T .C. Su m m ary Op i n io n 2 01 9 -3 0

UNITED STATES TAX COURT

DAVID BAGDAN AND M AUREEN BAGDAN, Pet i t i o n ers v . COM M ISSIONER OF INTERNAL REVENUE, Res po n d en t

Do ck etNo . 1 6 3 17 -1 5 S. Fi l edOct o b er 1 , 2 01 9
.

Dav i dBag d an an dM au reen Bag d an , p ro s es e. Ki m b erl y A. Tru

ji l lo an dCat heri n e J . Cab al lero , fo r res p o nd en t .
SUM M ARY OPINION LEYDEN, Sp eci al Tri al J u d g e: Th i s cas e was h eardp u rs u an tt o the p ro v is i o n s o f s ect i o n 7 4 6 3 o f t h e In t ern al Rev en u e Co d e i n effect wh en th e p et i t i o n was fi l ed
. 1 Pu rs u an t t o s ect i o n 7 4 6 3(b ), th e d eci si on t o b e en t eredi s n o t

1 Al l s ect i o n referen ces are t o th e In tern al Rev en u e Co d e, as am en d ed , i n (co n ti n u ed ...)- 2
-

rev i ewab l e b y

an y o ther co u rt , an d t h i s o p i n i o n s h al l n o tb e t reat ed as p reced en t fo r an y o th er cas e. In a n o t ice o f d efi ci en cy d at edM arch 2 5 , 2 0 1 5 , th e In t ern al Rev en u e Serv i ce (IRS) 2 d et erm i n eda d efi ci en cy i n p et i t i o n ers ’ 2 0 1 1 Fed eral i n co m e t ax o f $ 1 0 ,3 7 0 an da s ect i on 6 66 2 (a) accu racy -rel at edp en al ty o f $ 2 ,0 7 4 . Th e i s su es fo r d eci s i o n are wh et h er p et i t i o n ers are: (1 ) en t i tl edt o d edu ct$ 2 1,3 9 6 o f
u n rei m b u rs edem

p l o y ee ex p en s es rep o rt edo n Sch edu l e A, It em i zed Dedu ct i o n s ; (2 ) en t i t l edt o d educt$ 1 6 ,5 79 o f car an dtru ck ex p en s es wi th res p ectt o M r. Bag dan ’ s b u s i nes s o f o ffi ci at i n g s p o rt s g am es rep o rt edo n Sch edu l e C, Pro fi to r Lo s s Fro m Bu si n es s ; an d(3 ) l i ab l e fo r a s ect i o n 6 6 6 2 (a) accu racy -rel at edp en al ty . Th e Co u rth o l ds thatp et i t i o n ers are: (1 ) n o ten t i t l edt o d educt$ 2 1 ,3 9 6 o f
u n rei m b u rs edem

p l o y ee ex p en s es ; (2 ) n o ten t i t l edt o d edu ct$ 1 6,5 7 9 o f car an d

1 (...co n t in u ed ) effect atal l rel ev an t t i m es , an dal l Ru l e referen ces are t o t h e Tax Co u rt Ru l es o f Pract i ce an d Pro cedu re, u n l es s o th erwi s e i n d i cat ed
.

2 Th e Co urt u s es th e t erm

“ IRS” t o refer t o ad m i ni s trat i ve act i on s t ak en o u t s i d e o f t h es e p ro ceed in g s . Th e Co u rtu s es th e t erm “ res p o n d en t ” t o refer t o th e Co m m i s s i o n er o f In t ern al Rev en u e, wh o i s t h e h eado f t h e IRS an di s res p on d en t i n thi s cas e, an d t o refer t o act io n s t ak en i n co n n ect io n wi th th i s cas e.- 3
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tru ckex p en s es ; an d(3 ) n otl i ab l e fo r t he s ect io n 6 66 2 (a) accu racy -rel at ed p en al ty . 3 Back gro u n d Th e p art i es s ubm it t edth i s cas e fu l l y s t ip u l at edp u rs u an tt o Ru l e 1 22
. Pet i t io n ers res i d edi n Cal i fo rn i a wh en th ey t i m el y fi l edth ei r p et it i o n . I. M r. Bag dan ’ s Em

pl o ym en tDu ri n g 2 0 1 1 Du ri n g 2 0 1 1 M r. Bag d an was em p l o y edb y On Dem an dPo w er, In c. (On Dem an d Po wer), as an o u t s i d e s al es an db u s in es s d ev el o p m en tas s o ci at e. Du ri n g 2 0 1 1 OnDem an dPo wer h ada p o l i cy o f rei m b u rs i n g al l s al es -rel at edex p en s es fo r M r. Bag d an ’ s p os i t io n . OnDem an dPo wer’ s rei m b u rs em en tp o l icy

wi th res p ectt o M r. Bag d an s t at ed : “ [On Dem an dPo wer] wi l l rei m b u rs e * * * [M r. Bag d an ] fo r al l s al es rel at edex pen s es wh enal l recei p t s are p res en t edi n a d o cu m en tedh ard
co p y (p ap er o r fax ), ap p ro v edb y * * * [M r. Bag d an ’ s ] s ig n atu re as b ei n g b u s i n es s rel at ed an dap pro v edb y

