UNITED STATES TAX COURT

T.C. Memo. 1996-70

UNITED STATES TAX COURT

BRYAN J. AND CHRISTINE N. BAUGH, Petitioners v.

COMMISSIONER OF INTERNAL REVENUE, Respondent

Docket No. 12366-94.

Filed February 21, 1996.

J. Scott Broome, for petitioners.

Carol A. Szczepanik, for respondent.

MEMORANDUM FINDINGS OF FACT AND OPINION

COHEN, Judge:

Respondent determined deficiencies in

petitioners’ Federal income taxes and an addition to tax and

penalties as follows:

Year

Deficiency

1988

1990

$4,242

7,724

Addition to Tax & Penalties

Sec.

Sec.

6653(a)(1)

6662(a)

$212

---

--$1,545

- 2 1991

1992

7,372

9,118

-----

1,474

1,824

Respondent, in an amended answer pursuant to section 6214(a),

asserted increased deficiencies in tax and penalties as follows:

Year

Increase in

Deficiency

Increase in

Penalties

Sec. 6662(a)

1990

1991

$991

143

$198

29

Unless otherwise indicated, all section references are to the

Internal Revenue Code in effect for the years in issue, and all

Rule references are to the Tax Court Rules of Practice and

Procedure.

On brief, petitioners conceded the following:

(1) The

deficiency and addition to tax for 1988 as determined by

respondent, (2) the portion of the deficiency that represents the

per diem payments received between June and December 1992 from

petitioners’ employers, and (3) the increased deficiencies

asserted for 1990 and 1991 in respondent’s amended answer.

After

these concessions, the issues remaining for decision are:

(1) Whether the per diem payments petitioners received during

1990, 1991, and a portion of 1992 constitute taxable income;

(2) if the per diem amounts are taxable income, whether

petitioners are entitled to deduct an allowance for travel

expenses incurred while away from Port Clinton, Ohio; and

(3) whether petitioners are liable for the accuracy-related

penalty for negligence or disregard of rules or regulations for

1990, 1991, and 1992.

- 3 FINDINGS OF FACT

Some of the facts have been stipulated, and the stipulated

facts are incorporated in our findings by this reference.

At the

time the amended petition was filed, petitioners’ mailing address

was North Hickory Ridge Drive in Port Clinton, Ohio (Port

Clinton).

During late 1985 or 1986, petitioners met in Port Clinton.

Petitioner Bryan J. Baugh (Mr. Baugh) lived in Port Clinton while

he was working at Davis-Besse Nuclear Power Plant (Davis-Besse),

located approximately 15 miles from Port Clinton.

Petitioners

were married on October 17, 1987.

Mr. Baugh was employed as a radiation protection technician

(RPT) from at least 1985.

Petitioner Christine N. Baugh

(Mrs. Baugh) worked as an RPT during the years in issue.

RPT’s

are generally brought in by nuclear power plants during shutdowns

to supplement the full-time staff of the plant.

RPT’s like

petitioners work for outside contractors, and their employment

term lasts for the duration of the shutdown.

Mr. Baugh attempted

to secure permanent employment as an RPT with Davis-Besse in June

1988 but was unsuccessful.

Petitioners worked as RPT’s for the following nuclear power

plants for the stated periods:

- 4 Period

Location

9/19/88 to 12/16/88

2/17/89 to 7/7/89

8/14/89 to 12/29/89

1/22/90 to 3/25/90

4/16/90 to 5/26/90

6/11/90 to 1/26/91

2/25/91 to 6/12/91

8/12/91 to 11/22/91

12/9/91 to 8/21/92

9/8/92 to 11/20/92

Wolf Creek, Burlington, KS

Beaver Valley, Midland, PA

Beaver Valley, Midland, PA

Hatch Nuclear, Baxley, GA

Fitzpatrick, Oswego, NY

D.C. Cook, Bridgman, MI

Limerick, Sanatoga, PA

Hatch Nuclear, Baxley, GA

Fitzpatrick, Oswego, NY

Hatch Nuclear, Baxley, GA

While petitioners were between jobs, they sometimes drew

unemployment compensation.

During 1991, petitioners received

unemployment compensation from Michigan.

During 1992,

petitioners received unemployment compensation from New York.

Petitioners were paid the following amounts for “per

diem/travel” in addition to their wages during the years in

issue:

Year Ended

Employer

Mr. Baugh

Mrs. Baugh

12/31/88

Energy Personnel

PSES

ARC

Bartlett

ARC

Bartlett

$ 8,680

3,960

13,762

1,900

11,783

16,630

--$ 2,490

13,759

1,900

10,729

15,080

12/31/90

12/31/91

12/31/92

Petitioners did not have to account to their employers for

expenses incurred in order to receive the per diem/travel

amounts.

