1 Unless otherwise indicated, all section references are to

the Internal Revenue Code in effect for the year at issue. All

Rule references are to the Tax Court Rules of Practice and

Procedure.

T.C. Memo. 1996-320

UNITED STATES TAX COURT

SHERRI A. MULNE A.K.A. SHERRI A. SHANNON, Petitioner v.

COMMISSIONER OF INTERNAL REVENUE, Respondent

Docket No. 10984-94. Filed July 15, 1996.

Sherri A. Shannon, pro se.

Michele Leichtman, for respondent.

MEMORANDUM OPINION

NAMEROFF, Special Trial Judge: This case was heard pursuant

to the provisions of section 7443A(b)(3) and Rules 180, 181, and

182.1 Respondent determined a deficiency in petitioner's 1991

Federal income tax in the amount of $4,955, plus an accuracy-
- 2 -

related penalty under section 6662(a) in the amount of $991. 

The issues for decision are: (1) Whether petitioner is

entitled to deductions for certain employee business expenses;

(2) whether petitioner is entitled to a section 179 deduction for

a computer and printer, a camera, and a telephone; (3) whether

petitioner is entitled to a home-office deduction; and (4)

whether petitioner is liable for the accuracy-related penalty.

In the notice of deficiency, respondent allowed a charitable

contribution deduction of $1,420 and disallowed $4,600. In her

opening statement, respondent's counsel conceded an additional

$210 of the charitable contribution deduction. The parties agree

that the stipulation resolves the charitable contribution

deduction issue; therefore, we hold that the remaining amount

($4,390) is conceded by petitioner. 

On Schedule A, petitioner claimed a deduction for employee

business expenses of $18,666 ($20,132 less $1,466 per section

67(a)). In the notice of deficiency, respondent allowed a

deduction for employee business expenses of $5,559 ($7,025 less

$1,466). Respondent's counsel did not provide the Court with

details concerning the amount allowed. However, the employee

business expenses claimed on petitioner's return that were not

addressed during the trial of this matter include: Vehicle

expenses of $5,061; books and magazines of $457; language classes

of $255; and telephone of $252. We shall assume the total of
- 3 -

these amounts, or $6,025, was a portion of the $7,025 allowed in

the notice of deficiency. The remaining amount of $1,000 was not

explained in the record. 

For convenience, we combine our findings of fact and opinion

on an issue by issue basis. We begin by noting that, as a

general rule, the Commissioner's determinations are presumed

correct, and that the taxpayer bears the burden of proving that

those determinations are erroneous. Rule 142(a); Welch v.

Helvering, 290 U.S. 111, 115 (1933). Moreover, deductions are a

matter of legislative grace, and the taxpayer bears the burden of

proving that he or she is entitled to any deduction claimed. 

Rule 142(a); New Colonial Ice Co. v. Helvering, 292 U.S. 435, 440

(1934). This includes the burden of substantiation. Hradesky v.

Commissioner, 65 T.C. 87, 90 (1975), affd. per curiam 540 F.2d

821 (5th Cir. 1976).

Some of the facts have been stipulated, and they are so

found. The stipulation of facts and the attached exhibits are

incorporated herein by this reference. At the time of the filing

of this petition, petitioner resided in Victorville, California.

Employee Business Expenses

a. Parking Expenses. From January through July 28, 1991,

petitioner was employed by Pacific Bell Yellow Pages (Pacific

Bell) as a telemarketing sales manager of inside sales

representatives. On July 29, 1991, petitioner was promoted by
- 4 -

Pacific Bell to the position of premise sales manager of outside

and inside sales representatives. As premise sales manager,

petitioner was responsible for achieving sales commitments for a

specific territory through the supervision, motivation, and

development of sales representatives; designing and implementing

sales campaign strategies; handling customer contacts; reviewing

the accuracy of paperwork; and preparing administrative reports. 

Petitioner's territory included the coastal region from Malibu to

Palos Verdes, plus Alhambra, Pasadena, and Orange County.

Petitioner had an office at Pacific Bell that was located in

downtown Los Angeles (the downtown office). Petitioner's

schedule varied daily, and she had no set routine. Sometimes she

worked at her home in the morning and drove to the downtown

office or a satellite office in the afternoon. On other

occasions, she worked at the downtown office all day or visited

customers during the day. In 1991, petitioner paid for a parking

space near the downtown office. Petitioner believed it was a

necessity to have her car at the downtown office in case she

needed to visit a customer, satellite office, or perform other

business-related activities. 

