T.C. Summary Opinion 2011-95
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T.C. Summary Opinion 2011-95
UNITED STATES TAX COURT
JAC E. AND CYNTHIA L. BAKER, Petitioners v.
COMMISSIONER OF INTERNAL REVENUE, Respondent
Docket No. 25951-08S.
Filed July 19,
2011.
Ellin V. Palmer, for petitioners.
Cassidy B. Collins, for respondent.
DEAN, Special Trial Judge:
This case was heard
pursuant to the provisions of section 7463 of the Internal
Revenue Code in effect when the petition was filed.
Pursuant to
section 7463 (b) , the decision to be entered is not reviewable by
any other court, and this opinion shall not be treated as
precedent for any other case.
Unless otherwise indicated,
I
subsequent section references are to the Internal Revenue Code in
-
2
-
effect for the years in issue, and all Rule references are to the
Tax Court Rules of Practice and Procedure.
Respondent determined the following deficiencies and
penalties with respect to petitioners'
2005, 2006, and 2007
Federal income tax returns:
Year
Deficiency
Penalty
Sec. 6662(a)1
2005
$3,945
$791
2006
3,900
780
2007
2,462
492
All penalty amounts are rounded to the nearest dollar.
After concessions,1 the issues for decision are whether:
(1) Each petitioner's tax home is the couple's personal
residence; and (2) petitioners are entitled to deduct certain
unreimbursed employee business expenses reported on Schedule A,
Itemized Deductions.
Background
Some of the facts have been stipulated and are so found.
The stipulation of facts, the supplemental stipulation of facts,
and the exhibits received into evidence are incorporated herein
Respondent concedes that petitioners are entitled to
deductions for tax preparation fees and that Mrs. Baker is
entitled to deductions for work uniform expenses.
Respondent
also concedes that Mr. Baker is entitled to deduct incidental
expenses of $716, $1,124, and $1,181 for 2005, 2006, and 2007,
respectively.
Petitioners did not address amounts respondent
disallowed for "other expenses" of $3,111, $1,251, and $552 for
2005, 2006, and 2007, respectively.
Therefore, these amounts are
deemed conceded.
- 3 by reference.
At the time petitioners filed their petition, they
resided in the State of Washington.
At all relevant times Mr. Baker was employed as a tug master
for Young Brothers, Ltd.
Hawaii.
(Young Brothers), based in Honolulu,
Young Brothers provides interisland cargo services
throughout the islands that constitute the State of Hawaii.
Baker would fly from Seattle to Honolulu for work.
Mr.
According to
U.S. Coast Guard certificates of discharge to merchant seaman,
Mr. Baker worked the following shifts during the years in issue:
2005
2006
2007
Jan. 1-Jan. 15
Jan. 4-Feb. 1
Jan.. 1-Jan. 8
Feb.
Mar.
Jan.
28-Mar.
23
2-Apr.
5
8-Jan.
10
Mar. 23-Mar. 27
May 4-June 2
Jan. 10-Jan. 20
Mar. 28-Apr.
July 5-Aug.
Mar.
1
May 1-May 26
Sept.
July 2-July 5
July 5-July 7
-
7
7-Apr.17
16-Oct. 29
May 16-June 18
Nov; 29-Dec. 16
July 28-Aug. 12
Dec. 27-Dec. 31
Sept. 1-Sept. 30
July 7-July 9
Oct.
15-Oct. 24
July 9-Aug. 4
Nov. 1-Dec. 1
Sept. 1-Sept. 28
Sept.
28-Oct. 4
Nov. 2-Dec.
2
Young Brothers did not reimburse Mr. Baker for the expenses
he incurred for travel between his personal residence in
Washington and Hawaii.
Mr. Baker generally worked for 1 month
- 4
and then had 1 month off.
-
Mr. Baker also accrued vacation time
that could be used during his shifts.
For most of Mr. Baker's shifts, he worked on the vessel
Malulani and began and ended each voyage in the Honolulu, Hawaii,
port.
Each tug voyage lasted approximately 3 days.
On eight
occasions during the years in issue, Mr. Baker either began or
ended his voyage in a port other than Honolulu:
five of these
occasions were in neighboring islands in Hawaii and three were in
the continental United States.2
From the time Mr. Baker arrived at the port in Honolulu
until his 1-month shift ended, he was allowed to sleep aboard the
vessel upon which he worked.
