# PURSUANT TO INTERNAL REVENUE CODE SECTION 7463(b),THIS OPINION MAY NOT BE TREATED AS PRECEDENT FOR ANY OTHER CASE.T.C. Summ ary Opi ni on 20 14 -7

UNITED STAT ES TAX COURT
MARVIN DOUGLAS, JR. AND K. ELD ER-DOUGLAS, Peti ti on ers v. COMM ISSI ONER OF INTERNAL REVENUE, Resp on de nt

Doc ke t No . 12 60 0- 10 S. File d J anua ry 15 , 20 14
.

Marvi n Do ug la s, J r., an d K. Eld er-Do ug la s, p ro ses e. Aud ra M. Di ne en , forres po nd en t.

SUMM ARY OPINION PANUTHOS, Chi ef Sp eci al Trial Ju dg e: Thi s ca se was h eardpu rs ua ntto th e p ro vi si on s o f se ct io n 7 46 3 o f th e In te rn al Rev enue Co de in effe ctwhen th e pe ti ti on was fi le d. Purs ua ntto sec ti on 74 63 (b ), th e d eci si on to be en te redis no t
rev ie wab le by any

ot he r co urt, an d thi s o pi ni on sh al l n otbe tre at edas p rece de nt- 2 -

fo r an y ot he r cas e. Unl es s o th erwi se in di cat ed , subs eque ntsec ti on refe ren ces are to th e In te rn al Rev enue Co de in effe ctforth e y ears in is su e, an d a ll Ru le refe ren ces are t o t he Tax C ou rt Rul es of P ract ic e an d P ro cedur e. Res po nd en t d et erm in eda de fic ie nc y in Marv in Dou gl as (pe ti ti on er) a ndK. Eld er-Do ug la s’ (Ms . Eld er-Do ug la s) 20 07 Fed eral in co m e ta x o f $1 5,2 32 an d a n
accu racy-rela te d p en al ty und er s ect io n 6 66 2( a) o f $3 ,04 6.4 0. Re sp on de ntals o de te rm in eda de fic ie nc y

in th ei r 20 08 Fed eral in co m e ta x o f $2 2,8 85 an d a n
accu racy-rela te d p en al ty und er s ect io n 6 66 2( a) o f $4 ,57 7. Afte r co nc es si on s, th e is su es forde ci si on are: (1) whet he r pe ti ti on er i s 1
en ti tl edto de du ct io ns cla im edonSch edul es C, Pro fitor Lo ss Fro m Bu si ne ss , for th e y ears in is su e; (2) whet he r pe ti ti on er i s en ti tl edto un rei m bu rs edem

pl oyee bu si ne ss ex pe ns e d educ ti on s cl ai m edon Sch edul e A, Ite m iz edDedu ct io ns , gre at er th anth os e res po nd en t al lo wedfor th e y ears in is su e; (3) whethe r pe ti ti on er i s
en ti tl edto a cas ua lt y

lo ss de du ct io n fo r 20 08 ; an d (4 ) whe th er p et it io ne rs are

Ms . Eld er-Do ug la s was gra nt edin no cen t s po us e rel ie f fo r 20 07 an d 2 00 8 1 wit h re sp ectto cert ai n a dju st m en ts att rib ut ab le to pe ti ti on er. Ms . Eld er-Do ug la s ha s co nc ed edan y

rem ai ni ng ad

jus tm en ts att rib ut ab le to he r fo r th e y ears in is su e, an d p et it io ne r di d n otdi sp ut e th es e ad jus tm en ts . Thu s, the on ly rem ai ni ng is su e wit h re sp ectto Ms . Eld er-Do ug la s i s wh ethe r th e acc ur acy-rela te d p en al ty und er se c. 66 62 (a) app li es with re sp ectto an y un de rp aym en ts att rib ut ab le to he r fo r th e y ears in is su e.- 3 -

li ab le forth e acc ur acy-rela te d p en al ti es un de r se ct io n 6 66 2( a) fo r th e y ears in is su e. Bac kg ro un d So m e o f th e fac ts ha ve be enst ip ul at ed , andwe in co rp or at e th e st ip ul at io n o f fact s, the supp le m en ta l s ti pu la ti on of f act s, an d t he st ip ul at io n o f se tt le d i ss ue s b y th is refe ren ce. At th e ti m e th e p et it io n was fil ed , pet it io ne r res id edin Cal ifo rn ia

