T.C. M em o . 2 0 1 7 -2 2 1

UNITED STATES TAX COURT

ROBERT HUDSON AND ELEANOR M . HUDSON, Pet i t i o n ers v . COM M ISSIONER OF INTERNAL REVENUE, Res po n d en t

Do ck etNo . 2 8 2 65 -1 4
. Fi l edNo vem b er 8 , 2 0 17
.

Eri c W . J o h n s o n , fo r p et i t i o ners . Ch ri st i n a L. Co ok , fo r res p o n d en t.

M EM ORANDUM FINDINGS OF FACT AND OPINION PUGH, Ju d g e: In a n o t i ce o f d efi ci en cy d at edOct o b er 1 , 2 01 4 , res p o n d en t d et erm i n edth e fo l l o w i n g d efi ci en ci es an d p en al t i es : 1

1 Un l es s o th erwi s e i n d i cat ed , al l s ect i o n referen ces are t o th e In t ern al Rev enu e Co de o f 1 98 6 , as am en d edan di n effect fo r th e y ears i n i s s u e. Ru l e referen ces are t o th e Tax Co u rtRu l es o f Pract i ce an dPro cedu re. Am o u n ts are (co n ti n u ed ...)- 2
-

[* 2] Year Defi ci en cy Pen al ty s ec. 6 66 2 (a) 2 0 1 1 $ 4 2,5 5 7 $ 8 ,5 1 1 2 0 1 2 1 0 ,6 5 7 2 ,1 3 1 Res p o n d en tco n ced es th atp et i t i o ners are en t i t l edt o a h o m e m o rt gag e i n t eres td edu ct io n o f $ 2 6 ,4 6 4 fo r 2 0 11 , as cl ai m ed , an do f $ 1 1 , 2 5 5 fo r 2 0 1 2 , as
co rrect ed
. 2 Th e rem ai n i n g i s su es fo r d eci s io n are: (1 ) wh eth er p et i t i o n ers are
en t i t l edt o th e s ect i o n 9 1 1 fo rei g n earn ed i n co m e ex cl u s io n fo r t h e 2 0 11 an d2 0 1 2 t ax ab l e y ears , (2 ) wh et h er p et it i o n ers are l i ab l e fo r s el f-em p l o y m en t t ax p u rs u an t t o s ect io n 1 4 0 1 , an d (3 ) wh et h er p et i t i on ers are l i ab l e fo r t he accu racy -rel at ed p en al ty u n d er s ect i o n 6 6 6 2 (a). FINDINGS OF FACT So m e o f t h e fact s h av e b een s ti p u lat ed an dare s o fo u n d. Pet it i o n ers res i d ed i n Ari zo n a wh enth ey

fi l ed th ei r t i m el y

p et i t i o n . Pet i t i o ners were m arri eddu ri n g th e t ax ab l e y ears i n i ss u e an dfi l ed jo i n t Fed eral i n co m e t ax retu rn s .

1 (...co n t in u ed ) ro u n dedt o th e n eares td o ll ar.

2 In th ei r p ret ri al m em o ran du m p et i t i o n ers ad m i t t ederro n eo us l y as s u m i n g th atth ey were en t i t l ed t o h o m e m o rt g ag e i n t eres td edu ct i on s o n an y two o f th ei r res i den ces o n t h ei r 2 0 1 2 t ax retu rn . Un d er s ec. 1 6 3 (h )(4 )(A)(i ), h o wev er, o n e o f th e t wo res i d en ces h adt o b e p et i t i o n ers ’ “p ri n ci p al res i d en ce”. Pet i t i o n ers p ai d o ff t h e m o rt gag e o n thei r p ri n ci p al res i d en ce i n 2 01 1
.- 3
-

[* 3 ] Pet i t i o ner Ro b ert Hu d s o n i s a ret i red ai rl i n e p i l o t . Up o n g raduat i n g fro m Io wa St at e Un i v ers i ty

wi th a d eg ree i n d i s tri b u t i v e s tu di es , M r. Hu d so n h ad
en ro l l edi n a p il o ttrai n i n g p ro g ram o ffered b y th e Ai r Fo rce Res erv es (Res erv es ). Du ri n g h i s career M r. Hu d s o n s erv edas a p i l o tfo r t he Res erv es fo r 8 y ears an d
s p en t 2 6 y ears as a co m

m erci al ai rl i n e p i l otfo r No rt h wes tAi rl i n es (No rt h wes t ). M r. Hu d s o n was em

p l o y edb y b o th t h e Res erv es an dNo rt h wes tfo r s ev eral y ears . Aft er h i s ret i rem en ti n Feb ru ary 2 0 07 M r. Hu d s o n was ab l e t o co l l ecth i s p en s i o n fro m No rt h wes t earl y

wi th n o res tri ct i o n o n h i s ab i l i ty t o wo rkas a p i l o t fo r
an o th er ai rl i n e. Aft er ret i ri n g M r. Hu d s o n s o u g h t em p lo ym en twi th fo rei g n ai rl i n es b ecau se
o f t h ei r p o li ci es o f m ai n tai n i n g th e s en i o ri ty o f p i lo t s . He d eci d edt o s eek
em pl o y m en twi th Ko rean Ai rl i n es . He was req u i redt o s ub m i t h i s ap p li cat i o n t o th e ai rl i n e t h ro u g h a recru i t i n g ag en cy . M r. Hu d s o n ch o s e t o u s e t he recru i t i n g ag en cy Gl o b al Ai rl i n e Pi l o t s (GAP) b ecau s e i t was b as edi n th e Un i t edSt at es an d h i s p ay wo u l db e h i g her. Aft er GAP fo rward edh i s ap pl i cat io n t o Ko rean Ai rl i n es , M r. Hu d s o n was i nv i t edt o i n t erv i ew wi th Ko rean Ai rl i n es i n Seo u l , So u th Ko rea (Ko rea). Du ri n g h i s i n t erv i ew p ro ces s M r. Hu d so n was req u i redt o p as s a
s i m u l at or ri d e, co m

p l et e a p h y s i cal ex am i n at i o n , an d i nt erv i ew wi th Ko rean- 4
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[* 4 ] Ai rl in es ’ ch i ef p i lo ts an dv i ce p res i den to f fl i g h to p erat io n s . He d i d n o t i n t erv i ew wi th an y

rep res en t at i v es fro m

GAP. M r. Hu d s o n u l t i m at el y

was o ffered , an d accep t ed , a p o s i t i o n wi th Ko rean Ai rl in es . OnM arch 1 9, 2 00 7 , h e en t eredi n t o an ag reem en twi th GAP (GAP ag reem en t ) t h at d es cri b edh i s em p l o ym en ts t atu s as fo ll o ws : “ Th e Crew M em b er i s an i n d ep en d en tco nt ract o r an di s n o tan em p l o y ee o r ag en to f GAP.” Th e GAP ag reem en tfu rt h er s t at ed th at M r. Hu d s o n ’ s fl i g h tb as e was i n Ko rea. Th e co n t ract h ad a t erm

