Samaco v. Comm'r

T.C. Summary Opinion 2010-165

UNITED STATES TAX COURT

BERNADETTE M. SAMACO, Petitioner v.
COMMISSIONER OF INTERNAL REVENUE, Respondent

Docket No. 14885-09S. Filed November 2, 2010.

Caroline DeLisle Ciraolo, for petitioner.

Tyler N. Orlowski, for respondent.

GOLDBERG, Special Trial Judge: This case was heard pursuant

to the provisions of section 7463 of the Internal Revenue Code in

effect at the time the petition was filed. Pursuant to section

7463(b), the decision to be entered is not reviewable by any

other court, and this opinion shall not be treated as precedent

for any other case. Unless otherwise indicated, subsequent

section references are to the Internal Revenue Code (Code) in
 - 2 -

effect for the years in issue, and all Rule references are to the

Tax Court Rules of Practice and Procedure.

Respondent determined deficiencies in petitioner’s Federal

income taxes of $2,661, $9,376, and $8,934 and section 6662(a)

accuracy-related penalties for each year of $532, $1,875, and

$1,787 for 2005, 2006, and 2007, respectively. After

concessions,1 the issues for decision are: (1) Whether

petitioner’s salary for 2005, 2006, and a portion of 2007 from

the Baltimore, Maryland, City Public Schools (BCPS) is exempt

from Federal income tax under the Convention With Respect to

Taxes on Income, U.S.-Phil., art. 21, Oct. 1, 1976, 34 U.S.T.

1277 (article 21); (2) whether petitioner is entitled to deduct

certain employment, living, and other itemized expenses that she

claimed for 2005, 2006, and 2007; and (3) whether petitioner is

liable for the accuracy-related penalty under section 6662(a) for

each of the 3 years at issue.

Background

Some of the facts have been stipulated and are so found.

The stipulation of facts and the attached exhibits are

1
Respondent also determined that petitioner did not include
income from Form W-2, Wage and Tax Statement, from Edison School,
Inc., for 2005 or State income tax refunds and interest income in
her gross income for 2006 and 2007. Petitioner did not address
these issues at trial; therefore, the issues are deemed conceded.
See Rule 149(b).
 - 3 -

incorporated herein by this reference. Petitioner resided in

Maryland when she filed her petition.

Petitioner is a citizen of the Republic of the Philippines.

She received a bachelor’s degree in early childhood education

from Miriam College. She then attended Atenao-de-Manila, where

she received a master’s degree in educational administration.

Both of these institutions are in the Philippines. Petitioner

began teaching in 1993. Petitioner taught third grade at Clarett

School in Kanos City, Philippines, from 1996 until she left the

Philippines in 2005.

Petitioner entered the United States on June 22, 2005,

arriving in Baltimore to teach for BCPS as part of an

international teaching exchange program sponsored by the U.S.

Department of State (the State Department). Amity Institute

(Amity) is a nonprofit organization the State Department approved

to operate an exchange teacher program. The exchange teacher

program allows qualified foreign teachers to enter the United

States to teach for up to 3 years.

Amity does not directly recruit teachers from the

Philippines. During 2004 and 2005 Amity worked with Badilla

Corp. (Badilla), a business entity from the Philippines, and with

Avenida & Associates, Inc. (Avenida), a business entity from the

United States. Badilla and Avenida are affiliated entities, and

they worked together to facilitate the placement of qualified
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Filipino teachers in American schools. Badilla collected

background information such as transcripts and resumes from

teachers in the Philippines who were interested in the exchange

teacher program in the United States. Badilla found its

prospective Filipino teachers principally by word of mouth and

seminars conducted by its executives. Avenida or Badilla charged

placement fees and additional charges to help teaching candidates

with, among other tasks, finding employers in the United States

and obtaining visas. In the United States, Avenida helped school

districts find promising teaching candidates by providing access

to a database of overseas jobseekers.

In late 2004 petitioner attended an orientation session for

an exchange teacher program Avenida and Badilla sponsored. She

submitted her résumé to Badilla through a personal connection.

BCPS worked with Avenida to receive access to a preselected list

of qualified Filipino teachers. This was the first time BCPS had

recruited teachers from the Philippines. From the preselected

teachers BCPS administrators chose the candidates the school

system wanted to interview. In January 2005 George Duque,

manager of recruitment and staffing for BCPS, traveled to the

Philippines to interview petitioner and other teaching

candidates. Shortly afterwards Badilla informed petitioner that

BCPS would be offering her employment for the 2005-2006 school

year. Petitioner received a letter from BCPS dated February 1,
 - 5 -

2005, officially offering her employment for the 2005-2006 school

year.

