United States Tax Court

United States Tax Court

T.C. Memo. 2026-91

BRENTON E. WILLIAMS AND OCTAVIA P. WILLIAMS a.k.a.

OCTAVIA PEARL,

Petitioners

v.

COMMISSIONER OF INTERNAL REVENUE,

Respondent

__________

Docket No. 9422-22.

Filed September 23, 2026.

__________

Brenton E. Williams and Octavia P. Williams a.k.a. Octavia Pearl, pro

sese.

Peter T. McCary, Derek M. Schnell, and A. Gary Begun, for respondent.

MEMORANDUM FINDINGS OF FACT AND OPINION

MARSHALL, Judge: In a Notice of Deficiency dated February 11,

2022 (Notice), respondent determined deficiencies and section 6662(a)1

accuracy-related penalties for underpayments due to substantial

understatements of income tax or, in the alternative, negligence for the

2018 and 2019 tax years (years in issue) in the following amounts:

Year

Deficiency

§ 6662(a)

2018

$27,488

$5,498

2019

6,764

1,353

1 Unless otherwise indicated, statutory references are to the Internal Revenue

Code, Title 26 U.S.C. (Code), in effect at all relevant times, regulation references are

to the Code of Federal Regulations, Title 26 (Treas. Reg.), in effect at all relevant times,

and Rule references are to the Tax Court Rules of Practice and Procedure. Except

where otherwise indicated, monetary amounts are rounded to the nearest dollar.

Served 09/23/26

2

[*2] On April 20, 2022, petitioners timely filed a Petition with the Court

disputing the Notice. The issues for decision are whether petitioners are:

(1) entitled to deduct a casualty loss of $162,075 reported on Schedule A,

Itemized Deductions, for the 2018 tax year, (2) entitled to deduct

noncash charitable contributions of $27,787 reported on Schedule A for

the 2019 tax year, (3) entitled to deduct $5,619 of personal property

taxes reported on Schedule A for the 2019 tax year, (4) entitled to deduct

$4,635 of state and local general sales taxes reported on Schedule A for

the 2019 tax year, (5) entitled to deduct $26,289 of expenses for serving

in a reserve component of the Armed Forces of the United States for the

2019 tax year, and (6) liable for section 6662(a) accuracy-related

penalties for the years in issue.

FINDINGS OF FACT

Some of the facts have been stipulated and are so found. The

Stipulation of Facts, the First Supplemental Stipulation of Facts, and

the accompanying Exhibits are incorporated herein by this reference.

Petitioners resided in Florida when the Petition was timely filed.

I.

Background

Petitioners were married at all relevant times during the tax

years in issue. After filing the Petition, petitioners separated. 2

In 2018 and 2019, Octavia was a member of the active component

of the U.S. Air Force assigned to Tyndall Air Force Base (Tyndall) near

Panama City, Florida. On or about October 10, 2018, Hurricane Michael,

a category 5 storm, made landfall on the Florida panhandle and

“virtually levelled” Tyndall. 3 Petitioners’ home was on Tyndall. It was

extensively damaged by the hurricane and uninhabitable. As a result of

the storm, petitioners evacuated to Debary, Florida. They established a

new residence in Debary, but Octavia continued to work at Tyndall.

Later, she was transferred to Patrick Air Force Base (Patrick) 4 in central

Florida. Following Hurricane Michael, Octavia commuted from

2 For clarity, we will refer to petitioner Octavia P. Williams as Octavia.

3 See Sarah McNair, Five Years After Hurricane Michael, AFIMSC Continues

Shaping Tyndall as Installation of Future, Air Force Installation & Mission Support

Center: AFIMSC Public Affairs (Oct. 18, 2023), https://www.afimsc.af.mil/News/

Article-Display/Article/3560414/five-years-after-hurricane-michael-afimsc-continuesshaping-tyndall-as-installa/ (last visited July 20, 2026).

