MLR

Travel costs: Tax Court harmonizes with music professor

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In a recent case, the Tax Court allowed a music professor and self-employed musician an itemized deduction as an unreimbursed employee business expense for the travel costs associated with his musical performances.

Consider whether some of the circumstances may apply to your travel costs, even though you may be in a different profession.

Joseph Scully is a jazz musician and music professor for the City Colleges of Chicago who plays with various ensembles and travels throughout the United States to participate in jazz conferences. Scully was also pursuing a doctorate in music.

Scully traveled to rehearsals and performances – “performance activities” – to stay abreast of developments in the music profession. He claimed deductions for driving miles in relation to his performance activities both as Schedule C business expenses and as Schedule A unreimbursed employee expenses.

Scully tracked his miles by logging the date, location visited and activity at each location. He maintained a mileage log for each of the years covered by the case.

But a flood destroyed the logs for the years 2002, 2003 and 2004. The mileage log for 2006 was not destroyed. Scully used his 2006 log to reconstruct the driving logs for his 2002, 2003 and 2004 tax years.

The IRS allowed certain travel expense deductions for music events on the Schedules C but did not allow any travel expenses as unreimbursed employee expense deductions on the Schedules A.

The Tax Court determined that Scully’s claimed vehicle expense deductions were for performance activities, and most of the trips were around the Chicago area. Scully did not claim the miles he drove from home to the City Colleges of Chicago where he taught. Therefore, the court determined that Scully was not trying to deduct personal commuting expenses but only expenses that he considered to be connected with his professional activities.

The court noted that the regulations permit a deduction for education expenses that:

  • Maintain or improve skills required in employment, or
  • Meet the express requirements of the employer.

However, expenses that fall into either of these categories would not be deductible if the education:

  • Is required to meet the minimum education requirements for qualification in the taxpayer’s employment, or
  • Qualifies the taxpayer for a new trade or business.

The court observed that Scully could have claimed his mileage as deductible business expenses or as deductible unreimbursed employee expenses. The court inferred from Scully’s reporting these expenses on Schedule A that he considered the expenses to be in furtherance of his trade or business as a college professor pursuing an advanced music degree, not as expenses incurred in the trade or business of a musician.

As a result, the court required Scully to show that the expenses were directly and proximately related to the skills required in his business as a college professor. The court then determined that Scully’s performance activities were related to his skill as a professor because he translated his specific experiences as a performer into classroom lessons. Scully showed a direct correlation between the costs expended to learn more about music and teaching music to students.

The court also noted that the deduction for educational expenses is not limited to formal or institutional education. Fees for refresher courses and courses dealing with current developments are deductible if not otherwise disqualified.

Instead of solely relying on structured classes and seminars, Scully stayed abreast of new developments in his profession through active participation, which is analagous to courses dealing with current developments.

The IRS had contended that Scully’s unreimbursed employee expenses were not ordinary and necessary to his employment as a music professor because (1) he generally enjoyed performing, and (2) performance activities were not in his job description. The court pointed out that the tax law doesn’t require activities resulting in business expenses to be unenjoyable, only that they be ordinary and necessary. It stated that Scully “not be denied deductions because he likes his job.”

The court found that the tax law does not require that the expenses be explicitly connected with activities enumerated in a job description. In other words, there is not a direct connection between formally listing the activities in a job description and the deductibility of expenses incurred while performing those activities.

In addition, the court found that Scully testified credibly that he contemporaneously created mileage logs during the 2002, 2003 and 2004 tax years but those records were later destroyed when his basement flooded. Therefore, the court allowed him to substantiate the claimed deductions by making reasonable reconstructions of the expenditures (Joseph D. Scully, Jr. v. Commissioner, TC Memo 2013-229, Sept. 30, 2013).