Generally, foreign teachers who want to teach in the United

States may obtain one of two types of visas. One is the H-1B

visa for working professionals. The second is the J-1 visa for

individuals coming to the United States under a cultural exchange

program approved by the State Department. The J-1 visa is more

convenient for foreign individuals who are new teachers in the

United States because the visa timing coincides with the academic

year in the United States. Petitioner paid Avenida $5,200 for

the following fees: A $3,200 placement fee, $725 U.S.

documentation fee, a $500 J-1 visa processing fee, and $775 for

airfare and travel.

Amity sponsored petitioner’s J-1 visa. The State Department

authorized Amity to issue Form DS-2019, Certificate of

Eligibility for Exchange Visitor (J-1) Status. The form

identifies the visitor; identifies the visa sponsor; briefly

describes the exchange program, including the start and end

dates; identifies the category of exchange; and states the

estimated cost of the exchange program. The exchange teacher

program cost $3,000. At all relevant times, Gertrude Hermann was

Amity’s executive director.

An Amity representative explained to petitioner that if she

accepted the teaching offer, BCPS would be evaluating her
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performance throughout the school year. If her performance was

satisfactory, BCPS would retain her for the following school

year.

In a letter to petitioner dated April 11, 2005, Amity

confirmed BCPS’ offer. On April 22, 2005, petitioner signed an

Amity exchange teacher contract (the exchange teacher contract)

with Amity and BCPS. This contract stated that it was a “binding

agreement for the length of the issued DS-2019”. Amity prepared

a Form DS-2019 for petitioner’s signature and mailed it to her.

The length of time listed on the Form DS-2019 for petitioner’s

visa was 3 years, the same length as the exchange teacher

program. Petitioner signed the form and returned it to Amity for

processing.

Petitioner requested and received a leave of absence from

her teaching position in the Philippines for the period June 1,

2005, until the end of the school year to teach for BCPS. Upon

her arrival in Baltimore on June 22, 2005, petitioner signed a 1-

year lease for an apartment at The Residences at Symphony Center.

She shared an apartment with three other women, one of whom was

another participant in the exchange teacher program.

During the years at issue up to the time of trial,

petitioner was married and had three children. Petitioner’s

family stayed in the Philippines when she moved to the United

States in 2005. Her family came to the United States in August
 - 7 -

2006. Petitioner’s family could not join her in the United

States until she received a satisfactory evaluation from BCPS.

Therefore, petitioner’s family could not join her until she

completed her first year of teaching for BCPS. Petitioner’s

husband requested and received leaves of absence from his two

employers in the Philippines. He was granted a 1-year leave of

absence from his sales job and an indefinite leave of absence

from his family’s business.

On August 10, 2005, petitioner signed a standard Provisional

Contract for Conditional or Resident Teacher Certificate Holders

(BCPS employment contract), effective beginning August 24, 2005.

The BCPS employment contract was for 1 year, terminating at the

end of the 2005-2006 school year. All first-year teachers who

did not have full professional certification signed a similar

BCPS employment contract. BCPS assigned petitioner to teach

first grade at Samuel F.B. Morse Elementary School (Morse). On

April 18, 2007, petitioner signed a regular contract with BCPS.

The effective date of the contract was July 1, 2005.

The BCPS employment contract required teachers to take the

Praxis I and II tests, which are part of the teacher

certification process that many States require, including

Maryland. Petitioner completed the Praxis I test in 2006.

Petitioner received a Maryland education certificate in 2007,
 - 8 -

valid from July 1, 2005, through June 30, 2010. As of trial,

petitioner was scheduled to take the Praxis II test.

Soon after she began teaching at Morse petitioner began

experiencing significant difficulties with student behavior and

attitude. Petitioner also sustained physical injuries when she

was punched and had her hair cut by a student in her classroom.

Petitioner informed her principal that she would not return to

the classroom until the student was removed. Petitioner would

have left Baltimore during the 2005-2006 school year because of

her “terrible experience”, but she felt that she was ethically

obligated to stay because she had signed a contract with BCPS.

Working in the United States provided petitioner with a

salary that was considerably greater than what she had earned in

the Philippines. In the Philippines, petitioner had earned

approximately 30,000 Filipino pesos a month, equivalent to $536

per month or $6,432 per year. Petitioner’s annual salary for her

first year of teaching for BCPS was $37,157, which increased to

$57,794 and $65,635 for her second and third years, respectively.

