Tax Court in Brief | Sami v. Comm’r | Schedule C Substantiation, Influencer Marketing Expenses, and Section 199A
Sami v. Commissioner, T.C. Memo. 2026-69 | August 18, 2026 | Copeland, J. | Dkt. Nos. 8834-23, 16512-23
Short Summary
Suleiman Sami held a full-time job as an IT manager at JetBlue and ran a side business through S Sami Services LLC, a disregarded entity. The business had three legs: transporting passengers for compensation, buying and reselling event tickets, and building a social media following. For 2019, 2020, and 2021 he claimed Schedule C deductions across roughly ten categories and a section 199A qualified business income deduction.
The IRS determined deficiencies of $63,219, $27,421, and $39,910, with section 6662(a) accuracy-related penalties of $12,644, $5,484, and $7,982. Judge Copeland worked through the categories individually and split the result. Mr. Sami recovered real money on vehicle expenses, tolls, credit card processing fees, part of his phone bill, and the section 199A deduction. He lost everything he had characterized as marketing — and lost the penalties too.
The opinion matters well beyond its facts because of what it says about the content-creator economy. A taxpayer who spends money on experiences and posts about them has not thereby converted the spending into advertising.
Key Issues
Whether Mr. Sami substantiated cost of goods sold on ticket resales; whether car and truck expenses escaped the listed-property regime; whether contract labor, office expenses, credit card processing fees, telephone service, and streaming subscriptions were deductible under section 162(a); whether payments for celebrity events and experiences — claimed first as charitable contributions and then as marketing — were primarily business expenses; whether the Schedule C activities generated qualified business income under section 199A; and whether the section 6662(a) penalties were properly approved and defeated by reasonable cause.
Primary Holdings
Cost of goods sold was disallowed: $730 in Ticketmaster and SeatGeek purchases came with no proof the tickets were resold rather than used.
Car and truck expenses were allowed at 80% of the amounts claimed — $29,015 for 2019, $9,464 for 2020, and $17,414 for 2021. Because Mr. Sami directly transported persons for compensation, the exception at section 280F(d)(5)(B)(ii) removed his vehicle from listed-property treatment. The 20% haircut reflected his failure to record precise addresses. Tolls and parking followed at the same rate: $11,101, $5,042, and $35.
Contract labor was disallowed for want of any documentary evidence of what he paid the relatives who occasionally drove. Office expenses stood as reported, properly characterized as supplies. Credit card processing fees were allowed in full — $10,904, $6,749, and $9,186 — as ordinary and necessary costs of collecting from customers.
Telephone service was allowed at 25% under the Cohan rule, roughly $1,369, $1,104, and $955. Equipment purchases were disallowed. Television and video streaming subscriptions were disallowed as personal consumption.
General marketing was disallowed on substantiation. Marketing events and the amounts labeled marketing charity were disallowed in full as primarily personal, with the Court noting section 195 startup capitalization problems on top of that.
The section 199A deduction was allowed. Neither transportation nor ticket resale is a specified service trade or business, and neither is the performance of services as an employee.
The accuracy-related penalties were sustained in full.
Key Points of Law
Section 162(a) allows a deduction for ordinary and necessary expenses paid or incurred in carrying on a trade or business, and section 262(a) bars deductions for personal, living, or family expenses. Where an outlay could be either, the test is primary purpose. The Court drew on Danville Plywood Corp. v. United States, 899 F.2d 3 (Fed. Cir. 1990), Walliser v. Commissioner, 72 T.C. 433 (1979), and Tucker v. Commissioner, T.C. Memo. 2023-87, for the proposition that an expense is deductible only if primarily undertaken for business instead of personal purposes.
That framing does the analytical work here. Mr. Sami’s social media posts about Grammy attendance and athlete encounters produced some business benefit, and the Court accepted that they did. The question isn’t whether the spending affected revenue. It’s what the taxpayer was primarily doing when he spent the money, and a person who buys access to a desirable personal experience is buying a desirable personal experience. The incidental content that follows doesn’t recharacterize it.
Section 6001 and Treas. Reg. § 1.6001-1(a) require records adequate to establish the amount and character of each deduction. Bank and credit card statements alone rarely do it. Cryptic merchant descriptors in an account that mixes personal and business charges prove that money moved, not that it moved for a business reason.
Where the record establishes that some deductible expense was incurred but not the exact amount, the Cohan rule permits an estimate. Cohan v. Commissioner, 39 F.2d 540 (2d Cir. 1930). The estimate bears heavily against a taxpayer whose inexactitude is his own making, which is how a phone bill becomes 25% deductible. Section 274(d) forecloses estimation entirely for listed property, which is why the section 280F(d)(5)(B)(ii) transportation exception mattered so much on the vehicle expenses.
On penalties, section 6662(b)(2) reaches a substantial understatement of income tax, and section 6751(b)(1) requires written supervisory approval of the initial determination. A manager’s signature on the 30-day letter transmitted before the notice of deficiency satisfied the timing requirement notwithstanding a blank date line on the approval form. For the ongoing circuit split over what “initial determination” means, this is one more data point on the transmittal-document side.
Section 6664(c) excuses a portion of an underpayment attributable to reasonable cause where the taxpayer acted in good faith. The reasonable cause defense turns on ordinary business care and prudence, and it doesn’t survive a record showing that a taxpayer with accounting credentials kept no usable books, commingled accounts, and reclassified charitable contributions as advertising after the first theory failed.
Insight
Sami is the case to keep on hand for a client whose business runs on a phone. A lot of confident advice circulating in the creator economy holds that anything documented and posted becomes deductible promotion, and the Court has now rejected that cleanly. The costume, the ticket, the trip, the dinner — if the taxpayer wanted the experience for its own sake, section 262(a) gets there first.
The vehicle holding is the quieter but more portable win. Section 274(d) strict substantiation applies to listed property, and a taxpayer who can’t produce contemporaneous mileage logs usually loses the whole category. Establishing that the vehicle is used directly in the business of transporting persons or property for compensation moves the analysis out of that regime and back into ordinary substantiation, where Cohan is available. Rideshare and delivery drivers should be developing that fact early, not at trial.
The penalty result is the reminder. Sophistication cuts against the taxpayer under section 6664(c). Two accounting degrees made it harder, not easier, to argue that keeping the records was beyond him. Clients who describe themselves as financially savvy should hear that the Court will take them at their word. More on that in our discussion of the burdens of proof and production on accuracy-related penalties and our overview of how to request IRS penalty relief.
The full opinion is posted at CourtListener. More weekly briefs are collected in The Tax Court in Brief archive.
This article is for general information only and is not legal advice. Reading it does not create an attorney-client relationship. Tax outcomes turn on specific facts, and the law changes. Consult qualified counsel about your own situation.
