# PURSUANT TO INTERNAL REVENUE CODE SECTION 7463(b),THIS OPINION MAY NOT BE TREATED AS PRECEDENT FOR ANY OTHER CASE.T.C. Sum m ary Opi ni on 20 13 -5 0

UNITED STAT ES TAX COURT

ESTATE O F CIC ERO IOAN LIMBEREA, DECEASED, LIUDMILA CARAMAN, EXECUTRIX, AND LIUDMILA CARAMAN, Pet it io ne rs v. COM MIS SIONER OF INTERNAL REVENUE , Res po nd en t

Doc ke t No . 11 21 6- 11 S. Fil edJu ne 24 , 20 13
.
Ci cero Ioa n Li m

be rea andLiu dm il a Car am an , pro ses e. 1 Rac he l L. Pau l, fo r res po nd en t.

SUMM ARY OPINION GUY, Spec ia l Tri al Ju dg e: Thi s ca se was h eardpu rs uantto th e pr ov is io ns of s ect io n 7 46 3 o f th e In te rn al Rev enue Co de ineffe ctwhen th e
Mr. Limbereaap pe aredan d t es ti fie d wh enth is cas e was cal le d fo r tr ia l. He 1 pa ss edaway

a few m on th s af

te r th e tr ia l an d M s. Ca ram anwas app oi nt edto serve as ex ecu tri x o f hi s es ta te , whi chis no w subjec t t o p ro ba te inth e Co m m on weal th of Virg in ia
.- 2 -

pe ti ti on was fi le d. Pur su an t t o s ect io n 7 46 3( b) , th e d eci si onto be en te redis no t 2
rev ie wab le by any

othe r co urt, an d thi s o pi ni on sh al l n otbe tre at edas p rece de nt fo r an y othe r cas e. Res po nd en t d et erm in edde fic ie nc ie s i n d eced en t an d M s. Caram an ’s Fed eral in co m e ta x a ndaccu racy-rela te d p en al ti es forth e y ears an d i n the am ou nt s as fo ll ows :
Year Defi ci en cy Pen al ty se c. 66 62 (a) 20 08 $3 4,3 64 $6 ,87 3 20 09 1,5 43 30 9 Ci cero Ioa n Li m

be rea ( de ced en t o r Mr. Li m be rea) an d Li udm il a Car am an(Ms
. Cara m an ) were h us ba ndan d wi fe dur in g the y ears inis su e, an d the y fil eda ti m el y pe ti ti on forred et erm in at io n wi th th e Co urt p ur su an t t o s ect io n 6 21 3( a). At the ti m e th e p et it io n was fil ed , th ey res id edinVirg in ia
.

Sect io n re fere nc es are t o the Int ern al Rev enue Co de (Co de ), as am en de d 2 an d i n e ffec t fo r th e y ears inis su e, an d R ul e ref eren ces are t o the Tax C ou rt R ul es of Prac ti ce an d P ro cedur e. All m on et ary am ou nt s ar e ro un de d t o the ne ares t do ll ar.- 3 -

Afte r co nc es si on s, th e is su es rem ai ni ng indi sp ut e are whet he r de ced en t 3
an d M s. Ca ram an : (1 ) are en ti tl edto a de du ct io n o f $1 02 ,56 7 fo r va rio us ex pe ns es rep orte d o n S ch edul e C, Pro fitor Lo ss Fro m Bu si ne ss , forth e ta xabl e y ear 2 00 8, (2 ) rec ei ve d m is cel lane ou s i nc om e o f $8 ,08 8 dur in g the tax ab le y ear 20 09 , and(3) are l iabl e fo r acc ur acy-rela te d p en al ti es un de r se ct io n 6 66 2( a) fo r th e ta xabl e y ears 20 08 an d 2 00 9. Bac kg ro un d So m e o f th e fac ts ha ve be enst ip ul at edan d a re s o fo un d. Th e st ip ul at io n o f fact s an d the acco m

pa nyin g e xh ib it s ar e in co rp or at edhe rei n b y th is refe ren ce. I. Mr. Lim

be rea’s Em

pl oym en t Du rin g 2 00 8 Mr. Limbereawas acert ifi edpubl ic acco un tant(C.P.A.) an d e arn eda ba ch el or ’s deg ree a nda m as te r’s de gr ee. On Dec em

be r 31 , 20 07 , Mr. Lim

be rea was hi redas the di rect orof
acco un ti ng po li cy

an d re se arch forth e co ns um er fi na nc e g ro up at Am eri can Deced en t an d M s. Ca ram anco nc ed e th atth ey : (1 ) fai le d t o re po rt o th er 3 in co m e o f $8 00 , in te res t i nc om e o f $2 42 , andqu al ifi eddi vi de nd s o f $1 ,59 2 fo r th e ta xabl e y ear 2 00 8; (2) fai le d t o re po rt i nt eres t i nc om e o f $1 9, qua li fie d d iv id en ds of $6 02 , ord in ary di vi de nd s o f $7 44 , a Sta te tax refu ndof $ 8,0 84 , and un em pl oym en t co m

pe ns at io n o f $1 4,4 98 forth e ta xabl e y ear 2 00 9; an d (3 ) are no t en ti tl edto a de du ct io n o f $2 0,0 93 forun rei m bu rs edem

pl oyee bu si ne ss ex pe ns es as rep orte d o n S ch edul e A, Ite miz edDedu ct io ns , forth e ta xabl e y ear 2 00 9. To th e ex te ntno t d is cu ss edhe rei n, o th er i ss ue s ar e co m pu tati on al an d fl ow fr om ou r de ci si on inth is cas e.- 4 -

