Richard P. Devine v. Commissioner of Revenue (June 21, 2012)

COMMONWEALTH OF MASSACHUSETTS

		      APPELLATE TAX BOARD

RICHARD P. DEVINE         v.	     COMMISSIONER OF REVENUE
	        							 		   
Docket Nos. C304862				Promulgated:
  S306366				June 21, 2012 
							   
	These are appeals filed under the formal procedure pursuant to G.L. c. 58A, § 7 and G.L. c. 62C, § 39 and under the small claims procedure pursuant to G.L. c. 58A, § 7B and G.L. c. 62C, § 39 from the refusal of the appellee, Commissioner of Revenue ("Commissioner"), to abate income taxes assessed against the appellant, Richard Devine, for the tax years 2004 through and including 2007 ("tax years at issue").
	Commissioner Scharaffa heard these appeals.  Chairman Hammond and Commissioners Egan, Rose, and Mulhern joined him in decisions for the appellee for tax years 2004 through and including 2006, and in a decision for the appellant for tax year 2007.  
The findings of fact and report for Docket No. C304862 are made pursuant to the appellant's request under G.L. c. 58A, § 13 and 831 CMR 1.32.  The findings of fact and report for Docket No. S306366 are made pursuant to the motion of the Appellate Tax Board ("Board") under G.L. c. 58A, § 13 and 831 CMR 1.32.
	Richard Devine, pro se, for the appellant.
	
Bensen V. Solivan, Esq. and John J. Connors, Jr., Esq. for the appellee.  


FINDINGS OF FACT AND REPORT
On the basis of the testimony and exhibits offered into evidence at the hearing of these appeals, the Board made the following findings of fact.
At all times relevant to these appeals, the appellant was a Massachusetts resident required to file a resident income tax return ("Mass. Return").  The pertinent jurisdictional facts for each tax year are as follows.
The appellant, together with his wife, filed a joint Mass. Return for the 2004 tax year on January 5, 2006.  Pursuant to an exchange of information agreement with the Internal Revenue Service (the "IRS"), the Commissioner determined that the appellant's correct wages were $16,825 higher than reported on the 2004 Mass. Return.  By Notice of Assessment ("NOA") dated January 3, 2008, the Commissioner assessed the appellant $649.51 in additional taxes, plus statutory additions.  The appellant timely filed his abatement application with the Commissioner on February 19, 2008.  Pursuant to a Notice of Abatement Determination dated September 8, 2009, the Commissioner notified the appellant that he was entitled to the other-jurisdiction credit for taxes paid to Rhode Island, and thus issued a partial abatement of $203.  However, the Commissioner denied the appellant's request for abatement of taxes based on her disallowances of the appellant's deduction for employee business expenses, his deduction for Schedule C business expenses, and his medical/dental deductions.  Accordingly, the amount at issue for tax year 2004 is $446.51, plus statutory additions.  
The appellant, together with his wife, filed a joint Mass. Return for tax year 2005 on June 27, 2007.  By letter dated February 4, 2008, the Commissioner notified the appellant that his Mass. Return had been selected for audit; the letter detailed the documents that the appellant needed to submit to substantiate his Mass. Return.  Pursuant to a consent extending the time for assessment, the Commissioner issued an NOA, dated September 22, 2009, notifying the appellant of the assessment of $1,479 in additional taxes, plus statutory additions.  According to the audit narrative submitted as evidence in these appeals, the assessment was based on the Commissioner's disallowances of the appellant's deductions for employee business expenses and Schedule C business expenses, and of his exemption for one of the two dependents claimed by the appellant.  The Commissioner has no record of an abatement application from the appellant for tax year 2005, and the appellant did not produce an abatement application to the Board as evidence in these appeals; he claimed that the abatement application, if one existed, may have been destroyed by a flood in the appellant's basement.  
The appellant filed with the Board a Petition Under Formal Procedure for tax years 2004 and 2005 on October 15, 2009.  The Board found that the petition for tax year 2004 was seasonably filed.  On the basis of the foregoing facts, the Board determined that it had jurisdiction over the appeal for tax year 2004.  However, as will be explained more fully in the Opinion, because the appellant could not meet his burden of proving that he had filed an abatement application for tax year 2005, a prerequisite to the Board's jurisdiction pursuant to G.L. c. 62C, § 39, the Board found and ruled that it lacked jurisdiction over the appeal for tax year 2005.
The appellant, together with his wife, filed a joint Mass. Return for tax year 2006 on August 3, 2007.  On August 6, 2007, the Commissioner adjusted the appellant's Mass. Return pursuant to G.L. c. 62C, § 26(c), which enables the Commissioner to adjust a return that contains an "obvious error."  The "obvious error" on the 2006 Mass. Return was the appellant's claim of $25,092 on line 15 for student loan interest, when the maximum amount allowed was $2,500.  The adjustment increased the appellant's tax by $1,197.  After a subsequent audit, the Commissioner issued an NOA, dated April 13, 2010, notifying the appellant of the assessment of $1,947 in additional tax, plus statutory additions.  The $1,947 assessment superseded the $1,197 assessment and also included assessments based on the Commissioner's disallowances of the appellant's deduction for employee business expenses, his medical/dental deductions, and the other-jurisdiction credit.  The Commissioner subsequently allowed the other-jurisdiction credit for taxes paid to Rhode Island and abated $444, the full amount requested based on that credit.  Therefore, the amount at issue for tax year 2006 is $1,503, plus statutory additions.  
The appellant, together with his wife, filed a joint Mass. Return for the 2007 tax year on July 11, 2008.  By the April 13, 2010 NOA, the Commissioner notified the appellant of the assessment of $1,704 in additional taxes, plus statutory additions, based on the Commissioner's disallowances of the appellant's deduction for employee business expenses, his deduction for Schedule C business expenses, his medical/dental deductions, and the other-jurisdiction credit.  On May 13, 2010, the appellant timely filed an abatement application for tax years 2006 and 2007.  On May 25, 2010, prior to the Commissioner acting on this application, the appellant filed a Petition Under the Small Claims Procedure with the Board for tax years 2006 and 2007.  On the basis of the foregoing facts, the Board found and ruled that it had jurisdiction over the appeals for tax years 2006 and 2007.  The Formal appeal and the Small-Claims appeal were consolidated for purposes of the hearing at the Board.  
At all times relevant to these appeals, the appellant was working as an adjunct professor at various universities, colleges and community colleges, both private as well as public and located both in Massachusetts and Rhode Island (collectively "colleges").  The appellant further classified himself as a "researcher" and a "therapist" on his Form 2106, "Employee Business Expenses," from his federal income tax return.  
At issue in these appeals are the Commissioner's disallowances of: (1) deductions for employee business expenses, consisting primarily of expenses for meals and
mileage; (2) deductions for Schedule C business expenses, also consisting primarily of expenses for meals and mileage; (3) medical/dental deductions; and (4) the other-jurisdiction credit for tax year 2007.  The Board's findings for each issue are as follows: 