Young Brothers did not provide Mr.
Baker any meals while the vessel was docked at the Honolulu port;
but as soon as the vessel left Honolulu, Young Brothers provided
all of Mr. Baker's meals.
This included when the vessel was
docked at neighboring islands for the unloading of a barge's
cargo.
As Mr. Baker incurred expenses related to his employment,
he documented them in a calendar.
Mr. Baker's employment with
Young Brothers was permanent and for an indefinite period.
Around 1985 Mrs. Baker was training to be a flight attendant
with Regent Air (Regent).
Her rotation with Regent would have
2Mr. Baker began or ended four voyages in the Hono Hi,
Hawaii, port.
He ended one voyage in the Kahului, Hawaii, port.
Mr. Baker also began or ended a voyage in the Seattle,
Washington, Portland, Oregon, and Astoria, Oregon, ports.
- 5 been a nonstop flight from Honolulu, Hawaii, to New York.
During
Mrs. Baker's training Regent lost its financiers and the airline
discontinued its plans for the nonstop route from Honolulu to New
York.
Although the opportunity with Regent was no longer
available,- Mrs. Baker's interest in being a flight attendant had
been piqued, and she began looking for opportunities with other
airlines.
Mrs. Baker found that opportunity with Delta Airlines
(Delta).
Mrs. Baker has been a flight attendant with Delta for
25 years.
During the years in issue Mrs. Baker's base station
was JFK International Airport (JFK) in New York, New York.
flew from Seattle, Washington,
She
to New York, New York, to begin
each flight rotation.
At all relevant times Mrs. Baker kept an apartment in New
York City that she shared with nine other individuals.3
During
the years in issue she worked an international rotation serving
only European countries.
In 2005 Mrs. Baker flew the 1st through
the 15th of each month.
In 2006 and 2007 she flew one to four
times a month.
An international rotation would generally last
from 3 to 4 days.
Although Mrs. Baker recorded rotation numbers
and lengths of rotations on her calendar, n'o evidence was
3The record contains no other information about the
apartment or Mrs. Baker's portion of the expenses associated with
the apartment.
- 6 presented that documented the European cities in which she had
layovers or the days she was in those cities.
Mrs. Baker received flight pay and a per diem from Delta.
Flight pay started when the airplane door closed and the airplane
pushed back from the gate.
Mrs. Baker's "time away from base"
pay (TAFB), or per diem, began when she signed in at JFK for her
rotation and ended when she returned to New York.
Delta's TAFB
for international rotations for the years in issue was $2.40 an
hour.
Mrs. Baker's employment with Delta was permanent and for
an indefinite period.
Mrs. Baker incurred expenses for traveling from her home to
Seattle-Tacoma International Airport
(SEA-TAC).
Delta did not
reimburse Mrs. Baker for the expenses she incurred for travel
between her personal residence and SEA-TAC, nor the expenses she
incurred for travel from SEA-TAC to New York City.
When Mrs.
Baker was in New York City and not working, she had to purchase
her own meals.
She also incurred expenses for taxis from her New
York City apartment to JFK.
While the airplane was in flight,
Mrs. Baker was provided one meal.
Upon arrival at a layover
destination, Delta provided transportation. to a hotel and covered
the cost of the hotel room.
Delta did not cover tips paid to the
taxi or van drivers who shuttled the flight crew to hotels.
Mrs.
Baker did not claim her actual expenses while on layovers in
Europe because she had "my per diem, or my government allowance."
- 7 Mrs. Baker used a'calendar to record the expenses she incurred in
the United States.
All of the receipts she provided for the
years in issue were for her mileage costs in Seattle and expenses
she incurred in the United States.
Petitioners' 2005, 2006, and 2007 Federal income tax returns
were prepared by the certified public accountant
(C.P.A.) who had
prepared their returns for several years before the years ,in
issue.
Petitioners' C.P.A. also prepared the couple'-s amended
returns for 2005 and 2006.
In 2005 petitioners aclaimed job
expenses and miscellaneous itemized deductions of-$22,414, of
which $13,353 and $5,155 were unreimbursed employee business
expenses for Mr. Baker and Mrs. Baker, respectively.4
In 2006
petitioners claimed job expenses and miscellaneous itemized
deductions of $17,621, of which-$11,281 and $3,744 were
unreimbursed employee business expenses for Mr. Baker and Mrs.