With respect to Federal income tax withholding, petitioner

did not provide BCPS with Form 8233, Exemption From Withholding

on Compensation for Independent (and Certain Dependent) Personal

Services of a Nonresident Alien Individual. Consequently, BCPS

withheld Federal income tax from petitioner’s salary during 2005,

2006, and 2007.
 - 9 -

Petitioner engaged professional tax preparers to prepare her

2005, 2006, and 2007 Federal income tax returns. For all 3

years, petitioner filed Forms 1040NR, U.S. Nonresident Alien

Income Tax Return. Petitioner reported that her salary from BCPS

for the 2005 and 2006 calendar years and a portion of the 2007

calendar year was exempt from taxation in the United States under

article 21.

Petitioner claimed itemized deductions of $9,383, $18,408,

and $9,897 for 2005, 2006, and 2007, respectively. For 2005,

petitioner left line 37, “Itemized deductions”, on her Form

1040NR blank. However, she attached a Schedule A, Itemized

Deductions, to her return reporting $9,383 of deductions. The

deductions consisted of $1,645 for State income taxes, $250 for

charitable contributions, $2,488 for unreimbursed employee

expenses, and $5,000 for legal/documentation fees. The $18,404

deducted for 2006 consisted of $4,037 for State income taxes, $42

for local income taxes, $215 for charitable contributions,

$14,064 for job search costs, and $50 for tax preparation fees.

The $9,897 deducted for 2007 consisted of $4,538 for State income

taxes; $499 for charitable contributions; $5,300 for tuition,

travel, and dues; $181 for school supplies; and $50 for tax

preparation fees. As a result of the income exclusion, income

tax withholding, and deductions, petitioner requested a refund

for each year 2005 through 2007.
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Petitioner returned to the Philippines on July 12, 2008,

after her J-1 visa expired on June 27, 2008. She applied for and

obtained an H-1B visa valid from June 28, 2008, through June 30,

2010. She then returned to the United States, and as of the date

of trial, she continued to be employed by BCPS.

The Internal Revenue Service (IRS) selected petitioner’s

2005, 2006, and 2007 Federal income tax returns for examination.

The examining agent sent three questionnaires to petitioner:

Form 8784, Questionnaire - Temporary Living Expenses; Form 9210,

Alien Status Questionnaire; and Form 9250, Questionnaire - Tax

Treaty Benefits. Petitioner completed the forms and dated her

signature October 16, 2008, on Form 9250 and October 19, 2009, on

Forms 8784 and 9210. She then returned the forms to the IRS.

The Court received into evidence copies of the three

questionnaires that petitioner had completed. On Form 8784

petitioner marked that her intention regarding the length of her

stay in the United States changed when she received an H-1B visa.

On Form 9210 petitioner wrote that June 22, 2005, was her date of

initial arrival and that at that time she expected to remain in

the United States until 2010. She answered the next question on

Form 9210, indicating that she changed her original intention to

stay in the United States because she was granted an H-1B visa.

In the notice of deficiency dated March 26, 2009, the IRS

adjusted petitioner’s income to include the earnings from BCPS
 - 11 -

for 2005, 2006, and 2007 that petitioner had excluded under

article 21. In addition, the IRS disallowed $7,488 of itemized

deductions for 2005, consisting of $2,488 for unreimbursed

employee expenses and $5,000 for legal/documentation fees. The

IRS also disallowed $14,114 of itemized deductions for 2006,

consisting of $14,064 for job search costs and $50 for tax

preparation fees. Finally, the IRS disallowed $5,531 of itemized

deductions for 2007, consisting of $5,300 for tuition, travel,

and dues; $181 for school supplies; and $50 for tax preparation

fees.

Respondent moved under Rule 121 for partial summary judgment

concerning the issue of whether petitioner qualified in the years

at issue for the exemption under article 21. Petitioner objected

to the granting of the motion. The issue was fully briefed by

both parties. The motion was set for hearing at trial. When the

case was called for trial, the motion was heard. The parties

relied on their respective positions set forth in their briefs.

The motion for partial summary judgment has been denied.

The case was then tried, and the Court heard testimony from

petitioner, Mr. Duque, and Ms. Hermann. The Court also received

into evidence a form BCPS completed for Amity entitled “Addendum

to Amity Confirmation of Employment Form 2007/2008” (the

addendum). Mr. Duque signed and dated the form July 1, 2007.

The addendum showed that BCPS had retained 170 of the 178 (95.5
 - 12 -

percent) Filipino teachers in the past 2 years who had taught for

BCPS through Amity’s exchange teacher program.

Discussion

I. Income Under Article 21

Petitioner was a nonresident alien for the years at issue

because of her J-1 visa status and her participation in the

exchange teacher program. See sec. 7701(b). In particular,

section 7701(b)(1)(B) provides that a nonresident alien is a

person who is not a citizen or resident of the United States

within the meaning of section 7701(b)(1)(A).2 Generally, a

nonresident alien individual engaged in trade or business within

the United States is taxed on the taxable income effectively

connected with that trade or business. Sec. 871(b). The phrase

“trade or business within the United States” generally includes

the performance of personal services within the United States at

any time within the taxable year. Sec. 864(b). Compensation

paid to a nonresident alien in exchange for the performance of

services in the United States constitutes income that is

effectively connected with the conduct of trade or business in

the United States. Sec. 1.864-4(c)(6)(ii), Income Tax Regs.

