T .C. Su m m ary Op i n io n 2 01 7 -8 5

UNITED STATES TAX COURT

M ATTHEW

ERIC BAHAM AND J ENNIFER M ICHELLE BAHAM , Pet i t i o n ers v . COM MISSIONER OF INTERNAL REVENUE, R es p o n den t

Do ck etNo . 2 5 6 66 -1 4 S. Fi l edNo vem b er 2 9 , 2 01 7
.

M at t h ew Eri c Bah am

an d J en n i fer M i ch el l e Bah am , p ro s es e. M i ch ael K. Parkan dM arkA. Nel s o n , fo r res p on d en t .

SUM M ARY OPINION
W HERRY, J ud g e: Th is cas e was h eardp u rs u an tt o s ect i o n 7 4 6 3 o f t h e In t ern al Rev enu e Co d e i n effect atth e t i m e t h e p et i ti o n was fi l ed
. 1 Th e d eci s i o n t o

1 Un l es s o t h erwi s e i nd 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 (Co d e), as am en d edan di n effect fo r t h e t ax y ear at i s s u e, an d al l Ru l e referen ces are t o th e Tax Co u rtRu l es o f Pract i ce an dPro cedure.- 2
-

b e en tered i s n o trev i ewab l e b y an y o t h er co u rt , an d t h i s o p in i o n s h al l n o t b e treat ed as p reced en tfo r an y o t h er cas e. Res p o n d en td et erm i n eda $ 1 2 ,2 1 3 d efi ci en cy i n p et it i o n ers ’ 2 0 12 Fed eral i n co m e t ax an d a $ 2 ,4 42 .6 0 s ect i o n 6 6 6 2 (a) accu racy -rel at edp en al ty . W e d eci d e th e fo l lo wi n g i s su es : (1 ) wh et her p et i ti o n ers t i m el y fi l edth ei r p et i t i on , affo rd i n g th i s Co u rt juri s d i ct i o n t o h ear t h e cas e. W e h o l dth atth ey d i dan dth atth i s Co u rth as juri s d i ct i o n t o h ear t h ei r cas e; (2 ) wh et her p et i ti o n ers are en t i t l edt o d edu ct i o n s fo r o t h er ex p en s es o f $ 5 ,0 0 0 an dfo r s up pl i es o f $ 1 6 ,5 3 6 o n thei r Sch edu l e C, Pro fi to r Lo s s Fro m Bu s i nes s, fo r t ax y ear 2 0 1 2 . Aft er t h e p art i es ’ co n ces si o n s , we h ol dth at p et i t i o n ers are en t i t l ed t o d edu ctan ad d i t i on al $ 2 ,8 0 0 fo r 2 0 1 2 (o v er th e $ 2,2 0 0
res p o n d en t al l oweddu ri n g au d i t ) an dt o am o rt ize $ 36 2 .9 3 o v er 1 8 0 m o n t hs b eg in n i n g wi t h Decem

b er 2 0 12 ; (3 ) wh et her p et i ti o n ers are en t i t l edt o i t em i zed d edu ct i o n s cl ai m edo n Sch edu l e A, It em i zedDedu ct i o n s , fo r u n rei m b u rs edem

p l o y ee b u s i n es s ex p en s es
o f $ 2 9,7 9 0 (b efo re ap p l y i n g t h e 2 % AGI fl oo r; aft er t h e fl o or, $ 2 7 ,3 2 6 ) fo r t ax y ear 2 0 1 2 . W e h o l d t h atp et i t i o n ers are n o ten ti t l edt o an y s u ch d edu ct i o ns ; an d- 3
-

(4 ) wh et her p et i ti o n ers are l i ab l e fo r t h e s ect i on 6 6 6 2 (a) accu racy -rel at ed p en al ty . W e h o l dthatth ey are s o l i ab l e, al b ei tfo r a p en al ty redu cedb y

v i rtu e o f th ei r d edu ct io n s as al l o wedi n t h i s o pi n i on . Back gro u n d Pet i t i o ners M at t h ew an d J en n i fer Bah am l i v ed i n Cal i fo rn i a wh en t h ey fi l ed th ei r p et i t i o n . Th ey

were atth att i m e b o th s ch o ol t each ers , an d t h ey fi l eda jo i n t Fed eral i nco m e t ax return fo r 2 0 1 2. Bu t fo r s ect i o n 7 4 6 3(b ), th i s cas e wo u l db e ap p eal ab l e t o t h e Co u rto f Ap p eal s fo r t he Ni n t h Ci rcu i t . I. Pet i t i o ners ’ Back g ro un d Pet i t i o ners res i d edi n M o n ro vi a, Cal i fo rn i a, atth e t i m e t h ei r p et it i on was fi led
. Du ri n g t h e y ear at i s s u e M r. Bah am was an em

p l o y ee o f Lo y o l a Hi g h Sch oo l an do f Edu cat i o n al Tes t i n g Serv i ce (ETS), p erfo rm i n g p ers o n al s erv i ces as a t each er. M rs . Bah am

wo rk edas a fu l l -t im e t each er wi t h the M o n ro v i a Un i fi ed Sch oo l Di s t ri ct , t each in g 9 t h t h ro u g h 1 2t h g rad es . M rs . Bah am was al so an
em pl o y ee o f Un i v ers i t y

o f Ph o en i x , In c., an dETS. II. Pet i t i o ners ’ Tax Retu rn s Pet i t i o ners fi l edth ei r 2 0 1 2 i n co m e t ax retu rno n Ap ri l 1 5, 2 0 1 3 . Onl i n e 2 1
o f t h ei r Sch edul e A they

rep o rt ed$ 29 ,7 9 0 as u n rei m b u rs ed em

p l o y ee ex p en s es . OnM r. Bah am ’ s Fo rm

2 1 06 -EZ, Un rei m

bu rs ed Em

p l o y ee Bu s in es s Ex p en s es ,- 4
-

p et i t i o n ers rep o rt edex p en s es o f $ 5 ,2 0 5
. An do n M rs . Bah am ’ s Fo rm 2 1 0 6-EZ, p et i t i o n ers rep o rt edex p en s es o f $ 1 4 ,0 8 5. 2 Onth ei r 2 0 1 2 Sch edul e C p et it i o n ers rep o rt edM rs . Bah am t o b e t h e p ro p ri et or o f a p h ot o g rap h y b us i n es s cal l ed Cap tu redb y J em i Ph o t o g rap h y . On th atSch edu l e C p et i t io n ers rep o rt edg ro s s recei p t s o f $ 1,0 5 0 an dcl ai m edth e fo l l o w i n g ex p en s e d educt i o n s : $ 6 5 0 fo r ad v ert i si n g ; $ 1 2 0 fo r car an dtru ck
ex p en s es ; $ 8 3 0 fo r o ffi ce ex pen s es ; $ 1 6 ,5 3 6 fo r s up p l ies ; $ 6 0 0 fo r u t i l i t i es ; an d $ 5 ,0 0 0 fo r o th er ex pen s es , wh i ch were d es cri b edas “ St artup Co s t s ”. Onth ei r 2 0 1 2 Fo rm

8 8 29 , Ex p en ses fo r Bu s i n es s Us e o f Yo u r Ho m e, p et i t i o ners rep o rt ed d i rect ex p en ses o f $ 9 5 0 an di n d i rect ex p en s es o f $ 2 , 5 00 fo r rep ai rs an d
m ai n t en an ce, am o n g o t h er ex p en s es . III. M rs . Bah am ’ s Ph ot o g rap h y Act i v it i es M rs . Bah am fi rs tb ecam e i nt eres t edi n p ho t o g rap h y wh i le i n co l l eg e, wh ere
s h e u nd ert o o k co u rs ewo rki n th e s ub ject . Atthe t i m e, s h e u s edan o l d cam era an d b l ack -an d -wh i t e fi lm . Aft er s h e g radu at edfro m co l l eg e i n 1 9 9 9 , s he b eg an t each i n g o u to f n eces s i t y . Sh e m arri edM r. Bah am an d co n t i n uedt o t each . Wh i l e
s h e n ev er l os ti n t eres t i n p h o t o g rap h y , s h e l ack edth e fi n an ci al m ean s t o p u rs u e i t

2 Th e am o un t s fro m

th e Fo rm s 2 1 0 6-EZ ad dup t o $ 1 9 ,2 9 0, wh i ch i s s ub s t an t i al l y

l es s th an th e $ 2 9,7 9 0 p et i t i o n ers rep o rt ed o n t h ei r Sch edu l e A as u n rei m b u rs edem

p l o y ee ex p en s es . Th i s d i s crep an cy rem ai n s u n ex p l ai n ed
.- 5
-

al th o u g h s h e wo u l dfro m t i m e t o t i m e t ak e p o rt rai t s o f fri en d s an dfam i l y . Ov er th e y ears , M r. Bah am

wo u l dp urch as e l en s es fo r h er, m ak i n g s u re t o b u y th o s e at th e t o p o f t h e l i n e t o en s u re th at , ev en as cam era t ech n o l og y ad v an ced , the l en s es
co u lds t i l l b e u s ed
. 3 M rs . Bah am fi rs td eci d edt o at t em p tt o p u rs u e p h ot o g rap h y p ro fes s i o n al l y

i n 2 0 1 0 o r 2 0 1 1 , wh en th e s ch o ol wh ere s h e wo rk edt o oka tu rn fo r t h e wo rs e. Th us , i n 2 0 1 2, M rs . Bah am , i n ad d i t io n t o wo rk i n g fu l l t im e as a t each er, b eg an t o
en g ag e i n p h ot o g rap h y -rel at edact i v i t i es duri n g ev en i n g s an dweek en d s . Her g o al
was t o tran s i t i o n ev en tu al l y o u to f t each in g an di n t o p h o t o g rap h y as a fu l l -t i m e b u s i n es s . Befo re 2 01 2 s h e d i dn o ten g ag e i n p ro fes s i o n al b u si nes s act i v i t i es rel at i n g t o p h o t o g rap h y

al t h o u gh as n o t eds h e d id t ak e p o rtrai t s fo r fri en d s an d fam i l y . Wh en M rs . Bah am d eci d edt o p u rs u e p h o t o g rap hy p ro fes si o n al l y i n 2 0 1 2 , s h e b eg an ch arg i ng fo r h er s erv i ces b u tco n t i nu edt ak i n g p i ctu res wi t h o u tch arg e fo r fri en d s an dfam il y . Sh e fo un dh ers el f b al an ci n g h er t each i n g career wi t h h er p h o t o g rap h y , fi g u ri n g o u tth e b u s i n es s s i d e as s h e wen t . M rs . Bah am h ad o n l y th ree as s ert edb u si n es s p h o to s h o o t s i n 2 0 1 2 : a m at ern i t y s ho o t , an i n fan ts h o o t ,

3 Fo r ex am

p l e, s om et i m e i n 2 00 2 o r 2 0 0 3 M r. Bah am b o u gh ttwo EF EOS l en s es as g ift s fo r M rs . Bah am . M r. Bah am p u rch as edth e l en s es wi t h an ey e t o ward p ot en t i al fu tu re u s e i n a b u s i n es s al t h o u g h an y actu al s t ep s t o w ard es t ab l i s h in g th e b u si n es s were u n d ert ak ens o m e y ears l at er.- 6
-

an d an en g ag em en ts h oo t . Her fi rs tcl i en teffo rt was t h e m at ern i t y s h o oti n M arch
o r Ap ri l 2 0 1 2
. Th e m at ern i t y an dth e i n fan ts h o o ts were fo r t h e s am e p ers on , th e i n s tru ct o r o f M rs . Bah am ’ s m art i al art s cl as s . Th e en g ag em en t s h o o twas fo r M r. Bah am ’ s y o un g er s i s t er. Wh i l e M rs . Bah am d i d n o tch arg e h er s i s t er-i n -l aw, n o r
was th e l at ter u n d er an y

o bl i g at i o n t o p ay , s h e d i d p ay M rs . Bah am fo r t h e
en g ag em en tp h o t o g rap h s . Th e reco rdd o es n o t es t ab l i s h d efi n i t i v el y wh en M rs . Bah am p erfo rm ed p h o t o g rap h y

s erv ices fo r h er fi rs tp ay i n g cl i en t , n o r wh ats h e ch arg ed fo r s u ch
s erv i ces du ri n g 2 0 1 2 . Atth e t i m e o f t ri al M rs . Bah am ch arg ed$ 3 5 0 fo r a s i t t i n g , wh i ch i n cl u d es an 8 x 1 0 p h o t o g rap h an da d ig i t al co p y th ereo f, wi th ad d i ti o n al ch arg es fo r ad d -o n s . M rs . Bah am u sedan Ap p l e l ap t o p s h e p u rch as edaro u n d 2 0 0 9 o r 2 0 1 0 t o h o ldh er d i g i t al p h o t o g rap h s. Pet i t i o ners p u rch as eda h i g h -en d Can o n cam era o n J u n e 2 4 , 2 0 12 , b el i ev i n g i t neces s ary

fo r M rs . Bah am ’ s s u cces s i n h er p h o t og rap h y b u s i n es s . Th e h i g h -en d
cam era was i n t en d edt o rep l ace a l es s -ad v an cedcam era b o dy M rs . Bah am

al read y
o wn ed . Al s o i n 2 0 1 2 p et i t i o ners b eg an co n v ert i n g an ap p ro x i m at el y 3 5 0 -s qu arefo o tro o m i n th ei r h o m e i n to a p h o t o g rap h y o ffi ce an d co nt i n u edt o m ak e s u ch
ren o v at i o n s th ro u gh o u t2 0 1 2 . M r. Bah am p urch as edth e s up pl i es fo r t h e
ren o v at i o n an dp erfo rm edth e wo rkh i m s el f. On e o f t h e p ro ject s i n v o lv edcreat i n g- 7
-

m o re n atu ral l ig h tthro u gh th e ad d i t i o n o f a wi nd o w. Fu rt h er wo rki n v o l v ed cl o s i ng o ff t h e en t ryway

t o th e ro o m

an dm ak in g i ti n t o a d oo rway , as wel l as recarp et i n g th e ro o m

an dru n n in g el ect ri cal wi res fo r ch arg i ng s t at i o n s an d a
co m p u t er. Pet i t i o n ers b el i ev edth at t h es e ren o v at i o n s were n eces saryt o creat e a p ri v at e o ffi ce an ds tu d i o fo r M rs . Bah am al t h o u g h th e ro o m , wh i ch was a fam i l y
ro o m b efo re th e co n v ers i o n , was u s edas a p h o t o g rap h y d en b efo re t h e
ren o v at i o n s , as earl y

as J an u ary

o r Feb ru ary

2 0 1 2
. Bey o n d t h e ex p en s es M rs . Bah am i n cu rredfo r t h e p u rch as e o f t h e cam era, a b o o ko n p h o t o g rap h y

p u rch as edearl i er i n th e y ear, an dthe h o m e ren o v at i o n s , p et i t i o n ers rep o rt edfu rth er ex p en s es fo r t h ree p h o t o g rap h y -b as edweb p ag es (Sn ap fi s h , Li fe To u ch , an dZenFo l i o ), fram es an do t h er p h ot o g rap h y p ro du ct s (Aaro n Bro t h ers ), p ub l i s h i n g (M y Pub l i s h er), ad d i t i o n al p h ot o g rap h y equ ip m en t (Samy ’ s Cam era), p h o to g rap h p ro du ct i o n (M i l l er’ s M -Pi cs ), a co n feren ce o n p o rt rai tu re (Beg i n n i n g Po rt rai tu re, t hro u g h Ev en tb ri t e), v ari o u s p ro du ct s , p ro p s,
an d acces s o ri es (W al -M art , Co s tPl u s , an dW orl dM ark et ), an d UPS s h i p p i n g co s t s fo r t h e recei p t o f p i ctu res an d/ o r fram es . 4 M rs . Bah am al s o rep o rt ed $ 4 5 0 , wh i ch
was o ne-t h i rdo f h er es t im at edan n u al cel l u l ar p h o n e b i l l , as a b u s i n es s ex p en s e.

