T.C. Summ ary Opi ni on 20 14 -7 4

UNITED STAT ES TAX COURT

LAUREN EL IZABETH MILLER, Pet it io ne r v. COMM ISSI ONER OF INTERNAL REVENUE, Resp on de nt

Doc ke t No . 11 01 8- 13 S. Fi le d J ul y 28 , 20 14 . Jo hn Pau l Ba rri e, fo r pe ti ti on er. Eug en e A. Korn el an d R eb ek ahA. My ers , forres po nd en t.

SUMM ARY OPINION GUY, Spec ia l Tri al Ju dg e: Thi s ca se was h eardpu rs uantto th e p ro vi si on s of sec ti on 74 63 of t he Int ern al Rev enue Co de ineffe ctwhenth e p et it io n was fil ed . Pur su an t t o s ect io n 7 46 3( b) , th e d eci si on to be en te redis no t re vi ewab le by 1 Unl es s o th erwi se in di cat ed , sec ti on refe ren ces are t o the Int ern al Rev enue 1 (co nt in ue d...)-2 -

an y ot he r co urt, an d t hi 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 eda de fic ie nc y of $ 5,3 40 inpe ti ti on er’s Fed eral in co m e ta x fo r 20 09 an d a n a ccu racy-rela te d p en al ty of $1 ,06 8 p ur su an t t o s ect io n 66 62 (a). Pet it io ne r fi le d ati m el y pe ti ti on forred et erm in at io n wi th th e Co urt pu rs ua ntto sec ti on 62 13 (a). At t he ti m e th e p et it io n was fil ed , pet it io ne r res id ed in New York . The is su es forde ci si on are wh ethe r pe ti ti on er i s (1 ) en ti tl edto a de du ct io n fo r un rei m

bu rs edem

pl oyee bu si ne ss ex pe ns es rep orte d o n S ch edul e A, Ite m iz ed Deduc ti on s, an d (2 ) li ab le foranaccu racy-rela te d p en al ty und er s ect io n 6 66 2( a). Bac kg ro un d So m e o f th e fac ts ha ve be enst ip ul at edan d a re s o fo un d. Th e st ip ul at io n o f fact s, the fir stsupp le m en ta l s ti pu la ti on of f act s, an d t he acco m

pa nyin g e xh ib it s ar e in co rp or at edhe rei n b y

th is refe ren ce.

(...co nt inue d) 1 Co de (Co de ), as am en de d a ndineffe ctfor20 09 , andRu 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. Mo ne tary am ou nt s ar e ro un de d t o t he ne ares t d ol lar.-3 -

I. Pet it io ne r’s Em

pl oym en t Bran di ng Iro n Worl dwi de , Inc . (BIW), is h ead qu art eredinLos Ang el es , Cal ifo rn ia , andpro vi de s p ub li c rel at io ns , m ark et in g, an d a dv ert is in g s erv ic es . In earl y 20 08 Jo rg W al lrabe , BIW’ s o wne r an d p res id en t, h ire d p et it io ne r to serve as th e co m pany’ s ac co un t d ire ct orinNew YorkCit y . Peti ti on er was res po ns ib le for m an ag in g e xi st in g c li en t ac co un ts , ho st in g p res s ev en ts , pro du ci ng sty le gu id es , an d a ss is ti ng cli en ts with p ro du ctli ne de ve lo pm en t an d c omm un ic at io ns . She was al so ex pe ct edto att em

ptto recr ui t n ew cl ie nt s. At t he ti m e sh e was hi red , pe ti ti on er was BIW’ s o nl y em pl oyee inNew York . BIW didno t h av e anoff

ic e sp ace i n New Yo rkCit y , andpe ti ti on er i ni ti al ly was requi redto workou t o f a cl ie nt ’s sh owr oo m . BIW ’s rel at io ns hi p wi th th at cl ie nten de d s ho rtl y

aft er p et it io ne r was hi red , andMr. Wallr ab e th enask edhe r to work fr om

he r stud io ap artm en t u nt il he co ul d o bt ai n c omm erci al off ic e sp ace. BIW nev er o bt ai ne d i ts ownoff ic e sp ace, andpe ti ti on er u se d p artof h er ap art m en t as anoff

ic e th ro ug ho ut20 09 . BIWli st edpe ti ti on er’s ap art m en t ad dr es s an d t el ep ho ne nu m

be r on it s Web s it e as th e ad dr es s an d p ho ne nu m be r fo r it s New Yorkoff

ic e. Pet it io ne r us ua ll y

work edweek da y s b etween9 a.m . and7 p .m ., bu t s he ge ne ral ly w as ex pe ct edto be av ai labl e atall ti m es .-4 -

