T.C. Sum m ary Opi ni on 20 15 -2 8

UNITED STAT ES TAX COURT

BAHRAM M . TARIGHI AND PARVANEHTARIGHI, Pet it io ne rs v. COMM ISSI ONER OF INTERNAL REVENUE, Resp on de nt

Doc ke t No . 76 54 -1 3S
. Fi le d Ap ril 13 , 20 15
.
Bah ram M. Tari gh i an d P arv an ehTarig hi , pro ses e. Eli zab eth C . Mo ur ge s, fo r res po nd en t.

SUMM ARY OPINION GERBER, Jud ge : Th is cas e was he ardpu rs ua ntto th e p ro vi si on s o f se ct io n 74 63 of t he Int ern al Rev enue Co de ineffec t wh enth e p et it io n was fil ed
. 1

Unl es s o th erwi se in di cat ed , all sec ti on refe ren ces are t o t he Int ern al 1 Rev enue Co de ineffe ctforth e y ears at i ss ue , andall Ru le refe ren ces are t o t he Tax Co urt Ru le s o f Prac ti ce an d P ro cedur e.- 2 -

Purs ua ntto sec ti on 74 63 (b ), th e d eci si on to be en te redis no t re vi ewab 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 ntforan y ot he r cas e. Res po nd en t d et erm in edde fic ie nc ie s i n p et it io ne rs ’ Fed eral in co m e ta x a nd pe na lt ie s as fol lo ws: Add it io n t o t ax Pena lty Year Defi ci en cy sec . 66 51 (a)( 1) sec . 66 62 (a) 20 09 $1 0,5 31 $7 4.8 0 $2 ,10 6.2 0 20 10 19 ,46 5 -0- 3,89 3.0 0 20 11 1,7 63 -0- -0
- Afte r co nc es si on s the is su es rem ai ni ng forour co ns id erat io n a re: (1) whet he r Mr. Tari gh i was en ga ge d i n atra de or b us in es s; (2) whet he r pe ti ti on ers are en ti tl edto
va rio us it em iz edde du ct io ns ; (3 ) whe th er p et it io ne rs fai le d t o re po rt aSta te tax refu ndrece iv edin20 10 ; (4 ) whe th er p et it io ne rs are l iabl e fo r anad di ti on to tax for th e fai lu re t o t im el y

fil e th ei r 20 09 return; an d (5 ) whe th er p et it io ne rs are l iabl e fo r accu racy-rela te d p en al ti es for 20 09 an d 2 01 0. Bac kg ro un d Pet it io ne rs res id edinMarylan d at the ti m e th ei r pe ti ti onwas fi le d. Pet it io ne rs ’ joi ntin co m e ta x re tu rnfor20 09 was due on Apri l 1 5, 2 01 0, an d was fil edon Apri l 2 5, 2 01 0. Pe ti ti on ers ’ joi ntin co m e ta x re tu rn s fo r 20 10 an d 2 01 1 were t im el y

fil ed
.- 3 -

At the ti m e o f tr ia l M r. Tari gh i was a ci vi l en gi ne er wi th 25 y ears of
ex pe rie nc e as a hi gh way

de si gn er an d c on st ru ct io n e ng in eer. Aft er m an y y ears of be in g a n e m

pl oyee, Mr. Tari gh i wan te d t o s tart h is ownco m pa ny. In20 08 , aft er en co ur ag em en t fr om

hi s fa m il y

an d wh il e st il l em

pl oyed, h e d eci de d t o p ur su e th is go al . He sel ect edth e n am e Ci vi l En gi ne eri ng Serv ic es (CES), h adbu si ne ss card s pr in te d, d es ig ne d s ta ti on ery, an d s etup a W eb si te . Mr. Tari gh i al so pu rch as eda co m pu te r, a d es k, an d o th er o ffi ce s up pl ie s an d s etup anoff ic e in th e b as em en t o f hi s h om e. Inm id -2 00 8 M r. Tari gh i’s em pl oyer dra m at ic al ly redu cedhi s s al ary, an d h e de ci de d h e wou ldde vo te m or e o f hi s t im e to de ve lo pi ng CES. Fro m hi s ex pe rie nc e in th e fi el d M r. Tari gh i kne w m an y co nt ract or s an d p ro

