T.C. Memo. 1995-451
UNITED STATES TAX COURT
ROLF KIRSCH, Petitioner v.
COMMISSIONER OF INTERNAL REVENUE, Respondent
Docket No. 13887-93. Filed September 25, 1995.
Rolf Kirsch, pro se.
Daniel J. Parent, for respondent.
MEMORANDUM OPINION
POWELL, Special Trial Judge: This case was heard pursuant
to the provisions of section 7443A(b)(3) and Rules 180, 181, and
182.1
Respondent determined a deficiency in petitioner's Federal
income tax for the taxable year 1989 in the amount of $7,466 and
1
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.
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an addition to tax under section 6651 in the amount of $1,866.
Petitioner resided in Auburn, California, when he timely filed
his petition.
Following a concession,2 the issues are whether petitioner
(1) may deduct certain "away from home" and car and truck
expenses as trade or business expenses, (2) may deduct on
Schedule C certain "draws" paid to him by his business, (3) may
deduct health insurance premiums on Schedule C, and (4) is liable
for an addition to tax under section 6651 for filing his return
late.
The facts may be summarized as follows. Petitioner operated
a machine shop, Kirsch Machine Shop, as a sole proprietorship in
Santa Clara, California, from 1968 until 1990. In 1988
petitioner sold his home in the Santa Clara area and moved his
family to Auburn, California--approximately 140 miles away from
the machine shop. The reason for the move was that the quality
of life was thought to be better in Auburn.
During 1989, petitioner spent weeknights in motels in Santa
Clara and drove back to Auburn on weekends. Petitioner also
performed an unspecified amount of driving for his business
during the week. Petitioner withdrew $28,175 from his machine
shop business during 1989 to provide himself a salary (draw), and
paid $3,937 for health insurance in that year.
2
Respondent concedes that petitioner is entitled to use the
filing status of married filing separately.
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On Schedule C of petitioner's 1989 Federal income tax
return, petitioner deducted $11,000 as "away from home" expenses,
$1,781 in car and truck expenses, and draw expenses of $28,175.
He also claimed a deduction for health insurance premiums in the
amount of $3,937. Respondent received petitioner's return on
January 6, 1992.
Upon examination, respondent disallowed the deductions
related to away from home, car and truck, and draw expenses.
Respondent also determined that the deduction for petitioner's
health insurance premiums was treated incorrectly, and allowed
him a deduction from gross income of 25 percent of the amount
paid. As a result of the Schedule C adjustments, which turned
the reported business loss into a business profit, respondent
determined that petitioner was liable for self-employment income
tax.
As a general rule, deductions for personal living expenses
are disallowed under section 262. Commissioner v. Flowers, 326
U.S. 465, 470 (1946). Section 162(a), however, allows taxpayers
to deduct "the ordinary and necessary expenses paid or incurred
during the taxable year in carrying on any trade or business,
including * * * traveling expenses (including amounts expended
for meals and lodging * * *) while away from home in the pursuit
of a trade or business". With regard to deductions claimed under
section 162(a)(2), the expense must be (1) reasonable and
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necessary, (2) incurred while away from home, and (3) incurred in
pursuit of a trade or business. Commissioner v. Flowers, supra.
This Court has consistently held that a taxpayer's "home,"
for purposes of the second prong of the Flowers test, is the
vicinity of the taxpayer's principal place of business or
employment, not the taxpayer's personal residence or place of
abode, if such residence or place of abode is at a place
different from the location of the place of employment. Mitchell
v. Commissioner, 74 T.C. 578, 581 (1980); Kroll v. Commissioner,
49 T.C. 557, 561-562 (1968); Garlock v. Commissioner, 34 T.C.
611, 614 (1960).
Furthermore, "The exigencies of business rather than the
personal conveniences and necessities of the traveler must be the
motivating factors." Commissioner v. Flowers, supra at 474. In
Flowers, the taxpayer resided in Jackson, Mississippi, but worked
about 200 miles away in Mobile, Alabama. The Court denied his
claimed travel expenses, stating that the expenses were not
incurred in pursuit of the business of his employer.
Had his post of duty been in * * * [Jackson] the cost
of maintaining his home there and of commuting or
driving to work concededly would be non-deductible
living and personal expenses lacking the necessary
direct relation to the prosecution of the business.
* * * Whether he maintained one abode or two, whether
he traveled three blocks or three hundred miles to
work, the nature of these expenditures remained the
same. [Id. at 473.]
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The Court further noted that deductions would be allowed only if
the employer forced the taxpayer to live somewhere other than the
vicinity of the business. Id. at 474.
In this case, petitioner's tax home was Santa Clara, and he
lived in Auburn for personal reasons. Petitioner, therefore, is
not entitled to deductions for his travel between Santa Clara and
Auburn and for expenses incurred in Santa Clara.
Regarding the travel that petitioner performed on the job,
petitioner has the burden of proving, through records or some
type of documentary evidence, that he is entitled to the
deduction. Sec. 274(d). Petitioner offered no such evidence.
Further, the $28,175 he deducted as a draw was used for personal
living expenses. As such it is part of the business profit of
the sole proprietorship reported on Schedule C, and not
deductible. Respondent's determinations are sustained.
Turning to the health insurance issue, we note that the
deductibility of expenses is a matter of legislative grace. New
Colonial Ice Co. v. Helvering, 292 U.S. 435, 440 (1934).
Generally health insurance premiums are a medical expense
deductible as an itemized deduction to the extent they exceed 7.5
percent of adjusted gross income. Sec. 213(a), (d)(1)(C). Self-
employed individuals, however, generally may deduct 25 percent of
the amount paid for health insurance from gross income, without
the restrictions imposed on other medical expense deductions.
Sec. 162(l). We, therefore, sustain respondent's disallowance of
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the Schedule C deduction for health insurance premiums and uphold
the allowance of an adjustment to income for self-employed health
insurance pursuant to section 162(l).
With regard to the addition to tax for failure to file a
timely return pursuant to section 6651, the addition to tax will
apply unless the taxpayer can show that the failure to file a
timely return was due to reasonable cause and not to willful
neglect. Sec. 6651(a)(1); Rule 142(a). Petitioner indicated
that he filed his return late because he did not think he owed
any tax. A taxpayer's belief that a return is not required to be
filed may constitute reasonable cause under section 6651(a)(1),
if supported by advice from a competent adviser who has been
informed of the relevant facts. Beales v. Commissioner, T.C.
Memo. 1992-608. Although petitioner had his return prepared by a
professional tax service, there is no indication that the
preparer was informed of the relevant facts and that petitioner's
failure to timely file was based on competent advice.
Respondent's determination is sustained.
To reflect the foregoing,
Decision will be entered
under Rule 155.