In te rn at io na l Gro up (AIG) in New York , New York . Mr. Lim be rea was hi redas anat- wil l em

pl oyee by DavidFab ric an t, v ic e p res id en t an d c on tro ll er o f AIG’s
co ns um er fi na nc e g ro up . Bot h p art ie s ex pe ct edth e em pl oym en t re la ti on sh ip to
co nt in ue in de fin it el y . Mr. Fab ric an t s up erv is edMr. Lim be rea dur in g the pe rio d Ja nu ary 1 thr ou gh Ju ly 200 8. AIG pa idMr. Lim

be rea a n a nn ua l b as e sa lary of $ 18 5,0 00 an d a“ si gn -o n” bo nu s o f $4 0,0 00 . The b on us was i nt en de d i n p artto off se t m ov in g e xp en se s i f Mr. Limbereade ci de d t o m ov e h is fam il y fro m Virg in ia , wher e th ey

were re si di ng atth e ti m e, to New York
. Mr. Limbereaele ct edno t t o m ov e h is fam il y to New York . Ins te ad , he
worke d i n AIG’s o ffi ces inNew Yorkan d re nt eda ho te l ro om on Sta te n Is land whe re h e st ay eddu rin g the week . Mr. Lim be rea c omm

ut edba ckto hi s h om e in Virg in iaon th e week en ds
. AIG is su edMr. Lim

be rea aco rp or at e cre di t ca rd . Con si st en t wi th AIG po li cy , Mr. Lim

be rea was requi redto pro vi de AIG with re cei pt s fo r bu si ne ss ex pe ns es ch arg edto th e car d a nd , if h e p ai d any AIG bus in es s ex pe ns es fro m hi s own fun ds , he was ob li ge d t o re qu es t re im bu rs em en t fr om

AIG andpro vi de
rece ip ts or i nv oi ces to subs tant ia te th os e ex pe nd itur es . It was AIG’ s p ol ic y to- 5 -

rei m bu rs e anem

pl oyee fo r pr op erl y

subs tant ia te d b us in es s ex pe ns es ev enaft er the
em pl oyee lef

t the firm ’s em

pl oym en t. AIG rei m bu rs edMr. Lim

be rea f orm em be rs hi p due s tha t h e p ai d t o the Am eri canIns ti tu te of C ert ifi edPubl ic Acco un tant s (AI CPA) dur in g 2 00 8. AIG al so rei m bu rs edMr. Lim

be rea f orcert ai n m eal s an d e nt ert ai nm en t ex pe ns es , fo rei gntra ve l ex pe ns es , andcel lu lar ph on e se rv ic e fee s i nc urreddu rin g 2 00 8. AIG di d n otrequi re Mr . Lim be rea t o m ai nt ai n p ro fes si on al m al pr act ic e in su ran ce o r a h om e o ffi ce as a co nd it io n o f hi s emplo ym en t. AIG de ci de d t o c lo se it s co ns um er fi na nc e g ro up inth e la tt er h al f of 20 08
. Mr. Limberea ’s em

pl oym en t wi th AIG end edon Nov em be r 6, 2 00 8. II. Mr. Li m

be rea’s Em

pl oym en t Du rin g 2 00 9 Dur in g 2 00 9 M r. Lim

be rea was em

pl oyed b y OldMu tu al Bu si ne ss Serv ic es , In c., an d h e rec ei ve d aFo rm 10 99 -MI SC, Mi sc el lane ou s In co m e, rep orti ng in co m e o f $8 ,08 8 fo r 20 09 . Mr. Lim be rea r ecal le d tha t thi s i nc om e rel at edto sh ares of s to ckina co rp or at io n h e id en ti fie d a s “ Delp hi ” th atwere tran sf erre d t o hi s Am eri tra de bro ke rag e acc ou ntdu rin g 2 00 9. He di d n otin cl ud e th e v al ue of 4

It app ears th atMr. Lim

be rea m ay

have be enrefe rri ng to Delp hi Co rp ., an 4 in te rn at io na l au to m ob il e p art s m anuf actur er.- 6 -

th e sh ares inhi s an d M s. Ca ram an ’s tax ab le in co m e fo r 20 09 , ho wev er, b ecau se he be li ev edth atth e sh ares were wo rth le ss by the en d o f th aty ear. III. J oi ntTax R eturns for20 08 an d 2 00 9 Deced en t an d M s. Ca ram anti m el y fil edjoi ntFed eral in co m e ta x re tu rn s fo r 20 08 an d 2 00 9. Th ey

