Contini v. Comm'r of Internal Revenue

• Decision Date: 19 March 1981
• Docket Number: Docket No. 1563-78.
• Citation: 76 T.C. 447
• Parties: LOUIS P. CONTINI and DIANE E. CONTINI, PETITIONERS v. COMMISSIONER of INTERNAL REVENUE, RESPONDENT
• Court: U.S. Tax Court

76 T.C. 447

LOUIS P. CONTINI and DIANE E. CONTINI, PETITIONERS

v.COMMISSIONER of INTERNAL REVENUE, RESPONDENT

Docket No. 1563-78.

United States Tax Court

Filed March 19, 1981.

In 1975, petitioner, an engineer, paid $2,000 to Educational Scientific Publishers (ESP) for certain undescribed materials and services dealing with establishment of family trusts. In 1976, using the materials purchased from ESP, petitioner formally created a family trust to which he transferred the family residence, some jewelry, and the rights to his services and the income therefrom. Also in 1975, petitioner paid $51 to a coworker as his one-half share of the cost of certain tax books that they purchased jointly. Petitioner used those tax books to prepare his 1975 tax return. Held: The $2,000 paid to ESP for family trust materials is not deductible under sec. 212 (1), 212 (2), or 212 (3), I.R.C. 1954, or as an educational expense under sec. 162. The expense is a nondeductible personal expenditure under sec. 262. Held, further, the $51 paid for tax books used to prepare petitioner's 1975 tax return is deductible under sec. 212 (3) and sec. 1.212-1 ( l), Income Tax Regs. Louis P. Contini, pro se.

William F. Garrow, for the respondent.

PARKER , Judge:

Respondent determined a deficiency of $501 in petitioners' Federal income taxes for the year 1975. The issues for decision are:

(1) Whether $2,000 paid in 1975 for materials dealing with establishment of a family trust is deductible by petitioners under section 212¹ or section 162; and

(2) Whether $51 paid in 1975 for tax materials is deductible by petitioners under section 212 (3) and the regulations thereunder.

FINDINGS OF FACT

Some of the facts have been stipulated. The stipulation of facts and the exhibits attached thereto are incorporated by this reference.

Petitioners Louis P. Contini and Diane E. Contini resided in St. Clair Shores, Mich., at the time they filed their petition in this case. They timely filed a joint Federal income tax return for 1975. Petitioner Diane E. Contini is a party to this proceeding solely because she filed a joint return with her husband, and the term “petitioner” will hereinafter refer to Louis P. Contini.

During all relevant times herein, petitioner was employed as an engineer. Throughout 1975, he worked for Giffels Associates, Inc., in Detroit, Mich., and his wife was a homemaker. Aside from petitioner's $20,622.33 salary from Giffels, the only other income reported on their 1975 joint return was $7.80 of interest income. Their only property holdings during 1975 were some jewelry and their family home.

On October 6, 1975, petitioner paid the sum of $2,000 to obtain certain undescribed written materials and services from Educational Scientific Publishers (hereinafter ESP). At ESP's insistence, this transaction was conducted through an entity, entitled the “Louis P. Contini Educational Trust,” established by petitioner as grantor-creator and two ESP representatives, William L. Comer and Patricia J. Tweedy, as acceptors-trustees. Accordingly, petitioner made his check for ESP materials payable to the “Louis P. Contini Educational Trust,” and he executed a document entitled “Declaration of Trust of this Express Equity Pure Trust.”

The declaration, dated October 7, 1975, provided, in part, as follows:

THE GRANTOR hereby constitutes and appoints the above designated Trustees to be in fact TRUSTEES of the TRUST hereby created and established. THE GRANTOR for and in consideration of the objects and purposes herein set forth does hereby endow, grant, give and deliver the cash sum of $2000.00 to the Trustees hereto who acknowledge receipt of said endowment IN TRUST, and who are to hold legal title to said endowment in joint tenancy and not as tenants in common and to collectively act by virtue of this covenant as a Board of Trustees to convey and deliver the herein above mentioned endowments, grants and or gifts in the name herein above designated to THE U.S.E.—-A TRUST EDUCATIONAL TRUST who as a participant in Educational Scientific Publishers (A TRUST's) Educational Programs will for the appropriate endowment secure E.S.P.'s (A TRUST's) EDUCATIONAL PROGRAM for the exclusive use only of the GRANTOR-CREATOR of THIS TRUST to facilitate his/her EDUCATION and in so doing accomplish the

Trustee's Declaration of Purpose

of This Express Equity Pure Trust

which is to PARTICIPATE IN EDUCATIONAL SCIENTIFIC PUBLISHERS (A TRUST's) EDUCATIONAL EFFORT WHOSE PURPOSE IS TO PROPAGATE THE DEVELOPMENT OF THE EDUCATIONAL PROCESSES WHEREVER LEARNING OCCURS.