According to a stipulated letter from Cheryl Groves, who is

a premise sales manager at Pacific Bell, company business

expenses for "parking charges" were reimbursable by Pacific Bell.

It is not clear from this letter whether such charges refer only
- 5 -

to off-site parking charges (i.e., charges incurred to attend

meetings or visit customers away from the downtown office) or

whether such charges included parking at the downtown office. 

Petitioner was unaware that she possibly could be reimbursed for

parking at the downtown office. Petitioner claimed a Schedule A

deduction for parking of $1,254. 

Section 162(a) allows a deduction for all ordinary and

necessary expenses incurred in carrying on a trade or business. 

The performance of services as an employee constitutes a trade or

business. O'Malley v. Commissioner, 91 T.C. 352, 363-364 (1988). 

An ordinary expense is one that is common and acceptable in the

particular business. Welch v. Helvering, supra at 113-114. A

necessary expense is an expense that is appropriate and helpful

in carrying on the trade or business. Heineman v. Commissioner,

82 T.C. 538, 543 (1984). 

When an employee has a right to reimbursement for

expenditures related to her status as an employee, but fails to

claim such reimbursement, the employee's expenses are not

deductible because the employee's expenditures are not

"necessary"; i.e., it is not necessary for an employee to remain

unreimbursed for expenses to the extent he or she could have been

reimbursed. Orvis v. Commissioner, 788 F.2d 1406 (9th Cir.

1986), affg. a Memorandum Opinion of this Court; Lucas v.

Commissioner, 79 T.C. 1, 7 (1982); Kennelly v. Commissioner, 56
- 6 -

 

2 Moreover, we note that the canceled checks presented by

petitioner do not adequately substantiate the alleged parking

expenditures, nor is it clear that the parking charges were not a

nondeductible personal (i.e., commuting) expense. Secs. 267,

274(d).

T.C. 936, 943 (1971), affd. without published opinion 456 F.2d

1335 (2d Cir. 1972). Furthermore, the mere failure of an

employee to seek reimbursement cannot convert the employer's

expenses into the employee's. Kennelly v. Commissioner, supra. 

The burden of establishing that the expense was not reimbursable

by the employer had the employee requested reimbursement rests

with the employee. Podems v. Commissioner, 24 T.C. 21, 23

(1955). Moreover, the prohibition of deductions for reimbursable

expenses is a "bright line rule" and applies even when the

employee is unaware that the expenses are reimbursable. Orvis v.

Commissioner, supra at 1408. 

Based on Ms. Groves' letter, it appears that petitioner's

parking expenses could have been reimbursed by Pacific Bell had

petitioner sought reimbursement. Moreover, petitioner has not

proven that her parking expenses at the downtown office were not

reimbursable. Therefore, these expenses are not "necessary"

under section 162 and therefore not deductible.2

b. Meals Expenses. Petitioner claimed a Schedule A

deduction for meals expenses of $3,875, less 20 percent required

by section 274(n). As sales manager, petitioner was required by

Pacific Bell to motivate her sales representatives so that they
- 7 -

would maximize revenue. To motivate her sales representatives

and show her appreciation for their work, petitioner, from time

to time, took them out to lunch or dinner. On 26 occasions in

1991, petitioner entertained her sales representatives and

incurred substantiated expenses of $1,843.23. In addition,

petitioner held meetings with her sales representatives, either

individually or in small groups in places near the downtown

office, over coffee and donuts, bagels, or fruit to discuss workrelated problems or accounts. In this regard, she incurred

expenses of $569 over 60 separate documented occasions. (We

refer to both of these categories collectively as the meals

expenses.)

Respondent called John Moreno (Mr. Moreno) to testify as to

Pacific Bell's corporate policy regarding reimbursement of meals

and entertainment expenses. At the time of the trial, Mr. Moreno

was an outside sales representative for Pacific Bell, but in 1991

he was a telemarketing branch manager for Pacific Bell. For part

of 1991, until petitioner was promoted, he was petitioner's

supervisor or reviewer. In a rather vague response to a question

concerning Pacific Bell's reimbursement policy for meals and

entertainment expenses incurred by an employee, Mr. Moreno stated

that Pacific Bell "would reimburse for expenses if the sales

manager vouchered those expenses." In other words, Pacific Bell

would reimburse an employee if the manager approved the expense. 
- 8 -

The record indicates that the vouchers had several approval

levels, and it was certainly not clear that the immediate

superior's approval was final. 