4 Patrick is now known as Patrick Space Force Base.

3

[*3] petitioners’ new residence in Debary to Tyndall and then after the

transfer, to Patrick.

Approximately ten days after Hurricane Michael, petitioners

returned to their home on Tyndall to inspect the home with a Federal

Emergency Management Agency inspector, assess the damage with a

U.S. Automobile Association (USAA) insurance adjuster, and salvage

their undamaged possessions. Petitioners documented the extensive

damage caused by Hurricane Michael with photos of the first floor of

their home. They were unable to document the damage to the second

floor of the home because it was too dangerous to traverse. Petitioners

did not have a list of the items that were destroyed or appraisals for

those items.

After sifting through the damage and salvaging what they could,

petitioners submitted an insurance claim to USAA. USAA sent

petitioners a claim letter dated November 3, 2020, where it documented

the items that were in petitioners’ living room and primary bedroom for

which petitioners had claimed losses and the amounts that it would pay

under the policy. 5 USAA paid petitioners the following amounts

consistent with their policy limits: (1) loss of use – prohibited use of their

home $4,724, (2) loss of use – additional living expenses $1,422,

(3) personal property coverage $34,500, 6 (4) refrigerated products $500,

(5) personal computer coverage $3,000, and (6) $10,000 under a separate

valuable personal property policy for jewelry and watches. Petitioners’

5 According to the USAA letter, the claimed losses were:

LIVING ROOM - sofa, lounge chair recliner, clothes rack, office

chair, Honduras trunk, sensi diffuser, 65” TV, hp printer,

circuit machine, apple computer, xbox, chromebook, surge

protectors, desk set suite, tv rack, backpacks, down comforters

2, nbay shirts 4, abu sets, boots, nfl bucs jacket, mudcloth

picnic, sheet set, clothes, picture rack, potty chair, shredder,

room dividers, entertainment center, wooden furniture, new

clothing to be returned to store, clean laundry for family, wall

decorations, household goods

MASTER BEDROOM - tempurpedic mattress California king,

bedroom suite, area rug, sheet sets, pillows, shoes, clothes,

lamps, tv 32 inch, hope chest, heating pad, ankle weights,

barbells, fan

6 This amount was for damages to personal property items in petitioners’ living

room and primary bedroom. When the USAA insurance adjuster examined the damage

to petitioners’ home, he assessed the damage to personal property items in only a few

rooms on the first floor before declaring that the personal property policy coverage

limits were reached.

4

[*4] claimed $61,000 personal property loss exceeded the $35,000 USAA

policy limit. 7 Similarly, the replacement value for their valuable

personal property loss was $29,382, or $19,382 over the $10,000 policy

limit.

During the years in issue petitioners regularly donated various

items to Goodwill and the Airman’s Attic. 8 However, they did not have

any contemporaneous written acknowledgments (CWAs) as described in

section 170(f)(8) and Treasury Regulation § 1.170A-13(f) from either

organization for any donations before or after Hurricane Michael. In the

immediate aftermath of Hurricane Michael, petitioners also donated

some items to other members of the community who were in need.

II.

Petitioners’ 2018 and 2019 Tax Returns

Petitioners timely filed their joint Forms 1040, U.S. Individual

Income Tax Return, for the tax years ending December 31, 2018 and

2019. Petitioners hired tax preparer Bruce Baugh to prepare their

returns. On the 2018 Form 1040, petitioners reported a casualty loss of

$182,037 ($162,075 after reduction of $100 under section 165(h)(1) and

10% of petitioners’ adjusted gross income) for the loss of personal use

property from Hurricane Michael. The personal use property consisted

of furniture, electronics, equipment, appliances, and clothes. Petitioners

arrived at a casualty loss of $182,037 based on their memories of the

personal property that they had accumulated and the documents that

they had. For the 2018 tax year, petitioners reported $207 in tax due on

their return, but their corrected tax liability in the Notice was $30,488.