II. Pet it io ne r’s Exp en se s A. Peti ti on er’s Ap art m en t 1. Th e Lay ou t Pet it io ne r’s stud io ap art m en t was a si ng le roo m with ato ta l l iv in g area o f 70 0 s qu are f

eet . She pro vi de d ask et chof t he ap artm en t i n wh ic h t he sp ace i s di vi de d i nt o t hr ee equa l s ect io ns : (1 ) anen tryway , a ba th ro om , anda ki tc he n a rea; (2 ) of fic e sp ace, i nc lu di ng a de sk , two sh el vi ng un it s, a b oo kc as e, an d aso fa; an d (3 ) a b edro om

areain cl ud in g apl at fo rm be d a nddre ss ers . Peti ti on er h adto pa ss th ro ug h t he off

ic e sp ace t o g etto th e b edro om area . 2. Us e o f th e Offi ce Sp ace Pet it io ne r freque nt ly m etwith B IW cl ie nt s i n the off ic e sp ace, andsh e pe rfo rm edworkforBIW usi ng a co m pu te r on th e d es k. Th e b oo kc as e an d sh el vi ng un it s wer e u se d t o s to re b oo ks , m ag azi ne s, s up pl ie s, an d s am pl es rel at ed to pe ti ti on er’s wo rkforBIW andit s cl ie nt s. Altho ug h s he us edth e o ffi ce s pa ce pr im ari ly for b us in es s p ur po se s, s he oc cas io na ll y

us edth e sp ace f

orpe rs on al pu rp os es . 3. Ap artm en t Ex pe ns es Pet it io ne r pa idren t o f $2 6,2 00 an d c le an in g s erv ic e ch arg es of $ 1,6 80 du rin g 2 00 9. Sh e al so pa id$1 ,89 6 t o Ti m eWarnerCab le (Tim eWarner ) fo r a-5 -

pa ck ag e o f se rv ic es th atin cl ud edcab le tel ev is io n, a t el ep ho ne li ne , andwire le ss In te rn etacce ss . Peti ti on er u se d the cab le tel ev is io n e xc lu si ve ly for p ers on al us e, th e te le ph on e li ne ex cl us iv el y forbu si ne ss pu rp os es , andth e wir el es s In te rn et acce ss forbo th pe rs on al an d b us in es s p ur po se s. Pet it io ne r es ti m at edth at ap pr ox im at el y

70 % of h er wi rel es s In te rn etus e was bu si ne ss rel at ed . B. Tran sp ortati on an d M eal s an d En te rta in m en t Ex pe ns es Pet it io ne r at te m

pt edto recrui t n ew cl ie nt s fo r BIW by vi si ti ng sh owr oo m s, at te nd in g m eet in gs , andtak in g p ot en ti al cli en ts to lu nc h. Sh e n orm al ly trav el edby ta xi to th es e m eet in gs . C. Uni fo rm s BIW spe ci fie d t he sty le an d c ol orof c lo th in g t ha t em pl oyees wer e ex pe ct ed to wear t o B IW ev en ts an d p ro du ct io ns . Em pl oyees wer e n otob li ge d t o d is pl ay a BIW log o o r si m il ar d is ti nc ti ve m ark in g o n t he ir c lo th in g. Dur in g 2 00 9 p et it io ne r pu rch as edth ree b la ckev en in g dres se s t o wea r to BIW even ts . Alth ou gh pe ti ti on er ac kn owl ed ge d tha t the dre ss es were s ui tabl e fo r pe rs on al us e, sh e te st ifi edth atsh e wor e th e dres se s o nl y to BIW even ts be cau se th ey di d n otfal l wi th in he r “pe rs on al aes th et ic ”.-6 -

D. Cell ul ar Ph on e Pet it io ne r pa id$9 92 to Veri zo n Wirel es s fo r cel lu lar ph on e se rv ic e fro m Ju ly thro ug h Dec em

be r 20 09 . She us edhe r cel lu lar ph on e fo r bo th bu si ne ss an d

2 pe rs on al pu rp os es . III. BIW’ s R ei m

bu rs em en t o f Em

pl oyee Exp en se s BIW didno t m ai nt ai n aform al em pl oyee ex pe ns e rei m

bu rs em en t p ol ic y . Pet it io ne r un de rs to odth atBIW w as stru gg li ng fin an ci al ly, th atth e co m pa ny’ s bu si ne ss was n otgro win g, p art ic ul arl y inNew York , andth atsh e wou ldbe rei m bu rs edon ly for ex pe ns es th atBIW cou ldit em iz e an d b il l d ire ct ly to i ts cl ie nt s. Th e rec or d i nc lu de s thr ee ex pe ns e rep orts th atpe ti ti on er s ub m it te d t o BIW for re la ti ve ly m od es t ex pe nd itur es (e.g ., tax i fa res an d s m al l g ift s t o c li en ts ) th atsh e m ad e in Feb ru ary, May, an d Au gu st20 09 . Altho ug h p et it io ne r ha d n um ero us co nv ers at io ns with M r. W al lrabe ab ou t th e n eedfor

a fo rm al off

ic e sp ace, h e rep eat ed ly ass ur edhe r th atth e co m pa ny was on th e v erg e o f ren ti ng co m m erci al sp ace. BI W

di d n otrei m

burs e p et it io ne r fo r an y of t he ex pe ns es rel at edto he r ap art m en t o r he r at te m pt s t o re cru itne w cli en ts .

Pet it io ne r’s pa ren ts pa idhe r Veri zo n Wirel es s ch arg es forth e fi rs t s ix 2 m on th s o f 20 09 .-7 -

IV. Peti ti on er’s Rec or ds A. Orig in al Reco rd s Pet it io ne r te st ifi edth atsh e m ai nt ai ne d c om pl et e an d a ccu rat e rec or ds in res pe ctof h er b us in es s ex pe ns es for20 09 , in cl ud in g m eet in g l og s, re cei pt s an d in vo ic es forvario us ex pe nd itur es , andrei m bu rs em en ts fro m