ject e ng in eers pe rfo rm in g work o n the lo cal hi gh way s i n M arylan d. He re gu larly vis it edco ns tru ct io n s it es aft er wo rkto di st rib ut e b us in es s card s an d s pe akwith m an ag ers an d o th ers pe rfo rm in g c on st ru ct io n o n the lo cal hi gh way s. Inad di ti on to pro m ot in g h is bu si ne ss , Mr. Tari gh i wo ul d u se th es e tr ip s t o s tay ab reas t o f de ve lo pm en ts inth e hi gh way co ns tru ct io n e ng in eeri ng in du st ry . He con ti nu edth es e v is it s thr ou gh ou t 20 09 , 20 10 , and20 11 (y ears at i ss ue ). Dur in g 2 00 9 a ndth e fi rs t h al f of 20 10 Mr. Tari gh i was em pl oyed b y W al la ce Mo nt go m ery & Ass oc ia te s (Wall ace M on tg om ery). W al la ce M on tg om ery ha d a- 4 -

co ntractwith the Marylan d Trans itAss oc iati on (MTA), an d M r. Tari gh i wo rk ed
ex cl us iv el y

on th is co nt ract . Mr. Tari gh i wo rk edinth e MTA’s of fic e. It h as no t be ensh own ho w oft enMr. Tari gh i wo ul d driv e fro m hi s h om e to W al la ce Mo nt go m ery’ s o ffi ce b efo re g oi ng to th e MTA’s of fic e an d h ow o fte n h e wou ld dr iv e fro m

hi s h om e d ire ct ly to the MTA’s off ic e. Dur in g the sec on d h al f of 20 10 Mr. Tari gh i wo rk edforPro gr es si ve Eng in eeri ng Serv ic es (Pro gr es si ve ). MTA co ntract edwith P ro gr es si ve to pe rfo rm th e work tha t M TA hadpre vi ou sl y co nt ract edW al la ce M on tg om ery to pe rfo rm . Whi le em pl oyed b y Pro gr es si ve Mr. Tari gh i wo rk edinth e MTA’s of fic e an d dro ve fro m hi s h om e d ire ct ly to the MTA’s off ic e eac h d ay . Prog res si ve ’s con tra ctwith th e MTA was co m

pl et edon Decem

be r 3, 2 01 0. Mr . Tarig hi be cam e une m pl oyed whe n P ro gr es si ve ’s con tra ctwith M TA end ed , andhe reject eda job off er fro m W al la ce M on tg om ery to foc us hi s at te nt io n o n C ES. Pet it io ne rs cla im edde du ct io ns forth e fo ll owi ng ex pe ns es rel at edto CES o n Sch edul es C, Pro fitor Lo ss Fro m Bu si ne ss , att ach edto th ei r 20 09 an d 2 01 0 Fed eral in co m e ta x re tu rn s:

Exp en se 20 09 20 10 Tax es an d l ic en se s $8 40 $2 55 Supp li es 38 0 11 0- 5 -

Rep ai rs an d m ai nt en an ce 4,4 00 -0- Offi ce 77 0 65 0 In te res t-mortg ag e 6,5 00 5,0 90 In su ran ce (o th er tha n hea lth) 1,2 00 -0- Dep reci at io n a ndsec . 17 9 2,9 47 9,9 90 Adv ert is in g 98 0 1,2 00 Car a ndtru ck 10 ,57 4 8,1 33 Bu si ne ss us e o f th e h om e 4,5 88 12 ,19 0 Mea ls an d e nt ert ai nm en t 8,8 00 -0- Uti li ti es 2,2 00 1,0 50 Trav el 2,4 50 1,5 00 Leg al an d p ro fes si on al serv ic es -0
- 18 0 Co m m is si on s an d fe es -0
- 42 0 Oth er -0- 4,8 50 Tota l 46,6 29 45 ,61 8 Res po nd en t d is al lo wedde du ct io ns forth e Sch edul e C ex pe ns es be cau se of l ackof
subs tant ia ti on . Dur in g the y ears at i ss ue CES d idno t h av e an y cli en ts , was n othi redto pe rfo rm any servi ces , di d n otbi d o n a ny hig hwa y en gi ne eri ng job s, an d h adno in co m e. Mr. Tari gh i p ro vi de d acal en da r with c ry pt ic ha nd writ te n n ot es to
subs tant ia te th e m il es he dro ve forCES dur in g t he y ears at i ss ue . Peti ti on ers ha d a- 6 -