Consequently, petitioner’s wages would ordinarily be included in

2
As a teacher, petitioner is considered an exempt individual
and therefore not treated as present for purposes of the
substantial presence test. See sec. 7701(b)(1)(A)(ii),
(3)(D)(i), (5)(A)(ii).
 - 13 -

gross income under the Code. Section 894(a), however, provides

that the provisions of the Code will be applied to any taxpayer

with due regard to any treaty obligations of the United States

that apply to the taxpayer. Therefore, the treatment of

petitioner’s wages might be altered by applicable treaty

provisions. See id.

The United States is a party to an income tax convention

with the Republic of the Philippines. The convention provides an

exemption from U.S. income taxation on income earned by Filipino

teachers teaching in the United States if the requirements of the

convention are satisfied. Article 21 states:

Article 21
TEACHERS

(1) Where a resident of one of the Contracting
States is invited by the Government of the other
Contracting State, a political subdivision or local
authority thereof, or by a university or other
recognized educational institution in that other
Contracting State to come to that other Contracting
State for a period not expected to exceed 2 years for
the purpose of teaching or engaging in research, or
both, at a university or other recognized educational
institution and such resident comes to that other
Contracting State primarily for such purpose, his
income from personal services for teaching or research
at such university or educational institution shall be
exempt from tax by that other Contracting State for a
period not exceeding 2 years from the date of his
arrival in that other Contracting State.

To qualify for the exemption under article 21, a taxpayer

must meet the following requirements: (1) The taxpayer was a

resident of the Philippines before coming to the United States;
 - 14 -

(2) she was invited by the Government or a recognized educational

institution within the United States; (3) she was invited for a

period not expected to exceed 2 years; (4) the purpose of the

invitation was for her to teach or engage in research at the

recognized educational institution; and (5) she did in fact come

to the United States primarily to carry out the purpose of the

invitation. All of the requirements of article 21 must be

satisfied in order for petitioner to qualify for the income

exemption. The only requirement in dispute is whether

petitioner’s invitation to teach in the United States was “for a

period not expected to exceed 2 years”.

The text of article 21 does not specifically state whose

expectation controls the length of the invitation to teach for a

period not to exceed 2 years. Petitioner argues that her

expectation as the invitee is the only expectation that matters.

Respondent counters that either the expectation of the invitor,

BCPS, should be decisive, or that the Court should weigh the

expectations of all the parties associated with the exchange

teacher program. In the light of this ambiguity in the text of

article 21, we will consider all the relevant facts and

circumstances, including the expectations of all the parties.

See Santos v. Commissioner, 135 T.C. __, __ (2010) (slip op. at

17). We will construe the language of the treaty liberally. See

N.W. Life Assurance Co. of Can. v. Commissioner, 107 T.C. 363,
 - 15 -

378 (1996). Then we will make an objective determination of

whether petitioner was invited to the United States “for a period

not expected to exceed 2 years”. See Santos v. Commissioner,

supra.

A. Burden of Proof

Generally, the Commissioner’s determination of a deficiency

is presumed correct, and the taxpayer bears the burden of proving

that the deficiency is incorrect. Rule 142(a); Welch v.

Helvering, 290 U.S. 111, 115 (1933). Furthermore, any deductions

allowed are a matter of legislative grace, and the taxpayer bears

the burden of proving his entitlement to them. Rule 142(a);

INDOPCO, Inc. v. Commissioner, 503 U.S. 79, 84 (1992); New

Colonial Ice Co. v. Helvering, 292 U.S. 435, 440 (1934).

Under section 7491(a) the burden may shift to the

Commissioner regarding factual matters affecting a taxpayer’s

liability for tax if the taxpayer produces credible evidence and

meets other requirements of the section. Petitioner moved for a

burden shift under section 7491(a), contending that she produced

credible evidence and met the other requirements of the section.

Respondent objected, contending that “petitioner has failed to

introduce credible evidence to support her assertion that her

stay in the United States was expected to last 2 years or less.”

We need not, and we explicitly do not, decide which party bears

the burden of proof because as discussed above, applying Santos
 - 16 -

v. Commissioner, supra, we will decide this case on an objective

consideration of all the relevant facts and circumstances.