Moreover, Mr. Moreno's standard for approval apparently was

one of reasonableness, but he did not elaborate on that term,

except to say 

the policy was fairly flexible. As far as the monies

that were reimbursed, if it was felt it was reasonable,

then, yes, we would be reimbursing. If it was a daily

or weekly voucher, that was not considered reasonable. 

So it just depended on the individual manager, and also

the number of representatives that they had reporting

to them.

* * * * * * *

At the time Mrs. Shannon was reporting to me,

primarily, she was responsible for the inside sales

representatives. And that was not, let's say, those

entertainment--those meals were not as common or as

ongoing as they would be for an outside sales

representative.

Thereafter, Mr. Moreno opined that "reasonable" usually means $10

to $15 per person for lunch or dinner once or twice a month;

however, whether a meals expense is considered "reasonable"

depends on the number of sales representatives the manager

supervised and the particular events or circumstances surrounding

the meals expense, such as whether Pacific Bell was sponsoring a

special campaign or contest. 

The receipts and calendar presented by petitioner indicate

that she took her sales representatives out for lunch or dinner

between 2 to 4 times per month and incurred meals expenses in
- 9 -

connection with sales representative meetings between 2 to 7

times per month. Petitioner credibly testified that her meals

expenses were not reimbursable by Pacific Bell. Mr. Moreno did

not convince us otherwise. Ms. Groves' letter did not mention

any Pacific Bell policy regarding reimbursement for meals with

other employees. Accordingly, we hold that petitioner's meals

expenses were not reimbursable by Pacific Bell. 

To substantiate her meals expenses, petitioner presented a

detailed calendar for 1991 in which she recorded the date,

amount, place, and business purpose of the meals expenses. In

addition, petitioner credibly testified that the meals expenses

were incurred to motivate her sales representatives or incurred

in connection with meetings to discuss accounts or other workrelated problems with her sales representatives. Based on

petitioner's calendar and testimony, we conclude that she

incurred meals expenses for lunch and dinner of $1,843.20 and for

sales representative meetings of $569. Accordingly, petitioner

is entitled to a meals expense deduction based on those amounts,

subject to the 80-percent limitation imposed by section 274(n). 

c. Contest Prizes. In 1991, Pacific Bell held a 6-month

contest to motivate the sales representatives to maximize

revenue. Winners of the contest received awards totaling $1,000. 

The sales manager was required to pay the bonus and was entitled

to reimbursement from Pacific Bell. Four of petitioner's sales
- 10 -

 

3 The Pacific Bell Mechanic's Bank credit card was not for

a corporate account. Pacific Bell required petitioner to keep

the credit card in her name and pay the bill out of her personal

checking account. If she incurred a reimbursable expense, she

was required to submit a reimbursement form to Pacific Bell.

representatives won the contest. Three of the sales

representatives used the bonus to take a cruise from Los Angeles

to San Diego, and one sales representative used the bonus to go

to Las Vegas. Petitioner charged the cost of these trips (about

$1,000) on her Pacific Bell Mechanic's Bank credit card and

subsequently paid the credit card bill.3 

Petitioner and Mr. Moreno testified that petitioner was

entitled to reimbursement for the cost of these trips. Further,

petitioner submitted a voucher for reimbursement; however, the

voucher was returned to petitioner for corrections, which she

made. Nevertheless, petitioner does not remember receiving the

reimbursement, due to the illness of her mother which occurred at

or about the same time. Although we sympathize with petitioner,

her failure to follow up on the claim for reimbursement due to

personal problems does not convert this expense into a deductible

employee business expense. Since this expense was reimbursable,

it is not "necessary" under section 162, and petitioner is not

entitled to a deduction for such amount. (However, we note that

the amount of this issue coincides with the $1,000 allowed by

respondent, but unexplained in the record. See supra note 2.) 

Section 179 Deduction 
- 11 -

During 1991, petitioner purchased an old IBM computer and

printer for her home office for $3,689. Petitioner was a

credible witness, and we believe, and so find, that she used the

computer and printer exclusively for business purposes to write

various reports and other documents required by Pacific Bell and

to keep up with the volume of work associated with her position

as sales manager. 