On Form 8283, Noncash Charitable Contributions, attached to

the 2019 Form 1040, petitioners claimed a noncash charitable

contribution deduction of $27,787 for three donations to Goodwill on

March 25, July 5, and August 21, 2019. They reported donating

“Electronics, Computer Equip[ment]” with a fair market value (FMV) of

$8,500, “High End Clothing” with an FMV of $7,600, and “Furniture and

Equip[ment]” with an FMV of $11,687. Petitioners did not obtain an

appraisal for any item. Also on the 2019 Form 1040, petitioners reported

state and local personal property taxes of $5,619, and state and local

7 While the record is unclear, it appears that petitioners’ USAA policy had a

$500 deductible because USAA paid them $34,500 for personal property coverage but

the policy limit was $35,000.

8 The Airman’s Attic is a nonprofit organization that accepts donations and

provides donated goods to military members and their families.

5

[*5] general sales taxes of $4,635. Finally, on Line 8a of the 2019 Form

1040, petitioners reported Octavia’s vehicle mileage business expenses

for commuting to Tyndall as an adjustment to income. Petitioners

reported Octavia’s mileage cost of $26,289 on Form 2106, Employee

Business Expenses. The vehicle mileage expenses were incorporated

into Schedule 1, Additional Income and Adjustments to Income. For

reasons that are unclear, the vehicle mileage expenses of $26,289 were

reduced to $22,592 on the Schedule 1, and as reported on Line 8a of the

2019 Form 1040. For the 2019 tax year, petitioners reported $6,959 in

tax due on their return, but their corrected tax liability in the Notice

was $22,923.

III.

Respondent’s Examination and Court Proceedings

Respondent selected petitioners’ 2018 and 2019 returns for

examination. Respondent’s examiner disallowed: (1) petitioners’

reported casualty loss deduction of $162,075 for the 2018 tax year

because they did not establish that a casualty occurred and that any

deductible loss was sustained, (2) petitioners’ claimed noncash

charitable contribution deduction of $27,787 for the 2019 tax year

because the contributions were not substantiated, (3) petitioners’

reported state and local personal property taxes of $5,619 for the 2019

tax year because the expense was not substantiated, (4) $2,957 of

petitioners’ reported state and local general sales taxes for the 2019 tax

year because the expense was not substantiated, and (5) Octavia’s

reported vehicle expense of $26,289 for the 2019 tax year because

petitioners did not provide the information needed to support the

deduction. The examiner also made the determination to impose the

section 6662(a) accuracy-related penalty for underpayments due to

substantial understatements of income tax or, in the alternative,

negligence for the years in issue. On June 29, 2021, the examiner’s

supervisor, Pamela Josephson, signed a Civil Penalty Approval Form

approving the examiner’s determination of penalties for the years in

issue.

6

OPINION 9

[*6]

I.

Burden of Proof

Taxpayers are permitted deductions only as a matter of

legislative grace, and only as specifically provided by statute.

INDOPCO, Inc. v. Commissioner, 503 U.S. 79, 84 (1992). In addition, the

Commissioner’s determinations in a Notice of Deficiency are generally

presumed correct, and the taxpayer bears the burden of proving that

those determinations are in error. See Rule 142(a); Welch v. Helvering,

290 U.S. 111, 115 (1933).

Section 7491(a)(1) provides that if, in any court proceeding, a

taxpayer introduces credible evidence with respect to any factual issue

relevant to ascertaining the liability of the taxpayer for any tax imposed

by subtitle A or B, the Commissioner shall have the burden of proof with

respect to that issue. See Higbee v. Commissioner, 116 T.C. 438, 440–41

(2001). For the burden to be placed on the Commissioner under this

section, however, the taxpayer must demonstrate that he has:

(1) complied with the requirements under the Code to substantiate any

item, (2) maintained all records required under the Code, and

(3) cooperated with reasonable requests by the Secretary for witnesses,

information, documents, meetings, and interviews. See § 7491(a)(2);

Higbee, 116 T.C. at 441. The burden of proof remains on petitioners as

they have neither alleged nor otherwise shown that section 7491(a) is

applicable. See Higbee, 116 T.C. at 440–41.

