Keating v. Commissioner

• Court: U.S. Tax Court
• Writing for the Court: Panuthos
• Citation: Keating v. Commissioner, 69 T.C.M. 2052 (T.C. 1995)
• Decision Date: 13 March 1995
• Docket Number: Docket No. 21172-91.
• Parties: Keith and Pia Keating v. Commissioner.

69 T.C.M. 2052

T.C. Memo. 1995-101

Keith and Pia Keating v. Commissioner.

Docket No. 21172-91.

United States Tax Court.

Filed March 13, 1995.

John O'Shea, 305 Mill Spring Rd., Manhasset, N.Y., for the petitioners. William J. Gregg and Mark A. Ericson, for the respondent.

Memorandum Findings of Fact and Opinion

PANUTHOS, Chief Special Trial Judge:

This case was heard pursuant to the provisions of section 7443A(b)(3) and Rules 180, 181, and 182.¹ Respondent determined deficiencies in petitioners' 1985 and 1986 Federal income taxes in the amounts of $4,274 and $4,445, respectively. After a concession by petitioners,² the issues are: (1) Whether a portion of income received by petitioner Keith Keating (hereinafter sometimes petitioner) from his employer constitutes Schedule C income; (2) whether petitioners are entitled to deductions for recording expenses; (3) whether petitioners are entitled to deductions for telephone expenses; (4) whether petitioners are entitled to deductions for travel expenses; (5) whether petitioners are entitled to deductions for automobile expenses; (6) whether petitioners are entitled to a deduction in 1986 for depreciation of office equipment; (7) whether certain deductions were properly claimed on Pia Keating's Schedule C; and (8) whether petitioners are entitled to a deduction in 1986 for depreciation of a computer and software.

Findings of Fact

Some of the facts have been stipulated and they are so found. The stipulation of facts and attached exhibits are incorporated herein by this reference. At the time of the filing of the petition, petitioner resided in Lockwood, New York, and Pia Keating resided in Ithaca, New York.

At the outset we note that the record keeping by petitioners for the years in issue was nominal and disorganized. Petitioners' counsel, despite admonishment from the Court, continually attempted to place the blame for the lack of records on respondent. It is clear that petitioners have the burden of proof on all issues in this case. Rule 142(a); Welch v. Helvering [3 USTC ¶ 1164], 290 U.S. 111 (1933). While we found petitioners generally to be credible witnesses, the lack of consistent record keeping and the disorganized presentation by their counsel caused the Court much additional effort in reviewing the record and sorting out the issues. Thus, the responsibility for any omissions in the record lies with petitioners' counsel. Given that petitioners have the burden of proof, such omissions resulted in findings against them.

During the years at issue, petitioner was a full-time, tenured professor of English at Nassau Community College (Nassau). Petitioner taught courses on Shakespeare during the day and regularly conducted office hours from an office located at Nassau. Petitioner also taught courses on Shakespeare during the evenings and in the summers at Nassau and at various high schools for which he was paid by Nassau. While petitioner was a tenured professor (a full-time salaried position) in connection with the day classes, he was a member of the adjunct faculty (compensated according to class hours taught) in connection with teaching the evening and summer classes. Petitioner received a series of checks from Nassau for the evening and summer classes separate from the compensation for petitioner's work as a fulltime professor. In general, compensation for teaching the day courses was greater than for the evening and summer courses.

Petitioner received Forms W-2 from Nassau indicating wages paid for 1985 and 1986 in the amounts of $50,097.27 and $52,207.51, respectively. Of the income received from Nassau and reported on the Forms W-2, petitioner reported $10,497 and $7,285, respectively, on Schedules C of petitioners' 1985 and 1986 Federal income tax returns, representing compensation for teaching the evening and summer classes. Petitioner never discussed with Nassau the reason that his entire income from Nassau was reported on Forms W-2.

In November 1985, petitioner was invited to deliver a lecture at Exeter University in England as part of a symposium on Wilson Knight, a notable Shakespearean scholar and friend of petitioner. Petitioner's lecture eulogized Wilson Knight, who had recently died, and praised his work. Pia Keating accompanied petitioner on the trip to England, but was not involved with the symposium.