2
an d M s. El de r-Do ug la s re si de d i n Il li no is
. Pet it io ne r worke d fu ll ti m e as anairtra ffi c co nt ro ll er fo r th e Fed eral Avi at io n Ad m in is tra ti on(FAA). The F AA di d n otrequi re p et it io ne r to tra ve l du rin g t he y ears in is su e. Pet it io ne r al so pu rs ue d v ari ou s m ul ti le ve l m ark et in g act iv it ie s dur in g t he y ears in is su e. On p et it io ne r’s 20 07 Sch edul es C he rep orte d 3 lo ss es with re sp ectto fiv e m ul ti le ve l m ark et in g a ct iv it ie s. Th es e act iv it ie s

On No ve m

be r 1, 2 01 1, re sp on de ntfil eda reque stforadm is si on s. 2 Pet it io ne rs fil edno res po ns e, an d t he reque st edm at te rs were d eem edadm it te d. See Rul e 9 0( c). So m e o f th e m at te rs de em edadm it te d h ere h av e b een st ip ul at edin th e st ip ul at io n o f se tt le d i ss ue s an d t he st ip ul at io n o f fac ts . In the st ip ul at io n o f se tt le d i ss ue s, wi th res pe ctto anun rep orte d S ta te tax refu ndpe ti ti on ers rece iv edin 20 07 , pet it io ne rs ag reedto anam ou ntof $ 2,7 48 , whi le in th e st ip ul at io n o f fac ts an d t he reque stforadm is si on s p et it io ne rs ag reedto an d a dm it te d t o a n a m ou ntof $2 ,78 1. We pres um e th e co rrec t am ou ntis $2 ,78 1. Mu lt il ev el m ark et in g g en eral ly refers to di rectsal es wher e th e sa le s fo rce i s 3 co m pe ns at edforsal es th ey

pe rs on al ly gen erat e as well as f orsal es of t he ot he r sa le sp eo pl e th atth ey

recrui t.- 4 -

in cl ud ed : (1 ) Sal es Prep ai d Leg al , a co m pa ny tha t s ol d p rep ai d l eg al servi ces ; (2 ) Am eri canTrav el Bu reau , a co m pa ny tha t p ro vi de d t rav el servi ces ; (3 ) W or ld Lead ers hi p Gro up (W LG), a co m pa ny tha t m ark et edreal est at e, fi na nc ia l s erv ic es , in su ran ce, an d i nv es tm en ts an d s ol d m ortg ag es ; (4 ) Glo ba l Do m ai ns Int ern at io na l,
a co m pa ny tha t s ol d d om ai n n am es ; an d (5 ) Veret ekk, a c om pa ny tha t p ro vi de d
on li ne m ark et in g s erv ic es . Duri ng 20 08 pe ti ti on er co nt in ue d t o p art ic ip at e in th e fiv e fo reg oi ng act iv it ie s an d b eg anpa rti ci pa ti ng in two ad di ti on al act iv it ie s: Dire ctSal es , a co m

pa ny for wh ic h t he re i s n o d es cri pt io n, an d C y be rwiz e Sal es , a
co m pa ny tha t s ol d n ut rit io na l p ro du ct s. Pet it io ne r tr av el edth ro ug ho ut20 07 an d 2 00 8 t o a tt en d m eet in gs an d tra in in g s em in ars forhi s m ul ti le ve l m ark et in g a ct iv it ie s. He s pe ntam ou nt s o n ai rfar e, ho te l ac co m

m od at io ns , andren ta l v eh ic le s. 4
Afte r tr ia l t he pa rti es fil eda supp le m en ta l s ti pu la ti on of f act s at ta ch in g 4 nu m ero us do cu m en ts . Res po nd en t o bjec te d t o v irtua ll y all of t he pro po se d ex hi bi ts on th e b as is of l ackof f ou nd at io n a ndhe ars ay . Som e o f th e p ro po se d ex hi bi ts were co pi es of h ot el , car re nt al , andair li ne rece ip ts
. Inge ne ral , th e Co urt co nduc ts tri al s i n a cco rd an ce wi th th e ru le s o f ev id en ce fo r tr ia ls witho uta jury in the U.S. Distric t Co urt fo r th e Dis tri ctof Co lu m bi a, an d a cco rd in gl y , fol lo ws the Fed eral Ru le s o f Evi de nc e. Sec. 7 45 3; Ru le 14 3( a); Clo ug h v . Comm is si on er, 1 19 T.C. 18 3, 1 88 (20 02 ). Howev er, Ru le 17 4( b) carv es ou t anex cep ti onfortri al s o f sm al l t ax cas es un de r th e p ro vi si on s o f se c. 74 63 (a). Un de r Ru le 17 4( b) , th e Co urt co nduc ts sm al l t ax cas es as i nf orm al ly as po ss ib le an d c on se qu en tl y m ay adm itan y