o f fi v e y ears . Atth e t i m e h e b eg an wo rk i n g fo r Ko rean Ai rl i n es , h e
ex p ect edt o wo rk u n t i l h e reach edth e m an d at o ry ret irem en t ag e (t h en6 0 ), 5 -1 / 2 y ears i n th e fu tu re. In 2 0 12 h e ret i redb efo re ag e 6 0 , atth e en do f h i s 5 -y ear
co n tract , b ecau s e o f a fai l edp hy s i cal ex am i n at i o n . Du ri n g h i s fi rs tm o nt h s as a Ko rean Ai rl i n es p i lo tM r. Hu ds o n was req u i red t o co m p l et e a t rai n i n g co u rs e atth e Ko rean Ai rl in es faci l i ty , co m p l et e t h e Ko rean Ai rl in es s i m

u l at or p ro g ram , an dp as s a Ko rean ai r l aw ex am . He th en was i s s u eda Ko rean p i l o t ’ s l i cen s e as a 7 47 -4 00 cap tai n . Wh i l e fl y i n g wi th Ko rean Ai rl i n es M r. Hu d s o n was req ui redt o ab i d e b y th e Ko rean Ai rl in es p o l i ci es an dp ro cedu res
as l i s t edi n th e Ko rean Ai rl in es em p l o y ee m an u al h e recei v ed
. Du ri n g h i s t i m e wi th Ko rean Ai rl i n es M r. Hu ds o n was b as edi n In ch o n , So u th Ko rea. He recei v ed anE5 v i s a an dwas a reg i s t eredal ien i n Ko rea. He- 5
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[* 5 ] l i vedi n a Hy at tHo t el o wn edb y Ko rean Ai rl i n es , an dKo rean Ai rl in es p ai d fo r h i s h o u s i n g at th e h o t el
. He s t o redl arg e s u i t cas es o f h i s b el on g in g s at th e h o t el wh i l e h e was away

an dwo u l dh av e t h es e b el on g i n g s b ro u g h t t o h i s ro o m
up o n ch eck -i n . Th e h ot el h ada d es i g n at ed area fo r M r. Hu ds o n t o co okh i s m eal s , al th o u g h h e m os t ly

at e o u twi th fri en d s. Hi s act iv i t i es i n cl u d edri di n g a b i cy cl e p ro v id edt o h i m

b y the h o tel , u s i n g th e h o t el ’ s g o l f co urs e an ddri v in g ran g e, an d
ex erci s i ng . M r. Hu ds o n wo u l d t rav el t o a n earb y t o wni f h e h ada l o ng t i m e o ff. He l earn edb as i c p h ras es i n Ko rean , s u ch as g reet i n gs an dt erm s n eces s ary t o o rd er fo o d in res tau ran t s . He h ada Ko rean b an k acco un t an dh ad a Ko rean cel l p h o n e fo r a l i m i t edt i m e. M r. Hu d s o n fl ew ro u tes t o ci t i es th ro u g h o u tAs i a, Eu ro p e, an dth e Un i t ed St at es . Inad d i t i o n , u n der Ko rean Ai rl i n es ’ l ay o v er p o li cy M r. Hu d s o n ’ s l ay o v ers b et ween h i s wo rk in g fl i g h t s o u t s i d e Ko rea co u l dl as tfo r d ay s at a t i m e. He recei v ed9 d ay s o ff p er m o n th , wh i ch Ko rean Ai rl i n es ty p i cal l y g av e i n b l o ck s , an d 2 4 v acat i o n d ay s p er y ear. So m et i m es h e wo ul d b e as k edt o t ak e fl i gh t s o n h i s d ay s o ff, h o wev er. M r. Hu d so n wo u l dreq u es tt o u s e h i s v acat i o n d ay s i n th e s am e p eri o das h i s d ay s o ff. Fo r h i s v acat i o n , h e h adthe o p t i on o f t rav el i n g , atn o
ex p en s e t o h i m , t o an y

ci ty wh ere Ko rean Ai rl i n es fl ew d i rect . He s el d o m s p en t- 6
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[* 6 ] h i s v acat io n d ay s i n Ko rea. In st ead , M r. Hu d s o n s o u g h t t o s p en dal l o f h i s t i m e o ff (as m an y

as 1 3 2 d ay s p er y ear) i n the Un i t ed St at es duri n g th e y ears i n i s su e. Pet i t i o ners o wn edthree h o m es i n t h e Un i t edSt at es du ri n g th e t ax ab l e y ears i n i ss u e i n Ap p l e Val l ey , M i n n es o ta; Su rp ri s e, Ari zo n a; an dCh i cag o , Il l i no i s . Pet i t io n ers ’ p ri m ary

res i d en ce was i n M in n es o t a. Th ey p ai d o ff t h e m o rt g ag e o n th ei r p ri m ary

res i d en ce i n 2 0 1 1 . Pet i ti o ners h adm o rt g ag es o n the o th er t wo h o m es fo r b ot h 2 0 1 1 an d2 0 1 2 . Pet i t io n er El ean or Hu d s on l i v edi n th e M i n n es o t a h o m e du ri n g th e s u m

m er an dfal l m o n th s an d s pen tth e co l d er m o nt h s i n Ari zo n a. M rs . Hu d s o n al so trav el ed to th e l o cat i o n s wh ere M r. Hu d s o n s p en th i s l ay o v ers . Ko rean Ai rl i nes d i dn o tp ay M r. Hu d s on d i rect l y . Rat h er, Ko rean Ai rl i n es tran s ferred h i s s al ary

t o GAP, wh ich i n tu rn wi th h el dKo rean t ax es an d GAP’ s fees an dth end ep os i tedth e rem ai nd er i nt o M r. Hu d s o n ’ s U.S. b an k acco u n t . He al s o recei v edp er d iem al l o w an ces wh i ch were d ep o si tedi n t o h i s Ko rean b an k
acco u n t . M r. Hu d s o n recei v edan an n u al Ko rean t ax s tat em en t l i s t i n g h i m as a

“ n o n -res i d en t ”. M r. Hu d s o n d idn o tv iew h i m s el f as a p erm an en tres i d en t o f Ko rea b u tas a reg i s t eredal i en p ay i ng Ko rean t ax es . M r. Hu d s o n s o u g htp ro fes s io n al ad vi ce reg ard in g h i s rel at i o n s h i p wi th Ko rean Ai rl i n es an d h i s co m p li an ce wi th t ax l aws . He h iredan at to rn ey t o rev i ew- 7
-