flo odinth ei r ba se m en t i n 2 01 0 a ndlo stso m e o f th e rec ei pt s re la te d t o C ES. Mr. Tari gh i was un ab le to pro du ce re co rd s o r rec ei pt s fo r to ll s i nc urred , m eal s an d
en te rta in m en t ex pe ns es , off ic e supp li es , hi s o ffi ce furn itur e, orhi s o ffi ce co m pu te r. As s ub st an ti at io n fo r hi s h om e o ffi ce ex pe ns es Mr. Tari gh i p ro vi de d c op ie s o f hi s ho us eh ol d u ti li ty bil ls . The am ou nt s o n t he bi ll s wer e in co ns is te ntwith t he
am ou nt s o f hi s d educ ti on s fo r CES dur in g the y ears at i ss ue . Res po nd en t al so di sa ll owe d t he fol lo win g d educ ti on s o n S ch edul es A, Ite m iz edDedu ct io ns , forlac k o f subs tant ia ti on : the 20 09 de du ct io n fo r ot he r ta xe s, th e 2 00 9 a nd20 10 m ed ic al an d d en ta l ex pe ns e d educ ti on s, an d d educ ti on s fo r un rei m bu rs edem

pl oyee bu si ne ss ex pe ns es forth e y ears at i ss ue . Res po nd en t al so ad jus te d the am ou ntof p et it io ne rs ’ 20 09 Sch edul e A de du ct io n fo r rea l es ta te tax es on th e b as is of t he in fo rm at io n tha t p et it io ne r’s le nd ers pro vi de d. Fo r 20 09 pe ti ti on ers cla im eda $6 ,94 5 d educ ti on forSta te in co m e ta xe s. In 20 10 pe ti ti on ers rece iv eda St at e in co m e ta x re fundof $ 6,9 45 fro m th e St at e o f Mary landforth e 2 00 9 t ax y ear, an d thi s amoun t was no t re po rte d o n t he ir 2 01 0 return. Dis cu ss io n W e m us t d eci de whethe r pe ti ti on ers ha ve sh own th atth ey are en ti tl edto de du ctam ou nt s g reat er than tho se res po nd en t al lo wedfor th e y ears at i ss ue an d- 7 -

whe th er the y

fai le d t o i nc lu de th ei r St at e in co m e ta x re fundinin co m e fo r 20 10
. 2 W e al so m

us t d eci de whet he r pe ti ti on ers are l iabl e fo r a fai lu re t o t im el y fil e ad di ti on to tax for20 09 an d wh ethe r th ey are l iabl e fo r acc ur acy-rela te d p en al ti es fo r 20 09 an d 2 01 0. St artup Exp en se s R ep orte d o n S ch edul es C Sect io n 1 62 (a) g en eral ly allo ws t ax pa y ers to de du ctord in ary an d n eces sa ry ex pe ns es pa idor i nc urredinco nn ect io n wi tha tr ad e o r bu si ne ss . In o rd er fo r a ta xp ay er t o d educ t ex pe ns es , th e tr ad e o r bu si ne ss m us t b e fu nc ti on in g a s a g oi ng co nc ernan d p erfo rm in g the act iv it ie s fo r whi chitwas o rg an iz edat t he ti m e th at th e ex pe ns es are i nc urred . Rich m on d Tel ev is io n C or p. v . Uni te d S ta te s, 3 45 F.2d 90 1, 9 07 (4t h C ir. 1 96 5) , vac at edan d re m an de d o n o th er g ro un ds , 38 2 U.S. 6 8 (1 96 5) ; Har dy v. Co m

m is si on er, 9 3 T.C. 6 84 , 68 7- 69 3 (1 98 9) , aff’d i n p art , rem an de d i n p art , 19 90 U.S. App . LEXIS 19 67 0 (1 0t h C ir. Oct . 29 , 19 90 ); Woo dy v. Co m m is si on er, T.C. Mem o. 2 00 9- 93 , aff’d, 4 03 Fed . App x. 5 19 (D.C. Cir
. 20 10 ); Gl ov to v v . Comm is si on er, T.C. Mem o. 2 00 7- 14 7. Al th ou gh sec ti on 16 2( a) The de te rm in at io ns inth e Co m mis si on er’s n ot ic e o f de fic ie nc y are 2 ge ne ral ly pres um edco rrec t, an d t he tax pa y er b ears th e b ur de n o f pr ov in g ot he rwis e. Ru le 14 2( a); W el chv. Hel ve rin g, 2 90 U.S. 11 1, 1 15 (19 33 ). No qu es ti on was ra is edby eith er p arty reg ard in g s hi fti ng th e b ur de n o f pr oo f orgo in g fo rwardwith the ev id en ce, an d p et it io ne rs ha ve no t s ho wn tha t the bu rd ensh ou ld sh iftto res po nd en t. Thu s, the bu rd enof p ro of rem ai ns on pe ti ti on ers . See s ec. 74 91 (a).- 8 -