BIW. Pet it io ne r lo st m os t o f he r bu si ne ss reco rd s wh ensh e m ov edto a ne w apa rtment i n 2 01 1, in cl ud in g re co rd s o f rei m bu rs em en ts th atsh e rec ei ve d fr om BIW. B. Sp read sh eet s Pet it io ne r pr oduc edth ree s pr ead sh eet s tha t wer e cre at edinth e sp rin g o f 20 10 inco nju nc ti on with the pre pa rat io n o f he r 20 09 tax return. Th e fi rs t sp read sh eetli st s the am ou nt s p et it io ne r pa iddu rin g 2 00 9 fo r ren t, el ectric ut il ity ch arg es , cle an in g s erv ic es , andTim eWarneran d Ver iz on W ire le ss ch arg es . The se co ndsp read sh eetli st s m is cel lane ou s ex pe nd itur es rel at edto pe ti ti on er’s wo rk fo r BIW as fo ll ows : t ax i fa res of $ 54 5, m eal s an d e nt ert ai nm en t ex pe ns es of $ 32 1, un ifo rm ex pe ns es of $ 2,0 93 , off

ic e supp li es of $ 11 7, an d “ R&D” o f $3 1. Th e sp read sh eetli st s the da te an d a m ou ntof e ach ex pe nd itur e, bu t i t d oe s n otid en ti fy th e b us in es s p ur

po se forin di vi du al ex pe nd itur es . The thi rdsp read sh eetpro vi de s a br eak do wn o f th e am ou nt s tha t p et it io ne r pa idto Tim eWarneran d Ver iz on W ire le ss .-8 -

C. Ch eck in g Acc ountSta te m en ts Pet it io ne r’s m on th ly check in g a cco un t s ta te m en ts for20 09 sh ow tha t BI W no rm al ly pai d h er b y

wire tra ns fer. A co m

pa ris on of t he am ou nt s tha t BI W tra ns ferr edto pe ti ti on er’s acc ou ntdu rin g 2 00 9 a ndth e wag es th atBIW repo rte d on Fo rm W -2 , W ag e an d Tax Sta te m en t, fo r th aty ear s ug ge st s tha t BI W di d n ot rei m bu rs e h er fo r m an y

of h er em

pl oym en t-r el at edex pe ns es . The ac co un t s ta te m en ts sh ow tha t p et it io ne r to oknu m ero us tax i trip s aro un d New Yo rkCit y , sh e o ccas io na ll y di ne d o ut , andsh e p ur ch as edclo th in g an d o ffi ce s up pl ie s. Th e acc ou ntst at em en ts co rro bo rat e m os t, i f no t al l, o f th e ex pe ns es th atpe ti ti on er re po rte d o n h er s pr ead sh eet s fo r ren t, cl ean in g s erv ic es , an d Ti m eWarneran d Ver iz on W ire le ss ch arg es . V. Tax Return On h er t im el y

fil edFo rm

10 40 , U.S. Ind iv idua l In co m e Tax Return, pe ti ti on er re po rte d wag e in co m e o f $4 8,6 80 , andsh e cl ai m eda de du ct io n o f $3 4,9 33 on Sch edul e A fo r un rei m bu rs edem

pl oyee bu si ne ss ex pe ns es (be fo re the ap pl ic at io n o f th e 2 % flo orpre sc rib edinsec ti on 67 (a)) . Peti ti on er at ta ch edFo rm 21 06 , Em pl oyee Bu si ne ss Exp en se s, t o h er re tu rnli st in g t he fol lo win g: parki ng fees , to ll s, an d t ran sp orta ti on ex pe ns es of $ 55 3, m eal s an d e nt ert ai nm en t ex pe ns es-9 -

of $2 99 (be fo re the ap pl ic at io n o f th e 5 0% l im it at io n p res cri be d i n s ec. 2 74 (n )), an d u ns pe ci fie d e xp en se s o f $3 4,2 30 . VI. Tax Re tu rnPrep arat io n Pet it io ne r pr ov id edhe r ta x re co rd s, i nc lu di ng ori gi na l re cei pt s an d i nv oi ces of he r bu si ne ss ex pe ns es for20 09 , to Mi ch ael Lett a. Mr. Let taus edTurb oTa x 3 so ftwa re t o p rep are a ndele ctro ni cal ly file pe ti ti on er’s t ax return. Mr. Let taearn eda ba ch el or ’s deg ree f ro m Ohi o S ta te Uni ve rs ity

an d i s a cert ifi edpubl ic acco un tant . At th e ti m e o f tr ia l, Mr . Lett a was work in g a s the ch ie f fi na nc ia l o ffi cer f

orCh ari ty W at er i n New Yo rk . He tes ti fie d tha t h e rev ie wedpe ti ti on er’s t ax reco rd s, co ns id eredth em to be co m

pl et e an d a ccu rat e, an d d is cu ss edth e return wi th he r be fo re fi li ng it . Whe n h e le arn edth atm an y of pe ti ti on er’s o rig in al tax reco rd s h adbe enlo st , Mr. Lettaco nt act edTurb oTa x i n wha t turne d o utto be anun su cces sf ul att em ptto retrie ve work sh eet s tha t h e co m pl et edwhi le pre parin g t he return fo r el ectro ni c fi li ng . VII. Not ic e o f Defi ci en cy Res po nd en t d is al lo wedth e d educ ti on th atpe ti ti on er cl ai m edon Sch edul e A fo r un rei m

bu rs edem

pl oyee bu si ne ss ex pe ns es on th e al te rn at iv e g ro un ds th atsh e fai le d t o s ub st an ti at e th e ex pe ns es an d the ex pe ns es were n otord in ary an d Pet it io ne r m arri edMr. Let tainAug us t 2 01 3. 3-1 0-

ne ces sa ry bu si ne ss expe ns es withi n t he m ean in g o f se ct io n 1 62 (a). Re sp on de nt co m pu te d p et it io ne r’s ta x l iabi li ty for 2 00 9 a fte r al lo win g h er a s tand ardde du ct io n of $5 ,70 0. Dis cu ss io n As a g en eral rul e, th e Co m m is si on er’s d et erm in at io n o f a t ax pa y er’s l iabi li ty in a no ti ce o f de fic ie nc y

