T.C. Summary Opinion 2008-41
UNITED STATES TAX COURT
ERIC D. WALKER AND LYNN WALKER, Petitioners v.
COMMISSIONER OF INTERNAL REVENUE, Respondent
Docket No. 7566-06S. Filed April 22, 2008.
Eric D. Walker, pro se.
Brian A. Pfeifer, for respondent.
CARLUZZO, Special Trial Judge: This case was heard
pursuant to the provisions of section 7463.1 Pursuant to section
7463(b), the decision to be entered is not reviewable by any
1
Unless otherwise indicated, section references are to the
Internal Revenue Code of 1986, as amended, in effect for the
relevant period.
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other court, and this opinion shall not be cited as precedent for
any other case.
In a notice of deficiency issued to petitioners on January
19, 2006, respondent determined a $5,975 deficiency in and a
$1,195 section 6662(a) accuracy-related penalty with respect to
petitioners’ 2002 Federal income tax.
The issues for decision are: (1) Whether petitioners are
entitled to certain trade or business expense deductions, some
claimed on a Schedule A, Itemized Deductions, and some claimed on
a Schedule C, Profit or Loss From Business; and (2) whether
petitioners are liable for the accuracy-related penalty.
Background
Some of the facts have been stipulated and are so found.
Petitioners married on March 31, 2002. They filed a timely joint
Federal income tax return for that year. At the time the
petition was filed, they resided in Florida.
Eric D. Walker (petitioner) is an electrician who at all
times relevant was a member of Local 613 of the International
Brotherhood of Electrical Workers (IBEW). Local 613 is located
in Atlanta, Georgia, but petitioner did not work within the
jurisdiction of Local 613, or anywhere within the State of
Georgia, during 2002. Instead, he traveled repeatedly up and
down the east coast from Massachusetts to Florida in search of or
in connection with available union-based employment
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opportunities. IBEW procedures required that he announce his
availability for employment in any given location by visiting the
local chapter of the IBEW and signing whatever paperwork was
required. This procedure had to be repeated periodically as long
as petitioner was unemployed, which he was during part of 2002,
and continued to look for jobs.
Although he actively sought employment using the process
described above throughout 2002, petitioner was employed only
from time to time from May 1 through November 1, 2002, and only
for various employers in New Jersey. While working in New Jersey
petitioner stayed in a YMCA or in a rented house. Petitioner
spent 216 days in New Jersey during 2002, including those days
when he was present there either working or looking for work.
Following his marriage in March, petitioner spent only 3
days in Georgia. Lynn Walker lived with her mother in Florida
during 2002, both before and after petitioners were married.
Petitioner spent a fair amount of time in Florida during that
year.2 As of the end of November 2002, petitioner considered
that his residence was in Florida.
2
Petitioner was in Florida 25 days during January; 7 days
during February; 12 days during March; 9 days during April; 3
days during June; 6 days during September; 8 days during
November; and all of December.
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Petitioners’ 2002 self-prepared, joint Federal income tax
return was timely filed. That return includes a Schedule C and a
Schedule A. The Schedule C identifies the business as “Spinal
Connection Rehab and Wellness” and shows the proprietor as Lynn
Walker. There is no income reported on the Schedule C, and
various deductions totaling $9,087 result in a net loss in that
amount which is claimed as a deduction on petitioners’ 2002
return. As relevant here, on the Schedule A, petitioners claimed
a $32,525 unreimbursed employee business expense deduction, most
of which is attributable to meals and lodging expenses.
Petitioners also claimed a $15,218 loss from an S
corporation on their 2002 return. That loss is identified as a
“nonpassive loss from [a] Schedule K-1” issued to petitioners by
Spinal Connection Rehab and Wellness.
In the above-referenced notice of deficiency, respondent:
(1) Disallowed the deduction for the net loss reported on the
Schedule C; (2) disallowed a portion of the unreimbursed employee
business expense deduction claimed on the Schedule A; (3) allowed
the standard deduction applicable to petitioners’ filing status
as the remaining itemized deductions respondent allowed totaled
less than the standard deduction;3 and (4) imposed an accuracy-
3
The itemized deductions otherwise allowed are:
(1) Taxes--$972; (2) Gifts to Charity--$745; and (3)
Miscellaneous deductions, including unreimbursed employee
business expenses--$5,498, before the application of sec. 67(a).
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related penalty under section 6662(a) upon the ground that, among
other reasons, the underpayment of tax required to be shown on
petitioners’ 2002 return is a substantial understatement of
income tax. Other adjustments made in the notice of deficiency
are computational or have been agreed upon by the parties.
Discussion
1. Deduction for Net Loss Claimed on the Schedule C
Petitioners now agree that they are not entitled to a
deduction for the net loss shown on the Schedule C. Although
less than certain, it appears that the expenses that generated
the loss might have been duplicated in the loss claimed from
the above-referenced S corporation. That loss has not been
disallowed.
2. Disallowed Portion of the Employee Business Expense Deduction
According to the notice of deficiency, the portion of the
employee business expenses deduction attributable to “travel,
meals and lodging” was disallowed because respondent determined
that those expenses, if paid or incurred, were not paid or
incurred while petitioner was traveling away from home in
pursuit of his employment. According to respondent, petitioner
maintained “no fixed place of abode or business locality,”
consequently, “each place where * * * [petitioner worked became
his] principal place of business and * * * tax home.” According
to petitioner, his residence and tax home, at least until the end
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of November 2002, was in Stockbridge, Georgia, where he lived
with his brother in his brother’s house. Petitioner now
acknowledges that amounts claimed on his 2002 return for lodging
were overstated, but claims entitlement to: (1) A portion of the
claimed deduction for lodging; and (2) the entire claimed
deduction for meals.
