T.C. M em o . 2 0 1 9 -8 7

UNITED STATES TAX COURT

J ANICE KAY HASKINS AND JULIAN W ILLIAM HASKINS, Pet i t i o n ers v . COM M ISSIONER OF INTERNAL REVENUE, Res po n d en t

Do ck etNo . 2 5 6 67 -1 5
. Fi l edJ u l y 1 1, 2 0 19
.

J an i ce Kay

Has ki ns an dJ u l i an W i ll i am Has k i n s , fo r t h em s el v es . Do n iel l e A. Ho l m o n an dHo race Cru m p , fo r res p o n den t . CONTENTS
FINDINGS OF FACT
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5 OPINION
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1 3 1
. Fo rei g n -earn ed -i nco m e ex cl u s i o n s fo r 2 0 1 1 an d2 0 12
. . . . . . . . . . . . . . . . 1 3 2
. Dedu ct i o n s fo r b us i n es s ex p en s es fo r 2 01 2
. . . . . . . . . . . . . . . . . . . . . . . . . 1 9
a. $ 1,1 0 0 fo r a m et al b rak e . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2 3- 2
-

[* 2 ] b
. $ 26 4 fo r a p ai n t s p ray er an dp art s . . . . . . . . . . . . . . . . . . . . . . . . . . . 2 6 c. $ 19 4 fo r an ai r co m p res s o r an dat tach m en t s . . . . . . . . . . . . . . . . . . . 2 8 d
. $ 48 9 fo r a p o wer g en erat o r . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2 9 e. $ 54 fo r p ai n t in g s up p l i es . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3 0 f. $ 35 4 fo r ci rcu l ar s aw b l ad es . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3 1 g . $ 66 fo r reci p ro cat i n g s aw b l ad e s et s . . . . . . . . . . . . . . . . . . . . . . . . . 3 2 h
. $ 34 5 fo r Leg al Zo om . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3 2 i
. $ 21 0 fo r l i ab il i ty

i n s u ran ce . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3 3 j. $ 40 0 fo r cel l ul ar-t el ep h o n e s erv ice
. . . . . . . . . . . . . . . . . . . . . . . . . . 3 4 k
. $ 1,0 2 3 fo r M s . Has k in s ’ l ap t o p co m p u t er . . . . . . . . . . . . . . . . . . . . . 3 5 l
. $ 1,6 1 0 fo r trav el ex p en s es . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3 7 3
. Sect io n 6 6 6 2 (a) p en al ty fo r 2 0 1 2
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3 9
M EM ORANDUM FINDINGS OF FACT AND OPINION
M ORRISON, J u d g e: OnJ u l y 2 2 , 2 0 15 , th e res p o n d en t(h ereaft er t h e IRS)
m ai l eda n o t i ce o f d efi ci en cy t o the m arri edp et i ti o n ers , M s . J an i ce Kay Has k i n s
an d M r. J u l i anW i l l i am

Has k i n s . 1 Th e n o ti ce refl ect edth e fo l l o wi ng d et erm i n at i o n s:

Year Defi ci en cy Pen al ty s ec. 6 6 6 2 (a) 2 01 1 $ 4,1 8 4 $ 8 36 .8 0 2 01 2 2 5 ,0 3 4 4 ,9 79 .4 0

1 Un l es s o th erwi s e i nd i cat ed , al l referen ces t o s ect i on s are t o t h e In t ern al Rev enu e Co de o f 1 98 6 , as am en d edan di n effect fo r t ax y ears 2 01 1 an d 2 0 1 2 . Al l referen ces t o Ru l es are t o th e Tax Co u rtRu l es o f Pract i ce an dPro cedu re.- 3
-

[* 3 ] Th e Has k i n s es fi l eda t i m el y p et i t i o n fo r red et erm i n at i o n o f t h e d efi ci en ci es
an d p en al t i es , as th ey

were p erm i t t edt o d o u n der s ect i o n 6 2 1 3 (a). W e h av e juri s d i ct i o n u n d er s ect io n 6 2 14 (a). Aft er co n ces si o ns b y

the p art i es , there are t hree i s s u es t o b e d eci d ed
. 1
. Is M s . Has k i ns el i g i bl e fo r t h e fo rei g n -earn ed -i n co m e ex cl u s i o n u n der
s ect i o n 9 1 1 (a) fo r 2 0 11 an d2 0 1 2? W e h o l d s h e i s n o tel ig i b l e. See i n fra p art1
. 2
. Are t h e Has k i n s es en t it l edt o d edu ct$ 7 ,4 4 0 thatth ey rep o rt edo n th ei r 2 0 1 2 retu rn fo r u n rei m

bu rs ed em

p l o y ee b u s i nes s ex p en s es ? Inth ei r b ri ef, t h e Has k i n s es ad dres s th e i s su e b y arg u in g th atth ey are en ti t ledt o $ 6 ,1 0 9 o f b u s i n es s -ex p en s e d edu ct i o n s fo r $ 6 ,1 0 9 o f al l eg edp aym en t s . Of th e $ 6 ,1 0 9
o f al l eg edp aym en t s , we h o l d : ! $ 60 9 i s b us i n es s-ex p en se d edu ct i on s fo r 2 0 1 2 , 2 co m p ri s i n g : " $ 54 fo r p ai n t i n g s upp l i es (s ee i nfra p art2 (e))
" $ 34 5 fo r Leg al Zo o m s erv i ce (s ee i nfra p art2 (h ))
" $ 21 0 fo r l i ab i l i ty

i n s u ran ce (s ee i n fra p art2 (i ))

2 No n e o f t h e $ 6 0 9 o f d edu ct i o n s are m i s cel lan eo u s i t em i zedd edu ct i o n s u n d er s ec. 6 7 (b ).- 4
-

[* 4 ] ! $ 1,5 5 8 o f p aym en t s i s cap i t al ex p en s es th atg i v e ri s e t o d ep reci at i o n

d edu ct i o n s o v er m

u l t ip l e y ears . Th e fi rs ty ear o f d ep reci at i on i s 2 01 2 . Lat er y ears o f d ep reci at i o n are n otati s s u e i n th is cas e. Th e
am o u n to f d ep reci at i o n d edu ct i o n fo r 2 0 1 2 wi l l b e co m p ut edu n d er Ru l e 1 5 5. 3 Th e $ 1 ,5 5 8 i n p aym en t s g i v i n g ri s e t o th es e d ep reci at i o n d edu ct i o n s co m

p ri s es : " $ 1,1 0 0 fo r a m et al b rak e (s ee i n fra p art 2 (a))
" $ 26 4 fo r a p ai n ts p ray er an dp art s (s ee i n fra p art2 (b ))
" $ 19 4 fo r an ai r co m p res s o r an dp art s (s ee i n fra p art 2 (c))
! $ 3,9 4 2 i s n o td edu ct i b l e, co m p ri s in g : " $ 48 9 fo r a p o wer g en erat o r (s ee i n fra p art2 (d ))
" $ 35 4 fo r ci rcu l ar s aw b lad es (s ee i n fra p art2 (f))
" $ 66 fo r reci p ro cat in g s aw b l ad e s et s (s ee i n fra p art2 (g ))
" $ 40 0 fo r cel l u l ar-t el ep ho n e s erv ice (s ee i n fra p art2 (j))
" $ 1,0 2 3 fo r a l ap t o p co m p u t er (s ee i n fra p art2 (k ))
" $ 1,6 1 0 fo r trav el ex p en s es (s ee i n fra p art2 (l ))

3 No n e o f t h e d ep reci at i o n d edu ct io n s fo r 2 0 1 2 are m i s cel l an eo u s i t em i zed d educt i o n s u n d er s ec. 6 7 (b ).- 5
-

[* 5 ] 3 . Are th e Has k i n s es l i ab l e fo r a p en al ty fo r 2 0 1 2 u n d er s ect i o n 6 6 6 2 (a)? Sect io n 6 6 6 2 (a) an d(b )(2 ), i n rel ev an tp art , i m p o s es a 2 0% p en al ty

o n th e p o rt io n o f an u n d erp aym en t th ati s at tri bu t ab l e t o a s ub s tan t ial
u n d ers t at em en to f i n co m e t ax . W e h o l d th atth e u n d erp aym en t fo r 2 0 1 2 i s at tri bu tab l e t o a s ub s tan t i al u n d ers t at em en to f i n co m e t ax i f co m p ut at i o n s
u n d er Ru le 1 5 5 s h o w th atth ere i s a s ub s t an t i al u n d ers tat em en t fo r 2 0 1 2
. See i n fra p art3 . W e al s o h o l d t h atfo r n o p o rt i o n o f t he u n d erp aym en tfo r 2 0 1 2 d i d t h e Has k i n s es h av e reas o n ab l e cau s e o r acti n g o odfai th . See i n fra p art3
. FINDINGS OF FACT M r. an d M s . Has ki ns res i d edi n Fl ori d a wh en the p et i t i o n was fi l ed
. 4 In Sep tem

b er 2 01 1, M s . Has k i n s ret i redfro m th e U.S. Arm

y . Im m ed i at el y b efo re h er ret i rem en ts h e h adb een s t at i o n edi n Afg h an i s t an wo rk i n g i n Arm y i n t el l i g en ce. Th e reco rdd o es n o trev eal h o w l o n g s h e h adb een s t at i o n edi n Afg han i s t an o r wh ere s h e h ad b een s t at i o nedb efo re Afg h an is t an . Befo re s h e
wo rk edi n Arm

y i nt el l i g en ce, M s . Has k i n s h adwo rk edas an x -ray t ech n i ci an b o t h i n an d ou to f th e Arm

y , b u t th e reco rdd o es n o t rev eal wh ere.