do es no t al lo w th e d educ ti on of s tartup a ndpre op en in g e xp en se s, i t m ay be po ss ib le to de du ctth em

ov er t im e. Sec. 1 95 ; Har dy v. Co m m is si on er, 9 3 T.C. at 68 7- 69 3. Whe th er a t ax pa y er i s en ga ge d i n atra de or b us in es s fo r pu rp os es of s ect io n 16 2( a) d ep en ds on th e fac ts an d c irc um st an ces of e achcas e. W oo dy v. Co m mis si on er, T.C. Mem o. 2 00 9- 93 . The Co urt h as foc us edon th e fo ll owi ng th ree f act or s wh enm ak in g thi s d et erm in at io n: (1) whet he r th e ta xp ay er u nd ert oo k th e act iv ity

in te nd in g t o e arna pr of

it ; (2 ) whe th er the tax pa y er i s re gu larly and act iv el y in vo lv edinth e act iv ity ; an d (3 ) whe th er the tax pa y er’s act iv ity ha s actua ll y co m m en ced . See i d. On the ba si s o f th e ev id en ce p res en te d, we co nc lu de th atMr. Tari gh i was no t
en ga ge d i n atra de or b us in es s fo r pu rp os es of s ect io n 1 62 (a) dur in g t he y ears at is su e. CES d idno t h av e an y in co m e o r cl ie nt s an d d idno t b idon any job s dur in g th e y ears at i ss ue . Tho ug h M r. Tari gh i fr eque nt ly vis it edco ns tru ct io n s it es to pr om ot e CES, i f he ha d the in te nt io n o f earn in g apro fit , he wo ul d h av e p ur su ed
co ntract s an d b idon job s. Mr . Tarig hi ’s act io ns ex em pl ify ste ps tak ento setup a bu si ne ss , no t tho se of abu si ne ss th atha s co m m en cedan d i s p res en tl y

op erat in g a s a g oi ng co nc ern .- 9 -

W e h ol d tha t the am ou nt s re po rte d o n p et it io ne rs ’ 20 09 an d 2 01 0 S ch edul es C are st artup ex pe ns es an d m ay no t b e d educ te d p ur su an t t o s ect io n 1 62 (a). Co ns eque nt ly, we ne edno t ad dr es s wh ethe r pe ti ti on ers ha ve pro vi de d s uf fic ie nt
ev id en ce t o s ub st an ti at e th e am ou nt s re po rte d o n S ch edul es C. Adju st m en ts to Ite miz edDedu ct io ns Deduc ti on s ar e a m at te r of leg is la ti ve gra ce, an d t ax pa y ers be ar the bu rd enof
es tabl is hi ng th atth ey

are en ti tl edto an y

cla im edde du ct io n. Ru le 14 2( a); INDOPCO, In c. v. Co m

m is si on er, 5 03 U.S. 79 , 84 (19 92 ). Taxp ay ers are re qu ire d to m ai nt ai n s uf

fic ie ntreco rd s t o a ll ow the Co m mis si on er t o d et erm in e th ei r co rrec t ta x l iabi li ty. Sec. 6 00 1; sec . 1.6 00 1- 1( a), In co m e Tax Reg s. Rea l Es ta te Taxe s Tax pa y ers m ay

de du ctSta te an d l oc al real pro pe rty tax es pa idor a ccru ed withi n the tax ab le y ear. Se c. 16 4( a). Pet it io ne rs cla im eda $6 ,34 7 d educ ti onfor real est at e ta xe s o n the ir 2 00 9 re tu rn . Peti ti on ers ’ le nd er re po rte d t o re sp on de nt th atpe ti ti on ers pa id$3 ,83 4.5 0 i n re al est at e ta xe s i n 2 00 9. Pe ti ti on ers ha ve no t pr ov id edsubs tant ia ti on to supp ort a d educ ti ongre at er tha n t he am ou ntrep orte d b y th e le nd er an d a re n oten ti tl edto de du ctm or e th an$3 ,83 4.5 0 fo r 20 09
. On the ir 2 01 0 re tu rnpe ti ti on ers cla im eda $3 ,01 5 d educ ti on forreal est at e ta xe s. Pet it io ne rs ’ le nd er re po rte d t ha t p et it io ne rs pa id$4 ,12 0.6 1 i n re al est at e- 10 -