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

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

m is si on er, 5 03 U.S. 79 , 84 (19 92 ); Ne w Col on ia l Ic e Co . v. Hel ve rin g, 2 92 U.S. 43 5, 4 40 (19 34 ). A tax pa y er m us t s ub st an ti at e d educ ti on s cl ai m edby keep in g a ndpro du ci ng ad equa te reco rd s tha t en ab le th e Co m m is si on er to de te rm in e th e ta xp ay er’s co rrec t t ax li ab il ity . Sec. 6 00 1; Hrad es ky v. Co m m is si on er, 6 5 T.C. 8 7, 8 9- 90 (19 75 ), aff’d p er cu ria m , 54 0 F .2d82 1 (5 th Cir .-1 1-

19 76 ); M en eg uz zo v. Co m mis si on er, 4 3 T.C. 8 24 , 83 1- 83 2 (1 96 5) . A tax pa y er cl ai min g ade du ct io n o n aFed eral in co m e ta x re tu rnm us t d em on strat e th atth e de du ct io n i s al lo wab le pu rs ua ntto a st atut ory pro vi si on an d m

us t fu rth er subs tant ia te th atth e expe ns e to whi chth e d educ ti onrel at es ha s b eenpa idor in cu rred . Sec. 6 00 1; Hrad es ky v. Co m m is si on er, 6 5 T.C. at89 -9 0. Whe n atax pay er es tabl is he s tha t h e o r sh e p ai d o r in cu rreda de du ct ib le ex pe ns e b utfai ls to est ab li sh th e am ou ntof t he de du ct io n, the Co urt n orm al ly m ay es ti m at e th e am ou ntall owabl e as a de du ct io n. Co han v . Comm is si on er, 3 9 F .2d 54 0, 5 43 -5 44 (2dCir . 19 30 ); Vani cekv. Co m m is si on er, 8 5 T.C. 7 31 , 74 2- 74 3 (1 98 5) . There m

us t b e su ffi ci en t ev id en ce i n t he reco rd , ho wev er, t o p erm itth e Co urt t o c on cl ud e th ata de du ct ib le ex pe ns e was pa idor i nc urredinat l eas t the am ountall owe d. Will ia m s v . Uni te d S ta te s, 2 45 F.2d55 9, 5 60 (5t h C ir. 1 95 7) . I. Unre im

bu rs edEm

pl oyee Bu si ne ss Exp en se s Und er s ect io n 1 62 (a), a d educ ti on is all owe d fo r or di na ry an d n eces sa ry ex pe ns es pa idor i nc urreddu rin g t he tax ab le y ear i n c arrying on an y tra de or bu si ne ss . The d et erm in at io n o f whe th er anex pe nd itur e sa ti sf ie s the requi rem en ts fo r de du ct ib il ity

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

m is si on er v . Hein in ge r, 32 0 U.S. 4 67 , 47 5 (1 94 3) . The t erm “ tra de or b us in es s” in cl ud es pe rfo rm in g s erv ic es as a n e m pl oyee. Prim

ut h v . Comm is si on er, 5 4 T.C. 3 74 , 37 7--1 2-

37 8 (1 97 0) . Howev er, ex pe ns es forwhi chanem pl oyee co ul d c la im rei m bu rs em en t fr om

hi s o r he r em

pl oyer, bu t d oe s n ot , are n otord in ary an d ne ces sa ry ex pe ns es . See Po de m s v . Comm is si on er, 2 4 T.C. 2 1, 2 2- 23 (19 55 ). A deduc ti on no rm al ly is n otav ai labl e fo r pe rs on al , li vi ng , or fa m il y ex pe ns es . Sec. 2 62 (a). Sect io n 2 74 (d ) pr es cri be s s tri ng en t s ub st an ti at io n re qu ire m en ts to be m et be fo re a t ax pa y er m ay

de du ctcert ai n c at eg or ie s o f ex pe ns es , in cl ud in g tra ns po rta ti on ex pe ns es , m eal s an d e nt ert ai nm en t ex pe nd itur es , andex pe ns es rel at edto th e u se of l is te d p ro pe rty as d efi ne d i n s ect io n 2 80 F(d )(4 )(A). See San fo rdv. Co m

mis si on er, 5 0 T.C. 8 23 , 82 7 (1 96 8) , aff’d, 4 12 F.2d20 1 (2 d C ir. 19 69 ). As rel ev an t h ere, the term “ li st edpro pe rty” in cl ud es , in te r al ia , cel lu lar ph on es . Sec. 2 80 F(d )(4 )(A)(v ). To s at is fy th e requi rem en ts of s ect io n 2 74 (d ), a ta xp ay er g en eral ly m

us t m ai nt ai n re co rd s an d d oc um en tary ev id en ce wh ic h, i n co m bi na ti on , are s uf

