T.C. Summary Opinion 2008-151
UNITED STATES TAX COURT
LARRY W. KOEPKE, Petitioner v.
COMMISSIONER OF INTERNAL REVENUE, Respondent
Docket No. 21111-05S. Filed December 4, 2008.
Larry W. Koepke, pro se.
Lisa M. Oshiro, for respondent.
GERBER, 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 other court, and
1
Unless otherwise indicated, all section references are to
the Internal Revenue Code in effect for 2003, the taxable year in
issue, and all Rule references are to the Tax Court Rules of
Practice and Procedure.
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this opinion shall not be treated as precedent for any other
case. Respondent determined a $7,816 deficiency in petitioner’s
2003 Federal income tax. The deficiency arises from respondent’s
disallowance of several deductions petitioner claimed on his 2003
income tax return. Respondent, in his answer to petitioner’s
amended petition, asserted a $1,563.20 accuracy-related penalty
under section 6662(a).
Respondent has conceded petitioner’s entitlement to the
following deductions: State and local income tax--$5,414; real
estate tax--$2,986; home mortgage interest--$11,308; other
expenses--$185, subject to the 2 percent of adjusted gross income
(AGI) limitation; and union and professional dues--$738, subject
to the 2 percent of AGI limitation; and respondent has also
conceded that the section 6662(a) accuracy-related penalty does
not apply.
The following deductions remain in controversy: Gifts to
charity--$855; equipment--$224; unreimbursed employee expenses--
$14,308.
Background
Petitioner resided in Wisconsin at the time his petition was
filed. He worked for Northwest Airlines (Northwest) as an
aircraft mechanic for over 20 years. Petitioner’s residence was
close to Northwest’s Minneapolis, Minnesota, home base. During
2001 petitioner was Northwest’s lead mechanic in Alaska, but he
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returned to Minneapolis during 2002. During 2003 Northwest
instituted a reduction-in-force, and on March 26, 2003,
petitioner was displaced under a seniority system from his
Minneapolis position to a position in Newark, New Jersey. This
seniority system was defined in the employment contract with
Northwest.
Under the contract, if employees were laid off, they could
use their seniority to gain placement in a city where they were
most senior. In effect, the use of the seniority system in a
layoff situation had a “domino effect” caused by the most senior
person who had been laid off selecting another city where he was
most senior and thereby displacing another employee and so on.
If there had been someone less senior in Minneapolis when
petitioner was laid off, he would have had the option to remain
in Minneapolis. Because there was no less senior person in
Newark, petitioner moved to Newark where his seniority permitted
him to work.
Under the circumstances, there was no way to determine the
length of time that petitioner would remain in Newark or any
other city. On April 2, 2003, petitioner was served with another
reduction-in-force notice, but it was rescinded shortly
thereafter. On May 23, 2003, however, another reduction-in-force
was issued. A person from Minneapolis who was more senior than
petitioner exercised his seniority to bump petitioner in Newark
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and, in turn, petitioner exercised his seniority to bump someone
less senior, thereby moving to Philadelphia, Pennsylvania.
Petitioner finished out 2003 in Philadelphia, but there were
occasions where he was close to being bumped again. During the
period under consideration, Northwest laid off 2,700 people,
including 110 lead mechanics, and those layoffs generated
petitioner’s movement from city to city.
Petitioner remained in Philadelphia until February or March
2005 when another round of layoffs occurred. Subsequently, he
was forced to go to Houston, Texas, where he worked for 2-1/2
months, and then he moved to Seattle, Washington, where he
remained until the end of 2005. Throughout the layoffs and
“seniority moves” from city to city, petitioner has always
maintained his house in the Minneapolis area and considered that
his permanent residence. When petitioner was not working in
Minneapolis, he claimed deductions for travel from Minneapolis to
his duty station and transportation from what he considered his
temporary residence to the airport where he worked.