ta xe s i n 2 01 0. Whil e th is di sc rep an cy was n otno te d i n t he no ti ce o f de fic ie nc y , th e le nd er’s rep ort s ub st an ti at es th atpe ti ti on ers are en ti tl edto a de du ct io n g reat er tha n wha t was rep orte d o n the ir 2 01 0 re tu rn . Oth er Tax es Inad di ti on to Sta te , lo cal an d fo rei gn real pro pe rty tax es , sec ti on 16 4( a) al lo ws a d educ ti on forva rio us othe r St at e, lo cal an d fo rei gn tax es pa idor a ccru ed du rin g the tax ab le y ear. Pe ti ti on ers cla im eda $7 90 de du ct io n fo r “ ot he r ta xe s” on th ei r 20 09 return. Pe ti ti on ers have no t p ro vi de d a ny sup po rt t o s ub st an ti at e th is de du ct io n a ndare n oten ti tl edto a de du ct io n fo r “ ot he r ta xe s.” Med ic al , Dent al an d In suran ce Pr em iu m s Sect io n 2 13 (a) g en eral ly allo ws a d educ ti on for ex pe ns es pa iddurin g t he ta xabl e y ear f

orm ed ic al care of t he tax pay er, h is sp ou se , or ade pe nd en t tha t i s n ot
co m pe ns at edforby ins ur an ce, t o t he ex te ntth e ex pe ns es ex ceed7.5 % of a dju st ed gr os s i nc om e. “ Med ic al care ” is bro ad ly defi ne d t o i nc lu de am ou nt s p ai d fo r “ th e di ag no si s, cu re, m it ig at io n, treat m en t, o r pr ev en ti onof d is eas e” o r fo r in su ran ce co ve rin g s uc h thi ng s. Sec . 21 3( d) (1 )(A), (D). Inord er t o d educ t ex pe ns es form ed ic al care , tax pa y ers are s pe ci fic al ly requi redto “ furn is h the na m e an d a dd res s o f eac h p ers on to who m pa ym en t fo r
m ed ic al expe ns es was m ad e an d t he am ou ntan d d at e o f th e p aym en t” . Sec. 1 .21 3-- 11 -

1( h) , Inc om e Tax Reg s. Fu rth er, p aym en ts for m ed ic al in su ran ce p rem iu m s m ay be de du ct edon ly if th e p aym en ts were m ad e wit h m on ey th atwas i nc lu de d i n t he ta xp ay er’s g ro ss in co m e. Adams v. Co m m is si on er, T.C. Mem o. 2 01 3- 92 ; Len ih an v. Co m m is si on er, T.C. Mem o. 2 00 6- 25 9, af f’d, 29 6 F ed . App x. 1 60 (2dCir . 20 08 ). Pet it io ne rs cla im edde du ct io ns of $ 13 ,25 0 fo r 20 09 an d $ 5,9 95 for 20 11 , be fo re the ap pl ic at io n o f th e 7 .5% ad jus te d g ro ss in co m e li m it at io n. Mr . Tarig hi
subm it te d aha nd writ te n s umm ary attri al cla im in g t ha t p et it io ne rs ’ m ed ic al
ex pe ns es were $ 11 ,09 8.3 9 fo r 20 09 , $1 1,0 66 .27 for20 10 an d $ 8,9 52 .12 for20 11
. Pet it io ne rs als o s ub m it te d c op ie s o f in vo ic es an d s tate m en ts fro m va rio us m ed ic al
an d d en ta l p ro vi de rs , exp lana ti on s o f be ne fit s fr om m ul ti pl e in su ran ce co m

pa ni es , can cel edch eck s, an d re cei pt s. Pet it io ne rs di d n otsh ow tha t the ir i ns ur an ce pr em iu m s wer e p ai d wi th aft er-t ax do ll ars . Res po nd en t d et erm in edth atth e p et it io ne rs subs tant ia te d m ed ic al ex pe ns es of $8 10 for20 09 , $3 06 for20 10 , and$1 08 for20 11 . On th e b as is of t he ev id en ce subm it te d at tria l, we fi ndth atpe ti ti on ers are n oten ti tl edto de du ctan y of t he ir
m ed ic al expe ns es be cau se th ei r subs tant ia te d e xp en se s d o n otex ceed7.5 % of t he ir ad jus te d g ro ss in co m e.- 12 -