B. Analysis

We begin our analysis with a discussion of the evidence that

relates to petitioner’s expectation. Petitioner’s reliance on

the two 1-year apartment leases and the 1-year BCPS employment

contract is unconvincing. One-year apartment leases are

commonplace and do little to indicate a tenant’s long-term

expectation to remain in an area.

Likewise, BCPS required all of its first-year teachers to

sign what amounts to a standard 1-year employment contract. The

fact that the contract did not guarantee employment beyond the

first year does not mean that petitioner expected to stay in the

United States for only 1 year. Amity had informed petitioner

that so long as her performance was satisfactory, BCPS would

retain her. When questioned on cross-examination about how she

expected to perform at BCPS, petitioner responded: “I always do

my best.” We believe it likely that petitioner had sufficient

confidence in her teaching skills to assume that her performance

would be “satisfactory” and therefore she could expect that BCPS

would employ her for the second and third years, and perhaps

beyond. Moreover, petitioner signed what BCPS calls a “regular

contract” in 2007 that put her on a track to become a tenured

teacher with BCPS.
 - 17 -

More persuasive are petitioner’s own words in her answers on

the three IRS questionnaires. Her answers indicate that her

initial expectation was to remain in the United States for the

entire length of the visa and of the 3-year exchange teacher

program and that her expectation did not change until she

received an H-1B visa. In response to this evidence against her,

petitioner testified that she did not have any help filling out

the forms and that the questions were confusing. This testimony

is not credible because petitioner has a master’s degree in

educational administration, she speaks fluent English, and the

questions on the forms are straightforward, not requiring any

technical knowledge.

Furthermore, petitioner introduced no evidence that she

expressed to any of the parties involved that she expected to

return to the Philippines within her first 2 years in the United

States. Similarly, petitioner did not testify at trial that she

expected to return home within the first 2 years. Instead, she

stated that she determined her expectation regarding the length

of her stay on a “year-to-year” evaluation of her situation.

We also find it highly significant that despite the

students’ bad behavior, petitioner’s physical injury, and what

she described as a “terrible experience” and her feeling that

“her life was threatened”, petitioner remained in Baltimore

teaching at Morse and as of the date of trial continued to work
 - 18 -

for BCPS. When asked why she did not leave Baltimore during her

first year teaching there, petitioner testified: “I had a

contract. It was a binding contract. When you sign a contract,

it is my belief that you have to finish the whole school year.”

Petitioner’s sense of obligation to adhere to the terms of the

BCPS contract could in all likelihood be applied to the contract

she signed with Amity for the 3-year exchange teacher program.

Petitioner knew the length of the program when she signed the

exchange teacher contract. Therefore, it is reasonable to

believe that she felt obligated to remain in the program for 3

years. Petitioner’s actions indicate a strong commitment to

staying in the United States despite the difficulties. The fact

that petitioner did not renew her leave of absence for her

teaching position in the Philippines, while not a decisive

factor, also weighs against her argument.

In addition, we cannot ignore the financial incentive of

remaining in the United States for as long as possible.

Petitioner incurred more than $8,000 in expenses to participate

in the exchange teacher program and to relocate herself and her

family to the United States. This is not an insignificant sum in

comparison to her earnings in the Philippines. Moreover, her

earnings immediately grew sixfold from $6,432 to $37,157 when she

moved from the Philippines to the United States. Further, her
 - 19 -

earnings of $65,635 in 2007, which was her third year at BCPS

were, 77 percent greater than her first-year salary at BCPS.

From the perspective of BCPS, the school system certainly

would not have invested so much time, money, and effort in

recruiting teachers from the Philippines if it did not expect

that the teachers would remain at least for the 3-year exchange

teacher program. Mr. Duque likewise testified that BCPS wanted

to retain the teachers it hired for as long as possible.

Corroborating this testimony is the evidence from the addendum

showing that BCPS retained an extremely high percentage, 95.5

percent, of the Filipino teachers it hired through the exchange

program. Additionally, Ms. Hermann testified that BCPS, similar

to the other school systems that hired foreign teachers through

the exchange program, expected the teachers to stay for the

entire 3-year program. She added that it had been Amity’s

experience that only a small percentage of Filipino teachers

returned to the Philippines before completing the 3-year exchange

teacher program and that most of participants decided to remain

in the United States beyond the 3 years. The testimony of these

witnesses is plausible, reliable, and persuasive.

In conclusion, after an objective examination of all of the

relevant facts and circumstances, we find that petitioner and

BCPS expected petitioner to stay in the United States for at

least 3 years, which is greater than the “not expected to exceed
 - 20 -

2 years” requirement of article 21. Therefore, petitioner’s

income for June 2005 to June 2007, the first 2 years she was in

the United States, is not exempt from Federal income tax under

article 21.