att ach eda Sch edul e C t o the ir t ax return fo r 20 08 fora bu si ne ss id en ti fie d a s LTG Ri skInt ern at io na l, LLC (LTG). The Sc he du le C id en ti fie d M s. Ca ram anas t he pro pr ie to r of LTG, rep orte d g ro ss rece ip ts of $ 60 0,
an d c la im eda de du ct io n o f $1 02 ,56 7 fo r va rio us ex pe ns es li st edbe lo w: Exp en se Am ou nt Supp li es $3 60 Leg al /p ro fes si on al 65 0 Dep reci at io n a ndsec . 17 9 2,0 84 Bu si ne ss us e o f ho m e 8,4 46 Oth er 5,9 54 Uti li ti es 6,8 12 Mea ls an d e nt ert ai nm en t 2,2 60 Rep ai rs an d m ai nt en an ce 5,7 50 In su ran ce (o th er tha n h eal th ) 6,5 83 Co m mis si on s an d fe es 14 ,37 5 Adv ert is in g 12 ,00 0 Trav el 17 ,06 2 Car a ndtru ck 20 ,23 1 Tota l 10 2,5 67- 7 -

The $8 ,44 6 l is te d abo ve forbu si ne ss us e o f ho m e is de riv edfro m two Fo rm s 8 82 9, Ex pe ns es for Bu si ne ss Use o f You r Hom e, at ta ch edto th e 2 00 8 return. Bo th Fo rm s 8 82 9 l is te d M s. Ca ram anas p ro pr ie to r an d i nd ic at edth atth e ho m e was us edfor

“ Co ns ul ti ng , fin an ci al ” work. On e Fo rm 88 29 rel at edto de ced en t an d M s. Ca ram an ’s ho m e in Virg in ia . The rec or d d oe s n otrefl ectth e lo cat io n o f th e p ro pe rty tha t was th e subjec t o f th e se co ndFo rm 88 29 (se co nd pr op erty ). The Fo rm s 8 82 9 i nd ic at edth at33 % of t he Virg in iaho m e an d 4 7% o f th e se co ndpro pe rty were us edreg ul arl y an d e xc lu si ve ly for b us in es s p ur po se s. IV. Tax Re tu rnPrep arat io n Mr. Limbereaus edTurb oTa x, a s of twar e p ro gr am , to pre pare the joi nt returns for20 08 an d 2 00 9. Th ere i s n o e vi de nc e th atde ced en t o r Ms . Caram an co ns ul te d wi th a ta x p ro fes si on al be fo re s ig ni ng th ei r returns an d s ub m it ti ng th em to th e In te rn al Rev enue Serv ic e (IR S). V. Mr. Lim

be rea’s Tes ti m on y Mr. Limberea ’s tes ti m on y at t ria l was ev as iv e, va gu e, an d i nc on si st en t. Altho ug h h e d idno t o fferan y ev id en ce t o s ub st an ti at e th e cl ai m , Mr. Lim be rea be li ev edth atun id en ti fie d p ers on s co ns pi redto de ny him rei m bu rs em en t fo r va li d bu si ne ss ex pe ns es th athe in cu rredon be ha lf o f AIG.- 8 -

The reco rdin cl ud es de ced en t an d M s. Ca ram an ’s m on th ly check in g a cco un t st at em en ts for20 08 , in cl ud in g h an dwr it te n n ot at io ns att rib ut in g c ert ai n p aym en ts fo r ph on e, el ectric , tra sh di sp os al , an a larm syste m , in su ran ce, an d h om eo wne rs as so ci at io n fe es to LTG. Oth er l arg er p aym en ts are i de nt ifi edas e xp en se s re la te d to for ei gn tra ve l an d C .P.A. in suran ce. Dis cu ss io n As a g en eral rul e, th e Co m m is si on er’s d et erm in at io n o f a t ax pa y er’s l iabi li ty in a no ti ce o f de fic ie nc y

is pre su m edco rrec t, an d the tax pay er b ears th e b ur de n o f pr ov in g tha t the de te rm in at io n i s i nc orrect . Rul e 1 42 (a); W el chv. Hel ve rin g, 2 90 U.S. 11 1, 1 15 (19 33 ). As d is cu ss edinde ta il be lo w, dec ed en t an d M s. Ca ram anha ve no t co m pl ie d with the Co de ’s subs tant ia ti on requi rem en ts , no r ha ve th ey m ai nt ai ne d a ll requi red
reco rd s. Th eref

or e, th e b ur de n o f pr oo f as to an y rel ev an t fa ctua l i ss ue do es no t sh iftto res po nd en t u nd er s ect io n 7 49 1( a). See sec . 74 91 (a)( 1) an d (2 ); Hi gb ee v . Co m m is si on er, 1 16 T.C. 43 8, 4 42 -4 43 (20 01 ). Deduc ti on s ar e a m at te r of leg is la ti ve gra ce, an d the tax pa y er b ears th e bu rd enof p ro vi ng en ti tl em en t t o a ny deduc ti on cla im ed . Rul e 1 42 (a); INDOPCO, In c. v. Co m

m is si on er, 5 03 U.S. 79 , 84 (19 92 ); Ne w Col on ia l Ic e Co . v. Hel ve rin g, 29 2 U.S. 4 35 , 44 0 (1 93 4) . A tax pa y er m us t s ub st an ti at e d educ ti on s b y ke ep in g- 9 -