[* 7 ] th e GAP ag reem en t an d u n d ers t o o dfro m th atat t o rn ey

th ath e b ecam e an
em pl o y ee o f Ko rean Ai rl i n es wh en h e s i g nedth atag reem en t . To as s is t hi m

wi th h i s t ax o b l i g at i o ns , M r. Hu d so n i n i t i al l y h i reda t ax retu rn p rep arer, Rach el Ov ercas h , wh o was reco m m en d edt o h im

b y GAP as
ex p eri en cedi n p rep ari ng retu rn s fo r Am eri can p i l o t s recru i t edb y GAP t o fl y

fo r Ko rean Ai rl i n es . He ex cl ud edh i s fo rei g n earn edi n co m e u n der s ect i o n 9 1 1 fo r 2 0 0 7 o n th e b as i s o f i n fo rm at i o n p ro v i d ed b y M s . Ov ercas h
. He l at er h ireda cert ifi edp ub l i c acco u n t an t(C.P.A.) i n M i n n es o ta, Pau l Ch ri st i an s en , t o p rep are p et i t i o n ers ’ 2 0 11 an d2 0 1 2 t ax retu rn s . W i th res p ect t o p et i ti o n ers ’ h o m e
m o rt g ag e i n t eres t , M r. Hu d s o n p ro v i d ed M r. Ch ri st i an s en wi th al l o f t h e Fo rm s 1 0 9 8 , M o rt g ag e In t eres t St at em en t , th atth ey h adrecei v edfo r t h e t h ree h o m es th ey
o wn edduri n g th e 2 0 1 1 an d2 0 1 2 t ax y ears ; an dM r. Hu d so n an swered qu es t i o n s i n a “ b ro ch u re” p ro v i d edt o h i m b y M r. Ch ri s t i an s en . Pet i t i o ners ’ 2 0 1 1 ret urn cl ai m eda d edu ct i o n fo r h o m e m o rt g ag e i n t eres tp ai do n t h e M in n es ot a an d Ari zo n a h o u ses . Pet i t i o n ers ’ 2 0 1 2 retu rn cl ai m ed a h o m e m ort g ag e i n teres t d educt i o n rel at i n g t o th e Ari zo n a an d Il l i n oi s h o u s es . M r. Hu d s o n al s o s o u g h tl eg al ad v i ce reg ard i n g h i s el i gi b i li ty fo r t h e fo rei g n
earn edi n co m e ex cl u s i o n . He co m p l et eda qu es t io n n ai re p ro vi dedb y h i s co u n s el
. He d i d n o t p ro v i d e th e GAP ag reem en tt o co u n s el ; n or was h e as ked t o p ro v i d e i t .- 8
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[* 8 ] In a l et t er d at ed J anu ary 6 , 2 0 1 1 , M r. Hu d s o n ’ s co u n s el ad v i s edh i m thath e
was el i g i b l e fo r t h e ex cl u s i o n . In th e n ot ice o f d efi ci en cy , res p o n den td i sal l owedp et i ti o n ers ’ fo rei g n
earn edi n co m e ex cl u s i o n s fo r b o th t ax ab l e y ears b ecau s e o f t hei r fai l u re t o
es t ab l i s h ei th er b o n a fi d e res id en ce o r p h y s ical p res en ce i n a fo rei g n co u n try fo r th e rel ev an tp eri o d
. Res p o n d en tal s o d et erm i neds el f-em p l o ym en tt ax fo r b o th t ax ab l e y ears i n i s s u e. Ad d it i o n al ly , res po n den td et erm i n edth atp et i t i o n ers fai l ed t o rep o rt$ 41 o f i n co m e fro m a St at e t ax refu n dthey

h adrecei vedfro m

th e St at e o f M i n n es o t a i n 2 0 12 . As p et i t io n ers n ei th er d i s p u t edth i s ad ju s tm en t i n t h e p et i t i o n
o r i n th ei r p ret ri al m em o ran du m n o r ad dres sedi tattri al , thi s i s s u e i s d eem ed
co n ced ed . See Ru l es 3 4 (b )(4 ), 1 4 9 (b ). Fi n al l y , res p on d en td et erm i n edth at p et i t i o n ers were l i ab l e fo r a 2 0 % accu racy -rel at edp en al ty u n d er s ect i on 6 6 6 2 (a) fo r each y ear i n i s s u e. OPINION Th e t ax p ay er g en eral l y

h as th e b u rd en o f p ro v i n g th atth e Co m m i s s i o n er’ s d et erm i n at i o n s i n a n o t i ce o f d efi ci en cy are i n co rrect . Ru l e 1 4 2 (a); W el ch v . Hel v eri n g , 2 9 0 U.S. 1 1 1 , 1 15 (1 9 33 ). Th e b u rd en o f p ro o f m ay s hi ft fro m th e t ax p ay er t o th e Co m

m i s s i o n er i n cert ai n ci rcu m s t an ces u n d er s ect io n 7 4 9 1 (a). Pet i t io n ers h av e n o tcl ai m ed o r s h o wnth at th ey m eetth e req u i rem en t s o f s ect i o n- 9
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[* 9 ] 7 4 9 1 (a) t o s h i ftth e b u rd en o f p ro of t o res p o n den tas t o an y rel ev an tfact u al i s su e. I. Fo rei g n Earn edIn co m e Ex cl u s i o n W e fi rs tad dres s res p o nd en t ’ s d et erm i nat i on th at p et i t io n ers d i d n o t qu al i fy fo r t h e fo rei g n earn edi n co m e ex cl u s i o n fo r 2 01 1 an d 2 01 2 u n der s ect i o n 9 1 1
. Sect i o n 9 1 1 (a) al l o ws a “ qu al i fi ed i n d i v i du al ” t o ex cl u d e fro m g ro s s i n co m e

“ fo rei g n earn ed i n co m e”. Fo rei g n earn ed i n co m e i s “ th e am o u n trecei v edb y s u ch i n d i v i du al fro m s ou rces wi th i n a fo rei g n co u n try o r co u n tri es wh ich co n s t i tu t e
earn edi n co m e at tri b ut ab l e t o s erv i ces p erfo rm edb y s u ch i n d i v i du al ”. Sec. 9 1 1 (b )(1 )(A). A qu al i fi edi n di v i du al i s d efi n edas “ an i n di v i du al wh os e t ax h o m e i s i n a fo rei g n co un try

an d wh o i s ” ei th er a b o n a fi de res id en to r p h y s ical l y p res en t i n the co u n try fo r a cert ai n t i m e. 3 Sec. 9 1 1 (d )(1 ). A. Bo na Fi d e Res i d en ce To qu al i fy

fo r t h e fo rei g n earn edi n co m e ex cl us i o n as a b o n a fi d e res i d en t
o f a fo rei g n co u n try , a t ax p ay er m u s to ffer “ s tro n g p ro o f” o f b o n a fi d e res i d en ce i n