Baker, respectively.
In 2007 petitioners claimed job expenses
and miscellaneous itemized deductions of $12,134, of which
unreimbursed employee business expenses were $10,435.
The 2007
unreimbursed employee business expenses are attributable only to
Mr. Baker.i
No Forms 2106, Employee Business Expenses, were filed
with any of the Federal income tax returns:for the years in
issue.
4The 2-percent floor of sec. 67(a) was applied to
petitioners' job expenses and miscellaneous itemized deductions
for each year in issue.
-
8
-
Respondent mailed petitioners a notice of deficiency that
disallowed all of their job expenses and miscellaneous itemized
deductions for 2005 and 2007 and all but $195 of the expenses and
deductions claimed for 2006.
Respondent also determined a
section 6662(a) accuracy-related penalty for each year in issue.
Discussion
I.
Burden of Proof
The Commissioner's determinations are presumed correct, and
generally taxpayers bear the burden of proving otherwise.
142(a) (1); Welch v. Helvering, 290 U.S.
111,
115
Rule
(1933).
Petitioners moved for a section 7491(a) (1) burden shift in their
pretrial memorandum.
Petitioners failed to meet the
substantiation and recordkeeping requirements of section 7491.
See sec. 7491(a) (2) (A) and (]B).
Therefore,
the burden remains on
petitioners.
Tax deductions are a matter of legislative grace, and the
taxpayer bears the burden of proving entitlement to the
deductions claimed.
Commissioner,
Rule 142(a) (1);
503 U.S.
79,
84
(1992).
INDOPCO,
Inc. v.
Taxpayers are required to
substantiate claimed deductions by keeping and producing adequate
records that enable the Commissioner to determine the correct tax
liability.
(1975),
Sec. 6001; Hradesky v. Commissioner, 65 T.C. 87,
affd. per curiam 540 F.2d 821
(5th Cir.
1976).
90
- 9- If a taxpayer establishes that he or she has incurred a
deductible expense yet is unable to substantiate. the exact
amount,
the Court may estimate a deductible amount, bearing
heavily against the taxpayer whose inexactituderis of his or her
own making.
1930).
Cohan v. Commissioner, '39 F.2d 540,
544
(2d Cir
The taxpayer must present sufficient evidence for the
Court to form an estimate because without such a basis any
allowance would amount to unguided largesse.
States,
254 F.2d 559,
Commissioner,
85 T.C.
560-561
731,
(5th Cir.
Williams v. United
1957); Vanicek v.
742 743. (1985).
However, the Court may not estimate a taxpayer's expenses
with respect to the items enumerated in section 274(d).
v. Commissioner, 50 T.C. 823,
827-828
412 F.2d 201
Section 274 requires strict
(2d Cir.
1969).
Sanford
(1968) e affd. per curiam
substantiation for any traveling expense under section 162.
274(d) (1).
Sec.
Section 274(d) and the regulations thereunder require
taxpayers to substantiate their deductions by adequate records or
sufficient evidence establishing the amount, time, place, and
business purpose of the expense to corroborate the taxpayer's own
testimony.
See sec. 1.274-5T(b), Temporary Income Tax Regs., 50
Fed. Reg. 46014
(Nov. 6, 1985).
In the absence of evidence
establishing the elements of the expenditure or use, deductions
must be disallowed entirely.
Sec. 274(d); Sanford v.
-
10
-
Commissioner, supra; see also sec. 1.274-5T(a), Temporary Income
Tax Regs.,
II.
50 Fed.
Reg. 46014
(Nov.
6,
1985).
Section 162 Expenses
Section 162 generally allows a deduction for ordinary and
necessary expenses paid or incurred during the taxable year in
carrying on a trade or b'usiness.
An expense is considered
ordinary if commonly or frequently incurred in the trade or
business of the taxpayer.
496
(1940).
Deputy v. du Pont,
308 U.S. 488, 495-
An expense is necessary if it is appropriate and
helpful in carrying on a taxpayer's trade or business.
Commissioner v. Heininger,
Helvering, supra at 113.
320 U.S.
467,
471
(1943); Welch v.
Services performed by an employee,
constitute a trade or business for this purpose.
Commissioner,
91 T.C.
352,
363-364
O'Malley v.
(1988).
