Cheh v. Commissioner
| Decision Date | 10 November 1992 |
| Docket Number | Docket No. 27746-89. |
| Citation | 64 T.C.M. 1291 |
| Parties | Unte Cheh v. Commissioner. |
| Court | U.S. Tax Court |
Ronald B. Rubin, Terry A. Bauman, and Richard C. Stark, for the petitioner. Lindsey D. Stellwagen, for the respondent.
By statutory notice of deficiency dated October 13, 1989, respondent determined a deficiency in petitioner's Federal income tax and additions to tax as follows:
Additions to Tax
Year Deficiency Sec. 6653(a)(1)(A) Sec. 6653(a)(1)(B)
1986 ..................................... $10,277 $513.85 50 percent of
the interest on
the deficiency
All section references are to the Internal Revenue Code in effect for the taxable year at issue, and all Rule references are to the Tax Court Rules of Practice and Procedure.
After concessions,1 the issues for decision are as follows:
1. Whether petitioner has established that he was carrying on a trade or business of translating Korean materials into English, and if so, whether he may deduct, on Schedule C, certain business expenses in 1986 for this purported business. We hold that petitioner was not engaged in a trade or business, and therefore, is not entitled to the business deductions and depreciation he has claimed relating thereto.
2. Whether petitioner may deduct, under section 217, certain expenses he allegedly incurred in moving from King of Prussia, Pennsylvania, to the Washington, D.C., area in connection with a change in place of employment. We hold that, in addition to the amount allowed by respondent, petitioner is entitled to a further deduction of $106.87.
3. Whether petitioner, under section 166, is entitled to a nonbusiness bad debt deduction for money he allegedly loaned to his former wife. We hold that he is not.
4. Whether petitioner may deduct, under section 170, certain contributions he allegedly made to charities. We hold that petitioner has not established that he is entitled to such deductions in any amount greater than that already allowed by respondent.
5. Whether petitioner may deduct, under section 165, alleged losses flowing from the theft of his car and its contents. We hold that he may not.
6. Whether petitioner may deduct employee business expenses attributable to his employment with the United States Nuclear Regulatory Commission, his translation services, and job-hunting efforts. We hold that he may deduct certain additional job-hunting expenses in the total amount of $946.
7. Whether petitioner is liable for additions to tax for negligence pursuant to section 6653(a)(1)(A) and (B). We hold that he is so liable.
Also, petitioner claimed various additional deductions in his petition that he had not claimed on his 1986 tax return.2 We will discuss these additional deductions under the appropriate sections below.3
For convenience, our findings of fact and opinion on each issue will be combined, but each issue will be discussed under a separate heading.
Some of the facts have been stipulated and are so found. The stipulation of facts and the exhibits attached thereto are incorporated herein by this reference.
At the time the petition was filed, petitioner Unte Cheh resided in Rockville, Maryland. Petitioner is a nuclear engineer employed full time by the United States Nuclear Regulatory Commission. He reported a substantial amount of income for the taxable year 1986, but claimed large deductions for Schedule C business losses, employee business expenses, job-hunting expenses, moving expenses, theft loss, and various other deductions, which resulted in a reported tax liability of zero for the year. Most of the issues are essentially factual, involving questions as to whether certain events actually occurred, whether certain expenses were actually incurred, and whether petitioner has substantiated the amounts of any deductible expenses.
Petitioner claimed a business loss in the amount of $5,259.61 on Schedule C of his 1986 individual Federal income tax return. Petitioner's claimed Schedule C loss deduction is based on translation services that he performed in his home for the United States Joint Publications Research Service (JPRS), a division of the Central Intelligence Agency (CIA). In the statutory notice of deficiency, respondent disallowed all of the loss claimed by petitioner on Schedule C.4
In his petition to this Court, petitioner claimed additional deductions of $1,494.41 for "Computer/word processor and peripheral accessories" and $1,036 for "Office maintenance/operation and depreciation".