fic ie ntto est ab li sh th e am ou nt , dat e, an d b us in es s p ur po se for a co ve redex pe nd itur e o r bu si ne ss us e o f li st edpro pe rty. Sec. 1.2 74 -5 T(b) (6 ), Tem po rary Inco m e Tax Reg s., 5 0 F ed . Reg . 46 01 6 (No v. 6 , 19 85 ). Sect io n 1 .27 4- 5T(c )(2 ), Tem po rary Inco m e Tax Reg s., 5 0 F ed . Reg . 46 01 7 (No v. 6 , 19 85 ), pr ov id es inrel ev an t p artth at“ ad equa te reco rd s” ge ne ral ly con si st of anacco un t b oo k, a d iary , a lo g, a s ta te m en t o f ex pe ns e, tr ip sh eet s, o r a s im il ar-1 3-

reco rdm ad e ator n ear t he ti m e o f th e ex pe nd itur e o r us e, al on g wi th supp orti ng do cu m en tary

ev id en ce. The Co urt m ay no t u se th e ru le est ab li sh edinCo ha n v . Co m m is si on er, 3 9 F .2dat 5 43 -5 44 , to est im at e ex pe ns es co ve redby sect io n 27 4( d) . San fo rdv. Co m

m is si on er, 5 0 T.C. at82 7; sec . 1.2 74 -5 T(a), Tem po rary In co m e Tax Reg s., 5 0 F ed . Reg . 46 01 4 (No v. 6 , 19 85 ). Taxp ay ers lac ki ng a co nt em po ran eo us lo g a re ex pe ct edto m ai nt ai n areco rdcrea te d a s n ear i n t im e as po ss ib le to th e p art ic ul ar ex pe nd itur e o r bu si ne ss us e (i nc lu di ng th e el em en ts ou tl in edab ov e), s up po rte d b y co rro bo rat iv e d oc um en tary ev id en ce tha t ca rri es with i t a h ig h d eg ree o f pr ob at iv e v al ue . Sec. 1 .27 4- 5T(c )(1 ), Tem po rary Inco m e Tax Reg s., 5 0 F ed . Reg . 46 01 6- 46 01 7 (No v. 6 , 19 85 ). A. Bus in es s Us e o f Hom e A tax pa y er g en eral ly is n oten ti tl edto de du ctany expe ns es rel at edto a dwe ll in g u ni t u se d a s a r es id en ce dur in g the tax ab le y ear. Se c. 28 0A( a). Exp en se s at tri bu tabl e to a ho m e o ffi ce ar e ex cep te d fr om th is ge ne ral rul e, ho wev er, i f th e ex pe ns es are al lo cab le to a po rti on of t he dwel li ng un itwhi chis ex cl us iv el y us ed on a reg ul ar b as is as the pri nc ip al pl ace o f bu si ne ss forth e ta xp ay er’s trad e o r bu si ne ss . Sec. 2 80 A(c)(1 ); Lo fs tro m v. Co m m is si on er, 1 25 T.C. 27 1, 2 77 -2 78 (2 00 5) . If th e ta xp ay er i s an em pl oyee, th e ex cep ti on un de r se ct io n 2 80 A(c)(1 )-1 4-

wil l ap pl y

on ly if th e ex cl us iv e u se of the off ic e sp ace i s fo r th e co nv en ie nc e o f th e ta xp ay er’s em

pl oyer. Ham ach er v . Comm is si on er, 9 4 T.C. 3 48 , 35 3- 35 4 (1 99 0) . BIW lis te d p et it io ne r’s ap art m en t ad dr es s o n i ts W eb si te as t he ad dr es s fo r it s New Yo rkoff

ic e. Pet it io ne r te st ifi edcred ib ly tha t s he reg ul arl y us edon e-thi rd of he r ap art m en t s pa ce as anoff ic e to co nduc t BI W

bu si ne ss , sh e m etwith c li en ts th ere, an d s he was e xp ect edto be av ai labl e to workwell in to th e ev en in g. Onth is reco rd , we are p ers ua de d t ha t p et it io ne r’s ap art m en t was he r pr in ci pa l p la ce o f bu si ne ss , th atsh e was ob li ge d t o u se th e sp ace a s anoff ic e fo r th e co nv en ie nc e an d b en efi t o f BIW, andth atBIW w as no t ab le or wi ll in g t o re im bu rs e h er fo r an y of he r ap art m en t-r el at edexpe ns es (in cl ud in g t he Tim eWarnerch arg es di sc us se d be lo w). Altho ug h p et it io ne r adm it te d tha t s he us edpo rti on s o f th e o ffi ce s pa ce fo r no nb us in es s p ur

po se s, we fi ndth athe r pe rs on al us e o f th e sp ace wa s d e m in im is an d wh ol ly attr ib ut ab le to th e p ract ic al it ie s o f li vi ng ina stud io ap art m en t o f su ch m od es t d im en si on s. See Hug he s v . Commis si on er, T.C. Mem o. 1 98 1- 14 0. Pet it io ne r pa idren t o f $2 6,2 00 an d c le an in g s erv ic e ch arg es of $ 1,6 80 du rin g 2 00 9. Co ns is te ntwith t he pre ced in g d is cu ss io n, we h ol d t ha t p et it io ne r is en ti tl edto a de du ct io n o f $9 ,29 3 fo r th e b us in es s u se of h er ap artm en t (i .e., on eth irdof h er re ntan d c le an in g s erv ic e ch arg es forth e y ear) .-1 5-