Section 162(a) (2) allows a taxpayer to deduct traveling
expenses, including amounts expended for meals and lodging,
such expenses are:
(1) Ordinary and necessary,
(2)
if
incurred
while away from home, and (3)
incurred in the pursuit of a trade
or business.
Flowers,
Commissioner v.
326 U.S.
465,
470
(1946).
"The exigencies of business rather than the personal conveniences
and necessities of the traveler must be the motivating factors."
Id. at 477.
This Court has generally defined the word "home"
(or tax
home) as used in section 162(a) (2) to mean the vicinity of a
¯- 11 -
taxpayer's principal place of business.
Commissioner;
T.C.
190
74 T.C.
(1979),
affd.
Comáissioner, 49 T.C.
578,
581
(1980); Dalv v.
662 F.2d 253
557,
Mitchell v.
561-562
(4th Cir.
(1968).
Commissioner,
72
1981); Kroll v.
Under this
definition, commuting expenses are not deductible and are
considered personal expenses.
834,
835
(1973);
see sec.
Anderson v. Commissioner, 60.T.C.
262.
On the other hand, if a taxpayer accegts temporary
employment outside of the vicinity of his p incipal place of
residence, his travel expenses are generally deductible because
it would be unreasonable for him to move his residence for
temporary employment.
386
Ireland v. Commissioner, T.C. Memo. 1979-
(citing Tucker-v. Commissioner, $5 T.C. 783,
786
(1971)).
If
a taxpayer does not have a principal place of business, his
personal r'esidence will be cònsidered his tax home.
Commissioner,
115 T.C.
210,
Commissioner,
69 T.C.
920
663
221
(2000)
Johnson v.
(citing Rambo v.
(1978), Dean v. Commissioner,
(1970), and Leach v. Commissioner,
12 T.C.
:20
54 T.C.
(1949)).
A
taxpayer must have a tax home from which to be away to be
entitled to a deduction under section 162 (a) (2).
Commissioner, T.C. Memo.
1998).
1995-559,
affd.
Henderson v.
143 F.3d 497
(9th Cir.
"Married couples that both work-and file a joint tax
return may have separate tax homes."
Allen v-.- Commissioner, T.C.
Memo. 2009-102; see Hammond v. Commissioner, 20 -T.C. 285, 287-288
- 12 (1953), affd. 213 F.2d 43
Commissioner, T.C. Memo.
Cir. 1972).
(5th Cir. 1954); Chwalow v.
1971-185, affd.
470 F.2d 475, 478
(3d
In order to decide what expenses and deductions
petitioners are entitled to, the Court must first decide where
each petitioner's tax home is located.
The "determination of a
taxpayer's tax home is a question of fact to be decided on the
entire record."
Nicholls v. Commissioner, T.C. Memo. 1995-291
(citing Coombs v. Commissioner, 608 F.2d 1269, 1274
(9th Cir.
1979), affg.
(1976)).
A.
in part and revg.
in part 67 T.C.
426
Mr. Baker's Tax Home
Petitioners relied heavily upon the cases of Johnson v.
Commissioner, supra, and Westling v. Commissioner, T.C. Memo.
2000-289.5
In Johnson the taxpayer husband was a merchant seaman
who lived in Freeland, Washington, and was the captain of a
vessel that sailed worldwide to deliver equipment to the U.S.
military.
The taxpayer husband's employer's primary office was
in Jacksonville, Florida.
Johnson v. Commissioner, supra at 211.
The taxpayer husband and his crew flew to and from whatever port
around the world the vessel was docked in to begin and end each
work shift.
Id. at 211-212.
The Court found that the taxpayer
husband had no principal place of business and that his personal
residence was his tax home.
Id. at 221.
To support its finding
EPetitioners' C.P.A. also prepared the taxpayers' returns in
Johnson v. Commissioner, 115 T.C. 210 (2000), and Westling v.
Commissioner,
T.C. Memo.
2000-289.
- 13 -
the Court noted that the taxpayer-husband's family did not travel
with him and that there was no reason to second guess the
taxpayer-husband's decision to maintain his principal residence
in Washington State instead of Florida or one of the many cities
to which he traveled.
Id. at 222.
In Westling v. Commissioner, supra, the Court did not
discuss the taxpayer's tax home but whether he was entitled to
use the Federal per diem rates to determine his incidental
expenses for his employment as a merchant seaman.