4 Th u s th e v en u e fo r an y

ap p eal o f t h e d eci s i o n i n th is cas e wi l l b e t h e U.S. Co u rto f Ap p eal s fo r t h e El ev en th Ci rcu i t, u nl es s th e p art i es s t i p u l at e o th erwi s e. See s ec. 7 4 8 2 (b ).- 6
-

[* 6 ] Wh en M s . Has k i ns ret i redfro m th e Arm y i n Sep t em

b er 2 0 1 1 , M r. Has k i n s
an d th e Has k i n s es ’ two ch i l dren were l i v i n g i n t h e fam i l y h o m e i n Ari zo n a. Aft er ret i ri ng , M s. Has k i n s trav el edfro m Afg h an i s t an t o Ari zo n a wh ere h er fam i l y l i ved
. OnSep t em

b er 2 6 , 2 0 1 1 , M s . Has k i n s b eg an wo rk i n g fo r Sci en ce Ap p l i cat i o n s In t ern at i o n al Co rp . (SAIC). In i t i al l y s h e h ad a s h o rttrai n i ng
as s i g n m en ti n th e W as hi n g t o n , D.C., area. Du ri ng th is trai n i n g s h e at t en d eda t ax b ri efi n g b y

SAIC. On e o f t h e s ub

ject s o f th e t ax b ri efi n g was th e s ect i o n 9 1 1 fo rei gn -earn ed -i n co m e ex cl u s i o n . OnOct o b er 2 9 , 2 01 1 , s t il l an SAIC em p lo y ee, M s . Has k i n s b eg anwo rk i n g i n Afg h an i s t an ag ai n . Wh i l e i n Afg h an i s t an , M s . Has k i n s l i ved an d wo rk edo n U.S. m i l i t ary

b as es . Sh e s p en tal l o f h er t i m e o n th e b as es . As s h e ex p l ai n ed : “ I
was n otal l owedo ff o f t h e m i l i t ary b as e. I was s eques t ered there. I d i dn ’ t g o
o u t s i d e.” Her fo o dan dl o d g i n g i n Afg h an i s t an were s up p l i edb y th e U.S. g o v ern m en t . Sh e p ai dt o h av e cel l u l ar-t el ep h o n e s erv i ce an di n tern ets erv i ce i n Afg han i s t an . Sh e h adan Arm y Po s tOffi ce m ai li n g ad dres s wh i l e i n Afg h an i s t an th ats h e u s ed t o s en d an d recei v e m ai l . Sh e k ep th er U.S. b an kacco un twh i l e i n Afg han i s t an . Her SAIC p ay ch eck s were d ep o si tedi n t o th i s acco un t . Wh i l e i n Afg han i s t an , s h e rem ai n edreg is t eredt o v ot e i n Ari zo n a. M s . Has ki n s ’ fam i l y --h er- 7
-

[* 7 ] h u s b an d an d t wo ch i l dren --d i dn oth av e t h e o p t i o n o f m o v in g t o Afg h an i s t an wi th h er. Th e U.S. Dep art m en to f Defen s e i s s ued M s . Has k in s a l et t er o f
au th o ri zat i o n , wh i ch i s a t rav el d o cu m en tth ats h o ws wh ere t h e h o l d er i s p erm i t ted t o trav el an dwh atg o v ern m en ts erv i ces the h o l d er m ay acces s t h ere. Th e l et t er
au th o ri zedM s . Has k i n s t o wo rki n Afg h an i s t an an dcert ai n o th er co u n tri es i n th e M i d d l e Eas t fro m Oct o b er 2 3 , 2 0 1 1 , t o Decem b er 3 1 , 2 0 12
. OnAp ri l 2 0 , 2 0 1 2, M s . Has k i n s t o o ka 2 2-d ay v acat i o n t o v i s i th er fam i l y i n th e Un i t edSt at es . Sh e an dh er fam i l y v acat i o n edi n Fl o ri d a duri n g th att i m e. OnM ay 1 1 , 2 0 1 2 , at th e en do f t he v acat io n , s h e t rav el ed fro m Fl o ri d a b ack t o Afg h an i s t an . OnJ u ne 1 0 , 2 01 2 , wh i l e i n Afg h an i s t an , M s . Has k i n s wro te an em ai l t o SAIC em p l o y ee Ro b i n Lu d i. Th e em ai l s ai d : I n eedcl ari fi cat i o n o n co up l e o f t hi n g s . Th e m ai n o n e co u l dy oufi n d o u twh en I can co m e b ackwi th o u tg et ti n g i n tro ub l e wi th th e IRS? I h av e h eards o m an y

d i fferen tn um

b ers an d R&R co u n t s o r d o es n ’ t co u n tt o w ardth o s e d ay s . I am s o m i s erab l e atthi s n ew FOB [fo rward o p erat i n g b as e] ... m

y o ther FOB I l o v ed . Hu s b an dan dI t al k edab o u t m e ex t en d i n g fo r an o th er y ear b ecau s e I en jo y ed i t . I al s o fo u n do u t i n Feb ru ary

m y M o m h as can cer * * *- 8
-

[* 8 ] OnJ u ne 1 1 , 2 01 2 , M s . Lu d i fo rward edM s . Has k i n s ’ em ai l t o Eri c Stu dni ck i , an SAIC p ro gram m an ag er. Onthe s am e d ay , M r. Stu dn i ck i em ai l eda
res p o n s e t o M s . Has ki ns : Ho p e y ou r m ot h er i s o k. Yo u are n o t el i g i b l e fo r t ax free s t atus u n t i l y o uh i tth e 3 3 0 d ay m ark i n co u n try . Yo u r y ear d i dn o tb eg i n u n ti l th e d at e y o uarri v ed i n theat er - I am track i n g 2 9 OCT 1 1 . Yo uare n o tel i gi b le fo r a co m p l et i o n b o nu s u n t i l 2 9 OCT 1 2
. If y o uco u l d b e m o v edt o an o th er area wo u l dy o u reco n s i d er ex t en d i n g ? Th e reco rdd o es n o t co n t ai n M s . Has k i n s ’ res p on s e t o M r. Stud n i ck i ’ s em ai l
. M ean wh i l e i n Ari zo n a, M r. Has k i n s was em p l oy edas a co n s tru ct io n wo rk er b y L D Greer Bu il d ers & Tri m wh ere h e h adwo rk eds i n ce b efo re 2 00 6 . He
wo rk edfo r t h e co m

p an y du ri n g th e y ear 2 0 1 1, b u t h e wen ti n t o b u s i n es s fo r h i m s el f i n t h e fi rs th al f o f 2 0 1 2. Du ri n g 2 0 1 1 , h e earn ed $ 1 7 ,2 9 2 i n wag es fro m L D Greer Bu i ld ers & Tri m , an ddu ri n g 2 0 1 2 , $ 9 ,0 8 1. In Au g u s t 2 0 1 2 , M r. Has k i n s m o v ed fro m Ari zo n a t o Fl ori d a. He was
acco m pan i edb y th e Has k i n s es ’ d au gh t er an dth e Has ki n ses ’ h o u seh o l d g o o d s . Th e m o v e was p ai dfo r b y th e Arm y . Th e Has k i n s es ’ s o n rem ai n edi n Ari zo n a.- 9
-

[* 9 ] M s . Has ki n s was s t i l l i n Afg h an i s t an du ri n g thi s m o v e. M r. Has k i n s d i dn o t i m m ed i at el y fi ndwo rki n Fl o ri d a. In Oct o b er 2 0 12 , wh il e i n Afg h an is t an , M s . Has k i ns p rep aredth e jo i n t retu rn fo r h ers el f an dh er h u s b an dfo r t h e 2 0 1 1 y ear. Th e ret u rn rep o rt edth atM s . Has ki n s earn ed$ 37 ,7 03 fro m th e Arm y an d$ 3 6,5 9 7 fro m

SAIC an dth ats h e qu al i fi edfo r t h e fo rei g n -earn ed -i n co m e ex cl u s i o n . Th e l i n e “ Li s t y ou r t ax h o m e(s ) du ri n g th e t ax y ear an dd at e(s ) es t ab l i sh ed ” was l eftb l an k. Th e retu rn rep o rt edth atM s . Has k i ns was i n a fo rei g n co u n try atl eas t3 3 0 d ay s o f a 1 2 -m o nt h p eri o dth atth e ret urn i d en t i fi edas Oct o b er 1 , 2 0 1 1 , t o Oct o b er 4 , 2 0 1 2
. 5 It rep o rt edth ath er fo rei g n earn edi n co m e was $ 3 6 ,5 9 7 , wh i ch was th e am o un ts h e
was p ai d b y SAIC du ri n g th e y ear, an dth at th e ex cl u s i o n was l im i t edt o $ 2 3 ,4 1 1 b y s ect i o n 9 1 1 (b )(2 )(A). OnNo vem

b er 6 , 2 0 1 2 , M s . Has k i n s l efth er jo b atSAIC. Sh e trav el edfro m Afg han i s t an t o Ari zo n a, wh ere t h e Has k i n s es ’ s o n was , th en t o Fl ori d a t o l i v e i n th e fam i l y

h o m e. Th e reco rdd o es n o t i n d i cat e wh en ex act l y s h e t rav el edfro m

5 Th e p eri o di d en t i fi edo n th e ret u rn i s s l i g ht l y o v er 1 2 m o n th s .- 1 0 -

[* 1 0 ] Ari zo n a t o Fl o ri d a. No r d o es th e reco rdco n t ai n an y o th er i n fo rm at i o n ab o u t th e t ri p . 6 So m et i m e i n earl y

2 0 1 3 , M r. Has k i n s fo u n d wo rki n Fl ori d a. He s t art ed d o i n g co n s tru ct i o n wo rk

o f t h e t y p e h e h add o ne i n Ari zo n a. In 2 0 1 3 , wh i l e i n Fl o ri d a, M s . Has k in s p rep aredth e jo i n treturn fo r h ers el f
an d h er h u sb an dfo r t h e 2 0 12 y ear. Th e ret u rn rep o rt edth atM s . Has k in s earn ed $ 1 7 1 ,5 2 7 fro m

SAIC an dth ats h e qu al i fi ed fo r t h e fo rei g n -earn ed -i n co m e
ex cl u s i o n . Th e l i n e “ Li s t y o ur t ax h om e(s ) duri n g the t ax y ear an d d at e(s )
es t ab l i s h ed ” was l eftb l an k
. Th e ret u rn rep o rt edth atM s. Has ki n s was p res en ti n a fo rei gn co u n try atl eas t 3 3 0 d ay s o f a 1 2 -m o n th p eri o dth atth e ret u rn i d en ti fi edas Oct o b er 2 8 , 2 0 1 1 , t o No v em b er 1 0 , 2 0 1 2
. 7 Th e ret u rn rep o rt edthath er fo rei g n
earn edi n co m e was $ 1 71 ,5 2 7 , wh i ch was th e am o u n t s he was p ai db y SAIC du ri n g th e y ear an dth atthe ex cl u s i o n was l i m i t edt o $ 9 0 , 9 1 6 b y s ect i on 9 1 1 (b )(2 )(A). Th e ret u rn rep ort edth at th e Has k i n s es were en t i t ledt o d edu ct$ 7 ,4 4 0 fo r

6 In th e Has k i n s es ’ b ri ef t h ey ex p lai n edthatM s . Has ki n s an d t h e Has k i n s es ’ s o n trav el edfro m

Ari zo n a t o Fl o ri d a i n No vem b er 2 0 12 an dthatth ey

b ro u g h t wi th th em

s ev eral fam i l y veh i cl es , i n cl u d i ng a recreat i o n al v eh i cl e. Th e IRS d oes n o tco nt es tth i s .

