T . C . Summary Opinion 2010 -162
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T . C . Summary Opinion 2010 -162
UNITED STATEE TAX COURT
SHIRLEY UCOL-COBARIA, Petitioner v.
COMMISSIONER OF INTERNAL REVENUE, Respondent
Docket No.
14887-095.
Filed October 27,
2010.
Caroline DeLisle Ciraolo, for petitioner.
Tyler N. Orlowski, for respondent .
GOLDBERG, Special Trial Judge:
This case was heard pursuant
to the provisions of section 7463 of the Internal Revenue Code in
effect at the time the petition was filed.
Pursuant to section
7463 (b) , the decision to be entered is not reviewable by any
other court, and this opinion should not be treated as precedent
for any other case.
Unless otherwise indicated, subsequent
section references are to the Internal Revenue .Code (Code) in
SERVED 00T 2 7 200
--2 effect for the years in issue, and all Rule ,references are to the
Tax Court Rules of Practice and Procedure.
Respondent determined deficiencies in petitioner's Federal
income taxes of $1,994, $5,401, and $157, and section 6662(a)
accuracy-related penalties of $399, $1,080, and $32,
2006, and 2007, respectively.
for 2005,
After concessions,1 the issues for
II
decision are:
(1) Whether petitioner's saldry for 2005, 2006,
and a portion of 2007 from the Baltimore, Maryland, City Public
Schools (BCPS)
is exempt from Federal income tax under the
Convention With Respect to Taxes on Income, U.S.-Phil., art. 21,
I
Oct.
1,
1976,
34 U.S.T.
1277
(article 21);
-
(2) whether petitioner
is entitled to deduct certain employment, living, and other
itemized expenses "that she claimed for 2005 dand 2006; and (3)
whether petitioner is liable for the accuracy-related penalty
under section 6662(a)
for any or all of the 3 years aí issue.
Background
Some of the facts have been stipulated and are so found.
The stipulation of facts and the attached e hibits are
incorporated herein by this reference.
Pet tioner resided in
Maryland when she filed her petition.
IRespondent also determined that-petitioner did 'not include
State income tax refunds and interest income in her gross income
for 2006 and 2007.
Petitioner -did not address these issues at
trial; therefore, the issues are deemed conceded.
See Rule
149(b).
- 3 Petitioner is a citizen of the Republic of-the Philippines.
She received a bachelor's degree in physical therapy from San
Juan de ¯Dios Educational Foundation, Inc.
She then attended De
La Salle University, where she received a certificate in teaching
in 2002 and a master's degree in'.teaching in 2005.
institutions are in the Philippines.
Both of these
Petitioner was an eighth
grade science teacher at Paref Woodrose School in Muntinlupa
City, Philippines, from 2002 until she left the Philippines in
2005.
Petitioner entered the'United"States on June 22, 2005,
arriving in Baltimore to teach for BCPS as part of an
international teaching exchange program sponsored by the U.S.
Department of State (the State Department).
(Amity)
Amity Institute -
is a nonprofit organization the State Department approved
to operate an exchange teacher program.
The exchange teacher ,
program allows qualified foreign teachers to enter the United
States to teach for up to 3 years.
Amity does not directly recruit teachers from the
Philippines.
Corp.
During 2004 and 2005 Amity worked with Badilla
(Badilla), a business entity from the Philippines, and with
Avenida & Associates, Inc.
United States.
(Avenida), a business entity from the
Badilla and Avenida are affiliated entities, and
they worked together- to facilitate the placement of qualified
Filipino teachers in American schools.
Badilla collected
- 4 background information, such as transcripts and résumés, from
teachers in the Philippines who were interested in the exchange
teacher program in the United States.
Badilla found its
prospective Filipino teachers.principally by tword of mouth and
seminars conducted by its executives.
Avenida or Badilla charged
placement fees and additional charges to help teaching candidates
with, among other tasks, finding employers ip the United States
and obtaining visas.
In the United States, Avenida helped school
districts find promising teaching candidates by providing access
to a database of overseas.jobseekers.
In late 2004 petitioner attended an orientation session for
an exchange teacher program Badilla sponsored;
She ultimately
submitted her transcript and résumé to Badilla.
BCPS worked with
Avenida to receive access to a preselected list of qualified
Filipino teachers.
This was the first time BCPS had recruited
teachers from the Philippines.