* * * [On Dem an d Po wer] .” Du ri n g 2 0 1 1 On Dem an d Po wer rei m

b u rs edM r. Bag d an $ 5 2 5 fo r cel lu l ar p h o ne ex p en s es , $ 4 0 fo r an o i l ch an ge fo r h i s car, $ 4 0 fo r t o l l s, an d$ 2 1 .8 4 fo r b rak e rep ai rs t o h is car.

3 Ad ju s tm en t s t o th e am o u n ts o f p et i ti o ners ’ s el f-em p lo ym en tt ax , s el fem pl o y m en tt ax d edu ct i o n , al t ern at i ve m i ni m u m t ax , an dedu cat i o n cred i tare p u rel y co m p u t at i o n al m at ters , th e res o l u t i o n o f wh i ch d ep en d s o n o u r d i s p os i t i o n o f t h e fi rs t an ds eco n dd is p ut edi s s u es .- 4
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II. M r. Bag dan ’ s Offi ci at i n g Bu si n es s Du ri n g 2 0 1 1 M r. Bag d an o ffi ci at edata l arg e n um b er o f b as k etb al l an d b o y s ’ l acro s s e g am es . He recei v ed$ 1 6 ,3 04 i n g ro s s recei p t s fo r t h i s wo rk . M r. Bag dan dro v e t o an d fro m m o s to f t h e g am es u s i n g h i s o wn car an dd i dn o t
m ai n t ai n co n t em

p o ran eo u s d o cu m en t at io n fo r t h e m i l es h e d ro ve. Th e p art i es
s t ip u l at edth ree ex h i b i t s : (1 ) a l i s tM r. Bag d an p rep aredi n co n n ect i o n wi th th e IRS au d i t o f p et i t i o n ers ’ 2 0 1 1 t ax return th atco n t ai n ed co l um n s l i s t in g d at es i n 2 0 1 1 i n ch ro n o l og i cal o rd er i n th e fo rm o f a d ay an d m o nt h 4 an dn am es o f t h e
s ch o ol o r p l ace an dl o cat i o n s wh ere g am es were p l ay ed ; 5 (2 ) an o th er l i stM r. Bag dan p rep aredi n co n nect io n wi th th e IRS au di to f p et i t i o n ers ’ 2 0 1 1 t ax retu rn th atco n t ai n ed th ree co l u m n s t i t l ed“ Gam e”, “ Lo cat i o n ”, an d “ M i l eag e”; an d (3 ) m o n th l y

cal en d ars fo r J anu ary

th ro ug h Decem

ber 2 01 1 thatM r. Bag dan p rep aredan dp ri n t edo n “ 2 / 1 7 /2 0 1 4 6 : 1 6 p m ”.

4 Th e l i s ti ncl u d ed d at es fo r b o y s ’ l acro s s e g am es s t art in g J an uary1 6 , 2 0 11 , an d en d i n g Decem

b er 1 8 , 2 0 11 , an dd at es fo r b as k etb al l g am es s tart i n g J an u ary 3 , 2 0 1 1 , an den d i n g Feb ru ary 1 5, 2 0 1 1
. 5 Th e b as k etb al l g am es l i s t edd i d n oti n cl u d e a s eco n dco l u m n l i s ti n g t h e l o cat io n s wh ere t h e g am es were p l ay ed
.- 5
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III. Pet i t i o ners ’ 2 0 1 1 Tax Retu rn Pet i t i o ners p rep aredan dt i m el y fi l eda 2 0 11 jo in tFed eral i n co m e t ax return . Th ey cl ai m eda d edu ct i o n o n Sch edu l e A o f $ 2 1 , 3 96 fo r u n rei m b u rs edem

p l o y ee
ex p en s es an d rep o rt edan ex p en s e o n Sch edu l e C o f $ 1 6 ,5 7 9 fo r car an dtru ck
ex p en s es wi th res p ectt o M r. Bag d an ’ s o ffi ci at i n g b u s i n es s . Pet it i on ers at t ach ed t o thei r 2 0 11 t ax retu rn a Fo rm 2 1 0 6 , Em