ev id en ce tha t t he Co urt d eem s t o (co nt in ue d...)- 5 -

Pet it io ne r cl ai m edde du ct io ns forth e fo ll owi ng ex pe ns es on hi s 2 00 7 a nd 20 08 Sch edul es C fo r hi s m ul ti le ve l m ark et in g a ct iv it ie s: Sal es Pre pai d Le gal

2007 2008 Advert is ing $17 $2 0 Carandtruck - - - 6 4 Depr eci at ion 142 10 1 Off ic e - - - 2 5 Supp li es 64 6 5 T ravel 75 1 3 Me al s and e nte rt ai nm ent 27 4 1 Uti li ti es 239 54 0 Othe r 469 82 9 Busi nes s us e of

home - - - 1 ,526 T ota l 1 ,033 3 ,224

Am er ic an T ravel Bur eau

2007 200 8 Advert is ing $ 486 1,38 6 Carandtruck 9, 642 22, 587 Comm is si ons andfe es - - - 2 0 Depr eci at ion 12, 930 7,75 8 Legal a nd p rof

ess ion al 174 17 9 Rentorle ase - - - 2,15 6 Supp li es 210 17 5 T axe s a nd l ic ens es 120 11 0 T ravel 600 1,52 6 Me al s and e nte rt ai nm ent 45 4 2 Uti li ti es 1, 389 1,32 0 Othe r 144 9 8 Busi nes s us e of

home 1, 292 5 ,950 T ota l 27, 032 43, 307 (...co nt inue d) 4 ha ve pro ba ti ve va lu e. Sch wart z v . Comm is si on er, 1 28 T.C. 6, 7 (20 07 ). The do cu m en ts th atpe ti ti on ers off eredare h ig hl y

pro ba ti ve of e xp en se s p et it io ne r se ek s t o d educ t fo r hi s m

ul ti le ve l m ark et in g a ct iv it ie s. Th eref or e, we ov erru le res po nd en t’s ev id en ti ary ob jecti on s, an d t he ex hi bi ts are ad m it te d i nt o e vi de nc e.- 6 - Wo rl d Le ade rs hip Gro up

2007 2008 Advert is ing $672 644 Carandtruck 9 ,114 21,4 13 Depr eci at ion 410 24 6 Legal a nd p rof

ess ion al 174 17 4 Off ic e 90 9 0 Rentorle ase - - - 27 5 Supp li es 608 22 6 T axe s a nd l ic ens es 510 51 0 T ravel 2 ,800 5 ,037 Me al s and e nte rt ai nm ent 225 1, 380 Uti li ti es 3 ,712 3 ,389 Othe r - - - 45 5 Busi nes s us e of

home - - - 1 ,526

18 ,315 35 ,365 Glob al Dom ai ns Internat ion al

2007 2008 Advert is ing $205 $20 5 Carandtruck 4 ,477 5,5 12 Supp li es 16 0 14 0 Me al s and e nte rt ai nm ent 16 0 217 Uti li ti es 252 220 Busi nes s us e of

home - - - 1 ,526

5 ,254 7 ,820
V er et ekk 2007 2008 Carandtruck $949 1, 453 Depr eci at ion 1 ,200 - - - Legal a nd p rof

ess ion al - - - 312 Me al s and e nte rt ai nm ent - - - 67 Busi nes s us e of

home - - - 883 T ota l 2 ,149 2 ,715- 7 - Dir ectSal es 2 008 Carandtruck $2 ,481 Supp li es 3 ,559 Busi nes s us e of

home 1 ,526 T ota l 7 ,566

Cyberwi ze Sal es

2008 Carandtruck $2 ,443 Comm is si ons andfe es 200 Depr eci at ion 5 ,060 Inte re st 510 Supp li es 1 ,495 T ravel 1,89 5 Me al s and e nte rt ai nm ent 6 2 Uti li ti es 81 6 Othe r 2,69 4 Busi nes s us e of