1.  Deductions for employee business expenses
The appellant contended that he was entitled to deduct his employee business expenses because, when he encouraged people to enroll in the courses that he taught, he met the criteria to be considered an "outside salesperson," a category of taxpayers entitled to deduct certain employee business expenses under G.L. c. 62, § 2(d).  The appellant testified that, unless a sufficient number of students enrolled in his courses, the colleges would cancel the courses and he would, therefore, not receive compensation.  The appellant thus claimed to be engaged in "solicitation" of his courses.  He explained that he promoted his courses routinely, primarily by distributing flyers and talking with restaurant patrons and wait staff, conversations that he classified as "interviews."  However, the appellant never contended, nor did he attempt to demonstrate, that the colleges required him to promote his courses or that he was paid by the colleges to promote courses.
In the alternative, the appellant contended that his position as an adjunct professor at Massachusetts public colleges, who was paid on a per-course basis as opposed to a salaried basis, qualified him as a "fee-basis government official," a category of employee that is also entitled to claim certain unreimbursed expenses as an employee business deduction.  The appellant offered no evidence that he was elected to his positions as adjunct professor at Massachusetts colleges, that he had authority over policy making or public affairs within the government, or that he hired employees.  
The Commissioner submitted copies of numerous written requests by various Department of Revenue ("DOR") employees seeking substantiating details for the deductions claimed by the appellant.  However, despite these numerous requests, the appellant did not submit to the Commissioner or to the Board any detail substantiating his claimed expenses for the tax years at issue, including but not limited to: itemized receipts; itemized bills; credit card statements; and mileage logs.
On the basis of the facts of record, the Board found that the appellant was not required by the colleges to promote his courses, nor was he paid by the colleges to do so.  Rather, the appellant was paid by the colleges for teaching his courses.  Any promotion of his courses by the appellant was engaged in at his own initiative, because he believed it would help in attaining sufficient enrollment for his courses and thus generate employment for him.  Therefore, the Board found that the appellant was not engaged as an outside salesperson for purposes of the Massachusetts income tax.  
The appellant also failed to offer any evidence that his positions as an adjunct professor at Massachusetts public colleges endowed him with any authority over policy making or the administration of public affairs in the Commonwealth.  The appellant also did not hire any employees.  Moreover, the Board found that the appellant incurred his expenses in connection with the promotion of his courses, which he did on his own initiative and not at the request of the colleges.  Therefore, the Board found that the appellant was not engaged as a "fee-basis government official."  
Furthermore, the appellant did not submit to the Commissioner or to the Board any detail of his expenses, including, but not limited to, restaurant receipts, gas receipts, credit card statements, and mileage logs.  The Board thus found that the appellant failed to substantiate the amount of these deductions. 
For these reasons, and as will be explained in detail in the Opinion, the Board found that the appellant was not entitled to deductions for his claimed employee business expenses.
 