p lo y ee Bu s i n es s Ex p en s es , an d rep o rt ed
u n rei m b u rs edem

p l o y ee ex p en s es o f $ 2 1 , 3 9 6 as fo l l o ws : (1 ) $ 1 5 , 6 7 0 o f v eh i cl e
ex p en s es ; 6 (2 ) $ 2 6 5 o f p ark i n g fees , t o l l s , an dtran s po rt at i o n , i n cl ud i n g trai n , b u s , et c. t h at di dn ot i n v o lv e o vern i g h ttrav el o r co m m u t in g t o an d fro m wo rk ; (3 ) $ 9 5 0
o f t rav el ex p en s es wh i l e awayfro m h om e o v ern i g h t , i ncl u d i n g l o d g in g , ai rp l an e,
car ren t al , et c.; (4 ) $ 4 ,1 8 5 o f b u s i n es s ex p en s es n o t o th erwi s e i ncl u d edan dn o t i n cl u d i n g m eal s an den t ert ai n m en t ; an d (5 ) $ 32 6 o f m eal s an den t ert ai nm en t
ex p en s es . 7

6 Onth e Fo rm

2 1 0 6 p et i t i o n ers l i s t edb u s i n es s m il es dri ven o f 2 9 ,5 5 6 an d d el i n eat ed th e b u s i n es s m i l es as dri ven i n “ Veh i cl e 1 ” o f 2 1 , 4 3 3 m il es an di n “ Veh icl e 2 ” o f 8 ,1 2 3 m i l es . Itap p ears thatth e v eh i cl e ex p en s e l i s t edo n Fo rm 2 1 0 6 o f $ 1 5 ,6 70 was cal cu l at edb y m u l t ip l y i n g th e t o t al n u m

b er o f b u s i n es s m il es l i st edfo r Veh i cl e 1 an d Veh icl e 2 b y 5 3 cen t s. Th e s t an d ardm i l eag e rat e s etb y th e IRS fo r 2 0 1 1 was 5 1 cen t s p er m i l e b efo re J u ly 1 , 2 0 1 1, an d5 5 cen t s p er m i l e o n o r aft er J u l y

1 , 2 0 1 1 . An n o u n cem en t2 0 1 1 -4 0 , 2 0 1 1-2 9 I.R.B. 5 6 ; No t i ce 2 0 1 0 -8 8 , 2 0 1 0 -5 1 I.R.B. 8 8 2
.

7 Th e t o t al m eal s an den t ert ai n m en tex p en s es l i s t edo n th e Fo rm 2 1 0 6 were (co n ti n u ed ...)- 6
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Pet i t i o ners rep ort ed$ 1 6 ,5 7 9 o f car an dtru ck ex p en ses o n th ei r Sch edu l e C b u td i dn o tl i s t i n p artIV, In fo rm at i o n o n Yo u r Veh icl e, i n fo rm at i o n ab o u tan y
v eh icl e i n cl u d in g the t o tal n um b er o f b u s i nes s m i l es dri v en . Pet i t i o n ers al s o fi l ed a Fo rm 4 5 6 2 , Dep reci at i o n an dAm o rt i zat i o n (In cl u d i ng In fo rm at i o n o n Li s t ed Pro p erty ), wi th res p ectt o M r. Bag d an ’ s o ffi ci at i n g b u s i n es s act i v i ty . Onth atfo rm p et i t i o n ers rep o rt edi n p art IV, s ect i o n B--In fo rm at i o n o n Us e o f Veh i cl es , t o t al b u s i n es s m i l es dri v endu ri n g 2 0 1 1 o f 2 7,1 2 9 . Th e reco rd d oes n o ts h o w h o w p et i t i o n ers cal cu l at edth e ex p en s e o f $ 1 6 , 5 7 9 , b u ti tap p ears th ey u s edm i leag e rat h er t h anactu al co s t s . 8 Di s cu ss i o n I. Bu rd en o f Pro o f Gen eral ly , th e Co m

m i s s i o n er’ s d et erm i n at i o n o f a d efi ci en cy i s p res u m ed
co rrect , an da t ax p ay er b ears th e b u rd en o f p ro v i n g i t i n co rrect . See 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 1 5 (1 9 3 3). If t h e t ax p ay er i n tro du ces cred i b l e
ev i d en ce wi th res p ectt o an y fact u al i s su e rel ev an tt o as cert ai n i n g h i s o r h er

7 (...co n t in u ed ) $ 6 5 1 b efo re t h e 5 0% l im i t at i o n p res cri b edi n s ec. 2 7 4(n )(1 ).