4 Attri al , M r. Bah am

ex p l ai n edth atth e web p ag e ex p en s es m ay h av e b een cl as s ifi edas ad v ert i s i n g ex p en s es o n p et i t i o n ers ’ t ax return b u t was n o tcert ai n .- 8
-

Th e t o t al cel l u l ar p h o n e b il l was s p l i t i n t o eq u al th i rd s : o n e-t hi rdfo r t h e p h o t o g rap h y

b u s i n es s , o ne-t h i rdfo r t each in g act i v i t i es , an do n e-t h i rdfo r p ers o n al
u s e. To s ub s tan t i at e th e ab o v e ex p en s es , p et i t i o ners p res en t edth e fo l l o w i n g d o cu m en t at i o n : (1 ) a p ri n t o u tfro m

Am azo n ev i den ci n g t h e p u rch as e fo r $ 3 ,0 7 1.9 5 an d
s h i p m en to n J un e 2 5 , 2 0 1 2 , o f a Can on EOS-1 Ds M arkIII 2 1
. 1 M P Di gi t al SLR Cam era b o dy ; (2 ) a p ri n t o u tfro m

Am azo n ev i den ci n g t h e p u rch as e fo r $ 1 5 .9 8 an d
s h i p m en to n Feb ru ary

2 5 , 2 0 12 , o f a b o okt i t l edUn d ers t an d in g Ex p o s ure, 3 rd Ed i t i on : Ho w t o Sh o otGreatPh o t o g rap hs wi t h An y Cam era, b y

Bry anPet ers o n ; (3 ) b an ks t at em en t s wi t h th e fo l l o wi n g p u rch as es m ark edwi t h th e l et t er “ P” fo r “ Ph o t o g rap h y ”, t ot al i n g $ 3 ,7 7 3 .5 0 :- 9
- M erch an t Lo cat i o n To t al ex p en d i tu re Th e Ho m e Dep o t M on ro v i a, Cal
. $ 2 ,0 9 4 .3 7 Veri zo n W i rel es s Un s peci fi ed 1 1 7 2.1 4 Sears Ro eb u ck Pas ad en a, Cal
. 8 2 .6 2 S G Nu rs ery San Gab ri el , Cal
. 6 9 .0 3 Km art Tem p l e Ci t y , Cal
. 2 2 5.6 2 Sn ap fi s h Un s peci fi ed 1 3 .6 1 M i ch ael s M on ro v i a, Cal
. 7 2 .4 1 Co s tp l us Pas ad en a, Cal
. 5 4 .2 6 Bear Es s en t i al s Sh o p p e Arcad i a, Cal
. 1 9 .4 9 W o rl dM ark et Pas ad en a, Cal
. 3 9 .1 1 Th e UPS St o re M on ro v i a, Cal
. 4 4 .6 2 Beg i n n in g Po rt rai tu re Ev en tb ri te/u n s p eci fi ed 7 5 .0 0 Th e Do g Zo n e M on ro v i a, Cal
. 7 0 .0 0 M p i x/ M i l ler’ s Un s peci fi ed 4 4 .5 2 Zen fo l i o .co m Un s peci fi ed 2 5 .0 0 W al -M art Du art e, Cal .7 7 7 .7 3 Du n n an dOl s enCarp et Tem p l e Ci t y , Cal
. 1 2 0.0 0 M y Pub l i sh er, In c. Un s peci fi ed 2 2 1.8 4 Aaro n Bro t h ers Pas ad en a, Cal
. 7 8 .3 0 Do l l ar Tree Arcad i a, Cal
. 1 8 .4 9 J o an n Fab ri c Arcad i a, Cal
. 3 4 .8 0 Li fet o u ch On l i n e Un s peci fi ed 2 7 .0 0 Samy ’ s Cam era, In c. Pas ad en a, Cal
. 3 4 .2 7 St at s Fl o ral Sup pl y Pas ad en a, Cal
. 5 9 .2 7
1 Attri al , M r. Bah am

n o tedth at , s i n ce t h i s ch arg e fo r cel lu l ar s erv i ce was recu rri n g m o nt h l y , h e es t i m at edth e t o t al an n u al ch arg e u s i n g th i s n um b er, arri vi n g at$ 1 ,3 50 fo r th e y ear. On e-t h irdo f t h atn u m b er i s $ 4 5 0 , wh i ch i s th e am ou n t cl ai m edfo r each o f t he Sch edu l e C ex p en s es an du nrei m b u rs edem

p lo y ee ex p en s es .- 1 0 -

M rs . Bah am co n t in uedh er p h o to g rap h y b u s i n es s aft er 2 0 1 2 , t ak i n g a h i atu s i n 2 0 1 4 fo r th e b i rt h o f a ch i l d b u t return i n g t o i ti n 2 0 1 5
. Th o s e s ub seq u en ty ears p res en t edan i m

p ro v em en to v er 2 0 1 2 , wi t h m o re freq u en t p h o t o s h o ot s . IV. Pet i t i o ners ’ Teach i n g Act i v i t i es M r. Bah am

was a t each er du ri n g 2 0 1 2 . Inad d it i o n t o h is p ri m ary
o ccupat io n , h e ran th e SAT p ro g ram ath is s ch o ol t hro u g h ETS, ano ffs it e s erv ice th atad m i n i s ters the SAT. He was en g ag edas a co n t ract o r an dwas co m pen s at ed b y ETS. M rs . Bah am

was al s o i n v o l vedwi t h ETS. M rs . Bah am b ecam e a t each er aft er g radu at i n g fro m co l l eg e i n 1 9 99 . Sh e
wo rk edas a fu l l -t i m e h i g h s ch o o l t each er duri n g t h e t ax y ear at i s su e. Seek i n g t o en gag e h er s tu d en t s ’ at t en t i o n , M rs . Bah am u s edl iv e an i m al s i n h er cl as s ro o m

as an as p ecto f h er b i o lo g y an d zo o l o g y co u rs e i n s t ru ct i o n . Th i s
m et h o d, wh i l e effect i v e, was n o ten d o rs edb y t he s ch o o l d i s t ri ct . M rs . Bah am
n o n et h el es s v i ewedi tas n eces s ary t o en g ag e h er s tu den t s , wh o o t h erwi s e were p ro n e t o ap at h y . Th e s ch o o l d i s t ri ct em pl oy i n g M rs . Bah am co nfro n t ed m u l t i p l e d i s ci pl i n ary

p ro b l em s wi t h i n th e s tu d en tb o dy , an dh er u s e o f an im al s h el pedt o al l ev iat e s o m e o f t h e t ard i n es s an dtru an cy th atm i g h th av e res u l t edo t h erwi s e. Du ri n g 2 0 1 2 , M rs . Bah am was a m em

b er o f t h e M o n ro v i a Teach ers As s oci at i o n , CTA/

NEA, a un i on , an dh er em p lo y m en twas s ub

ject t o a co n t ract- 1 1 -

b et ween i tan dh er em

pl oy er. Un d er t h atag reem en t, wh i ch was i n effect fro m J u l y 1 , 2 01 2 , t o J un e 3 0 , 2 0 1 5 , th ere was n o rei m b u rs em en tp o l i cy

fo r t each ers wh en th ey i ncu rredcl as s ro om ex p en s es o n th ei r o wnacco u n t . As n o tedab o v e, M rs . Bah am cl ai m eda $ 4 50 d edu ct i o n fo r cel l u lar p h o n e
ex p en s es , wh i ch was o n e-thi rdo f p et it i o n ers ’ t o tal es t i m at edcel l u l ar p h on e b i l l fo r t h e y ear. M rs . Bah am u s edh er p ers o n al cel l u lar p h o n e, b ecau s e s h e d i dn o t h av e a t el ep h o n e fo r h er u s e atwo rkan d t here was an u n wri t ten ex p ect at i o n b y h er
em pl o y er t hats h e wo u l db e av ai l ab l e t o b e reach edb y p h o n e cal l an d t ex t
m es s ag e. Pet i t i on ers m ai n t ai n eda s ep arat e h o m e t el ep h o n e l i n e du ri n g 2 01 2
. Fu rt herm o re, M rs . Bah am cl ai m edd edu ct i o ns fo r res earch an dl it erat u re
ex p en s es i n cu rredatth e Di s co v ery Sci en ce Cen ter an dth e Lo s An gel es Zo o an d th ro u g h th e p u rch as e o f m o v i e t i ck et s . Wh il e p et i t i o n ers h ada p as s al l o wi n g th em free ad m i t t an ce t o the Lo s An g el es Zo o , o n o n e d ay i n 2 0 1 2 M rs . Bah am

m ad e a p aym en t fo r an act i v i t y

th ere i nv o l v i n g an i m al b i o l o gy , th at p et i t io n ers s eekt o d educt . M r. Bah am

acco m p an i edh is wi fe t o th e m o v i e t h eat er. M rs . Bah am cl ai m ed ex p en s e d edu ct io n s fo r fi sh t an k s up p li es an dan i m al feedan d care t h ats h e u n d ert o o kwi t h res pect t o h er zo o l o g y i ns t ru ct i o n. M rs . Bah am k ep tth e an i m al s --two b eard eddrag o n s, two Afri can g ray p arro t s , s ev eral red -eared s l i ders , two rab b it s , a t o rt oi s e, k o i , an da rai nb o wb o a--at the s ch o o l- 1 2 -

wh ere s h e wo rk eddu ri n g the s ch o o l y ear b utb ro u gh t t h em h om e o v er t h e s u m m er
m o nt h s . Th e an i m al s co u l db e l eftal o n e fo r up t o a week , p ro v i dedth ey were
s up p li edwi t h ad equat e fo o d, s o M rs . Bah am wo u ldl eav e t h em

atth e s ch o ol fo r th e week lo n g s p ri n g b reakan dwo u l dco m e i n o nce t o feed th em o v er th e fo rt ni g h t -l o n g wi n t er b reak
. Pet i t i o ners d i dn o tn am e t h e an i m al s . Pet i t i o ners ’ ch il dren d i dn o tl i k e h av in g th e an i m al s ath o m e b ecau se t h ey were req ui redt o cl ean up aft er t h em . Th e an i m al s were eas i l y t ran s p o rt edt o p et i t i o n ers ’ h o m e fo r t h e s umm er: th e rep t i les were p l aced i n cl o t h s ack s o r s h o eb o x es ; th e p arro ts were t ran s p ort edi n a p etcarri er wi t h a b u i lt -i n p erch an dk ep t i n a cag e i n p et i t io n ers ’ b ack y ard ; th e rab b i t s were m o v edi n a p etcarri er; an dthe fi s h were t ran s p ort edi n a b u ck etan d k ep t i n an aqu ari u m

atp et i t i o n ers ’ h o u s e. Pet i t i o ners h adh adt o m ak e
m o di fi cat i o n s t o th ei r h o u s e t o acco m m o dat e t h e an i m al s . Pet i t i o ners h ada m i n i atu re co l l ie ath om e, t h ou g h t h ey ad m i t tedth at , rel y i n g o n t h e b an ks t at em en t s th ey s o u g h tt o u s e t o co rro b o rat e th ei r ex p en s es , th ey co u l dn o td i fferen t i at e b et ween th e ex p en s es as s o ci at edwi t h th e d o g an dth e
ex p en s es as s o ci at edwi t h th e cl as s ro o m an im al s . Th e b an ks t at em en t s p et i t i o n ers p res en t ed , wi t h t h e fo l lo wi n g p u rch as es m ark edwi t h t h e l et t er “ T” fo r “ Teach i n g ”, t o t al $ 2,2 0 9 .0 8 :- 1 3 -

M erch an t Lo cat i o n To t al ex p en d i tu re Co m m u n i t y Co m p an i o n Tem

p l e Ci t y , Cal
. $ 1 9 4 .1 2 Di s co v ery

Sci en ce Cen t er San t a An a, Cal
. 1 0 5.0 0 Pet s m artIn c. Pas ad en a/ M o n ro v i a, Cal
. 8 3 9.6 9 Wh i t t i er Narro ws Feed Wh i t t i er, Cal
. 7 1 .3 6 Veri zo n W i rel es s Un sp eci fi ed 1 17 2 .1 4 Great er LA Zo o As s o c. Lo s An g el es , Cal
. 8 9 .0 0 Ip i c Th eat ers Pas ad en a Pas ad en a, Cal
. 1 8 0.0 9 AM C San t a An i t a Arcad i a, Cal
. 1 8 .0 0 Th e Feat her Farm s Nap a, Cal
. 4 2 .0 2 Bi rdHi l l Pro du ct s Un sp eci fi ed 1 5 4.4 4 Th e Do g Zo n e M on ro v i a, Cal
. 8 5 .0 0 Pet co San Gab ri el , Cal
. 1 2 6.6 6 Lak es h ore Learn i n g Pas ad en a, Cal
. 7 6 .7 7 Hi g hl an der Pet Cen t er M on ro v i a, Cal
. 2 3 .7 9 An i m al Ho s p i t al Du art e, Cal
. 3 1 .0 0

1 See s up ra p . 9 , t ab l e n o t e 1
. Atth e t im e o f t ri al , M rs . Bah am was s t i l l wo rk i ng as a t each er. V. No t i ce o f Defi ci en cy an dthe Part i es ’ Co n ces si o n s Fo r t h e 2 0 1 2 t ax y ear p et i t i o n ers t i m el y fi l edthei r i n co m e t ax retu rno n Ap ri l 1 5 , 2 0 13 , an dres p o nd en tm ai l eda n ot i ce o f d efi ci en cy o n J u l y 2 4 , 2 0 1 4
. In th e n ot ice res p o n d en td i s al l o wedSch edul e C/ o t h er ex pen s e d edu ct i o n s o f $ 5 ,0 0 0 an dSch edu l e C/ s up p li es ex p en s e d edu ct i o n s o f $ 1 6 , 5 36 . Attri al p et i t i o n ers res tri ct edthei r cl ai m s t o o n l y s ev encat eg o ri es o f ex p en ses t o t al i n g $ 7 ,5 8 6 .6 4 rel at i n g t o M rs . Bah am ’ s p h o to g rap h y b u s i n es s : $ 3 ,0 7 1
. 9 5 fo r a Can o n EOS-1 Ds M arkIII b o dy ; $ 2 ,1 8 7 .5 3 fo r h o m e ren o v at i on s ; $ 4 4 .6 2 fo r s h i p p i n g ;- 1 4 -

$ 6 5 5 .1 7 fo r p ro du ct s ; $ 1 ,0 00 .1 2 fo r p ro p s an dacces s o ri es ; $ 17 7
. 2 5 fo r l it erat u re,
co n feren ce, an dweb co st s ; an d$ 4 5 0 fo r o n e-t h i rdo f t h e co s ts o f a cel l p h o n e. Pet i t io n ers co n ced edres p o n d en t ’ s rem ai n i ng ad ju s tm en t s t o th ei r Sch edu l e C
ex p en s es . Res p o n den t , i n tu rn , h as co n ced edth at t h e Can o n cam era p et i t i o n ers p u rch as edo n J u ne 2 5, 2 01 2 , fo r $ 3 ,0 7 1 .9 5 , an dth e b o o kt i t l edUn d ers t an di n g Ex p os u re, 3 rd Ed i t io n: Ho wt o Sh o o tGreatPh ot o g rap h s wi t h An y Cam era t h ey p u rch as edo n Feb ru ary

2 5 , 2 01 2 , fo r $ 1 5 .9 8 are o rd i n ary an dn eces s ary

b u s i n es s
ex p en s es wi th res p ectt o M rs . Bah am ’ s 2 0 1 2 Sch edu l e C p h o t o g rap h y act i v i t y . Res po n d en tm ai n t ai n s , h o wev er, t h atth es e ex p en s es are s t artup ex p en s es an d th erefo re n o t cu rren t l y

d edu ct i b l e u n d er s ect i o n 1 9 5 b u t m u s tb e cap i t al i zedan d d educt edas p ro v i d edi n s ect i o n 1 9 5 (b ). Res p o n d en th as n o tco n ced edp et i t i o n ers ’
o th er cl ai m edex p en s e d edu ct i o n s. Res p o n d en tal s o d i sal lo w edd edu ct i o n s fo r $ 2 9,7 9 0 o f u n rei m b urs ed
em pl o y ee ex p en s es . Attri al p et i t i o n ers res t ri ct edth ei r cl ai m s t o o n l y th ree cat eg o ri es o f ex pen s es rel at i n g t o t h ei r t each i n g act i v i t i es : $ 2 ,1 7 8 .6 3 fo r an i m al feedan d care; $ 37 2 .9 2 fo r res earch an dl i t erat u re; an d$ 4 50 fo r o n e-t h irdo f t h e
co s t s o f a cel l p h on e. Pet i t i o n ers co n ced edres p o n d en t ’ s rem ai n i n g ad ju s t m en t s t o th ei r Sch edu l e A ex p en s es . Am o n g tho s e co n ces s i o n s was th e d edu ct i o n o f an i n co rrect am o u n t fo r M rs . Bah am ’ s u ni o n du es ex p en s es . Pet i t io n ers ’ t ax retu rn- 1 5 -

i n d i cat edt o t al ex p en s es o f $ 8 ,0 0 0 fo r u n io n du es ; h o wev er, p et i t i on ers cl ai m that th i s am o u n ti s i n co rrect an ds h o u l db e $ 80 0 i ns t ead . Th e $ 7 ,2 0 0 d i fferen ce was d i s al lo wedo n ex am i nat i o n b y res p o n den tan di ncl u d edi n th e d efi ci en cy n o t i ce. Res p o n d en th as d et erm i nedth atp et i t i o n ers o we an accu racy -rel at eds ect i o n 6 6 6 2 (a) an d (b )(1 ) an d(2 ) p en al t y fo r an u n d erp aym en tdu e t o a s ub s t an t ial
u n d ers t at em en to f i n co m e t ax , o r al t ern at iv el y t o n eg l i g en ce i n fai l i n g t o m ai n t ai n ad equat e reco rd s o f rep o rt edex p en s es . VI. Pet i t i o n an d Tri al Th e l as td ay

fo r p et i t i o n ers t o fi l e a p et i t i o n wi t h th is Co u rtwas Oct o b er 2 2, 2 0 1 4 . Pet i t i o n ers ’ pet i t i o n was s i g n edan dd at edOct o b er 2 1, 2 0 14 . Itarri v edat th i s Co u rtb y

U.S. Po s t al Serv i ce (USPS) fi rs t -cl as s m ai l an d was fi l edo n Oct o b er 2 8 , 2 0 1 4 . Th e en vel o p e i n wh ich th e p et it i on arri vedb o re a s h i p p i n g l ab el , d at ed Oct o b er 2 2 , 2 0 1 4 , p ri n t edfro m En d i ci a.co m , wi t h b o t h USPS an dEn di ci a l o g o s
up o n i t. Th e s h ip pi n g l ab el al s o i n cl u d eda USPS Cert i fi edM ai l b arco d e wi t h the fo l l o w i n g 2 2 -d i g i t track i n g n u m b er: 9 4 0 7 1 1 0 2 0 0 8 8 1 3 6 2 6 9 82 6 7
. Tri al i n th i s cas e was h el do n Decem b er 1 0, 2 0 1 5 , i n Lo s An g el es , Cal i fo rn i a. Attri al M r. Bah am rep res en t ed h i m s el f an dM rs . Bah am . 5 Inad d i t i o n