II.

Casualty Loss

Section 165(a) allows as a deduction any loss sustained during a

taxable year and not compensated for by insurance or otherwise. Section

165(c) limits the allowance of losses in the case of individuals. Section

165(c)(3) allows as a deduction to an individual certain losses commonly

referred to as casualty losses. A casualty loss is allowable to a taxpayer

for a loss of property not connected with a trade or business or a

transaction entered into for profit if the loss results from “fire, storm,

shipwreck, or other casualty.” See id. Pursuant to section 165(h), the

casualty loss deduction is allowed only to the extent that the loss from

each casualty exceeds $100 and to the extent that the net casualty loss

9 Absent a stipulation to the contrary, see § 7482(b)(2), this case is appealable

to the U.S. Court of Appeals for the Eleventh Circuit, and we follow the precedent of

that court that is squarely on point, see § 7482(b)(1); Golsen v. Commissioner, 54 T.C.

742, 757 (1970), aff’d, 445 F.2d 985 (10th Cir. 1971).

7

[*7] for the taxable year “exceeds 10 percent of the adjusted gross

income” for that taxable year. For tax years beginning after December

31, 2017, and before January 1, 2026, in the case of an individual, any

personal casualty loss “shall be allowed as a deduction under [section

165(a)] only to the extent it is attributable to a Federally declared

disaster (as defined in subsection (i)(5)).” § 165(h)(5)(A).

The amount of the casualty loss allowed under section 165 is the

lesser of: (1) the FMV of the property immediately before the casualty

reduced by the FMV of the property immediately after the casualty or

(2) “[t]he amount of the adjusted basis prescribed” in Treasury

Regulation § 1.1011-1 “for determining the loss from the sale or other

disposition of the property involved.” Treas. Reg. § 1.165-7(b)(1).

Treasury Regulation § 1.165-7(a)(2)(i) provides that the FMV of the

property immediately before and immediately after the casualty shall

generally be ascertained by a competent appraisal.

Physical damage to property caused by a hurricane is a casualty

within the scope of section 165(c)(3). See Lamphere v. Commissioner, 70

T.C. 391, 395 (1978) (holding that damage resulting from Hurricane

Agnes was a casualty); see also Treas. Reg. § 1.165-7(b)(3) (ex. 2). There

is no longer any dispute that Tyndall suffered damages because of

Hurricane Michael. 10

However, petitioners have failed to substantiate the reported

$182,037 in losses. Petitioners do not have an appraisal to establish the

FMV of the property immediately before and immediately after the

hurricane. Thus, we must rely on other evidence to determine whether

they have substantiated the amount of the casualty loss. “In deciding

whether a taxpayer has substantiated his deductions, we ordinarily look

at the proof he offers in the form of documentation and testimony.” See

Zilberberg v. Commissioner, T.C. Memo. 2011-5, 2011 WL 37843, at *5

(citing Obot v. Commissioner, T.C. Memo. 2005-195).

Petitioners initially reported $61,000 in personal property losses

to USAA, and it paid them up to the $35,000 personal property coverage

10 On the Form 886–A, Explanation of Items, respondent’s examiner stated

that petitioners “did not establish that (a) a casualty or theft occurred.” This statement

could be interpreted as the examiner’s questioning whether Hurricane Michael

affected Tyndall, or whether it specifically affected petitioners’ property. In either case,

it is undisputed that Hurricane Michael affected Tyndall and petitioners’ property. The

open question is whether they can substantiate that they sustained casualty losses in

the amounts reported.