8 Th e car an dtru ckex p en s es o f $ 1 6 ,5 7 9 d i v i d edb y 2 7 ,1 2 9 , th e n u m

b er o f b u s i n es s m i l es rep o rt edo n Fo rm 4 5 6 2 , y i el d s an ex p en s e p er m i l e o f ap p ro x i m at el y 6 1 cen ts .- 7
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l i ab i l i ty an d s at i sfi es o th er co n d i t i o n s , th en th e b u rd en o f p ro o f s h i ft s t o th e Co m m i s s i o n er wi th res p ectt o t h ati s s u e. Sec. 7 4 9 1 (a)(1 ) an d(2 ). Pet i t i o n ers h av e
n o targ u edth ats ect i o n 7 4 9 1 (a) ap pl i es n o r es t ab l is h ed th ati t s req u i rem en t s are
m et . Th e b u rd en o f p ro o f rem ai n s wi th th em . As th e Co u rth as o b s erv edi n co u n t les s o p i n io n s , d edu ct i o ns are a m at t er o f l eg i s lat i v e g race, an da t ax p ay er g en eral l y b ears the b u rd en o f p ro v in g en t i t l em en t t o an y cl ai m edd edu ct i o n . Ru l e 1 4 2 (a); INDOPCO, In c. v . Co m m is s io n er, 5 0 3 U.S. 7 9 , 8 4 (1 99 2 ); New Co l o n i al Ice Co
. v . Hel v eri n g, 2 9 2 U.S. 4 3 5 , 4 40 (1 9 3 4 ). Th e t ax p ay er cl ai m i n g a d edu ct i o n o n a Fed eral i n co m e t ax retu rn m u s t d em o n s trat e t h atth e d edu ct i o n i s al l o wab le p u rs u an tt o s o m e s t atu t ory p ro v i s i o n
an d m u s tfu rt h er s ub s t an t i at e t h atth e ex pen s e t o wh i ch th e d edu ct i o n rel at es h as b een pai d o r i n cu rred . Sec. 6 0 0 1 ; Hrad es ky v . Co m m i ss i o n er, 6 5 T.C. 8 7 , 8 9 -9 0 (1 9 7 5), aff’ dp er cu ri am , 5 4 0 F.2 d8 2 1 (5 th Ci r. 1 9 7 6 ); M en eg u zzo v . Co m m i s s i o n er, 4 3 T.C. 8 24 , 8 3 1 -8 3 2 (1 9 6 5 ); s ec. 1 .6 0 0 1 -1 (a), In co m e Tax Reg s . II. Un rei m

b urs edEm

p l o y ee Ex p en s es A cas h b as i s t ax p ay er m ay d edu cto rd i n ary

an d n eces saryex pen s es p ai d du ri n g th e t ax ab le y ear i n carry i n g o n a t rad e o r b u s i n es s . Sec. 1 6 2 (a). Gen eral l y , th e p erfo rm an ce o f s erv i ces as an em p l o y ee co n s ti tut es a t rad e o r b us i n es s . O’ M al l ey v . Co m m i s s io n er, 9 1 T.C. 3 5 2 , 3 6 3 -3 6 4 (1 98 8 ); Pri m u th v .- 8
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Co m m i s s i o n er, 5 4 T.C. 3 74 , 3 7 7 (1 9 7 0 ). If as a co n d i ti o n o f em p l o ym en tan
em pl o y ee i s req u i redt o i ncu r cert ai n ex pen s es , th enth e em pl o y ee i s en t i t l edt o d eductth o s e ex pen s es t o th e ex t en tth e ex p en s es are n o t s ub jectt o rei m

b u rs em en t . See Fo u n t ai n v . Co m

m i s s io n er, 5 9 T.C. 6 9 6 , 7 08 (1 9 7 3 ); Po d em s v . Co m m i s s i o n er, 2 4 T.C. 2 1, 2 2-2 3 (1 9 5 5 ). Sect i o n 2 6 2(a) g en eral l y d i s al l o ws a d educt i o n fo r p ers o nal , l i v i n g, o r fam i l y ex p en ses . A t ax p ay er can n o t d eductem p l o y ee b u s in es s ex p en s es t o th e ex t en th e i s
en t i t l edt o rei m

b u rs em en tfro m

h i s em p l o y er fo r t h o s e ex p en s es . See Lu cas v . Co m m i s s i o n er, 7 9 T.C. 1 , 7 (1 98 2 ). Th e t ax p ay er b ears th e b u rd en o f p ro v i n g th at h e i s n o t en t i t l edt o rei m