5 Al t h o ug h th ere i s n ot hi n g i n t h e reco rdt o es t ab l i s h th e ex t en to f M r. Bah am ’ s au t h o ri t y

t o rep res en th i s wi fe, res p on d en th as n o tch al l en g edi t , n o r h as (co n ti n u ed ...)- 1 6 -

t o a jo i nts t i pu l at i on o f fact s wi t h acco m p an y i n g ex h i bi t s l o d gedwi t h t h e Co u rt
an d en t eredi n t o ev i d en ce, p et it i o n ers i n t ro du cedtwo ad d i t i o nal ex h i b i t s , o n e wi t h recei p t s an d b an ks t at em en t s , an dth e o t h er wi t h a M o n ro v i a Hi g h Sch o o l Di s tri ct
an d Teach ers As s o ci at i o n Co n t ract . M r. Bah am cal l edh i m s el f as a wi t n es s an d t es t i fi edo n th e reco rd . Po rt i o n s o f h i s t es t i m o ny are i n co rp o rat edh erei n. VII. Po s t T ri al M at t ers OnFeb ru ary 2 3 , 2 0 1 6, res p o n d en t fi l edh i s b ri ef i n th e cas e. Pet i t i o ners h av e fai l edt o fi l e an y

b ri efs . OnM ay

2 3, 2 0 1 6 , th e Co u rts u a s p o n t e rai s edth e qu es ti o n o f wh et h er p et it i o n ers t i m el y fi l edth ei r p et i t i o n an d t h erefo re wh et h er t h e Co u rth as juri s d ict i o n o v er t h e m at t er; the Co urto rd eredth e p art i es t o fi l e b ri efs
o n th e i s s u e. Res po n d en tfi l edh i s b ri ef o n J u ne 3 , 2 0 16 . Pet i t i o n ers d i dn o t
res p o n d t o th e Co urt ’ s o rd er. In an o rd er i ss uedJ u n e 1 7 , 2 0 1 6 , th e Co u rtt o o k ju d i ci al n o t i ce o f t h e USPS track i n g i n fo rm at i o n fo r t h e p et i t i on an dth e Freq u en t l y As k edQu es t i o n s o n th e

5 (...co n t in u ed ) res p o n d en t m o v edt o d i s m i s s M rs . Bah am fro m thi s cas e fo r l acko f p ro s ecu t i o n . Ev en were we t o d i s m is s h er, a d eci s i o n wo u lds t i l l b e en t eredfo r a d efi ci en cy an d p en al ty i n t h e s am e am o u n t s as fo r M r. Bah am , s ee, e.g ., Bi g d el i v . Co m m i s s i o n er, T.C. M em o . 2 01 3 -1 4 8 , at* 5 , an d t h e o ut co m e rem ai n u n ch an g ed
.- 1 7 -

USPS web si t e. 6 Th e t rack i n g i n fo rm at i o n o b tai n edfro m USPS i nd i cat ed t h at

“p re-s h i p m en t i n fo rm at i o n ” was s en tt o th e USPS o n Oct o b er 2 3, 2 0 14 , b u tn o

6 A co urt m ay

t ak e ju d i ci al n o t i ce o f ap p ro p ri at e ad ju d i cat i v e fact s atan y s t ag e i n a p ro ceed i n g , wh et h er o r n o ts u ch n o t i ce i s req u es t ed b y th e p art i es . See Fed
. R. Ev i d . 2 0 1 (c); s ee al so Un i t edSt at es v . Harri s , 3 31 F.2 d 6 0 0 , 6 0 1 (6 t h Ci r. 1 9 6 4 ) (ex p l ai n in g thata co u rtm ay t ak e ju d ici al n o t i ce s u a s p o n te). In g en eral , a co u rtm ay n o t e fact s t h atare cap ab l e o f accu rat e an d read y d et erm in at i o n b y

res o rt t o s o u rces wh o s e accu racycan n o treas o nab l y b e ques t i o n ed . Fed . R. Ev i d . 2 0 1 (b ). In fo rm at i o n p o s tedo n a g o v ern m en t al ag en cy ’ s o ffi ci al web s i t e m ay b e ap p ro p ri at e fo r ju d i ci al n o t ice. See, e.g ., M ars h ek v . Ei ch en l aub , 2 6 6 F. Ap p ’ x 3 9 2 , 3 9 2 (6 t h Ci r. 2 0 0 8 ); Den i us v . Du n l ap , 3 3 0 F.3 d9 1 9 , 9 2 6 -9 2 7 (7 t h Ci r. 2 0 03 ) (h o l d i n g i tp ro p er t o t ak e ju d i ci al n o t i ce o f i n fo rm at i o n o n an o ffi ci al web si t e o f a Fed eral ag en cy

th atm ai nt ai n edm ed i cal reco rd s o n ret iredm i l i t ary p ers o n nel b ecau s e s u ch factwas n ots ub jectt o reas on ab le d i s p u t e). Th u s, th i s Co u rth as h el dth atg o v ern m en tweb s i t es are s el f-au t h en t i cat i ng i f g o v ern m en ts p o n so rs h i p can b e v eri fi edb y

v i si t i ng th e s i t e. See Cav e Bu t t es , L.L.C. v . Co m m i s s i o n er, 1 4 7 T.C. 3 3 8 , 3 6 2 (2 0 1 6 ). Fed eral co u rt s h av e, u n d er t h e au t h o ri t y o f Fed
. R. Ev id . 2 0 1 (c), al so s u a s p o n te n o t edad

j u d icat i v e fact s b y

acces s in g i n fo rm at i o n o n v ari o us p ub li c b o d i es ’ web si t es an dth ato f at l eas to n e p ri vat e s ect o r o rg an i zat i o n , th e Fi n an ci al Acco u n t i n g St an d ard s Bo ard (FASB), wh i ch d es cri b es i ts el f as “ t h e d es i g n at ed o rg an i zat i o n i n th e p ri v at e s ect o r fo r es t ab l i s h i n g s t an d ard s o f fi n an ci al acco u n t i n g th atg o v ern th e p rep arat i o n o f fi n an ci al rep o rt s b y n o n g o vern m en t al en t i t i es .” See In re Ch arl es Sch wab Co rp . Sec. Li t i g ., 2 5 7 F.R.D. 5 3 4, 5 6 1 n .1 8 (N.D. Cal . 2 0 0 9 ) (“ Su rp ri s i n g l y , n ei t h er s i d e o ffered th e FASB co n cep t s ati ss u e fo r ju d i ci al n o t i ce, b u tb ecau s e t h e co ncep t s are p ub l i cl y av ai l ab l e fro m

th e FASB’ s web s i t e, t h i s o rd er n ev ert hel es s t ak es ju d i ci al n o t i ce o f FASB St at em en to f Fi n an ci al Acco u n t i n g Co ncep tNo . 1 p u rs u an tt o FRE 2 0 1.”); J effreyM
. Go ldb erg & As s ocs ., Lt d . v . Ho ls t ei n , 2 9 9 B.R. 2 1 1 , 2 3 3 n .2 6 (Ban kr. N.D. Il l . 2 0 0 3 ) (t ak i n g ju d i ci al n o t i ce s u a s p on t e o f t h e fact th at t he d eb t o r “ was ad m i tt edt o p ract i ce l aw i n Il l i n o i s i n 1 9 6 2 ” b y l o o k in g up h i s reco rdo n th e web s i t e o f t h e At t o rn ey Reg is trat i o n an dDi s ci p l i naryCo m m i s s io n , an ad m in i s t rat iv e ag en cy o f t h e Sup rem e Co u rto f Il li n oi s ), aff’ dp er o p in i o n an do rd er, 2 0 0 4 W L 2 0 75 4 4 2 (N.D. Il l. Au g . 3 1 , 2 0 0 4 ).- 1 8 -

t i m e was l i s ted . Th e USPS Freq u en t l y As k edQu es ti o n s p ag e t i tl ed“ USPS.co m Track i n g Up d at es ” i nd i cat es th at“p re-s h i p m en t ” d i s p l ay s wh eni nfo rm at i on ab o u t th e p ack ag e h as b een p ro v id edt o USPS b u tth e p ack ag e h as n ot y etb een p ro ces s edth ro ug h th e USPS n et wo rk . USPS.co m Track i n g Up d at es , U.S. Po s t al Serv ., h t tp : // faq .u s p s .co m /? art i cl eId =2 20 9 6 4 (l as tv i s i t edJ u n e 1 7 , 2 0 1 6 ). Th e p et i t i o n ’ s track i n g i n fo rm at i o n fu rt h er i n d i cat edth atth e p et it i o n was “ accep t ed ” b y USPS at8 : 03 a.m . i n Arcad i a, Cal i fo rn i a, ZIP Co d e 9 1 0 06 , o n Oct o b er 2 3 , 2 0 1 4 . USPS p ro v i d es a s t atu s o f accep ted“ wh enan i tem h as b een p hy s i cal l y t en d eredt o th e Po s t al Serv i ce.” Id
. To es t ab l is h th e p et i t i o n ’ s t i m el y m ai l i n g , th e Co u rtreo p en edth e reco rdt o al l o w p et i t i o n ers t o i nt ro du ce ev i d en ce t o thateffect
. 7 Aft er a h eari n g i n Decem b er 2 0 1 6 an d p et i t io n ers ’ fu rn i s h i ng o f a UPS St o re recei p tan ds h i p p i n g l ab el , each d at edOct o b er 2 2 , 2 0 1 4 , th e p art i es o n J an u ary 2 3 , 2 0 1 7 , fi l eda jo i n t

7 Al t h o ug h th e Fed eral Co u rt s o f Ap p eal s h av e s p li t o n th e i s s u e, s ee, e.g ., Herrera v . Co m

m i s s i on er, T.C. M em o . 2 0 1 2 -3 0 8 , at* 2 0 (d i s cu s si n g the Ci rcu i t s p l i t ), th e Co u rto f Ap p eal s fo r t h e Ni nt h Ci rcu i t, t o wh i ch th i s cas e wo u l db e ap p eal ab l e co u l di t b e ap p eal ed , h as al lo wed t h e ad m i s s i o n o f ex t ri ns i c ev i d en ce t o p ro v e th e t im el y

m ai l i n g o f a d o cu m en t u n d er s ec. 7 5 02 . See An d ers o n v . Un i t ed St at es , 9 6 6 F.2 d4 8 7 , 4 8 9 -4 9 1 (9 t h Ci r. 1 9 9 2 ). Ab s en tco m p el l i n g reas o n s t o d o o th erwi s e, t h i s Co u rt ap p li es t h e l aw i n a m an n er co n s i s t en twi t h t h e h o l d i n g s o f th e Co u rto f Ap p eal s t o wh i ch an ap p eal o f i t s d eci si on wo u l dl i e, Go l s en v . Co m m i s s i o n er, 5 4 T.C. 7 42 (1 9 7 0 ), aff’ d , 4 4 5 F.2 d9 8 5 (1 0 t h Ci r. 1 9 7 1), ev en i n cas es s ub jectt o s ec. 7 46 3 (b ).- 1 9 -

s up p lem en t al s t ip ul at i o n o f fact s . 8 Th e p art i es s t i p u l at edthatp et i t i o n ers d ep o s i ted th e en v el o p e co n t ai ni n g th ei r p et it i o n wi t h Th e UPS St ore i n Arcad i a, Cal i fo rn i a, at2 : 4 4 p .m . o n Oct o b er 2 2, 2 0 1 4 , t o b e m ai l ed b y cert i fi edm ai l t o t h e Co u rt . Th e p art i es fu rt h er s t i p u l at edth atthe en v el o p e co n t ai n i n g p et i t i o ners ’ p et i t i o n was
m ai l edv i a USPS cert i fi edm ai l i n an en v el o p e co n t ai n i ng th e s am e t rack i n g
n u m b er as t h at o n th e s h i pp i n g l ab el p ro v i d edb y Th e UPS St o re. OnDecem

b er 2 3, 2 01 6 , res p o n d en t ’ s co un s el co nt act edth e Arcad i a, Cal i fo rn i a, b ran ch o f Th e UPS St o re an d was i n fo rm edth atth e b ran ch ’ s reg u l ar p ract i ce i s t o d el i ver al l p arcel s i n th ei r cu s t o dy th atare t o b e m ai l edb y

USPS i n t o USPS cu s t o dy

atth e U.S. Po s t Offi ce i n Arcad i a, Cal i fo rn i a, each d ay at5 p .m . Th e p art i es th erefo re s ti pu l at edth atp et i t i o ners d ep o s i t edth e en v el o p e co n t ai n i n g th ei r p et i t i o n wi t h th e Arcad ia, Cal i fo rn ia, b ran ch o f Th e UPS St o re at 2 : 4 4 p .m . o n Oct o b er 2 2 , 2 0 1 4 , an d p ai d t h e ap p ro p ri at e p os t ag e t o m ai l th e en v el op e v i a USPS cert ifi edm ai l t o the Co u rt , an dth atth ereaft er an em p l oy ee o f t h e b ran ch d ep os i t edp et i t i o n ers ’ en v el o p e wi t h USPS atth e U.S. Po s t Offi ce i n Arcad i a, Cal i fo rn i a, ato r ab o u t5 p .m . o n Oct o b er 2 2, 2 0 14
.

8 W e n ot e thatwh i l e t h e p art i es can n o ts t ip u l at e ju ri s d i ct io n , th ey “ m ay ag ree o n th e fact s t h atd et erm i n e ju ri s d i ct i on .” Pears on v . Co m m i s s i on er, 1 4 9 T.C. _

__ ,

_ _ _ (s li p o p . at1 3 ) (No v . 2 9 , 2 0 1 7 ) (qu o t i n g Ti l den v . Co m m i ss i o ner, 8 46 F.3 d 8 8 2 , 8 8 7 (7 t h Ci r. 2 0 1 7 ), rev ’ g T.C. M em o . 2 0 1 5-1 8 8 ).- 2 0 - Di s cu ss i o n I. J u ri s d i ct i o n A. Gen eral ly Th e Tax Co u rt i s a co u rto f l i m i t ed juri sd i ct i o n an dm ay ex erci s e juri s d i ct i o n o n l y

wh ere Co n g res s h as ex p res sl y g ran t edi t . See s ec. 7 4 42 ; Brem an
v . Co m m i s s i o n er, 6 6 T.C. 6 1 , 6 6 (1 9 7 6 ). Th e Co u rt ’ s ju ri s d i ct i o n d ep en d s o n a
v al i ds t atu t o ry n o t i ce o f d efi ci en cy an da t im el y

fi l edp et i t i o n . Pi et an za v . Co m m i s s i o n er, 9 2 T.C. 7 29 , 7 3 5 (1 9 8 9 ), aff’ d wi t h o u t p ub l is h edo pi n i o n , 9 3 5 F.2 d1 2 8 2 (3 dCi r. 1 99 1 ); Py o v . Co m m i s s i o n er, 8 3 T.C. 6 2 6, 6 3 2 (1 9 8 4 ); s ee al s o Ru l e 1 3 (c). Th u s , s ect i o n 6 2 1 3(a) p ro v id es thata p et i t i o n m us tb e fi ledwi t h th e Co u rtwi th i n 9 0 d ay s , o r 1 5 0 d ay s i f the n ot i ce o f d efi ci en cy i s ad dres s edt o a p ers o n o u t s i d e t he Un i t edSt at es , aft er t h e n o t i ce i s m ai l ed(n o tco u nt i n g Satu rd ay , Su n d ay , o r a l eg al h o l i d ay i n th e Di st ri cto f Co l u m

b i a as th e l as td ay ). Th e Co urt h as n o au t h o ri t y

t o ex t en dthi s 9 0 -d ay

(o r 1 5 0-d ay , as th e cas e m ay b e) p eri o d
. J o an no uv . Co m

m i s s i o n er, 3 3 T.C. 8 6 8 , 8 69 (1 9 6 0 ). Ho wev er, i f t h e co n d i t i o n s o f
s ect i on 7 5 0 2 , kn o wnas th e “ m ai l b o x ru le”, are s at i s fi ed , a p et i t i o n wh i ch i s t i m el y
m ai l edm ay

b e t reat ed as h av i n g b een t i m el y fi l ed . W e ex am i n e th e m ai l b o x ru l e atg reat er l en g t h b el o w.- 2 1 -

