIMAN, Petitioner v. COMMISSIONER OF INTERNAL REVENUE, Respondent
• Court: U.S. Tax Court

94 T.C. 20

94 T.C. No. 3

NADER E. SOLIMAN, Petitioner

v.COMMISSIONER OF INTERNAL REVENUE, Respondent

Docket No. 35698-87.

United States Tax Court

Filed January 18, 1990.

P used a room in his apartment exclusively to manage his medical practice. He had no other office space available to him. His business activities at his home office were essential to his medical practice but were ancillary to the primary income- generating services he performed at hospitals.

HELD, P is entitled to deduct expenses for his home office. We will no longer follow the ‘focal point‘ test of Drucker v. Commissioner, 79 T.C. 605 (1982), revd. 715 F.2d 67 (2d Cir. 1983) in cases in which a taxpayer's home office is essential to his business, he spends substantial time there, and there is no other location available to perform the office functions of the business. HELD FURTHER, other deductions disallowed. HELD FURTHER, P is liable for additions to tax. David M. Sokolow, for the petitioner.

Karen E. Chandler, for the respondent.

WILLIAMS, JUDGE:

The Commissioner determined a deficiency in petitioner's 1983 Federal income tax as follows:

+----------------------------------------------------------+
                ¦    ¦          ¦Sec.         ¦Sec.      ¦Sec.      ¦Sec.  ¦
                +----+----------+-------------+----------+----------+------¦
                ¦    ¦Deficiency¦6651(a)(1)1  ¦6653(a)(1)¦6653(a)(2)¦6661  ¦
                +----+----------+-------------+----------+----------+------¦
                ¦1983¦$20,338   ¦$1,089       ¦$2,538    ¦*         ¦$3,864¦
                +----------------------------------------------------------+
                

The issues we must decide are: (1) whether petitioner is entitled to a home office deduction pursuant to section 280A, (2) whether petitioner is entitled to a business expense deduction for the use of his automobile, (3) whether petitioner is entitled to a deduction for expenses incurred in traveling to the Virgin Islands and Orlando, Florida, and (4) whether petitioner is liable for additions to tax as determined by respondent. Petitioner conceded the section 6651(a)(1) addition to tax prior to trial.

FINDINGS OF FACT

Some of the facts in this case have been stipulated and are so found. Petitioner resided in McLean, Virginia at the time the petition was filed in this case. Petitioner, a self-employed anesthesiologist, was the sole proprietor until September 1, 1983. He incorporated Nader Soliman, M.D., on September 1, 1983.

During 1983, petitioner worked as an anesthesiologist at Suburban Hospital, in Bethesda, Maryland, Shady Grove Hospital in Rockville, Maryland, and Loudon Memorial Hospital in Leesburg, Virginia. Petitioner earned income in 1983 by administering anesthesia to patients before surgery, caring for patients immediately after surgery and treating patients for pain. Petitioner performed all of these services in the hospitals where he was on staff. Petitioner spent 30 to 35 hours per week at the hospitals. He spent approximately 80 percent of that time at Suburban Hospital, and he spent most of the remaining time at Loudon Memorial Hospital. Petitioner was not provided an office at any of the three hospitals.

During 1983 petitioner lived in a three-bedroom apartment in McLean, Virginia. He used one bedroom as an office where he kept the following: chair, desk, couch, telephone, answering machine, copier, filing cabinet, patient records, billing records, correspondence with patients, names of surgeons and insurance companies, medical journals, medical texts, collection agency records, and insurance code books. In his office petitioner contacted surgeons and patients by telephone, contacted hospitals to arrange admission for his own patients, maintained detailed billing records and patient logs, transmitted this information to a billing service, recorded collected payments on the patient logs, read medical books and journals, and prepared for specific patients. Petitioner also satisfied his continuing medical education requirements and prepared for his monthly presentations to post-anesthesia care nurses at Suburban Hospital in his office at home. Petitioner spent an average of 2 to 3 hours a day working in his home office but never treated patients there. Petitioner's only ‘personal‘ use of his home office was to balance his checkbook which combined his business and personal affairs.

Petitioner deducted on Schedule C of his 1983 Federal income tax return home office expenses and depreciation in the amount of $841 for the first 8 months of 1983. Petitioner claimed Schedule E home office deductions for expenses and depreciation in the amount of $418 for the last months of 1983. Respondent disallowed petitioner's home office deduction.