3 Sec. 9 1 1 (d )(1 )(B) d efi n es a qu al ifi edi n d i v idu al as “ a ci t i zen o r res i d en to f th e Un i t edSt at es * * * wh o , du ri n g an y p eri o d o f 1 2 co n secu t i v e m o nt h s , i s p res en ti n a fo rei g n co un try o r co u n tri es du ri ng atl eas t3 3 0 fu l l d ay s i n s u ch p eri o d .” Pet i t i o n ers h av e n otarg u edo r p res en t ed ev i den ce s h o wi n g thatM r. Hu d s o n w as p res en ti n Ko rea fo r a p eri o ds u ffi ci en tt o s at i s fy th e s ec. 9 1 1 (d )(1 )(B) t es t .- 1 0 -

[* 1 0 ] th e fo rei g n co u n try . Sch o n eb erg er v . Co m m is s i o n er, 7 4 T.C. 1 0 1 6, 1 0 2 4 (1 9 8 0). Co u rt s co n s i d er a n u m b er o f fact ors wh en d et erm i n in g wh et h er a t ax p ay er
was a b o n a fi d e res i d en t o f a fo rei g n co u n try . So ch u rek v . Co m m is s i o n er, 3 0 0 F.2 d3 4 (7 th Ci r. 1 9 6 2 ), rev ’ g an drem an di n g 3 6 T.C. 1 3 1 (1 9 6 1 ). Th es e fact o rs i n cl u d e: (1 ) i n t en t i o n o f t h e t ax p ay er;

(2 ) es t ab l i s h m en to f h i s h o m e t em p orari l y i n t h e fo rei g n co u n try fo r an i n d efi n it e p eri o d ; (3 ) p art i ci p at i o n i n th e act i v it ies o f h i s ch o s en co m m u ni ty o n s o ci al an d cu l tu ral l ev el s, i d en t i fi cat io n wi th th e d ai l y l i v es o f t h e p eo p l e an d , i n g en eral , as s i m i l at i o n i n t o th e fo rei g n en v i ro n m en t ; (4 ) p h y s i cal p res en ce i n th e fo rei g n co u n try co n s i s t en twi th h i s em p l o ym en t ; (5 ) n atu re, ex t en tan dreas o n s fo r t em p o raryab s en ces fro m h i s t em p o raryfo rei g n h o m e; (6 ) as s u m pt i o n o f eco n om i c b u rd en s an dp aym en to f t ax es t o th e fo rei g n co u n try ; (7 ) s t atu s o f res i d en tco n tras t edt o t h ato f t ran si en to r s o j o u rn er; (8 ) t reat m en t acco rd edh i s i n co m e s t atu s b y h i s em p l o y er; (9 ) m ari t al s t atus an dres i den ce o f h i s fam i ly ; (1 0 ) n ature an d du rat i o n o f h is em pl o y m en t ; wh et h er h i s as s i g n m en t ab ro ad co u l d b e p ro m p tl y acco m p l i s h ed wi th i n a d efi n i t e o r s p eci fi edt i m e; (1 1 ) g oo dfai th i n m ak i n g h i s t ri p ab ro ad ; wh et h er fo r p u rp os e o f t ax ev as io n. Id . at3 8 . Whi le al l o f t h es e fact o rs m ay n o tb e p res en t i n ev ery

cas e, t he ap p li cab l e fact o rs s ho u l d b e co n s i d eredan d wei g h ed . Id . Bel ow we co n s i d er t h e p ert i nen tSo ch urekfact o rs .- 1 1 -

[* 1 1 ] Pet i t i o ners rel y

o n t wo cas es th atap pl i edSo ch u rekt o co n cl u d e t h at p i l o t s fo r fo rei g n ai rl i n es were el ig ib l e fo r t h e s ect i on 9 1 1 ex cl us i o n : J o n es v . Co m m i s s i o n er, 9 2 7 F.2 d8 4 9 (5 th Ci r. 1 9 91 ), rev ’ g T.C. M em o . 1 9 8 9 -6 1 6 , an d Co b b v . Co m

m i s s i o n er, T.C. M em o . 1 9 9 1 -3 7 6 , 6 2 T.C.M . (CCH) 4 0 8 (1 9 9 1 ). W e ag ree wi th p et i t i o n ers th atth e o u t co m e h ere wi l l d ep en do n wh et h er th ere are
m ean i n g fu l d i fferen ces b et ween th e fact s we h av e fo u n dab o v e an dth o s e o f Co b b
an d J on es . W e recen t l y

p erfo rm edthi s v ery

an al y s i s i n Aco n e v . Co m m is s i o n er, T.C. M em o . 2 01 7 -1 6 2 , a cas e th atal s o i n v o lv eda Ko rean Ai rl in es p i l o t . In J o n es v . Co m

m i s s i o n er, 9 2 7 F.2 d at8 5 0 , th e t ax pay er, M r. J o n es , was an ai rl i n e p i l o twh o co n tract edwi th a d o m es t i c co rp o rat i o n thatp l aced h i m wi th J ap an Ai r Li n es Co ., Lt d . (J AL), a fo rei g n ai rl i n e. M r. J o n es was b as ed i n To ky o , J ap an , b u ts p en tfewer t h an 1 6 5 n i g h t s a y ear i n J ap an . Id . at8 5 1 . Duri n g th e t ax y ears i n i s s u e M rs . J o n es res i d edi n An ch o rag e, Al as ka, wh i l e M r. J o n es was i n J ap an . Id . Becau se An ch o rag e was J AL’ s o nl y U.S. b as e an da n o rm al s t o p o v er, M r. J o n es was i n An ch o rag e freq u en t l y an dwo u lds t ay i n p et i t i o n ers ’ t o wn h o u s e wh en th ere o v ern i g h t . Id
. at 8 5 1 -8 5 2 . InJ ap an M r. J o nes l i ved i n a h ot el wh ere
o th er crew m em

b ers al s o l i v ed . Id . at8 51 . M r. J o nes d i dn o th av e ex t en s i v e
co n tactwi th J ap an es e cu ltu re b u to ft en d i ds o ci al i ze wi th co wo rk ers an d
o ccas i o n al l y

dro v e i n t o To ky o fo r d i nn er an den tert ai n m en t. Id . at 8 5 2
.- 1 2 -