It is wel l s et t l edth atth i s Co u rth as an i nd ep en d en to b l i g at io n an d t h e juri s d i ct i o n t o d et erm i ne at an y t i m e wh et h er i t h as juri s d i ct io n i n a cas e. Bran n o n ’ s o f Sh awn ee, In c. v . Co m m i s s io n er, 6 9 T.C. 9 9 9, 1 0 02 (1 9 78 ); W at k i ns
v . Co m m i s s i o n er, T.C. M em o . 2 0 1 4 -1 9 7 , at* 1 7 n .7 (ci t i n g Hen d ers on v . Sh i n s ek i , 5 6 2 U.S. 4 2 8 , 4 3 4 (2 0 1 1 )); s ee al s o Sark i s s i an v . Co m m is s i o n er, T.C. M em o . 2 0 1 2 -2 7 8 , at* 8, aff’ d wi t h o u tp ub l is h ed o p i n io n , 6 0 4 F. Ap p ’ x 6 1 6 (9 t h Ci r. 2 0 1 5 ). Th e Co u rtcan ques ti on juri s d i ct io n s u a s po n t e atan y t i m e, ev en aft er a
cas e h as b een tri ed an db ri efed . Neel y v . Co m m i s s i on er, 1 1 5 T.C. 2 8 7 , 2 9 0 -2 9 2 (2 0 0 0). Th e Co u rth as n o au th o ri t y t o ex t en d t h atp eri o dp ro vi d ed b y l aw fo r fi li n g a p et i t i o n “ wh at ev er t h e eq u i t i es o f a p art i cu l ar cas e m ay b e an d reg ard l es s
o f t h e cau s e fo r i t s n o t b ei n g fi ledwi th i n t h e req ui redp eri o d
. ” Ax e v . Co m m i s s i o n er, 5 8 T.C. 2 56 , 2 5 9 (1 9 7 2 ). M o reo v er, t h e Co u rt ’ s juri sd i ct i o n
can n otb e en l arg edb y

th e p art i es ’ ag reem en t , o r wai v er, o r fai l u re t o o b j ect . Ro m an n v . Co m

m i s s i on er, 1 1 1 T.C. 2 7 3 , 2 8 1 (1 9 9 8 ). J u ri sd i ct i o n m u s tb e s h o wn affi rm at i v el y , an dp et i ti o n ers , as th e p art y i n v ok i n g o u r ju ri s d i ct i o n i n th e cas e at b ar, b ear t h e b urd eno f p ro vi ng th atwe h av e ju ri s d i ct i o n o v er t h ei r cas e; p et i t i o n ers m

u s tes t ab l is h affi rm at i v el y al l fact s d et erm i n in g juri s di ct i o n . Dav i d Du n g Le, M .D., In c. v . Co m m i s s i o n er, 1 1 4 T.C. 2 68 , 2 7 0 (2 0 00 ), aff’ d , 2 2 F. Ap p ’ x 8 3 7 (9 t h Ci r. 2 0 0 1 ). Acco rd i n g l y , p et i t io n ers n eed t o es tab l i s h th atth e- 2 2 -

p et i t i o n was p ro perl y

m ai ledt o o r fi l edwi t h t h i s Co u rtwi t h i n t h e req ui redp eri od , o r t h i s cas e m

u s tb e d i sm i s s edfo r wan to f juri s di ct i o n . B. Th e M ai l b o x Ru l e Sect io n 7 5 0 2 (a)(1 ) p ro v i d es th ati f a d o cu m en tt o b e fi l ed i s d el i v eredb y U.S. m ai l t o th e ap pro pri at e ag en cy , o ffi cer, o r o ffi ce aft er t h e d at e p res cri b edfo r fi li n g , th en th e d at e o f t h e U.S. p o s t m arko n th e co v er i n wh i ch th e d o cu m en twas
m ai l edi s d eem edth e d at e o f d el i v ery . Th i s “ m ai l b o x ru l e” ap p li es o nl y i f: (1 ) t h e p o s t m arkd at e fal ls o n o r b efo re t h e d at e p res cri b edfo r fi l i n g an d (2 ) t h e d o cu m en t
was d ep o s i t edi n th e U.S. m ai l o n o r b efo re t h at p res cri b edd at e. Sec. 7 5 02 (a)(2 ). Th e Secret ary i s au t h o ri zedt o p ro m u l g at e reg u l at i o n s rel at i n g t o p o st m ark s n o t
m ad e b y USPS. Sec. 7 5 0 2(b ). Sect io n 3 0 1 .7 5 0 2-1 (c)(1 ), Pro ced . & Ad m i n . Reg s . , requ ires th atth e d o cu m en t : (1 ) b e co n t ai n edi n a p ro p erl y ad dres s eden v el o pe; (2 ) b e d ep o si t ed wi th i n th e p res cri b edt i m e i n th e m ai l i n t he Un i t ed St at es wi t h s u ffi ci en t p o s t ag e p rep ai d ; an d(3 ) b ear a p o s t m ark . Inth e cas e o f reg i s t eredo r cert i fi edm ai l , th e d at e o f reg is t rat i o n o r t h e d at e o f t h e U.S. p o s tm arkb y a p os t al em

p l o y ee o n th e cert ifi edm ai l recei p t , res p ect i v el y , i s t reat ed as th e p o s t m arkd at e o f th e m ai l ed d o cu m en t . Sec. 3 0 1.7 5 0 2 -1 (c)(2 ), Pro ced . & Ad m i n . Reg s.- 2 3 -

If t h e p o s tm arko n th e en v el o pe i s m ad e b y th e USPS, t h e p o s t m ark“ m u s t b ear a d at e o n o r b efo re t h e l as td at e, o r t h e l as t d ay o f t h e p eri o d, p res cri b edfo r fi li n g th e d o cu m en t ”. Sec. 3 0 1 .7 5 0 2 -1 (c)(1 )(i i i )(A), Pro ced . & Ad m i n . Reg s . If th e en v el o p e d o es n o t b ear a p o s t m arkd at edo n o r b efo re t h e l as t d at e p res cri b ed fo r fi l i ng , th e d o cu m en ti s n o tco ns i dered t i m el y . Id
. Thu s, “ t h e s en der wh o rel i es
up o n the ap p li cab i l it y

o f s ect io n 7 50 2 as s u m es th e ri s k t hatth e p o st m arkwi l l b ear a d at e o n o r b efo re t h e l as td at e * * * p res cri b edfo r fi l i n g t he d o cu m en t ”. Id . Th e
u s e o f reg i st eredo r cert ifi edm ai l m ay o b v i at e t h i s ri s k . Id . If th e en v el op e
co n tai n s a t i m el y

USPS p os t m arkb u tarri v es “ aft er t h e t im e wh en a d o cu m en to r p aym en t p o s t m ark edan dm ai l edatth at t im e wo u l d o rd i n ari ly b e recei v ed , th e
s en d er m ay

b e req u i redt o p ro ve t h ati twas t i m el y m ai l ed .” Id
. If t h e en v el o pe co n t ai n i ng th e m ai l edd o cu m en tb ears a n o n -USPS p o s t m ark : (1 ) t h e p o s t m arkm u s tb ear a l eg i b l e d at e o n o r b efo re t h e l as t d at e p res cri bed fo r fi l in g t h atd o cu m en t ; an d(2 ) t h e d o cu m en tm us tb e recei vedb y

th e ad dres s ee “ n o tl at er t h anth e t i m e wh en a d o cu m en t * * * co n t ai nedi n an en v el o p e th ati s p ro p erl y

ad dres s ed , m ai l ed , an ds en t b y th e s am e cl as s o f m ai l wo u l d
o rd i n ari ly b e recei v edi f i twere p o s t m ark edatth e s am e p o i n t o f o ri g in b y th e U.S Po s tal Serv i ce o n th e l as t d at e, o r t h e l as td ay o f th e p eri o d , p res cri b edfo r fi l i n g th e d o cu m en t ”. Id . s ub d i v . (i i i )(B)(1 )(i i ).- 2 4 -

If t h e d o cu m en ti s recei vedaft er th e t i m e i two u ldo rd i n ari l y b e recei v edi f p o s t m ark edb y

USPS, t h e m ai l b o x ru le m ay s ti l l ap p l y i f i ti s es t ab l i s h ed : (1 ) t h at th e d o cu m en t“ was actu al l y d ep o s i t edi n t h e U.S. m ai l b efo re th e l as tco l l ect i o n o f
m ai l fro m th e p l ace o f d ep o s i t t h atwas p os t m ark ed (ex cep t fo r t he m et eredm ai l ) b y th e U.S. Po st al Serv i ce o n o r b efo re t h e l as td at e, o r t h e l as td ay o f t h e p eri o d , p res cri bed fo r fi l in g t h e d o cu m en t ”; (2 ) t hatth e d el ay i n recei v in g t h e d o cu m en t
was due t o a d el ay in th e tran s m i s s i o n o f t h e U.S. m ai l ; an d(3 ) th e cau s e o f t h e d el ay . Sec. 3 0 1
. 7 5 0 2 -1 (c)(1 )(i i i )(B)(2 )(i ), Pro ced . & Ad m i n . Reg s . If t h e en v el o pe co n t ai n i ng th e d ocu m en t t o b e fi l ed b ears b ot h a USPS an da
n o n -USPS p o s t m ark , then the n o n -USPS p o s t m arki s d is reg ard ed . Id
. s ub d i v . (i ii )(B)(3 ). C. Ap p li cat i o n o f t h e M ai l b o x Ru l e t o t h e In st an tCas e As n o tedab o v e, aft er ch al l en g i n g i t s juri s d i ct io n s u a s p o n t e, t h e Co u rt
reo p en edth e reco rdi n th i s cas e t o al l o w p et i ti o n ers a ch an ce t o es t ab l i s h t h atth i s Co u rth as juri s d ict i o n t o h ear t h ei r cas e. W e are s at i s fi edth atwe d o . Th e l as td at e fo r p et i t i o n ers t o fi l e t h ei r p et i t i o n was Oct o b er 2 2, 2 0 1 4 . Th e Co u rtrecei v edth e p et i t io n o n Oct o b er 2 8 , 2 0 1 4 . Wh i l e t he p et i ti o n arri vedatth e Co u rtaft er t h e l as td at e p res cri b edfo r fi l i ng , i ti s co n si d eredt i m el y i f i ts at i s fi es th e req u i rem en t s o f t h e m ai l b o x ru l e, u n d er wh i ch i f a d o cu m en t i s d el iv eredaft er- 2 5 -

th e d at e p res cri b edfo r fi l i n g , th e d at e o f t he p o s t m arko n t h e en v el o p e i s d eem ed th e d at e o f d el iv ery . Sec. 7 5 0 2 (a)(1 ). Th i s ru l e ap p l i es o n l y i f t h e p o st m arkfal l s
o n o r b efo re t h e d at e p res cri b edfo r fi l i n g an dth e d ocu m en t was d ep o s i tedi n th e U.S. m ai l o n o r b efo re t h at p res cri b edd at e. Sec. 7 5 0 2 (b ). Pet i t i o ners h av e es tab l i s h edco n v i n ci n gl y thatth e m ai l bo x ru l e ap p l i es h ere. Wh atcau s edthi s Co u rtt o qu es t i o n i t s juri s d i ct io n was th e ab sen ce o f a USPS p o s t m arko n th e en vel o p e i n wh i ch th e p et it i on arri ved . Th e en v el o p e i n s t eadb o re
a n o n -USPS p os t m arks h o wi ng a d at e o f Oct o b er 2 2 , 2 0 1 4 . Th i s , wi t h t rack i n g i n fo rm at i o n wh erei n th e fi rs t i t em was d at edOct o ber 2 3, 2 0 14 , i n t ro du ced
s u ffi ci en td o ub tas t o the p et i t i o n ’ s t i m el i n es s t o warran tfu rt h er i n v es ti g at i o n . Th ere was n o qu es t i o n th atth e en v el o p e co n tai n i n g th e p et i t i o n fu l fi l l edtwo o f th e th ree cri t eri a o f s ect i on 3 0 1 .7 5 02 -1 (c)(1 ), Pro ced . & Ad m i n . Reg s .: Itwas p ro p erl y ad dres s ed , i tb ore a n on -USPS p o s t m arkwi t h a l eg ib l e d at e o n o r b efo re th e l as t d at e p res cri b edfo r fi l i ng th e p et i t i o n , an di twas recei v edb y th e Co u rtn o t l at er t h an the t im e i two u l dh av e b een ex p ect edt o arri v e were i t p os t m ark edb y USPS d irect l y . Yeti n i t ial l y i twas n o tcl ear wh et her t h e p et i t io n h adb een d ep os i t edi n th e U.S. m ai l wi t h i n th e p res cri b edt i m e wi t h s u ffi ci en t p o s tag e p rep ai d . See i d. s ub di v. (i i ).- 2 6 -

Pet i t i o ners , t o b ear t h ei r b u rd en o f p ro v i ng o u r ju ri s d i ct i o n o v er t h ei r cas e,
s ee Dav i d Du n g Le, M .D., In c. v . Co m m i s si on er, 1 1 4 T.C. at2 7 0 , s ubm i t t eda recei p t fro m

Th e UPS St o re s h owi n g th atth ey h adi n factm ai l edthei r p et i ti o n o n Oct o b er 2 2 , 2 0 1 4
. M o reo v er, p et i ti o n ers an dres p o n den tjo i n t l y s ti p u lat ed t h atn o t
o n l y d i dp et i t i o n ers d ep os i t th ei r p et i t i on wi t h Th e UPS St ore o n th atd at e, an dp ay th e ap p ro p ri at e p o s t ag e t o m ai l th e en vel o p e v i a USPS cert i fi edm ai l t o th e Co u rt , b u tan em p l o y ee o f Th e UPS St o re t hen d ep o s it edthe en v el o p e co n t ai ni ng th e p et i t i o n wi t h USPS o n th ats am e d ay . Thus p et i t i o ners h av e ad du ceds u ffi ci en t fact s t o affi rm at i v el y

es tab l i s h t h i s Co u rt ’ s juri s d i ct i on o v er t h ei r cas e, s ee i d ., al l o wi n g u s t o tu rn t o i t s m eri ts . II. Dedu ct i b i l i t y

o f Pet i ti o n ers ’ Ex p en s es A. Ov erv i ew W e n o wtu rn t o m at t ers o f s ub s t an t i at i o n rel at i n g t o p et i t i o n ers ’ rep o rt ed Sch edu l e C ex pen s es an du n rei m b u rs edem

p l o y ee ex p en s es . Th e Co m m is s i o n er’ s d et erm i n at i o n o f a t ax p ay er’ s t ax l iab i l i t y i s g en eral ly p res u m edco rrect , an dth e t ax p ay er b ears th e b urd en o f p ro v i n g t h e d et erm i n at i o n i m p ro p er. Ru l e 1 42 (a); W el ch v . Hel veri n g , 2 9 0 U.S. 1 1 1 , 1 1 5 (1 9 33 ). Deduct io n s are a m at t er o f l eg i s l at i v e g race, an dt ax p ay ers are b urd en edwi t h p ro v in g th ei r en t i t l em en tt o an y cl ai m edd edu ct i o n . INDOPCO, In c. v .- 2 7 -

Co m m i s s i o n er, 5 0 3 U.S. 7 9 , 8 4 (1 9 9 2 ). Th u s , t ax p ay ers m u s taffi rm at i v el y
es t ab l i s h t h e v al i d i ty

o f each cl ai m edd edu ct i o n b y i d en t i fy in g i tan ds h o wi n g th at th ei r ex p en s e s at i s fi es th e req u i rem en ts fo r d edu ct i b i li t y . Ro b ert s v . Co m m i s s i o n er, 6 2 T.C. 8 34 , 8 3 6 -8 3 7 (1 9 7 4 ). A n eces saryco nd i t i o n i s th at t ax p ay ers k eep ad equ at e reco rd s s ub s t an ti at i n g th ei r cl ai m edd edu ct i on s . See s ec. 6 0 0 1 ; s ec. 1
. 6 0 0 1 -1 (a), (e), In co m e Tax Reg s . No n eth el es s , i n cert ai n cas es , i f a t ax p ay er cl ai m s a d edu ct i o n b u tcan n o t
s ub s t an t i at e t h e u n derl y i n g ex p en s e fu l l y , the Co u rt“ sh o ul dm ak e as cl o s e an ap p ro x i m at i o n as i tcan , b eari n g h eav i l y i f i tch o os es up o n t h e t ax p ay er wh o s e i n ex act i tu d e i s o f h i s o wnm ak i n g .” Co h an v . Co m m i s s i on er, 3 9 F.2 d5 4 0 , 5 4 3
- 5 4 4 (2 d Ci r. 1 93 0 ). W e can no t, h o wev er, creat e d edu ct i o n s o u to f wh o l e cl o t h
-- th ere m u s tb e “ s o m e b as i s o n wh i ch an es t i m at e m ay b e m ad e.” Van i cekv . Co m m i s s i o n er, 8 5 T.C. 7 31 , 7 4 2 -7 4 3 (1 9 8 5 ) (ci t in g W i l l iam s v . Un i t edSt at es , 2 4 5 F.2 d5 5 9 , 5 6 0 (5 t h Ci r. 1 9 5 7 )). Un d er s ect i o n 1 62 (a), a t ax p ay er i s en t i t ledt o d edu ctal l o rd i naryan d
n eces s ary b u s i n es s ex p en ses p ai do r i n cu rreddu ri n g th e t ax ab l e y ear i n carry i n g
o n a t rad e o r b us i n es s . Anex p en s e i s o rd i n ary i f i t i s n o rm al , u s u al , o r cu s t o m ary i n the t ax p ay er’ s trad e o r b u s in es s , an d i t i s n eces s ary i f ap p ro p ri at e o r h el p fu l fo r
s u ch bu s i n es s . See, e.g ., Bo s er v . Co m m i s s i o n er, 7 7 T.C. 1 1 2 4 , 1 1 3 2 (1 9 8 1 ),- 2 8 -