For 2003 petitioner deducted $10,572 of “Unreimbursed
Employee Business Expenses” as follows: Standard automobile
mileage–$3,252; travel expense while away from home--$4,840;
meals and entertainment--$2,480. Respondent disallowed the
entire amount for failure to substantiate and/or otherwise meet
the requirements of section 274(d). Petitioner prepared logs
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detailing the $10,572 of expenditures at the end of the year
2003.
Discussion
In general, the Commissioner’s determinations in a notice of
deficiency are presumed correct. Welch v. Helvering, 290 U.S.
111, 115 (1933). In pertinent part, Rule 142(a)(1) provides the
general rule that “The burden of proof shall be upon the
petitioner”. In certain circumstances, however, if the taxpayer
introduces credible evidence with respect to any factual issue
relevant to ascertaining the proper tax liability, section 7491
places the burden of proof on the Commissioner. Sec. 7491(a)(1);
Rule 142(a)(2). Section 7491(a)(1) applies only if the taxpayer
complies with substantiation requirements, maintains all required
records, and cooperates with the Commissioner’s requests for
witnesses, information, documents, meetings, and interviews.
Sec. 7491(a)(2). The record shows that petitioner did not comply
with the substantiation requirements. In addition, no question
was raised by the parties as to the burden or proof or going
forward with evidence.
This Court has considered the deductibility of travel,
meals, and lodging expenses of similarly situated Northwest
employees who were likewise bumped or displaced by layoffs and
downsizing. See, e.g., Wasik v. Commissioner, T.C. Memo. 2007-
148. The question that is decided in each of these cases is
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whether the taxpayer was temporarily away from home within the
meaning of section 162.
A taxpayer may deduct such expenses while away from home in
the pursuit of a trade or business. Secs. 162(a)(2), 262(a);
Commissioner v. Flowers, 326 U.S. 465 (1946). The word “home”
for purposes of section 162(a)(2) generally refers to the area of
a taxpayer’s principal place of employment, not the taxpayer’s
personal residence. Daly v. Commissioner, 72 T.C. 190, 195
(1979), affd. 662 F.2d 253 (4th Cir. 1981). There is an
exception to the general rule that a taxpayer’s tax home is his
or her principal place of employment if the taxpayer’s employment
away from home is temporary. Peurifoy v. Commissioner, 358 U.S.
59, 60 (1958); Mitchell v. Commissioner, T.C. Memo. 1999-283.
Petitioner argues that his employment in cities other than
Minneapolis was temporary under the union contract with Northwest
because he ultimately had a guaranteed position in Minneapolis
once his seniority situation was such that he could return. In
other words, he had a right to bump less senior Northwest
employees in Minneapolis, and Northwest could not defeat that
right by a new hire or transfer of an existing employee with less
seniority. That aspect of the union contract, petitioner
contends, makes Minneapolis his tax home, and his positions in
other cities are temporary.
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We consider all of the facts and circumstances when
considering the situs of and/or whether a taxpayer has a tax
home. See Rev. Rul. 73-529, 1973-2 C.B. 37. A taxpayer must
generally have some business justification to maintain a
residence, beyond purely personal reasons, so as to be entitled
to deduct expenses incurred while temporarily away from that
home. Hantzis v. Commissioner, 638 F.2d 248, 255 (1st Cir.
1981), revg. T.C. Memo. 1979-299; Bochner v. Commissioner, 67
T.C. 824, 828 (1977). If a taxpayer has no business connection
with the primary residence, it has been held that there is no
compelling reason to maintain that residence and incur
substantial, continuous, and duplicative expenses elsewhere. See
Henderson v. Commissioner, 143 F.3d 497, 499 (9th Cir. 1998),
affg. T.C. Memo. 1995-559; Hantzis v. Commissioner, supra. In
that situation, the expenses incurred while temporarily away from
that residence are not deductible. Hantzis v. Commissioner,
supra; Bochner v. Commissioner, supra.