2.  Deductions for Schedule C business expenses
The appellant also claimed deductions for Schedule C business expenses incurred in connection with his "consulting services" for tax years 2004 and 2007.  According to the appellant, he offered consulting services in the following areas: "human relations" consulting, which included offering "recommendations of good matches for graduating high school students at competing New England colleges"; "travel and tourism" consulting consisting of "corresponding to public safety officials about travel hazards in the Commonwealth" based on data which he claimed

to have developed during his travel to many colleges in the Commonwealth as an adjunct professor; and "couples counseling," for which the appellant offered little detail except to classify the activity as "informal" and "supportive of my past and future potential in couples counseling practice."  The Board found that many of the appellant's examples consisted of providing unsolicited and/or "informal" advice pro bono.
On the basis of the evidence submitted, the Board found that the appellant failed to supply the evidence necessary for a finding that he carried on a trade or business of consulting, either self-employed or as an employee, in either tax year 2004 or 2007.  The appellant's evidence consisted merely of vague descriptions of isolated activities without explanation of whether these activities were pursued for profit, with regularity and with continuity. 
Moreover, the appellant did not submit to the Commissioner or to the Board any detail of his expenses, including, but not limited to, restaurant receipts, gas receipts, credit card statements, and mileage logs.  The Board thus found that the appellant failed to substantiate his claimed Schedule C business deductions. 
Therefore, for these reasons, and as will be explained in the Opinion, the Board found that the appellant failed to meet his burden of proving that he was engaged in a trade or business of consulting and that he substantiated his expenses.  Accordingly, the Board found that the appellant was not entitled to take Schedule C deductions for any expenses incurred in the course of this activity. 

3. Medical/dental deductions
In each of the tax years at issue, the appellant claimed medical/dental expenses.  The appellant claimed to have submitted to the Commissioner documentation detailing medical/dental deductions for previous years.  However, the appellant did not submit any documentation to the Commissioner or to the Board to detail the medical/dental deductions for the tax years at issue, including but not limited to, statements, receipts, credit card bills and other documentary evidence.  Therefore, the Board found that the appellant failed to substantiate his medical/dental deductions.  Accordingly, the Board found that the appellant failed to meet his burden of proving his entitlement to these deductions.  


4.  Other-jurisdiction credit
Unlike the other tax years at issue, the Commissioner did not abate the amount associated with the other-jurisdiction credit for taxes paid to Rhode Island for tax year 2007.  The Commissioner agreed that the appellant demonstrated that he had owed and paid income taxes to Rhode Island during tax year 2007 in the amount of $371, and thus he substantiated his entitlement to the other-jurisdiction credit in the amount of $371.  The Commissioner explained that this credit was denied in error.  Accordingly, the Board ruled that the appellant is entitled to receive an abatement of $371 for the 2007 tax year.  


OPINION
  The Board lacked jurisdiction over the appeal for tax year 2005.

The issue of whether the Board has jurisdiction over an appeal when the appellant has failed to file an abatement application with the Commissioner has previously been decided by the Supreme Judicial Court in A.W. Chesterton Co. v. Commissioner of Revenue, 406 Mass. 466 (1990).  Citing statutory authority -- G.L. c. 62C, § 39, which provides a right of appeal "by filing a petition with the clerk of the appellate tax board," and § 41, which provides that "[t]he remedies provided by section thirty-seven to forty, inclusive, shall be exclusive" -- and the judicial standard that "the [board] has no jurisdiction to entertain proceedings for relief by abatement begun at a later time or prosecuted in a different manner than is prescribed by the statute," the Court reasoned that the Board's statutory authority to abate taxes is limited to finding whether a taxpayer was entitled to an abatement from the Commissioner.  Id. at 467.  The Court reasoned that, where there was no abatement application before the Commissioner, the Board did not have a decision by the Commissioner to review, and it thus lacked jurisdiction to hear the appeal.  Id. at 468.  
In the instant appeal, the Commissioner had no record of receiving an abatement application from the appellant, nor was the appellant able to produce a copy to the Board.  Consequently, "there can be no appeal to the board on the merits after the right to apply . . . for abatement has been lost through failure to follow statutory procedures."  New Bedford Gas & Edison Light Company v. Assessors of Dartmouth, 368 Mass. 745, 748 (1975).  Accordingly, the Board issued a decision dismissing the appeal for tax year 2005 for lack of jurisdiction.
 
