Unpublished Disposition, 908 F.2d 976 (9th Cir. 1990)

MEMORANDUM^** 

OVERVIEW

Oliver V. Bentley, appellant, traveled extensively through Europe with his foster father, Thomas Cushing, during the spring of 1984. During the trip they took a substantial number of photographs. Upon their return, Bentley attempted to sell enlargements of some of the photographs. Sales totaled $30; all sales occurred in 1984. Also upon their return, Bentley and Cushing decided to arrange student tours through Europe. They prepared a tour package in the early part of 1985; however, not enough students signed up and the tour was canceled.

On Schedule C of appellant's 1984 income tax return he claimed that his main business activity was that of a travel guide for the Adventure Club and that the services he provided were "Travel photos--Youth Tours." He reported gross income from his business of $30 and deducted $5,127.18 as travel and entertainment expenses. The Commissioner of the Internal Revenue Service (IRS), appellee, disallowed the deduction and determined a deficiency. Bentley filed a petition with the Tax Court. Following a one day trial the Tax Court held that the expenses incurred were not deductible under Section 162 or Section 212 of the Code. The Court also found that Bentley had acted unreasonably in his attempt to convert his personal expenses into business expenses and held him liable for additions to his tax pursuant to Section 6653(a) (1). Bentley timely appeals. We affirm the Tax Court's decision.

DISCUSSION

Factual determinations of the Tax Court are not set aside unless such findings are clearly erroneous. First Sec. Bank of Idaho v. C.I.R., 592 F.2d 1050, 1053 (9th Cir. 1979). "Moreover, the taxpayer bears the burden of proving that the facts bring his case squarely within the deduction provisions of the statute." Indep. Elec. Supply Inc. v. C.I.R., 781 F.2d 724, 727 (9th Cir. 1986) (internal quotations omitted). The Tax Court's upholding of an addition to tax under section 6653(a) (1) will not be reversed unless clearly erroneous. Hansen v. C.I.R., 820 F.2d 1464, 1469 (9th Cir. 1987)

The Tax Court disallowed Bentley's deduction of his European vacation because the expenses were associated with a search for a potential business opportunity. In addition the Tax Court found that Bentley lacked the requisite profit motive necessary for him to deduct the cost of his trip as a business expense for his travel photography activity. We agree.

Both section 162 and section 212 only permit a deduction for "carrying on any trade or business." I.R.S. code Sec. 162(a).¹  The Tax Court found that, at best, Bentley's travels were undertaken to investigate the prospects of entering into the student tour business. Expenses incurred in investigating the feasibility of a business venture do not fall within the language of sections 162 or 212 and therefore are not deductible. See First Sec. Bank of Idaho, 592 F.2d at 1052; 2 Prentice Hall, Federal Taxes 2d 10,388, 10,645-35 (1990). Bentley claims that the Adventure Club had been in existence since 1981 and thus was an ongoing business when he took the photo tour of Europe. Bentley provides no evidence that he alone or through the Adventure Club actually conducted any tours nor did he report any income from any tours on his 1984 income tax return. Under these circumstances the Tax Court's finding that Bentley was investigating a potential business opportunity or was simply on vacation is not clearly erroneous.

The Tax Court also found that Bentley's tour and photography adventures did not qualify as a business because Bentley's activities were not engaged in primarily for profit. Whether a particular activity constitutes a business depends on "whether the activity was undertaken or continued in good faith, with the dominant hope and intent of realizing a profit." Indep. Elect. Supply, 781 F.2d at 726 (internal quotations omitted). While the focus of the test is the taxpayer's subjective intent, "objective indicia may be cited to establish the taxpayer's true intent." Id. The Treasury Regulation Sec. 1.183-2(b) lists factors to be considered when ascertaining a taxpayer's intent. Relevant factors include: the expertise of the taxpayer, the time and effort expended by the taxpayer, the success of the taxpayer in carrying on similar activities, the taxpayer's history of income or loss with respect to the activity, and elements of personal pleasure or recreation. As the Tax Court determined, all these factors suggest that Bentley's activities were not for profit. Bentley had no expertise in photography; little time and effort was spent in selling the pictures. Appellant was not involved previously with any photography business. He made virtually no money from the venture and there was a substantial element of personal pleasure. Bentley has pointed to no counterevidence. On these facts we hold that the Tax Court's finding was not clearly erroneous.

Section 6653(a) (1) of the Code imposes an addition to tax for any underpayment "due to negligence or intentional disregard of rules or regulations (but without intent to defraud)." "Additions to tax imposed by the Commissioner are presumptively correct. The taxpayer has the burden of proving that an underpayment does not come under the terms of section 6653(a). Hansen, 820 F.2d at 1469.

The Tax Court found that Bentley was negligent. It found that Bentley had attempted to convert the expenses of a European vacation into business expense and that no reasonable person would have claimed such expenses as business expenses. We agree.

"Negligence under section 6653(a) is determined by the reasonable, prudent person standard." Id. We agree with the Tax Court that Bentley indicated a lack of due care in failing to heed the language of the Code and Regulations and the case law proscribing deductions for personal expenses. Bentley's after the fact attempt to convert a vacation into a business expense clearly qualifies for the addition to tax under Sec. 6653(a).

CONCLUSION

For the foregoing reasons the decision of the Tax Court is AFFIRMED.