In 1986, petitioner was invited to speak at the European Academy in Paris, France. Petitioner was inducted into the European Academy and delivered a speech on Shakespeare. Petitioner also traveled to Simon's Rock College of Bard (hereinafter Simon's Rock) in Great Barrington, Massachusetts, to deliver lectures on two occasions in 1986. Petitioner was compensated by Simon's Rock for conducting these lectures.

In 1985, petitioner began preparation of a series of tape-recorded interdisciplinary lectures to be played over the radio as a Shakespeare course for college credit. Petitioner's interdisciplinary teaching method is an attempt to make Shakespeare's works more accessible to students by coordinating readings of Shakespeare's plays with music, sound effects, and descriptions of paintings and sculptures. The entire program was recorded on 60 reel-to-reel tapes, which were broadcast over the radio as a college credit course. The first 30 tapes, broadcast over the first semester, discussed Shakespeare's tragedies, and the second 30 tapes, broadcast over the second semester, discussed Shakespeare's comedies. The tapes were also used at other universities besides Nassau. Petitioner never intended to sell the tapes and received no income for the broadcasts.

Petitioner created the tapes in the course of his employment as a professor, working on them during hours that he otherwise would have been teaching in the classroom. In order to broadcast the music in connection with the program, petitioner was required to obtain permission from publishing companies that owned rights to the music. The licenses obtained by petitioner were granted solely for the purposes of broadcast. In the course of compiling the music, petitioner made telephone calls to obtain the broadcast rights, purchased records from record stores, and dubbed the music onto tape at Workshoppe Recording Studios and Tiki Recording Studios. Petitioner also had pamphlets, brochures and flyers printed at printing companies to advertise the broadcast.

On the Schedules C attached to petitioners' 1985 and 1986 Federal income tax returns, petitioner deducted the following expenses:

Expense                               1985     1986
                Car ..............................   $4,508   $4,658
                Dues and publications ............      131      514
                Travel ...........................    1,408    2,004
                Telephone ........................      761      616
                Continuing educations ............      810    1,920
                Recording expenses ...............    8,543    4,553
                Depreciation .....................      -0-      313
                Postage and other expenses .......       44      586
                

Respondent disallowed all of the Schedule C deductions but allowed as miscellaneous itemized deductions the expenses for dues and publications, continuing education, and postage and other expenses. Accordingly, the following items with regard to petitioner remain in dispute:

Expense                             1985     1986
                Car ............................   $4,508   $4,658
                Travel .........................    1,408    2,004
                Telephone ......................      761      616
                Recording expenses .............    8,543    4,553
                Depreciation ...................      -0-      313
                

During the years in issue, Pia Keating was a Ph.D. student at Columbia University, studying communication and language development. In 1985, she also served as a research assistant for Dr. Lois Bloom at Columbia University, which involved working a few hours a week at a laboratory to study language development in children's cognitive development. During 1985, Pia Keating received income, reported on Forms W-2, from Teacher's College, Columbia University.

In 1986, in addition to continuing her education and working as a research assistant, Pia Keating performed clinical work in Port Washington, New York. She also taught classes in communications and psychology at local colleges, including teaching at Nassau for about 4 weeks during the summer and at Hofstra University during the spring and fall semesters. During 1986, Pia Keating received income, reported on Forms W-2, from Hofstra University, Nassau, and Teacher's College, Columbia University.

Pia Keating purchased a computer in 1986, which she used in the course of her business and doctoral work, typing manuscripts, reports, course outlines, and envelopes. None of her employers required her to purchase the computer. She also typed scripts for petitioner's radio program and prepared petitioner's reports. In addition, she used the computer to facilitate her rehabilitation from brain surgery in 1984, performing exercises several times daily to improve her reaction time.

On Schedules C attached to petitioners' 1985 and 1986 Federal income tax returns, Pia Keating reported income in connection with petitioner's alleged teaching business in the amounts of $835 and $2,871, respectively. Pia Keating deducted the following expenses on her Schedules C for 1985 and 1986:

Expense                              1985     1986
                Car .............................   $2,190   $2,832
                Dues and other expenses .........       30       94
                Continuing educations ...........      609      312
                Depreciation ....................      -0-    2,304
                

Respondent disallowed all of the Schedule C deductions but allowed as miscellaneous, itemized deductions expenses for continuing education and the dues and other expenses.³ After the concession by petitioners, only the depreciation expense for 1986 is at issue with regard to Pia Keating.

Opinion

1. Classification of Income Received from Nassau

The first issue involves determination of whether petitio...