[* 1 2 ] Ad d i t i o n al l y , M r. J o n es wo u l dv i si t a l o cal J ap an es e d o ct o r fo r m ed ical at t en ti o n . Id
. M r. J o n es wo u l d l eav e h i s p ers o n al b el o n g i ng s i n h o t el s t o rag e wh i l e h e
was away . Id . at8 5 1
. Un l i k e d o m es t i c ai rl i nes , J AL d i d n o tal l o w fl i gh tcrew t o fl y fo r free, s o M r. J o n es p ai d fo r t h e t ri p s h e t o o kdu ri n g h i s t i m e o ff u s i n g d i s co u n tedt i ck et s. Id . He h ada J ap an es e d ri ver’ s l icen s e b u t d i dn o tm ai n t ai n a J ap an es e b an k acco u n to r J ap an es e cred i t card s . Id . M r. J o n es p ai dJ ap an es e an d U.S. i n co m e t ax es , an dh i s retu rn s were p rep aredath i s ex p en se. Id . He o n ce retu rn eda d i v i d en d ch ecki n ten d edfo r Al as k a res i d en t s ex p l ai n i n g h e was n o l o n g er an Al as k a res i d en t. Id
. Th e U.S. Co urt of Ap p eal s fo r t h e Fi ft h Ci rcu itap p l i edth e So ch u rekfact ors t o co n cl u d e t hatM r. J o n es was a b o n a fi d e res i den to f J ap an , rev ers i n g th e Tax Co u rt ’ s h o l d i n g t o th e co n trary . J o n es v . Co m m i s s i o n er, 9 2 7 F.2 dat8 5 5
. Th e Co u rto f Ap p eal s co n cl u d edth ath e i nt en d edt o b eco m e a res i d en to f J ap an as h e retu rn eda d i v i d en d ch eckt o Al as k a an di nt en d edt o rem ai n i n J ap an u n ti l h i s
an t i ci p at edret i rem en t (ap p ro x i m at el y ei g h t y ears aft er h i s tran s fer t o To ky o ). Id
. at8 5 1 , 8 5 4 . As th e Co u rto f Ap p eal s reco g n i zed , “ [a] t ax p ay er’ s i nt en tp lay s p erh ap s t h e m os ti m

p o rt an tp arti n d et erm in i n g th e es t ab l i s h m en tan dm ai n t en an ce
o f a fo rei g n res i d en ce.” Id . at8 5 4 (ci t in g Daws o n v . Co m m is s i o n er, 5 9 T.C. 2 64 ,- 1 3 -

[* 1 3 ] 2 6 8 (1 9 7 2 )). Th e co urtal s o reject edo u r an al y s i s co n cern i ng th e t em p o rary
n atu re o f M r. J o n es ’ h ou s in g i n a h o t el . Id . at8 5 4
. As th e co u rt s tat ed : “ [I] ti s n o t
n eces s ary fo r a t ax p ay er t o es t ab l i sh a fi x ed , p erm an en tp l ace o f ab o d e i n o rd er t o b e a ‘ res i d en t ’ o f a fo rei g n co u n t ry .” Id . (ci t i n g Swen s o n v . Th o m as , 1 64 F.2 d 7 8 3 , 7 8 5 (5 th Ci r. 1 9 4 7 )). M r. J o n es was away fro m J ap an o n l y wh en wo rk req u i redo r h e was o n v acat i on . Id . Th e co u rtal s o d et erm i n edth atthe fact th at h i s wi fe d i d n o tjo i n h i m

i n J ap an s h o ul dn o th av e b een h el dag ai n s th i m fo r p u rp os es o f d et erm i n i n g h i s b o n a fi d e res i d en ce. Id . at 8 54 -8 5 5
. Th e co u rtn o t ed th atM r. J o n es was n o t as s i m i l at edi nt o J ap an es e cu l tu re, b u t i th el dthatth e
m ajo ri ty o f t h e So ch u rekfact o rs fav o red b o n a fi d e res i d en ce. Id . at8 5 5
. In Co b b v . Co m

m i s s i o n er, 6 2 T.C.M
. (CCH) at 4 0 9, the t ax p ay er, M r. Co b b , was em

p l o y edb y a d o m es t i c ai r s erv i ce co rp o rat i on an d was as s i g n edt o
wo rkfo r J AL. W

hi l e i n i t i al ly

b as edi n Al as k a, M r. Co b b l at er was tran sferred t o th e Nari t a Ai rp o rtb as e i n J ap an . Id . He l i v edi n a h o t el o wn edb y J AL duri n g th e t ax y ears ati s s u e, p ay i n g a d is co u n t edd ai l y ro o m rat e duri n g h is s tay s . Id . He l eft h i s b ag s i n h o t el s t orag e wh i l e h e was away . Id
. Hi s wi fe an dch i l dren l i v edi n Cal i fo rn i a wh i l e h e was i n J ap an . Id . at4 10 . M r. Co b b wo u l dv i s i th i s fam i l y wh i le h e h adl ay o v ers i n Cal ifo rn ia. Id . M r. Co b b was n o t i n teg rat edi n t o J ap an es e cu l tu re--h e d idn o t l earn J ap an es e an dd i d n o t p art ici p at e ex t en s i v el y i n- 1 4 -

[* 1 4 ] J ap an es e s o ci al act i v it i es . Id . at4 09 . He d i d , h o wev er, jo i n th e s wi m cl ub
an d p l ay g o l f an dt en n i s wh i le i n J ap an . Id . M r. Co b b p ai dJ ap an es e i nco m e t ax . Id . at4 1 0 . Onthes e fact s , we h el dth atM r. Co b b was a b o n a fi d e res i d en t o f J ap an . Id . at4 1 2
. On th e m o s t s i g n i fi can t fact o r, th e t ax p ay er’ s i n t en t , we fo u n d th atM r. Co b b p res en t edd o cu m en t ary ev i d en ce t h atp ro v edh i s i n t en t io n was t o b e
a res i den to f J ap an . Id . Fu rt her, i n ev al u at i n g M r. Co b b ’ s v i si t s t o th e Un it ed St at es , we reco g ni zedth at“ [w] h i l e h e d i d s o m et i m es v is i twi th h i s fam i l y wh en l ai do v er i n Lo s An g el es , th es e o ccas i o n s were i n d eedv i s i t s , l i m i t edb y
co n ven i en ce an dM r. Co b b ’ s fl i g h ts ch edul e, an di n n o way co n v ert edth e Lo s An g el es area i nt o M r. Co bb ’ s d o m i ci l e o r p l ace o f dwel l i n g.” Id . at4 12
. Ad d i t i o n al l y , we co n s i d ered M r. Co b b ’ s tran s fer t o J ap an p erm an en t , wh ereas we
v i ewed M r. J on es ’ tran s fer as t em p o raryb ecau s e M r. J o n es h adb een tran s ferred fro m J ap an twi ce b efo re. Id
. W e rev is i t ed o u r ap p l i cat i o n o f t h e So ch u rekfact ors t o p i l o ts fo r fo rei g n ai rl i n es i n Aco n e v . Co m m is s i o n er, T.C. M em o . 2 0 17 -1 6 2
. Th ere we co ncl u d ed th atth e p i l o t , M r. Aco n e, d idn o tes t ab l i s h a b o n a fi d e res i d en ce i n Ko rea ev en th o u g h we accep t edh i s t es t i m o n y th ath e i n t en d edt o rem ai n i n Ko rea u n ti l h e ret i red . Id . at* 1 6 -* 1 7 . W e fo u n dth ath e was i n Ko rea o n l y wh en n eces s ary

fo r
wo rkan dretu rn edt o the Un it edSt at es wh en ev er p o s s ib le. Id . at * 1 7 -* 1 8 . Ov er- 1 5 -