-From the preselected teachers
BCPS administrators chose the candidates thee school system wanted
to interview.
In January 2005 George Duque, manager of
recruitment and staffing for BCPS, traveled to the Philippines to
interview petitioner and other teaching candidates.
Shortly
afterwards Badilla informed petitioner that BCPS would be
offering her employment for the 2005-2006 school year.
Petitioner received.a letter from BCPS dated,February 1, 2005,
officially offering her employment for the 2005-2006 school year.
-
5
-
Generally," foreign teachers who want to teach in the United
States may obtain one of two types of visas.
visa for working professionals.
One 'is the H-1B
The second is the J-1 visa for
individuals coming to the United States under a cultural exchange
program approved by the State Department.
The J-1 visa is more
convenient for foreign individuals who are new teachers in the
United States because the visa timing coincides ,with the academic
school year in the United States.
Petitioner's parents paid
Avenida $5·,200 for the following fees:
A $3,-200 placement fee, a
$725 U.S. documentation fee, a $500 J-1 visa processing fee, and
a $775 for airfare and travel.
Amity sponsored petitioner's visa.
The State Department
authorized Amity to issue Form DS-2019, Certificate of
Eligibility for Exchange Visitor (J-1)
Status.
The form
identifies the visitor; identifies the visa sponsor; briefly
describes the exchange program, including the start and end
dates; identifies the category of exchange; and states the ¯
estimated cost of the exchange program.
At all relevant times,
Gertrude Hermann was Amity's executive director.
An Amity representative explained to petitioner that if she
accepted the teaching offer, BCPS would be evaluating her
I
performance throughout the school year.
If her performance was
satisfactory, BCPS would continue her employment for the
following school year.
- 6 In a letter to petitioner dated April 11:, 2005, Amity.
confirmed BCPS's offer.
On April 21, 2005, petitioner, signed an
Amity exchange teacher contract with Amity and BCPS.
Amity ,
prepared a Form DS-2019 for:petitioner's signature and mailed it
to her.
The length of time listed on -the Form DS-2019 for
a
petitioner's visa was 3 years, the same length as the exchange
teacher program.
Petitioner signed.the formgand returnedsit to
Amity for processing.
Petitioner resigned from her teaching position in-the
Philippines to teach for BCPS...Upon her arrival in Baltimore on
June 22, 2005, petitioner signed a 1-yeartlease for an apartment
at Symphony Woods Apartments;
-On August 1-0, g2005, petitioner
signed a standard Provisional Contract for Cÿnditional or
,
Resident Teacher Certificate «Holders (BCPS employment contract),
effective beginning August 24, -2005.
The BCPS employment
contract was for 1 year, terminating at.the end of the 2005-20.06
school-year.
BCPS.
It is the only contract-that petitioner signed with
All first-year teachers swho did not have ,full professional
certification signed.a similar BCPS employmeþt contract.,
BCPS
assigned petitioner to teach at Lombard Middle School (Lombard).
The BCPS employment.contract required teachers to take the
Praxis I and II tests, which are part of the||teacher
certification process that many States require, including
Maryland.
Petitioner completed the Praxis I test -in late 2006.
- 7 Petitioner received a Maryland education certificate in 2007, valid from July 1, 2005, through June -30, 2010.
As.of trial,
petitioner had not completed the Praxis II test.
Soon after she began teaching at Lombard petitioner :began
experiencing significant difficulties with student behavior and
attitude.
Petitioner also sustained physical injuries when two
students began fighting in her classroom and a« table was pushed
against her leg.
In a November 14, 2005, email to Amity,
petitioner chronicled her difficulties and requested a transfer
to Baltimore County Schools for the following school year.
Petitioner began her email by stating:
"i'm really having second
thoughts of continuing my teaching here at baltimore city for the
next school year."
Petitioner.'s transfer request was denied, and
she continued teaching at Lombard.
Working in the -United States provided petitioner with a
salary that was considerably greater than what she had earned in
the Philippines.
In the Philippines petitioner. had earned
approximately 20,000 Filipino pesos- a month, equivalent to $357
per month or $4,284 per year.
Petitioner's annual salary for her
first year -of teaching for BCPS was $34,973, which increased to
$44,733 and $48,674 for her second'and third years, respectively.
With respect to Federal income tax withholding, petitioner
did not provide BCPS with Form 8233, Exemption From Withholding
on Compensation for Independent
(and Certain Dependent) Personal
- 8 Services of a Nonresident Alien Individual.