7 Th e p eri o di d en t i fi edo n th e ret u rn i s s l i g ht l y m ore t h an 1 2 m on th s .- 1 1 -

[* 1 1 ] u n rei m

bu rs edem

p l o y ee b u s in es s ex pen s es , wh i ch co n si st edo f t h e fo l l o wi n g
am ou n t s : Un i o n du es $ 1 2 Un i fo rm s fo r wo rk 1 ,2 6 0 Sm al l t oo l s fo r wo rk 1 ,7 5 0 J o b s up p li es 2 ,8 0 8 Trav el ex p en s es wh il e awayfro m h o m e o v ern i g h t, ex cl u d i ng m eal s an den t ert ai nm en t 1 ,4 6 0 M eal s an den t ert ai n m en t(5 0 % o f $ 3 00 u n d er s ec. 2 7 4 (n )(1 )). 1 5 0 To t al 7 ,4 4 0 Th e $ 7,4 4 0 i n d edu ct i on s fo r u n rei m b u rs edem

p l o y ee b u s i n es s ex p en s es was th e
o n l y ty p e o f m is cel l an eo u s i t em i zedd edu ct i o n s rep o rt edo n th e 2 0 1 2 retu rn . By l aw, m i s cel l an eo u s i t em izedd edu ct io n s are al l o w edo n l y t o th e ex t en tth e t o t al
m i s cel l an eo u s i tem izedd edu ct io n s fo r t h e y ear ex ceed 2 % o f ad ju s t edg ro ss i n co m e. Sec. 6 7 (a). Th e Has k i n s es rep o rt ed th atth ei r ad ju s t edg ro s s i n co m e was $ 9 2 ,0 3 3 . Th ey

rep o rt edth atth e am ou n to f t hei r m i s cel l an eo u s i t em i zed d educt i o n s , aft er ap p li cat i o n o f t h e 2 % fl o o r, was $ 7 ,4 4 0

& (2 %)($ 9 2 ,0 3 3 ) = $ 7 ,4 40

! $ 1 ,8 40 .6 6 = $ 5 ,5 99 (ro u n d edt o th e n eares t d o l l ar). OnJ u ly 2 2 , 2 0 15 , th e IRS m ai l edth e Has ki n s es a n ot i ce o f d efi ci en cy fo r 2 0 1 1 an d2 0 1 2 m ak i n g v ari o us ad ju s t m en ts t o the i n co m e an d d edu ct io n s rep o rt ed- 1 2 -

[* 1 2 ] o n th e Has k i n s es ’ retu rn s fo r 2 0 1 1 an d 2 0 12 . Th e n o t i ce o f d efi ci en cy al s o d et erm i n edth atth e Has k i n s es were l iab l e fo r s ect i o n 6 6 6 2 (a) accu racy -rel at ed p en al t i es fo r n eg l i g en ce o r d is reg ard o f ru l es o r reg u l at i o ns o r s ub s t an t i al
u n d ers t at em en t s o f i nco m e t ax fo r 2 0 1 1 an d2 0 1 2
. Co nces s i o n s b y th e p art i es h av e n arro wedth e i s s u es fo r d eci s i o n . W e d es cri b e t h e co n ces s i o n s fo r each y ear b el o w. 2 0 1 1 . Fo r 2 0 1 1 , th e Has k i n s es co n ced edad ju st m en t s rel at edt o $ 2 o f
u n rep o rt edd i v id en d i n co m e an d$ 2 7 o f u n rep o rt edi n t eres t i n co m e. Th e IRS
co n ced eda $ 6 ,6 0 9 ad

ju st m en t fo r can cel ed -d eb ti nco m e. Th e IRS al s o co n ced ed th e s ect i o n 6 6 6 2 (a) p en al ty . Th es e co n ces s i o ns fo r 2 0 1 1 l eav e o n l y o ne i s s u e fo r d eci s i o n fo r 2 0 1 1, wh i ch i s M s . Has k i n s ’ en t i t l em en tt o th e fo rei g n -earn ed -i n co m e
ex cl u s i o n . 2 0 1 2 . Fo r 2 0 1 2 , th e Has k i n s es co n ced edad ju st m en t s rel at edt o $ 7 2 o f
u n rep o rt edd i v id en d i n co m e; $ 9 5 o f u n rep o rt edi n t eres ti nco m e; $ 1 ,8 4 4 o f d educt i o n s fo r t ax es o n Sch edu l e F (a s ch edu l e en t i tl ed , “ Pro fi to r Lo ss Fro m Farm in g ”); $ 9,5 4 1 o f d edu ct i o n s fo r m o rt gag e i n t eres tcl ai m edo n Sch edu l e F; $ 6 ,9 9 9 o f wag e i n co m e; $ 1 ,5 5 8 o f h o m e-m o rt g ag e i n t eres td edu ct i o n; an d$ 4 6 1 o f d educt i o n s fo r o th er t ax es . Th e p art i es ag reedth atth e Has ki ns es are en t i t l edt o a $ 1 3 7 cred i tfo r i n co m e-t ax wi th h o l d i n g . Th i s am o u n th ad b een al l o wed b y th e- 1 3 -

[* 1 3 ] n o t i ce o f d efi ci en cy as a p ro -t ax pay er ad

ju s t m en t . Th e IRS co n ced edth e
n eg li g en ce co m

po n en t o f t h e s ect i o n 6 6 6 2 (a) p en al ty . Th es e co n ces s io n s fo r 2 0 1 2 l eav e t h e fo l l o wi ng th ree i s s u es fo r d eci s i o n fo r 2 0 1 2: (1 ) M s . Has k i ns ’
en t i t l em en tt o th e fo rei g n -earn ed -i n co m e ex cl u s io n ; (2 ) t he d educt i on o f $ 7 ,4 4 0 fo r u n rei m

b u rs edem

p l o y ee b u si n es s ex p en s es ; an d(3 ) t h e Has k i n s es ’ l iab i l i ty fo r th e s ub s t an t i al u n d ers t at em en tco m p o n en to f t he s ect i o n 6 6 6 2 (a) p en al ty . OPINION As a g en eral ru l e, the t ax p ay er h as the b u rd en o f p ro v i ng th atth e IRS’ s d et erm i n at i o n s i n th e n o t i ce o f d efi ci en cy are erro n eo u s . Ru le 1 4 2 (a); W el ch v . Hel v eri n g , 2 9 0 U.S. 1 1 1 , 1 15 (1 9 33 ). Ho w ev er, s ect i o n 7 4 91 (a) i m po s es th e b u rd eno f p ro of o n t h e IRS as t o an y fact u al i s s u e rel ev an tt o a t ax p ay er’ s l i ab i l i t y fo r t ax i f cert ai n co n di ti o n s are m et . Th e Has k i ns es d o n o tco n t en dth atthes e
co n di t i o n s are m et , n o r d o es th e reco rd s ho w th atth es e co n d i t i o n s are m et . Th erefo re, t h e Has k i n s es h av e t h e b u rd eno f p ro o f reg ard i n g al l fact ual i s s u es rel at ed t o the am o u n to f t h e d efi ci en cy . W e d i scu s s the b u rd en o f p ro o f reg ard i n g th e Has k in s es ’ l i ab il i ty

fo r t h e p en al ty

s ep arat el y . See i n fra p art3
. 1
. Fo rei g n -earn ed -i nco m e ex cl u s i o n s fo r 2 0 1 1 an d2 0 12 Sect io n 9 1 1 (a) p ro v i d es th ata qu al i fi edi n di v i du al m ay el ectt o ex cl u d e fo rei gn earn edi nco m e, as d efi n edi n s ect i o n 9 1 1 (b )(1 )(A), fro m g ro ss i nco m e fo r- 1 4 -

[* 1 4 ] an y t ax ab l e y ear. Th e am o u n to f fo rei g n earn edi n co m e ex cl u d edu nd er
s ect i on 9 1 1 (a) i s l im i t edt o t h e am o u n tcal cu l at edu n d er s ect io n 9 11 (b )(2 )(A). Sect io n 9 1 1 (d )(1 ) d efi n es a qu al i fi ed i n d i v idu al as
an i n d i v idu al wh o s e t ax h o m e i s i n a fo rei g n co un try an dwh o i s -- (A) a ci ti zen o f t h e Un i t edSt at es an des t ab l i s h es t o the s at i s fact i o n o f t h e Secret ary [o f Treas u ry ] thath e h as b een a b on a fi d e res i den to f a fo rei g n co u n try o r co u n tri es fo r an u ni nt erru pt edp eri o dwh i ch i n cl u d es an en t i re t ax ab l e y ear, o r (B) a ci t i zen o r res i den to f t h e Un it edSt at es an dwh o, duri ng an y

p eri o do f 1 2 co n s ecu t i v e m o n th s , i s p res en ti n a fo rei g n co u n try o r co u n tri es duri n g atl eas t3 3 0 fu l l d ay s i n s u ch p eri o d
. Sect i o n 9 1 1 (d )(1 ) req u i res th e i n d i v i du al t o h av e a t ax h o m e i n a fo rei g n co u n try . Th e Co d e d o es n o t ex p res s l y s etfo rth th e p eri o d du ri n g wh i ch the ex i s t en ce o f a fo rei gn t ax h om e i s t es t ed . Sect i o n 1 .9 11 -2 (a)(1 ), In co m e Tax Reg s ., p ro v i d es th at fo r a p ers o n t o h av e a t ax h o m e i n a fo rei gn co u n try , th e p ers o n ’ s t ax h o m e m u s t b e i n a fo rei g n co u n try

“ th ro u g h o u t ” ei th er o f t he t wo fo l l o wi ng p eri o ds : ! th e p eri o d d es cri b edi n s ect i o n 9 1 1 (d )(1 )(A), o r ! th e 3 3 0 d ay s d es cri b edi n s ect i o n 9 1 1 (d )(1 )(B). Th e d efi n it io n o f a t ax h o m e i s fo u n di n s ect i o n 9 1 1 (d )(3 ), wh i ch p ro v i d es :

“ Th e t erm

“ t ax h o m e” m ean s , wi th res p ect t o an y i n d iv i du al , s u ch i nd i vi du al ’ s h o m e fo r p u rp o s es o f s ect i o n 1 6 2 (a)(2 ) (rel at i n g t o trav el i n g ex p en s es wh i l e away- 1 5 -

[* 1 5 ] fro m

h o m e). Ani n d i v idu al s h al l n o tb e t reat edas h av i ng a t ax h o m e i n a fo rei gn co u n try fo r an y peri o dfo r wh i ch h i s ab o d e i s wi th i n the Un i t ed St at es .” Sect i o n 1 6 2 (a)(2 ) al lo w s a d edu ct i o n fo r o rd i n ary an d n eces saryex pen s es p ai d du ri n g th e t ax ab le y ear i n carry i n g o n a t rad e o r b u s i n es s , i n cl u d i ng trav el
ex p en s es i n cu rredwh i le awayfro m h o m e i n th e p u rs u ito f a trad e o r b u s i n es s . Fo r p u rp os es o f s ect io n 1 6 2 (a)(2 ), a t ax p ay er’ s h o m e i s g en eral l y “ th e v ici n i ty o f t h e t ax p ay er’ s p ri n ci p al p l ace o f em p lo ym en tan dn o twh ere h i s o r h er p ers o n al
res i den ce i s l o cat ed .” M i t ch el l v . Co m m i s s i on er, 7 4 T.C. 5 7 8 , 5 8 1 (1 9 8 0 ). Un d er th e s eco n ds en t en ce o f s ect i on 9 1 1 (d )(3 ), a p ers o n i s n o ttreat edas h av in g a t ax h o m e i n a fo rei g n co u n try wh il e t h e p ers o n ’ s ab o d e i s i n th e Un i t ed St at es . Sect i on 1
. 9 1 1 -2 (b ), In co m e Tax Reg s ., p ro v i d es g u i d an ce fo r d et erm i n i n g wh et h er an i n d i v idual ’ s ab o d e i s i n th e Un i tedSt at es : Tem p oraryp res en ce o f t h e i n d i v idu al i n th e Un i t edSt at es d o es n o t n eces s ari l y m ean th atth e i nd i v i du al ’ s ab o d e i s i n th e Un i t edSt at es du ri ng th at t i m e. M ai n t en an ce o f a d wel l in g i n th e Un i t edSt at es b y an i n d i v idu al , wh et h er o r n o tth atdw el l i ng i s u sedb y th e i n d i vi du al ’ s s p o u s e an dd ep en d en t s , d o es n o tn eces s ari ly m ean th atth e i n d i vi du al ’ s ab o d e i s i n th e Un i t edSt at es . In s ect i o n 9 1 1 cas es , we h av e co m pared a p ers o n ’ s d o m es t i c t i es (i .e., h i s o r h er fam i l i al , eco n o m i c, an d p ers o n al t i es t o th e Un i t edSt at es ) wi th h i s o r h er t i es t o th e fo rei gn co u n try

i n wh i ch h e o r s he cl ai m s a t ax h o m e i n o rd er t o d et erm i n e- 1 6 -