b u rs em en t . See Fo u n t ai n v . Co m m i s s i o n er, 5 9 T.C at7 0 8
. Th e t ax p ay er can p ro v e thath e i s n o ten ti t l edt o rei m b urs em en tb y

s h o wi n g , fo r
ex am p l e, t h ath e i s ex p ect edt o b ear t h es e co s t s . Id . Anex p en s e fo r wh i ch th e t ax p ay er i s en t i t l ed t o (b u t d o es n o tcl ai m ) rei m bu rs em en t fro m

h i s em p lo y er i s g en eral l y n o tco n s i dered “ n eces s ary ” an d t h u s i s n o td edu ct i b le u n d er s ect i o n 1 6 2
. Orv is v . Co m

m i s s i o n er, 7 8 8 F.2 d1 4 0 6 , 1 4 0 8 (9 th Ci r. 1 9 8 6 ), aff’ g T.C. M em o . 1 9 8 4 -5 3 3 ; Po d em s v . Co m m i s s i o n er, 2 4 T.C. at 2 2 -2 3
. M r. Bag dan ’ s em

pl o y er, On Po wer Dem an d , d i dh av e a rei m b u rs em en t p o l i cy th atp ro v id edrei m

bu rs em en t s t o M r. Bag d an fo r al l s al es -rel at ed ex p en s es . Th erefo re, p et it i o n ers h av e t h e b u rd en o f p ro v i n g th atthe rep ort ed“ u n rei m b u rs ed- 9
-

em pl o y ee ex p en s es ” were n o tco v eredb y M r. Bag d an ’ s em

p l o y er’ s rei m

b u rs em en t p o l i cy . Pet i t i o n ers h av e n o t pro v i d edan y d o cu m en t s d em o n s trat i ng th e ex p en s es rep o rt edo n the Sch edu l e A were n o tco v ered . Th erefo re, p et i t i o n ers h av e fai l edt o
m eetth ei r b urd en o f p ro of. M o reo v er, M r. Bag d an d i dn o tm ai n tai n a l o g , a cal en dar, o r a s i m i l ar reco rd req u i redt o p ro p erl y

s ub s t an t i at e o r d em on s trat e t h e b u s i n es s p u rp o s e o f t h e
u n rei m b u rs edem

p l o y ee ex p en s es . Acco rd in gl y , th e Co u rt co ncl u d es th at p et i t i o n ers are n oten ti t l edt o d edu ct$ 2 1 ,3 9 6 o f u n rei m b urs edem

pl o y ee ex p en s es . III. Sch edu l e C Car an dTru ck Ex p en s es Pet i t i o ners rep ort ed$ 1 6 ,5 7 9 fo r car an dtru ckex p en s es o n Sch edu l e C wi th
res p ectt o M r. Bag d an ’ s o ffi ci at i n g b u s i n es s. Dedu ct i o n s fo r ex pen s es wi th
res p ectt o t h e u se o f p as sen ger au t om ob i les , i f o th erwi s e al l o wab le, are s ub jectt o
s tri cts ub s t an t iat i o n ru l es . See s ecs . 2 7 4 (d ), 2 8 0 F(d )(4 ); San fo rdv . Co m m i s s i o n er, 5 0 T.C. 8 2 3 , 8 2 7 (1 9 6 8 ), aff’ dp er cu ri am , 4 1 2 F.2 d2 0 1 (2 dCi r. 1 9 6 9 ); s ec. 1 .2 74 -5 T(a), Tem

p o rary In co m e Tax Reg s . , 5 0 Fed . Reg . 4 60 1 4 (No v . 6 , 1 9 8 5 ). Fo r ex p en s es rel at i n g t o p as s en g er au t om o b i les , a t ax p ay er m u s t s ubs t an ti at e wi th ad equat e reco rd s o r s u ffi ci en tev i d en ce co rro b orat i n g h i s o r h er o wns t at em en t : (1 ) t h e am o u n t o f each s ep arat e ex p en s e; (2 ) t h e m i leag e fo r each b us i n es s u s e o f th e p as s en g er au t o m o b i le an d t h e t o t al m i leag e fo r al l p u rp o s es duri n g th e t ax ab l e- 1 0 -

p eri o d ; (3 ) t h e d at e o f t h e b u s i n es s u s e; an d(4 ) t h e b u s i n es s p u rp o s e o f t he u s e. See s ec. 1 .2 7 4 -5 T(b )(6 ), Tem p o raryIn co m e Tax Reg s ., 5 0 Fed . Reg . 4 6 0 1 6 (No v. 6 , 1 9 8 5 ). Sub s t an t iat i o n b y ad equ at e reco rd s g en eral l y req u i res th e t ax p ay er t o “ m ai nt ai n an acco u n tb o o k , d i ary , l o g, s t at em en to f ex p en s e, t ri p s heet s , o r
s i m i l ar reco rd ” p rep aredco n t em p o ran eo u s ly