8

[*8] limit for damages to personal property in their living room and

primary bedroom. But when petitioners filed the 2018 Form 1040, they

reported a casualty loss related to their loss of personal property from

Hurricane Michael of $182,037. Petitioners did not address why the

value of the personal property losses attributable to Hurricane Michael

that were reported to USAA and to the IRS differed, but they stated that

they arrived at the $182,037 figure based on their memories of the

personal property that they had accumulated and the documents that

they had.

However, petitioners did not provide documentary evidence or

create a list of personal property items that were destroyed to reach the

casualty loss that was reported on the 2018 Form 1040. They testified

that they had a lot of artifacts, jewelry, and other items that they had

accumulated while stationed overseas. Petitioners introduced into

evidence photos of the first floor of their home that they had taken on

approximately October 20, 2018, which documented the damage caused

by Hurricane Michael. The photos show that Hurricane Michael caused

extensive damage to their home and personal property. However,

petitioners did not provide specific testimony on items in the home that

were destroyed that were not compensated for by insurance, and their

value. Petitioners provided receipts for some replacement items that

they purchased after Hurricane Michael, but the cost of a replacement

item is not indicative of the value of the original item. 11 On the record

before us, we are unable to find that petitioners have substantiated their

reported casualty loss.

III.

Charitable Contributions

Section 170(a)(1) allows as a deduction any charitable

contribution made within the taxable year. For noncash charitable

contributions of more than $5,000 made after July 30, 2018,

no deduction is allowed under section 170(a) [subject to

certain exceptions under Treasury Regulation § 1.170A16(d)(2) not relevant here] unless the donor—

11 We also note that some of the receipts petitioners submitted for replacement

items appear to correspond to items that were compensated for by USAA and do not

qualify for a casualty loss deduction under section 165(a). For instance, petitioners

introduced into evidence a receipt dated November 4, 2018, from Kalin Home

Furnishings in Ormond Beach, Florida, for the purchase of sofas and an ottoman.

However, the claim letter from USAA indicates that the payment for personal property

items included the items in the living room, which included a sofa and recliner.

9

[*9]

(i) Substantiates the contribution with a

contemporaneous written acknowledgment, as

described in section 170(f)(8) and § 1.170A-13(f),

(ii) Obtains a qualified appraisal,[12] as

defined in § 1.170A-17(a)(1), prepared by a qualified

appraiser, as defined in § 1.170A-17(b)(1),[13] and

(iii) Completes Form 8283 (Section B), as

provided in paragraph (d)(3) of this section, or a

successor form, and files it with the return on which

the deduction is claimed.

Treas. Reg. § 1.170A-16(d)(1). The CWA must provide the following

information (1) the amount of any cash the taxpayer paid and a

description of any property other than cash that the taxpayer

transferred to the donee organization, (2) a statement of whether the

donee organization provided any goods or services in consideration, in

whole or part, for any of the cash or other property transferred to the

donee organization, (3) if the donee organization provided any goods or

services other than intangible religious benefits, a description and good

faith estimate of the value of those goods or services, and (4) if the donee

organization provided any intangible religious benefits, a statement to

that effect. Treas. Reg. § 1.170A-13(f)(2). Further, no deduction is

allowed for “any contribution of clothing or a household item” unless

such property is “in good used condition or better.” § 170(f)(16)(A).

If the taxpayer donates property other than money, the amount

of the contribution is generally equal to the FMV of the property at the

time of the gift. See Treas. Reg. § 1.170A-1(c)(1). A taxpayer claiming a

noncash contribution valued in excess of $5,000 must also “attach[] to

the return . . . such information regarding such property and such

appraisal as the Secretary may require.” § 170(f)(11)(C). The required

information includes an appraisal summary (i.e., Form 8283) that must

be included with the return on which the deduction is first claimed.

Deficit Reduction Act of 1984, Pub. L. No. 98-369, § 155(a)(1)(B), 98 Stat.