home 1 ,526 T ota l 1 6,70 1 Pet it io ne r al so cla im edde du ct io ns forjob ex pe ns es an d c ert ai n
m is cel la ne ou s d educ ti on s o n h is 20 07 an d 2 00 8 S ch edul es A of $ 12 ,65 4 a nd $2 4,8 34 , res pe ct iv el y . Thes e d educ ti on s re la te d t o t rav el , job tra in in g,
m em be rs hi p due s fo r th e Nat io na l Bl ackCo al it io n o f Fed eral Avi at io n Em pl oyees (NBCF AE), un io n due s, t ax pre pa rat io n fe es , andatt orne y ’s andacco un tant ’s fees
. 5
Pet it io ne r di d n otco nt es t re sp on de nt ’s di sa ll owa nc e o f de du ct io ns for tax 5 pr ep arat io n fe es an d a tt orne y ’s andacco un ta nt ’s fees for20 07 an d 2 00 8. Acco rd in gl y , th e d is al lo wedam ou nt s ar e d eem edco nc ed edby pet it io ne r. See (co nt in ue d...)- 8 -

Pet it io ne r’s in su ran ce co m pa ny det erm in edth athi s v eh ic le was
un sa lv ag eab le aft er i t was in vo lv edin anau to acci de ntin 20 08 , andhe cla im eda $1 2,0 20 cas ua lt y

lo ss de du ct io n o n h is 20 08 Sch edul e A fo r th is lo ss . Res po nd en t d is al lo wedall of t he cla im ed20 07 an d 2 00 8 S ch edul e C
ex pe ns e d educ ti on s. Re sp on de ntals o d is al lo wedcert ai n S ch edul e A expe ns e de du ct io ns for20 07 an d 2 00 8 a ndth e cas ua lty lo ss de du ct io n fo r 20 08
. Dis cu ss io n Inge ne ral , th e Co m

m is si on er’s d et erm in at io n s etforthin a no ti ce o f de fic ie nc y

is pre su m edco rrec t, an d the tax pa y er b ears th e b ur de n o f pr ov in g t ha t th e d et erm in at io n i s i n e rro r. Ru le 14 2( a); W el ch v. Hel ve rin g, 2 90 U.S. 11 1, 1 15 (1 93 3) . Purs ua ntto sec ti on 74 91 (a), the bu rd enof p ro of as t o fa ctua l m at te rs sh ift s t o t he Co m

m is si on er u nd er ce rta in cir cu m st an ces . Peti ti on ers di d n otall eg e th atsec ti on 74 91 (a) app li es . See s ec. 7 49 1( a)(2 )(A) an d (B ). Ther efo re, pe ti ti on ers be ar the bu rd enof p ro of . See Ru le 14 2( a). A tax pa y er m

us t s ub st an ti at e am ou nt s cl ai m edas d educ ti on s b y m ai nt ai ni ng th e rec or ds ne ces sary

to est ab li sh he or s he is en ti tl edto th e d educ ti on s. Sec
. 60 01 . Sect io n 1 62 (a) p ro vi de s a d educ ti onforcert ai n b us in es s- rel at edex pe ns es . (...co nt inue d) 5 Ru le 14 9( b)
.- 9 -

To qua li fy

forth e d educ ti on un de r se ct io n 1 62 (a), “ anit em m us t (1 ) be ‘ pa idor in cu rreddu rin g t he tax ab le y ear,’ (2) be for‘ carry in g o n a ny trad e o r bu si ne ss ,’ (3) be an‘ ex pe ns e,’ (4) b e a ‘nece ss ary’ ex pe ns e, an d (5 ) be an‘ or di na ry ’ ex pe ns e.” Co m m is si on er v . Lin co lnSav . & Loan Ass ’n, 40 3 U.S. 3 45 , 35 2 (1 97 1) ; Dep ut y v. duPo nt , 30 8 U.S. 4 88 , 49 5 (1 94 0) (to qu al ify as “ or di na ry ”, th e ex pe ns e m us t rel at e to a tr an sa ct io n “ of co m m on or f reque ntoc cu rren ce i n t he type o f bu si ne ss in vo lv ed ”). Whe th er anex pe ns e is ord in ary is de te rm in edby tim e, pl ace, a nd ci rcu m st an ce. Welch , 29 0 U.S. at11 3- 11 4. Gen eral ly, th e p erfo rm an ce o f
se rv ic es as an e m