  The Commissioner properly denied the appellant's deductions for employee business expenses.

Massachusetts adjusted gross income includes some but not all of the deductions allowable under the Internal Revenue Code ("Code").  G.L. c. 62, § 2(d).   With respect to unreimbursed employee business expenses, the deductibility may depend upon the nature of the taxpayer's employment.  Pursuant to G.L. c. 62, § 2(d)(2), all federally deductible employee business expenses, including meals and mileage costs, are deductible in Massachusetts by a taxpayer whose "trade or business consists of the performance of services by the taxpayer as an employee and if such trade or business is to solicit, away from the employer's place of business, business for the employer."  This category of taxpayer is commonly referred to as an "outside salesperson."  See also Department of Revenue Directive 89-1 (citing Code § 162, Code § 67, and G.L. c. 62, § 2(d)(2)).
The appellant contended that he was entitled to deductions for employee business expenses related to what he termed the "solicitation" of the courses that he taught as an adjunct professor at Massachusetts colleges.  The Board, however, found that the appellant was not required by the colleges to solicit enrollment in his courses, nor was he paid for his efforts in doing so.  Rather, the appellant received payment for his teaching of those courses as an adjunct professor.  Based on its finding that the appellant was not engaged in a trade or business of "solicit[ing], away from the employer's place of business, business for the employer," the Board accordingly found and ruled that the appellant was not an "outside salesperson" for Massachusetts tax purposes.
In the alternative, the appellant contended that his position as an adjunct professor at Massachusetts public colleges, paid on a per-course basis, qualified him as a "fee-basis government official," and thus entitled to claim the employee business expenses at issue.  Pursuant to G.L. c. 62, § 2(d)(2), Massachusetts allows the Code § 62(a)(2)(C) deduction for employee business expenses related to the provision of services as a fee-basis state or local government official.  The Code does not define the term "fee-basis public officials" but the Income Tax Regulations at 26 CFR § 1.1402(c)-2(b) indicate that the term is reserved for government employees who hold "public office," which "includes any elective or appointive office."  The Commissioner's public written statement at Technical Information Release 98-15 provides further that the term applies to officials "who hire employees and incur expenses in connection with their official duties."  The appellant did not demonstrate that, as an adjunct professor, he held an elective or appointive office, nor that he hired employees.  Moreover, the appellant did not incur these expenses in connection with his employment but rather, through his independent initiative.  Therefore, the Board found and ruled that the appellant was not a fee-basis state government official for Massachusetts tax purposes.  
Furthermore, despite numerous requests in writing from DOR representatives, the appellant did not submit detail or documentation proving his costs, including, but not limited to, receipts, itemized bills, credit card receipts, and mileage logs.  The appellant also failed to submit any documentation as evidence at the hearing of these appeals.  Therefore, the appellant did not substantiate his claimed employee business expenses for the tax years at issue, as
was his burden.  See, e.g., South Boston Savings Bank v. Commissioner of Revenue, 418 Mass. 695, 698 (1994) (finding that the burden is on the taxpayer to demonstrate entitlement to a deduction claimed)  
Accordingly, because the appellant was not an outside salesperson or a fee-basis government official, and because he failed to substantiate his expenses, the Board found and ruled that the Commissioner properly denied the employee-business-expense deductions for the tax years at issue.

  The Commissioner properly denied the appellant's deductions for Schedule C business expenses.