[* 1 5 ] th e co u rs e o f t h e t w o y ears b efo re t h e Co u rt , h e s p en ta t o tal o f 3 3 3 d ay s i n th e Un i t edSt at es an do nl y 2 48 d ay s i n So u th Ko rea. Id
. at* 1 7. W e fo u n d t h i s t o b e a cri ti cal d i st i n ct i o n . Id . at* 1 7 -* 1 8 . W e s p eci fi cal l y n o tedth ati n J o n es th e t ax p ay er was away

o nl y wh en b u s i n es s req u i redo r h e was o n v acat i on an dh e h ad retu rn eda d i v i d en d ch eckfro m Al as k a; an di n Co b b t h e t ax p ay er accep t eda p erm an en ttran s fer t o J ap anan d h i s o ccas io n al v is i ts wi th fam i l y o n l ay o vers i n th e Un i t edSt at es were l im i tedb y co n v en i en ce an dh i s fl i g h ts ch edu le. Id . at* 2 1
-
* 2 2 . “ By co n tras t , M r. Aco n e al way s i n t en d ed t o ret u rn t o the Un i t ed St at es ; an d i n the m ean t i m e, h i s t i m e i n th e Un i t edSt at es wi th h i s fam i l y far ex ceed ed* * *
m ere ‘ v i s i t s’ o f ‘ co n v en ien ce’ ”. Id . at* 2 2
. As we d idi n Aco n e, we fi n dh ere t h atthe So ch urekfact o rs wei g h ag ai n s ta fi nd i ng o f b o na fi d e res i d en ce i n Ko rea. Wh il e M r. Hu ds o n cred i bl y t es t i fi edth at h e i n t en d edt o wo rkfo r Ko rean Ai rl i n es u n t i l h i s ret i rem en t , p et i ti o n ers h av e n o t
s h o wnth ath e i nt en d edt o b e an yth i n g m o re th an a t ran s i en t . In d eed , M r. Hu d s o n d em o n s trat edth ath e al way s i n t en d edt o retu rn t o th e Un i t edSt at es . Fu rt her, l i k e t h e p i l oti n Aco n e, M r. Hu d s o n i nt en d edt o s p en d al l o f h i s t i m e o ff wo rkdu ri n g th e y ears ati ss u e i n th e Un i t edSt at es . M r. Hu d s o n s ou g h tt o trav el t o h i s h o m e i n the Un i t edSt at es as o ft en as wo rkwo u l d al lo w, i n co n tras tt o th e v i s i t s o f co nv en i en ce d es cri b edi n Co b b. Th e reco rdb efo re u s d o es n o t- 1 6 -

[* 1 6 ] s p eci fy

th e n u m b er o f d ay s M r. Hu d s o n s p en t o n du ty i n Ko rea v ers u s o ff du ty i n t h e Un i t edSt at es (u n l i k e t h e reco rdi n Aco n e), b u t we are m i n d fu l th at p et i t i o n ers b ear t h e b urd en o f p ro o f, an dth e reco rdb efo re u s s h o ws th at M r. Hu d s o n had as m an y as 1 3 2 d ay s o ff p er y ear an d i n t en d edt o s p en d t h es e d ay s i n th e Un i t edSt at es . See Ven to v . Di r. o f V.I. Bu reau o f In t ern al Rev en u e, 7 1 5 F.3 d 4 5 5 , 4 6 7 (3 dCi r. 2 01 3 ) (“ [E] x t en s i v e ab s en ces wi l l n eg at e a fi n di n g o f b o na fi d e
res i den cy , u n l es s th o s e ab s en ces are ju s t i fi edb y g o od -fai th reas o n s , s u ch as th e trav el req u i rem en t s o f t h e t ax p ay er’ s p ro fes s i o n [.] ”). Wh i le we reco g n ize t h e
s i m i l ari t i es b et ween M r. Hu ds o n ’ s ci rcu m s t an ces an d th o s e o f th e t ax p ay ers i n J o n es an dCo b b , we co n cl u d e t h atM r. Hu d so n ’ s l im it edco nt act s wi th Ko rean
cu l tu re co m

b in edwi th h i s ex t en d edab s en ces p recl ud e a fi n d i n g th ath e was a b o n a fi d e res i den to f Ko rea. W e fi n d , th erefo re, t h atM r. Hu d so n was n o ta b o n a fi d e res i d en to f Ko rea du ri n g th e y ears i n i s s u e. B. Tax Ho m e As we h av e d et erm i n ed th atM r. Hu d s o n was n o ta b o n a fi d e res i d en t , we
n eed no tev al u at e wh et h er h i s “ t ax h o m e” was i n Ko rea. Sec. 9 1 1. Acco rd i n g l y , we h o l dth atM r. Hu d s o n was n o t a “ qu al i fi edi n d iv i du al ” as d efi n edb y s ect i o n 9 1 1 (d )(1 ). Pet i t i o n ers , therefo re, are n o t en t it l edt o ex cl u d e M r. Hu d s o n ’ s i n co m e- 1 7 -

[* 1 7 ] as a Ko rean Ai rl i n es p i l o tu n d er t h e fo rei g n earn edi n co m e ex cl u si o n fo r t h e y ears i n i s s u e. II. Sel f-Em

p l o ym en tTax W e n ex tm

u s td et erm i n e wh eth er M r. Hu d s on ’ s i n co m e i s s ub jectt o s el fem pl o y m en tt ax . Sect io n 1 40 1 i m p o s es a p ercen t ag e t ax o n s el f-em p l o ym en t i n co m e. Sel f-em

p l o ym en t i n co m e i s d efi n edas the “ n et earn i n g s fro m s el fem pl o y m en td eri v ed b y an i n d i v i du al * * * du ri n g an y t ax ab l e y ear”. Sec. 1 4 0 2 (b ). Netearn i n gs fro m s el f-em p l o ym en tare d efi n edas “ g ro s s i nco m e d eri v ed b y an i n d i v i du al fro m

an y trad e o r b u si n es s carri edo n b y s u ch i n d i v i dual , l es s the d educt i o n s al l o wedb y