The taxpayer's
employer's primary office was in Juneau, Alaska, and the taxpayer
piloted a tugboat to various ports in and around southeast
Alaska.
Id.
The taxpayer also began and ended his shifts on the
tugboat at several different ports.
Id.
Although there was no
discussion of the taxpayer's tax home, the Court found that the
taxpayer was entitled to deduct his incidental expenses using the
Federal per diem rate because the taxpayer's meals and.lodging
were supplied by his employer at no charge when he was working.
Id.
Mr. Baker's employment situation is factually different from
those of the taxpayers in Johnson and Westling.
Mr. Baker's
employer's primary office was in Honolulu, Hawaii.
The home port
of the vessel Malulani, on which Mr. Baker worked most of his
shifts, was Honolulu.
Although the vessel traveled to several
ports throughout the State of Hawaii, Mr. Baker began and ended
-
14
-
most of his voyages at the vessel's home port in Honolulu.
Only
eight times in 3 years did Mr. Baker begin or end a voyage in a port other than Honolulu.
No evidence was presented that there
was a business reason for Mr. Baker's per.sonal residence's being
in Washington and not Honolulu.
Mr. Baker's decision to commute
from Washington to Honolulu was a personal decision, not a
business decision.
See Commissioner v. Flowers, 326 U.S. at 477;
see also sec. 262.
Therefore, Mr. Baker's tax home for the years
in issue was Honolulu, the location of his principal place of
business.
B.
Mrs. Baker's Tax Home
Mrs. Baker began and ended each of her flight rotations at
JFK.
Delta considered JFK to be Mrs. Baker's base station.
This
Court has consistently held that an airline employee's principal
place of business is his or her base station.
Commissioner,. T.C. Memo. 1989-495
See Sislik v.
(Pan American World Airways,
Inc. pilot's tax home was JFK, not his condominium in the
Bahamas), affd. per order (D.C. Cir., May 22,
Commissioner, T.C. Memo. 1976-379
1992); Dean v.
(Trans World Airline first
officer's tax home was JFK, not his personal residence in Kansas
City, Missouri).
Mrs. Baker's situation is not different from
those cited above.
Mrs. Baker chose to live in Washington and
commute to JFK.
Therefore, Mrs. Baker's tax home was JFK for the
years in issue, the location of her principal place of business.
- 15 C.
Petirinners' Unreimbursed Employee Business Expenses
Petitioners presented evidence of travel expenses, including
meals and lodging, and incidental expenses that they claimed they
incurred while traveling away from home for purposes of section
162(a) (2).
The Internal Revenue Service publishes an annual revenue
procedure that offers optional methods of substantiation for
employees who incur:
(1) Meals and incidental expenses
(M&IE)
while traveling away from home and who receive a per diem
allowance from an employer; or (2) unreimbursed incidental
expenses but pay or incur no meal costs.
2005-1 C.B.
2006-41,
341; Rev.
2006-2 C.B.
Proc.
2005-67,
777; Rev.
Proc.
See Rev. Proc. 2005-10,
2005-2 C.B.
2007-63,
729; Rev. Proc.
2007-2 C.B.
809.6
Under the revenue procedures, an employee who receives an
M&IE only per diem from her employer may treat the lesser of the
employer's per diem or the Federal M&IE rate for the locality of
travel for that day or partial day as deemed substantiated.
Proc.
2005-10,
sec. 4.02,
sec.
4.02,
2005-1 C.B. at 343; Rev.
2005-2 C.B. at 731; Rev.
2006-2 C.B. at 779-780.
Proc. 2006-41,
Proc..
Rev.
2005-67,
sec. 4.02,
A per diem is treated as an M&IE-only
per diem if the employer pays the actual expenses for lodging
directly to the provider of the lodging.
Rev. Proc. 2005-10,
'Each subsequent revenue procedure superseded the prior
revenue procedure and restated the rules almost verbatim.
-
sec.
4.02; Rev.
sec. 4.02.
16
-
Proc.
2005-67,
sec.
4.02; Rev.
Proc.
2005-10,
sec.
4.04(3),
Rev.
Proc.
2006-41,
2005-1 C.B.
at 343,
and its progeny provide special M&IE rates that transportation
industry employees may use.
Rev.
Proc.
2005-10,
sec.