an d p ro du ci ng ad equa te reco rd s tha t en ab le th e Co m m is si on er t o d et erm in e th e ta xp ay er’s co rrec t t ax li ab il ity . Sec. 6 00 1; Hrad es ky v. Co m mis si on er, 6 5 T.C. 8 7, 89 -9 0 (1 97 5) , aff’d p er cu ria m , 54 0 F .2d82 1 (5 th Cir . 19 76 ); M en eg uz zo v. Co m m is si on er, 4 3 T.C. 8 24 , 83 1- 83 2 (1 96 5) . A tax pa y er cl ai m in g ade du ct io n o n a Fed eral in co m e ta x re tu rnm us t d em on st rat e th atth e d educ ti on is all owabl e pu rs ua ntto a st atut ory

pro vi si on an d m

us t fu rth er s ub st an ti at e th atth e ex pe ns e to whi chth e d educ ti on rel at es ha s b eenpa idor i nc urred . Sec. 6 00 1; Hrad es ky v. Co m m is si on er, 6 5 T.C. at89 -9 0. Und er s ect io n 1 62 (a), a d educ ti on is all owe d fo r or di na ry an d n eces sa ry ex pe ns es pa idor i nc urreddu rin g the tax ab le y ear i n c arrying on an y tra de or bu si ne ss . The d et erm in at io n o f whe th er anex pe nd itur e sa ti sf ie s the requi rem en ts fo r de du ct ib il ity

un de r se ct io n 1 62 is a qu es ti on of f act . See Co m

m is si on er v . Hein in ge r, 32 0 U.S. 4 67 , 47 5 (1 94 3) . A deduc ti on no rm al ly is n otav ai labl e fo r pe rs on al , li vi ng , or fa m il y ex pe ns es . Sec. 2 62 (a). The term “ tra de or b us in es s” in cl ud es pe rfo rm in g s erv ic es as a n e m pl oyee. Pri m ut h v . Comm is si on er, 5 4 T.C. 3 74 , 37 7- 37 8 (1 97 0) . Howev er, anem pl oyee ex pe ns e is no t o rd in ary an d n eces sa ry if the em pl oyee is en ti tl edto rei m bu rs em en t fro m hi s o r he r em

pl oyer. See Po de m s v . Comm is si on er, 2 4 T.C. 2 1, 2 2- 23 (1 95 5) ; No z v . Comm is si on er, T.C. Mem o. 2 01 2- 27 2.- 10 -

Whe n atax pay er es tabl is he s tha t h e o r sh e p ai d o r in cu rreda de du ct ib le
ex pe ns e, bu t fa il s t o e st ab li shth e am ou ntof t he de du ct io n, the Co urt n orm al ly
m ay est im at e th e am ou ntall owabl e as a de du ct io n. Co ha n v . Comm is si on er, 3 9 F.2 d 5 40 , 54 3- 54 4 (2 d C ir. 1 93 0) ; Van ic ekv. Co m mis si on er, 8 5 T.C. 7 31 , 74 2- 74 3 (1 98 5) . There m

us t b e su ffi ci en t ev id en ce i n the reco rd , ho wev er, t o p erm it th e Co urt t o c on cl ud e th ata de du ct ib le ex pe ns e was pa idor i nc urredinat l eas t the
am ountall owe d. Will ia m s v . Uni te d S ta te s, 2 45 F.2d55 9, 5 60 (5t h C ir. 1 95 7)
. Sect io n 2 74 (d ) pr es cri be s s tri ctsubs tant ia ti on requi rem en ts forde du ct io ns fo r ex pe ns es rel at edto tra ve l (i nc lu di ng m eal s an d l od gi ng ), en te rta in m en t, g ift s, an d wi th res pe ctto “ li st edpro pe rty”. Sanf or d v . Comm is si on er, 5 0 T.C. 8 23 , 82 7 (1 96 8) , aff’d p er cu ria m , 41 2 F .2d20 1 (2 d C ir. 1 96 9) ; s ec. 1 .27 4- 5T(a ), Tem po rary Inco m e Tax Reg s., 5 0 F ed . Reg . 46 01 4 (No v. 6 , 19 85 ). As rel ev an t he re, the term

“ li st edpro pe rty” in cl ud es pa ss en ge r au to m ob il es . Sec. 28 0F (d )(4 )(A)(i ). 5 To s at is fy th e requi rem en ts of s ec. 2 74 (d ), a ta xp ay er g en eral ly m us t 5 m ai nt ai n re co rd s an d d oc um en tary ev id en ce wh ic h, i n c om

bi na ti on , are s uf

fic ie nt to est ab li sh th e am ount , dat e an d t im e, an d b us in es s p ur po se of e achsep arat e ex pe nd itur e o r bu si ne ss us e o f li st edpro pe rty. Sec. 1.2 74 -5 T(b) (6 ), Tem po rary In co m e Tax Reg s., 5 0 F ed . Reg . 46 01 6 (No v. 6 , 19 85 ). The C ourt m ay no t u se th e ru le inCo ha n v . Comm is si on er, 3 9 F .2d54 0, 5 43 -5 44 (2dCir . 19 30 ), to est im at e ex pe ns es subjec t t o s ec. 2 74 (d ). San fo rdv. Co m m is si on er, 5 0 T.C. 8 23 , 82 7 (1 96 8) , aff’d p er cu ria m , 41 2 F .2d20 1 (2 d C ir. 1 96 9) ; s ec. 1 .27 4- 5T(a ), (co nt in ue d...)- 11 -