Petitioner also purchased a Nikon camera in 1991 for

$617.84, which was used to take pictures of customers and/or

their businesses. These pictures were used in yellow page

advertisements. The camera was kept in petitioner's locked desk

drawer at the downtown office and was used only by sales

representatives for business reasons. Pacific Bell did not

provide a camera and did not require petitioner to purchase a

camera. 

In addition, petitioner purchased a telephone for her home

office for approximately $180. The telephone was allegedly used

only for business calls. Petitioner did not have a separate

business telephone line in her home office. 

On Form 4562 attached to her 1991 return, petitioner claimed

a section 179 expense deduction for a computer and printer,

telephone, and camera. According to the Form 4562, the cost

basis of the computer and printer was $3,700 and the cost basis

of the camera and telephone was $800.
- 12 -

Section 179(a) allows a taxpayer to elect to expense, in the

year placed in service, the cost of section 179 property. 

Section 179 property includes any tangible property (to which

section 168 applies) which is section 1245 property which is

acquired for use in the active conduct of a trade or business. 

Sec. 179(d)(1). Section 1245 property includes personal

property. Sec. 1245(a)(3). Section 280F(d), however, provides

that an employee may not claim a section 179 deduction for

"listed property" unless the employee's use of the listed

property is for the convenience of the employer and required as a

condition of employment. In addition, the strict substantiation

requirements of section 274(d) must be met with respect to listed

property. Listed property includes any computer or peripheral

property. Sec. 280F(d)(4)(A)(iv). The camera and telephone are

not listed property.

The "convenience of the employer" and "condition of

employment" tests are essentially the same. United States Junior

Chamber of Commerce v. Commissioner, 167 Ct. Cl. 392, 334 F.2d

660, 663 (1964). In order to satisfy the condition of employment

requirement, the use of the property must be required in order

for the employee to perform the duties of his or her employment

properly. Sec. 1.280F-6T(a)(2)(ii), Temporary Income Tax Regs.,

49 Fed. Reg. 42701, 42713 (Oct. 24, 1984). Whether the use of

property is so required depends on all the facts and
- 13 -

circumstances. The standard is an objective one. Dole v.

Commissioner, 43 T.C. 697, 706 (1965), affd. 351 F.2d 308 (1st

Cir. 1965). The employer need not explicitly require the

employee to use the property. Similarly, a mere statement by the

employer that the use of the property is a condition of

employment is not sufficient. Sec. 1.280F-6T(a)(2)(ii),

Temporary Income Tax Regs., 49 Fed. Reg 42701, 42713 (Oct. 24,

1984). 

Because of her heavy caseload and the number of sales

representatives she managed, it was necessary for petitioner to

purchase a computer and printer. Petitioner used the computer

and printer to complete various reports she was required to

submit to her supervisors at Pacific Bell. Mr. Moreno testified

that sales managers could access information at home via modem

and that by using computers at home sales managers were able to

work efficiently and keep on top of the volume of work. Mr.

Moreno further testified that only third level management could

enter the building after hours and that petitioner was considered

second level management. Thus, petitioner was unable to use the

office computer after business hours. We find, based on the

facts and circumstances presented, that petitioner's purchase of

the computer and printer was for the convenience of her employer

and required as a condition of employment. Accordingly,
- 14 -

petitioner is entitled to a section 179 deduction for the

computer and printer based on their cost of $3,689.

The purchase of the camera was, according to petitioner, for

the purpose of enhancing her performance as a sales manager for

Pacific Bell. Specifically, the camera was used to take pictures

for use in the clients' advertisements in the telephone

directory. Petitioner kept the camera locked in her desk at the

downtown office and the camera was used only in connection with

Pacific Bell advertisements. We conclude that the camera was

used exclusively for petitioner's business (as an employee) and

its purchase for $617.84 qualifies for a section 179 deduction. 

As for the telephone, we do not believe that its purchase

was ordinary and necessary or that petitioner used the telephone

located in the home office only for business purposes. 

Accordingly, petitioner is not entitled to a deduction for the

cost of the telephone.