On brief, petitioner revised5 his net loss claim as follows:
Income .......................... $ 212.80
Expenses
Travel ........................ 494.02
Magazines and Dues ............ 240.00
Laundry and Cleaning .......... 120.00
Home Office Expenses .......... 212.806
Contract Labor ................ 22.80
Printer (depreciation) ........ 31.80
Telephone away from home ...... 268.79
Prof. journals & books 520.00
Storage ....................... 1,177.81
___________
Net Loss ........................ ($ 2,875.22)
During the tax year at issue, petitioner was a nuclear engineer for the United States Nuclear Regulatory Commission (NRC) on a full-time basis. In 1985, petitioner asked JPRS about providing translation services on a part-time basis. JPRS engages independent contractors to translate foreign language materials into English. The translated material is usually published in reports and made available to the various departments and agencies of the Federal government and to government contractors. Some of these materials are also made available to the public through the Department of Commerce.
JPRS has approximately 700 translators throughout the United States. JPRS finds it more cost-effective to enter into contracts with part-time translators, who perform specific projects upon request and who need not move to Washington, D.C., to do so, rather than to hire full-time employees. These translators must perform their services in their own homes or other locations, because JPRS does not provide any office space or equipment for their use. JPRS does not promise these translators any specific volume of work, or indeed any work, because it has no control over the amount of work it receives. These translators receive no assurance that they will receive any assignments to translate materials.
Petitioner signed an independent contractor agreement with JPRS, effective April 1, 1986, to translate into English Korean materials concerning nuclear mathematics. The agreement was to remain in effect until September 30, 1986, but would be automatically renewed for successive 1-year periods unless terminated by the written notice of either party. By letter dated August 26, 1987, JPRS notified petitioner of its intention to terminate the agreement, effective September 10, 1987. The agreement was terminated at that time. Other than the translation services rendered to JPRS under the above contract, petitioner had never engaged in translation services before that time and has not engaged in any such activity since that contract.
In December 1986, JPRS sent letters to its translators highly recommending that they consider performing their translation services on a computer. JPRS provided an incentive of $3 per 1,000 words in addition to the translator's regular rate per 1,000 words for work completed on a computer. The letter stated that there may also be tax benefits related to purchasing a computer. However, it would take even the most productive independent contractors, on average, a few years and the translation of several hundred thousand words to pay for a computer. Petitioner had already purchased a computer/word processor sometime before July of 1986,7 and his purchase was not prompted by this JPRS letter.
During 1986, petitioner received a total of $212.80 for the translation services he performed for JPRS, receiving $16 on June 6, 1986 $29.60 on July 9, 1986; $57.20 on August 8, 1986; and $110 on September 5, 1986. Petitioner signed a Direct Deposit Form allowing JPRS to deposit such payments directly into petitioner's personal bank account.
Because of his employment by NRC, petitioner was prohibited from performing translation services for anyone other than another department or agency of the United States Government. He had to obtain special permission from NRC to perform such services for JPRS. Only JPRS or other divisions of the CIA had need of such services to translate nuclear mathematics materials from Korean into English. Therefore, there was no private market or other government market in which petitioner could pursue such translation activities.
Petitioner argues that he has established that he was in the trade or business of translating Korean technical materials into English for JPRS, and that he has substantiated his business expenses related thereto. Petitioner asserts that he was engaged in "carrying on" a trade or business by having entered into a contract with JPRS to perform translation services and by holding himself out as available to perform such services for JPRS throughout 1986. Petitioner further contends that the translation of Korean nuclear mathematics materials into English has none of the earmarks of a hobby or other activity entered into for extraneous reasons. Petitioner claims he has presented sufficient evidence to document the business expenses he incurred with respect to his translation activities. He, therefore, contends that he is entitled to deductions on Schedule C as are allowable under sections 162, 167, and 168.
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