T.C. Summary Opinion 2007-60
UNITED STATES TAX COURT
MANUEL AYALA, JR., AND CAROL A. AYALA, Petitioners v.
COMMISSIONER OF INTERNAL REVENUE, Respondent
Docket No. 5395-06S. Filed April 23, 2007.
Manuel Ayala, Jr., pro se.
Derek W. Kaczmarek, for respondent.
ARMEN, 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.1 Pursuant to section
7463(b), the decision to be entered is not reviewable by any
1
Unless otherwise indicated, all subsequent section
references are to the Internal Revenue Code in effect for the
taxable years in issue.
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other court, and this opinion shall not be treated as precedent
for any other case.
Manuel Ayala, Jr., and Carol A. Ayala (collectively,
petitioners) received a notice of deficiency in which respondent
determined: (1) Deficiencies in income taxes for 2002, 2003, and
2004 of $2,295, $4,050, and $4,459, respectively, and (2)
accuracy-related penalties under section 6662(a) for negligence
or intentional disregard of rules or regulations of $459, $810,
and $891.80, respectively. The basis for the deficiency
determination was the denial of deductions claimed by petitioners
for travel expenses under section 162(a)(2). We are asked to
decide whether petitioners may deduct those expenses. This
requires that we decide whether petitioners were “away from home”
when they incurred the expenses. If we sustain respondent’s
determination, we are also asked to decide whether petitioners
are liable for the accuracy-related penalties.
Background
Some of the facts have been stipulated, and they are so
found. We incorporate by reference the parties’ stipulation of
facts and accompanying exhibits.
Petitioners listed their mailing address on their petition
as Las Vegas, Nevada. Mr. Ayala testified at trial that
petitioners’ permanent mailing address is Rocklin, California.
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Mr. Ayala is employed by Sheehan Pipeline Construction
Company (Sheehan) as a project safety coordinator, and he travels
from one project to another, all over the country, ensuring
compliance with health and safety regulations. When one project
is completed, he is usually assigned a new project immediately.
Projects can last anywhere from a few months to a couple of
years.
During the years at issue, Mr. Ayala worked on several back-
to-back projects. During this period, petitioners lived in a
travel trailer, and they traveled together from one job site to
the next. In their own words, they were “gypsies”. Although Mr.
Ayala was paid a per diem while working onsite, it did not
completely cover the travel expenses that were actually incurred.
Petitioners bought their home on wheels, the travel trailer,
in Nevada; they registered the vehicle there out of convenience.
Because they moved frequently and had to receive their mail
somewhere, petitioners used a mail service in Las Vegas that
provided them with a mailing address. They obtained Nevada
licenses, and later, when they purchased a truck, they registered
the truck in Nevada.
As petitioners do not own a residence for their own use
aside from the travel trailer, they consider Mr. Ayala’s
ancestral home in Vallejo, California, to be their “real” home.
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The ancestral home in Vallejo was purchased by Mr. Ayala’s
father in 1953, and it is both the home in which Mr. Ayala grew
up and the home in which his disabled sister has resided for a
number of years. Mr. Ayala and his siblings own the home.
Petitioners have other ties to California. They grew up in
Vallejo, and their son was born there. In addition, their
daughter and grandchildren live in the Sacramento area. When
petitioners are not on the road for Sheehan, they visit
California, setting up their trailer near Sacramento and
commuting back and forth to Vallejo as needed to assist with the
care of Mr. Ayala’s disabled sister.2 However, petitioners do not
file California State income tax returns or pay California State
income tax unless Mr. Ayala has had California-source income from
his employment with Sheehan. In addition, petitioners do not
vote in California.3
Petitioners financially assist with the support of Mr.
Ayala’s disabled sister. Sometimes petitioners pay her water and
trash collection bills, and sometimes they pay the property taxes
on the home in Vallejo so that Mr. Ayala’s sister might continue
2
During these periods, Mrs. Ayala usually stays in the
trailer to care for petitioners’ pets, and Mr. Ayala tries to
stay in the house in Vallejo with his disabled sister.
3
Petitioners also do not vote in Nevada as they are not
considered legal residents for voting purposes.
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to live there without interruption of services or imposition of
property-tax liens.
Petitioners and respondent primarily disagree on whether
the house in Vallejo, California, is petitioners’ “tax home” and
consequently, whether petitioners’ expenses incurred while
working onsite for Sheehan are deductible under section 162(a)(2)
as expenses incurred in pursuit of a trade or business while away
from home.
Discussion4
A. Section 162(a)(2)
Generally, outlays for food and shelter are considered
personal expenses and are not deductible. Sec. 262. However,
section 162(a)(2) allows a deduction for traveling expenses,
including amounts expended for meals and lodging, if the expenses
are: (1) Ordinary and necessary, (2) incurred while “away from
home”, and (3) incurred in pursuit of a trade or business. See
Bochner v. Commissioner, 67 T.C. 824, 827 (1977). Respondent
contends that petitioners were not “away from home” when they
incurred the expenses, and thus that petitioners do not satisfy
4
Given the manner in which these issues were presented to
the Court, we make our decision as to both the deficiencies and
additions to tax without regard to the various burdens of proof
under sec. 7491.