rev i s ed , 7 9 T.C. II (1 9 8 2 ), aff’ d wi t h o u t p ub l i s h ed o p i n io n (9 t h Ci r. Dec. 2 2 , 1 9 8 3 ). Gen eral l y , p ers o n al , l i v i n g , o r fam il y ex pen s es are n o td edu ct i b le. Sec. 2 6 2 (a). Sect io n 2 7 4 (d ) d i s al l o ws a d edu ct i o n o r cred i t , u n l es s ad equ at el y
s ub s t an t i at ed , fo r t rav el i n g ex p en s es , en t ert ai n m en t , am u s em en t , recreat i o n , ex p en s es fo r g i ft s , an d ex p en s es rel at edt o “ l i s t ed p ro p ert y ” as d efi n edi n s ect i o n 2 8 0 F(d )(4 ) (p as s en g er au t o m o bi l es an do th er p ro p ert y u s edfo r t ran s p o rt at i o n , p ro p erty o f a t y p e u s edfo r en t ert ai n m en to r recreat i o n , an dco m p u t ers o r p eri p h eral equ ip m en t ). Sub s t an t i at i o n s ho u ldi n cl u d e: (1 ) t h e am o un to f th e
ex p en s e, (2 ) t h e t im e an d p l ace o f t h e ex p en d i tu re, (3 ) t h e b u s i n es s p u rp o s e o f t h e
ex p en s e, an d(4 ) th e b us i n es s rel at i o n s h i p t o th e t ax p ay er o f p ers on s b en efi t i n g fro m th e ex p en d i tu re. Sec. 2 7 4 (d ). Th e Co u rtm ay n o t es t i m at e ex p en s es u n d er Co h an i n s itu at i on s wh ere s ect i o n 2 7 4 req u i res s p eci fi c s ub s t an t i at i o n . Lewi s v . Co m m i s s i o n er, 5 6 0 F.2 d9 7 3 , 9 7 7 (9 t h Ci r. 1 9 7 7 ), rev ’ g o n o t her g ro u n d s T.C. M em o. 1 9 7 4 -5 9
. Tax p ay ers m ay

d edu ctu n rei m

b u rs ed em

p l oy ee ex p en s es p ai do r i n cu rredi n carry i n g o n a t rad e o r b u s i n es s u n d er s ect i on 1 6 2 as o rd in ary an dn eces s ary b u s i n es s ex p en s es . Lu cas v . Co m m i s s i o n er, 7 9 T.C. 1 , 6 -7 (1 9 8 2 ). A t ax p ay er
m ay b e i n th e t rad e o r b u s i n es s o f b ei n g an em pl o y ee. O’ M al l ey

v . Co m m is s i o n er,- 2 9 -

9 1 T.C. 3 5 2 , 3 6 3 -3 6 4 (1 9 8 8 ); s ee al s o Pri m u t h v . Co m

m i s s io n er, 5 4 T.C. 3 7 4 , 3 7 7 (1 9 7 0). Anu n rei m

b u rs edex pen s e i s d edu ct i b l e o n l y wh en i ti s u n rei m b u rs ab l e b y th e t ax p ay er’ s em

p lo y er ev eni f rei m

b u rs em en th as b een req u es t ed
. Po dem s v . Co m m i s s i o n er, 2 4 T.C. 2 1, 2 3 (1 9 5 5 ). In th e cas e o f ex p en s es p ai do r i n cu rred i n co n n ect i o n wi t h b oo k s , s up p l i es , co m p u t ers an do t h er eq u i p m en t , an ds up p l em en t ary m at eri al s u s edb y

an el i g i b l e edu cat o r i n th e cl as s ro o m , th e fi rs t$ 2 5 0 o f s u ch d edu ct i o n s i s s ubt ract edfro m g ro s s i n co m e t o d et erm i n e t h e t ax p ay er’ s ad ju s t edg ro s s i n co m e. Sec. 6 2 (a)(2 )(D). An y s ub s t an t i at edex p en s es aft er t h e fi rs t$ 2 5 0 th at rel at e t o a t ax p ay er’ s
em pl o y m en tas a t each er are al l o wedas u n rei m bu rs edem

pl o y ee ex p en s es . Fari as
v . Co m m i s s i o n er, T.C. M em o . 2 0 1 1 -2 4 8 , 2 0 1 1 W L 5 0 4 1 3 5 6 , at* 4
. Fo r a t each er t o d eductex p en s es fo r t each in g s up p l ies , th e s up p l i es m u s tb e d i rect l y

rel at edt o th e t ax p ay er’ s jo b as a t each er an da n eces s ary ex p en s e o f b ei n g a t each er, n o tju s t b e h el p fu l t o s tu d en t s an dap p ro p ri at e fo r cl as sro o m u s e. Id . (ci t i n g W el ch v . Hel v eri n g , 2 9 0 U.S. at1 1 3 -1 1 4 , an dWheat l an d v . Co m m i s s io n er, T.C. M em o . 1 9 6 4 -9 5 ). Un rei m

b u rs ed em

p l o y ee ex p en s es are s ub

jectt o t he 2 % ad

j u s t edg ro s s i n co m e fl o o r o n m i s cel l an eo u s i t em izedd edu ct io n s . Sec. 6 7 (a).- 3 0 -

B. Pet i t i o ners ’ Cl ai m edSch edu le C Ex pen se Dedu ct i o n s Pet i t i o ners h av e co n ced edal l o f t h ei r cl ai m edd edu ct i o n s rel at edt o M rs . Bah am ’ s p ho t o g rap h y

b u si n es s , wi t h th e ex cep t io n o f s ev encat eg o ri es o f
ex p en s es t o t al in g $ 7,5 8 6.6 4
. Th es e cat eg o ri es an dres p ect i v e am ou n t s are: $ 3 ,0 7 1 .9 5 fo r a Can o n EOS-1 Ds M arkIII b o dy ; $ 2 ,1 87 .5 3 fo r h o m e ren o v at i o n s ; $ 4 4 .6 2 fo r s hi pp i n g ; $ 6 5 5.1 7 fo r p ro du ct s ; $ 1 ,0 0 0 .1 2 fo r p ro p s an dacces s o ri es ; $ 1 7 7 .2 5 fo r l i t erat u re, co n feren ce, an dweb co s ts ; an d$ 45 0 fo r o n e-t hi rdo f t h e
an n ual co s to f cel l p h o ne ex p en s es . W e ad dres s each i n o rd er, d eci di n g wh et h er th e ex p en s es are o rd i n ary an dn eces s ary b u s i nes s ex p en s es . W e t h en tu rnt o th e qu es ti o n o f wh et h er t h ey

are i m m ed i at el y d edu ct i b l e o r are s t artup ex p en d i tu res th atm u s tb e cap it al i zedu n der s ect i o n 1 9 5
. 1
. Can o n Cam era Th e p art i es ag ree t h atth e $ 3 ,0 7 1 .9 5 t h atp et i t i o n ers p ai d fo r t he Can o n
cam era o n J u n e 2 5 , 2 0 12 , s ubs t an t i at ed b y a recei p tp ri n t ed fro m

Am azo n Sm i l e, i s
an o rd in ary

an dn eces s ary

b u s i n es s ex p en s e wi t h res p ectt o M rs . Bah am ’ s 2 0 1 2 Sch edu l e C p h o to g rap h y

act iv it y . W e s ee n o reas o n t o ch al l en g e res p on d en t ’ s
co n ces si o n o f t h is ex p en s e.- 3 1 - 2
. Ho m e Ren ov at i o n s Res p o n d en targ u es th atp et i ti o n ers o ffered n o d ocu m en t ary ev i d en ce t o
s ub s t an t i at e t h ei r en t i t l em en tt o t h e Sch edu l e C ex p en s e d edu ct i o ns d i s al l o wedi n th e n o ti ce o f d efi ci en cy , o t h er t h an a s umm ary s h eet , two i n vo i ces , an dred act ed b an k s tat em en t s . Pet it i o n ers d i dn o tt es t i fy ab o u t t h e s p eci fi c ex p en s es s ho wno n th e b an ks t at em en t s th ey

p ro v i d ed
. Pet i t i o n ers cl ai m th atth e ch arg es o n th ei r b an k
s t at em en t s i n 2 0 1 2 , p red o m i n an t l y fro m Th e Ho m e Dep o t , rel at e t o th ei r h o m e
ren o v at i o n s an d rep ai rs an dm ai n t en an ce i n co n nect i on wi t h co n v ert i n g a ro o m i n th ei r h om e i n t o a p h o t o g rap h y o ffi ce. Res p o nd en tm ai n t ai n s , h o wev er, t hat p et i t i o n ers h av e n o t p ro v i d edco p i es o f an y recei p t s o r i n v o i ces t o s ubs t an ti at e th ei r ex p en s es , n o r p h ot o g rap h s t o d em o n s t rat e t h ei r h o m e ren o v at i o ns . Ab s en t recei p t s o r i n v o ices , res p o n d en tco n t en d s , th ere i s n o way o f kn o wi n g wh atTh e Ho m e Dep o tch arg es rep res en to r wh et h er th e ex p en s es were p ai dan di n cu rredi n
co n nect io n wi t h M rs . Bah am ’ s p h ot o g rap hy act i v i t y . W e n o te t h atal t ho u g h th e s u m t o t al o f Th e Ho m e Dep o tch arg es o n th ei r b an k s tat em en t s was $ 2 ,0 9 4 .3 7 , p et i t i o n ers d edu ct ed$ 2 ,1 8 7 .5 3 fo r h o m e
ren o v at i o n s . Pet i t i o n ers h av e n o tex p l ai n edth is d i s crep an cy , b u tM r. Bah am d i d t es t i fy at t ri al th ats o m e o f t h e ren o v at i o n p u rch as es were i n cas h an ds o m e m i g h t h av e b een ch arg edt o a cred i tcard
. M o reo v er, o n e o f t h e ch arg es o n p et i t io n ers ’- 3 2 -

b an k s tat em en t s , i n t h e am o u n to f $ 1 20 , was fro m Du n n & Ol s en Carp eti n Tem p l e Ci ty , Cal ifo rn i a, an d M r. Bah am i n di cat edattri al th atth e ro o m wh i ch was
co n vert edt o an o ffi ce an dp ho to g rap h y s tu di o fo r M rs . Bah am

was recarp et ed
. Th erefo re, i ti s p l au s i b l e t h atp et i t i o n ers d i d s p en dth e $ 2,1 8 7 .5 3 t h ey cl ai m . Yet , as res p o n d en tas s ert s , i n th e ab s en ce o f recei p t s o r o t h er ev i d en ce, i ti s d i ffi cu l tt o s ay

h o w m uch o f t h e $ 2,1 8 7 .5 3 i n d i s p u t e was s pen to n ren o v at i o n s rel at ed t o M rs . Bah am ’ s p h ot o g rap h y s tu d io . Fu rt herm o re, as res p o n d en tu rg es
an d we ag ree, i tap pears th atp et i t i o ners d o ub l e-co u n tedth ei r ren o v at i o n ex p en s es b y i n cl u d i n g th em

i n b o th l i n e 2 2 o f M rs . Bah am ’ s Sch edu l e C as p arto f

“ s up p l i es ” an dl i n e 3 0 o f t h e Sch edu l e C as ex p en s es fo r t h e b u s i n es s u s e o f p et i t i o n ers ’ h o m e, t he l at t er o f wh i ch were al l owedb y res p on d en to n ex am i n at i o n
an d are n o ti n d i s p u t e. Attri al , M r. Bah am t es t ifi edth ath e m ay

h av e m ad e a
m i s t ak e i n h i s u s e o f t ax s o ft w are t o p rep are h i s retu rn s an dal l o wedth atth e
ex p en s es co ul d b e o n e an dth e s am e. In v i ew o f t h e ab o v e, we co n cl u de t h atp et i t i o n ers h av e n o t es t ab l is h edb y a p rep o n d eran ce o f t h e ev i den ce t h atth e $ 2 ,1 8 7 .5 3 fo r h o m e ren o v at i o n s was
o rd i n ary an dn eces s ary

b u s i n es s ex p en s es th atth ey h adn o tal read y

d edu ct ed el s ewh ere o n thei r Fed eral i n co m e t ax retu rn . Co n s equen t l y , th ey are n o t en t i t l ed t o d eductth atam o u n t .- 3 3 - 3
. Sh i p p i ng Pet i t i o ners cl ai m

th atth ey i n cu rreds h i pp i n g ex p en s es o f $ 4 4 .6 2 fo r p i ctu res
an d fram es du ri n g 2 0 1 2 . Res p on d en tp o i n t s o utth atp et i t i o n ers d idn o tp ro v i d e
co p ies o f recei p ts o r i n v o ices rel at edt o thes e ex p en s es . Ho wev er, res po n den ti n h i s b ri ef, b ey on ds t at i n g i n a h ead i n g t hat“ Pet i t i o n ers are n o ten t i t l ed t o s h i p p i n g , p ro duct s , p ro p s an dacces so ri es , an dl i terat u re/ co n feren ce/ web ex pen s es ”, d o es
n o tad dres s th e s h ip p i n g ex p en d i tu res s p eci fi cal l y . W e i n fer t h atres p o n den t b el i ev es th e Co u rts h ou l dd en y p et i t i o n ers ’ cl ai m edd edu ct io n fo r s hi p pi n g
ex p en s es b ecau s e o f a l ack o f s ub s t an t iat i o n . W e ag ree. Whi le p et it i o n ers ’ s t at em en t s d o es tab l i s h th atthey s pen t$ 4 4 .6 2 atTh e UPS St o re, i n th e ab s en ce o f recei p t s , i nv o ices , o r o t h er d i s p os i t i v e
ev i d en ce i ti s i m

p o s s i bl e fo r u s t o d et erm i ne wi t h an y cert ai n t y th e n atu re o f t h e
ex p en s es an d wh et h er th ey were p ai di n co n n ect i o n wi t h M rs . Bah am ’ s p h o t o g rap h y

b u s i n es s o r fo r s o m e o th er p u rp o s e. Fu rt h er, M r. Bah am ’ s t es t i m on y attri al s ug g es t edth atth e s hi pp i n g ex p en s es were i n cu rredi n co nn ect i o n wi t h th e recei p t b y M rs . Bah am

o f p i ctu res an dfram es , wh i ch s t ri k es u s as i m p l au si b l e. It i s u n l i kel y

th atp et i t i on ers wo u l dp ay Th e UPS St ore i n th ei r h om et o wnd i rect l y fo r s h i pp i n g co s t s co nn ect ed wi t h th ei r recei p t o f i t em s . Iti s m o re p l au s i b l e t h at th es e s h i p p i n g co s t s were p ai di n co n n ect i on wi t h th ei r m ai l i n g o f i t em s , b u twe- 3 4 -

can n otes t ab l i s h th is fro m th e reco rdi n th is cas e. Acco rd i ng l y , we fi n d t h at p et i t i o n ers are n oten ti t l edt o d edu ctth ei r cl ai m ed s hi p p i n g ex pen s es .

4
. Pro du ct s Pet i t i o ners cl ai m

th atth ey p ai d$ 6 5 5.1 7 fo r p ro du ct s rel at edt o M rs . Bah am ’ s p ho t o g rap h y

b u si n es s . M r. Bah am

t es t i fi edattri al th atwi t h i n th i s cat eg o ry are ch arg es , ap p eari n g o n p et it i on ers ’ b an ks t at em en t s , fro m Aaro n Bro th ers fo r fram es an ds i m i lar p ro du ct s , M y Pub l i sh er fo r p ub l i s h i n g , Sam y ’ s Cam era fo r ad d it i on al equ i p m en t(a l en s co v er o r a fi lt er), an d M i ll er’ s M -Pi cs fo r p ri n t in g p h o t o g rap h s. Res p o n den targ u es thatp et i t i on ers d i dn o tp ro v i d e co p i es
o f recei p ts o r i n v o i ces t o s ub s tan t i at e t h es e p u rch as es , n or d i dth ey p ro v i d e p h o t o g rap h s o f th e p ro duct s . Inth e ab sen ce o f t hes e, res p on d en tco rrect ly
co n ten d s, p et i t i o n ers ’ b an k s tat em en t s s ub s t an t i at e n o th i n g m ore t h an th at p et i t i o n ers m ad e p u rch as es atth es e s t o res . Res p o n d en tal s o p o i n t s o u t th atatl eas t
s o m e t o tal ex p en s e cat eg o ry s u m s i n th e b an ks t at em en t s are s m al ler t h an th e cl ai m edd edu ct i on s . W e ag ree wi t h res p o n d en to n th e l at t er p o in t : Pet i t i o n ers ’ b an ks t at em en t s
s h o w ch arg es o f $ 7 8
. 3 0 fro m Aaro n Bro t h ers , $ 2 21 .8 4 fro m M y Publ i s h er, $ 3 4 .2 7 fro m Sam y ’ s Cam era, an d$ 4 4 .5 2 fro m M i l l er’ s M -Pi cs , wh ich t o t al $ 3 7 8 .9 3 . W e
are n o tp ers u ad ed , h o wev er, t h atp et i t i o n ers h av e wh o l l y fai l ed t o s ub s t an t i at e- 3 5 -

th es e ex p en s es . Th e ch arg es o n th e b an ks t at em en t , al on g wi t h M r. Bah am ’ s t es t i m o ny , i n o u r es t im at i o n cred i b l y es t ab l i s h th atth e n atu re o f t h es e p aym en t s fal l s i n t o th e cat eg o ry

o f o rd in ary

an dn eces s ary

b u s i n es s ex p en s es . M rs . Bah am
was en d eav o ri n g t o es t ab l i s h h er p h o t o g rap h y b u s i n es s , an di ti s n atu ral th ats h e
wo u l dp ro cu re t he p ro du ct s d es cri b ed
. Ho wev er, res p on d en t h as p o i n t edo u tth atdu ri n g th e au d itp et i t i on ers were al l o wed a d educt i o n o f $ 8 3 0 fo r Sch edu le C o ffi ce ex p en s es ; an d s i n ce p et i t i o n ers
can n oti d en t i fy

th e s p eci fi c i t em s u n d erl y i n g th o s e ex pen s es , th ey can n o tes t ab l i s h th atth ey h av e n otal read y d edu ct edth ei r cl ai m edp ro du ct s ex p en s es . Th e b u rd en
o f p ro v i n g en t i t l em en t t o d edu ct i o n s fal l s up o n p et i t i on ers ; an d s in ce t h ey are
u n ab le t o p ro v e t h atth ey h av e n o tal read y

b een al l o w eda d edu ct i on fo r t h e p h o t o g rap h y

p ro du ct s, we fi n dth atth ey are n o ten t i t l ed t o d edu ct t h e cl ai m ed p ro duct s ex p en s es d i s pu t edh ere.