Consequently, BCPS
withheld Federal income tax from petitioner's salary during 2005,
2006, and 2007.
Instead, petitioner incorrectly attached Form
8233 to her 2005 Federal income tax return, and she did not
complete the section of the form that requested the applicable
dates of exemption.
Petitioner engaged professional tax preparers to prepare her
2005, 2006, and 2007 Federal income tax retuans.
For 2005 and
2006 petitioner filed Forms 1040NR, U.S. Nonresident Alien Income
Tax Return.
For 2007 she filed Form 1040, U.S. Individual Income
Tax Return.
Petitioner reported that her salary from BCPS for
the 2005 and 2006 calendar years was exempt from taxation in the
United States under article 21.
Petitioner included all of her
earnings from BCPS for 2007 on her 2007 Federal income tax
return.
In her amended petition, however, she contended that the
first 6 months of her 2007 earnings from BCPS were also exempt
from Federal income tax under article 21's 27year exclusion.
Petitioner claimed itemized deductions of $8,780 and
$15,805,
for 2005 and 2006, .respectively, related to her
employment, living, and transportation expenses.
$5,350 standard deduction for 2007.
She claimed the
As a reåult of the income
exclusion, income tax withholding, and deductions, petitioner
requested refunds for each year 2005-through 2007.
- 9 Petitioner returned to the Philippines on June 16, 2008,
before her J-1 visa expired on June 27; 2008.
She rapplied for
and obtained an H-1B visa valid from July 14, 2008, through June
20, 2011.
She then returned to the United States, and as of the
date of trial, she continued to be employed by BCPS.
The Internal Revenue Service (IRS) selected petitioner' s
2005, - 2006, and 2007 Federal income tax returns for examination.
The examining agent sent three questionnaires .to petitioner:
Form 8784, Questionnaire - Temporary Living Expenses; Form 9210,
Alien Status Questionnaire; and Form 9250, Questionnaire - Tax
Treaty Benefits.
Petitioner completed the forms, dated her
signature September 24, 2008, and returned the forms to the IRS.
The Court received into evidence copies of the three
questionnaires that petitioner had completed.
On Form 8784
petitioner marked that she did not request a leave of absence
from her employer in the Philippines, and she added that there
was no reason for her to request a leave of absence.
On Form
9210 petitioner wrote that June 22, 2005, was.her date of initial
arrival and that at that time she expected to remain in the
United States for 3 years.
She answered the next question on
Form 9210, indicating that she revised and renewed her visa
status so that she could stay in the United States for another 3
years.
- 10 -
In the notice of deficiency dated March 26, 2009, the IRS
adjusted petitioner's income to include the earnings from BCPS
for 2005 and 2006 that petitioner had excludied under article 21.
In addition, the IRS disallowed $6,908 of the $8,780 in itemized
deductions that petitioner claimed for 2005 gnd $12,292 of the
$15,805 in itemized deductions that she claimed for 2006 and
allowed the $5,350 standard deduction for 20p7.
The $6,908 of
disallowed deductions for 2005 consisted of $5,000 for
"legal/documentation" fees, $1,000 for a laptop computer, $200
for computer software, $400 for school suppljes, and $308 for
union dues.
The $12,292 of the disallowed deductions for 2006
consisted of $6,038 in rent,
including utilities; $2,004 for
transportation between her apartment and her teaching job at
Lombard; $930 for an agency fee; $800 for airfare; $1,673 for
computer equipment and supplies; and $847 fo
not Received".
"2005 State Refund
Petitioner filed her petition contesting all of
respondent's adjustments.
Respondent- moved under Rule 121 f.or par ial summary judgment
concerning the issue of whether petitioner qualified in the years
at issue for the exemption under article 21.
to the granting of the motion.
both parties.«
Petitioner objected
The issue waš fully briefed by
The motion was set for hearing at trial.
case was called for trial, the motion was heard.
When the
The parties
- 11 relied on their respective positions set forth in their briefs.
The motion for partial summary judgment has'been denied.
The case was then tried, and the Court heard testimony from
petitioner, Mr. Duque, and Ms. Hermann.
The Court also received
into evidence a form. BCPS completed for Amity entitled "Addendum
to Amity Confirmation of Employment Form 2007/2008"
addendum).
(the
Mr. Duque signed and dated the 'form- July 1, 2007.