I. Sch edul e C Ex pe ns es --2 00 8 A. Trave l Expe ns es an d Leg al an d P ro fes si on al Serv ic es Mr. Limbereates ti fie d tha t u ns pe ci fie d p orti on s o f th e d educ ti on s fo r tr av el
ex pe ns es an d l eg al an d p ro fes si on al servi ces cla im edon Sch edul e C were rel at ed to hi s emplo ym en t wi th AIG. Con se qu en tl y , he was requi redto rep ort tho se ex pe ns es on Sch edul e A as un rei m bu rs edem

pl oyee ex pe ns es , rathe r th anon Sch edul e C. Furth er, t o b e el ig ib le to de du ctun rei m bu rs edem

pl oyee bu si ne ss ex pe ns es , he was ob li ge d t o s ho w th athe was n oten ti tl edto rei m bu rs em en t fr om AIG. See Orv is v. Co m

m is si on er, 7 88 F.2d14 06 , 14 08 (9t h C ir. 1 98 6) , aff’g T.C. Mem o. 1 98 4- 53 3; Luca s v . Comm is si on er, 7 9 T.C. 1 , 7 (1 98 2) ; So lo m on v. Co m m is si on er, T.C. Mem o. 2 01 1- 91
. Inan y ev en t, Mr . Lim

be rea f ai le d t o p ro du ce an y

do cu m en ta ti on , su chas bi ll s, re cei pt s, o r in vo ic es , to subs tant ia te th athe pa idan y ex pe ns es fortra ve l an d le ga l an d p ro fes si on al servi ces ass oc ia te d wi th hi s wo rkforAIG du rin g 2 00 8 o r th atAIG den ie d re im

bu rs em en t fo r an y

su chex pe ns es . See Po de m s v . 6 Co m m is si on er, 2 4 T.C. at22 -2 3. Th e Co urt i s n otbo un d t o a ccep t a t ax pa y er’s (...co nt inue d) 5 Tem po rary Inco m e Tax Reg s., 5 0 F ed . Reg . 46 01 4 (No v. 6 , 19 85 ). The reco rdrefl ect s tha t AIG rei m burs edMr. Lim

be rea f or hi s AIC PA 6 m em be rs hi p due s.- 12 -

se lf- se rv in g, u nv eri fie d, an d u nd oc um en te d t es ti m on y . She a v . Comm is si on er, 11 2 T.C. 1 83 , 18 9 (1 99 9)
. The reco rdli ke wis e is de vo idof a ny do cu m en ta ti on , su chas b il ls , recei pt s, orin vo ic es , to subs tant ia te th ateit he r Ms . Caram anor M r. Lim be rea p ai d o r in cu rredan y

ex pe ns es fortra ve l an d l eg al an d p ro fes si on al servi ces ass oc ia te d with wo rkforLTG dur in g 2 00 8. Co ns is te ntwith the for eg oi ng , we su st ai n re sp on de nt ’s det erm in at io n di sa ll owi ng de du ct io ns cla im edfortrave l ex pe ns es an d l eg al an d p ro fes si on al
se rv ic es . B. Supp li es , Rep ai rs an d M ai nt en an ce, Co m m is si on s an d F ees , Adv ert is in g, an d Othe r Exp en se s Deced en t an d M s. Ca ram ancla im edde du ct io ns forsupp li es , rep ai rs an d
m ai nt en an ce, co m

m is si on s an d fe es , adv ert is in g, an d o th er ex pe ns es , con si st in g o f pr in ti ng co st s, b oo ks , m ag azi ne s, an d p os ta ge . They di d n otpre se ntany rece ip ts , can cel edch eck s, o r si m il ar re co rd s t o s ub st an ti at e th es e ex pe ns es , andth ere i s n o ev id en ce i n the reco rdth atwou ldall ow u s t o e st im at e th e am ou nt s o f an y al lo wab le de du ct io ns . See Van ic ekv. Co m m is si on er, 8 5 T.C. at74 3. Co ns eque nt ly, res po nd en t’s d et erm in at io n d is al lo win g the se de du ct io ns is
su st ai ne d.- 13 -

