In Stewart v. Commissioner, T.C. Memo 2005-212 (9/12/05), the Tax Court yesterday held that the taxpayer was not denied equal protection and due process of law because of the IRS’s failure to allow business expense deductions based on statistical information.

Petitioner asks us to estimate the amount of his business expense deductions under Cohan and contends that he is entitled to deductions based on statistical information for the insurance and financial products industries. We disagree. Cohan does not apply because petitioner did not present evidence (statisticial or otherwise) that he incurred deductible expenses greater than the amount of the standard deduction allowed by respondent. Thus, we have no basis to estimate the amount of his deductible expenses.

Citing Brenner v. Commissioner, T.C. Memo. 2004-202, petitioner contends that respondent routinely allows more than 50% of a taxpayer’s gross compensation for business expenses for a taxpayer in petitioner’s business and location. We disagree. Like petitioner, the taxpayer in Brenner was in the insurance business and lived in Ormond Beach, Florida, when he filed his petition. The Commissioner used the bank deposits method to reconstruct his income. The Commissioner allowed the taxpayer to deduct estimated insurance business expenses equal to 54.77% of his commissions based on the Statistics of Labor Bulletin, Sole Proprietorship Returns, 1994, Table 2.–Nonfarm Sole Proprietorships: Income Statements, by Selected Groups: Insurance agents and brokers (statistics for insurance agents).

The Commissioner’s allowance of business expenses based on Bureau of Labor Statistics figures in Brenner does not establish that respondent routinely allows a business deduction based on statistics or industry averages or that respondent is required to use them. Our responsibility as a Court is to apply the law to the facts of the case before us; how the Commissioner treated other taxpayers is generally irrelevant in making that determination, absent proof that a taxpayer has been singled out for adverse treatment based on impermissible considerations such as race, religion, or other arbitrary classification, and absent contractual agreements to the contrary….