During 1983 petitioner owned two automobiles, a Buick and a Honda. Petitioner drove the Buick exclusively on trips between his home office and the hospitals, between the hospitals, and between the hospitals and hotels where he stayed when he was on call. In 1983, petitioner drove his Buick a little over 10,000 miles. Petitioner incurred and claimed on his 1983 Federal income tax return automobile expenses in driving his Buick between hospitals and between his home office and hospitals of $1,014 during the first 8 months of 1983, and $508 during the last 4 months of 1983. Petitioner also claimed a depreciation deduction for his Buick of $2,236. Respondent disallowed petitioner's depreciation and automobile expense deduction.

In June of 1983, petitioner and his wife attended a seminar in the U.S. Virgin Islands emphasizing tax-saving techniques and tax shelters. Petitioner's 3-year old son accompanied them on their trip. Petitioner attended the seminar from June 26 to June 29, 1983. Time spent at the seminar included picking up registration materials the first day, approximately 15 hours of seminars over the next 3 days and a free consultation. Petitioner left the Virgin Islands on July 4, 1983, after spending 10 days there. On his 1983 Federal Income tax return petitioner deducted his wife's and his round-trip airfare to the Virgin Islands and their hotel and meal expenses on days when petitioner had any contact with the seminar as follows: seminar fee -- $498; meals -- $376; airfare -- $1,158; hotel -- $394.

On August 19, 1983, petitioner, his wife, and 3-year old son flew from Washington, D.C. to Orlando, Florida for an additional tax and financial planning consultation. As a result, petitioner was sent an investment proposal. Petitioner was advised by his accountant, however, that the investment was a sham tax shelter. Consequently, petitioner did not invest in the tax shelter. Petitioner claimed as a deduction on his 1983 Federal income tax return the expenses of his trip to Orlando, Florida as follows: consultation fee -- $1,250.00; hotel -- $60.46; airfare -- $554.00. Petitioner's trips to the Virgin Islands and Orlando, Florida during 1983 were primarily for personal reasons.

In the Statutory Notice of Deficiency, respondent determined that petitioner had understated his gross receipts on his U.S. Individual Income Tax Return in the amount of $31,219. One thousand three hundred and sixty-two dollars of the unreported gross receipts were amounts collected and subsequently refunded to insurance providers which respondent concedes are not taxable. Seventeen thousand four hundred and twenty-five dollars of the unreported gross receipts are amounts paid prior to September 1983 for services provided by petitioner which were not reported on his U.S. Individual Income Tax Return or on the U.S. Corporate Income Tax Return of Nader Soliman, M.D., P.C. Twelve thousand four hundred and thirty-two dollars of the unreported gross receipts represents amounts collected prior to September 1983 for services provided by petitioner which should have been reported on his U.S. Individual Income Tax return but were, instead, reported on the U.S. Corporation Income Tax Return of Nader Soliman, M.D., P.C. Petitioner has conceded the taxability of $29,857 of the gross receipts.

OPINION

The first issue we must decide is whether petitioner is entitled to a deduction for his home office pursuant to section 280A. Section 280A provides generally that expenses in connection with the use of a taxpayer's residence are not deductible. An exception to the general rule, section 280A(c)(1)(A), permits the deduction of home office expenses if a portion of the home is ‘exclusively used on a regular basis‘ as the principal place of business for any trade or business of the taxpayer. An employee must also show that the office is maintained ‘for the convenience of his employer. ‘ Sec. 280A(c)(1). Petitioner argues that as a practicing anesthesiologist without any other office, his home office was his principal place of business.

Prior to the enactment of section 280A, we allowed a deduction for an ‘ordinary and necessary‘ home office expense pursuant to section 162(a) if the expense was ‘appropriate and helpful.‘ See, e.g., Newi v. Commissioner, 432 F.2d 998, 1000 (2d Cir. 1970), affg. a Memorandum Opinion of this Court. Congress curtailed this liberal allowance of home office expense deductions by enacting section 280A. See Green v. Commissioner, 707 F.2d 404, 407 (9th Cir. 1983), revg. 78 T.C. 428 (1982). Congress intended to prevent a deduction for essentially personal expenses and allow a deduction only for business use of residences. S. Rept. 94-938 (1976), 1976-3 C.B. (Vol. 3) 49, 185; see Drucker v. Commissioner, 715 F.2d 67, 69 (2d Cir. 1983), revg. 79 T.C. 605 (1982).

We believe, and respondent does not seriously contend otherwise, that petitioner used one room in the apartment exclusively on a regular basis in his business. The issue, therefore, is whether the home office was petitioner's principal place of business. We have applied the ‘focal point‘ test to identify the taxpayer's principal place of business. Baie v. Commissioner, 74 T.C. 105 (1980). The ‘focal point‘ of the taxpayer's activities, and thus his principal place of business, is the...