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the second factor for deductibility of the expenses claimed on
their returns for the years in issue.5
As a general rule, a taxpayer’s principal place of
employment is the taxpayer’s “tax home”. Kroll v. Commissioner,
49 T.C. 557, 561-562 (1968). An employee without a principal
place of business may treat a permanent place of residence at
which the employee incurs substantial continuing living expenses
as his or her tax home. Weidekamp v. Commissioner, 29 T.C. 16,
21 (1957). Where “the taxpayer has neither a principal place of
business nor a permanent residence, he has no tax home from which
he can be away. His home is wherever he happens to be.” Barone
v. Commissioner, 85 T.C. 462, 465 (1985), affd. without published
opinion 807 F.2d 177 (9th Cir. 1986).
Although the subjective intent of a taxpayer is to be
considered in determining whether the taxpayer has a tax home,
for purposes of section 162(a)(2), this Court and others have
consistently focused more on objective criteria. Section
162(a)(2) is intended to mitigate the burden of a taxpayer who,
because of the travel requirements of his or her trade or
5
During the years in issue, only Mr. Ayala was employed by
Sheehan, so only his travel expenses are potentially deductible
as business expenses under sec. 162(a)(2). However, given the
nature of the substantive issue presented by respondent’s
deficiency determination and the manner in which we decide that
issue, we need not consider any allocation of expense between Mr.
and Mrs. Ayala. Accordingly, for convenience, our discussion is
generally cast in terms of petitioners’ tax home rather than just
Mr. Ayala’s.
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business, must maintain two places of abode and, therefore, incur
additional living expenses. Brandl v. Commissioner, 513 F.2d
697, 699 (6th Cir. 1975), affg. T.C. Memo. 1974-160; Kroll v.
Commissioner, supra at 562. In other words, section 162(a)(2) is
intended to provide relief to a taxpayer who incurs “substantial
continuing expenses” of a home that are duplicated by business
travel. See James v. United States, 308 F.2d 204, 207-208 (9th
Cir. 1962); Kroll v. Commissioner, supra at 562. When a taxpayer
continuously travels for work and does not have substantial,
duplicative, continuous living expenses for a permanent home
maintained for some business reason, the taxpayer has no tax
home. Henderson v. Commissioner, 143 F.3d 497, 499 (9th Cir.
1998), affg. T.C. Memo. 1995-559; James v. United States, supra.
Most significantly in this case, petitioners bore no
expenses in maintaining a home in addition to their travel
trailer. Notwithstanding their very real ties to California,
petitioners bore no duplicative living expenses. They did not
make mortgage payments, pay regular utilities costs, or regularly
pay for running a household other than the one in which they
resided: The travel trailer. In other words, expenses incurred
in respect of the ancestral home in Vallejo were incurred for the
benefit of Mr. Ayala’s sister and not because of the exigencies
of Mr. Ayala’s business travel. Make no mistake: Petitioners’
financial support of Mr. Ayala’s sister was extremely laudable.
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However, those financial outlays were not of the type considered
to be costs of maintaining a home such that the expenses related
to petitioners’ life on the road for Sheehan would be redundant.
Petitioners were not “away from home” within the intent and
meaning of section 162(a)(2) for the taxable years at issue
because they had no “home” to be away from. Barone v.
Commissioner, supra at 465; Wirth v. Commissioner, 61 T.C. 855,
858-859 (1974). In short, petitioners’ tax home was wherever
they happened to be. See Brandl v. Commissioner, supra.
Accordingly, petitioners are not entitled to deduct the expenses
claimed on their returns for the years at issue.
B. Section 6662(a)
Section 6662(a) imposes a penalty equal to 20 percent of the
amount of any underpayment attributable to negligence or
disregard of the rules or regulations. Sec. 6662(b)(1).
“‘[N]egligence’ includes any failure to make a reasonable attempt
to comply with the [Internal Revenue Code], and the term
‘disregard’ includes any careless, reckless, or intentional
disregard.” Sec. 6662(c).
In view of the factual uncertainties presented in this case,
as well as Mr. Ayala’s forthright and very credible testimony, we
are convinced that petitioners operated in good faith and that
the reasonable cause and good faith provisions of section
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6664(c)(1) are applicable here. We therefore decide in favor of
petitioners on this issue.
C. Conclusion
In closing, we think it appropriate to observe that we found
petitioners to be very conscientious taxpayers who take their tax
responsibilities seriously. Mr. Ayala’s testimony was
straightforward and credible. The Tax Court, however, is a court
of limited jurisdiction and lacks general equitable powers.
Commissioner v. McCoy, 484 U.S. 3, 7 (1987); Hays Corp. v.
Commissioner, 40 T.C. 436, 442-443 (1963), affd. 331 F.2d 422
(7th Cir. 1964). Consequently, our jurisdiction to grant
equitable relief is limited. Woods v. Commissioner, 92 T.C. 776,
784-787 (1989); Estate of Rosenberg v. Commissioner, 73 T.C.
1014, 1017-1018 (1980). Therefore, we must find that
petitioners’ ancestral home in Vallejo was not their tax home for
Federal tax purposes during the years in issue. Rather, their
tax home was wherever petitioners happened to be, and
consequently, they had no home from which to be away for purposes
of claiming deductions for travel expenses under section
162(a)(2).
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To reflect our disposition of the disputed issues,
Decision will be entered
for respondent as to the
deficiencies in income taxes and
for petitioners as to the accuracy-
related penalties.