Unr ei m bu rs edEm

pl oyee Bu si ne ss Exp en se s Fo r 20 09 , 20 10 an d 2 01 1 p et it io ne rs cla im edde du ct io ns of $ 57 ,82 0, 3 $8 7,7 30 an d $ 10 ,10 5, res pe ct iv el y , forun rei m bu rs edem

pl oyee m il eag e ex pe ns es 4 5 Mr. Tari gh i i nc urredas a n e m pl oyee. Gene ral ly, a ta xp ay er’s co st s o f co m m ut in g fro m ho m e to hi s o r he r pl ace o f bu si ne ss or e m pl oym en t ar e p ers on al expe ns es th atm ay no t b e d educ te d. Se c. 1.2 62 -1 (b )(5 ), In co m e Tax Reg s.; see als o s ec. 21 2( a); sec . 1.2 12 -1 (f), In co m e Tax Reg s. Ho wev er, a t ax pa y er m ay be ab le to de du ctex pe ns es in cu rredinco m m ut in g b etweenon e o r m or e b us in es s l oc at io ns . Deh r v. C omm is si on er, T.C. Mem o. 1 99 8- 44 1; Fri en d v . Comm is si on er, T.C. Mem o. 1 99 0- 14 4, af

f’d witho utpubl is he d o pi ni on , 93 7 F .2d60 8 (6 th Cir . 19 91 ). Inord er fo r a t ax pa y er t o d educ t the bu si ne ss m il eag e o f a p as se ng er v eh ic le , th e

The se am ou nt s wer e rep orte d o n the 20 09 return a s u nr ei m bu rs edem

pl oyee 3 bu si ne ss ex pe ns es . At tri al Mr. Tari gh i t es ti fie d t ha t the se de du ct io ns were en ti rel y forun rei m

burs edm il eag e ex pe ns es . Pet it io ne rs ’ 20 10 return re po rte d $ 66 ,37 1 a s u nr ei m bu rs edem

pl oyee 4 bu si ne ss ex pe ns es an d $ 21 ,35 9 a s o th er m is cel lane ou s i te m iz edde du ct io ns subjec t to th e 2 % ad

jus te d g ro ss in co m e li m it at io n. Pe ti ti on ers di d n otpro vi de an y ev id en ce re ga rd in g the se de du ct io ns at t ria l, an d, o n t he ba si s o f Mr. Tari gh i’s te st im on y , we fin d tha t the se am ou nt s s ho ul d a ls o h av e b eenrep orte d a s un rei m bu rs edem

pl oyee bu si ne ss ex pe ns es . The se am ou nt s wer e rep orte d o n the 20 11 return a s u nr ei m bu rs edem

pl oyee 5 bu si ne ss ex pe ns es . At tri al Mr. Tari gh i t es ti fie d t ha t the se de du ct io ns were en ti rel y forun rei m

burs edm il eag e ex pe ns es .- 13 -

st ric t s ub st an ti at io n re qu ire m en ts of s ect io n 2 74 (d ) m us t b e m et . Secs . 27 4( d) (4 ), 28 0F (d )(4 ). Taxp ay ers m us t g en eral ly establ is h: (1) th e am ou ntof t he bu si ne ss us e o f eac h v eh ic le interm s o f m il eag e; (2) th e ex actdate (s ) of th e u se of the
ve hi cl e; an d (3 ) th e b us in es s p ur po se with re sp ectto each ex pe nd itur e o r us e. Ro bi ns on v. Co m

m is si on er, T.C. Mem o. 2 01 4- 12 0; sec . 1.2 74 -5 T(b) (6 ), Tem po rary Inco m e Tax Reg s., 5 0 F ed . Reg . 46 01 6 (No v. 6 19 85 ). Dur in g 2 00 9 a ndth e fi rs t h al f of 20 10 Mr. Tari gh i was em pl oyed b y W al la ce Mo nt go m ery an d wo rk edex cl us iv el y on W al la ce M on tg om ery’ s co ntractwith the MTA. W al la ce M on tg om ery’ s p ol ic y was t o re im

bu rs e em pl oyees fo r eac h m il e dr iv eninex ces s o f 30 m il es . Mr. Tari gh i cl ai m edrei m bu rs em en t fo r th e m il es he dr ov e to th e MTA’s of