pl oyee co ns ti tu te s a t rad e o r bu si ne ss , Prim ut h v . Comm is si on er, 54 T.C. 37 4, 3 77 (19 70 ), an d t he ord in ary an d n eces sa ry ex pe ns es pa idin
co nn ect io n wi th th attra de or b us in es s ar e d educ ti bl e, se c. 16 2( a); Bo y d v
. Co m m is si on er, 1 22 T.C. 30 5, 3 13 (20 04 ). Sect io n 2 74 (d ) ap pl ie s t o c ert ai n b us in es s ex pe ns es in cl ud in g, am on g o th er th in gs , exp en se s fo r gi fts , li st edpro pe rty andtrave l (i nc lu di ng m eal s an d l od gi ng whi le away

fro m ho m e). To s ub st an ti at e a d educ ti on att rib ut ab le to tra ve l
ex pe ns es , a tax pa y er m

us t m ai nt ai n a de qu at e rec or ds or p res en t co rro bo rat iv e
ev id en ce t o s ho w th e fo ll owi ng : (1 ) th e am ou ntof e ach tra ve l ex pe ns e; (2) th e ti m e an d p la ce o f tr av el ; an d (3 ) th e b us in es s p ur po se fortra ve l. Sec . 1.2 74
- 5T(b )(2 ), Tem

po rary Inco m e Tax Reg s., 5 0 F ed . Reg . 46 01 4 (No v. 6 , 19 85 ).- 10 -

I. Sch edul es C Trav el Exp en se s- -2 00 7 a nd20 08 Pet it io ne r tr av el edin 20 07 an d 2 00 8, at te nd in g s em in ars an d c on fere nc es fo r hi s m ul ti le ve l m ark et in g a ct iv it ie s. Pet it io ne r pr ov id eddo cu m en ta ti on an d
subs ta nt ia ti on th athe in cu rredex pe ns es of $ 70 5.6 0 forho te l s ta y s, $ 63 1.4 6 fo r 6
car r en ta l, an d $ 87 2.2 5 fo r ai rfar e fo r W LG con fere nc es in20 07 , and$9 33 for ai rfar e fo r a WL G con fere nc e in 20 08
. W e are sat is fie d t ha t p et it io ne r ha s m etth e stric t s ub st an ti at io n re qu ire m en ts of sec ti on 27 4( d) forth e fo reg oi ng ex pe ns es by pro vi di ng a co m bi na ti on of a irf

are ti ck et s, h ot el rece ip ts , car re nt al rece ip ts , sem in ar b ro chur es , andhi s o wn te st im on y . W it h re sp ectto th e rem ai ni ng cla im edtra ve l ex pe ns e d educ ti on s o n h is 20 07 an d 2 00 8 S ch edul es C, pe ti ti on er d idno t s ub st an ti at e th e ex pe ns es or s at is fy th e subs ta nt ia ti on requi rem en ts of s ect io n 2 74 (d ). Ther efo re, the Co urt s us ta in s
res po nd en t’s d is al lo wan ce o f th e rem ai ni ng cla im edtra ve l ex pe ns e d educ ti on s. II. Rem ai ni ng Sch edul e C Ex pe ns es --2 00 7 a nd20 08 Pet it io ne r cl ai m edex pe ns e d educ ti on s o n h is 20 07 an d 2 00 8 S ch edul es C rel at edto hi s m

ul ti le ve l m ark et in g a ct iv it ie s. Th e ex pe ns e d educ ti on s wer e fo r