THE TRUSTEES OF THIS TRUST by their resolution of purpose may perform and function on behalf of any individual, group or combination of individuals, severally or collectively.

THIS TRUST is authorized to provide Itself with funds by ITS Trustees from endowments accruing to IT for ITS participation in Educational Scientific Publishers (A Trust's) “copyrighted” Educational Program, “the exclusive licensee of the National Pure Trust Service Mark, reg. no. 608, 111, United States Patent Office.”

THIS—-FORM 1, A Trust's “Educational Endowment is accepted upon the conditions of The Notice of Disclaimer that must be executed (4 copies) by the parties hereto who individually and collectively acknowledge said conditions to be an Addendum that attaches hereto and by reference becomes a part hereof.”

This document was a printed form with certain blank spaces that were filled in. The only purpose of the “Louis P. Contini Educational Trust” was to order the program or packet of materials. The record does not show what written materials or services petitioner was entitled to receive for his $2,000 payment. Other than the $2,000 check, no property or money was ever transferred to the “Louis P. Contini Educational Trust.”

In November or December of 1975, petitioner received from ESP an instructional text and some forms for rearranging property and forming family trusts. He received some additional materials from ESP subsequent to 1975, possibly including memoranda on tax laws and pamphlets on family estate planning, business planning, accounting techniques, and preparation of tax returns. ESP issued some pamphlets at seminars that it periodically conducted for purchasers of ESP materials. Petitioner attended at least one such seminar sometime after 1975. The purchase price may have entitled petitioner to legal representation in administration, property distribution, and tax matters involving family trusts. However, there is no evidence in the record as to ESP's terms for providing such representation or as to the extent to which petitioner received such assistance. In fact, other than the family trust documents and information, the Court cannot determine what petitioner received for his $2,000 payment.

During 1976, petitioner, using the materials he had purchased from ESP, formally created a family trust, entitled the “Louis P. Contini Family Estate (A Trust).” Petitioner apparently transferred to that trust the family home, some jewelry, and rights to his services and the income therefrom.

During 1977, petitioner supplemented his employment as an engineer by establishing a professional corporation for the practice of engineering. In addition, sometime after 1975, petitioner purchased a house for rental purposes. There is no evidence, however, showing (1) the relationship, if any, of the professional corporation and the rental property to ESP materials or to the “Louis P. Contini Family Estate (A Trust),” or (2) the amount or timing of any income that these activities may have generated.

On December 8, 1975, Mr. Contini paid to L. E. Fritts, a friend and coworker at Giffels, $51 as his one-half share of the cost of certain tax books that they purchased jointly. These books were published by one of the major publishing houses and not by ESP. The books consisted of an “Executive Tax Desk Manual” and a “Federal Tax Course” dealing with tax laws and how to file tax returns and were used by petitioners to prepare their 1975 tax return.

On their 1975 joint Federal income tax return, petitioners claimed a deduction for the $2,051 under miscellaneous deductions with the following explanation:

Educational cost $ materials . . . costs to maintain & conserve assets and/or minimize taxes (I.R.C. 212)

This deduction was disallowed in full by respondent in the statutory notice of deficiency.

OPINION

The first issue for decision is whether the sum of $2,000 paid in 1975 for materials dealing with establishment of a family trust is deductible by petitioners under section 162 or section 212. Petitioners argue that the $2,000 is deductible as an expense under section 212(1) for the production or collection of income, under section 212(2) for the management, conservation, or maintenance of property held for the production of income, under section 212(3) for the determination of taxes, or under section 162 as educational expenses to maintain or improve skills required by petitioner-husband in his trade or business as an engineer or to meet express requirements to retain his job as an engineer. Petitioners have the burden of proving their entitlement to this deduction. Welch v. Helvering, 290 U.S. 111 (1933); Rule 142(a), Tax Court Rules of Practice and Procedure.

Sections 1.211-1 and 1.212-1(e), Income Tax Regs., provide that a deduction otherwise allowable under section 212 shall not be allowed if it falls within section 262 dealing with nondeductible personal, living, and family expenses. In addition to that limitation, a deduction under section 212(1) or 212(2) is allowable only for expenditures made for the production or collection of taxable income from an existing property right, or for the management, conservation, or maintenance of property presently held for the production of taxable income. Sec. 1.212-1(a)(1), Income Tax Regs. There is a basic distinction between allowing deductions for expenses in connection with taxable income or...