T.C. Memo. 2013-240
UNITED STATES TAX COURT
WILLIAM L. COR AND JANA K. COR, Petitioners v.
COMMISSIONER OF INTERNAL REVENUE, Respondent
Docket No. 10202-12. Filed October 22, 2013.
William L. Cor and Jana K. Cor, pro sese.
Steven I. Josephy, for respondent.
MEMORANDUM FINDINGS OF FACT AND OPINION
COHEN, Judge: Respondent determined a $13,282 deficiency in
petitioners’ Federal income tax for 2010 and a $2,656.40 section 6662(a) penalty.
After concessions, the issues for decision are whether petitioners are entitled to
itemized deductions beyond those respondent conceded and whether they are
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[*2] liable for the accuracy-related penalty. Unless otherwise indicated, all section
references are to the Internal Revenue Code in effect for the year in issue, and all
Rule references are to the Tax Court Rules of Practice and Procedure.
FINDINGS OF FACT
Some of the facts have been stipulated, and the stipulated facts are
incorporated in our findings by this reference. Petitioners resided in Nevada when
they filed their petition.
William Cor (petitioner) is a mechanical engineer and was employed by
National Security Tech, LLC (National Security) during the years 2008 through
2010. National Security hired petitioner to work at a remote test site called
JASPER (JASPER site), in the Nevada desert. Direct public transportation to the
JASPER site was unavailable, and petitioner commuted by car. Petitioner
calculated that his commute from petitioners’ residence in North Las Vegas to
work and back was approximately 160 miles a day, four days a week. Petitioner
kept no log or records of the expenses of his commute.
On their 2010 joint Federal income tax return, petitioners reported adjusted
gross income of $120,502, itemized deductions of $51,053, and total tax of
$3,223. On their Schedule A, Itemized Deductions, petitioners reported gifts to
charity of $14,657 and unreimbursed employee expenses of $29,457. The
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[*3] reported employee expenses consisted primarily of commuting costs.
Petitioners included, as an expense, $150 per commute day for the three hours that
petitioner spent commuting.
Petitioners also attached to their return two Schedules C, Profit or Loss
From Business: one for “Mechanical Oasis”, an activity that reported no income
but claimed expense deductions of $16,250; and the other for “Jana’s Home
School”, an activity that provided the home-schooling of petitioners’ four children
and that also reported no income but claimed expense deductions of $2,655.
In the statutory notice, the Internal Revenue Service disallowed the entire
amount of itemized deductions and, as a result, used a standard deduction of
$11,400 to calculate petitioners’ tax liability. During trial preparation, petitioners
provided written acknowledgments of charitable contributions totaling $2,937,
which respondent allowed along with paid home mortgage interest and real estate
taxes deductions of $7,694 and $1,655, respectively--for a total allowed itemized
deductions of $12,286. Petitioners produced an unsigned document to establish an
alleged contribution of $6,830, but this document does not have petitioners’ names
on it, does not bear any address or employer identification number of a qualified
donee, and does not state whether the donee provided any consideration in return
for the donation, as required by section 170 and its related regulations.
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[*4] Respondent was unable to verify this incomplete document because
petitioners refused to provide contact information for the donee. Petitioners
conceded that they were not entitled to any Schedule C deductions for either
Mechanical Oasis or Jana’s Home School.
OPINION
Petitioners bear the burden of proving that respondent’s determinations are
erroneous. Rule 142(a); INDOPCO, Inc. v. Commissioner, 503 U.S. 79, 84
(1992); Rockwell v. Commissioner, 512 F.2d 882, 886 (9th Cir. 1975), aff’g T.C.
Memo. 1972-133. This burden includes substantiating the amounts of deductions
claimed. Hradesky v. Commissioner, 65 T.C. 87, 90 (1975), aff’d per curiam, 540
F.2d 821 (5th Cir. 1976). Generally, a taxpayer must keep records sufficient to
establish the amounts of the items reported on his or her Federal income tax
return. Sec. 6001; sec. 1.6001-1(a), (e), Income Tax Regs.
Unreimbursed Employee Business Expenses Deduction
A taxpayer who is an employee may deduct unreimbursed employee
expenses as an ordinary and necessary business expense under section 162. Sec.
162(a)(2); Lucas v. Commissioner, 79 T.C. 1, 6 (1982). However, personal
expenses are not deductible. Sec. 262. In general, the cost of daily commuting to
and from work is a personal expense and therefore not deductible. See
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[*5] Commissioner v. Flowers, 326 U.S. 465, 473-474 (1946); sec. 1.162-2(e),
Income Tax Regs.; see also secs. 1.212-1(f), 1.262-1(b)(5), Income Tax Regs.
Petitioners argue that petitioner’s commute is atypical in regard to the remoteness
of the JASPER site and because no public transportation was available. As a
result, petitioner endured a more costly and much longer than average commute in
both mileage and time. Relying on these grounds, petitioners reason that they
should be allowed to adjust their taxable income to recoup petitioner’s commuting
costs. Petitioners’ arguments are contrary to established law and are not
persuasive.
Coombs v. Commissioner, 67 T.C. 426 (1976), aff’d in part, rev’d in part on
other grounds, 608 F.2d 1269 (9th Cir. 1979), involved several taxpayers with
circumstances very similar to petitioners’, i.e., they were employed at test sites in
the same remote area of Nevada, and they commuted to work from their residences
in and around Las Vegas--some taxpayers driving as much as 200 miles daily.