5
. Pro p s an dAcces s o ri es Pet i t i o ners cl ai m

th atth ey p ai d$ 1 ,0 0 0.1 2 fo r p ro p s an dacces s o ri es , wh i ch M r. Bah am

t es t i fi ed in cl u d edi t em s s u ch as a s t oo l o r fai n t i n g co u ch , cl o th i n g fo r p h o t o g rap h y

s es s i o n s, an drefl ect o rs . M r. Bah am ex p lai n edth atth es e p urch as es
were m ad e atW al -M art , Co s t Pl u s , an dW o rl dM ark et . Pet i t i o n ers ’ b an k
s t at em en t s s h o w ch arg es o f $ 7 7 .7 3 at W al -M art , $ 5 4 .2 6 atCo s tPl u s , an d$ 3 9 .1 1- 3 6 -

atW orl d M ark et , wh i ch t o t al $ 1 7 1 .1 0, a n u m b er s ub s t an t i al l y

l es s th an th e $ 1 ,0 0 0 .1 2 cl ai m ed . Res po n d en tco n t en d s th at , as wi t h th e p ro du ct s ex p en ses , th es e p u rch as es are n o td edu ct i b l e b ecau s e p et it i on ers d i dn o tp ro vi d e recei p t s o r
o th er ev i d en ce t o s ub s t an t i at e th e s p eci fi c i t em s p u rch as ed , an dth ey h av e n o t
es t ab l i s h edth atd edu ct i o ns fo r an y o f t h e p u rch as es were n o tal read y al l o wed du ri n g au d i t . W e ag ree wi t h res p o n d en t . It em s s u ch as fu rn i tu re o r cl o t h i n g m ay b e u sed fo r n o np h o t o g rap hy

p u rp os es , an dp et i t i o n ers d idn o t es tab l is h th atth es e i t em s
were n o t s o u s ed . Li g h t refl ect o rs co u l dp lau s i b l y b e l i m i t edi n u s e t o p h o t o g rap h y

s es s i o n s. Ho w ev er, t h e m erch an t s i d en t i fi eds p eci fi cal l y b y p et i t i o n ers s t o ckm an y

i t em s , an di t i s i m

p o s s i b le t o draw a d irect l i n k b et ween th e i t em s p et i t i o ners cl ai m

th ey p u rch as edan d t h e ch arg es as they ap p ear i n th e
s t at em en t s . M o reo v er, t h e $ 8 3 0 fo r o ffi ce ex p en s e d edu ct i o n s res p o nd en t al l o wed
o n au d i ti s s ub s t an t i al en ou gh t o acco m m o dat e b o t h th e $ 3 7 8 .9 3 s p eci fi cal l y i d en t i fi edb y

p et i t i o n ers as p ro du ct s ex p en s es an d t h e $ 1 7 1
. 1 0 s p eci fi cal ly i d en t i fi edas p ro ps an dacces s o ri es ex p en s es . Acco rd i n g ly , we fi n dth atp et i t i o n ers
are n o ten t it l edt o d edu ctth ei r cl ai m edp ro p s an dacces s o ri es ex pen s es .- 3 7 - 6
. Li t erat u re, Co n feren ce, an dW eb Co s t s Pet i t i o ners cl ai m

th atth ey are en t i t l edt o $ 1 7 7 .2 5 fo r l i t erat u re, co nferen ce,
an d web co s t s . “ Li t erat ure” i n cl u d es a b o o ken t it l edUn d ers t an d i n g Ex po s u re, 3 rd Ed i t i on : Ho w t o Sh o otGreatPh o t o g rap hs wi t h An y Cam era, b o ug h t o n Am azo n fo r $ 1 5 .9 8 an dco n ced edb y res p o n d en t t o b e an o rd i n ary an d n eces s ary b u s i n es s
ex p en s e. Co nferen ce ex p en s es i n cl ud e $ 7 5 s p en to n “ Beg i n n i n g Po rt rai tu re”,
arran g edth ro u g h a s erv i ce cal l edEv en tb ri t e. W eb co s t s i n cl u d e ch arg es o n p et i t i o n ers ’ b an ks t at em en t s fro m Sn ap fi s h, Zen Fo l i o , an dLi fe To u ch , wh i ch were $ 1 3 .6 1 , $ 2 5 , an d$ 2 7 . Res p o n d en targ u es t h at , wi t h the ex cep t i o n o f t h e b o o kp u rch as e wh i ch h e h as al read y co n ced ed , p et i ti o n ers d i dn o tp ro v i d e co p i es
o f recei p ts o r i n v o i ces rel at edt o th es e rep o rt ed ex p en ses . M o reo v er, res p o n d en t
m ai n t ai n s th atp et i t io n ers d o n o tkno w wh et h er t h e web ex p en s es h adal read y b een i n cl u d edam o n g t h e $ 6 5 0 al l o wed as a Sch edul e C ad v ert i s i n g ex p en se d edu ct i o n . W i t h res p ect t o th e web ex p en s es , M r. Bah am t es ti fi ed attri al th at i ti s p o s s i b l e t h o s e ex p en s es were i n cl u d edi n the $ 6 5 0 al l o wedas a d edu ct i o n fo r ad v ert i s in g ex pen s es . Inv i ew o f t h at , we wi l l n o tal lo w a d edu ct io n , s i n ce t h es e
ex p en s es m ay h av e b een d educt edal read y . W i t h res p ect t o th e co n feren ce o n Beg i n ni n g Po rt rai tu re, we thi n kth e ch arg e o n p et i t i on ers ’ b an k s tat em en t s d o es s ub s t an t i at e ad equat el y th e n atu re o f- 3 8 -

th e ex p en s e. Si n ce M rs . Bah am was es t ab l i sh i n g h ers el f as a p ho t o g rap h er, we accep tth ata co nferen ce o n p o rt rai tu re was an o rd in ary an d n eces s ary b u s i n es s
ex p en s e. Th erefo re, we b el i ev e p et i t io n ers h av e s ub s t an t i at edas o rd in ary an d
n eces s ary $ 7 5 o f co n feren ce co s t s an d$ 1 5 .9 8 o f l i t erat ure ex p en s es , th e l at t er i t em h av in g b een co n ced edb y res p o n d en t . 7
. Cel l Ph o n e Pet i t i o ners cl ai m

th ey are en t it l ed t o d edu ct $ 45 0 fo r cel l p h on e ex pen s es , a fi gu re t h ey

es t im at edb y

t ak i n g o n e-t h i rdo f t h ei r an n u al cel l u l ar p ho n e b i l l , wh i ch th ey ap p ro x i m at edat$ 1 ,3 5 0. Th e o t h er t wo -t h ird s were al l o cat ed t o b u s i nes s an d p ers o n al u s e. Th e m o n th ly ch arg e fo r Veri zo n o n p et i t i o n ers ’ b an ks t at em en t s was $ 1 7 2 .1 4 , wh ich an n u al i zedequal ed$ 2 ,0 6 5.6 8 ; th u s , p et i t i o ners cl ai m eda s m al l er
am ou n tthan o ne-t h i rd o f t h ei r act u al an n u al ch arg es . Res p o nd en t, h owev er,
s ub m i t s th at p et it i o n ers d i d n o tp ro v i d e co p i es o f b il l in g s t at em en t s fo r t h ei r rep o rt edcel l p h o n e ex p en s es . Th erefo re, h e u rg es , p et it i o n ers h av e n o t
es t ab l i s h edth e act u al am ou n tat t ri bu t ab l e t o M rs . Bah am ’ s s ch o o l u se, co m p ared wi th o th er u s es an dl i n es i n cl u dedi n th e p lan . M o reo v er, res p o n d en targ ues , rel y i n g o n W i ch i t a Term i n al El ev at o r Co . v . Co m m i s s i o n er, 6 T.C. 1 15 8 , 1 1 6 5 (1 9 4 6) (“ Th e ru l e i s wel l es t ab l i s h ed t h atth e fai l u re o f a p arty t o i n tro du ce
ev i d en ce wi t h i n h i s p o s s es si o n an dwh i ch , i f tru e, wo u ldb e fav o rab l e t o h im ,- 3 9 -

g i v es ri s e t o th e p res u m

p t i on t h ati f p ro du cedi two u l d b e u n fav o rab l e.”), aff’ d , 1 6 2 F.2 d5 1 3 (1 0t h Ci r. 1 9 47 ), th atp et i t i o ners co u l d h av e o b t ai n edth ei r m o n t h l y cel l p h o n e s t at em en t s , an dth ei r fai l u re t o d o s o u n d erm i nes th ei r en t i t l em en tt o th e cl ai m edex p en s es . W e ag ree wi t h res p o n d en t . Wh i le p et i t i o n ers h av e es t ab l i sh edth at t h ey p ai d a cert ai n am ou n tas cel l ul ar p h o n e ex p en s es , th ati s th e o n l y t h i ng th ey h av e b een ab l e t o es t ab l i s h . M r. Bah am t es t i fi edth ath e t ri fu rcat edth e cel l p h o n e b il l i n t o equ al p art s , b u tth i s was o n l y an es t i m at e; an d p et i t i o n ers d i dn o th av e an y reco rd s
es t ab l i s h in g a m o re ex actal l o cat i o n . In d eed , as i de fro m th is ro u g h es t i m at e, t h ere i s n o i n d i cat i o n i n th e reco rdo f t h e ex t en t , i f an y , t o wh i ch M rs . Bah am u s edh er cel l p h o n e i n h er p h o t o g rap h y b u s i n es s. Th ere i s n o ev i den t i ary b as i s fo r ap p l y i n g th e Co h an ru l e t o M rs . Bah am ’ s cel l p h o n e ex p en s es . See, e.g
. , W i nd h am v . Co m m i s s i o n er, T.C. M em o . 2 0 1 7 -6 8 , at* 2 3 -* 2 4 (“ Wh i l e p et i t i o n er t es t i fi edth at
s h e u sedh er cel l p h o n e fo r h er b ro k erag e wo rk , fo r h er ren t al real es t at e act i v i t i es , an d fo r th e ch ari t i es fo r wh i ch s h e v ol u n t eered , s h e o ffered n o t es ti m o n y o r o t h er
ev i d en ce d el i n eat i n g h o w m an y cel l p h o n e m i n ut es were u s edfo r b u s in es s cal l s , ch ari ty cal l s , o r p ers o n al cal l s. Pet i t i o n er h as p ro v i d edn o ev i d en t i ary b as i s fo r ap p ly i n g th e Co h anru l e t o h er cel l p h o n e ex pen s es . ” (ci t i ng Van i cekv . Co m m i s s i o n er, 8 5 T.C. at 7 4 2 -7 4 3 )). Pet i t i o n ers h av e n o t carri edth ei r b urd en o f- 4 0 -

p ro v in g th atth es e ex p en s es were at t ri b u tab l e t o a t rad e o r b u s i n es s . Acco rd i n g l y , th ey are n o ten t i t l edt o d edu ctth ei r cl ai m edcel l p ho n e ex p en s es . 8
. Wh et h er t he Al l owedEx pen ses Are St artup Co s t s W e h av e d et erm in edth atp et i t i o ners are en ti t l ed t o treat$ 3 ,0 7 1
. 9 5 fo r t h e Can on cam era b o dy , $ 7 5 fo r co n feren ce co s t s , an d$ 1 5
. 9 8 fo r a b o o k o n p h o t o g rap h y , t o tal i n g $ 3 ,1 6 2 .9 3 , as o rd i n ary an dn eces s ary

b us i n es s ex p en s es . Res po n d en targ u es , h o wev er, t h atal l s ub s t an t i at edex p en s es rel at edt o M rs . Bah am ’ s p ho t o g rap h y

b u si n es s are n o n d edu ct i bl e s t artup ex p en s es . Res p o n d en tp o i n t s o u tth atn o cu rren td edu ct i o n i s al l owedu n l es s th e t rad e
o r b u si n es s was fu nct i o n i n g as a b u s i n es s atth e t i m e t h e t ax p ay er i ncu rredth e
ex p en s es . See Hard y

v . Co m m i s s i o ner, 9 3 T.C. 6 8 4, 6 8 7 (1 9 8 9), aff’ di n p art , rem an dedi n p art , 1 9 9 0 U.S. Ap p . Lex i s 1 9 6 7 0 (1 0 t h Ci r. Oct . 2 9 , 1 9 9 0 ). Wh et h er a t ax p ay er i s act iv el y

en g ag edi n a t rad e o r b u si n es s d ep en d s o n th e fact s an d ci rcu m s t an ces , wi t h a s p eci al fo cu s o n th e fo l l o wi ng th ree i n d icat o rs : (1 ) wh et h er th e t ax p ay er u nd ert o o kth e act i v i t y i n t en d i n g t o earn a p ro fi t ; (2 ) wh et her t h e t ax p ay er i s reg ul arl y

an dact i v el y

i n v ol v edi n th e act i v it y ; an d (3 ) wh et h er t h e t ax p ay er’ s act i v i t y

h as actu al l y

co m m en ced . See, e.g ., W o o dy v . Co m m is s i o n er, T.C. M em o . 2 00 9 -9 3 , 2 0 0 9 W L 1 2 3 0 7 9 0, at* 4, aff’ d , 4 0 3 F. Ap p ’ x 5 1 9 (D.C. Ci r. 2 0 1 0 ). Oth erwi se, an y

o rd i n ary an dn eces s ary

b u s i nes s ex p en s es are t reat edas- 4 1 -

“p re-o pen i n g ex p en s es ” an dm u s t b e cap i t al i zed . Hardy v . Co m m i s s i o n er, 9 3 T.C. at6 8 7 -6 9 0 . Th i s ru l e i s co d i fi edu n d er s ect i o n 1 9 5 (a), p u rs u an tt o wh i ch “ n o d educt i o n s h al l b e al lo wedfo r s t art -up ex p en d i tu res .” A s t artup ex p en d i ture i s
an y am ou n tp ai do r i ncu rredi n co n n ect i on wi t h : (1 ) i n v es ti gat i n g th e creat i o n o r acq u is i t io n o f an act i v e t rad e o r b u s in es s , (2 ) creat i n g an act i v e t rad e o r b u s i n es s , o r (3 ) an y act i v i t y en g ag edi n fo r p ro fi tan dfo r th e p ro du ct i o n o f i n co m e b efo re th e d ay o n wh i ch th e act i v e t rad e o r b u s i nes s b eg i n s i n an ti ci pat i o n o f s uch act i vi ty b eco m i n g an act i ve t rad e o r b u s in es s . Sec. 1 9 5 (c)(1 ). In al l i n s t an ces , th e
am ou n ti n qu es t i o n m

u s tb e al l o wab l e as a d edu ct i o n i n the cas e o f an ex i s t i n g act i ve t rad e o r b u si n es s . Id
. Ho wev er, u n d er s ect i o n 1 9 5 (b ), t ax p ay ers m ay el ectt o d edu ctfo r t he t ax ab l e y ear i n wh i ch th e act i v e t rad e o r b u si nes s b eg i n s up t o $ 5,0 0 0 o f s t artup
ex p en d i tu res , redu ced b y t h e am o u n t b y wh i ch t h o s e ex p en d itu res ex ceed $ 5 0 ,0 0 0. Th e rem ai n d er i s al l owab le as a d edu ct io n rat ab l y o v er t h e 1 8 0-m on t h p eri o d b eg in n i n g wi t h th e m o n th i n wh i ch th e act i v e t rad e o r b u s i n es s b eg i n s . Sec. 1 9 5 (b ). Th i s el ect i on m

u stb e m ad e n o l at er t h an the t i m e p res cri b edfo r fi l i n g t h e retu rn fo r t he t ax ab l e y ear i n wh i ch t h e t rad e o r b u s i n es s b eg i ns . Sec. 1 9 5 (d )(1 ). Sect i o n 1 .1 9 5 -1 (b ), In co m e Tax Reg s ., p ro v id es th ata “ t ax p ay er i s d eem edt o h av e
m ad e an el ect i on u nd er s ect i o n 1 9 5 (b ) t o am ort i ze s t art -up ex p en d itures as d efi n ed- 4 2 -

i n s ect io n 1 9 5 (c)(1 ) fo r t h e t ax ab l e y ear i n wh i ch the act iv e t rad e o r b us i n es s t o wh i ch th e ex p en d i tu res rel at e b eg in s . ” A t ax p ay er m ay fo rg o th is d eem edel ect i on b y affi rm at i v el y

el ect i ng t o cap i t al i ze s t artup ex p en d itu res o n a t im el y fi l edretu rn fo r t h aty ear. Id . Thu s , i f M rs . Bah am ’ s p h o to g rap hy b u s i n es s b ecam e an act i v e trad e o r b u si n es s i n 2 0 1 2 , p et i t i o n ers wo ul db e d eem edt o h av e m ad e th e s ect i o n 1 9 5 (b ) el ect io n an d b e ab l e t o d edu ctup t o $ 5 ,0 0 0 o f th ei r s t artup ex pen d itu res fo r th aty ear an dt o am ort ize t h e rem ai n d er. Th e k ey qu es t i on i s wh en th e b u s i n es s b ecam e act i v e. Res p o n d en targ u es th atM rs . Bah am ’ s p h o t og rap h y b u s i n es s was n o tan act i ve t rad e o r b u si n es s i n 2 0 1 2. He p o i n t s o utth atM rs . Bah am t o o ka p h o t o g rap h y