494, 691; see Costello v. Commissioner, T.C. Memo. 2015-87, at *14–15;

Jorgenson v. Commissioner, T.C. Memo. 2000-38, 2000 WL 134332, at *8

(noting that the IRS has prescribed Form 8283 to be used as the

12 The qualified appraisal must be secured by the donor before the due date,

including extensions, of the return on which the deduction is first claimed for the

contribution. Treas. Reg. § 1.170A-17(a)(8).

13 Treasury Regulation § 1.170A-17 applies to contributions made on or after

January 1, 2019. Treas. Reg. § 1.170A-17(c).

10

[*10] “appraisal summary”); Treas. Reg. § 1.170A-13(c)(2). Failure to

comply with these requirements generally precludes a deduction. See

§ 170(a)(1) (“A charitable contribution shall be allowable as a deduction

only if verified under regulations prescribed by the Secretary.”);

§ 170(f)(11)(A)(i) (providing that “no deduction shall be allowed” unless

specified substantiation requirements are met).

Petitioners claimed a noncash charitable contribution deduction

of $27,787 for the 2019 tax year. On the Form 8283, they reported three

donations to Goodwill on March 25, July 5, and August 21, 2019. The

donations were for (1) “Electronics, Computer Equip[ment]” with an

FMV of $8,500, (2) “High End Clothing” with an FMV of $7,600, and

(3) “Furniture and Equip[ment]” with an FMV of $11,687. Petitioners

did not (1) obtain an appraisal for any item, (2) have a list of the items

donated, or (3) have a CWA from Goodwill for any of the reported

donations. Additionally, petitioners were unable to provide testimony

regarding the specific items that were donated or their FMV. Octavia

testified that things were chaotic after Hurricane Michael and for many

of the donations that she made to Goodwill or the Airman’s Attic, she

did not have a CWA. Similarly, she testified that there were no receipts

for other items that they donated to other community members. 14

We find credible Octavia’s testimony that petitioners made

donations after Hurricane Michael; however, petitioners have failed to

present evidence that satisfies the requirements of law for deductions of

noncash charitable contributions. The broad categories of donations and

their corresponding amounts that petitioners listed on Form 8283 are

not supported by any written record. Petitioners are not entitled to a

$27,787 deduction for noncash charitable contributions under section

170(a) for the 2019 tax year.

IV.

Personal Property Taxes and State and Local General Sales Taxes

Section 164(a)(2) permits deductions for state and local personal

property taxes paid during the taxable year. Under section 164(b)(1),

personal property tax is defined as an ad valorem tax imposed on an

annual basis in respect of personal property.

We note that even if petitioners had receipts for donations made to

community members, any such donations would fail to qualify as charitable

contributions under section 170(a) and (c).

14

11

[*11] Section 164(a)(3) allows a deduction for state and local income

taxes paid during the taxable year. Section 164(b)(5)(A) permits a

taxpayer to elect to deduct state and local general sales taxes in lieu of

state and local income taxes. “A taxpayer may deduct the actual amount

of sales taxes paid, which would require substantiation.” Figures v.

Commissioner, T.C. Memo. 2012-296, at *11–12. “Alternatively, the

Commissioner, as a matter of administrative convenience, permits

taxpayers to calculate the amount of the deduction by using the

guidelines” the IRS publishes in the Optional State and Certain Local

Sales Tax Tables. See id. at *12; see also § 164(b)(5)(H).

At trial, each of petitioners testified that they did not know what

the personal property taxes that were reported on their 2019 Form 1040

related to. There is no other substantiation for personal property taxes

in the record. Accordingly, petitioners are not entitled to deduct $5,619

in personal property taxes for the 2019 tax year.

Similarly, each of petitioners testified that they did not know

what the State and local general sales taxes that were reported on their

2019 Form 1040 related to. There is no other substantiation for the State

and local general sales taxes in the record. Accordingly, we sustain

respondent’s determination to reduce petitioners’ reported deduction of

State and local general sales taxes of $4,635 by $2,957 for the 2019 tax

year.

V.