Petitioner’s work situation before and during 2003 was such
that he was subject to being laid off because of Northwest’s
downsizing. Although he was in no city for an extended period,
under the employment contract his choices were either to be laid
off and not work or to exercise his seniority and bump an
employee in a different city. Petitioner’s work situation was
indeterminate, as he did not know when and if Northwest would
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continue to downsize and/or the length of time that he would
remain in any particular city where he had bumped a less senior
person. We recognize that petitioner maintained a home in the
Minneapolis area and he intended to use the terms of the union
contract to return to Minneapolis if his seniority was such that
he could. We are also sympathetic to petitioner’s situation, as
we recognize that he was forced to involuntarily move from city
to city in order to continue earning a living.
These circumstances, however, do not make Minneapolis
petitioner’s tax home at the time that he chose to move from
there in order to continue working for Northwest, albeit in
another city. When he moved from Minneapolis, his business ties
to that location ended. The reality of petitioner’s situation
was that he did not know how long he would be in any of the
cities in which he worked or where he would go next. With those
circumstances petitioner’s time in any city could not be termed
“temporary”, and there was no way to predict or know when he
could return to Minneapolis under the seniority system.
Although petitioner’s situation is a hardship upon him,
there is no statutory provision that provides relief for his
situation. Under established principles of tax law, petitioner
was not “away from home” during 2003, and we must hold that he is
not entitled to deduct the $10,572 in travel and meal expenses.
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With respect to the remaining employee business items in
dispute, respondent determined that petitioner failed to
substantiate or to show the employee business purpose of the
claimed expenditures. See secs. 162, 212. Taxpayers are
required to maintain records sufficient to permit the
verification of income and expenses. Sec. 6001. As a general
rule, if the trial record provides sufficient evidence that the
taxpayer has incurred a deductible expense, but the taxpayer is
unable to adequately substantiate the precise amount of the
deduction, the Court may estimate the amount of the deductible
expense and allow a deduction to that extent. Cohan v.
Commissioner, 39 F.2d 540, 543-544 (2d Cir. 1930). Such
estimates are to be made bearing heavily against the
taxpayer whose inexactitude in substantiating the amount of the
expense is of his own making. Id. at 544. However, in order for
the Court to estimate the amount of an expense, the Court must
have some basis upon which an estimate may be made. Vanicek v.
Commissioner, 85 T.C. 731, 742-743 (1985).
During 2003 petitioner purchased a device for $224 that
permitted his computer to receive wireless Internet service.
During 2003 he lived in places where wireless Internet service
was available, and he used that service to check Northwest’s
postings of changes of post of duty because of seniority.
Petitioner also paid $312, during 2003, for an Internet service
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provider. Although petitioner has adequately substantiated these
expenditures and it was ordinary and necessary for him to keep
abreast of his work assignments, some portion of petitioner’s use
of the Internet was personal and not business related. On the
record before us, we find and hold that petitioner is entitled to
deduct $100 for 2003, and respondent is sustained on the
disallowance of the remaining $436 ($224 plus $312 equals $536,
less $100 equals $436).
We find and hold that for 2003 petitioner is entitled to
deduct the following amounts as employee business-related items:
$70 to maintain his mechanic’s license; $156 for prescription
safety glasses; $154 for steel-toed, special-soled boots that
remained at the work place because of acid and oil accumulation;
$1,022 for tools needed to properly perform his job; $92 for
transportation between job and union meetings; $68.36 for a
winter parka with the Northwest logo because such clothing was
necessary but not provided by Northwest; and $822 for cleaning
uniforms provided by Northwest.
During 2003 petitioner attended church intermittently and
would make contributions on each such occasion. Petitioner
recorded the date and amount of each contribution on a calendar
which he used to assist in the preparation of his 2003 tax
return. He attended church on 24 occasions during 2003 and made
contributions ranging from $10 to $50, for a total of $855 for
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the year. Based on the record, petitioner is entitled to deduct
$855 for contributions for 2003.
To reflect the foregoing,
Decision will be entered
under Rule 155.