Expenses incurred by an individual for meals and lodging are
normally considered nondeductible personal or living expenses.
Sec. 262(a). On the other hand, expenses paid or incurred for
meals and lodging, if properly substantiated, are deductible if
paid or incurred by an individual while traveling away from home
in pursuit of the individual’s trade or business. Secs.
162(a)(2), 274(d). In this regard, the reference to the
individual’s trade or business includes the trade or business of
being an employee, O’Malley v. Commissioner, 91 T.C. 352, 363-364
(1988), and the reference to the individual’s home means the
individual’s tax home, Henderson v. Commissioner, T.C. Memo.
1995-559, affd. 143 F.3d 497 (9th Cir. 1998).
In general, the location of an individual’s tax home is the
location of his or her principal place of employment. Daly v.
Commissioner, 72 T.C. 190, 195 (1979), affd. 662 F.2d 253 (4th
Cir. 1981). If, during the taxable year, the individual has no
principal place of employment, this Court considers the
individual’s permanent place of residence to be his or her tax
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home. Rambo v. Commissioner, 69 T.C. 920, 923-925 (1978). If an
individual has no principal place of employment or permanent
residence during the taxable year, then this Court considers that
individual to have no tax home from which the individual can be
away from for purposes of deducting meals and lodging expenses
otherwise deductible under section 162(a)(2). Wirth v.
Commissioner, 61 T.C. 855, 859 (1974).
Petitioner’s profession and status as an IBEW member
required that he seek and/or accept employment on a temporary
basis in various locations during 2002. He had no principal
place of business during that year.4 Whether petitioner had a
permanent place of residence during 2002 is questionable. If he
did, then it was at his brother’s house only up until the date of
his wedding on March 31, and it was in Florida at some point
starting in November. The meals and lodging expense deductions
here in dispute relate to the period between those dates, and the
record does not support a finding that he paid or incurred any
living expense in connection with his brother’s house or any
other “permanent place of residence” while at the same time he
was present and working in New Jersey or elsewhere. See Kroll v.
4
We disagree with the suggestion made in the notice of
deficiency that New Jersey was petitioner’s tax home during 2002.
His employment there was clearly temporary. This distinction,
however, makes no difference to whether petitioner is entitled to
deduct expenses for meals and lodging while working in New
Jersey.
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Commissioner, 49 T.C. 557, 562 (1968) (noting that the purpose of
section 162(a)(2) is to “mitigate the burden of the taxpayer who,
because of the exigencies of his trade or business, must maintain
two places of abode and thereby incur additional and duplicate
living expenses”).
Because petitioner had neither a principal permanent place
of residence nor a principal place of employment during the
period to which the deductions for meals and lodging expenses
relate, he is not considered to have a tax home for that period.
Because the deductions for meals and lodging expenses relate to a
period for which petitioner had no tax home, he is not entitled
to those deductions. Respondent’s disallowance of the portion of
the employee business expense deduction attributable to amounts
for meals and lodging is sustained.
Respondent acknowledges that petitioner is entitled to tolls
and vehicle expenses incurred in connection with his search for
employment during 2002. The amounts already allowed for such
expenses exceed the amounts petitioners substantiated and, when
taken into account with other itemized deductions allowed or not
challenged, do not exceed the $7,850 standard deduction
applicable to petitioners’ filing status. See sec. 63(b) and
(c). It is unnecessary, therefore, to consider petitioners’
entitlement to such deductions any further, and respondent’s
allowance of the standard deduction in lieu of the itemized
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deductions otherwise claimed and not disallowed is sustained.
3. The Section 6662(a) Accuracy-Related Penalty
Section 6662(a) imposes an accuracy-related penalty of 20
percent of any portion of an underpayment of tax, if among other
reasons, the underpayment is attributable to a substantial
understatement of income tax. Sec. 6662(b)(2), (d). An
understatement of income tax is a substantial understatement of
income tax if it exceeds the greater of $5,000 or 10 percent of
the tax required to be shown on the taxpayer’s return.5 Sec.
6662(d)(1). Ignoring conditions not relevant here, for purposes
of section 6662 an understatement is defined as the excess of the
amount of the tax required to be shown on the taxpayer’s return
over the amount of the tax which is shown on the return. Sec.
6662(d)(2)(A). In this case the understatement of income tax is
computed in the same manner as and is equal to the deficiency in
dispute; that is, $5,975. See secs. 6211, 6662(d)(2).
Under section 7491(c) respondent has the burden of
production with respect to the accuracy-related penalty under
section 6662(a). To meet that burden, respondent must come
forward with sufficient evidence to show that imposition of the
penalty is appropriate. See Higbee v. Commissioner, 116 T.C.
438, 446 (2001). We have sustained, or petitioners have
5
Ten percent of the tax required to be shown on
petitioners’ 2002 return is $892.50.
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conceded, the adjustments in the notice of deficiency that give
rise to the deficiency. Respondent has satisfied his burden of
production under sec. 7491(c) with respect to the accuracy-
related penalty under section 6662(a) determined in the notice of
deficiency because the underpayment of tax exceeds $5,000.
The accuracy-related penalty does not apply to any part of
an underpayment of tax if it is shown the taxpayer acted with
reasonable cause and in good faith. Sec. 6664(c)(1). The
determination of whether a taxpayer acted in good faith is made
on a case-by-case basis, taking into account all the pertinent
facts and circumstances. Sec. 1.6664-4(b)(1), Income Tax Regs.
Petitioners bear the burden of proving that they had reasonable
cause and acted in good faith with respect to the underpayment.
See Higbee v. Commissioner, supra at 449. This they have failed
to do. Respondent’s imposition of the section 6662(a) accuracy-
related penalty is sustained.
To reflect the foregoing,
Decision will be entered
for respondent.