fic e th athe was n otrei m

bu rs edforun de r W al la ce Mo nt go m ery’ s p ol ic y . Yet, o n the ba si s o f th e ev id en ce p res en te d, i t i s n ot po ss ib le to de te rm in e h ow o fte n M r. Tari gh i dro ve di rect ly to the MTA’s off ic e fro m hi s h om e an d h ow o fte n h e dro ve fro m hi s h om e to W al la ce M on tg om ery’ s of fic e an d the n t o the MTA’s off ic e. Furth er, Mr . Tarig hi di d n otm ai nt ai n alo g o f
m il es dri ve n fo r W al la ce M on tg om ery. W e acc or di ng ly hol d t ha t p et it io ne rs ha ve no t p res en te d s uf

fic ie ntsubs tant ia ti on to m eetth e st ric te r st an da rd s fo r bu si ne ss tra ve l an d t o s up po rt ade du ct io n fo r th e unr ei m bu rs edm il eag e ex pe ns es for20 09
an d 2 01 0 i nc urredwhi le Mr. Tari gh i was em pl oyed b y W al la ce M on tg om ery.- 14 -

Mr. Tari gh i was em

pl oyed b y Pro gr es si ve du rin g t he sec on d h al f of 20 10
an d wo rk edon Pro gr es si ve ’s con tra ctwith t he MTA. Mr. Tari gh i t es ti fie d t ha t h e dr ov e fro m

hi s h om e d ire ct ly to the MTA’s off ic e ev ery day . The MTA’s o ffi ce was Mr. Tari gh i’s p la ce o f em pl oym en t wh il e h e was em pl oyed b y Pro gr es si ve . Bec au se th e co stof c omm ut in g i s a n on de du ct ib le pe rs on al ex pe ns e, pe ti ti on ers are no t en ti tl edto a de du ct io n fo r un rei m burs edem

pl oyee ex pe ns es for

m il eag e fo r th e ti m e th atMr. Tari gh i was em pl oyed b y Pro gr es si ve . See s ec. 1 .26 2- 1( b) (5 ), In co m e Tax Reg s. Mr. Tari gh i was no t em

pl oyed dur in g 2 01 1. Co ns eque nt ly, as he co nc ed ed attri al , pet it io ne rs are n oten ti tl edto an y un rei m bu rs edem

pl oyee ex pe ns es for 20 11
. Pro fes si on al Eng in eeri ng Exam Fee Pet it io ne rs cla im eda $2 75 de du ct io n o n t he ir 2 00 9 S ch edul e C fo r Mr. Tari gh i’s p ro fes si on al en gi ne eri ng ex am fee. At tria l M r. Tari gh i t es ti fie d t ha t h e to okth e ex am s i n the y ears at i ss ue . Peti ti on ers pro vi de d n o re co rd s o r rec ei pt s t o subs tant ia te when th es e ex am in at io ns were t ak enor t he ir c os t. Whi le we ha ve de te rm in edth atpe ti ti on ers are n oten ti tl edto an y Sch edul e C de du ct io ns be cau se Mr. Tari gh i was no t en ga ge d i n atra de or b us in es s wi th res pe ct to CES, ta ki ng th e p ro fes si on al ex am was n eces sa ry

inord er fo r Mr. Tari gh i t o- 15 -

m ai nt ai n h is en gi ne eri ng li cen se . Tho ug h i t m ay have be enpo ss ib le forMr. Tari gh i t o d educ t h is ex am in at io n fe es as a n i te miz edde du ct io n, b ecau se of t he
un fo rtu na te lac k o f subs tant ia ti on , pet it io ne rs are n oten ti tl edto a de du ct io n. Fai lu re To Rep ort a P orti on of aTaxabl e St at e In co m e Tax Refund The tax be ne fitrul e o f se ct io n 1 11 pro vi de s tha t i f anam ou ntis de du ct ed fro m in co m e inon e y ear a nda pa rt o r al l o f th e am ou ntis reco ve redina la te r y ear, th e rec ov eredam ou ntis tre at edas i nc om e fo r th e y ear i t i s re cei ve d t o t he ex te nt th e d educ ti on reduc edth e am ountof t ax im po se d. Se c. 11 1( a); Fran ci sc o v . Co m mis si on er, 1 19 T.C. 31 7, 3 33 -3 34 (20 02 ), aff’d, 3 70 F.3d12 28 (D.C. Cir
. 20 04 ); Ka du nc v. Co m

m is si on er, T.C. Mem o. 1 99 7- 92 ; s ee Hi ll sb or o Nat ’l Ban k v
. Co m mis si on er, 4 60 U.S. 37 0, 3 77 (19 83 ). Pet it io ne rs de du ct edMarylan d S ta te in co m e ta x o f $6 ,94 5 o n t he ir 2 00 9 Fed eral return. Th ei r 20 10 return i nd ic at es th atth ey rece iv eda $4 ,93 0 S ta te in co m e ta x re fundin20 10 , bu t the Fo rm 10 99 -G, Cert ai n Go ve rn m en t Pa ym en ts , is su edto pe ti ti on ers by the Sta te of M arylan d i nd ic at es th atth ey rece iv eda refu nd of $6 ,94 5. We ho ldth atpe ti ti on ers sh ou ldha ve in cl ud edth e en ti re $ 6,9 45 on th ei r 20 10 return.- 16 -