The addendum showed that BCPS had retained 170 of the 178
(95.5
percent) of the Filipino teachers in the past 2 years who had
taught for BCPS through Amity's exchange teacher program.
Discussion
I.
Income Under Article 21
Petitioner was a nonresident alien for the years at issue
because of her J-1 visa status and her participation in the
exchange teacher program.
See sec. 7701(b).
In particular,
section 7701(b) (1) (B) provides that a nonresident alien is a
person who is not a citizen or resident of the United States
within the meaning of section 7701(b) (1) (A).2
Generally, a
nonresident alien individual engaged in trade or business within
the United States is taxed on the taxable income effectively
connected with that trade or business.
Sec. 871(b).
The phrase
2As a teacher, petitioner is considered an exempt
individual, and, therefore, not treated as present for purposes
of the substantial presence test. See sec. 7701(b) (1)-(A) (ii),
(3) (D) (i) ,
(5) (A) (ii) .
1
- 12 -
"trade or business within the United States" generally includes
the performance of personal services within the United States at
any time within the taxable year.
Sec. 864(b).
paid to a nonresident alien.in exchange for
Compensation
he performance of
services in the United States constitutes income that is
effectively connected with the conduct of tráde or business in
the United States.
Sec. 1.864-4(c) (6) (ii), ‡ncome Tax Regs.
Consequently, petitioner's wages would ordinarily be included in
gross income under the Code.
Section 894(a), however, provides
that the provisions of the Code will be applied to any taxpayer
with due regard to any treaty obligations of the United States
that apply to the taxpayer.
Therefore, the treatment of
petitioner's wages might be altered by applicable treaty
provisions.
See id.
The United States is a party to an income tax convention
with the Republic of the Philippines.
The convention provides an
exemption from U.S. income taxation on income earned by Filipino
teachers teaching in the United States if the requirements of the
convention are satisfied.
Article 21 states:
Article 21
TEACHERS
(1) Where a resident of one of the.Contracting
States is invited by the Government of the other
Contracting State, a political subdivision or local
authority thereof, or by a university or other
recognized educational institution in that other
Contracting State to come to that other ¡Contracting
State for a period not expected to excedd 2 years for
the purpose of teaching or engaging in desearch, or
-
13
-
both, at a university or other recognized educational
institution and such resident comes to that other
Contracting State primarily for such purpose, his
income from personal services for teaching or research
at such university or educational institution shall be
exempt from tax by that other Contracting State for a
period not exceeding 2 years from the date of his
arrival in that other Contracting State.
To qualify for the exemption under article 21, a taxpayer
must meet the following requirements:
(1) The taxpayer was a
resident of the Philippines before coming to the United States;
(2) she was invited by the Government or a recognized educational
institution within the United States;
(3) she was invited for a
period not expected to exceed 2 years;
(4) the purpose of the
invitation was for her to teach or engage in research at the
recognized educational institution; and (5)
she did in fact come
to the United States primarily to carry out the purpose of the
invitation.
All of the requirements of article 21 must be
satisfied in order for petitioner to qualify for the income
exemption.
The only requirement in dispute is whether
petitioner's invitation to teach in the United States was "for a
period not expected to exceed 2 years".
The text of article 21 does not specifically state whose
expectation controls the length of the invitation to teach for a
period not to exceed 2 years.
Petitioner argues that her
expectation as the invitee :üs the oniy expectation that matters.
Respondent counters that either the expectation of the invitor,
BCPS, should be decisive, or that the Court should weigh the
- 14 -
expectations of all the parties associated
teacher program.
ith the exchange
In the light of this ambiguity in the text of
article 21, we will consider all the relevant facts and
circumstances, including the expectations of all t he parties.
Santos v. Commissioner, 135 T.C.
,
(2010)
We will construe article 21 liberally.
(slip op. at 17) .
See N. W. Life Assurance
9|
Co. .of Can. v. Commissioner,
107 T.C.
363,
378
(1996) .
Then we
will make an objective determination of whetÌ1er petitioner was
invited to the United States "for a period not expected to exceed
2 years".
A.
See Santos v. Commissioner, supra.
Burden of Proof
Generally, the Commissioner's determination of a deficiency
Il
l'
is presumed correct, and the taxpayer bears the burden of proving
that the deficiency is incorrect.
Helvering,
290 U.S.
111,
115
Rule 142(a); Welch v.
(1933) .