The taxpayers in Coombs argued that their greater commutes were exceptional
compared to “ordinary commuting” and, accordingly, that they should not be held
to the general rule that expenses of commuting are personal and nondeductible.
Id. at 473. The Court held then--as we do here--that “[t]ravel expenses which arise
from going to and from work on a daily basis are not ordinary business expenses
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[*6] deductible under section 162(a)(2) regardless of the distance traveled or the
availability of housing at or near the work site.” Id. at 477.
While there are possible exceptions to the general rule, such as commuting
to a distant worksite for a temporary assignment, petitioners do not argue, and the
record does not reflect, any recognized exception under these facts. See generally
Rev. Rul. 190, 1953-2 C.B. 303 (explaining the temporary distant worksite
exception).
Additionally, petitioners claim that the Government benefited from
petitioner’s unpaid time of the long commute, thus justifying their need to charge
$50 an hour for travel time as an expense. Petitioners, however, did not pay or
incur any out-of-pocket cost for this time. If petitioner were compensated for this
time, he would have to report the same amount as income, which he did not.
Moreover, because commuting is inherently personal and because personal
expenses are not deductible, then logically, expenses derived from the time, as
well as the travel, of a commute are not deductible. See, e.g., Nat’l Treasury
Employees Union (NTEU) v. Fed. Labor Relations Auth., 418 F.3d 1068, 1072 n.8
(9th Cir. 2005) (“[N]ormal home to work travel is considered personal time and
* * * is not tax deductible.”). Petitioners are not entitled to their claimed
unreimbursed employee business expenses deduction.
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[*7] Charitable Contribution Deduction
Section 170(a)(1) allows a deduction for contributions to charitable
organizations defined in section 170(c). Section 170(f)(8) provides substantiation
requirements for certain charitable contributions. Specifically, section
170(f)(8)(A) provides: “No deduction shall be allowed * * * for any contribution
of $250 or more unless the taxpayer substantiates the contribution by a
contemporaneous written acknowledgment of the contribution by the donee
organization that meets the requirements of subparagraph (B).” For donations of
money, the donee’s written acknowledgment must state the amount contributed,
indicate whether the donee organization provided any goods or services in
consideration for the contribution, and provide a description and good faith
estimate of the value of any goods or services provided by the donee organization.
See sec. 170(f)(8)(B); sec. 1.170A-13(f)(2), Income Tax Regs.
Respondent conceded that petitioners are entitled to a charitable
contribution deduction of $2,937 but disallowed the remainder. Petitioners did not
substantiate any other deductible amounts. Petitioners have not satisfied the
requirements of section 170 and are not entitled to a charitable contribution
deduction beyond what respondent conceded.
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[*8] Accuracy-Related Penalty
Section 6662(a) and (b)(1) and (2) imposes a 20% accuracy-related penalty
on any underpayment of Federal income tax attributable to a taxpayer’s negligence
or disregard of rules or regulations or substantial understatement of income tax.
Respondent has the burden of production with respect to the accuracy-related
penalty on the ground of negligence or, alternatively, substantial understatement
of income tax. See sec. 7491(c); Higbee v. Commissioner, 116 T.C. 438, 446-447
(2001). Section 6662(c) defines negligence as including any failure to make a
reasonable attempt to comply with the provisions of the Code and defines
disregard as any careless, reckless, or intentional disregard. Disregard of rules or
regulations is careless if the taxpayer does not exercise reasonable diligence to
determine the correctness of a return position that is contrary to the rule or
regulation. Sec. 1.6662-3(b)(2), Income Tax Regs.
Petitioners deducted personal expenses as employee business expenses and
failed to maintain records to substantiate all of their reported charitable
contributions for 2010. Petitioners have conceded erroneous deductions claimed
on Schedules C that appear to be personal. Claiming personal expenses as
business expense deductions and failing to maintain records substantiating any
potentially valid deductions constitute negligence for purposes of section 6662(a)
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[*9] and (b)(1). See Higbee v. Commissioner, 116 T.C. at 449; sec.
1.6662-3(b)(1), Income Tax Regs. Respondent has satisfied the burden of
production.
Once the Commissioner has met the burden of production, the taxpayers
must come forward with persuasive evidence that the penalty is inappropriate
because they acted with reasonable cause and in good faith. Sec. 6664(c)(1);
Higbee v. Commissioner, 116 T.C. at 448-449. The decision as to whether
taxpayers acted with reasonable cause and in good faith is made on a case-by-case
basis, taking into account all of the pertinent facts and circumstances. See sec.
1.6664-4(b)(1), Income Tax Regs. The most important factor is the extent of the
taxpayers’ effort to assess their proper tax liability. Id.
Petitioners do not address the reasonable cause and good faith defense to the
section 6662(a) penalty. Petitioners simply assert that they are entitled to their
claimed deductions and that they have done their best to pay their taxes throughout
their careers. We conclude that petitioners have failed to satisfy their burden of
proving that they are not liable for the section 6662(a) penalty. Because the
penalty is sustained on the ground of negligence, we need not consider whether
respondent has proven that there is a substantial understatement of income tax on
the 2010 tax return.
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[*10] In reaching our decision, we have considered all arguments made, 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.