Petitioners did not receive Forms W-2 or 1099 that

showed the per diem/travel amounts, and they did not report any

of the per diem/travel amounts as income on their Federal income

tax returns for the years in issue.

Because they began to travel out of State to work in nuclear

plants, petitioners gave up their apartment in Port Clinton

- 5 during 1988.

Petitioners generally rented apartments, trailers,

or houses while they were working at various power plants.

In

early 1991, petitioners purchased a trailer that they moved from

job to job so they would not have to worry about finding

accommodations at each job site.

The trailer also provided an

easier way to move petitioners’ personal belongings from job site

to job site.

Until mid-1990, petitioners stayed with

Mrs. Baugh’s parents on Hickory Ridge Drive (Hickory Ridge) in

Port Clinton when petitioners returned to Port Clinton between

jobs.

For convenience in receiving their mail, petitioners used

the Hickory Ridge address when they were on work assignments away

from Port Clinton.

Petitioners maintained their voter and car

registrations and their driver’s licenses in Port Clinton, using

the Hickory Ridge address.

In April 1990, petitioners purchased a duplex located at 414

and 414-1/2 Monroe Street (Monroe) in Port Clinton.

Petitioners

wanted to purchase property so they would not have to stay with

Mrs. Baugh’s parents when they were in Port Clinton and so they

would have a place to store furniture.

Petitioners chose to

purchase a duplex because they knew they would be away from Port

Clinton on work assignments and having a tenant living on the

premises would provide security.

Petitioners hired Jack Bradley

Realty to manage the Monroe Street property.

Petitioners rented

414 Monroe beginning in mid-1990 and continuing throughout 1992,

except for 2 months in 1992.

414-1/2 Monroe until mid-1992.

Petitioners did not begin to rent

Petitioners derived no income

- 6 from employment at nuclear power plants within a commuting

distance of Port Clinton from 1990 through 1992.

In September 1992, petitioners purchased a triplex in Port

Clinton for investment purposes.

Petitioners hired Tom Tomasek (Tomasek), who worked for

Professional Bookkeeping Service, Inc., located in Blair,

Nebraska, to prepare their 1990, 1991, and 1992 tax returns.

Petitioners never met Tomasek.

A coworker recommended Tomasek, a

former internal revenue agent and accountant for approximately 10

years, to petitioners.

Tomasek had experience working with

nuclear plant employees like petitioners.

Mr. Baugh initially

contacted Tomasek by telephone to inquire about the taxability of

petitioners’ per diem/travel allowances.

During their first

conversation, Tomasek explained the criteria for excluding the

per diem/travel amounts from gross income.

In preparing petitioners’ 1990, 1991, and 1992 Federal

income tax returns, Tomasek did not include the per diem/travel

amounts in gross income.

On petitioners’ 1990, 1991, and 1992

returns, both 414 Monroe and 414-1/2 Monroe were listed as rental

property on Schedule E, Supplemental Income and Loss.

Line 1A of

Schedule E, Supplemental Income and Loss, on the 1990 and 1991

returns and line 1B of Schedule E, Supplemental Income and Loss,

on the 1992 return show “DUPLEX - 414 & 414.5 MONROE ST” as the

kind and location of petitioners’ rental real estate property.

On petitioners’ 1990 return, petitioners claimed duplicate

deductions for real estate mortgage interest on both Schedule A,

- 7 Itemized Deductions, and Schedule E, Supplemental Income and

Loss.

Petitioners claimed duplicate deductions for real estate

taxes on Schedule A and Schedule E of their 1990 and 1991

returns.

On Schedule A of their 1991 and 1992 returns,

petitioners deducted interest paid on their travel trailer as

home mortgage interest.

On Schedule E of their 1991 and 1992

returns, petitioners deducted the total interest paid on 414 and

414-1/2 Monroe as a rental expense.

In January 1992, Tomasek sent to petitioners a letter

regarding the Internal Revenue Service’s increased attention to

per diem amounts.

Mr. Baugh contacted Tomasek to inquire again

about petitioners’ per diem amounts.

OPINION

Gross income includes all income from whatever source

derived.

Sec. 61.

Per diem payments, however, may be excluded

from income if the requirements of section 1.162-17(b)(1), Income

Tax Regs., are met.

The employee need not report on his tax return (either

itemized or in total amount) expenses for travel,

transportation, entertainment, and similar purposes

paid or incurred by him solely for the benefit of his

employer for which he is required to account and does

account to his employer * * * [Emphasis added.]

See also sec. 1.62-2, Income Tax Regs.

At trial, Mr. Baugh

admitted that petitioners did not have to account and did not

account to their employers for expenses they incurred in order to

receive the per diem/travel amounts.

Petitioners, therefore, do

not meet the requirements of section 1.162-17(b)(1), Income Tax

- 8 Regs., and cannot exclude the per diem/travel amounts from their

gross income.