C. In su ran ce Deced en t an d M s. Ca ram ancla im eda de du ct io n fo r pr of es si on al
m al pr act ic e in su ran ce. Mr. Li m be rea was no t re qu ire d t o m ai nt ai n p ro fes si on al
m al pr act ic e in su ran ce as a co nd it io n o f hi s emplo ym en t wi th AIG. Mor eo ve r, th ere i s n o e vi de nc e, su chas r ecei pt s, ca nc el edch eck s, o r in suran ce re co rd s subs tant ia ti ng th e ex pe ns e. Acco rd in gl y , res po nd en ts ’ de te rm in at io n d is al lo win g th e d educ ti on forin su ran ce ex pe ns es is su st ai ne d. D. Meal s an d En te rta in m en t an d Veh ic le Exp en se s Deced en t an d M s. Ca ram ancla im edde du ct io ns form eal s an d e nt ert ai nm en t
ex pe ns es an d v eh ic le ex pe ns es . The rec or d re fle ct s tha t AIG rei m burs edMr. Lim be rea f orcert ai n m eal s an d e nt ert ai nm en t ex pe ns es an d trav el ex pe ns es . There is no do cum en ta ti on , su chas b il ls , recei pt s, o r m il eag e lo gs , sh owi ng th e am ou nt , ti m e an d p la ce, an d b us in es s p ur po se for an y ad di ti on al ex pe ns es form eal s an d
en te rta in m en t o r ve hi cl e ex pe ns es . See s ec. 2 74 (d ). Con se qu en tl y , res po nd en t’s 7

In as m uc h a s M r. Lim

be rea’s em

pl oym en t wi th AIG was i nd efi ni te , as 7 op po se d t o t em

po rary, no d educ ti on is all owe d fo r th e co stof M r. Lim be rea’s week en d trip s fr om

New Yorkto Virg in iadu rin g 2 00 8. Insh ort, tho se tri ps di d no t am ou ntto “ tra ve li ng ex pe ns es * * * wh il e away from ho m e” wi th in th e m ean in g o f se c. 16 2( a)(2 ). See Tu ck er v . Comm is si on er, 5 5 T.C. 7 83 , 78 6 (1 97 1) ; Kro ll v. Co m

m is si on er, 4 9 T.C. 5 57 , 56 2 (1 96 8)
.- 14 -

de te rm in at io n d is al lo win g the de du ct io ns cla im edform eal s an d e nt ert ai nm en t an d
ve hi cl e ex pe ns es is su st ai ne d. E. Bus in es s Us e o f Hom e Deced en t an d M s. Ca ram ancla im eda de du ct io n fo r two ho m e o ffi ce s pa ces du rin g 2 00 8. Sp eci fic al ly, th ey cla im edth atth ey

us ed40 0 s qu are f

eetof the ir 1,2 00 -s qu are- fo otho m e in Virg in iaas a n o ffi ce an d 9 00 squa re fe etof a n un id en ti fie d s eco ndpro pe rty as anoff ic e. Sect io n 2 80 A(a) s et s fo rth th e g en eral rul e th atanin di vi du al tax pa y er o r an S co rp or at io n i s n otpe rm it te d t o c la im a de du ct io n wi th res pe ctto th e u se of a dwe ll in g u ni t wh ic h i s u se d dur in g the tax ab le y ear b y th e ta xp ay er as a res id en ce. Sect io n 2 80 A(c) p res cri be s an ex cep ti on to th e g en eral rul e o f subs ect io n (a ) as fo ll ows : SEC. 2 80 A(c). Exc ep ti on s fo r Certa in Bu si ne ss or R en ta l Us e; Lim it at io ns on Dedu ct io ns forSu chUse.--

(1 ) Certa in bu si ne ss us e.--Subs ect io n (a ) sh al l n ot ap pl y to an y it em to th e ex te ntsu chit em

is all oc ab le to a po rti on of t he dwel li ng un itwhi chis ex cl us iv el y us edon a reg ul ar b as is
--

(A) as th e p rin ci pa l p la ce o f bu si ne ss foran y tra de orbu si ne ss of t he tax pa y er, (B) a s a p la ce o f bu si ne ss whi chis us edby pa ti en ts , cli en ts , or c us to m ers inm eet in g o r de al in g wi th- 15 - th e ta xp ay er i n the no rm al co ur se of h is tra de or bu si ne ss , or (C) i n the cas e o f a s ep arat e st ru ctur e whi chis no t at ta ch edto th e dwell in g u ni t, i n c on ne ct io n wi th th e ta xp ay er’s trad e o r bu si ne ss . Inth e cas e o f anem

pl oyee, th e p ro ceed in g s en te nc e sh al l ap pl y on ly if th e ex cl us iv e u se referredto inth e p rece di ng sen te nc e is fo r th e co nv en ie nc e o f hi s emplo y er. Fo r pu rp os es of subp arag rap h (A) , th e te rm “pr in ci pa l p la ce o f bu si ne ss ” in cl ud es a pl ace o f bu si ne ss whi chis us edby the tax pay er fo r th e admin is tra ti ve or m an ag em en t ac ti vi ti es of a ny trad e o r bu si ne ss of t he tax pa y er i f th ere i s n o o th er fi xe d l oc at io n o f su chtra de or b us in es s wh ere t he tax pa y er co nduc ts subs tant ia l adm in is tra ti ve or m an ag em en t ac ti vi ti es of s uc h trad e o r bu si ne ss . Insu m , sec ti on 28 0A( c)(1 ) pe rm it s a d educ ti on forex pe ns es th atare al lo cab le to a po rti on of adwel li ng un itwhi chis ex cl us iv el y us edon a reg ul ar ba si s as th e p rin ci pa l p la ce o f bu si ne ss foran y tra de or b us in es s o f th e ta xp ay er. Lofs tro m v. Co m mis si on er, 1 25 T.C. 27 1, 2 77 -2 78 (20 05 ). If th e ta xp ay er i s an em pl oyee, ho wev er, a d educ ti on is av ai labl e o nl y if, i nt er al ia , th e h om e o ffi ce i s
m ai nt ai ne d fo r th e co nv en ie nc e o f th e em pl oyer. Ham ach er v . Comm is si on er, 9 4 T.C. 34 8, 3 53 -3 54 (19 90 ). An em pl oyee can no t m ai nt ai n aho m e o ffi ce p ur el y as