[* 1 6 ] wh et h er h i s o r h er ab o de was i n t he Un i t edSt at es du ri ng a p art i cu l ar p eri o d
. See, e.g
. , Harri n g to n v . Co m m i s s i o n er, 9 3 T.C. 2 9 7 , 3 0 7 -3 0 8 (1 9 89 ). Ev en th o u g h a p ers o n m ay

h av e s o m e l i m it edt i es t o a fo rei g n co u n try du ri ng a p art i cu l ar p eri o d , i f t h e p ers o n ’ s t i es t o the Un i t ed St at es rem ai n s tro n g , we h av e h el dth at h i s o r h er ab od e rem ai n edi n th e Un i t edSt at es , es peci al l y wh en h i s o r h er t i es t o th e fo rei gn co u n try

were t ran s it o ry

o r l i m i teddu ri n g th atp eri o d . Id . at3 0 8
. Fo rei g n earn edi n co m e i s d efi n edb y s ect io n 9 11 (b )(1 )(A) as i n co m e t h ati s (1 ) earn edi n co m e, (2 ) recei v edb y the i n d i v idu al fro m fo rei g n s o u rces , an d (3 ) at tri b u t ab l e t o s erv i ces p erfo rm edb y the i n d i vi dual du ri n g t h e p eri o d d es cri b ed i n s ect io n 9 1 1 (d )(1 )(A) o r (B), wh i ch ev er i s ap pl i cab l e. Earn edi n co m e i s d efi n ed
as am o u n t s p ai dfo r co m

p en s at i o n fo r p ers o n al s erv i ces actu al l y ren d ered . Sec. 9 1 1 (d )(2 )(A). Earn ed i n co m e i s co n s i d eredt o h av e b een recei v edfro m fo rei g n
s o u rces i f t h e i n co m e i s at tri bu t ab l e t o s erv i ces p erfo rm edb y an i n d i vi du al i n a fo rei gn co u n try . Sec. 1 .9 1 1 -3 (a), In co m e Tax Reg s . To b e a qual i fi edi n d i v i du al , M s . Has ki n s m u stm eet th e t ax -h o m e t es to f
s ect i on 9 1 1 (d )(1 ) an dei th er t h e res i d en cy t es ti n s ect i o n 9 1 1 (d )(1 )(A) o r t h e 3 3 0
- d ay t es ti n s ect i on 9 1 1 (d )(1 )(B). Th e Has k i n s es co n ced e t h atM s . Has k i n s was n o t
a res i den to f Afg h an i s t an an dth erefo re d o es n o tm eetthe res id en cy t es ti n s ect i o n 9 1 1 (d )(1 )(A). Th e IRS co n ced es th atM s . Has k i n s m eet s t h e 3 3 0 -d ay t es t i n- 1 7 -

[* 1 7 ] s ect i o n 9 1 1(d )(1 )(B). Th erefo re, M s . Has k i n s i s a qu al i fi edi n d i v i du al i f h er t ax h o m e was i n Afg h an i s t an . M s . Has k in s ’ t ax h om e was i n Afg h an is t an i f (1 ) h er p ri n ci p al p l ace o f em p l o ym en twas i n Afg h an i s t an an d (2 ) h er ab o d e was
n o ti n th e Un i t edSt at es . See s ecs . 9 1 1 (d )(3 ), 1 6 2 (a)(2 ); M i t ch el l v . Co m m i s s i o n er, 7 4 T.C. at 5 8 1
. Iti s u n co n t es tedth atM s . Has k i n s ’ p ri n ci p al p l ace
o f em p l o ym en t du ri n g th e rel ev an tp eri od s was i n Afg h an is t an . Th erefo re, h er t ax h o m e was i n Afg han i s tan u nl es s h er ab o d e was i n the Un i t edSt at es . See s ec. 9 1 1 (d )(3 ). M s . Has ki n s h ads tro n g t i es t o th e Un i tedSt at es du ri n g the rel ev an tp eri od
. 8 Her h us b an dan dtwo ch i l dren l i v ed i n th e fam i l y h o m e, wh i ch was i n Ari zo n a
u n t i l Au g u s t2 0 1 2 an di n Fl o ri d a aft er th at . (Th e s o n l i v edi n Ari zo n a b y h i m s el f

8 Th e l o cat i o n o f an i n d i v i du al ’ s t ax h o m e (an dab o d e) i s ev al uat edfo r each d ay o f t h e 3 3 0 d ay s d es cri b edi n s ec. 9 1 1 (d )(1 )(B). Sec. 1 .9 1 1 -2 (a)(1 )(i i ), In co m e Tax Reg s . Al tho u g h th e p art i es h av e ag reedth at M s . Has k i ns was p h y s i cal l y p res en tdu ri ng the req u i si t e s et s o f 3 3 0 d ay s fo r each o f t h e t ax y ears 2 0 1 1 an d 2 0 1 2 , th ey

h av e n o tt ak en a p o s i t i o n reg ard in g wh i ch p art i cu l ar d ay s m ak e up each s eto f 3 3 0 d ay s . (Th ere are t wo s et s o f 3 30 d ay s . On e s eti s fo r t he p u rp o s e o f d et erm i n i n g el i g i b il i ty

fo r t h e fo rei g n -earn ed -i n co m e ex cl u si o n fo r 2 0 1 1 . Th e o th er s eti s fo r 2 0 1 2.) Th e Has k i n s es rep o rt edo n th ei r t ax retu rn s th atth e t wo s et s o f 3 3 0 d ay s were wi th i n th e p eri o dOct o b er 1 , 2 0 1 1 , t o No v em b er 1 0 , 2 0 1 2. Th e IRS h as n o td i sp u tedthatth e t wo s et s o f 3 3 0 d ay s are wi th in th e p eri odOct o b er 1 , 2 0 1 1 , t o No v em

ber 1 0 , 2 0 1 2. W e h o l dth atM s . Has k i n s ’ ab o d e was i n th e Un i t ed St at es ev ery

d ay o f t h e p eri odOct o b er 1 , 2 0 1 1 , t o No v em b er 1 0 , 2 0 12 . Iti s u n n eces saryt o d et erm i n e wh i ch d ay s wi th i n th i s p eri o dm ak e up th e t wo s et s o f 3 3 0 d ay s .- 1 8 -

[* 1 8 ] fro m

Au g u s tt o No v em

b er 2 0 1 2 , h owev er.) Th ou g h M s . Has k i n s h adl i v ed i n Afg h an i s t an du ri ng a p o rt i o n o f h er t i m e wi th t h e Arm y an dth en fro m

Oct o b er 2 0 1 1 thro u g h No v em

b er 2 0 1 2 wh i l e wo rk in g fo r SAIC, s h e d i d n o t h av e s tro n g
n o n wo rk t i es t o Afg h an i s t an . Wh en s h e was wi th SAIC i n Afg han i s tan , s h e
wo rk edan dl i v edo n fo rwardo p erat i n g b as es . Th es e b as es were o ft en u n d er at t ackb y ro ck et -p ro p el l edg ren ad es an ds u ici d e b om b ers . Sh e co ul dn otl eav e t h e b as es . See Dal y

v . Co m m i s s i o n er, T.C. M em o . 2 0 13 -1 4 7 , at* 3 -* 4 , * 1 1 -* 1 3 (h o l d i n g th atwh ere t ax p ay er wo rk edfo r a d efen s e co n tract or i n Afg h an is tan an d Iraq fro m Au g u st2 9 t o Decem

b er 1 2 , 2 00 7 , an dfro m

J an u ary 2 5 t o Ap ri l 2 8 , 2 0 0 8 ; h e l i v edan d wo rk edo n U.S. m i l i t ary b as es an d co u l dn o tg o o ff b as e; an d h i s fam i l y

an d fam i l y

h o m e were i n th e Un i t edSt at es , ab o d e was i n the Un i t ed St at es ); cf. Eram

v . Co m m i ss i o n er, T.C. M em o . 2 0 1 4-6 0 , at* 2 -* 9 , * 1 8 -* 2 0 (h o l d i n g th atwh ere t ax p ay er was b o rn i n Iraq an dl i v edth ere u nt i l ag e 1 9 , th en
m o vedt o th e Un i t edSt at es ; fro m earl y 2 0 0 8 t o J u ly

2 0 0 9 wo rk ed as an i n t erp ret er fo r a d efen s e co nt ract o r i n Iraq ; l i v edan dwo rk edex cl u si vel y i n t h e Green Zo n e wh en n o t o n m i ss i o n s ; h adfam i l y i n b o th th e Un i t ed St at es an d Iraq ; an d h adn o fam i l y h o m e i n th e Un i tedSt at es , ab o d e was n o ti n th e Un i t ed St at es ). W h en h er
m o th er was d i ag n os edwi th can cer, M s . Has k in s retu rn ed t o th e Un i t edSt at es .- 1 9 -

[* 1 9 ] W e co ncl u d e t h at M s . Has k i n s ’ ab o d e was i n th e Un i t edSt at es du ri n g th e rel ev an t p eri o d . See s up ra n o t e 8 . Itfo l l o w s t h ats h e d i dn o th av e a fo rei g n t ax h o m e an dth at s he was n o t a qu al i fi edi n di v i du al . No n e o f h er i n co m e i s
ex cl u d ab l e u n der s ect i o n 9 1 1 (a) fo r t ax y ears 2 0 1 1 an d2 0 1 2
. 2
. Dedu ct i o n s fo r b us i n es s ex p en s es fo r 2 01 2 Onth ei r 2 0 1 2 ret u rn , th e Has k i ns es cl ai m ed$ 7 ,4 4 0 o f d edu ct io n s fo r
u n rei m b u rs edem

p l o y ee b us i nes s ex p en s es . Inth ei r b ri ef t hey co n ced edthatth e d educt i o n s th ey

s eekco ns i sto f b u s i n es s ex p en s es t o tal i n g $ 6 ,1 0 9. W e wi l l d i s cu s s th e t y

p es of d edu ct i o n s s etfo rt h i n th e In t ern al Rev en ue Co d e t hatare p o t en t i al ly ap p l i cab l e t o th e $ 6 ,1 0 9 l i s t . Th e i n co m e t ax i s a fu nct i o n o f t ax ab l e i n co m e. Sec. 1 (a)(1 ). Tax ab l e i n co m e i s equ al t o g ro s s i n co m e m i n us cert ai n d edu ct i o n s . Sec. 6 3 (a). Pers o n al , l i vi n g, o r fam i l y

ex p en s es are n o td edu ct i b l e as a g en eral ru l e. Sec. 2 6 2 (a). Sect i o n 1 6 2 (a) al l o ws a d edu ct i o n fo r t h e o rd i n ary an d n eces s ary

ex p en s es p ai do r i n cu rreddu ri n g th e t ax ab l e y ear i n carry i n g o n a t rad e o r b u s in es s . Th e p erfo rm an ce o f s erv i ces as an em p l oy ee i s co n s id ereda t rad e o r b u s i n es s. Pri m ut h
v . Co m m i s s i o n er, 5 4 T.C. 3 7 4, 3 7 7 -3 7 8 (1 9 70 ). A p aym en t t o b u y

an as s etth ath as a u s efu l l i fe ex ceed i n g o n e y ear i s a cap i t al ex p en d itu re an d can no tb e i m m ed i at el y d edu ct ed . See s ec. 2 6 3 (a); El l i s- 2 0 -