Reservist Mileage

In the Notice, respondent’s examiner denied petitioners’ claimed

deduction for automobile expenses and business mileage because

petitioners failed to comply with the strict substantiation requirements

under section 274(d). However, in respondent’s Pretrial Memorandum

and at trial, respondent argued that the deduction should be disallowed

because Octavia was not a reservist as required under section

62(a)(2)(E) to deduct travel expenses incurred in connection with her

service. During this case respondent did not pursue the original basis

stated in the Notice for denying petitioners’ claimed deduction.

If the Commissioner relies on a basis to support a deficiency that

requires the presentation of evidence different from that which would

be necessary to resolve the determinations in the Notice of Deficiency,

then the Commissioner bears the burden of proof on the new basis. See

Rule 142(a); Shea v. Commissioner, 112 T.C. 183, 197 (1999). Ordinarily,

the burden of proof would shift to respondent because he seeks to

12

[*12] support the deficiency determination denying petitioners’ claimed

deduction for automobile expenses and business mileage on a different

basis from that asserted in the Notice. Respondent’s new basis for his

determination that the automobile expenses and business mileage

deduction should be disallowed is that Octavia was not a reservist as

required under section 62(a)(2)(E). This is different from the basis set

out in the Notice, which was that petitioners failed to satisfy the

substantiation requirements of section 274(d). Respondent’s new basis

would require the presentation of different evidence from that which

would have been required under the Notice. However, because

petitioners have conceded that Octavia was not a reservist, only a legal

issue remains, and we decide it without regard to the burden of proof.

See Estate of Morgens v. Commissioner, 133 T.C. 402, 409 (2009), aff’d,

678 F.3d 769 (9th Cir. 2012); DeCrescenzo v. Commissioner, T.C. Memo.

2012-51, 2012 WL 612493, at *2, aff’d, 563 F. App’x 858 (2d Cir. 2014).

Section 62(a)(2)(E) provides that members of reserve components

of the Armed Forces of the United States may deduct travel expenses

incurred during “any period during which such individual is more than

100 miles away from home in connection with” their service. The reserve

components of the Armed Forces of the United States include the Army

Reserve, the Marine Corps Reserve, the Navy Reserve, the Air Force

Reserve, the Coast Guard Reserve, the Army National Guard, and the

Air National Guard. 10 U.S.C. § 10101 (defining the reserve

components).

Petitioners concede that Octavia was not a member of the reserve

components of the Armed Forces of the United States during the 2018

and 2019 tax years. Thus, she was not a reservist and not entitled to

deduct travel expenses incurred during any period where she was more

than 100 miles away from home in connection with her service, under

section 62(a)(2)(E). Additionally, petitioners may not claim the travel

expenses as business expenses under section 162(a) for which a

miscellaneous itemized deduction may be available under section 67(a)

because section 67(g) suspended miscellaneous itemized deductions for

unreimbursed employee expenses, such as business travel expenses, for

tax years beginning after December 31, 2017, and before January 1,

2026. Accordingly, petitioners are not entitled to deduct $26,289 in

expenses for serving in a reserve component of the Armed Forces of the

United States for the 2019 tax year.

13

[*13] VI.

Section 6662(a) Accuracy-Related Penalty

Section 6662(a) and (b)(1) and (2) imposes a 20% penalty on the

portion of an underpayment of tax required to be shown on a return that

is attributable to “[n]egligence or disregard of rules or regulations” or to

“[a]ny substantial understatement of income tax.” Negligence includes

any failure to make a reasonable attempt to comply with the provisions

of the Code. § 6662(c); Treas. Reg. § 1.6662-3(b)(1). Negligence also

includes any failure to keep adequate books and records or to

substantiate items properly. Treas. Reg. § 1.6662-3(b)(1). Section

6662(d)(2) generally defines an “understatement” as the excess of the

tax required to be shown on the return over the amount shown on the

return as filed. An understatement of income tax is “substantial” if it

exceeds the greater of 10% of the tax required to be shown on the return

or $5,000. § 6662(d)(1)(A).