In Commissioner v. Groetzinger, 480 U.S. 23, 35 (1987), the Court held that "to be engaged in a trade or business, the taxpayer must be involved in the activity with continuity and regularity and that the taxpayer's primary purpose for engaging in the activity must be for income or profit."  The facts of the instant appeal are similar to those of McLaughlin v. Commissioner of Revenue, Mass. ATB Findings of Fact and Reports 2005-538.  There, the Board found that the taxpayer failed to meet his burden of proving that he was engaged in a trade or business when the taxpayer "did not tell the Board what it is [he] did in 1998-2001, where, how often, and for whom."  McLaughlin, Mass. ATB Findings of Fact and Reports at 2005-554.  In the instant appeals, the appellant was similarly vague in his description of his "consulting" business.  Many of the appellant's examples of his services consisted of providing unsolicited or "informal" advice, on a wide variety of topics for which he did not produce any licenses or other formal training, on an ad hoc as opposed to regular basis, and often admittedly pro bono.  On the basis of this evidence, the Board found and ruled that the appellant failed to prove that he was engaged in a consulting activity with continuity and regularity and for profit.   
Moreover, the appellant did not submit detail proving his costs, including, but not limited to, receipts, itemized bills, credit card receipts, and mileage logs.  The Board thus found that the appellant failed to substantiate his deductions and therefore failed to meet his burden of proving entitlement to the business deductions.  See South Boston Savings Bank, 418 Mass. at 698.  
Accordingly, the Board found and ruled that the appellant was not entitled to claim deductions for his Schedule C business expenses for tax years 2004 and 2007.  

  The Commissioner properly denied the appellant's  deductions for medical/dental expenses.

The appellant failed to provide any documentation for the medical/dental expenses which he claimed to have incurred during the tax years at issue, and he thus failed to meet his burden of proving his entitlement to those deductions.  See South Boston Savings Bank, supra.  Documentation for expenses incurred in previous tax years not at issue before the Board cannot serve to substantiate the expenses at issue.  Accordingly, the Board found and ruled that the Commissioner properly denied the appellant's deductions at issue for medical/dental deductions.

  The appellant is entitled to the other-jurisdiction credit for taxes paid to Rhode Island for tax year 2007.

The appellant filed his Petition with the Board for tax year 2007 prior to the Commissioner acting on his abatement application.  The parties agree that the appellant owed and paid $371 of income taxes to Rhode Island during tax year 2007.  Pursuant to G.L. c. 62, § 6(a), "[a] credit shall be allowed against taxes imposed by this chapter to a resident for taxes due any other state, territory or possession of the United States . . . on account of any item of Massachusetts gross income [restrictions not applicable omitted]."  The evidence established, and the parties agreed, that income taxes of $371 were due to Rhode Island based on compensation that the appellant received from teaching.  Therefore, based on the evidence submitted in these appeals, the Board found and ruled that the appellant was entitled to the other-jurisdiction credit and thus ordered an abatement of $371 for the 2007 tax year.  

Conclusion
On the basis of its findings and rulings, the Board dismissed the appeal for tax year 2005 for lack of jurisdiction.  The Board further issued a decision abating $371 for tax year 2007 and issued decisions in favor of the appellee for tax years 2004 and 2006.  

					APPELLATE TAX BOARD			


By: _________________________________
	    Thomas W. Hammond, Jr., Chairman

A true copy,
Attest: _______________________
	        Clerk of the Board

 Docket No. C304862 was captioned in the names of Richard P. Devine and his wife, Sheila D. Devine; Docket No. S306366 was captioned in the name of Richard P. Devine. For consistency, these findings will refer to Richard P. Devine as the appellant.
 Although the appellant's abatement application had not yet been denied, the premature filing of a Petition is not fatal to the Board's jurisdiction. Becton, Dickinson & Co. v. State Tax Commission, 374 Mass. 230, 234 (1978).  
  As previously detailed, the Board lacked jurisdiction over the appeal for tax year 2005, and the appellant did not claim Schedule C business expenses for tax year 2006.
  Examples of such communications cited by the appellant included:  a letter to the Commissioner of the Registry of Motor Vehicles on his observations of alleged reckless driving by school bus drivers; a letter to Governor Michael Dukakis regarding "Highway hypnosis effect leading to many fatalities on [Highway 88]"; another letter to Governor Dukakis which the appellant described as "donating" a tourism theme to the Commonwealth "pro bono"; a letter to Governor William Weld regarding the need for repair of an exit in New Bedford; a letter to "Public Safety" regarding the "dangers of antidepressants for elderly drivers, a likely cause of several recent fatal accidents in the Commonwealth"; and a letter to Representative Philip Travis regarding "safety of school buses and inadvisability of using seat belts in case of fire in a bus trapping students."
 Assessors of Boston v. Suffolk Law School, 295 Mass. 489, 492 (1936); Commissioner of Revenue v. Pat's Super Market, Inc., 387 Mass. 309, 311 (1982).
  The regulations cite the following examples of fee-basis government employees:  "the President, the Vice President, a governor, a mayor, the Secretary of State, a member of Congress, a State representative, a county commissioner, a judge, a justice of the peace, a county or city attorney, a marshal, a sheriff, a constable, a registrar of deeds, or a notary public."   

ATB 2012-841