[* 2 0 ] Ban k i ng Co rp . v . Co m m i s s i o n er, 6 8 8 F.2 d 1 37 6 , 1 3 7 9 (1 1 th Ci r. 1 9 8 2 ), aff’ g i n p art , rem an d i n g i n part T.C. M em o . 1 9 8 1-1 2 3 . Ho wev er, s ect io n 1 6 7 (a) al l o ws a d ep reci at i o n d edu ct i o n fo r a reas o nab l e al l o wan ce fo r ex h au s t i o n , wear
an d t ear, an d o b s o l es cen ce o f p ro p ert y i f t h e t ax p ay er u s es s u ch p ro p ert y i n a t rad e
o r b u si n es s (i n cl u d i n g th e t rad e o r b us i n es s o f b ei n g an em p l o y ee, s ee Ru t l ed g e v . Co m m i s s i o n er, T.C. M em o . 1 9 9 3 -6 1 3 , 6 6 T.C.M . (CCH) 1 6 9 6 , 1 6 9 7 (1 9 9 3 )). Fo r t an g i b l e p ro p ert y , th e am o u n to f t h e d edu ct io n u n d er s ect i o n 1 67 (a) i s d et erm i n ed
u s i n g th e ru l es o f s ect i o n 1 6 8 . See s ec. 1 6 7 (b ). Th es e ru l es s etfo rt h th e ap p li cab l e d ep reci at i o n m et h o d , th e ap p l i cab le reco v ery p eri o d , an dth e ap p l i cab l e
co n ven t io n . Sec. 1 6 8 (a). To b e en t i t l edt o a d ep reci at i on d edu ct i o n , th e t ax p ay er
m u stes t ab l i s h th e p ro p ert y ’ s d ep reci ab l e b as i s b y s h owi n g i t s co s t . See s ec. 1 6 7 (c); Cl u ckv . Co m

m i s s i on er, 1 0 5 T.C. 3 2 4 , 3 3 7 (1 9 9 5 ). Th e ap pl i cab l e
reco v ery p eri o d d ep en d s o n th e p art i cu lar cl as s o f t an g i b l e p ro p ert y . Sec. 1 6 8 (c). Sect io n 1 7 9 p erm i t s a t ax p ay er t o el ectt o treat th e co s t o f cert ai n t y p es o f t an g i b l e p ro p ert y

n otas a cap i tal ex p en s e b u t as a d edu ct i o n fo r th e y ear i n wh i ch th e p ro p ert y

i s fi rs tp l aced i n s erv i ce, up t o s peci fi ed d ol l ar l i m it s . See s ecs . 1 7 9 (a) an d(b ), 2 6 3 (a)(1 )(G). An el ect i o n t o t reat th e co s to f p ro p erty as d educt i b l e u n d er s ect i o n 1 7 9 m u s t b e m ad e o n th e t ax retu rn . Sec. 1 7 9 (c)(1 ).- 2 1 -

[* 2 1 ] Sect io n 2 1 7 (a) al l o ws a d edu ct i o n fo r “ m o vi n g ex p en s es p ai d o r i n cu rred du ri n g th e t ax ab le y ear i n co n n ect i o n wi th th e co m m en cem en to f wo rkb y

th e t ax p ay er as an em

pl o y ee o r as a s el f-em

p l o y edi n d i v i du al ata n ew p ri n ci p al p l ace
o f wo rk .” M o v i n g ex p en s es are d efi nedas “ th e reas o n ab l e ex p en ses --(A) o f
m o vi n g h o u s eh o l dg o o d s an dp ers o n al effect s fro m th e fo rm er res i d en ce t o th e
n ew res i d en ce, an d (B) o f t rav el i n g (i n cl u d i n g l o d g i n g ) fro m th e fo rm er res i d en ce t o the n ew p lace o f res i d en ce.” Sec. 2 1 7 (b )(1 ). Th e m o v in g ex p en s es o f a
m em b er o f t h e t ax p ay er’ s h o u seh o ldare al s o d edu ct i bl e u n d er s ect i o n 2 1 7(a). Sec. 2 1 7(b )(2 ). Th e ex p en ses o f m eal s are n o t d edu ct i b l e u n d er s ect i o n 2 1 7 (a). Sec. 2 1 7(b )(1 ). No d educt i o n i s al l o wedu n d er s ect i on 2 1 7 (a) u n l es s (A) t h e t ax p ay er i s a fu l l -t i m e em pl o y ee atth e n ew p ri n ci p al p l ace o f wo rkdu ri n g th e 1 2
-
m o nt h p eri o dfo l l o wi n g th e t ax p ay er’ s arri v al i n th e g en eral l o cat i o n o f t h e n ew p ri n ci p al p l ace o f wo rkfo r atl eas t 3 9 week s o r (B) du ri n g th e 2 4 -m o n th p eri o d fo l l o w i n g th e t ax p ay er’ s arri val i n th e g en eral l ocat i on o f t h e n ew p ri n ci p al p l ace
o f wo rk , th e t ax p ay er i s a fu l l-t i m e em p l o y ee (o r p erfo rm s s erv ices as a s el fem pl o y edi n d iv idu al o n a fu l l -t i m e b as i s ) i n s u ch g en eral l o cat i o n du ri n g atl eas t 7 8 week s , o f wh i ch n o tfewer t h an 3 9 week s are du ri n g t h e 1 2 -m o nt h p eri o d i m m ed i at el y fo l l o wi n g arri v al i n th e g en eral l o cat i o n o f t h e n ew p ri n ci p al p l ace o f
wo rk . Sec. 2 1 7 (c)(2 ).- 2 2 -

[* 2 2 ] Sect io n 6 7 (a) p ro v i des th atm i s cel lan eo u s i tem i zedd edu ct i o n s are al l o wed
o n l y t o t h e ex t en t th atth e t o t al am o u n to f s u ch d educt i o n s ex ceed s 2 % o f ad ju s t ed g ro s s i n co m e. A d edu ct i o n u n d er s ect i on 1 6 2 (a), 1 6 7 (a), o r 1 7 9 i s a m i s cel l an eo u s i t em i zedd edu ct io n i f i ti s rel at edt o th e b u s i n es s o f p erfo rm in g s erv i ces as an
em pl o y ee. Secs . 6 7 (b ), 6 3 (d ), 6 2 (a). (A d edu ct i o n rel at edt o th e b u s in es s o f p erfo rm i n g s erv i ces as an em p l o y ee i s referred t o as an u nrei m b u rs ed em

p l o y ee b u s i n es s ex p en s e.) A d edu ct i o n u n d er s ect i on 1 6 2 (a), 1 6 7 (a), o r 1 7 9 i s n o ta
m i s cel l an eo u s i tem izedd edu ct io n i f i t i s rel at edt o a b u si n es s o th er t h an p erfo rm i n g s erv i ces as an em p l o y ee. Secs . 6 7 (b ), 6 3(d ), 6 2(a)(1 ). A s ect io n 2 1 7 (a) m o vi n g -ex p en s e d edu ct i o n i s n ota m i s cel l an eo u s i t em i zedd edu ct i o n . Secs . 6 7(b ), 6 3 (d ), 6 2 (a)(1 5 ). If a t ax p ay er es t ab l i s h es th ata d edu ct i b le ex pen s e h as b een p ai db u ti s
u n ab le t o s ub s t an t i at e th e p reci s e am o u n t , we m ay es t i m at e t he am o u n t o f t h e d educt i b l e ex p en s e, b eari n g h eav i l y ag ai n s tth e t ax p ay er. See Co h an v . Co m m i s s i o n er, 3 9 F.2 d5 4 0 , 5 4 3 -5 4 4 (2 d Ci r. 1 93 0 ). Th i s p ri n ci p l e i s kn o wnas th e Co h an ru l e. W e can n o t es t i m at e d edu ct i bl e ex p en s es , h o w ev er, u nl es s th e t ax p ay er p res en ts ev i d en ce s u ffi ci en tt o p ro v id e s o m e reas o n ab l e b as i s up o n wh i ch es ti m at es m ay

b e m ad e. See W i l l i am s v . Un it ed St at es , 2 45 F.2 d 5 5 9 , 5 6 0
- 5 6 1 (5 th Ci r. 1 9 57 ); Van icekv . Co m m i s s i on er, 8 5 T.C. 7 3 1 , 7 4 3 (1 9 8 5 ).- 2 3 -

[* 2 3 ] Fu rt h erm o re, s ect i o n 2 7 4 (d ) p ro v i d es th atn o d edu ct i o n i s al l o wab l e u n d er
s ect i on 1 6 2 fo r an y trav el i n g ex p en s es , i n cl u d i ng m eal s an dl o dg i ng wh i le away fro m h o m e, o r wi th res p ectt o l i s t edp ro p ert y , d efi n edi n s ect i on 2 8 0 F(d )(4 ) t o i n cl u d e co m

p u t ers b ut n o tcel lu l ar t el ep h o n es , 9 u n l es s t he t ax p ay er co m p l i es wi t h
s tri cts ub s t an t iat i o n ru l es . See s ec. 2 7 4 (d )(1 ), (4 ). To wi t , the t ax p ay er m us t
s ub s t an t i at e t h e am o un t , t im e, p l ace, an db u s in es s p u rp o s e o f th es e ex pen s es “b y ad equat e reco rd s o r b y s uffi ci en tev id en ce co rro b o rat in g th e t ax pay er’ s o wn
s t at em en t ”. Sec. 2 7 4 (d ); s ee s ec. 1 .2 7 4 -5 T(b ) an d (c), Tem po raryIn co m e Tax Reg s., 5 0 Fed . Reg . 4 6 0 1 4 , 4 6 01 6 (No v . 6 , 1 98 5 ). Th es e s tri cts ub s tan t i at i o n ru l es
o f s ect i o n 2 7 4(d ) s up ers ed e t h e Co h an ru l e. See San fo rdv . Co m m i s s i o ner, 5 0 T.C. 8 2 3 , 8 2 7 -8 28 (1 9 6 8), aff’ d p er cu ri am , 4 1 2 F.2 d2 0 1 (2 dCi r. 1 9 6 9); s ec. 1 .2 74 -5 T(a), Tem

p o rary In co m e Tax Reg s . , 5 0 Fed . Reg . 4 60 1 4 (No v . 6 , 1 9 8 5 ).
a. $ 1,1 0 0 fo r a m et al b rak e OnJ u ne 2 9 , 2 01 2 , M s . Has k i n s p ai d$ 1 , 1 0 0 fo r a m et al b rak e fo r h er h u s b an dt o u s e i n h i s b u s i n es s . A m et al b rak e i s a t o o l thatb en d s s h eetm et al . It