II. Disallowed Itemized Deductions

Section 162(a) allows a deduction for ordinary and necessary

business expenses paid or incurred during the taxable year in

carrying on any trade or business. The performance of services

as an employee is considered a trade or business for section 162

purposes. Primuth v. Commissioner, 54 T.C. 374, 377 (1970). For

an expense to be necessary, it must be “appropriate and helpful”

to the taxpayer’s business. Welch v. Helvering, 290 U.S. at 113-

114. An expense will be considered ordinary if it is a common or

frequent occurrence in the type of business in which the taxpayer

is involved. Deputy v. du Pont, 308 U.S. 488, 495 (1940). In

order to deduct a business expense, a taxpayer must not have

received reimbursement and must not have had the right to obtain

reimbursement from his employer. Orvis v. Commissioner, 788 F.2d

1406, 1408 (9th Cir. 1986), affg. T.C. Memo. 1984-533; Leamy v.

Commissioner, 85 T.C. 798, 810 (1985).

A. 2005 Disallowed Deductions--$7,488

1. Legal/Documentation Fees--$5,000

Respondent disallowed a “legal/documentation” fees deduction

of $5,000. These fees were a combination of the fees petitioner
 - 21 -

paid to Avenida and Amity to participate in the exchange program,

consisting of a $3,200 placement fee, a $725 United States

documentation fee, a $500 J-1 visa processing fee, and $775 for

airfare and travel. The payment of these fees was ordinary and

necessary for petitioner to teach for BCPS. See Welch v.

Helvering, supra; Deputy v. du Pont, supra. We are satisfied

that petitioner incurred fees of $5,200 in 2005. Therefore,

petitioner is entitled to a deduction in that amount.

2. Unreimbursed Employee Business Expenses--$2,488

Respondent also disallowed unreimbursed employee business

expenses of $2,488, consisting of $1,400 for a laptop computer,

$780 for school supplies, $180 for an evaluation of petitioner’s

teaching credentials from the Philippines, and $308 for union

dues.

Laptop computers are listed property. Sec. 280F(d)(4).

Section 274(d) imposes strict substantiation requirements for

“listed property”. To substantiate expenses for listed property,

a taxpayer must show either by adequate records or by sufficient

evidence corroborating the taxpayer’s own statement: (1) The

amount of each separate expenditure with respect to an item of

listed property; (2) the amount of each business use based on the

appropriate measure and the total use of the listed property for

the taxable period; (3) the date of the expenditure or use; and

(4) the business purpose for an expenditure or use with respect
 - 22 -

to any listed property. Sec. 1.274-5T(b)(6), Temporary Income

Tax Regs., 50 Fed. Reg. 46016 (Nov. 6, 1985). Petitioner did not

substantiate the business use of the laptop. Therefore, we

sustain respondent’s disallowance of the deduction for

petitioner’s laptop expenses.

Petitioner deducted $780 for school supplies. She provided

a combination of store receipts and bank and credit card

statements to substantiate her expenses. A taxpayer is required

to maintain records sufficient to permit verification of income

and expenses. Sec. 6001; sec. 1.6001-1(a), (e)(1), Income Tax

Regs. 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 to which he or she is otherwise entitled,

the Court may estimate the amount of the deductible expense and

allow the deduction to that extent, bearing heavily against the

taxpayer whose inexactitude in substantiating the amount is of

his own making. Cohan v. Commissioner, 39 F.2d 540, 543-544 (2d

Cir. 1930). 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). Without such a basis, any allowance would amount

to unguided largesse. Williams v. United States, 245 F.2d 559,

560-561 (5th Cir. 1957). The bank and credit card statements
 - 23 -

(statements) merely list a store and an amount, with no way to

verify what was purchased. Petitioner testified that all the

amounts highlighted on the statements were for school supplies,

and she specifically mentioned shoes for some of her students.

While it is commendable that petitioner purchased shoes for low-

income students, these purchases are not an ordinary or necessary

expense for teaching for BCPS. See Welch v. Helvering, supra;

Deputy v. du Pont, supra. Petitioner did provide receipts

totaling $94 that verified school supplies purchased in 2005. We

are satisfied that petitioner spent at least $94 for school

supplies in 2005 and was not reimbursed by BCPS. In the light of

petitioner’s convincing testimony that the amounts reflected on

the statements were for the purchase of school supplies, we will

allow petitioner a deduction of $250 for school supplies for

2005. See sec. 62(a)(2)(D) (certain expenses of elementary and

secondary school teachers are deductible to determine adjusted

gross income).

Petitioner deducted $308 for union dues for 2005.

Petitioner provided no evidence of membership in a union or

payment of any union dues. Therefore, respondent’s disallowance

of petitioner’s deduction for union dues is sustained.