B. Tim eWarnerCh arg es Pet it io ne r pa id$1 ,89 6 t o Ti m eWarnerfor a pa ck ag e o f se rv ic es th at in cl ud edcab le tel ev is io n, a t el ep ho ne li ne , andwire le ss Int ern etacce ss . Alth ou gh th e rec or d i s n oten ti rel y

cle ar as to th e p reci se all oc at io n o f th e Tim eWarner ch arg es am on g t he th ree s erv ic es , th ere i s s uf fic ie ntev id en ce i n t he reco rdto jus ti fy di vi di ng th e ch arg es equa ll y am on g t he m . Pet it io ne r adm it te d t ha t s he us edth e cab le tel ev is io n s erv ic e ex cl us iv el y for pe rs on al us e. Co ns eque nt ly, sh e is no t en ti tl edto de du ctth e p orti on of t he Tim eWarnerch arg es attrib ut ab le to cab le tel ev is io n. Se e se c. 26 2( a). Pet it io ne r te st ifi edcred ib ly tha t the ap art m en t t el ep ho ne li ne was u se d ex cl us iv el y

forbu si ne ss pu rp os es . Ind eed , BIW li st edpe ti ti on er’s t el ep ho ne nu m be r on it s Web s it e as th e co nt actnu m be r fo r it s New Yo rkoff

ic e. Und er the ci rcu m st an ces , we con cl ud e th atm ai nt ai ni ng th e te le ph on e li ne was an o rd in ary an d n eces sa ry

bu si ne ss ex pe ns e. See, e.g ., Tresc ot t v . Comm is si on er, T.C. Mem o. 20 12 -3 21 , at * 9. Sect io n 2 62 (b ) pr ov id es th atan y ch arg e fo r ba si c lo cal tel ep ho ne servi ce with re sp ectto th e fi rs t t el ep ho ne li ne pro vi de d t o atax pa y er’s res id en ce s ha ll be tre at edas ano nd educ ti bl e p ers on al ex pe ns e. Altho ug h p et it io ne r pr ov id edso m e in fo rm at io n re la te d t o t he bre ak do wn o f th e Tim eWarnerch arg es forth e te le ph on e-1 6-

li ne , th e rec or d i s s il en t re ga rd in g t he ex actch arg e, if an y , forlo cal tel ep ho ne se rv ic e. Und er the cir cum st an ces , we wil l ap pl y th e Co han ru le an d e st im at e th e am ountall owabl e as a de du ct io n. All oc at in g o ne -h al f of th e ch arg e fo r th e 4 te le ph on e li ne to lo cal tel ep ho ne servi ce, we h ol d tha t p et it io ne r is en ti tl edto a de du ct io n o f $3 16 forth e te le ph on e li ne . Pet it io ne r te st ifi edcred ib ly tha t s he us edth e wir el es s In te rn etservi ce fo r bo th pe rs on al an d b us in es s p ur po se s. Sh e es ti m at edth atap pr ox im at el y 70 % of he r wire le ss Int ern etus e was bu si ne ss rel at ed . Alth ou gh pe ti ti on er d idno t o ffera lo g o r ot he r rec or d o f he r wire le ss Int ern etus e, we ha ve he ldth atInt ern etacce ss ex pe ns es are n otsubjec t t o the stric t s ub st an ti at io n re qu ire m en ts of s ect io n 2 74 (d ). See No z v . Commis si on er, T.C. Mem o. 2 01 2- 27 2, at*2 2- *2 3 (a ndcas es cit ed th erea t). Co ns id eri ng all th e ci rcu m st an ces , we con cl ud e th atth e co stof wi rel es s In te rn etacce ss was an o rd in ary an d n eces sa ry bu si ne ss ex pe ns e an d we a ccep t as reas on ab le pe ti ti on er’s es ti m at e th atap pr ox im at el y 70 % of h er wi rel es s In te rn et us e was bu si ne ss rel at ed . As a res ul t, s he is en ti tl edto a de du ct io n o f $4 42 (i.e ., 70 % of t he Tim eWarnerch arg es att rib ut ab le to th atservi ce). Co ns id eri ng th e co ns tantev ol ut io n o f te le co m m un ic at io ns syste m s an d t he 4 m an ne r in whi chco ns um ers pa y forva rio us tel eco m

m un ic at io ns servi ces , itm ay be th atpe ti ti on er s im

pl y pa ida fl atrat e fo r th e te le ph on e li ne . Lacki ng a de fin it iv e b reak do wn o f th e ch arg es , ho wev er, we wil l as su m e th aton e-h al f of th e ch arg e fo r th e te le ph on e li ne is att rib ut ab le to lo cal ph on e se rv ic e.-1 7-

C. Elec tri c Uti li ty Charg es Pet it io ne r pr oduc eda sp read sh eetin di cat in g t ha t s he pa id$1 ,17 6 fo r el ectric ut il ity

ch arg es for

he r ap art m en t dur in g 2 00 9. Al th ou gh we do no t d oubt th atpe ti ti on er p ai d e le ctric ut il ity ch arg es , sh e d idno t o fferan y tes ti m on y

or ad di ti on al do cu m en ta ti on (su chas p ai d re cei pt s o r co pi es of h er el ectric bi ll s) to subs tant ia te th e expe ns e. W itho utm or e, we are u nabl e to ap pl y th e Co ha n ru le to es ti m at e th e am ou ntof ade du ct io n fo r el ectric ut il ity ch arg es , andno de du ct io n i s al lo wedfor