Fai lu re To Tim el y

Fil e Add it io n t o Tax for20 09 Sect io n 6 65 1( a)(1 ) pr ov id es foranad di ti on to tax of 5 % pe r m on th , up to 25 %, forlat e fi li ng . Peti ti on ers ’ 20 09 in co m e ta x re turnwas due onApri l 1 5, 20 10 , bu t i t was no t fi le d u nt il Apri l 2 5, 2 01 0. Pe ti ti on ers be ar the bu rd enof sh owi ng th atth ere was reas on ab le cau se to ex cu se th e la te fil in g. Se e Ru le 14 2( a); Hig be e v . Comm is si on er, 1 16 T.C. 43 8 (2 00 1) . Peti ti on ers ha ve no t s ho wn reas on ab le cau se forth e la te fil in g a ndth eref or e are li ab le forth e se ct io n 66 51 (a)( 1) ad di ti on to tax . Accu racy-Rel at edPen al ti es for20 09 an d 2 01 0 Sect io n 6 66 2( a) an d (b )(1 ) an d (2 ) im po se s an accuracy-rela te d p en al ty of 20 % onth e p orti on of a n u nd erp aym en t at tri bu tabl 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. Neg li ge nc e is de fin edto in cl ud e an y fai lu re t o k eep ad equa te bo ok s an d re co rd s o r to subs tant ia te it em s p ro pe rly. Sec. 1.6 66 2- 3( b) (1 ), In co m e Tax Reg s. Anun de rs ta te m en t o f in co m e ta x i s s ub st an ti al if i t ex ceed s the gr eat er o f 10 % of t he tax requi redto be sh own on th e return fo r th e ta xabl e y ear o r $5 ,00 0. Se c. 66 62 (d ). The Co m m is si on er b ears th e b ur de n o f pr oduc ti on forth e acc ur acy-rela te d pe na lty . Sec. 7 49 1( c). Thi s re qu ire s the Co m m is si on er t o c om e fo rwardwith
su ffi ci en t ev id en ce i nd ic at in g tha t i t i s ap pr op ria te to im po se th e acc ur acy-rela te d- 17 -

pe na lty . Hig be e v . Comm is si on er, 1 16 T.C. at 4 46 . Once t he Co m mis si on er sa ti sf ie s h is burd en , th e b ur de n s hi fts to th e ta xp ay er t o s ho w th atth e p en al ty sh ou ldno t b e im

po se d. Id . at 4 47 ; s ee Ru le 14 2. Re sp on de ntha s m ethi s b ur de n of pro du ct io n b ecau se pe ti ti on ers ’ un de rs ta te m en ts of i nc om e ta x fo r 20 09 an d 20 10 ex ceedbo th 10 % of t he tax requi redto be sh own on th e returns an d the $5 ,00 0 thr es ho ldforap pl ic at io n o f th e p en al ty. Sect io n 6 66 4( c)(1 ) pr ov id es anex cep ti on to th e se ct io n 6 66 2 p en al ty if th e ta xp ay er ca n e st ab li shth atth ere was reas on ab le cau se forth e und erp aym en t an d th atth e ta xp ay er ac te d i n g oo d fa ith. Se c. 1.6 66 4- 4( a), In co m e Tax Reg s. Whethe r a ta xp ay er ac te d wi th reas on ab le cau se an d i n g oo d fa ith i s d et erm in edineach cas e by tak in g i nt o a cco un t al l re le va ntfact s an d c irc um st an ces . Peti ti on ers ha ve no t pr es en te d a ny evi de nc e to sh ow tha t the re was reas on ab le cau se forth ei r un de rp aym en ts for20 09 an d 2 01 0. Acco rd in gl y , we ho ldth atth e se ct io n 6 66 2( a) p en al ti es ap pl y to pe ti ti on ers ’
un de rp aym en ts for20 09 an d 2 01 0. To re fle ctth e fo reg oi ng , Deci si on wil l b e en te redun de r Ru le 15 5.