Furthe more,
any deductions
allowed are a matter of legislative grace, and the taxpayer bears
the burden of proving his entitlement to then.
Rule 142(a);
INDOPCO,
(1992) ; New
Inc. v. Commissioner,
503 U.S.
79,
Colonial Ice Co. v. Helvering, 292 U.S. 435,
84
440
(1934).
Under section 7491(a) the burden may shift to the
Commissioner regarding factual matters affec ing a taxpayer's
liability for tax if the taxpayer produces credible evidence and
meets other requirements of the section.
Petitioner moved for a
burden shift under section 7491(a), contendipg that she produced
- 15 credible evidence and met the other requirements of the section.
Respondent objected, contending that "petitioner has failed to
introduce credible evidence to support her assertion that her
stay in the United States was expected to last 2 years or less."
We need not, and we explicitly do not, decide which party bears
the burden of proof because as discussed above, applying Santos
v. Commissioner, supra, we will decide this case on- an objective
consideration of all the relevant facts and circumstances.
B.
Analysis
We begin our analysis with a discussion of the evidence that
relates to petitioner's expectation.
Petitioner's reliance on
the 1-year apartment lease and the 1-year BCPS employment
contract is unconvincing.
One-year apartment leases are
commonplace and do little to indicate a tenant's long-term
expectation to remain in an area.
Likewise, BCPS required all of its first-year teachers to
sign what amounts to a standard 1-year employment contract.
The
fact that the contract did not -guarantee employment beyond the
first year does not mean that petitioner expected to stay in the
United States for only 1 year.
Amity had informed petitioner
that so long as her performance was satisfactory, BCPS would
retain her.
We believe it likely that petitioner had sufficient
confidence in her teaching skills to assume that her performance
would be "satisfactory"'and therefore she could expect that BCPS
- 16 would employ her for the.second and third y ars and perhaps
beyond.
Petitioner also testified that in her mind, the information
in her 3-year J-1 visa application that Amity prepared and she
signed simply established an upper time limit and did not imply a
commitment to stay in the United States for 3 years.
Petitioner
uses the same argument with respect to the 3 year exchange
teacher program.
While it is true that the documents did not
obligate her to remain in the United States, we find it
particularly hard to believe that petitioner did not expect to
remain in the United States for the duration of the exchange
program.
More persuasive are petitioner's own words in her answers on
the three IRS questionnaires.
Her answers indicate that her
initial expectation was to remain in the United States. for the
entire length of the visa and of the 3-year exchange teacher
program.
In response to this evidence against her, petitioner
testified that she did not have any help filling out the forms
and that the questions were confusing.
This testimony is not
credible because petitioner has a master's degree in education,
she speaks fluent English, and the questions on the forms are
straightforward, not requiring any technical knowledge.
Furthermore, petitioner introduced no e idence that she
expressed to any of the parties involved that she expected to
- 17 return to the Philippines within her first 2 years in the United
States.
Similarly, petitioner did not testify at trial that she
expected to return home within the first 2 years.
Instead, she
stated ·that she determined her expectation regarding the length
of her stay on a "year-to-year" evaluation of her situation.
We also find it highly significant that despite the
students' bad behavior, her physical injury, and the denial of
her request to transfer to a less harsh classroom environment,
petitioner remained in Baltimore teaching at Lombard and as of
the date of trial~continued to work for BCPS.
Petitioner's
actions indicate a strong commitment to 'staying in the United
States despite the difficulties.
The fact that petitioner
resigned her teaching position in'the Philippines,.while not a
decisive factor, also weighs against her argument.
In addition, we cannot ignore the financial incentive of
remaining in the United States for as long as possible.
Petitioner and her family incurred more than $8,000 in expenses
for petitioner to participate in the exchange teacher program and
to relocate to the United States.
This is not an insignificant
sum in comparison to her earnings in.the Philippines.
Moreover,
her earnings immediately greú eightfold from $4,284 to $34,973
when she moved from the Philippines to the United States.
Further, her earnings of $48,674 in 2007, which was her third
- 18 -
year at BCPS, were 39 percent greater than
er first-year salary
at BCPS.
From the perspective of BCPS, the school system certainly
would not have invested so much time, money, and effort in
recruiting teachers from the Philippines if it did not expect
that the teachers would remain at least for the length of the 3year exchange teacher program.
Mr. Duque likewise testified that
BCPS wanted to retain the- teachers it hired for as long as
possible.