Deductibility of Per Diem/Travel Amounts

On brief, petitioners focused on the deductibility of the

per diem/travel amounts as ordinary and necessary travel expenses

under section 162(a)(2).

Section 162(a)(2) provides:

(a) In general.--There shall be allowed as a

deduction all the ordinary and necessary expenses paid

or incurred during the taxable year in carrying on any

trade or business, including-*

*

*

*

*

*

*

(2) traveling expense (including amounts

expended for meals and lodging other than amounts

which are lavish or extravagant under the

circumstances) while away from home in the pursuit

of a trade or business * * *

Therefore, for a traveling expense to be deductible, three

requirements must be satisfied:

(1) The expense must be

reasonable and necessary; (2) the expense must be incurred while

away from home; and (3) the expense must be incurred in the

pursuit of business.

Commissioner v. Flowers, 326 U.S. 465

(1946); Brandl v. Commissioner, 513 F.2d 697 (6th Cir. 1975),

affg. T.C. Memo. 1974-160.

Petitioners bear the burden of proving that they are

entitled to any claimed deduction.

Rule 142(a); INDOPCO, Inc. v.

Commissioner, 503 U.S. 79, 84 (1992).

This burden includes

substantiating the amount of the item claimed.

Hradesky v.

Commissioner, 65 T.C. 87, 90 (1975), affd. per curiam 540 F.2d

- 9 821 (5th Cir. 1976); sec. 1.6001-1(a), Income Tax Regs.; see also

sec. 1.162-17(d), Income Tax Regs.

While the parties disagree as to whether or not petitioners

have adequately substantiated the amounts they are now claiming

as deductions, petitioners have failed in any event to meet their

burden of showing that they are entitled to a deduction pursuant

to section 162(a)(2).

The purpose of the “away-from-home” deduction is “to

mitigate the burden of the taxpayer who, because of the

exigencies of his trade or business, must maintain two places of

abode and thereby incur additional and duplicate living

expenses.”

Kroll v. Commissioner, 49 T.C. 557, 562 (1968).

An

obvious precondition to petitioners’ being away from home is that

they have a home.

(1977).

Bochner v. Commissioner, 67 T.C. 824, 828

This means that petitioners must have incurred

substantial continuing living expenses at a permanent place of

residence and also have paid the expenses incurred in connection

with their employment while on the road.

Brandl v. Commissioner,

supra at 699; see also James v. United States, 308 F.2d 204 (9th

Cir. 1962); Bochner v. Commissioner, supra.

One who has neither

a principal place of business nor a permanent residence is

considered an itinerant.

Michel v. Commissioner, 629 F.2d 1071,

1073-1074 (5th Cir. 1980), affg. T.C. Memo. 1977-345.

An

itinerant may not deduct expenses under section 162(a)(2),

because he is never considered to be “away from home”.

1073.

Id. at

- 10 While petitioners’ subjective intent is to be considered in

determining whether they have a tax home,

objective financial criteria bear a much closer

relationship to the underlying purposes of the

deduction than do various other indicia of residence

evidencing merely a taxpayer’s subjective opinion

regarding the location of his home. * * * [Brandl v.

Commissioner, supra at 699-700.]

See also Markey v. Commissioner, 490 F.2d 1249, 1255 (6th Cir.

1974), revg. T.C. Memo. 1972-154.

At trial, petitioners testified to their maintenance of

voter registrations, car registration, and driver’s licenses in

Port Clinton as an indication of their intent to make Port

Clinton their tax home.

Petitioners both testified regarding

their intent to make Port Clinton their home, but petitioners’

tax home is not where their hearts lie.

Commissioner, supra at 828-829.

See Bochner v.

The significance that

petitioners ascribe to Port Clinton is not dispositive of whether

petitioners’ tax home, within the meaning of section 162(a)(2),

is Port Clinton.

See Markey v. Commissioner, supra.

Petitioners provided little evidence that would indicate

that they incurred duplicate living expenses in maintaining

414-1/2 Monroe.

No evidence was presented to show that

petitioners ever set up house at 414-1/2 Monroe, such as the

purchase of appliances, other household goods, or even groceries.

See Rambo v. Commissioner, 69 T.C. 920, 922 (1978).

Petitioners’

only testimony at trial to this effect was their use of

- 11 414-1/2 Monroe to store their furniture and their self-serving

statements of their intent that Port Clinton be their tax home.

The objective facts in the record show that petitioners

treated both 414 and 414-1/2 Monroe as rental property on

Schedule E of their 1990, 1991, and 1992 Federal income tax

returns.

Furthermore, petitioners deducted the interest paid on

their travel trailer, not the interest paid on 414-1/2 Monroe, as

home mortgage interest on their 1991 and 1992 returns.

During

1990, 1991, and 1992, petitioners did not earn income from work

at nuclear plants within commuting distance of Port Clinton.