Petitioner also claimed a $180 deduction for verification of

her teaching credentials from the Philippines. She provided a

check in that amount payable to Center of Applied Research. The
 - 24 -

verification was a prerequisite to participating in the exchange

teacher program and teaching for BCPS. Petitioner is entitled to

a deduction of $180 as an ordinary and necessary business

expense.

B. 2006 Disallowed Deductions--$14,114

1. Personal Living Expenses--$5,796

Respondent disallowed itemized deductions of $14,064, which

were listed as job search expenses. A portion of the deductions,

$5,796, was for rent. As a general rule, personal living

expenses are nondeductible. Sec. 262; secs. 1.162-2(a),

1.262-1(b)(5), Income Tax Regs. Section 162(a)(2), however,

allows a taxpayer to deduct ordinary and necessary travel

expenses, including meals and lodging, paid or incurred while

away from home in pursuit of a trade or business. Commissioner

v. Flowers, 326 U.S. 465, 470 (1946).

The reference to “home” in section 162(a)(2) means the

taxpayer’s “tax home”. Mitchell v. Commissioner, 74 T.C. 578,

581 (1980); Kroll v. Commissioner, 49 T.C. 557, 561-562 (1968).

As a general rule, a taxpayer’s tax home is in the vicinity of

his principal place of employment, not where his personal

residence is located, if different from his principal place of

employment. Mitchell v. Commissioner, supra at 581; Kroll v.

Commissioner, supra at 561-562. An exception to the general rule

exists where a taxpayer accepts temporary, rather than
 - 25 -

indefinite, employment away from his personal residence; in that

case, the taxpayer’s personal residence may be his tax home.

Peurifoy v. Commissioner, 358 U.S. 59, 60 (1958). The purpose of

the exception is to mitigate the burden of the taxpayer who must

incur duplicate living expenses due to the exigencies of

business. Kroll v. Commissioner, supra at 562. For purposes of

section 162(a)(2), the taxpayer is not treated as being

temporarily away from home if the period of employment exceeds 1

year. Sec. 162(a) (flush language).

Petitioner contends that her employment with BCPS was

temporary because the BCPS employment contract she signed was for

only 1 year. She contends that her tax home was in the

Philippines, as that was where she resided. In other words,

according to petitioner, her rent for 2006 is deductible because

she expected to stay in the United States for no more than a year

and thus her job was temporary.

Respondent argues that petitioner’s employment at BCPS was

indefinite and that Baltimore became her tax home when she moved

there to teach for BCPS. For the following reasons, we agree

with respondent.

Petitioner took a 1-year leave of absence from her teaching

job in the Philippines when she moved to Baltimore on June 22,

2005. She began teaching at Morse for BCPS in August 2005. We

have already found that petitioner intended to remain working for
 - 26 -

BCPS in the Baltimore area for at least 3 years, which is clearly

more than 1 year. Accordingly, petitioner’s employment with BCPS

was not temporary, Baltimore was petitioner’s principal place of

employment, and thus Baltimore was her tax home. Consequently,

petitioner is not entitled to a deduction for her rent for 2006.

2. Remaining Itemized Deductions--$8,268

Regarding the remaining $8,268 of petitioner’s “job

expenses” that respondent disallowed, petitioner provided

substantiation for a portion of the disallowed deductions. She

substantiated $76 of school supplies in 2006. See sec.

62(a)(2)(D). She is, therefore, entitled to a deduction in that

amount. Petitioner also substantiated that she paid $50 for

fingerprinting in 2006. Being fingerprinted was required before

petitioner could teach for BCPS. The fee was deferred in 2005,

but petitioner provided a letter from BCPS dated May 23, 2006,

requesting payment from petitioner for fingerprinting in 2005.

There is a handwritten notation on the letter that the amount was

paid on June 12. Petitioner testified that she paid that amount.

Therefore, petitioner is entitled to a deduction of $50 in 2006

for the cost of fingerprinting.

Petitioner also paid Amity $750 in 2006, which was a portion

of the exchange teacher program fee of $3,000. BCPS paid $1,500

of the fee during petitioner’s first year of the program.
 - 27 -

Petitioner was responsible for the two subsequent annual payments

of $750, one made in the second year of the program and one in

the third. Petitioner had to pay the fee to continue her

participation in the exchange program. Petitioner did not

substantiate her $750 payment in 2006, but we are satisfied that

petitioner paid a fee of $750 in 2006 to maintain her standing in

the program. Therefore, petitioner is entitled to a deduction of

$750 for 2006.