Corroborating this testimony is the evidence from the
addendum showing that BCPS retained an extremely high percentage,
95.5 percent, of the Filipino teachers it hired through the
exchange program.
Additionally, Ms. Hermanne testified that BCPS,
similar to the other school systems that hired foreign teachers
through the exchange program, expected the tNachers to stay for
the entire 3-year program.
She added that it had been Amity's
experience that only a small percentage of. Filipino teachers
returned to the Philippines before completinä the 3-year exchange
teacher program and that most participants decided to remain.in
the United States beyond the 3 years.
The tèstimony of these
witnesses is plausible, reliable, and persuasive.
In conclusion, after an objective examination of all of the
relevant facts and circumstances, we find that petitioner and
BCPS expected petitioner to stay in the United States for at
least 3 years, which is greater than the "not expected to exceed
- 19 -
2 years" requirement of article 21.
Therefore, petitioner's
income for June 2005 to June 2007, the first 2 years she was in
the United States, is not exempt from Federal income tax under
article 21.
II.
Disallowed Itemized Deductions'
Section 162(a) allows a deduction for ordinary and necessary
business expenses'paid or incurred during the taxable year in
carrying on any trade or business.
The performance of services
as an employee is considered a trade or business for section 162
purposes.
Primuth v. Commissioner/ 54 T.C. 374, 377
(1970).
For
an expense to be necessary, it must be "appropriate and helpful"
to the taxpayer's business.
113-114 (1933).
Welch v. Helvering, 290 U.S. 111,
An expense will be considered ordinary if it is
a common or frequent occurrence in the type of business in which
the taxpayer is involved.
(1940).
Deputy v. du Pont, 308 U.S. 488, 495
In order to deduct a business expense,- a taxpayer must
not have received reimbursement and must'not have had-the right
to obtain reimbursement from his employer.
Orvis v.
Commissioner,
1986),
Memo.
788 F.2d 1406,
1408
(9th Cir.
1984-533; Leamy v. Commissioner,
A.
Year 2005
1.
85 T.C.
798,
affg. T.C.
810
(1985).
-
Legal/Documentation Fees
Petitioner claimed a $5,000 deduction for 2005 for
"legal/documentation" fees.
Petitioner testified that her
!
-
parents paid these fees.
20
-
This type of transaction is more
appropriately characterized as a nontaxable gift from
petitioner's parents than as an expense incgrred and paid by
petitioner.
See, e.g., Cavalaris v. Commissioner, T.C. Memo.
1996-308.
Therefore, we sustain respondentgs disallowance of
this deduction.
2.
Unreimbursed Employee Businessa Expenses
Petitioner's disallowed unreimbursed employee business
expenses for 2005 consisted of $1,000 for a laptop computer, $200
for software, $400 for school supplies, and p308 for union dues.
Laptop computers and computer software are listed property.
Sec.
280F(d) (4).
Section 274(d)
imposes strict substantiation
requirements for "listed property".
To substantiate expenses for
listed property, a taxpayer must show either by adequate records
or by sufficient evidence corroborating the taxpayer's own
statement:
(1) The amount of each separate expenditure with
respect to an item of listed property;
(2) the amount of each
business use based on the appropriate measure and the total use
of the listed property for the taxable period;
(3) the date of
the expenditure or use; and (4) the business purpose for an
expenditure or use with respect to any listed property.
Sec.
1.274-5T(b) (6),
Temporary Income Tax Regs.,
(Nov. 6, 1985).
Petitioner did not substantiate the business use
of the laptop and software.
O Fed. Reg. 46016
Therefore, we s stain respondent's
- 21 -
disallowance of the deduction for petitioner's laptop and
software expenses.
Petitioner deducted $400 for school supplies.
She provided
receipts for $137 worth of school supplies purchased in 2005.
We
are satisfied that petitioner spent $137 for school supplies in
2005 and was not reimbursed by BCPS.
Therefore, petitioner is
entitled to a deduction of $137 for school supplies for 2005.
See sec. 62 (a) (2) (D)
(certain expenses of elementary and
-
secondary school teachers are deductible to determine adjusted
gross income).
Petitioner also claimed $308 for union dues for 2005.
Petitioner provided as evidence her BCPS paycheck for the 2-week
period of November 12-25, 2005.
The paycheck showed a biweekly
deduction of $28.72 and a year-to-date deduction of $172.32 for
union dues that she paid to the Baltimore Teachers Union.