thi s s ub t i t l e wh ich are at tri bu t ab le t o s u ch trad e o r b u s i n es s ”. Sec. 1 4 02 (a); see s ec. 1 .1 4 0 2 (a)-1 , In co m e Tax Reg s . Th e s el fem pl o y m en tt ax d o es n o tap p l y

t o co m p en sat i on p ai dt o an em

p l o y ee, h owev er. Sec. 1 4 02 (c)(2 ). Wh et h er an i n di v i du al i s an em p l o y ee o r an i n d ep en d en tco n tract o r i s a fact ual qu es ti o n an swered b y ap p l y in g p ri nci p l es o f co m m o n l aw. Secs
. 1 40 2 (d ), 3 1 2 1 (d )(2 ); Si m

p s o n v . Co m

m i s s io n er, 6 4 T.C. 9 7 4 , 9 8 4 (1 9 7 5 ). Fact o rs t o
co n si d er wh end et erm i n i n g wh et h er an i n d i v i du al wo rk er i s an em p l o y ee o r an i n d ep en den tco n tract o r i n cl u d e:- 1 8 -

[* 1 8 ] (1 ) t h e d eg ree o f co n tro l ex erci s edb y th e p ri n ci p al o v er th e d et ai l s o f t h e wo rk ; (2 ) wh i ch p art y

i n v es t s i n th e faci l i t i es u s edi n th e wo rk ; (3 ) t h e o p p o rtu n it y

o f t h e i n d i v i du al fo r p ro fi t o r l o s s ; (4 ) wh et h er o r n o tth e p ri n ci pal h as th e ri g h tt o d i s ch arg e t h e i n d i vi du al ; (5 ) wh et h er th e wo rki s p arto f t h e p ri n ci p al ’ s reg u l ar b us i n es s ; (6 ) t h e p erm an en cy

o f t h e rel at i o ns h ip ; an d (7 ) t h e rel at i o ns h i p th e p art ies b el i ev e t hey are creat i n g . W eb er v . Co m

m i s s i o n er, 1 0 3 T.C. 3 7 8 , 3 8 7 (1 9 9 4 ), aff’ d , 6 0 F.3 d1 1 0 4 (4 th Ci r. 1 9 9 5 ). Al l o f t h e fact s an d ci rcu m s t an ces o f each cas e are co n s i d ered wh en
m ak i n g t hi s d et erm i n at i on , an dn o s i n g l e fact o r i s co n cl us i v e. See Si m p s o n v . Co m m i s s i o n er, 6 4 T.C. at 9 8 5
. Th e d eg ree o f co n tro l i s cri t i cal . See W eb er v . Co m m i s s i o n er, 1 0 3 T.C. at3 8 7. Anem p l o y er-em

p l o y ee rel at i o n sh i p ex i s t s wh en th e p ri nci p al co nt ro l s th e m et h o d s t o b e u s ed i n d o i n g th e wo rk an dco n tro l s th e d et ai ls an dm ean s b y

wh i ch th e d es i redres ul ti s t o b e acco m p li sh ed . See El l i s o n
v . Co m m i s s i o n er, 5 5 T.C. 1 4 2, 1 5 2 -1 5 3 (1 9 70 ). W e h o ldth atM r. Hu d s o n ’ s p ro p er wo rkcl as s i fi cat io n duri n g th e y ears i n i s su e was thato f an em

pl oy ee. Ko rean Ai rl i n es ex erci s edco ns i d erab le co nt ro l
o v er h is wo rk . Wh il e fl y in g Ko rean Ai rl i n es ai rcraft , M r. Hu ds o n was req ui redt o ab i d e b y th e p o l ici es an d p ro cedu res l i s t edi n the em p l o y ee m an u al h e recei v ed fro m Ko rean Ai rl i n es . See, e.g ., W eb er v . Co m m i ss i o ner, 1 03 T.C. 3 7 8 (fi n d i n g th atas the t ax p ay er was b ou n db y ru l es d et erm i n edb y

h i s p ri n ci p al , the p ri n ci p al- 1 9 -

[* 1 9 ] h el ds u ffi ci en tco n tro l fo r t h e t ax p ay er t o b e cl as s i fi edas an em p l o y ee). Fu rt h er, M r. Hu d so n ’ s s ch edu l e, i n cl u d i n g h is v acat i on an dthe l en g th o f h i s l ay ov ers , was d et erm in edb y Ko rean Ai rl i n es . See, e.g ., Si m p s o n v . Co m m i s s i o n er, 6 4 T.C. at 9 8 5 (fi n d i n g th atth e t ax p ay er’ s freed om t o s eth i s o wn
o ffi ce h o u rs an dt ak e v acat i o ns wi th o u th i s p ri n ci p al ’ s ap p ro v al wei g h edi n fav o r
o f t reat m en tas an i n dep en d en tco n tract o r). W e al s o reject res p on d en t ’ s as s ert i o n th atth e GAP ag reem en ti s d et erm i n at i v e o f M r. Hu d s o n ’ s wo rks t atu s . Bl od g et t v . Co m m i s si o n er, T.C. M em o. 2 0 1 2 -2 9 8 ; J aco b s v . Co m m i s si o n er, T.C. M em o . 1 9 9 3 -5 7 0; s ec. 3 1 .3 1 2 1 (d )-1 (a)(3 ), Em

p l o ym en tTax Reg s . (“ If t h e rel at io n s hi p o f em p l o y er an d
em pl o y ee ex i s t s , th e d es i g n at i o n o r d es cri p t io n o f t h e rel at i on s hi p b y th e p art i es as
an yth i n g o th er t han thato f em p l o y er an dem

p l oy ee i s i m

m at eri al
. Thu s , i f s u ch rel at i o n s h i p ex i s t s, i ti s o f n o co n s equ en ce t h atth e em p l o y ee i s d es i gn at ed as [an ]
* * * i nd ep en d en t co n tract o r[.] ”). Acco rd i ng l y , we h o l dth atM r. Hu d s on ’ s p ro p er wo rkcl as s i fi cat i o n was th at
o f an em p l o y ee an dp et i t i o n ers are n o tl i ab l e fo r s el f-em p l o ym en tt ax o n th e i n co m e M r. Hu d s o n earn edwh i l e wo rk i n g as a Ko rean Ai rl i n es p i lo t .- 2 0 -

[* 2 0 ] III. Sect io n 6 6 6 2 (a) Pen al ty Sect io n 6 6 6 2 (a) an d(b )(1 ) an d(2 ) i m p o s es a 2 0 % accu racy -rel at ed p en al t y
o n an y u n d erp aym en to f Fed eral i n co m e t ax at tri b u t ab l e t o a t ax p ay er’ s n eg l i g en ce
o r d i s reg ard o f ru les o r reg u lat io n s o r s ubs t an t i al u n d ers t at em en to f i n co m e t ax .