“ a m at te r of

pe rs on al co nv en ie nc e, co m fo rt, o r eco no m y .” Sh aro n v . Co m m is si on er, 6 6 T.C. 5 15 , 52 3 (1 97 6) , aff’d, 5 91 F.2d12 73 (9t h C ir. 1 97 8)
.- 16 -

The re i s n o e vi de nc e th atan y sp ace i n e ithe r th e Vir gi ni a h om e o r th e se co ndpro pe rty was u se d e xc lu si ve ly andon a reg ul ar b as is as LTG’s pr in ci pa l pl ace o f bu si ne ss . Nor h as th ere b eenan y sh owi ng th atMr. Lim

be rea u se d a sp eci fic sp ace a t ei th er p ro pe rty to p erfo rm hi s dut ie s fo r, oras aco nd it io n o f hi s em pl oym en t wi th , AIG. See Fran ke l v . Comm is si on er, 8 2 T.C. 3 18 , 32 5- 32 6 (1 98 4) . On th e rec or d p res en te d, re sp on de nt ’s det erm in at io n i s s us ta in ed , andth e de du ct io ns cla im edforbu si ne ss us e o f ho m e are di sa ll owe d. F. Depr eci at io n Deced en t an d M s. Ca ram ancla im eda de du ct io n fo r de pr eci at io n. Se ct io n 16 7( a) al lo ws a d ep reci at io n d educ ti on for ex haus ti on , wear an d t ear, an d ob so le sc en ce o f pr op erty if the tax pa y er u se s s uc h p ro pe rty in atra de or b us in es s orothe r in co m e-p ro du ci ng act iv ity . Sec. 1 .16 7( a)-1 (a), In co m e Tax Reg s. Sec ti on 16 8 p ro vi de s the ge ne ral rul e th atth e d ep reci at io n d educ ti on auth or iz edby sect io n 16 7( a) fo r an y

tan gi bl e p ro pe rty sh al l b e d et erm in edby usi ng (1) th e ap pl ic ab le de pr eci at io n m etho d, (2 ) th e ap pl ic ab le reco ve ry pe rio d, an d (3 ) th e ap pl ic ab le
co nv en ti on . The re i s n o e vi de nc e in th e rec or d o f anex pe nd itur e in res pe ctof a de pr eci ab le ass etor t he m etho d u se d t o c al cu la te th e d ep reci at io n d educ ti on .- 17 -

The refo re, res po nd en t’s d et erm in at io n i s s us ta in ed , andth e d ep reci at io n d educ ti on is di sa ll owe d. G. Util it ie s Deced en t an d M s. Ca ram ancla im eda de du ct io n fo r ut il ity ex pe ns es . The
reco rdin cl ud es th e co up le ’s m on th ly check in g a cco un t s tate m en ts for20 08 , in cl ud in g h an dwr it te n n ot at io ns att rib ut in g c ert ai n p aym en ts forph on e, el ectric , tra sh di sp os al , andho m eo wne rs ass oc ia ti on fees to LTG. Ther e h as be enno sh owi ng th atth e u ti li ty bil ls are an yth in g o th er than n on de du ct ib le pe rs on al
ex pe ns es . Sec. 2 62 (a). Acco rd in gl y , res po nd en t’s d et erm in at io n d is al lo win g the de du ct io n c la im edforut il ity ex pe ns es is su st ai ne d. II. Mi sc el lane ou s In co m e--2 00 9 Deced en t an d M s. Ca ram anfai le d t o i nc lu de intax ab le in co m e $ 8,0 88 rep orte d t o re sp on de nton Fo rm 10 99 -MI SC fo r 20 09 . Mr. Lim be rea r ecal le d tha t
anun di sc lo se d n um

be r of sh ares of s to ckina co rp or at io n h e ref erre d t o a s

“ Delp hi ” were t ran sf

erre d t o h is Am eri tra de bro ke rag e acc ou nt , bu t h e d idno t in cl ud e th e v al ue of t he sh ares inin co m e b ecau se he be li ev edth e sh ares were worth le ss by the en d o f 20 09
. Und er the cir cu m st an ces , we con si de r Mr. Li m be rea t o h av e co nc ed edth at he rece iv edin co m e in th e am ou ntsetforth inth e Fo rm 10 99 -MI SC, s ee s ec. 6 1( a),- 18 -

whi le ass ert in g tha t h e rea li zeda cap it al lo ss forth e ta xabl e y ear 2 00 9 u nd er se ct io n 1 65 (g ). Howev er, h e fai le d t o o fferan y ev id en ce s ho win g tha t the sh ares 8 of st oc k tran sf