7.05,
2005-1 C.B.
at 349,
and its
progeny provide that an employee may claim as an itemized
deduction any expenses that exceed the amount deemed
substantiated under section 4.02 of the revenue procedures if all
of the expenses are substantiated,
if the deemed substantiated
portion of the per diem is included on Form 2106, and if any
portion of the per diem allowance that exceeds the amount deemed
substantiated is included in gross income.
Substantiation of the
expenses will not be required if the employee claims a deduction
equal to or lesser than the amount computed under section 4.03 of
the revenue procedures minus the amount deemed substantiated
under sections 4.02 and 7.01 of the revenue procedures.
Rev.
Proc. 2005-10,
7.05,
2005-2
2006-2 C.B.
at 785.
sec.
C.B. at 737; Rev.
7.05; Rev. Proc.
Proc.
2006-41,
sec.
2005-67,
7.05,
sec.
An employee who does not incur meal expenses while traveling
away from home may use the optional rate of $3 per day to
substant.iate only incidental expenses for any CONUS or OCONUS'
locality of travel instead of actual expenses.
Rev. Proc. 2005-
CONUS is an abbreviation for "continental United States"
and OCONUS is an abbreviation for "outside the continental United
States".
-
10,
sec. 4.05,
17
-
2005-1 C.B. at 344; Rev.
2005-2 C.B. at 732; Rev.
Proc.
2006-41,
Proc. 2005-67, sec. 4.05,
sec. 4.05,
780; and Rev.
Proc.
2007-63,
sec. 4.05,
Proc. 2005-10,
sec.
6.05(4),
2005-1 C.B. at 348,
2006-2 C.B. at
2007-2 C.B. at 812.
Rev.
and its progeny
state that the amount of incidental expenses computed under
section 4.05 of the revenue procedures is not subject to the
section 274(n)
limitation on the deductibility of food and
beverage expenses.
1.
Mr. Baker's Unreimbursed Employee Business
Expenses
|
Mr. Baker testified to and entered into evidence
documentation for travel expenses he incurred between Washington
and Honolulu, Hawaii, and incidental expenses he incurred while
in Honolulu.
Because we find above that Mr. Baker's tax home was
Honolulu, Hawaii, for the years in issue, Mr. Baker was not "away
from home" for purposes of section 162(a) (2) when he was in
Honolulu.
Therefore, Mr. Baker is not entitled to deductions for
the travel and incidental expenses he claimed for travel to
Honolulu or incurred while he was in the Honolulu port for the
years in issue.
Mr. Baker also had several days of travel that either began
or ended away from his tax home of Honolulu.
Any expenses Mr.
Baker incurred on those days must be substantiated under the
rules of section 274(d) and its regulations because Mr. Baker did
- 18 -
not receive a per diem from his employer and the expenses he
claimed he incurred were for more than just incidentals.
Mr. Baker introduced into evidence his calendars for 2005,
2006, and 2007 and his certificates of discharge for the years in
issue.
In 2005 Mr. Baker began and ended each of his shifts at
his tax home, the port in Honolulu.
He is not entitled to deduct
any additional expenses in excess of the incidental expenses
respondent conceded for 2005.
See supra note 1.
In 2006 and 2007 Mr. Baker began or ended a voyage away from
home on 8 days.
Mr. Baker testified to and presented other
evidence for $76 of meal expenses and $40 for other expenses that
he incurred while traveling away from home during 2006 and $23 of
meal expenses that he incurred while traveling away from home for
2007.
Mr. Baker has substantiated these amounts and is entitled
to the deductions he claimed for those days."
2.
Mrs. Baker's Unreimbursed Employee Business
Expenses
Mrs. Baker also testified to and entered into evidence
documentation for travel expenses she incurred between Washington
and New York, New York, and expenses incurred while in New York
City.
Because we find above that Mrs. Baker's tax home was JFK
she is not entitled to a deduction for the travel expenses she
"Seventy-five percent of Mr. Baker's meal expenses are
deductible under the special rule for individuals subject to
Federal hours of service in sec. 274(n) (3).
1
-
19
-
incurred for travel between Washington and New York or the
expenses incurred in New York City.
The M&IE expenses Mrs . Baker incurred in excess of Delta' s
per diem while on layovers in Europe may be deductible if
properly substantiated."
Proc.
2005-67,
sec.
See Rev. Proc. 2005-10, sec. 7.05; Rev.
7.05; Rev.
Proc.