“ ‘ [N] eg l i g en ce’ i n cl u d es an y fai l ure t o m ak e a reas o nab l e at t em p tt o co m pl y wi th th e p ro v i s i o n s o f * * * [t h e Co d e] , an dth e t erm ‘ di s reg ard ’ i n cl u d es an y

carel es s , reck l es s , o r i n t en t io n al d i s reg ard .” Sec. 6 6 6 2 (c). Neg l i g en ce i s s tro n g l y i n d i cat ed wh ere “ [a] t ax p ay er fai l s t o m ak e a reas o nab le at t em p tt o as cert ai n th e co rrect n es s
o f a d edu ct i o n , cred i to r ex cl us i o n o n a ret u rn wh ich wo u lds eem t o a reas o n ab l e
an d p ru d en t p ers o n t o b e ‘ t o o g o o dt o b e t ru e’ u n d er t h e ci rcu m s t an ces ”. Sec. 1 .6 66 2 -3 (b )(1 )(i i ), In co m e Tax Reg s . Anu nd ers t at em en to f i n co m e t ax i s
s ub s t an t i al i f t h e am o u n t o f t h e u n ders tat em en t ex ceed s the g reat er o f 1 0 % o f t h e t ax req u i red t o b e s ho wnfo r t he t ax ab l e y ear o r $ 5 ,0 0 0
. Sec. 6 6 6 2 (d )(1 )(A). W i th res p ect t o an i n di v i du al t ax p ay er’ s l i ab i l it y fo r a p en al ty , s ect io n 7 4 9 1 (c) p l aces the b u rd eno f p ro du ct i o n o n th e Co m m i s s i o n er, req u i ri ng th e Co m m i s s i o n er t o co m e fo rwardwi th s u ffi ci en t ev i d en ce i nd i cat i n g th atth e i m p o s i t i o n o f a p en al ty

i s ap p ro p ri at e. Hi g b ee v . Co m m i ss i o n er, 1 1 6 T.C. 4 3 8 , 4 4 6 (2 00 1 ). Th e t ax p ay er t hen b ears th e b u rd en o f p ro o f as t o an y d efen se t o the p en al ty . Id . at4 4 6 -4 4 7 . W e an t i ci p at e t h atth e Ru l e 1 5 5 co m p ut at i o n s wi l l- 2 1 -

[* 2 1 ] co nfi rm

a s ub s t an t i al u n d ers t at em en to f i nco m e t ax ex is t s fo r t h e t ax ab l e y ears i n i s s u e an d , th erefo re, t h atres p o n den th as m eth i s b u rd en o f p ro du ct i o n . Sec. 7 4 91 (c). Tax p ay ers m ay

ab s o lv e th em s el v es o f l i ab i l i ty fo r a s ect i o n 6 6 6 2 (a) p en al t y i f t h ey can s h o w reas o n ab l e cau s e fo r t h e res u l t i ng u n d erp aym en t an dth atth ey act edi n g o o dfai th . Sec. 6 66 4 (c); Hi g b ee v . Co m m i s s i on er, 1 1 6 T.C. at4 4 6 -4 4 7. Th e d eci si o n as t o wh et her a t ax p ay er act edwi th reas on ab l e cau s e an di n g o o d fai th is m ad e o n a cas e-b y -cas e b as i s, t ak i n g i n t o acco u n tal l p ert i n en tfact s an d ci rcu m s t an ces . Sec. 1 .6 6 64 -4 (b )(1 ), In co m e Tax Reg s . Gen eral l y , th e m o s t i m p o rt an tfact o r i s t h e ex t en to f t h e t ax pay er’ s effo rt s t o as s es s th e p ro per t ax l i ab i l i ty . Id . Rel i an ce o n p ro fes s i o n al ad v i ce m ay co ns t i tu te reas o n ab l e cau s e an d g o o dfai th i f t h e t ax p ay er p ro v es , b y a p rep o n d eran ce o f t h e ev i d en ce, t h ath e

“ m eet s each req u i rem en t o f t h e fo l l o wi ng th ree-p ro n g t es t : (1 ) [t ] h e ad v i s o r was a
co m p et en tp ro fes s i o n al wh o h ads u ffi ci en tex p ert i s e t o ju st i fy rel ian ce, (2 ) t h e t ax p ay er p ro v i d edn eces s ary an daccu rat e i n fo rm at i o n t o th e ad v is er, an d (3 ) t h e t ax p ay er act u al l y

rel i edi n g o o dfai th o n th e ad vi s er’ s ju d g m en t .” Neo n at o l o g y As s ocs ., P.A. v
. Co m

m i ss i o n er, 1 1 5 T.C. 4 3 , 9 9 (2 0 0 0 ), aff’ d, 2 9 9 F.3 d 2 2 1 (3 d Ci r. 2 0 02 ).- 2 2 -

[* 2 2 ] Pet i t i o ners co n t en dth atth ei r rel i an ce o n p ro fes si o n al ad v i ce co n s ti tu t es th e
reas on ab l e cau s e an dg o o d fai th n eces s ary t o ab s ol v e t h em

o f t h e s ect i o n 6 6 6 2 (a)
accu racy -rel at edp en al ty . M r. Hu d s o n t es t i fi edcred i b l y th atth ey p ro v id edt o th ei r C.P.A. th e i n fo rm at i on th e C.P.A. s o u g h tt o p rep are t h ei r retu rn s accu rat el y , i n cl u d i n g p ro v i d i n g i n fo rm at i o n ab o u tth ei r o u t s tan d i n g m o rt g ag es . M r. Hu d s on al s o co n s u l t ed co u n s el t o d et erm i n e h i s el i g i b il i ty fo r t h e fo rei g n earn edi n co m e
ex cl u s i o n an dp ro v id edt o co u ns el th e i n fo rm at io n co un s el req u es t ed(v i a a qu es ti o n n ai re) t o m ak e t h atd et erm i n at i o n. W e h o l dth atp et i t i o n ers ’ rel i an ce o n th es e p ro fes si o n al s was reas o n ab l e u n d er t h es e ci rcu m s tan ces . Becau s e p et i t i o n ers h av e s h o wnth atthey act edwi th reas o nab l e cau s e an di n g o o dfai th , th ey are n o tl iab l e fo r th e s ect i on 6 6 62 (a) p en al ty . W e h av e co n s id eredal l arg u m en t s m ad e an dfact s p res en t edi n reach i n g o u r d eci s i o n , an d , t o the ex t en tn o td i s cu s s edab o v e, we co ncl u d e th atth ey are m o o t , i rrel ev an t , o r wi th o u tm eri t . To refl ectthe fo reg o i n g , Deci s i o n wi ll b e en t eredu n d er Ru l e 1 5 5
.