erre d t o h is bro ke rag e acc ou ntwere i nd eedwort hl es s atth e en d o f 20 09 . See, e.g ., Morto n v . Comm is si on er, 3 8 B .T.A. 127 0, 1 27 8- 12 79 (19 38 ) (the ta xp ay er m

us t s ho w an abs en ce o f bo th po te nt ia l an d l iqui d v al ue by y eare ndin
or de r to su st ai n aworthl es s s to cklo ss ), aff’d, 1 12 F.2d32 0 (7 th Cir . 19 40 ). Res po nd en t’s d et erm in at io n tha t d eced en t an d M s. Ca ram anfai le d t o re po rt in co m e o f $8 ,08 8 fo r th e ta xabl e y ear 2 00 9 i s s us ta in ed , andwe ho ldth atth ey are no t en ti tl edto a worth le ss st oc k l os s fo r 20 09
. III. Sec ti on 66 62 (a) Acc ur acy-Rela te d P en al ti es Sect io n 6 66 2( a) an d (b )(1 ) im po se s a p en al ty equ al to 20 % of t he am ou ntof
an y un de rp aym en t at tri bu tabl e to ne gl ig en ce o r di sr eg ardof rul es or r eg ul at io ns . The term “ ne gl ig en ce” i nc lu de s an y fai lu re t o m ak e a rea so nabl e at te m ptto
co m pl y with t ax laws , and“ di sr eg ard ” in cl ud es an y care le ss , reck le ss , or in te nt io na l d is reg ardof rul es or r eg ul at io ns . Sec. 6 66 2( c). Neg li ge nc e al so in cl ud es an y

fai lu re t o k eep ad equa te bo ok s an d re co rd s o r to subs tant ia te it em s
Sec. 1 65 (g )(1 ) pr ov id es th e g en eral rul e th atif any secu rit y whi chis a 8 cap it al ass etbe co m es wort hl es s dur in g the tax ab le y ear, the lo ss res ul ti ng th eref ro m sh al l b e tr eat edas alo ss fro m th e sa le or e xc ha ng e o f a cap it al ass eton th e la stda y

of t he tax ab le y ear.- 19 -

pr op erl y . Sec. 1 .66 62 -3 (b )(1 ), In co m e Tax Reg s.; see Oli ve v. Co m mis si on er, 1 39 T.C. 19 , 43 (20 12 ). Sect io n 6 66 4( c)(1 ) pr ov id es anex cep ti onto th e im po si ti onof t he accu racyrel at edpe na lty

if the tax pa y er es tabl is he s tha t the re was reas on ab le cau se for , and th e ta xp ay er ac te d i n g oo d fa ith wi th res pe ctto , th e und erp aym en t. Sec . 1.6 66 4- 4( a), In co m e Tax Reg s. Th e d et erm in at io n o f whe th er the tax pa y er ac te d wi th
reas on ab le cau se an d i n g oo d fa ith i s m ad e o n acas e-b y -cas e b as is , tak in g i nt o acco un t the pe rti ne ntfact s an d c irc um st an ces . Sec. 1 .66 64 -4 (b )(1 ), In co m e Tax Reg s. The Co m

m is si on er b ears th e in it ia l b ur de n o f pr oduc ti on . Sec. 7 49 1( c). If th e Co m m is si on er s at is fie s h is bu rd en , th e ta xp ay er the n b ears th e u lt im at e b ur de n of pe rs ua si on . Hig be e v . Comm is si on er, 1 16 T.C. at 4 46 -4 47 . Res po nd en t h as di sc ha rg edhi s b ur de n o f pr oduc ti on un de r se ct io n 7 49 1( c) b y sh owi ng th at de ced en t an d M s. Ca ram anfai le d t o k eep ad equa te bo ok s an d re co rd s, an d the y fai le d t o p ro pe rly subs tant ia te th ei r cl ai m edex pe ns es . See s ec. 1 .66 62 -3 (b )(1 ), In co m e Tax Reg s. Mr. Limbereapre pa redth e ta x re tu rn s i n que st io n u si ng a so ftwa re p ro gr am , an d n ei th er h e n orMs . Caram anco ns ul te d wi th a ta x p ro fes si on al be fo re subm it ti ng th e returns to th e IRS . The rec or d re fle ct s tha t the y fai le d t o re po rt- 20 -

nu m ero us it em s o f in co m e o ve r a two- y ear p eri odan d the y fai le d t o m ai nt ai n the bo ok s an d re co rd s n eces sa ry to subs tant iate th ei r cl ai m edde du ct io ns . Con si de rin g al l the cir cu m st an ces , in cl ud in g the factth atMr. Lim be rea was a C.P.A., we are
un ab le to co nc lu de th ateit he r he or M s. Ca ram anact edwith re as on ab le cau se an d in go odfai th inres pe ctof t he pre pa rat io n andfil in g o f th ei r ta x re tu rn s fo r th e y ears inis su e. As a re su lt , we su st ai n the accu racy-rela te d p en al ti es th at
res po nd en t d et erm in edun de r se ct io n 6 66 2( a) fo r 20 08 an d 2 00 9. To re fle ctth e fo reg oi ng , Deci si on wil l b e en te redfor
res po nd en t.