2006-41,
sec..
7.05.
Mrs.
Baker testified that she did not keep track of her expenses while
in Europe because she had- a.per diem.
Mrs. Baker may use the
lesser of Delta's per diem or the Federal per diem rate for the
locality of travel for the portion of her expenses that is deemed
substantiated.
2005-67,
sec.
See Rev. Proc. 2005-10, sec. 4.02; Rev. Proc.
4.02; Rev.
Proc.
2006-41,
sec. 4.02.
She may not
use the Federal per diem for the locality of travel in addition
to her Delta per diem to substantiate her expenses.
Mrs. Baker did not include Form 2106, as required, with her
Federal income tax return for any of the years, in issue, which if
provided would have included the amount of her expenses that was
deemed substantiated.
Although Mrs. Baker provided rotation
numbers in her calendars, she did not provide the names of the
"Mrs. Baker testified that she did not keep receipts for
expenses she incurred while in Europe because she received a per
diem. Mrs. Baker did note in her calendars for the years in
issue that she incurred tips and testified that those tips were
not reimbursed by Delta. Although Mrs. Baker testified that she
did not include expenses from Europe in her deductions for the
years in issue, the tip amounts were included in computations for
her expense totals for each year.
-
20
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European cities or the dates on which she had layovers in those
cities."
Without such information, the Court cannot determine
which rate--Delta's per diem or the Federal per diem rate--should
be used for the deemed substantiated portion of Mrs. Baker's
expenses."
Additionally, respondent made no adjustment to and the Court
has no means of computing the amount of any of Mrs. Baker's
expenses in excess of the deemed substantiated amount.
Therefore, Mrs. Baker is not entitled to deduct any of the
unreimbursed employee business expenses she claimed for 2005 or
2006 beyond what respondent has conceded.
III. Section 6662(a) Accuracy-Related Penalty
Section 6662(a) and (b) (1)
imposes a 20-percent accuracy-
related penalty on the portion of an underpayment that is
attributable to negligence or disregard of rules and regulations.
Negligence is defined as any failure to make a reasonable attempt
to comply with the provisions of the Internal Revenue Code, and
"Petitioners introduced into evidence lists of cities and
their corresponding per diems.
Cities in the United States and
Europe were highlighted. No further explanation of the lists was
given at trial.
If the lists were offered as the locations to
which Mrs. Baker flew for the years in issue, the lists
contradict Mrs. Baker's testimony that she flew only to European
cities during the years in issue.
"It appears that respondent did not adjust petitioners'
income to include any portion of Mrs. Baker's per diem that might
have exceeded the amount deemed substantiated; thus, the Court
does not address that issue.
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21
-
the term "disregard" includes any careless, reckless, or
intentional disregard.
Sec. 6662(c).
Section 7491(c) imposes on the Commissioner the burden of
production in any court proceeding with respect to the liability
of any individual for penalties and additions - to tax. . - Higbee v.
Commissioner,
116 T.C.
438,
Commissioner,
T.C. Memo.
446
(2001);'Trowbridge v.
2003-164,
affd.
378 F.3d 432
(5th Cir.
2004).
In order to meet the burden of production under section
7491(c),
the Commissioner need only make a prima facie case that
imposition of the penalty or addition to tax is appropriate.
Higbee v. Commissioner, supra at 446.
Respondent has met that
burden here .
An accuracy-related penalty will not apply if the taxpayers
demonstrate that there was reasonable cause for the underpayment
and that they acted in good faith.
1.6664-4(b) (1),
Income Tax Regs.,
Sec. 6664(c) (1).
Section
incorporates a facts .and
circumstances test to determine whether the taxpayer acted with
reasonable cause and in good faith.
The most important factor is
the extent of the taxpayer's effort to assess his or her proper
tax liability.
Id.
After considering the totality of the facts and
circumstances, we are satisfied that petitioners, who used the
I
same C.P.A. for the years in issue that they had used for several
prior years, acted in good faith and come within the reasonable
- 22 cause exception of section 6664(c) (1).
Accordingly, we hold that
petitioners are not liable for the section 6662(a) accuracyrelated penalties for the years in issue.
Conclusion
We have considered all of the parties' arguments, and,
to
the extent not addressed herein, we conclude that the arguments
are moot, irrelevant, or without merit.
To reflect the foregoing,
Decision will be entered
under Rule 155.
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