Thi s co strel at es to two co nf eren ces pe ti ti on er at te nd edin 20 07 . The co st s 6 of th e res pe ct iv e h ot el st ay s wer e $ 28 1.9 4 and$4 23 .66
.- 11 -

adve rti si ng , car an d tru ck , comm is si on s an d fe es , dep reci at io n, l eg al an d pr of es si on al , ren t o r le as e, supp li es , tax es an d l ic en se s, m eal s an d e nt ert ai nm en t, ut il it ie s, b us in es s u se of h om e, an d o th er ex pe ns es . Pet it io ne r pr ov id eddo cum en ta ti on th athe pa id$2 99 an d $ 98 in 20 07 for
accr ed it at io n t o p erfo rm

hi s WLG act iv it y

in two Sta te s an d t ha t h e p ai d a$1 75 W LG con fere nc e reg is tra ti on fee i n 2 00 7. Pe ti ti on er al so pro vi de d d oc um en ta ti on th athe pa ida $5 0 re gi st rat io n fe e in 20 08 fora W LG eve nt
. The Co urt i s s at is fie d t ha t t he for eg oi ng ex pe ns es were o rd in ary an d
ne ces sa ry forpe ti ti on er’s WL G act iv it y in th e y ears in di cat ed
. Pet it io ne r di d n ot 7
subs ta nt ia te th e rem ai ni ng cla im edSch edul e C ex pe ns e d educ ti on s o r ot he rwis e
co nt es t re sp on de nt ’s det erm in at io n, an d we s us ta inres po nd en t’s d is al lo wan ce o f th e rem ai ni ng ex pe ns e d educ ti on s. III. Sch edul e A Unre im bu rs edEm

pl oyee Bu si ne ss Exp en se s Pet it io ne r cl ai m edun rei m bu rs edem

pl oyee bu si ne ss ex pe ns e d educ ti on s fo r 20 07 an d 2 00 8 fo r tr av el , job tra in in g, an d u ni on an d m em be rs hi p due s. We di sc us s ea ch it em

be lo w intu rn .

To the ex te ntth es e ex pe ns es are s ub ject t o t he st ric t s ub st an ti at io n 7 requi rem en ts of s ec. 2 74 (d ), we are s at is fie d t ha t p et it io ne r ha s s at is fie d t he requi rem en ts of t ha t s ect io n.- 12 -

A. Trav el It h as be ende em edadm it te d t ha t p et it io ne r was no t re qu ire d t o t rav el for
em pl oym en t dur in g t he y ears in is su e. Inany ev en t, p et it io ne r fai le d t o p ro vi de
an y ev id en ce t o s ub st an ti at e th e b us in es s p ur po se of t he tra ve l. Res po nd en t’s de te rm in at io n i s s us ta in ed
. B. Jo b Tra in in g a ndUni on an d M em be rs hi p Du es Subjec t t o c ert ai n e xc ep ti on s, educ at io n e xp en di tu res m ay be de du ct edas tra de or b us in es s ex pe ns es if t he educ at io n m ai nt ai ns or i m pr ov es th e sk il ls requi redby a tax pa y er i n h is or h er em pl oym en t o r if

th e educ at io n m eet s t he
ex pr es s re qu ire m en ts of t he tax pa y er’s em pl oyer. Sec. 1 .16 2- 5( a)(1 ) an d (2 ), In co m e Tax Reg s. Pet it io ne r pa idm em

be rs hi p due s an d a tt en de d NBC FAE tra in in g. He te st ifi edth atth e tr ai ni ng was b en efi ci al an d qua li fie d h im for pro m ot io n. Alt ho ug h p et it io ne r un do ub te dl y be ne fit edfro m

th e tr ai ni ng , he d idno t de m on st rat e th athi s m em be rs hi p a ndtra in in g wer e requi redby his em pl oyer, th at wit ho utth e tr ai ni ng he co ul d n otha ve m ai nt ai ne d h is th en -es tabl is he d
em pl oym en t re la ti on sh ip , or t ha t t he tra in in g m ai nt ai ne d o r im pr ov edth e sk il ls requi redforhi s emplo y

m en t. See sec . 1.1 62 -5 (c)( 2) , Inc om e Tax Reg s. With
res pe ctto un io n due s, p et it io ne r di d n otsubs tant ia te th es e ex pe ns es for20 07 or- 13 -

20 08 . There fo re, we s us ta in res po nd en t’s d is al lo wan ce o f th e fo reg oi ng cla im ed
un rei m bu rs edem

pl oyee bu si ne ss ex pe ns e d educ ti on s. IV. 20 08 Cas ua lt y

Los s A tax pa y er i s al lo weda de du ct io n fo r anun co m pe ns at edlo ss th atari se s fro m fir e, st orm , sh ip wreck , or o th er ca su al ty. Sec. 1 65 (a), (c )(3 ). Howev er, an y