wi th th e u s e o f t he p as s en g er
au t o m ob i l e as wel l as d o cu m en t ary ev i d en ce o f t h e i n d iv i dual , actu al ex p en s es . Id . p ara. (c)(2 ), 5 0 Fed . Reg . 4 60 1 7
. In l i euo f s ubs t an ti at i n g actu al p as s en g er au t om o b i l e ex p en s es , a t ax p ay er
m ay cal cu l at e t h em

b y u si n g t h e s t an d ard m i l eag e rat e es t ab l i sh edb y the Co m m i s s i o n er. See s ec. 1 .2 7 4 -5 (j)(2 ), In co m e Tax Reg s . Th e t ax p ay er m ay b as e th e d edu ct i o n o n ei th er act u al ex p en s es o r s t an d ardm i leag e, n otb o th . Nas h v . Co m m i s s i o n er, 6 0 T.C. 5 03 , 5 2 0 (1 9 7 3 ). If the t ax p ay er el ect s th e act u al ex p en s e
m et h o d, h e m

u s ts ub st an t i at e h i s b u s i n es s u s e p ercen t ag e fo r t h e p as s en g er
au t o m ob i l e. Lars o n v . Co m m is s i o n er, T.C. M em o . 2 0 0 8 -1 8 7, 2 0 08 Tax Ct . M em o LEXIS 1 8 2 , at* 1 2; s ec. 1 .2 7 4 -5 T(d )(2 )(i ), Tem p oraryIn co m e Tax Reg s ., 5 0 Fed
. Reg
. 4 6 0 2 5 (No v. 6 , 1 98 5 ). Pet i t i o ners s ub m i tt edthi s cas e fu l l y s t i p ul at edan d th u s d idn o t t es t i fy
. Pet i t io n ers s ub m i tt ed , an d t h e p art i es s t i pu l at ed , cal en d ar p ag es fo r t h e m on th s o f J an u ary th ro u g h Decem

b er 2 0 1 1 an ds p read sh eet s th atp u rp o rtt o s h ow t h e g am es- 1 1 -

M r. Bag d an o ffi ci at edatan d th e m i l es h e d ro v e t o an dfro m th e g am es . M an y

o f th e g am es l i s t edo n th e t wo l i s t s d o n o tap p ear o n th e cal en dar. 9 Fu rt h er, as
res p o n d en t h as n o t edi n h is b ri ef, a co m p ari so n o f t h e cal en d ar an dth e m i l eag e l o g s s h o ws d is crep an ci es i n th e n u m b er o f m i l es p et i t i o ners as s ertM r. Bag d an dro v e t o o ffi ci at e atg am es . Th e co m p ari s o n s h o w s that1 0 2 en tri es wi th a t o t al o f 8 ,7 90 m i l es dri v en b y

M r. Bag d an d o n o t h av e a co rres p o n di ng g am e l is t edo n th e cal en d ar, b u ti t d oes s h o w4 4 en tri es wi th a t o t al o f 2 ,2 2 0 m i l es dri v en b y M r. Bag dan th at d o h av e a co rres p on d i n g g am e l i s t ed o n th e cal en d ar. 1 0 Ho wev er, n ei ther t h e m i l eag e l o g s n o r t h e cal en d ar s at i s fi es th e req u i rem en t
u n d er s ect i o n 2 7 4 (d ) t o s h o w th e b u s i n es s p u rp o s e. Wh il e p et i ti o ners as s ertth at M r. Bag d an o ffi ci at edato v er 3 0 0 g am es , h i s n o t at i o n s o n h is cal en d ar are at b es t
v ag ue. Fo r ex am

p l e, an en try

o n th e cal en d ar fo r Ap ri l 2 , 2 0 1 1 , i s “ 1 2: 0 0 p m UC M erced @ UDP”. Itd o es n o ti n d i cat e wh et h er t h e n ot at i o n was fo r a b as k etb al l o r

9 Fo r s o m e d ay s th e b l o cko n t h e cal en d ar i s fi l l ed an d t h ere i s an arro w at th e en d , wh i ch m i g h t b e an i nd i cat i o n th atth ere were m o re en tri es . Ho wev er, p et i t i o n ers h av e n o t p res en t ed an y fu rt her ev i d en ce o f an y ad di t i o n al en tri es i n th o s e i n s t an ces .

