Carl H. Jones III and Rubiela Serrato v. Commissioner , 131 T.C. No. 3 ( 2008 )

131 T.C. No. 3UNITED STATES TAX COURT
CARL H. JONES III AND RUBIELA SERRATO, Petitioners v.
COMMISSIONER OF INTERNAL REVENUE, Respondent
Docket No. 10434-06. Filed July 28, 2008.
P-H was eligible for retirement when he was laid off in
2002. Later that year P-H began day trading. In 2003 P-H
traveled approximately 750 miles to Georgia from his home in
Florida to take a 5-day one-on-one course in day trading. P
claimed deductions pursuant to sec. 212(1), I.R.C., for the
expenses relating to the course.
Held: Sec. 274(h)(7), I.R.C., prohibits the expenses
relating to the course from being deducted under sec.
212(1), I.R.C., because the course is a convention, seminar,
or similar meeting.
James R. Monroe, for petitioners.
Monica J. Miller, Laura A. Price, and Francis C. Mucciolo,
for respondent.
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VASQUEZ, Judge: Respondent determined a $2,209 deficiency
in petitioners’ 2003 Federal income tax. After concessions, the
issue for decision is whether petitioners are allowed to deduct
the cost of a one-on-one course in day trading pursuant to
section 212(1).1
FINDINGS OF FACT
Some of the facts have been stipulated and are so found.
The stipulation of facts and the attached exhibits are
incorporated herein by this reference. At the time they filed
the petition, petitioners resided in Florida.
Carl H. Jones III (petitioner), an electrical engineer
eligible for retirement, was laid off in 2002. Petitioner began
day trading in 2002 but had invested in stocks for 35 years.
Petitioner spent approximately 6.5 hours a day Monday through
Friday reviewing, studying, and executing trades. In order to
improve his day trading abilities, petitioner signed up for a 5-
day one-on-one course called DayTradingCourse.com (the course)
that he had read about online.2 The course was held in
Cartersville, Georgia, approximately 750 miles from petitioner’s
home in Florida. Petitioner drove by himself to the course.
1
Unless otherwise indicated, all section references are to
the Internal Revenue Code, and all Rule references are to the Tax
Court Rules of Practice and Procedure.
2
The course is also known as Etowah Valley, Inc.
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Petitioner stayed at a modest local hotel just off the interstate
highway approximately 5 miles from the course location.
The course consisted of 5 days of intensive training and
instruction taught by Paul Quillen. Monday through Thursday
petitioner received 8 hours of instruction daily, and on Friday
petitioner received 5 hours. During the course petitioner
learned strategies about day trading, studied Japanese
candlestick patterns,3 and took a psychological exam. During his
time in Cartersville petitioner did not participate in
recreational activities. In 2003 and as of the date of trial
petitioner continued his day trading activity. Petitioners
concede that they are not in the trade or business of day
trading.
Petitioners claimed $17,563 as miscellaneous itemized
deductions on their 2003 joint Federal income tax return. Of
that amount $6,053.06 was for the course and related expenses.
The total of $6,053.06 consisted of: $5,247 for the course,
$416.64 for lodging, $224.10 for round trip travel from
petitioner’s home to and from Cartersville, Georgia, where the
course was held, $145.32 for food, and $20 for a course book. On
or about March 31, 2006, respondent issued petitioners a notice
of deficiency. Petitioners timely petitioned the Court.
3
Japanese candlestick trading is a method where the trader
looks for patterns in the price of the stock over a period.
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OPINION
Petitioners have neither claimed nor shown that they
satisfied the requirements of section 7491(a) to shift the burden
of proof to respondent with regard to any factual issue.
Accordingly, the burden of proof is on petitioners to show that
respondent’s determination set forth in the notice of deficiency
is incorrect. Rule 142(a)(1); Welch v. Helvering, 290 U.S. 111,
115 (1933). Deductions are a matter of legislative grace;
petitioners have the burden of showing that they are entitled to
any deduction claimed. Rule 142(a); New Colonial Ice Co. v.
Helvering, 292 U.S. 435, 440 (1934).
Petitioners claimed the deductions pursuant to section
212(1). Section 212(1) allows as a deduction all the ordinary
and necessary expenses paid or incurred during the taxable year
for the production or collection of income. Petitioners argue
that the course was necessary in order for petitioner to become a
better day trader and to maximize profits and minimize losses on
his trading activity.
Section 274(h)(7) provides that no deduction shall be
allowed under section 212 for expenses allocable to a convention,
seminar, or similar meeting. Petitioners argue that the course
is not a convention, seminar, or similar meeting as contemplated
by section 274(h)(7). We disagree.
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In Gustin v. Commissioner, T.C. Memo. 1983-592, we held that
a taxpayer who lived in Wisconsin was allowed deductions pursuant
to section 212 for expenses related to attending conventions
sponsored by an association of investment clubs in San Diego,
Cleveland, and Amsterdam. We were satisfied that the expenses
bore the requisite connection with her income-producing
activities as an investor in a portfolio of stocks because her
primary purpose in going to the conventions was to learn strategy
and information that she put directly to use in her investment
decisions.
Thereafter in 1986 Congress, in effect overruling Gustin,
enacted section 274(h)(7) to curb taxpayers from claiming
deductions under section 212 for expenses related to conventions,
seminars, or other meetings related to financial planning. The
accompanying House and Senate committee reports observed that
individuals had claimed deductions for attending seminars about
investments in securities or tax shelters, and that in many cases
those seminars were held in locations that were attractive for
vacation purposes and scheduled in ways to allow substantial
recreation time. H. Conf. Rept. 99-841 (Vol. II), at II-31 to
II-32 (1986), 1986-3 C.B. (Vol. 4) 1, 31-32. The disallowance of
expenses is intended to extend to registration fees, travel and
transportation costs, and meal and lodging expenses, among other
costs attributable to attending a convention, seminar, or similar
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meeting. S. Rept. 99-313, at 75 (1986), 1986-3 C.B. (Vol. 3) 1,
75.
The fact that petitioner did not engage in recreational
activities during the course is not determinative. Petitioner
traveled nearly 750 miles to take a course on investing in
securities. Whether petitioner stayed at a modest motel or a
luxury hotel is also not determinative. The one-on-one nature of
the course is not determinative. Section 274(h)(7) is broad and
disallows deductions pursuant to section 212 for the costs,
including registration fees, travel, meals, and lodging, incurred
to attend a convention, seminar, or similar meeting even if the
personal benefits of the trip are secondary to the investment
benefits. Merriam-Webster’s Collegiate Dictionary (9th ed. 1985)
defines a seminar as a meeting for giving and discussing
information. Over 5 days petitioner received hours of
information about day trading in the course taught by Mr.
Quillen. In the light of the terms and purpose of section
274(h)(7), we conclude that the course was a seminar, or a
similar meeting within the scope of that statute, and therefore
the expenses relating to the course cannot be deducted pursuant
to section 212(1).
It is important to note that section 274(h)(7) does not
preclude deductions pursuant to section 162 (trade or business
expenses) for conventions, seminars, or similar meetings.
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Petitioners concede they were not in the trade or business of day
trading and cannot deduct the expenses relating to the course
pursuant to section 162.
In reaching our holding herein, we have considered all
arguments made by the parties, and to the extent not mentioned
above, we find them to be irrelevant or without merit.
To reflect the foregoing,
Decision will be entered
under Rule 155.