“ lo ss * * * s ha ll be all owe d o nl y to th e ex te ntth atth e am ou ntof t he lo ss to su ch in di vi du al ari si ng fro m

each cas ua lty

* * * ex ceed s $ 10 0” an d o nl y to th e ex te nt th atth e n etcas ua lt y

lo ss “ ex ceed s 1 0 p erce ntof t he ad jus te d g ro ss in co m e”. Sec. 1 65 (h ). The am ou ntof t he cas ua lt y lo ss all owe d u nd er s ect io n 1 65 is th e le ss er o f: (1 ) th e fai r m ark etva lu e o f th e p ro pe rty im m ed ia te ly befo re the cas ua lty reduc ed by the fai r m ark etva lu e o f th e p ro pe rty im m ed ia te ly after t he cas ua lt y or ( 2) “ [t]he
am ou ntof t he ad

jus te d b as is pre sc rib ed ” in sec ti on 1.1 01 1- 1, In co m e Tax Reg s.,

“ fo r de te rm in in g t he lo ss fro m th e sa le or o th er d is po si ti on of t he pro pe rty in vo lv ed .” Sec. 1 .16 5- 7( b) (1 ), In co m e Tax Reg s. Pet it io ne r cl ai m eda $1 2,0 20 de du ct io n fo r th e lo ss of h is ve hi cl e in 20 08
. The am ou ntcla im edwas t he di ffer en ce b etweenth e $ 60 ,02 0 o rig in al va lu e o f th e
ve hi cl e in 20 06 an d t he $4 8,0 00 pa idby ins ur an ce af te r itwas d et erm in edth atit
was un sa lv ag eab le in 20 08 . After p et it io ne r pa ida $5 0 d educ ti bl e, hi s p rimary- 14 -

an d g ap in su ran ce co ve redth e rem ai ni ng ba la nc e o f $4 7,9 50 . Peti ti on er o ffer ed
ev id en ce o f th e v al ue of t he car atth e ti m e o f th e o rig in al lea se . Howev er, h e fai le d t o e st ab li sh th e v al ue imm ed ia te ly befo re the acci de ntan d t he va lu e imm ed ia te ly foll owi ng th e acc id en t. See sec . 1.1 65 -7 (b ), In co m e Tax Reg s. W it ho utfurth er ev id en ce we ca nn otco nc lu de th atth e car ’s val ue at t he ti m e o f th e acci de ntwas t ha t o f a n ew car. Th eref or e, res po nd en t’s d et erm in at io n o n t hi s is su e is su st ai ne d. V. Accu racy-Rel at edPen al ty Sect io n 6 66 2( a) an d (b )(1 ) an d (2 ) im po se s a p en al ty of 20 % of t he po rti on of anun de rp aym en t o f ta x a tt rib ut ab le to th e ta xp ay er’s n eg li ge nc e, di sr eg ardof
ru le s o r reg ul at io ns , or s ub st an ti al un de rs ta te m en t o f in co m e ta x. “Neg li ge nc e” in cl ud es an y

fai lu re t o m ak e a rea so nabl e at te m ptto co m pl y with t he Co de , in cl ud in g a ny fail ur e to ke ep ad equa te bo ok s an d re co rd s o r to subs ta nt ia te it em s pr op erl y . See s ec. 6 66 2( c); sec . 1.6 66 2- 3( b) (1 ), In co m e Tax Reg s. A “ subs ta nt ia l
un de rs ta te m en t” in cl ud es anun de rs ta te m en t o f in co m e ta x t ha t ex ceed s t he gre at er of 10 % of the tax requi redto be sh own on th e return o r $5 ,00 0. Se e se c. 66 62 (d );
se c. 1.6 66 2- 4( b) , Inc om e Tax Reg s. The sec ti on66 62 (a) a ccu racy-rela te d p en al ty doe s n otap pl y with re sp ectto
an y po rti onof a n u nd erp aym en t i f th e ta xp ay er p ro ve s t ha t t he re was reas on ab le- 15 -

cau se forsu ch po rti on an d tha t h e act edin go odfai th with re sp ectth eret o. Se c. 66 64 (c)( 1) . The d et erm in at io n o f whe th er a t axpa y er ac te d wi th reas on ab le cau se
an d i n g oo d fa ith d ep en ds on th e p ert in en t fa ct s an d c irc um st an ces , in cl ud in g t he ta xp ay er’s eff