th is it em . D. Meal s an d En te rta in m en t an d Tra ns po rta ti onExp en se s Pet it io ne r cl ai m edde du ct io ns of $ 29 9 and$5 53 form eal s an d e nt ert ai nm en t an d t ran sp orta ti on ex pe ns es , res pe ct iv el y . Alth ou gh pe ti ti on er’s b an k s tate m en ts sh ow tha t s he di ne d o uton oc cas io n a ndto oknu m ero us tri ps by tax i, d educ ti on s fo r su chex pe ns es are s ub ject t o t he stric t s ub st an ti at io n re qu ire m en ts of s ect io n 27 4( d) . Peti ti on er fa il ed , ho wev er, t o p ro vi de an y lo gs or o th er re co rd s (o rig in al orreco ns tru ct ed ) in supp ort o f he r te st im on y th atth e ex pe nd itur es ha d abu si ne ss pu rp os e. Inth e ab se nc e o f co rro bo rat in g e vi de nc e supp orti ng pe ti ti on er’s st at em en t, re sp on de nt ’s det erm in at io n d is al lo win g ade du ct io n fo r m eal s an d en te rta in m en t an d t ran sp ortati on ex pe ns es is su st ai ne d.-1 8-

E. Cell ul ar Ph on e Ch arg es Pet it io ne r pa id$9 92 to Veri zo n Wirel es s fo r cel lu lar ph on e se rv ic e dur in g th e se co ndha lf o f 20 09 . As pr ev io us ly m en ti on ed , cel lu lar ph on es co ns ti tu te li st edpro pe rty un de r se ct io n 2 80 F(d )(4 )(A)(v ) as ineffe ctdurin g 2 00 9, an d, th eref or e, cel lu lar ph on e ex pe ns es are s ub ject t o t he stric t s ub st an ti at io n requi rem en ts of s ect io n 2 74 (d ). Altho ug h p et it io ne r adm it te d t ha t s he us edhe r 5 cel lu lar ph on e fo r bo thbu si ne ss an d p ers on al pu rp os es , sh e d idno t p ro du ce a writ te n l og , a reas on ab le reco ns tru ct io n o f th e sam e, orot he r se co nd ary ev id en ce co rro bo rat in g h er t es ti m on y th atwou ldsat is fy

th e requi rem en ts of s ect io n 2 74 (d ). As a re su lt , we con cl ud e th atsh e is no t en ti tl edto a de du ct io n fo r cel lu lar ph on e ex pe ns es . F. Uni fo rm

Exp en se s Pet it io ne r m ai nt ai ns th atsh e is en ti tl edto a de du ct io n o f $2 ,09 3 fo r ev en in g dr es se s tha t s he purch as edto att en d B IW ev en ts du rin g 2 00 9. Th e co stof c lo th in g

“ requi redor e ss en ti al inanem pl oym en t, an d wh ic h a re n otsu it ab le forge ne ral or Altho ug h i t i s o f no he lp to pe ti ti on er, we n ot e th atsec . 28 0F (d )(4 ) was 5 am en de d b y

th e Sm al l Bu si ne ss Jo bs Act o f 20 10 , Pub . L. No. 11 1- 24 0, s ec. 20 43 (a), 1 24 Sta t. at25 60 , whi chrem ov edcel lu lar ph on es (an d s im il ar te le co m m un ic at io ns equi pm en t) f

ro m th e d efi ni ti on of l is te d p ro pe rty. T he am en dm en t i s ef

fect iv e fo r ta xabl e y ears be gi nn in g a fte r Decem be r 31 , 20 09 . Id. se c. 20 43 (b ).-1 9-

pe rs on al wear an d n otso worn , is a de du ct ib le it em inarri vi ng at t ax ab le ne t in co m e”. Yeo m an s v . Comm is si on er, 3 0 T.C. 7 57 , 76 7 (1 95 8) ; s ee Wasi k v . Co m m is si on er, T.C. Mem o. 2 00 7- 14 8; Beck ey v. Co m m is si on er, T.C. Mem o. 19 94 -5 14 . The rec or d re fle ct s tha t p et it io ne r was no t re qu ire d t o wea r a uni fo rm to work , andsh e adm it te d t ha t the dre ss es th atsh e p ur ch as edan d wo re t o B IW ev en ts were al so su it ab le forpe rs on al wear. The refo re, p et it io ne r is no t en ti tl edto a d educ ti on forth es e it em s. See sec . 26 2( a). G. Office Supp li es an d R &D Pet it io ne r cl ai m eda de du ct io n fo r of fic e supp li es of $ 11 7 a nd“ R&D” o f $3 1. Al th ou gh pe ti ti on er’s ch eck in g a cco un t s ta te m en ts sh ow tha t s he m ad e pu rch as es at o ffi ce s up pl y st or es , th ere i s n o e vi de nc e in th e rec or d d es cri bi ng th e sp eci fic it em s tha t s he pu rch as ed , no r di d s he refe r to th es e it em s wh ensh e te st ifi edat t ria l. Un de r th e ci rcu m st an ces , we are u nabl e to de te rm in e whe th er the it em s co ns ti tu te ord in ary an d n eces sa ry bu si ne ss expe ns es th atm ay be de du ct ed pu rs ua ntto sec ti on 16 2( a). Acco rd in gl y , we su st ai n re sp on de nt ’s det erm in at io n di sa ll owi ng a de du ct io n fo r of fic e supp li es an d R &D ex pe ns es . II. 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 equ al to 20 % of t he am ountof a ny un de rp aym en t o f ta x t ha t i s at tri bu tabl e to , am on g o th er thi ng s,-2 0-