co urs e i n co l l eg e b u to t h erwi s e p u rs u eda career as a t each er. Res po n d en tco n t en d s th atM rs . Bah am ’ s p h o to g rap h y act i v it i es i n 2 0 1 2 were at b es tcu rs o ry , an d t h ere i s n o t h in g i n t h e reco rdt o s up p ortth e co n t en ti o n th atM rs . Bah am ’ s l i m i t edact i v i t i es co n s t i tu t eda g o i n g trad e o r b u s i n es s i n 2 0 1 2
. Res po n d en tp o i n t s t o th e ab s en ce o f a cl ien t l is t , i n vo i ce, b u d g et , b u s i n es s p l an , ad v ert i s em en t , b u s i n es s card , web s i te ad dres s , o r o t h er d o cu m en t . Acco rd i n g t o h i m , th e reco rdt en d s t o s up p o rtth e co n t en t i o n thatp et i t i o n ers ’ s ub s t an t iat ed p h o t o g rap h y

ex pen s es are s t artup ex p en ses . Ho m e ren o v at io n s an d t h e p u rch as e
o f a d i g i t al cam era wo u l dg en eral l y b e t h e t y p es o f ex p en s es o n e wo u l dex p ectt o- 4 3 -

i n cu r i n creat i n g a p ho to g rap h y b u s i n es s . Th erefo re, res p o n d en tm ai nt ai n s th at
ev en if p et it i o n ers ’ rep o rt edex p en s es were s ubs t an ti at ed , th ey wo u l db e
n o n d edu ct i b l e s t artup co s t s ; an dev eni f t h e p h o t og rap h y b u s in es s was a g o i n g
co n cern in 2 0 12 , p et i t i o n ers ’ al l o wab l e Sch edu l e C ex p en s e d edu ct io n s wo u l db e l i m i ted t o th e am o u n t s al l o wedt o b e d edu ct edu nd er s ect i o n 1 9 5 (b ). W e b el i ev e p et i t i on ers h av e s at is fi ed t hei r b u rd en o f es t ab li s h i n g t h atth e p h o t o g rap h y

b u s i n es s b ecam e an act i v e trad e o r b u s i n es s i n 2 0 1 2. Befo re 2 0 1 2 , M rs . Bah am d i dn o ten g ag e p ro fes s i o n al ly i n p h o t og rap h y , ev en tho u g h s h e d i d t ak e p h o t o g rap h s o f fam i ly an d fri en d s . Ho wev er, i n 2 0 1 2 s he d eci d edt o p u rs u e p h o t o g rap h y

p ro fes s i o n al l y

an db eg an ch arg in g fo r h er s erv i ces . Th aty ear, p et i t i o n ers b eg an co n v ert i n g o n e o f t h e ro o m s i n th ei r h o u s e i nt o a p ho t o g rap h y
s tud i o fo r M rs . Bah am . Al t h o u g h ren o v at i o n s co n t i n u edth ro u g h o u t th e y ear, t h e
ro o m was u s edas a p h o t o grap h y d en as earl y

as J an u ary o r Feb ru ary

2 0 1 2 . M rs . Bah am h el d t h ree p h o to s h o o t s i n 2 0 1 2 . Fo r h er fi rs tcl ien t , h er m art ial art s i n s tru ct o r, s h e u n dert o o ka m at ern i t y s ho o ti n t h e s p ri n g o f 2 0 1 2 , wi t h an i n fan t
s h o o t fo l l o wi n g l at er i n t h e y ear. Th i s was a p ay in g cl i en t . M rs . Bah am al s o
co n du ct ed an en g ag em en ts h oo tfo r M r. Bah am ’ s y o u ng er s i s t er, al t h o u g h M rs . Bah am d i dn o t ch arg e h er s i s ter-i n -l aw fo r th e s es s i o n .- 4 4 -

In th e l i g h to f t h e ab ov e fact s , we fi n dthatM rs . Bah am d i di n d eedb eg i n an act i ve t rad e o r b u si n es s i n 2 0 1 2. As ev i den cedb y h er ch arg i n g fo r t he m at ern i t y
an d i n fan ts h oo t s (an dh er ch arg i n g cl i en t s i n l at er y ears ), s he u n d ert o o kth e act i vi ty i nt en d in g t o earn a p ro fi t . See W o o dy v . Co m m i s s i o n er, 2 0 0 9 W L 1 2 3 0 7 9 0 , at* 4 . Ev en th o u g h t each i n g was M rs . Bah am ’ s p ri m ary d ay jo b , s h e
en g ag edi n p ho t o g rap h y

i n t h e ev en in g s an do n week en d s , wh ich i n o u r es t i m at i o n
co n st i tu t es reg u l ar an dact i v e i n v o l v em en t . See i d . Sh e en g ag ed i n p h o to g rap h y wi th co n t i n u i t y an dreg u l ari t y . See Co m m i s si o n er v . Gro et zi n g er, 4 8 0 U.S. 2 3 , 3 5 (1 9 8 7). As ev id en cedb y p et i t io n ers ’ i n v es t m en to f t im e an dtreas ure t hro u g h o ut 2 0 1 2 an dM rs . Bah am ’ s d es i re t o earn rev enu e, h er p h o t o g rap hy ro s e b ey o n d
s i m p l y a “ s p o rad i c act i v i t y , a h o b b y , o r anam u sem en td i v ers i o n”. See i d
. W e th i n ki t fai r t o s t at e t h at h er act i v i t i es co m m en cedwi t h t h e s ev eral p ho t o s h o o t s
s h e co ndu ct edi n 2 0 1 2 . See i d
. It i s n o t fat al thatb u s i n es s was n o tb o o m i n g . M an y en trep ren eu rs s t ru g g l e t o earn rev enu e earl y i n th ei r b u s i n es s v en tu res , b u t th ei r ex p en s es are n o n e t h e l es s d edu ct i b le. Wh ati s i m

p o rt an ti s t h atM rs . Bah am reg u l arl y an dact i v el y

b eg an p erfo rm i n g p ho t o g rap hy

s erv i ces i n 2 0 1 2 . Th e p o s si b l e l acko f p ubl i s h ed i n fo rm at i o n ab o utp ri ci ng i s n o ta d et erm i n at i v e fact o r s i n ce t h e reco rdes t ab l i s h es th ats h e d i d i n deed ch arg e fo r h er s erv i ces . M o reo v er, i t i s n o tup o n u s t o qu es t i o n- 4 5 -

M rs . Bah am ’ s ju d gm en tas t o th e u t i l i t y an d ex t en to f adv ert i s i ng n eed edfo r h er b u s i n es s . Wh i l e ad v ert i s i ng i s a fact o r t hatwe m ay co ns i d er i n d et erm i n i n g wh et h er an act i v e t rad e o r b u s i n es s h as co m m en ced , i t s ab s en ce d o es n ot
n eces s ari l y

p ro v e t h e i nv ers e. W e al s o n o t e t h atres p o n d en td i dal lo w a d edu ct i o n
o f $ 6 50 fo r advert i s i ng ex p en s es o n M rs . Bah am ’ s Sch edu l e C, m ak i ng
res p o n d en t’ s as s ert i o n t h atad v ert i s i n g was ab s en tat l eas ts o m ewh ati m p l au s i b l e. Si n ce p et it i on ers are u n ab l e t o p ro v i d e d et ai l edi n fo rm at i o n ab o u tth e
s p eci fi c d at es o f t he p h o t o s h o ot s , we can no ti d en t ify a p art i cu l ar d at e wh enM rs . Bah am ’ s p ho t o g rap h y

b u si n es s b ecam e act iv e. Ho wev er, o n th e wei g h to f t h e
ev i d en ce we co n cl u d e t h atth e b u s i n es s d i d b eco m e act i v e i n 2 0 1 2 . Ev enb eari n g h eav il y ag ai n s tp et i t i o ners , wh o s e i nex act i tu d e was o f t h ei r o wnm ak in g , s ee Co h an v . Co m

m i s s i o n er, 3 9 F.2 dat5 43 -5 4 4 , we co n cl ud e t h atM rs . Bah am ’ s p h o t o g rap h y

b u s i n es s was act i ve b y

n o l at er t h an o n o r b efo re Decem b er 3 1 , 2 0 1 2
. Acco rd i ng l y , p u rs u an tt o s ect i o n 1 .1 9 5 -1 (b ), In co m e Tax Reg s ., p et i t i o n ers are d eem edt o h av e m ad e t h e el ect i o n t o am ort i ze s t artup ex p en d i tu res u nd er
s ect i on 1 9 5 (b ) fo r 2 0 12 . W e d et erm i nedth atp et i t i o n ers h av e s ubs t an t i at ed $ 3 ,1 6 2 .9 3 as o rd i n ary

an dn eces s ary

b u s i n es s ex p en s es . Si n ce s ect i o n 1 9 5 (b )(1 ) al l o ws fo r t h e i m

m ed i at e d edu ct i on o f up t o $ 5 ,0 0 0 o f s t artup ex p en d itu res fo r t h e t ax ab l e y ear i n wh i ch th e act i v e t rad e o r b u si nes s b eg an , an ds i nce res p on d en th as- 4 6 -

al l o wed deduct io ns fo r $ 2 ,2 0 0 o f p et i t i on ers ’ rep o rt edSch edu l e C ex p en s es o n
au d it , p et i t i o n ers are en t i t ledt o d eductan ad d i t i o n al $ 2 ,8 0 0 o f ex p en s es fo r t h e 2 0 1 2 t ax ab l e y ear an dm ay am o rt i ze t h e rem ai n i n g b al an ce o f $ 36 2
. 9 3
. Th i s b al an ce i s d edu ct i b l e rat ab l y o v er t h e 1 8 0 -m o n th p eri o db eg i n ni n g wi t h t h e m o n t h i n wh ich M rs . Bah am ’ s act iv e t rad e o r b u s i n es s b eg an . Al t h o ug h p et i t i o n ers are
u n ab le t o p ro v i d e s p eci fi c d at es fo r p h o t o s h oo t s , s i n ce we d et erm i n ed t h atM rs . Bah am ’ s b us i nes s was act i v e n o l at er t h an Decem b er 3 1 , 2 01 2 , fo r p urp o s es o f
co m p u t i n g t h e rat ab l e d edu ct i o n o f th e am o rt i zed$ 3 6 2
. 9 3 am o u n t , Decem b er 2 0 1 2 i s t o b e d eem edth e m o n t h i n wh i ch h er act iv e b u s in es s b eg an . C. Pet i t i o ners ’ Rep o rt edUn rei m b u rs edEm

p l o y ee Bu si n es s Ex p en s es Pet i t i o ners h av e co n ced edal l o f t h ei r cl ai m edSch edu l e A d edu ct i o n s fo r
u n rei m b u rs edem

p l o y ee ex p en s es , wi th th e ex cep t i o n o f t h ree cat eg o ri es o f
ex p en s es : $ 2 ,1 7 8
. 6 3 fo r an i m al feedan dcare; $ 3 7 2 .9 2 fo r res earch an dl i terat u re;
an d $ 4 5 0 fo r o n e-t h i rdo f t h e cel l p h o n e ex p en s es . W e ad dres s each o f t h es e cat eg o ri es i n o rd er.

1
. An i m al Feedan dCare M rs . Bah am t au g ht zo o l og y an db i ol o g y

th ro u g h o u t2 0 12 . Sh e u s edl i v e
an i m al s i n h er cl as s ro o m , a s trat eg y wh i ch was n otex p res s ly en d o rs edb y h er
em pl o y er, b u twh ich s h e v i ewedas n eces s ary t o en g ag e o t h erwi s e p o t en t i al l y- 4 7 -

ap at h et i c s tu d en t s . By

al l acco u n t s , h er u s e o f t h e an i m al s h el p ed t o al lev i at e
s o m e o f t h e t ru an cy

th atm i gh th av e o t herwi s e res u l ted . Th ere was n o p o li cy b y wh i ch M rs . Bah am ’ s em

p l o y er wo ul drei m

b u rs e t each ers wh enth ey i ncu rred cl as s ro o m

ex pen s es o n th ei r o wn acco u n t. Th e cl as s ro o m an i m al s rem ai n edat
s ch o ol du ri n g th e acad em ic y ear, b u t M rs . Bah am t o okth em

h o m e fo r t h e s u m

m er,
ev i d en t l y t o th e ch ag ri n o f h er ch i ld ren , wh o were n o tk een o n cl ean i n g up aft er th e an i m al s . Wh i l e p et i t i o n ers s eek t o d edu ctcert ai n o f th ei r ex p en s es rel at ed t o th es e
an i m al s , res po n d en tp oi nt s o u tth at i n 2 0 1 2 p et i t i o n ers h ada m in i atu re co l l i e an d p ai dth ei r fam il y

p et ’ s co st s i n th e s am e m an n er as th ei r o t h er ex p en s es . Pet i t io n ers h av e n o way

t o d i fferen t iat e b et ween the ex p en s es as s o ci at edwi t h thei r d o g an dex p en s es as so ci at edwi t h the cl as sro o m an i m al s . M oreo v er, res p on d en t arg u es , p et it i on ers can n otes t ab l i sh fro m th ei r b an k s tat em en t s al o n e t h atth e p art i cu l ar i t em s p urch as edco n s t i tu t e o rd i n ary an d n eces s ary ex p en s es rel at edt o M rs . Bah am ’ s em

p l o ym en tas a t each er. Res p o n d en t fu rt h er m ai nt ai n s th at , ev en i f p et it i o n ers co ul ds ub s t an t i at e t h ei r cl ai m edex p en ses , th ey h av e fai l ed t o d em o n s trat e t h atth e an i m al s were n eces saryt o M rs . Bah am ’ s t each i n g act i v i t i es . In h i s t ri al t es t i m o n y

M r. Bah am

i d en t i fi eds ev eral ch arg es o n p et i ti o n ers ’ b an k s tat em en t s wh i ch p et i t i o n ers cl ai m co rro b o rat e t h ei r ex p en d i tu res o n th e- 4 8 -

cl as s ro o m

an im al s : $ 8 3 9 .6 9 atPetSm art , $ 1 2 6.6 6 atPet co , $ 3 1 atth e Du art e An i m al Ho s p i t al , $ 7 1 .3 6 atWh i t t i er Narro ws Petan d Feed , an d t wo b i rds t o res (wh ich we i n fer t o b e Th e Feat h er Farm s an d Bi rdHi l l Pro du ct s , wh ere p et i t i o n ers
s p en t $ 4 2 .0 2 an d$ 15 4 .4 4 , res p ect iv el y ). Th es e ch arg es t o tal $ 1 ,2 6 5 .1 7 , an
am ou n ts m al l er t h an th e $ 2 , 1 7 8 .6 3 rep o rt edb y p et it i on ers fo r an i m al feed an d
care. Wh i l e we ag ree wi t h res p o n d en tthatth e ch arg es atPetSm art , Pet co , Du art e An i m al Ho s p i t al , an dWh it ti er Narro ws Petan d Feed are t o o u n sp eci fi c fo r u s t o
s ay d efi ni t i v el y

th atth ey were s p en tfo r b u s in es s p u rp o s es , i n st eado f p ers o n al
can i n e-rel at edp u rp o s es , cf. s ec. 2 6 2 , we accep tth atatl eas tthe ch arg es atTh e Feat h er Farm s an dBi rd Hi l l Pro du ct s co u l dp l au s ib l y b e rel at ed t o th e cl as s ro o m
an i m al s , s i n ce p et i t io n ers d i dn o to wnan y b i rd s as p et s . Ho wev er, we u l t i m at el y
co n cu r wi t h res p o n den tth atp et i t i o n ers m ay n o td eductth es e ex p en s es b ecau s e p et i t i o n ers h av e n o t s h o wnthatth e cl as s ro o m an i m al s were n eces s ary

t o M rs . Bah am ’ s t each i n g act i v i ty . Cf. Fari as v . Co m m i ss i o n er, 2 0 1 1 W L 5 0 4 1 3 5 6 , at* 4
. W e d o n o td o ub t th atth e cl as s ro o m an i m al s were p ed ag o g i cal l y h el pfu l t o
s tud en t s an dap p ro p ri at e fo r cl as s ro o m u s e, b u tth i s i s n o ts u ffi ci en tt o cau s e t h es e
ex p en s es t o b e d edu ct i b le as o rd i n ary an dn eces s ary

b u si nes s ex p en s es . See i d
. Pet i t io n ers h av e n o ts at i sfact o ri l y s h o wnth atth e cl as s ro o m an im al s were “ a- 4 9 -

n eces s ary ex p en se o f [M rs . Bah am ’ s ] b ei n g a t each er.” See i d .; s ee al s o Wh eat l an dv . Co m

m is s i o n er, 2 3 T.C.M . (CCH) 5 7 9 , 5 8 2 (“ Sch o o lt each ers m ay , at t i m es , * * * [p ro v i d e eq ui p m en tfo r cl as s ro o m u se o u to f t h ei r o wnfu nd s ] , b u t th ey d o n o td o s o o rd i n ari l y , ev en tho u g h t h e res u l t m i g h tb e t o en han ce t h ei r rep u t at i o n s as d ed i cat edt each ers . * * * Th e m on ey m ay b e wel l s pen t* * * , b u ti t
was n otan o rd i n ary

ex p en s e o f carry i n g o n p et i t i o n er’ s b u s i n es s [.] ”). Acco rd in g ly , we fi n d t h atp et i t i o n ers m ay n o t d edu ctth e ex p en s es th ey rep o rt ed fo r an i m al feed an dcare.