1 0 Res p o nd en t ’ s s i m

u l t an eo u s o p en i n g b ri ef co m p aredth e m i l eag e l o g s an d th e cal en d ar. Hi s co m

p ari s o n rev eal s 1 0 2 g am es wi th a t o t al o f 8 ,7 0 4 m i l es dri v en fo r g am es s h o wn o n th e m i leag e l o g s th atd o n o th av e a co rres p o n d i n g g am e l i s t ed o n th e cal en d ar an d4 4 g am es wi th a t o t al o f 2 ,3 06 m i l es dri v en fo r g am es th atare l i st edo n b o th th e m i l eag e l og s an d t h e cal en d ar. Th e Co u rt ’ s co m pari s o n rev eal ed a d i fferen tco n cl u s i on fro m res p o n d en t ’ s co m

p ari s o n .- 1 2 -

a b o y s ’ l acro s s e g am e o r wh et h er M r. Bag d anwas o ffi ci at i n g atth e g am e. On l y two en tri es fo r g am es l i st edo n th e cal en d ar i nd i cat e M r. Bag d an ’ s co n n ect i o n t o th e g am es . Fu rt h er, s o m e g am es o n th e t wo l i s t s are n o tl i s t ed o n t h e
co rres p o n d i n g d at es o n th e cal en d ar. As a res u l to f t h i s i n co n s i st en cy the Co u rt d o es no taffo rdm

u ch wei g htt o th e l i s t s o r t h e cal en d ar. Un fo rtu n at el y

fo r p et i t i o n ers , the l aw req u ires m o re t h an wh atp et i t io n ers h av e p ro v i d edt o s ub s t an t i at e ex p en s es rel at ed t o d ri v i n g v eh i cl es fo r a b u si n es s . Th e Co u rtco n cl u d es th atp et it i o n ers are n o t en ti t ledt o d educt$ 1 6 ,5 7 9 fo r car an d tru ckex p en s es . IV. Accu racy -Rel at edPen al ty Res p o n d en td et erm i n edth e accu racy -rel at ed p en al ty fo r 2 01 1 b ecau s e p et i t i o n ers ’ u n derp aym en t was du e t o a s ubs t an t i al u n d ers t at em en to f i n co m e t ax
o r n eg li g en ce o r d i s reg ardo f ru l es o r reg u l at i o ns . See s ec. 6 6 6 2 (a) an d(b )(1 )
an d (2 ). A t ax p ay er m ay

b e l i ab l e fo r a 2 0 % accu racy -rel at edp en al ty o n t h e p o rt i on o f an u n d erp aym en to f i n co m e t ax at tri b u t ab l e t o a s ub s t an t i al
u n d ers t at em en to f i n co m e t ax or t o n eg l i g en ce o r d is reg ardo f ru l es o r reg u l at i o n s . Sec. 6 6 62 (a)-(d ). On l y

o ne s ect i o n 6 6 6 2 accu racy -rel at edp en al ty m ay b e i m p o s ed wi th res p ect t o an y g i v en p o rt i o n o f an u nd erp aym en t , ev en i f t h atp o rt i o n i s at tri b u t ab l e t o m o re t h an o n e t y p e o f co n du ct l i s t edi n s ect i on 6 6 6 2(b ). See New- 1 3 -

Ph o en i x Su n ri s e Co rp . v . Co m m i s s i o n er, 1 3 2 T.C. 1 6 1 , 1 8 7 (2 0 0 9 ), aff’ d , 4 0 8 F. Ap p ’ x 9 0 8 (6 th Ci r. 2 0 1 0 ); s ec. 1 .6 6 6 2 -2 (c), In co m e Tax Reg s . Th e Co m m i s s i o n er b ears th e b u rd en o f p ro du ct i o n wi th res p ectt o a s ect i o n 6 6 6 2
accu racy -rel at edp en al ty

i n an y co urtp ro ceed i n g s wi th res pect t o the l i ab i l i ty o f
an y i n d i v i du al
. Sec. 7 4 9 1 (c). Sect io n 6 7 5 1 (b )(1 ) p ro v i d es th at , s ub j ectt o cert ai n ex cep t io n s i n s ect i o n 6 7 5 1 (b )(2 ), n o p en al ty

s h al l b e as s es s ed u n les s the i ni t i al d et erm i n at i o n o f t h e
as s es s m en ti s p ers o n al l y

ap p ro v edi n wri t i n g b y

th e i m m ed i at e s uperv i s o r o f t h e i n d i v i du al m ak i n g th e d et erm i n at i o n o r s u ch h i g h er l ev el o ffi ci al as the Secret ary
m ay d es i g n at e. Wri tt en ap pro val o f t h e i n it i al p en al ty d et erm i n at io n u nd er s ect i on 6 7 5 1 (b )(1 ) m