Home-Office Deduction

In 1991, petitioner lived in an apartment in Glendale,

California. The apartment was approximately 900 to 1000 square

feet in size and consisted of two bedrooms, two bathrooms, 

living room, kitchen, dining room, and hallway. Petitioner paid

rent of $1,030 per month for the apartment. Petitioner used the

smaller bedroom, which was about one fifth of the apartment, as

an office. Petitioner worked in her home office during the
- 15 -

evenings and weekends; however, she had no set routine concerning

the use of the office. Pacific Bell did not require sales

managers to have a home office. However, Pacific Bell preferred

them to have a home office if it promoted time management,

enabled managers to access information to better coach the sales

representatives, and to keep on top of the volume of work. On

Schedule A, petitioner claimed a deduction for a home office of

$3,900. 

Section 280A, in general, denies deductions with respect to

the use of a dwelling unit that is used by the taxpayer during

the taxable year as a residence. Section 280A(c) permits the

deduction of expenses allocable to a portion of the dwelling unit

that is exclusively used on a regular basis as "the principal

place of business" for any trade or business of the taxpayer. 

Sec. 280A(c)(1)(A). Section 280A(c) further provides that, in

the case of an employee, deductions are allowable only if the use

of the dwelling is for the convenience of the employer.

Since petitioner was an employee, she must satisfy two tests

in order to qualify for the home-office deduction. She must

establish (1) that her home office was her principal place of

business, and (2) that she maintained the office for the

convenience of her employer. In deciding this case, the Court

must employ the definition of "principal place of business" as

set forth in Commissioner v. Soliman, 506 U.S. 168, 174 (1993). 
- 16 -

The term "principal place of business" means not merely an

important or necessary place of business, but the "most

important, consequential, or influential" one. Id. This inquiry

requires a consideration of the relative importance of the

activities performed at each location and the relative amount of

time spent at each location. Id. at 175.

On this record, we conclude that petitioner's home office

was not her principal place of business. Rather, we conclude

that petitioner performed the bulk of her work-related activities

at her downtown office. In addition, petitioner performed

substantial work at satellite offices and at offices of

customers. Accordingly, we conclude that petitioner's home

office was not her principal place of business. Petitioner,

therefore, is not entitled to a home-office deduction under

section 280A.

Accuracy-Related Penalty

Respondent determined that petitioner was liable for the

accuracy-related penalty under section 6662(a).

Petitioner's return was prepared by John D. Stoller, a

certified public accountant. Petitioner gave Mr. Stoller the

receipts for the camera, telephone, and computer and printer. 

Petitioner also gave him receipts and canceled checks related to

the home-office deduction and her parking expenses. She

explained to him the circumstances related to parking at the
- 17 -

downtown office. In addition, petitioner gave Mr. Stoller a

sheet of paper on which she had compiled the information from her

daily calendar relating to her meals expenses.

Pursuant to section 6662(a), if any portion of an

underpayment of tax is due to negligence or disregard of rules or

regulations, the taxpayer is liable for an amount equal to 20

percent of the portion of the underpayment attributable to such

negligence or disregard of the rules and regulations. 

"Negligence" includes any failure to make a reasonable attempt to

comply with the provisions of the Internal Revenue Code and

"disregard" includes any careless, reckless, or intentional

disregard. Sec. 6662(c). Petitioner has the burden of proof on

this issue. Bixby v. Commissioner, 58 T.C. 757, 791 (1972).

If a taxpayer relies in good faith upon the advice of a

competent and experienced accountant in the preparation of the

taxpayer's return, the addition to tax for negligence or the

intentional disregard of rules or regulations is not applicable. 

Sec. 6664(c); Weis v. Commissioner, 94 T.C. 473, 487 (1990). To

show good faith reliance, the taxpayer must show that the return

preparer was supplied with all the necessary information and the

incorrect return was a result of the preparer's mistakes. Pessin

v. Commissioner, 59 T.C. 473, 489 (1972). 

After careful review, we conclude that petitioner did not

provide Mr. Stoller with all of the necessary information to
- 18 -

prepare her return. Specifically, she did not advise him about

the reimbursement policy regarding parking, she did not have

substantiation for meals expenses in excess of what we have

allowed herein, and she possibly failed to follow up on the

reimbursement for the contest prizes. Moreover, she has not

proven that she fully apprised him of the facts concerning the

home-office deduction and the purchase of the telephone. To that

extent, petitioner is liable for the accuracy-related penalty

under section 6662(a). To reflect the holdings of this Court, 

Decision will be

entered under Rule 155.