9 Fo r t ax ab l e y ears b eg i n ni n g aft er Decem b er 3 1 , 2 0 0 9, cel l u l ar t el ep h o n es are n o l o n g er i n cl ud edi n th e d efi n i t i o n o f l i s tedp ro p ert y u nd er s ec. 2 80 F(d )(4 ), wh i ch was am en d edb y

th e Sm al l Bu s i n es s J o b s Act o f 2 01 0 , Pub . L. No . 1 1 1 -2 4 0, s ec. 2 0 43 (a), 1 2 4 St at . at2 56 0 . As a res u lto f th is am en d m en t , an ex pen s e fo r cel l ul ar t el ep h o n e u s e fo r t ax ab l e y ear 2 0 1 2 i s n o ts ubject t o t h e s tri ct s ub s t an t i at i o n ru l es o f s ec. 2 7 4 (d ). Co m pu t ers are l i s t edp ro p ert y fo r th e y ears at i s su e. Secs . 2 8 0 F(d )(4 )(i v), 1 6 8 (i )(2 )(B).- 2 4 -

[* 2 4 ] i s u s ed fo r ro of co n s tru ct i o n . Th e p aym en to f t h e $ 1 ,1 0 0 i s s ub st an t i at edb y M s . Has k i n s ’ wri t t en ch eck t o th e s el l er an db y an em ai l fro m

th e s el l er
co n fi rm i n g th e p ri ce. Th e IRS co n t en d s th at a d edu ct i o n i s n o t al l o wab l e wi th
res p ectt o t h e m et al b rak e (an dwi th res p ectt o al l t o o ls an ds upp l i es p u rch as edfo r M r. Has k i n s ) b ecau s e M r. Has k i n s was n otan em pl o y ee atthe t i m e o f t h e p u rch as e. Th e Has k i n s es can n o ti m m ed i at el y d edu ctth e m et al b rak e u n d er s ect i o n 1 6 2 (a) b ecau s e i th as a u s efu l l i fe o f m o re than o n e y ear. Th e Has k i n s es d i d n o t m ak e a s ect i on 1 7 9 el ect i o n . W e n ex tco ns i der wh et h er t h ere i s a d ep reci at i o n d educt i on fo r th e m et al b rak e u n d er s ect i o n 1 6 7 (a) fo r p ro p ert y u s edi n a t rad e o r b u s in es s . Th e reco rd (i ncl ud i ng th e t es t i m o ny

o f M r. Has k i n s ) es t ab l i s h es th atth e m et al b rak e was p u rch as edfo r M r. Has k in s ’ o wnb u s i n es s o f co n s tru ct io n, n o tfo r h is b u s i n es s o f p erfo rm i n g s erv i ces as an em p l o y ee o f L D Greer Bu i ld ers & Tri m . 1 0 Th e fact th at th e m et al b rak e was n o tp urch as edfo r t h e b u si n es s o f p erfo rm i n g s erv i ces as an

1 0 Th e Has k i n s es rep o rt edv ari o u s p aym en ts as u n rei m bu rs edem

pl o y ee b u s i n es s ex p en s es o n th ei r 2 01 2 retu rn . Th es e p aym en t s rep o rt edo n th e t ax retu rn i n cl u d e s o m e o r al l o f t h e $ 6 ,1 0 9 o f p aym en t s t he Has k i n s es al l eg edattri al are d educt i b l e. Th u s , th e t ax retu rn s u g g es t s t hats o m e o r al l o f t h e $ 6 ,1 09 o f p aym en t s are ex p en s es o f an em p l o y ee, n o t a s el f-em

pl o y edi n di v i du al . M s . Has ki n s ack no wl ed g edi n h er t es t im o n y th ats h e was m i st ak en i n rep o rt in g al l o f th e p aym en t s as u n rei m

bu rs ed em

p l o y ee b u s i nes s ex p en s es .- 2 5 -

[* 2 5 ] em p lo y ee d o es n o tp recl ud e a d edu ct i o n u n d er s ect i o n 1 6 7(a). M r. Has k i n s p l aced th e m et al b rak e i n s erv i ce i n 2 0 1 2 . Th erefo re, t h e Has ki n s es are en t i t l edt o a d ep reci at i o n d edu ct i on u n d er s ect i o n 1 67 (a) wi th res p ect t o th e m et al b rak e fo r 2 0 1 2
. W i th s o m e ex cep t i o n s , s ect i o n 1 6 8(k ) al lo ws an ad d i t io n al 5 0% d ep reci at i o n d edu ct i o n fo r th e y ear i n wh i ch p ro p ert y i s p l aced i n s erv i ce i f t h e p ro p erty (1 ) h as a reco v ery

p eri o do f 2 0 y ears o r l es s ; (2 ) was fi rs tu s edb y th e t ax p ay er aft er Decem

b er 3 1 , 2 00 7 ; (3 ) was acq u i redb y th e t ax pay er aft er Decem b er 3 1 , 2 0 07 , an db efo re J an u ary 1 , 2 0 1 3 ; an d(4 ) was p l aced i n s erv i ce b y th e t ax p ay er b efo re J an u ary 1 , 2 0 1 4 . Onth e b as i s o f t h e reco rd , we co n cl ud e t h at th e m et al b rak e i s el i g i b le fo r t h e ad d i t i o n al 5 0 % d ep reci at i o n d edu ct i o n fo r 2 0 1 2
. W e al s o n eedt o co n s i d er (1 ) t h e cl as si fi cat i o n o f t h e p ro p ert y , (2 ) t h e b as i s fo r d ep reci at i o n , (3 ) t h e reco v ery p eri o d , (4 ) t h e co nv en t io n , an d(5 ) t h e m et h o d
. See s ecs . 1 6 7 an d 1 6 8
. On th e b as i s o f t he reco rd , we co n cl u d e th at(1 ) t h e m et al b rak e i s s ev en -y ear p ro p ert y , s ee s ec. 1 6 8 (e)(3 )(C)(v )(I); (2 ) t h e b as i s fo r d ep reci at i o n i s $ 1 ,1 0 0 , s ee s ecs . 1 6 7 (c)(1 ), 1 0 1 1 , 1 0 1 2 , 1 0 1 6 ; (3 ) t h e reco v ery p eri o di s s ev en y ears , s ee s ec. 1 6 8 (c); (4 ) t h e h al f-y ear co n v en t i o n i s ap p l i cab l e,
s ee s ec. 1 6 8 (d )(1 ); an d(5 ) t h e ap p l i cab l e d ep reci at i o n m et h o d i s th e 2 0 0 %- d ecl i ni n g -b al an ce m et h o d , s ee s ec. 1 6 8 (b )(1 )(A).- 2 6 -

[* 2 6 ] Fu rt herm o re, t he reco rds h o ws th atth e ex p en s e was n o t an em pl o y ee b u s i n es s ex p en s e o r an y

o th er m i s cel l an eo u s i t em i zedd edu ct i o n s ub jectt o th e 2 % fl oo r o f s ect i on 6 7(a). b
. $ 26 4 fo r a p ai n t s p ray er an dp art s Th e Has k i n s es co nt en d th atM r. Has k i n s b ou g h ta p ai n ts p ray er an d p art s . Th e reco rds h o ws thatthe Has k i n s es p ai di n 2 0 1 2 th e fo l l o wi ng am o u n t s: ! $ 23 4 fo r a p ai n t s p ray er; ! $ 8 fo r a ro l l er h o p fo r t h e p ai n ts p ray er; an d
! $ 22 fo r a b l ad d er t o h o l dp ai n t fo r t h e p ai n ts p ray er an dan ex t en s i o n
co rd fo r t h e p ai n ts p ray er. W e refer t o th e p ai n ts p ray er an dp art s, h ereaft er, as th e p ai nts p ray er. A s ect i o n 1 6 2(a) d edu ct io n i s n o tal lo wab le fo r t he p ai n t s pray er b ecau s e i t h as a u sefu l l i fe o f m o re t h ano n e y ear an db ecau s e t h e Has ki n ses d i d n otm ak e a
s ect i on 1 7 9 el ect i o n . Th e fact th atth e p ai n ts p ray er was p urch as edfo r M r. Has k i ns ’ o wn b u s i n es s , rat h er t h an h i s act i v i t i es as an em p l o y ee, d o es n o tp recl ud e a d ep reci at i o n d edu ct i o n u n d er s ect i on 1 6 7 (a). M r. Has ki n s p l aced th e p ai n t s p ray er i n s erv i ce i n 2 0 1 2
. Th erefo re, t h e Has ki n s es are en t i t l edt o a d ep reci at i o n d educt i o n wi th res p ect t o th e p ai n ts p ray er fo r 2 0 1 2
.- 2 7 -

[* 2 7 ] W i th s o m e ex cep t i o n s , s ect i o n 1 6 8(k ) al lo ws an ad d i t io n al 5 0% d ep reci at i o n d edu ct i o n fo r th e y ear i n wh i ch p ro p ert y i s p l aced i n s erv i ce i f t h e p ro p erty (1 ) h as a reco v ery

p eri o do f 2 0 y ears o r l es s ; (2 ) was fi rs tu s edb y th e t ax p ay er aft er Decem

b er 3 1 , 2 00 7 ; (3 ) was acq u i redb y th e t ax pay er aft er Decem b er 3 1 , 2 0 07 , an db efo re J an u ary 1 , 2 0 1 3 ; an d(4 ) was p l aced i n s erv i ce b y th e t ax p ay er b efo re J an u ary 1 , 2 0 1 4 . Onth e b as i s o f t h e reco rd , we co n cl ud e t h at th e p ai n ts pray er i s el i g i b l e fo r t h e ad d i t io n al 5 0 % d ep reci at i o n d edu ct i o n fo r 2 0 1 2
. W e al s o n eedt o co n s i d er (1 ) t h e cl as si fi cat i o n o f t h e p ro p ert y , (2 ) t h e b as i s fo r d ep reci at i o n , (3 ) t h e reco v ery p eri o d , (4 ) t h e co nv en t io n , an d(5 ) t h e m et h o d
. See s ecs . 1 6 7 an d 1 6 8
. On th e b as i s o f t he reco rd , we co n cl u d e th at(1 ) t h e p ai n t
s p ray er i s s ev en -y ear p ro p ert y , s ee s ec. 1 68 (e)(3 )(C)(v )(I); (2 ) t h e b as i s fo r d ep reci at i o n i s $ 2 6 4, s ee s ecs . 1 6 7 (c)(1 ), 1 0 1 1 , 1 0 1 2 , 1 0 16 ; (3 ) t h e reco v ery p eri o di s s ev en y ears , s ee s ec. 1 6 8 (c); (4 ) t h e h al f-y ear co n v en t i o n i s ap p l i cab l e,
s ee s ec. 1 6 8 (d )(1 ); an d(5 ) t h e ap p l i cab l e d ep reci at i o n m et h o d i s th e 2 0 0 %- d ecl i ni n g -b al an ce m et h o d , s ee s ec. 1 6 8 (b )(1 )(A). Fu rt herm o re, t he reco rds h o ws th atth e co s to f t h e p ai n ts p ray er was n o tan
em pl o y ee b u s i n es s ex p en s e o r an y o th er m is cel l an eo u s i tem i zedd edu ct i o n s ub ject t o the 2 % fl o o r o f s ect i o n 6 7 (a).- 2 8 -