The Commissioner generally bears the burden of production with

respect to the liability of an individual for any penalty. § 7491(c). To

meet this burden, the Commissioner must produce sufficient evidence

that it is appropriate to impose the penalty. See Higbee, 116 T.C. at 446–

47. The Commissioner’s burden of production under section 7491(c) also

includes showing compliance with section 6751(b), which provides that

“[n]o penalty under this title shall be assessed unless the initial

determination of such assessment is personally approved (in writing) by

the immediate supervisor of the individual making such determination

or such higher level official as the Secretary may designate.” See Graev

v. Commissioner, 149 T.C. 485, 492–93 (2017), supplementing and

overruling in part 147 T.C. 460 (2016).

For the 2018 tax year, petitioners reported $207 in tax due on

their return, but their corrected tax liability was $30,488. Similarly, for

the 2019 tax year, petitioners reported $6,959 in tax due on their return,

but their corrected tax liability was $22,923. Thus, for each of the years

in issue, the understatement is substantial because it exceeded $5,000,

which was greater than 10% of the tax required to be shown on the

returns for the years in issue. 15

15 We do not address respondent’s alternative position that the section 6662(a)

accuracy-related penalties apply because of negligence because the maximum

accuracy-related penalty that can be imposed on a portion of an underpayment may

not exceed 20 percent of such portion, and the accuracy-related penalties cannot be

stacked. See Ocampo v. Commissioner, T.C. Memo. 2015-150, at *52 n.22 (citing Treas.

Reg. § 1.6662-2(c)).

14

[*14] To satisfy his burden of production under section 6751(b),

respondent offered into evidence a Civil Penalty Approval Form dated

June 29, 2021. The Civil Penalty Approval Form shows that the

penalties were approved before the issuance of the Notice. The Civil

Penalty Approval Form that was signed by the examiner’s supervisor,

Pamela Josephson, approved the section 6662(a) accuracy-related

penalties for underpayments due to substantial understatements of

income tax or, in the alternative, negligence. 16 Respondent has thus

“come forward with evidence of penalty approval,” and therefore

petitioners “must come forward with contrary evidence.” See Frost v.

Commissioner, 154 T.C. 23, 34 (2020). Petitioners have offered no

contrary evidence or otherwise challenged compliance with section

6751(b). Additionally, respondent has shown that it was appropriate to

impose the substantial understatement penalty because each

understatement exceeded $5,000 which was greater than 10% of the tax

required to be shown on the returns for the years in issue. Respondent

has therefore satisfied his burden of production under section 7491(c).

Once the Commissioner satisfies his burden of production with

respect to the accuracy-related penalty, the taxpayer then bears the

burden of proving that the Commissioner’s determination is incorrect or

that he has an affirmative defense, such as reasonable cause and good

faith under section 6664(c)(1). See Rule 142(a); Higbee, 116 T.C. at 448–

49. Petitioners have presented no evidence that indicates that they acted

with reasonable cause and in good faith with respect to any portion of

the underpayment for either the 2018 or 2019 tax year. We hold that

petitioners are liable for section 6662(a) accuracy-related penalties for

underpayments due to substantial understatements of income tax for

the years in issue.

VII.

Conclusion

For the foregoing reasons, we will sustain respondent’s deficiency

and penalty determinations in the Notice. We have considered all other

arguments made and facts presented in reaching our decision and, to

the extent not discussed above, we conclude that they are moot,

irrelevant, or without merit.

16 In Kroner v. Commissioner, 48 F.4th 1272, 1278–79 (11th Cir. 2022), rev’g in

part T.C. Memo. 2020-73, the Eleventh Circuit held that written supervisory approval

must be obtained before assessment of the penalty. Here, the supervisory approval was

timely because it occurred before assessment of the penalty.

15

[*15] To reflect the foregoing,

Decision will be entered for respondent.