Respondent also disallowed petitioner’s $50 deduction for

tax preparation fees. Petitioner testified that she used a

professional tax preparer to prepare her returns. We are

satisfied that petitioner paid $50 for tax preparation fees for

2006, and she is entitled to a deduction in that amount.

C. 2007 Disallowed Deductions--$5,531

Respondent disallowed itemized deductions of $5,531, which

consisted of $5,300 for tuition, travel, and dues; $181 for

school supplies; and $50 for tax preparation fees. Again,

petitioner substantiated a small amount of the expenses for which

she claimed deductions. Of the $5,300 for tuition, travel, and

dues, petitioner is entitled to a $750 deduction for the third

and final payment to Amity, for the reasons stated above.

Petitioner is also entitled to a $50 deduction for tax

preparation fees for the reasons stated above. Petitioner

provided no credible evidence for the $181 of school supplies or
 - 28 -

the remaining $4,550 for tuition, travel, and dues. Therefore,

we sustain respondent’s disallowance of petitioner’s deductions

of $4,550 for 2007.

III. Accuracy-Related Penalty

Taxpayers may be liable for a 20-percent penalty on the

portion of an underpayment of tax attributable to negligence,

disregard of rules or regulations, or a substantial

understatement of income tax. Sec. 6662(a) and (b)(1) and (2).

The term “negligence” in section 6662(b)(1) includes any

failure to make a reasonable attempt to comply with the Code, and

the term “disregard” includes any careless, reckless, or

intentional disregard. Sec. 6662(c). Negligence has also been

defined as the failure to exercise due care or the failure to do

what a reasonable person would do under the circumstances. See

Allen v. Commissioner, 92 T.C. 1, 12 (1989), affd. 925 F.2d 348,

353 (9th Cir. 1991); Neely v. Commissioner, 85 T.C. 934, 947

(1985). Negligence includes any failure by the taxpayer to keep

adequate books and to substantiate items properly. Sec. 1.6662-

3(b)(1), Income Tax Regs. An “understatement of income tax” is

substantial if it exceeds the greater of 10 percent of the tax

required to be shown on the return or $5,000. Sec.

6662(d)(1)(A).

The section 6662 accuracy-related penalty does not apply

where the taxpayer shows that he or she acted in good faith and
 - 29 -

exercised reasonable cause. Sec. 6664(c)(1). The determination

of whether a taxpayer acted in good faith and with reasonable

cause depends on the facts and circumstances of each case and

includes the knowledge and experience of the taxpayer and the

reliance on the advice of a professional, such as an accountant.

Sec. 1.6664-4(b)(1), Income Tax Regs. For a taxpayer to rely

reasonably upon advice of a tax adviser, the taxpayer must, at a

minimum, prove by a preponderance of the evidence that: (1) The

adviser was a competent professional with sufficient expertise to

justify reliance, (2) the taxpayer provided necessary and

accurate information to the adviser, and (3) the taxpayer

actually relied in good faith on the adviser’s judgment.

Neonatology Associates, P.A. v. Commissioner, 115 T.C. 43, 99

(2000), affd. 299 F.3d 221 (3d Cir. 2002). Most important in

this determination is the extent of the taxpayer’s effort to

determine the proper tax liability. Id.

The Commissioner has the burden of production under section

7491(c) with respect to the accuracy-related penalty under

section 6662. To satisfy that burden, the Commissioner must

produce sufficient evidence showing that it is appropriate to

impose the penalty. Higbee v. Commissioner, 116 T.C. 438, 446

(2001). Respondent has satisfied his burden by producing

evidence that petitioner reported no income for 2005, 2006, and
 - 30 -

part of 2007, failed to substantiate claimed deductions, and had

substantial underpayments of income taxes for 2006 and 2007.

Nonetheless, petitioner sought the advice of a return

preparer for each of her Federal income tax returns at issue.

Petitioner stated that each preparer held himself or herself out

as a professional. She also stated that the preparer for 2006

was an accountant in the Philippines and an enrolled agent in the

United States and that the preparer for 2007 was an accountant in

the Philippines. Finally, petitioner testified that she had

“full confidence” in all of her preparers. Respondent did not

dispute the competency of either preparer. The preparers of the

returns counseled petitioner that her income was exempt from

taxation in the United States under article 21. Petitioner,

having no formal training in taxation and being new to the U.S.

tax system, reasonably relied upon the advice of competent tax

return preparers and acted in good faith. Therefore, we do not

sustain respondent’s determination that the section 6662

accuracy-related penalty applies for 2005, 2006, or 2007.
 - 31 -

IV. Conclusion

The Court has considered all arguments made in reaching our

decision, and, to the extent not mentioned, we conclude that they

are moot, irrelevant, or without merit.

To reflect the foregoing,

Decision will be entered

under Rule 155.