[* 2 8 ] c. $ 19 4 fo r an ai r co m p res s o r an dat tach m en t s Th e Has k i n s es co nt en d th atM r. Has k i n s b ou g h tan ai r co m p res s o r an d at t ach m en t s fo r h is wo rk . OnJ u n e 2 9 , 2 0 1 2 , M r. Has k in s b ou g h tan ai r
co m p res s o r fro m

Lo we’ s fo r $ 17 9 . He l at er b o u g ht$ 1 5 o f at t ach m en t s fo r t h e
co m p res s o r. W e refer t o th e ai r co m p res s or an dth e at t ach m en t s , h ereaft er, as th e ai r co m p res s o r. A s ect i o n 1 6 2(a) d edu ct io n i s n o tal lo wab le fo r t he ai r co m p res so r b ecau s e i t has a u s efu l l i fe o f m o re th an o n e y ear. Th e Has k i n s es d i d n o t m ak e a s ect i on 1 7 9 el ect i o n . W e n o wco n s i d er wh et h er t h e p u rch as e o f t h e ai r co m p res s o r g i v es ri s e t o a d ep reci at i o n d edu ct i o n u n d er s ect i on 1 6 7 (a). Th e factth atthe ai r co m p res s o r was p u rch as edfo r M r. Has k in s ’ o wnb u s i n es s, rat h er th an h i s act i vi t ies as an
em pl o y ee, d o es n o tp recl u d e a d ep reci at i o n d edu ct i o n u n d er s ect i o n 1 6 7 (a). M r. Has ki n s p l aced th e ai r co m p res s o r i n s erv ice i n 2 0 1 2 . Th erefo re, t h e Has k i n s es
are en t i t l edt o a d ep reci at i o n d edu ct i o n wi th res p ectt o th e ai r co m p res so r fo r 2 0 1 2
. W i th s o m e ex cep t i o n s , s ect i o n 1 6 8(k ) al lo ws an ad d i t io n al 5 0% d ep reci at i o n d edu ct i o n fo r th e y ear i n wh i ch p ro p ert y i s p l aced i n s erv i ce i f t h e p ro p erty (1 ) h as a reco v ery

p eri o do f 2 0 y ears o r l es s ; (2 ) was fi rs tu s edb y th e- 2 9 -

[* 2 9 ] t ax p ay er aft er Decem b er 3 1 , 2 0 0 7 ; (3 ) was acq u i redb y the t ax p ay er aft er Decem b er 3 1 , 2 0 07 , an db efo re J an u ary 1 , 2 0 1 3 ; an d(4 ) was p l aced i n s erv i ce b y th e t ax p ay er b efo re J an u ary 1 , 2 0 1 4 . Onth e b as i s o f t h e reco rd , we co n cl ud e t h at th e ai r co m

p res s o r i s el i gi b l e fo r t h e ad d i ti o n al 5 0 % d ep reci at i o n d edu ct i on fo r 2 0 1 2
. W e al s o n eedt o co n s i d er (1 ) t h e cl as si fi cat i o n o f t h e p ro p ert y , (2 ) t h e b as i s fo r d ep reci at i o n , (3 ) t h e reco v ery p eri o d , (4 ) t h e co nv en t io n , an d(5 ) t h e m et h o d
. See s ecs . 1 6 7 an d 1 6 8
. On th e b as i s o f t he reco rd , we co n cl u d e th at(1 ) t h e ai r
co m p res s o r i s s ev en -y ear p ro p ert y , s ee s ec. 1 6 8 (e)(3 )(C)(v )(I); (2 ) t h e b as i s fo r d ep reci at i o n i s $ 1 9 4, s ee s ecs . 1 6 7 (c)(1 ), 1 0 1 1 , 1 0 1 2 , 1 0 16 ; (3 ) t h e reco v ery p eri o di s s ev en y ears , s ee s ec. 1 6 8 (c); (4 ) t h e h al f-y ear co n v en t i o n i s ap p l i cab l e,
s ee s ec. 1 6 8 (d )(1 ); an d(5 ) t h e ap p l i cab l e d ep reci at i o n m et h o d i s th e 2 0 0 %- d ecl i ni n g -b al an ce m et h o d , s ee s ec. 1 6 8 (b )(1 )(A). Fu rt herm o re, t he reco rds h o ws th atth e ai r co m p res s o r was n o t an em

p l o y ee b u s i n es s ex p en s e o r an y

o th er m i s cel l an eo u s i t em i zedd edu ct i o n s ub jectt o th e 2 % fl oo r o f s ect i on 6 7(a). d
. $ 48 9 fo r a p o wer g en erat o r M r. Has ki n s cred i b ly

t es t i fi edth ath e p u rch as eda p o wer g en erat o r i n 2 0 1 2 fo r h i s co n st ru ct io n wo rkwh enh e m o v ed fro m Ari zo n a t o Fl ori d a. Ho wev er, h e- 3 0 -

[* 3 0 ] d i dn o t t es t i fy

h o w m u ch h e p ai dfo r th e g en erat or. No r d o es an y d o cu m en t ary

ev i d en ce s h o w h o w m

u ch h e p ai d . Al th o ug h th e Has k i n ses ’ b ri ef
s t at es th atth e p ri ce o f t h e p o wer g en erat o r was $ 4 8 9 , th i s as s ert io n i s n o t
s up p ort edb y

an y ev i d en ce. Th ere i s n o reas o n ab l e b as i s i n th e reco rdfo r d et erm i n i n g th e co s t o f t h e g en erat o r. Th erefo re, t h e Has k in s es h av e n o tp ro v en th ei r en t i t l em en tt o an y

ty p e o f d edu ct i o n rel at edt o th e co s t o f t h e g en erat or, i n cl u d i n g a d ep reci at i o n d edu ct i o n . See Cl u ckv . Co m m i ss i o n er, 1 0 5 T.C. at3 3 7
. Th ey are n o ten t i t l edt o a d edu ct i o n rel at edt o th e g en erat or.
e. $ 54 fo r p ai n t in g s up p l i es Th e reco rds h o ws thatM r. Has k i n s m ad e t h e fo l l o w in g p urch as es o f p ai n t i n g s up p l i es i n 2 0 1 2 : ! $ 11 fo r a p ai n tb ru s h ; ! $ 5 fo r a b am

bo o p o l e fo r h o l d i ng p ai n tb ru s h es ; ! $ 3 fo r m as k i n g t ap e; ! $ 7 fo r an ei g h t -i n -o n e p ai nt er’ s t o o l ; ! $ 19 fo r a wo os t er two -i n ch b ru s h ; ! $ 5 fo r a d ro p cl o th ; an d
! $ 4 fo r s il i co n e.- 3 1 -

[* 3 1 ] Th e IRS co n t en d s th atn o b u s i n es s -ex p en s e d edu ct io n s h o u l d b e al l o wedfo r th es e s up p l i es b ecau s e M r. Has k i n s d idn o tb uy th e s up p l i es fo r h i s wo rkas an
em pl o y ee o f L D Greer Bu i l d ers & Tri m . Bu td edu ct i b le b u s i n es s ex p en s es i n cl u d e b o th th e ex p en s es o f wo rk i ng as an em p l o y ee an dth e ex p en s es o f o n e’ s
o wnb u s in es s . Th e reco rdd em o n s trat es th atth e s up p l i es were p urch as edfo r M r. Has ki n s ’ o wnb u s i n es s . Fu rt h erm o re, t h e co s to f t h e s up p l i es i s n o ta cap i tal
ex p en s e b ecau s e, o n th i s reco rd , we d et erm i n e t hatth e u s efu l l i fe o f t h e s up p l i es i s l es s th ano n e y ear. Th e Has k i ns es are t h erefo re en t i tl edt o a $ 5 4 d educt i on fo r p ai n t i n g s up p l i es fo r t h e 2 0 1 2 y ear. An dth e ex pen s e i s n otan em pl o y ee b u s i n es s
ex p en s e d educt i o n o r an y o th er m i s cel lan eo u s i t em i zedd edu ct i o n s ub jectt o th e 2 % fl oo r. f. $ 35 4 fo r ci rcu l ar s aw b l ad es Th e Has k i n s es co nt en d th atM r. Has k i n s b ou g h t“ ci rcu l ar s aw b l ad es ”
co s t i ng $ 5 9 p er p ackan dth ath e b o u g h ta p ackev ery 2 m on ths o n av erag e. Th u s , th ey co n t en d h e p ai da t o tal o f $ 3 5 4 fo r 2 0 1 2 , equ al t o $ 5 9 × 6
. Al th o u g h M s . Has ki n s t es t i fi edv ag u el y th ath er h u s b an db o u g h t“ s aw b l ad es ” fro m Lo we’ s an d Ho m e Dep o t , th e reco rdd o es n o ti nd i cat e h o wm an y ci rcu lar s aw b l ad es h e b o u g h to r h o w m

u ch h e p ai d fo r t h em . Th e Has k in ses h av e n o tp ro vi d ed an y
ev i d en t i ary

b as i s fo r ap p l y i n g th e Co h an ru l e t o the ex p en s es o f M r. Has k in s ’- 3 2 -

[* 3 2 ] ci rcu l ar s aw b l ad es fo r 2 0 1 2 . See Van i cekv . Co m m i s s i o n er, 8 5 T.C. at7 42
- 7 4 3 (ci t i n g W il l iam s , 2 4 5 F.2 d5 5 9 ). Th ey are n o ten t i t l ed t o a d edu ct i o n fo r ci rcu l ar s aw b l ad es . g . $ 66 fo r reci p ro cat i n g s aw b l ad e s et s Th e Has k i n s es co nt en d on b ri ef t h atM r. Has ki n s b o u g h t “ reci p ro cat i n g s aw b l ad e s et s ” co s t in g $ 22 p er p ackan d th ath e b o u g h t a s etth ree t im es a y ear. Th i s
wo u l db e a t ot al ex pen s e o f $ 6 6 , equ al t o $ 22 × 3 . Al tho u g h M s . Has k i n s t es t i fi ed
v ag uel y th at h er h u sb an d b o u g h t“ s aw b l ad es ” fro m Lo we’ s an dHo m e Dep o t , th e
reco rdd o es n o ti n d i cat e h ow m an y reci p ro cat in g s aw b lad e s et s h e b o u g h to r h o w
m u ch h e p ai dfo r th em . Th e Has k i n s es h av e n o tp ro v i d edan y ev i d en t i ary

b as i s fo r ap p ly i n g th e Co h anru l e t o t he ex p en s es o f M r. Has k i n s ’ reci p ro cat i n g s aw b l ad e
s et s fo r 2 0 12
. See Van i cekv . Co m m i s s i o n er, 8 5 T.C. at7 4 2 -7 4 3 (ci ti n g W i l l i am s, 2 4 5 F.2 d5 5 9). Th ey

are n o ten t i t ledt o a d edu ct i o n fo r reci pro cat i ng s aw b l ad e
s et s . h
. $ 34 5 fo r Leg al Zo om M s . Has ki n s t es t i fi edthats h e p ai d$ 3 4 5 i n 2 0 12 t o Leg al Z o om (an o n l i n e l eg al s erv i ce) t o acq u i re a wo rk ers ’ co m pen s at i o n ex em

p t io n cert i fi cat e t o al l o w M r. Has k i n s t o wo rk i n Fl o ri d a. Ex h i b it2 7 , p ag e 4 , s ho ws th at o n Oct o b er 9 , 2 0 1 2 , M s . Has k i n s p ai dLeg al Z o o m $ 3 4 5
. 9 5 . Th e Has ki n ses arg ue t h atth ere- 3 3 -