Petitioners incurred their normal living expenses at each

place they stayed.

See Scotten v. Commissioner, T.C. Memo. 1966-

206, affd. 391 F.2d 274 (5th Cir. 1968).

Petitioners could not

have resided more than 2 weeks at 414-1/2 Monroe in 1990.

During

1991, petitioners could not have resided more than 4 weeks,

8 weeks, and 2 weeks at different intervals at 414-1/2 Monroe.

Petitioners did not reside at 414-1/2 Monroe during 1992.

During 1990, 1991, and 1992, petitioners were itinerants,

literally (with respect to their trailer in 1991 and 1992) and

figuratively carrying their home with them as they traveled from

job to job.

Thus, petitioners did not incur additional and

duplicate living expenses, and they are not entitled to deduct

any expenses under section 162(a)(2).

- 12 Section 6662(a) Accuracy-Related Penalty

Section 6662(a) imposes a penalty in an amount equal to

20 percent of the underpayment of tax attributable to one or more

of the items set forth in section 6662(b).

Respondent asserts

that the entire underpayment of petitioners’ tax was due to

negligence or intentional disregard of rules or regulations.

Sec. 6662(b)(1).

Except for the increased penalties set forth in

respondent’s amended answer, for which respondent bears the

burden of proof, petitioners bear the burden of proof on the

penalties in issue.

Rule 142(a).

“Negligence” includes a failure to make a reasonable attempt

to comply with the provisions of the internal revenue laws.

6662(c); sec. 1.6662-3(b)(1), Income Tax Regs.

Sec.

“Disregard”

includes any careless, reckless, or intentional disregard of

rules or regulations.

Sec. 6662(c); sec. 1.6662-3(b)(2), Income

Tax Regs.

The accuracy-related penalty does not apply with respect to

any portion of an underpayment if it is shown that there was

reasonable cause for such portion and that petitioners acted in

good faith with respect to such portion.

Sec. 6664(c)(1).

The

determination of whether petitioners acted with reasonable cause

and in good faith depends upon the pertinent facts and

circumstances.

Sec. 1.6664-4(b)(1), Income Tax Regs.

Reliance on a qualified adviser will constitute reasonable

cause only if the taxpayers have acted in good faith and have

made full disclosure of all relevant facts to the adviser.

Paula

- 13 Constr. Co. v. Commissioner, 58 T.C. 1055, 1061 (1972), affd.

without published opinion 474 F.2d 1345 (5th Cir. 1973).

Petitioners, in order to show good faith reliance, must at least

establish:

(1) That they provided the return preparer with

complete and accurate information; (2) that an incorrect return

was a result of the preparer’s mistakes; and (3) that they

believed in good faith that they were relying on the advice of a

competent return preparer.

Metra Chem Corp. v. Commissioner, 88

T.C. 654, 662 (1987).

Petitioners hired Tomasek, an accountant who claimed

experience with nuclear plant employees and per diem payments, to

prepare their 1990, 1991, and 1992 returns.

While petitioners

claim that they disclosed all relevant tax information to Tomasek

and that Tomasek advised them that the per diem/travel amounts

were not includable in gross income, petitioners’ testimony is

uncorroborated and subject to question.

Considering the

evidence, it is difficult to believe that petitioners fully

disclosed all of the relevant tax information to Tomasek.

Petitioners’ claim that Tomasek told them that they had a “home”

in Port Clinton and that, therefore, the per diem/travel amounts

could be excluded from gross income is contrary to Tomasek’s

treatment of both 414 and 414-1/2 Monroe as rental property on

petitioners’ 1990, 1991, and 1992 returns.

Petitioners admitted at trial that they did not review their

tax returns, except to determine the amount of tax owed, for the

years in issue.

While petitioners argue that they did not know

- 14 that 414 and 414-1/2 Monroe were both being treated as rental

properties, a cursory review of the returns would have provided

petitioners with such knowledge.

Line 1A of Schedule E,

Supplemental Income and Loss, on the 1990 and 1991 returns and

line 1B of Schedule E, Supplemental Income and Loss, on the 1992

return clearly state “DUPLEX - 414 & 414.5 MONROE ST” as the kind

and location of petitioners’ rental real estate property.

A

review of the returns in question would have also shown the

duplicate deductions taken in 1990 for mortgage interest and in

1990 and 1991 for real estate taxes.

Failure to review the

returns prepared for them by another is itself negligence.

Metra

Chem Corp. v. Commissioner, supra at 662; Bailey v. Commissioner,

21 T.C. 678, 687 (1954).

Petitioners have not established reasonable cause or good

faith reliance to excuse themselves from the penalties for

negligence or intentional disregard of rules or regulations.

See

Mack v. Commissioner, T.C. Memo. 1995-482.

To reflect the foregoing and concessions of the parties,

Decision will be entered

under Rule 155.