2
. Res earch an dLi t erat u re Pet i t i o ners cl ai m ed res earch an dl i t erat u re ex pen s es o f $ 3 7 2.9 2 , ev id en ced b y p u rch as es o f $ 1 0 5 atDi s co v ery Sci en ce Cen t er, $ 8 9 atth e Lo s An g el es Zo o , $ 1 8 0 .0 9 atIp i c Th eat ers Pas ad en a, an d$ 1 8 atAM C San t a An it a (we n o t e t h at th es e p u rch as es actual l y

t o t al $ 3 9 2.0 9 ). Pet i t i o n ers as s ertth atM rs . Bah am at t en dedm o v i es b ecau s e i th el p edh er t o en g ag e an dco n n ectwi t h h er s tu d en t s ; M r. Bah am

acco m p an iedh er. Res p on d en targ u es th at at t en d i n g m ov i es h adat l eas t a s ub st an t i al p ers o n al co m p o nen tfo r p et i ti o n ers , an d s o t h es e p u rch as es are
n o td edu ct i b l e. Iti s n o tcl ear fro m th e reco rdwh y

o n e o r b o t h p et i t i o n ers at t en d ed th e Di s co v ery

Sci en ce Cen t er; M r. Bah am t es ti fi ed attri al th at p et it i on ers l i k el y d i dn o t t ak e t h ei r ch i l dren there wi t h t h em . As t o th e Lo s An g el es Zo o , p et i t i o n ers- 5 0 -

h ad p as s es th ere, b u t th e ch arg e was i n cu rredfo r an u ns p eci fi edres earch act i v i ty atthe zo o req u i ri n g p aym en t o f an ad d i t io n al fee; M r. Bah am attri al ad m i t t edth at p eo pl e g o t o th e zo o recreat i o n al l y . Ins u m , res p o n d en targ u es th atp et i t i o n ers ’ cl ai m edres earch an dl it erat u re ex p en s es are p ers o n al , wi t h t h e reco rdco n t ai n i n g
n o th i n g t o s u g g es t ot h erwi s e. M o reo v er, res p o nd en t m ai n t ai ns , p et i t i o n ers h av e
n o tp ro v en th atth es e ex p en s es were o rd in ary an dn eces s ary . W e ag ree wi t h res p o n d en t . Al l o f th e ex pen s es i n thi s cat eg o ry are o f a t y

p e th ath av e an o v erwh el m i n gl y p ers o n al ch aract er, wh i ch m ak es th em n o n dedu ct i b l e
u n d er s ect i o n 2 6 2 . Ev en if p et i t i o n ers ’ tri p s t o t h e Di s co v ery Sci en ce Cen t er, t h e Lo s An g el es Zo o , an dm o v i e t heat ers were h el pfu l t o M rs . Bah am ’ s t each i n g , th ey
were n o t a n eces s ary

ex p en s e o f b ei n g a t each er. Atan y rat e, ab s en t an y

g reat er
s ub s t an t i at i o n th an p et i t i o n ers ’ b an ks t at em en t s , we co n cl u d e t h atth e rel at i o n s h i p
o f t h es e ex pen s es t o M rs . Bah am ’ s jo b as a t each er i s t o o at ten u at edt o ju s t i fy a d educt i o n . Acco rd i n g l y , we fi ndth atp et i t i o ners m ay n o td edu ctth e ex p en s es th ey rep o rt edfo r res earch an d l i t erat u re.

3
. Cel l Ph o n e Pet i t i o ners cl ai m

th ey are en t it l ed t o d edu ct $ 45 0 fo r cel l p h on e ex pen s es , a fi gu re t h ey

es t im at edb y

t ak i n g o n e-t h i rdo f t h ei r an n u al cel l u l ar p ho n e b i l l , wh i ch th ey ap p ro x i m at edat$ 1 ,3 5 0. Th e o t h er t wo -t h ird s were al l o cat ed t o M rs .- 5 1 -

Bah am ’ s p ho t o g rap h y

act iv i t i es an dp ers o n al u s e. Th e m on t h l y ch arg e fo r Veri zo n o n p et i t i o n ers ’ ban ks t at em en ts was $ 1 7 2.1 4 , wh i ch an n ual i zedequ al ed $ 2 ,0 6 5 .6 8 ; th u s , p et i t i o ners cl ai m eda d edu ct i o n fo r a s m al l er am o u n t th ano n eth i rd o f t h ei r act u al ch arg es . Res p o n d en t , h o w ev er, arg u es th atth es e cel l p h o n e ex p en s es are n o t d educt i b l e fo r t h e s am e reas o n s d is cu s s edab o v e i n rel at io n t o M rs . Bah am ’ s p h o t o g rap h y

b u s i n es s . He al s o p o i n t s o u tth atp et i t i o n ers h av e n o tp ro v en th atth e cel l p h o n e ex p en s es were o rd i n ary an dn eces s ary

fo r M rs . Bah am ’ s jo b as a t each er. Attri al M r. Bah am t es t i fi edthatwh i l e cel l p ho n es were n o treq ui redo f t each ers , th ere was a p ercei v edn eedt o b e reach ab l e b y p h on e. M r. Bah am t es t i fi edth ato n o ccas i o n h i s wi fe wo u l drecei v e t ex tm es s ag es fro m h er s ch o o l ’ s p ri n ci p al , al o n g wi t h wo rk -rel at ed cal l s. M r. Bah am al s o ad m it t edthatp et i t i o n ers h av e a h o m e p h o n e o n wh i ch M rs . Bah am co u l db e reach ed
. W e ag ree wi t h res p o n d en t . Wh i le p et i t i o n ers h av e es t ab l i sh edth at t h ey p ai d a cert ai n am ou n tas cel l ul ar p h o n e ex p en s es , th ati s th e o n l y t h i ng th ey h av e b een ab l e t o es t ab l i s h . Thus , th ey h av e n otcarri edth ei r b u rd en o f p ro v i n g th at t h es e
ex p en s es were at t ri b ut ab l e t o a t rad e o r b us i n es s . A p ercei v edex p ect at i on o f
av ai l ab i li t y

i s n o ts u ffi ci en tt o u n d erg irdth e d edu ct i o n o f cel l p h on e ex p en s es as- 5 2 -

wo rkrel at ed . Acco rd i n gl y , we fi n dth atp et it i o n ers are n o ten t i t l edt o d edu ctth ei r rep o rt edcel l p h o n e ex p en s es . III. Accu racy -Rel at edPen al t y In th e n ot ice o f d efi ci en cy u n derl y i ng th is cas e, res p o nd en t d et erm i n edth at p et i t i o n ers o we an accu racy -rel at edp en al t y fo r an u n d erp aym en t at t ri b u tab l e t o a
s ub s t an t i al u n ders t at em en to f i nco m e t ax , o r al t ern at i v el y t o thei r n eg l i g en ce i n fai l i n g t o m ai n t ai n ad equat e reco rd s o f t h ei r rep o rt edex p en s es . Sect io n 6 6 6 2 (a) i m

p o s es an accu racy -rel at edp en al ty equ al t o 2 0 % o f t h e p o rt i on o f t h e u n d erp aym en t t o wh i ch s ect i o n 6 6 6 2 ap p li es . Sect i o n 6 6 6 2 (a) ap p li es t o th e p o rt i o n o f an y u n d erp aym en twh i ch i s at t ri b u tab l e t o , am on g o t h er th i n g s , a s ub s t an t i al u n d ers tat em en t o f i n co m e t ax . See s ec. 6 6 6 2 (b )(2 ). Fo r i n d i v i du al t ax pay ers an u n d ers tat em en t o f i n co m e t ax i s s ub s t an t i al fo r an y t ax ab l e y ear i f i tex ceed s t h e g reat er o f 1 0 % o f t h e t ax req u i redt o b e s h o wno n th e retu rn fo r t h e t ax ab l e y ear o r $ 5 , 0 0 0 . Sec. 6 6 6 2 (d )(1 )(A). W e ag ree wi t h res p o n d en tth atth ere i s an u n d erp aym en tat t ri b u t ab l e t o a
s ub s t an t i al u n ders t at em en to f i nco m e t ax i n th i s cas e. Acco rd i ng t o t h e n o t i ce o f d efi ci en cy , th e am o u nto f t ax req u i redt o b e s h o wn o n p et i t i o ners ’ 2 0 1 2 t ax retu rn
was $ 19 ,2 6 3 , wh ereas th e am o u n to f t ax actual l y s ho wnwas $ 7 ,0 5 0 , res u l t i n g i n
an u n d ers t at em en to f $ 1 2 ,2 13 . Th i s i s a s ub s t an t i al u n d ers t at em en t, b ecau se i t- 5 3 -

ex ceed s t h e g reat er o f 1 0 % o f t h e t ax req u i redt o b e s h o wno n th e retu rn ($ 1 ,9 26 .3 0 ) o r $ 5 ,0 0 0 . W e h av e d et erm in edth atres p o n d en ti n ap p ro p ri at el y d en ied$ 2 ,8 0 0 o f p et i t i o n ers ’ cl ai m edd edu ct i o n s, p l u s a rat ab l e fract io n o f th e $ 3 6 2 .9 3 rem ai n d er t h ati s t o b e am o rt i zedo v er 1 8 0 m o nt h s. Ev en s o, t hi s am o u n t i s n o ts o l arg e as t o redu ce p et i t i o n ers ’ u n d ers t at em en to f i n co m e t ax t o l es s th an $ 5 ,0 0 0 o r 1 0 % o f t he am ou nto f t ax req u i redt o b e s h own o n t h e 2 0 1 2 Fed eral i n co m e t ax retu rn . Pet i t i o n ers th erefo re rem ai n l i ab le fo r a s ub st an t i al
u n d ers t at em en tp en al t y

u n d er s ect i o n 6 66 2 (a) an d(b )(2 ), al bei t o n e redu ced
s o m ewh atb y

o u r fi n d i n g th atp et i t i o n ers are en t i t l ed t o d edu ct an ad d i t i o n al $ 2 ,8 0 0 p l u s th e rat ab l e fract i o n o f $ 3 6 2 .9 3
. No n eth el es s , an ex cep t i o n t o th e s ect i o n 6 6 6 2 (a) p en al t y i s s etfo rt h i n
s ect i on 6 6 6 4 (c)(1 ): “

No p en al t y

s h al l b e i m

p o s edu nd er s ect i o n 6 6 6 2 * * * wi t h
res p ectt o an y

p ort i on o f anu n d erp aym en ti f i ti s s h o wnthatth ere was a
reas on ab l e cau s e fo r s uch p o rt i o n an dth at t he t ax p ay er act edi n g o o dfai t h wi th
res p ectt o s u ch p o rt i o n .” Sect i o n 1 .6 6 6 4 -4 (b )(1 ), In co m e Tax Reg s ., p ro v i d es :

“ Th e d et erm i n at i o n o f wh et h er a t ax p ay er act edwi t h reas o n 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 . * * * Gen eral l y , th e m o s t i m p o rt an tfact o r i s th e ex ten to f t he t ax p ay er’ s effo rtt o as s es s t h e t ax p ay er’ s p ro p er t ax l i ab i l i t y .”- 5 4 -

Th e ev i d en ce ad duced i n th is cas e rev eal s a d eart h o f ad equ at e reco rd s an d
s ub s t an t i at i o n fo r rep o rt edi t em s . Pet i t i o n ers u sedt ax s o ftware t o p rep are t h ei r retu rn s b u td i dn o tfu l ly

u n ders t an d t h e res u l t s i tp ro du ced . Pet i ti o n ers al s o ad m i t t edt o es t i m at i n g ex pen s es an d cl ai m i n g d edu ct i o n s wi t h o utv eri fy i n g th e
co rrect nes s o f t h o s e am o u n t s b y rev i ewi n g s o u rce d o cu m en t at i o n . Res po n d en th as
m etth e s ect io n 7 4 9 1 (c) b u rd en o f p ro du ct i o n wi t h res p ectt o th e p en al ty . W i t h th i s th res h o l ds h o wi n g , th e b u rd en s h i ft s t o p et it i on ers t o es t ab l i sh th atth ey act ed wi th reas o n ab l e cau s e an di n g o o dfai t h as t o th e d educt edi t em s . See Hi g bee v
. Co m m i s s i o n er, 1 1 6 T.C. 4 3 8 , 4 4 8 (2 0 0 1). Pet i t i o ners h av e i n t ro du cedn o ev i d en ce th at wo u l dex cu s e t h em fro m th e
accu racy -rel at edp en al ty . Duri n g t ri al M r. Bah am ackn o wl ed g edth ath e h ado n l y th e l i m i t edreco rd s h e en t eredi n t o ev i d en ce an ds t at edth atp et i t i o n ers “ d i dn ’ td o a
v ery g o o d jo b an d* * * d i dn ’ tex p ectt o b e au d i t ed ”. He p ro ceed edt o s umm ari ze th atp et i t i o n ers h ad d o n e th e b es tth ey co u l db u ten d edup es ti m at i n g m an y o f t h ei r rep o rt edex p en s es . Pet i t i on ers rel i edo n t h ei r t ax p rep arat i o n s o ft ware b u ts h o u l d h av e u n d ers to odth atth e p ro g ram ’ s accu racyd ep en d edo n th e en t ry o f co rrect i n fo rm at i o n . Un fo rtu n at el y p et i t i o n ers t o o kn o s t ep s t o al l ev iat e t h ei r co n fu s i o n wi th th ei r t ax s i tu at i o n o r as cert ai n th e co rrect am o u nto f t ax du e, s u ch as b y
co n su l t i n g a t ax p ro fes s i o n al
. Cf. s ec. 1
. 6 6 64 -4 (c), In co m e Tax Reg s .- 5 5 -

No t wi t h s t an d i n g p et i t i o n ers ’ p ro fes s ed b el ief t h atth ey were d o i n g wh at th ey tho u g h tri g ht --wh i ch atb es ti n d i cat es o n l y g o o d fai t h --t h ey

fai l edt o ap p l y
an y b u tth e m o s t cu rs o ry

effo rtt o d et erm i n e th ei r p ro p er t ax l i ab i l it y . 9 Cf. s ec. 1 .6 66 4 -4 (b )(1 ), In co m e Tax Reg s . Pet it i o n ers , h av i n g fai ledt o es t ab l i s h
reas on ab l e cau s e are l iab l e fo r t h e s ect i o n 6 6 62 (a) an d (b )(2 ) accu racy -rel at ed p en al ty fo r an u nd erp aym en tat t ri bu t ab le t o a s ub s t an t i al u nd ers t at em en to f i n co m e t ax . IV. Co n cl u si o n W e h av e d et erm in edth atp et i t i o ners are en ti t l ed t o d edu ctan ad d i t i o n al $ 2 ,8 0 0 --an dt o am o rt i ze $ 3 62 .9 3 o v er 1 8 0 m on t hs b eg i nn i n g wi t h Decem b er 2 0 1 2 --as o rd i n ary

an d n eces saryb u s i n es s ex p en s es i n co n n ect i o n wi th M rs . Bah am ’ s p ho t o g rap h y

b u si n es s . Oth erwi s e, res p on d en t ’ s ad ju s t m en t s t o p et i t i o n ers ’ 2 0 12 Fed eral i n co m e t ax return are s u s t ai n ed
. Pet i t i o n ers m i g htwel l h av e av o i d edth e d en i al o f s o m e o f th ei r cl ai m edd edu ct io n s h adth ey m ai n t ai n ed b et t er reco rd s , t ak i n g s p eci al care t o k eep recei pt s rel at ed t o th ei r t rad e o r b u s i n es s

9 Th i s co i n ci d en t al l y

p laces p et i ti o n ers ’ co n du ctwi t h in th e s t atu t o ry d efi n i t i o n o f n eg l i g en ce fo r p u rp o s es o f t he s ec. 6 6 6 2 accu racy -rel at edp en al t y , wh i ch “ in cl u d es an y

fai lu re t o m ak e a reas on ab l e at t em p t t o co m p l y wi t h th e p ro v is i o n s o f [t h e Co d e] ”. Sec. 6 6 6 2 (c). W e n eedn o tad dres s t h i s al t ern at i v e g ro u ndfu rt h er, h o wev er, b ecau s e t h e s ub s t an t i al u n ders t at em en tg ro u n d i s s u ffi ci en tfo r t h e p en al t y ’ s i m p o s i t i o n i n th i s cas e.- 5 6 -

ex p en d i tu res , as req u i redb y s ect i o n 6 0 0 1
. See al s o s ec. 1 .6 0 0 1 -1 (a), (e), In co m e Tax Reg s . Fo r the fu tu re p et i t i o n ers are ad v i s edth atth ey can m i n im ize p en al t i es th ro u g h p ro p er ev al u at i o n o f t h ei r cl ai m edd edu ct i o ns an dad equ at e s ub s t an t i at i o n . Cf. s ec. 1 .6 6 6 2 -3 (b )(1 ), In co m e Tax Reg s . (“ ‘ Neg l i g en ce’ al s o i n cl u d es an y fai l u re b y th e t ax p ay er t o k eep ad equat e b o o k s an dreco rd s o r t o s ub st an t i at e i t em s p ro p erl y .”). W e ad dth atth i s Co u rt ’ s d eci s i o n i s n o tp red i cat edup on p et i ti o n ers ’ l acko f cred i b i l i t y , b ut up o n th e wo efu l l acko f t h e req u i reds ubs t an ti at i o n fo r
ex p en s es u n d erl y i n g s o m e o f t h ei r cl ai m edd edu ct i o n s . W e h av e co n s id eredal l o f t h e p art i es ’ arg u m en t s , an dt o th e ex t en tn o t d i s cu s s edab o v e, co n cl u d e t h atth o s e arg u m en ts are i rrel ev an t , m o ot , o r wi t h o u t
m 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
.