orts to ass es s the pro pe r ta x l iabi li ty; th e kno wled ge an d t he
ex pe rie nc e o f th e ta xp ay er; an d any reli an ce o n t he advi ce o f a p ro fes si on al , su ch
as anacco un ta nt . Sec. 1 .66 64 -4 (b )(1 ), In co m e Tax Reg s. Gen eral ly, th e m os t im po rta ntfact oris th e ta xp ay er’s eff ort t o a ss es s the tax pay er’s p ro pe r ta x li ab il it y . Id. The Co m m is si on er h as th e b ur de n o f pr oduc ti on un de r se ct io n 7 49 1( c) wi th
res pe ctto th e acc ur acy-rela te d p en al ty und er s ect io n 6 66 2. To sat is fy th atbu rd en , th e Co m m is si on er m

us t p ro du ce s uf

fic ie ntev id en ce s ho win g t ha t i t i s ap pr op ria te to im po se th e p en al ty. Hig be e v . Comm is si on er, 1 16 T.C. 43 8, 4 46 (20 01 ). Res po nd en t d et erm in edth e acc ur acy-rela te d p en al ty for eac h year was du e to
ne gl ig en ce o r a s ub st an ti al un de rs ta te m en t o f in co m e ta x. Re sp on de ntha s
sa ti sf ie d h is bu rd enby pro du ci ng ev id en ce tha t p et it io ne rs fai le d t o m ai nt ai n ad equa te bo ok s an d re co rd s. Inad di ti on , th e und erp aym en t o f ta x wi th res pe ctto pe ti ti on er is a res ul t o f subs ta nt ia l u nd ers ta te m en ts of i nc om e ta x fo r 20 07 an d

8
As a re su ltof t he m

utua l co nc es si on s wh erei n re sp on de ntgra nt edparti al 8 rel ie f un de r se c. 60 15 an d M s. El de r-Do ug la s co nc ed edth e rem ai ni ng (co nt in ue d...)- 16 -

20 08 be cau se th e und ers ta te m en ts of $ 15 ,23 2 a nd$2 2,8 85 , res pe ct iv el y , exc eed $5 ,00 0, wh ic h i s g reat er than 1 0% o f th e ta x re qu ire d t o b e sh own on th e returns . 9 Acco rd in gl y , bec au se res po nd en t h as m ethi s b ur de n o f pr oduc ti on , pet it io ne rs
m us t co m e fo rwardwith p ers ua si ve ev id en ce tha t t he accu racy-rela te d p en al ti es sh ou ldno t b e im

po se d wi th res pe ctto th e u nd erp aym en ts be cau se th ey act edwith
reas on ab le cau se an d i n g oo d fa it h. Se e se c. 66 64 (c)( 1) ; Ru le 14 2( a); Hig be e v . Co m m is si on er, 1 16 T.C. at 4 46
. Pet it io ne rs fai le d t o p ro vi de ev id en ce o f m os t o f th e cl ai m edex pe ns e de du ct io ns on Sch edul es C an d S ch edul e A an d fa il edto ex pl ai n t he co nc ed ed
am ou nt s. Pet it io ne rs ha ve no t d em on st rat edth atth ey act edwith re as on ab le cau se
an d i n g oo d fa ith wi th res pe ctto th e rec or dk eep in g re qu ire m en ts ; t he refo re, the Co urt s us ta in s re sp on de nt ’s det erm in at io n o n t hi s i ss ue . W e h av e co ns id eredall of t he pa rti es ’ arg um en ts , and , to th e ex te ntno t ad dr es se d h erei n, we co nc lu de th atth ey are m oo t, i rrel ev an t, o r wit ho utm eri t.

(...co nt inue d) 8 ad jus tm en ts , th e acc ur acy-rela te d p en al ti es un de r se c. 66 62 (a) d o n otap pl y to Ms
. Eld er-Do ug la s as to th e it em s fo r whi ch res po nd en t g ran te d i nn oc en t s po us e rel ie f. See s ec. 1 .60 15 -1 (h )(4 ), In co m e Tax Reg s. The all owe d e xp en se s fo r 20 07 an d 2 00 8 wo ul d n otreduc e ei th er 9 un de rs ta te m en t b el ow $ 5,0 00 with re sp ectto pe ti ti on er.- 17 -

To re fle ctth e fo reg oi ng , Deci si on wil l b e en te red
un de r Ru le 15 5.