We
infer that petitioner received two more bi-weekly paychecks in
December with the same amount deducted for uni-on dues.
Therefore, petitioner has substantiated that she paid
$229.76 in union dues in 2005 and is entitled to a deduction in
that amount .
- 22 B.
Year 2006
1.
Personal Living and Commuting Expenses
Respondent disallowed petitioner's ite ized deductions of
$6,038 for rent, including utilities, and $2,004 for commuting
between her apartment and her teaching job at Lombard.
.
As a general rule, personal living expenses are
nondeductible.
Tax Regs.
Sec.
262; secs.
1.162-2(a),
1.262-1(b) (5),
Income
Section 162(a) (2), however, allows a taxpayer to
deduct ordinary and necessary travel expenses, including meals
and lodging, paid or incurred while away from home in pursuit of
a trade or business.
Commissioner v. Flowers, 326 U.S. 465, 470
(1946).
The reference to "home" in section 162(la) (2) means the.
taxpayer's "tax home".
581
(1980); Kroll v.
Mitchell v. Commissioner, 74 T.C. 578,
Commissioner,
49 T.C.
557,
561-562
(1968).
As a general rule, a taxpayer's tax home is g:U1 the vicinity of
his principal place of employment, not where his personal
residence is located,
employment.
if different from his principal place of
Mitchell v.·Commissioner, supra at 581; Kroll v.
Commissioner, supra at 561-562.
An exception to the general rule
exists where a taxpayer accepts temporary, rather than
indefinite, employment away from his personal residence; in that
case, the taxpayer's personal residence may be his tax home.
Peurifoy v. Commissioner, 358 U.S.
59,
60
(1958).
The purpose of
-
23
-
the exception is to mitigate the burden of the taxpayer who must
incur duplicate living expenses due to the exigencies of
business.
Kroll v. Commissioner, supra'at 562.
For purposes of
section 162(a) (2), the taxpayer is not treated as being
temporarily away from home if the period of e'mployment exceeds 1
year.
Sec. 162(a)
(flush language).
Petitioner contends that her employment with BCPS was
temporary because the BCPS employment contract she signed was for
only 1 year.
She contends that her tax home was in the
Philippines, as that was where she resided.
In other words,
according to petitioner, her rent, utilities, and commuting
expenses for 2006 are deductible because she expected to stay in
th'e United States for no more than a year, and thus, her job was
temporary.
Respondent argues that petitioner's employment at BCPS was
indefinite and that her tax home became Baltimore when she moved
there to teach for BCPS.
-For the following reasons, we agree
with respondent.
Petitioner resigned her teaching job in the Philippines and
moved to Baltimoré on June 22
2005.
Lombard for BCPS in August 2005..
She began teaching at
We have already found that
petitioner intended to remain working for BCPS in the Baltimore
area for at least 3 years, which is clearly more than *l year.
Accordingly, petitioner's employment with BCPS was not temporary,
||
- 24 Baltimore was petitioner's principal place of employment, and
thus Baltimore was her tax -home.
Moreover, petitioner testified
that she lived with her parents before her mòve; thus she has not
established either that she had a personal residence in the
Philippines or that she incurred duplicate living expenses.
Consequently, petitioner is not entitled to claim a deduction for
her rent, utilities, or commuting expenses f½r 2006.
2.
Other Itemized Deductions
Respondent disallowed petitioner's other itemized deductions
for 2006, which consisted of $930 for an age cy fee, $800 for
airfare, $1,673 for computer equipment and supplies, and $847 for
"2005 State -Refund not Received"
The agency fee was a portion ofs the total fee of $3,000 that
petitioner paid to Amity for her participation in the exchange
teacher-program.
BCPS paid $1,500 of the fee during petitioner's
first year in the.program.
P.etitioner was responsible for the
two subsequent annual payments of $750, one
year of the program and one in the third.
ade in the second
Petitioner had to pay
the fee to continue her participation in the exchange program.
Petitioner did not substantiate her $930 payment in 2006, but we
are satisfied that petitioner paid-a fee of $750 in 2006 to
maintain her standing in the program.
.Therefore, petitioner is
entitled to a deduction of $750 for 2006.