u s tb e o b tai n edn o l at er t h an th e d at e t h e n ot i ce o f d efi ci en cy i s i s su edo r t he d at e t he Co m m i s s i o n er fi les an an s wer o r am en d edan swer as s ert i n g th e p en al ty . Ch ai v . Co m m i s s i o n er, 8 5 1 F.3 d1 9 0 , 2 2 1 (2 dCi r. 2 0 1 7 ), aff’ g i n p art , rev ’ g i n p art T.C. M em o . 2 0 1 5 -4 2 ; s ee al so Graev v . Co m m i ss i o n er, 1 4 9 T.C. 4 8 5 , 4 9 3 (2 0 1 7), s up p l em en t i n g an do v erru l i ng i n p art1 4 7 T.C. 4 6 0 (2 0 16 ). Co m p l i an ce wi th s ect i o n 6 7 5 1 (b )(1 ) i s p arto f t h e Co m m i s s i on er’ s b u rd en o f p ro duct i o n i n an y

d efi ci en cy cas e i n wh i ch a p en al ty s ubjectt o s ect i o n 6 7 5 1 (b )(1 ) i s as s ert ed . Ch ai v . Co m

m is s i o n er, 8 5 1 F.3 d at 2 2 1
.- 1 4 -

Th e p art i es s t i p u l at eda co p y o f a W o rk

pap er # 3 0 0 , Ci v i l Pen al ty Ap p ro v al Fo rm , th atap p ro v edi m

p o s it i o n o f an accu racy -rel at ed p en al ty ag ai ns tp et it i o n ers
o n th e b as i s o f a s ub st an t i al u n d ers t at em en to r n eg l i g en ce o r d i s reg ardo f ru l es o r reg u l at i o n s . Th at fo rm

b o re a s i g n atu re o f El ai n Li i n th e g ro up m an ag er s i g n atu re l i ne an dwas s i g n edo n M ay 1 6 , 2 0 1 4
. Aft er t h i s cas e was s ub m i t t ed , th e Co u rt i ss u ed i ts Op i n i o n i n Cl ay v . Co m m i s s i o n er, 1 5 2 T.C. _

_ (Ap r. 2 4, 2 01 9 ). In Cl ay the Co u rtco n cl u dedth at
s ect i on 6 7 5 1 (b ) m ay

req u ire wri t ten ap p ro v al o f p en al t i es b efo re th e i s s u an ce o f a
n o t i ce o f d efi ci en cy . Th e Co u rth el d th atth e “ i n it i al d et erm i n at i o n ” o f t h e p en al t i es o ccu rredwh en th e IRS m ai l eda 3 0 -d ay l et t er, wh ich fo rm al ly
co m m u n icat edt o th e t ax p ay ers p ro p o s edad ju s t m en t s th at i n cl u d edp en al t i es an d g av e th e t ax p ay ers th ei r ri g htt o p ro t es tth e p ro p o s edp en al t i es . Th e Co u rtb y

o rd er p erm i t t ed res p on d en tt o fi l e a m o t i on t o reo p en th e
reco rdt o p ro v i d e ev i den ce o f co m p l i an ce wi th Cl ay

an d p ro v i dedp et i t i o ners an
o p p o rtu ni ty

t o fi l e a res p o n s e i f res p o n d en tfi l eda m o ti o n t o reo p en th e reco rd
. Res po n d en tfi leda m o t i o n t o reo pen th e reco rds up p ort edb y a d ecl arat i o n o f El ai n Li , wh o was th e g ro up m an ag er o f t h e rev en u e ag en twh o ex am i n edp et i t i on ers ’ 2 0 1 1 retu rn . Th e Co u rtg ran t edth atm o ti o n . Pet i ti o n ers d i dn o tfi l e a res p o n s e.- 1 5 -

Th e Co u rtfi n d s o n th e b as i s o f t h e s t i p ul at edreco rdan dth e d ecl arat i o n o f El ai n Li th atres po n d en t h as fai l edt o m eeth i s b u rd en o f p ro du ct i o n an d h e m ay
n o ti m p o se t h e s ect io n 6 6 62 (a) p en al ty . See i d
. To refl ectthe fo reg o i n g , Deci s i o n wi ll b e en t eredfo r
res p o nd en t as t o the d efi ci en cy an dfo r p et i t i o ners as t o th e accu racy -rel at edp en al ty
u n der s ect io n 6 6 6 2 (a).