(1 ) ne gl ig en ce o r di sr eg ardof rul es or r eg ul at io ns or ( 2) an y subs tant ia l un de rs ta te m en t o f in co m e ta x. Th e te rm “ ne gl ig en ce” i nc lu de s an y fai lu re t o m ak e a rea so nabl e at te m

ptto co m pl y with t ax laws , and“ di sr eg ard ” in cl ud es an y care le ss , reck le ss , or i nt en ti on al di sr eg ardof r ul es or r eg ul at io ns . Sec. 6 66 2( c). An u nd ers ta te m en t m ean s the ex ces s o f th e am ou ntof the tax requi redto be sh own on th e return o ve r th e am ountof t he tax im po se d wh ic h i s s ho wn o n t he return, reduc edby any

reb at e. Sec. 6 66 2( d) (2 )(A). An u nd ers tate m en t i s s ub st an ti al in th e cas e o f anin di vi du al if the am ou ntof t he un de rs ta te m en t fo r th e ta xabl e y ear ex ceed s the gre at er o f 10 % of t he tax requi redto be sh own on th e return o r $5 ,00 0. Se c. 66 62 (d )(1 )(A). W ith re sp ectto anin di vi du al tax pa y er’s l iabi li ty for an y pe na lty , sec ti on 74 91 (c) p la ces on th e Co m mis si on er the bu rd enof p ro du ct io n, the reb y requi rin g th e Co m m is si on er t o c om e fo rwardwith s uf fic ie ntev id en ce i nd ic at in 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. at 4 46 -4 47 . Onc e th e Co m

m is si on er m eet s h is bu rd enof p ro du ct io n, the tax pa y er m us t co m e fo rwardwith p ers ua si ve ev id en ce tha t the Co m m is si on er’s d et erm in at io n i s in co rrec t. Id . at 4 47 ; s ee Ru le 14 2( a); W el chv. Hel ve rin g, 2 90 U.S. at 1 15 . 6 W e as su m e fo r th e sa ke of d is cu ss io n t ha t re sp on de ntha s d is ch arg edhi s 6 bu rd enof p ro du ct io n u nd er s ec. 7 49 1( c) b y sh owi ng th atpe ti ti on er h ada (co nt in ue d...)-2 1-

Sect io n 6 66 4( c)(1 ) pr ov id es anex cep ti onto th e im po si ti onof t he accu racyrel at edpe na lty

if the tax pa y er es tabl is he s tha t the re was reas on ab le cau se for , and th e ta xp ay er ac te d i n g oo d fa ith wi th res pe ctto , th e und erp aym en t. Sec . 1.6 66 4- 4( a), In co m e Tax Reg s. Th e d et erm in at io n o f whe th er the tax pa y er ac te d wi th reas on ab le cau se an d i n g oo d fa ith i s m ad e o n acas e-b y -cas e b as is , tak in g i nt o acco un t the pe rti ne ntfact s an d c irc um st an ces . Sec. 1 .66 64 -4 (b )(1 ), In co m e Tax Reg s. Re li an ce o n atax pro fes si on al m ay de m on strat e th atth e ta xp ay er h ad reas on ab le cau se an d a ct edingo odfai th wher e th e ta xp ay er es tabl is he s tha t: (1 ) th e advi se r was a co m pe te ntpro fes si on al with s uf fic ie ntexpe rti se to jus ti fy th e ta xp ay er’s rel ianc e, (2 ) th e ta xp ay er p ro vi de d t he advi se r with n eces sa ry an d accu rat e in fo rm at io n, an d (3 ) th e ta xp ay er ac tu al ly reli edingo odfai th on th e advi se r’s jud gm en t. 3 K Inv . Partne rs v. Co m m is si on er, 1 33 T.C. 11 2, 1 17 (20 09 ); DeCl een e v . Comm is si on er, 1 15 T.C. 45 7, 4 77 (20 00 ). Pet it io ne r pr ov id edhe r ta x re co rd s t o M r. Lett a, a certi fie d p ub li c acco un tant , andsh e co ns ul te d wi th hi m reg ard in g d educ ti on s fo r he r bu si ne ss ex pe ns es . Mr. Lett a rev ie wedpe ti ti on er’s t ax reco rd s, co ns id eredth em to be co m pl et e an d a ccu rat e, an d d is cu ss edth e return wi th he r be fo re fi li ng it . Whe n h e (...co nt inue d) 6 subs tant ia l u nd ers ta te m en t fo r 20 09 .-2 2-

le arn edth atm an y

of p et it io ne r’s or ig in al tax reco rd s h adbe enlo st , Mr. Let ta co nt act edTurb oTa x i n a n u lt im at el y un su cces sf

ul att em ptto retrie ve work sh eet s th athe co m

pl et edwhi le pre pa rin g t he return fo r el ectro ni c fi li ng . Co ns id eri ng all th e ci rcu m st an ces , we con cl ud e th atpe ti ti on er re as on ab ly rel ie d o n M r. Lett a to ass is t h er i n p rep ari ng a pr op er t ax return fo r 20 09 . W e li ke wis e co nc lu de th atth ere was reas on ab le cau se for , andpe ti ti on er ac te d i n g oo d fai th with re sp ectto , th e und erp aym en t i n t hi s ca se . Sec. 1 .66 64 -4 (a), In co m e Tax Reg s. Co ns eque nt ly, we ho ldth atpe ti ti on er i s n otli ab le foranaccu racy-rela te d pe na lty for 20 09 . 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.