T.C. Memo. 1999-207
UNITED STATES TAX COURT
ROY J. AND HELEN COLE, Petitioners v.
COMMISSIONER OF INTERNAL REVENUE, Respondent
Docket No. 5394-98. Filed June 22, 1999.
Roy J. Cole, pro se.
Anne S. Daugharty, for respondent.
MEMORANDUM FINDINGS OF FACT AND OPINION
PARR, Judge: Respondent determined a $31,714 deficiency in
petitioners' 1995 Federal income tax, an addition to tax under
- 2 -
section 6654(a)1 in the amount of $1,719.60, and an accuracy-
related penalty under section 6662(a) in the amount of $6,342.80.
After concessions, the issues for decision are: (1) Whether
for 1995 petitioners are entitled to certain deductions related
to petitioner's home office. We hold they are not. (2) Whether
for 1995 petitioners are liable for the accuracy-related penalty
pursuant to section 6662(a). We hold they are.
Some of the facts have been stipulated and are so found.
The stipulated facts and the accompanying exhibits are
incorporated herein by this reference. At the time the petition
in this case was filed, petitioners resided in Edmonds,
Washington.
FINDINGS OF FACT
Petitioner has been in the floor covering business since
1962. Each morning petitioner spends approximately 1 hour in his
home office contacting customers, builders, and suppliers. When
petitioner returns home at night, he spends a few more hours in
his home office preparing various paperwork and returning calls
to people who left messages on his answering machine during the
day.
1
All section references are to the Internal Revenue Code in
effect for the taxable year in issue, and all Rule references are
to the Tax Court Rules of Practice and Procedure, unless
otherwise indicated. References to petitioner are to Roy J.
Cole.
- 3 -
Petitioners' home is approximately 1,300 square feet, and
petitioner's home office is approximately 110 square feet. When
petitioners' children grew up and moved out, petitioner converted
one of the bedrooms in the house for use as a home office.
Petitioner does not have an office located anywhere else and
does not use this room in the house for any purpose other than a
home office. No person other than petitioner uses the room.
There is no bed or dresser located in the room, and petitioner
does not use the room for any type of storage.
Petitioner has one phone line for the household that doubles
as a business line. Petitioner keeps business-related materials
in the room, such as a computer, books pertaining to his trade,
and business records.
Respondent did not raise an issue regarding substantiation.
OPINION
Section 162(a) allows a deduction for the ordinary and
necessary expenses paid or incurred during the taxable year in
carrying on a trade or business.
Section 280A, in general, disallows deductions with respect
to the use of a dwelling unit that is used by the taxpayer during
the taxable year as a residence. However, section 280A(c)(1)(A)
permits the deduction of expenses allocable to a portion of the
dwelling unit which is exclusively used on a regular basis as
"the principal place of business for any trade or business of the
- 4 -
taxpayer". Thus, to qualify under section 280A(c) for a home
office deduction, petitioner must establish that a portion of his
dwelling is (1) exclusively used, (2) on a regular basis, and (3)
as the principal place of business for his trade or business.
See Hamacher v. Commissioner, 94 T.C. 348, 353 (1990).
We are satisfied that petitioner's home office was used
exclusively and regularly in petitioner's business. We now
consider whether petitioner's home office was his principal place
of business.
In Commissioner v. Soliman, 506 U.S. 168 (1993), the Supreme
Court identified two primary factors to be considered in deciding
whether a home office is the taxpayer's principal place of
business: (1) The relative importance of the activities performed
at each business location, and (2) the time spent at each place.
See id. at 175. The relative importance of the activities
performed at each business location is to be determined by the
basic characteristics of the taxpayer's particular business. The
point where goods and services are delivered must be given great
weight in determining the place where the most important
functions are performed. See id.
In Commissioner v. Soliman, supra, the taxpayer was an
anesthesiologist who divided the practice of his profession among
three hospitals in Maryland and Virginia. The taxpayer
administered the anesthesia, cared for patients after surgery,
- 5 -
and treated patients for pain at the hospitals. See id. at 170.
None of the three hospitals provided the taxpayer with an office.
See id.
The taxpayer had a spare bedroom in his residence which he
used exclusively as an office. See id. The taxpayer did not
meet with patients at his home office, but he did spend 2 to 3
hours per day there performing various administrative tasks, such
as: (1) Contacting patients, surgeons, and hospitals by
telephone, (2) maintaining billing records and patient logs, (3)
preparing for treatments and presentations, (4) satisfying
continuing medical education requirements, and (5) reading
medical journals and books. See id. On the basis of these
circumstances, the Supreme Court held that the home office was
not the taxpayer's principal place of business, and therefore the
taxpayer was not entitled to a deduction for home office
expenses. See id. at 178-179.
In the instant case, petitioner's services are not performed
at the home office. Instead, his floor covering services are
performed at the job sites. Therefore, while the home office was
an important place for petitioner's business, we cannot say that
it was his principal place of business. Accordingly, petitioner
- 6 -
has not satisfied the requirements of section 280A and is not
entitled to a deduction for the use of a home office.2
In addition, respondent determined an accuracy-related
penalty pursuant to section 6662(a). Section 6662 provides for
an accuracy-related penalty equal to 20 percent of the portion of
the underpayment due to negligence or disregard of rules or
regulations. For purposes of section 6662, negligence "includes
any failure to make a reasonable attempt to comply with the * * *
[income tax laws]" and disregard "includes any careless,
reckless, or intentional disregard." See sec. 6662(c).
The Commissioner's determinations are presumptively correct,
and the taxpayer bears the burden of proving otherwise. See Rule
142(a); Welch v. Helvering, 290 U.S. 111, 115 (1933). Petitioner
testified that he did not think he was negligent. Petitioner has
failed to carry his burden. Accordingly, respondent is sustained
on this issue.
2
For tax years beginning after Dec. 31, 1998, sec.
280A(c)(1) has been amended to read: "the term 'principal place
of business' includes a place of business which is used by the
taxpayer for the administrative or management activities of any
trade or business of the taxpayer if there is no other fixed
location of such trade or business where the taxpayer conducts
substantial administrative or management activities of such trade
or business." Our holding regarding petitioner's home office for
his 1995 taxable year does not imply that petitioner may not be
eligible for a home office deduction in the future.
- 7 -
For the foregoing reasons,
Decision will be entered
under Rule 155.