25 -
Petitioner testified that she paid $800 for a round trip
flight to the Philippines in 2006, but she did not provide any
evidence corroborating the payment or that the flight was
associated with her trade or business of being an employee of
BCPS and was not a personal tripl
Therefore, we sustain
respondent's disallowance of the $800 deduction for airfare.
Petitioner claimed a deduction for computer equipment and
supplies of $1,673 for 2006.
She provided no explanation for
having to purchase, a second computer for BCPS in 2 years, and she
provided no substantiation of the purchase or of the business use
of the computer.
See sec." 274(d).
For these reasons, we sustain
respondent's disallowance of the $1,673 computer equipment and
supplies expense.
Petitioner provided no explanation or evidence to support
the $847 deduction she álaimed in 2006 for "2005 State Refund not
Received."
III.
Therefore, we sustain respondent's disallowance.
Accuracy-Related Penalty
Taxpayers may be liable for a 20-percent penalty on the
portion of an underpayment of tax-attributable to negligence,
disregard of rules or regulations; or a substantial
understatement of income tax.
Sec. 6662(a) and (b) (1) and (2).
The term "negligence" in section 6662(b) (1) includes any
failure to make a reasonable attempt to comply with the Code, and
the term "disregard" includes any careless, reckless, or
- 26 intentional disregard.
Sec. 6662(c).
Negligence has also been
defined as the failure to exercise due care ór the failure to do
what a reasonable person would do under the circumstances.
Allen v. Commissioner, 92 T.C. 1,
353
(9th Cir.
(1985).
12
(1989), gaffd.
1991); Neely v. Commissioner,
See
925 F.2d 348,
$5 T.C.
934,
947
An "understatement of income tax" is substantial if it
exceeds the greater of 10 percent of the tax required to-be shown
on the return or $5,000.
Sec. 6662(d) (1) (A).
The section 6662 accuracy-related penalty does not apply
where the taxpayer shows that he or she acted in good faith and
with reasonable cause.
Sec. 6664(c) (1).
The determination of
whether a taxpayer acted in good faith and with reasonable cause
depends on the facts and circumstances of each case and includes
the knowledge and experience of the taxpayer and the reliance on
the advice of a professional, such as an accountant.
1.6664-4(b) (1), Income Tax Regs.
Sec.
For a taxpayer to rely
reasonably upon advice of a tax adviser, theitaxpayer must, at a
minimum, prove by a preponderance of the evidence that:
(1) The
adviser was a competent professional with sufficient expertise to
justify reliance, - (2) the taxpayer.provided.necessary and
accurate information to the adviser, and (3) the taxpayer
-
actually relied in good faith on the adviser1's judgment.
Neonatology Associates, P.A. v. Commiss.ioner,
(2000),
affd.
299 F.3d 221-(3d Cir. 2002).
115 T.C. 43,
99
Most important in
- 27 -
this determination is the extent of the taxpayer's effort to
determine the proper tax liability.
Id.
The Commissioner has the burden of production under section
7491(c) with respect to the accuracy-related penalty under
section 6662.'
To satisfy that burden, the Commissioner must
produce sufficient evidence showing that it is appropriate to
impose the penalty.
(2001).
Higbee v. Commissioner, 116 T:C. 438, 446
Respondent has satisfied his burden by producing
evidence that petitioner reported no income for 2005, 2006, and
part of 2007, creating understatements of income taxes due that
were substantial.
Nonetheless, petitioner sought the advice of one return
preparer for her 2005 and 2006 Forms 1040NR and a different
preparer for her 2007 Form 1040.
Petitioner stated that her
preparer for 2005 and 2006 was an accountant in the Philippines
and an enrolled agent in the United States.
Respondent did not
dispute the competency of either preparer.
The preparer of the
Forms 1040NR counseled petitioner that her income was exempt from
taxation in the United States under article 21.
Petitioner,
having no formal training in taxation and being new to the U.S.
tax system, reasonably relied upon the advice of a competent tax
return preparer and acted in good faith.
Respondent's
adjustments for 2007 were minor, and again, petitioner engaged a
competent preparer to prepare her 2007 Federal income tax return.
.1
- 28 -
Therefore, we -do not sustain respondent's determination that the
section 6662 accuracy-related penalty applies for 2005, 2006, or
2007.
IV.
Conclusion
The Court has considered all arguments made in reaching our
decision, and, to the extent not mentioned, we conclude that they
are moot, irrelevant, or without merit.
To reflect the foregoing,
Decision will be entered
under Rule 155.
||
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1
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