[* 3 3 ] s h o u l db e a $ 34 5 d edu ct io n fo r t h e p aym en t . Th e IRS co nt en d s t h atth e fact
o f p aym en ti s u n s up p o rt edb y th e reco rd . Ho wev er, as we ex p lai n edab o ve, t h e fact o f p aym en ti s s up po rt edb y M s . Has k i n s ’ t es t im o n y

an db y d o cu m en t ary
ev i d en ce. W e co n cl u d e t hatth e $ 3 4 5 p aym en ti s a d edu ct i b le b u s i n es s ex p en s e
u n d er s ect i o n 1 6 2 (a) fo r 2 0 1 2. An dth e ex p en s e i s n o t an em pl o y ee b u s i nes s
ex p en s e o r an y

o th er m i s cel l an eo u s i tem izedd edu ct io n s ub jectt o th e 2 % fl o o r o f
s ect i on 6 7 (a). i
. $ 21 0 fo r l i ab il i ty

i n s u ran ce Th e Has k i n s es co nt en d th atth ey p ai d$ 2 10 fo r l i ab i l i ty

i n su ran ce, eq u al t o $ 7 0 p er m o n th fo r t h ree m o n th s , an dth ats u ch i n s u ran ce was n eces s ary fo r M r. Has ki n s t o wo rki n Fl o ri d a. Th e IRS co nt en d s th atth e $ 21 0 d edu ct i o n s h o u l db e d i s al lo wedfo r t h ree reas o n s. Fi rs t, th e IRS o b s erv es th atth e o n ly d o cu m en ti n th e
reco rdrel at i ng t o t h e l i ab il i ty -i n s u ran ce ex p en s e i s a m o n th l y i n v oi ce fro m

th e i n s u ran ce co m

p an y fo r $ 7 0 . Th e IRS co n t en ds th atth e i n v o i ce p ro v es o n ly th at th e ex p en s e was i n vo i ced , n ot th atth e ex p en s e was p ai d . Seco n d , th e IRS arg u es th atb y th e d at e o f t h e i n v o ice--No v em b er 1 5, 2 0 1 2 --M r. Has k i n s h ads t o p p ed
wo rk i n g as an em

p l o y ee fo r L D Greer Bu i l d ers & Tri m . Th i rd , the IRS arg u es th atth e Has k i n s es h adn o tcl ai m edth e $ 2 1 0 d edu ct i o n o n t h ei r retu rn .- 3 4 -

[* 3 4 ] W e h o ldth atth e $ 2 1 0 ex p en s e i s d edu ct i b l e u n d er s ect io n 1 62 (a) fo r 2 0 1 2
. Ani n vo i ce n o rm al l y s ho ws o n l y th ata p aym en twas d em an d ed , n o tth ata p aym en t
was m ad e. Bu tth i s i n v o i ce h as a h an dwri t t en n ot at i o n th at$ 7 0 was p ai dev ery
m o nt h fo r t h ree m o n th s i n 2 0 1 2 . Fro m th i s h an dwri t t en an n ot at i o n an dfro m M s. Has ki n s ’ t es ti m on y

thatth e Has k i n s es p ai dl i ab i l i ty -i ns u ran ce p rem i u m s , we fi n d th atth e Has k i n s es p ai d$ 2 1 0 fo r l i ab i l i ty i n s u ran ce fo r 2 0 1 2
. Th e fact th atth e p aym en t s were m ad e fo r t h e p eri odaft er M r. Has ki n s was
an em p l oy ee d o es n o tp recl u d e a d edu ct i o n . A t ax p ay er m ay d edu ctth e ex p en s es
o f t h e t ax p ay er’ s o wnb u si n es s co n du ct edn o tas s o m eo n e el s e’ s em p l o y ee. See
s ec. 1 6 2(a). M r. Has k in s cred i b l y t es t i fi edth att o co n ducth i s co n s tru ct i o n b u s i n es s i n Fl o ri d a h e h adt o h av e l i ab i l i ty i n s uran ce. A t ax p ay er’ s fai lu re t o cl ai m a d edu ct i on o n a retu rn d o es n otp recl u d e a d educt i o n . Th e $ 2 1 0 ex p en s e i s d edu ct ib l e u n d er s ect i o n 1 6 2 (a). Al s o, the ex p en s e i s
n o tan em p l o y ee b u s i n es s ex p en s e o r an ot h er m i s cel lan eo u s i t em i zedd edu ct i o n
s ub jectt o t h e 2 % fl o o r o f s ect io n 6 7 (a). j. $ 40 0 fo r cel l ul ar-t el ep h o n e s erv ice M s . Has ki n s cred i b l y

t es t i fi edth atM r. Has ki n s h ada cel l u l ar t el ep h o n e t h at h e u s edfo r wo rk . Th e Has k i n s es co n t en dthatth ey p ai d$ 4 0 0 fo r s erv i ce fo r M r.- 3 5 -

[* 3 5 ] Has k i n s ’ cel l u lar t el ep h o n e, co rres p o n di n g t o 8 m o nt hs atth e rat e o f $ 5 0 p er
m o nt h . Th e IRS d i s p u t es thatth ere i s ev i d en ce s h owi n g t h atth e Has k i ns es p ai d $ 4 0 0 fo r s erv i ce t o M r. Has k i n s ’ cel l u l ar t el ep h o n e. W e n eedn o td et erm i ne wh et h er t h e reco rds h o w s th atthe Has k i n s es p ai d $ 4 0 0 fo r s erv i ce t o M r. Has k i n s ’ cel l u l ar t el ep h o n e. Ev en i f th e reco rds h owed th es e p aym en t s were m ad e, the Co u rt d o es n o th av e a reas on ab l e b as i s fo r d et erm i n i n g h o w m

u ch h e u s edh i s cel l u l ar t el ep h o n e fo r b u s in es s p u rp o s es as
o p p o s edt o p ers on al p u rp o s es . Iti s a fact o f l i fe t h atp eo p l e o ft en u s e t h ei r cel l u l ar t el ep ho n es fo r p ers o n al p u rp o ses . M r. Has k i n s d i dn ott es t i fy th ath e u sedh i s cel l ul ar t el ep h o n e fo r o n l y b u si n es s p u rp o s es --o r, al tern at i v el y , h o w m u ch h e u s ed th e cel l u l ar t el ep h o n e fo r b u s i n es s p u rp os es v ers u s p ers o n al p u rp o ses . Th e Has ki n s es h av e n o t p ro v i d edan y ev id en t i ary

b as i s fo r ap p l y i n g the Co h an ru l e t o th e ex p en s e o f M r. Has k i n s ’ cel l u l ar-t el ep h o n e s erv ice fo r 2 0 12 . See Van i cekv . Co m m i s s i o n er, 8 5 T.C. at 7 4 2 -7 4 3 (ci t in g W il l iam s, 2 4 5 F.2 d5 59 ). Th e Has ki n s es are n o ten ti t l edt o a d edu ct i o n fo r t h i s ex p en s e. k
. $ 1,0 2 3 fo r M s . Has k in s ’ l ap t o p co m p u t er OnJ an u ary

1 2 , 2 0 1 2 , th e Has k i n s es ’ s o n b o u g htM s. Has ki n s a l ap t o p
co m p u t er fo r $ 1 ,0 2 3 an ds h i pp edi t t o h er i n Afg h an is t an . M s . Has k i n s cred i b l y t es t i fi edth ats h e u s edth e co m pu t er fo r s ub m i t t i n g t i m es heet s t o h er em pl o y er.- 3 6 -

[* 3 6 ] Th is was a b u s in es s u s e. Ho wev er, t h e reco rds h o ws th ats h e al s o u s edth e l ap t o p fo r t h e fo l l o wi n g p ers on al u s es : s oci al m ed i a, s h o p p i n g fo r p ers on al i t em s , an d p ay in g h o u s eh o ld b i l l s . Sh e t es t i fi edth at s he es t i m at edth ats h e u s edth e l ap t o p 6 0 % fo r b u s i n es s u s e an d4 0 % fo r p ers o n al u s e. A t ax p ay er m

u s t s at i s fy th e s tri cts ubs t an ti at i o n req u i rem en t s o f s ect i o n 2 7 4 (d ) i n o rd er t o d eductex p en s es at tri b u t ab l e t o l i s t edp ro p ert y , i n cl u d in g
co m p u t ers . Sec. 2 8 0 F(d )(4 )(A)(i v ). Reg u l at i o n s s p eci fy that , wi th res pect t o l i st edp ro p ert y , th e t ax p ay er m u s ts ub s t an ti at e th e fo l lo wi n g el em en t s: (1 ) th e
am ou n to f t h e ex p en d i tu re fo r each i n d i v idu al i t em o f l is t edp ro pert y ; (2 ) t he
am ou n to f each b u s in es s u s e an dt o t al an n u al u s e o f th e p ro p ert y ; (3 ) t h e d at e o f th e ex p en d i tu re o r u s e wi th res p ectt o l i s tedp ro p erty ; an d (4 ) t h e b u s i n es s p u rp o s e
o f t h e ex p en d itu re o r u s e. Sec. 1 .2 7 4 -5 T(b )(1 ), (6 ), Tem p o raryIn co m e Tax Reg s ., 5 0 Fed . Reg . 4 6 01 4 , 4 6 0 1 6 (No v . 6 , 1 9 85 ). Each el em en t can b e s ub st an t i at edb y ei th er (1 ) ad equ at e reco rd s o r (2 ) s u ffi ci en tev id en ce co rro b o rat i n g t h e t ax p ay er’ s
o wns t at em en t . See s ec. 2 7 4 (d ). Li s t edp ro pert y i n cl u d es co m

p u ters . Secs
. 2 8 0 F(d )(4 )(A)(i v ), 1 6 8 (i )(2 )(B). Th e o n l y ev i d en ce o f t h e b u s i n es s u s e o f t h e l ap t o p co m p u t er was M s . Has ki n s ’ t es ti m on y . Th i s t es t i m o n y i s h er “ o wns t at em en t”. Th erefo re, t h e Has ki n s es h av e n o t s at i s fi edth e s tri ct s ub s t an t i at i o n req u i rem en t s o f s ect i on- 3 7 -

[* 3 7 ] 2 7 4 (d ) wi th res p ectt o th e l ap t o p co m p u ter. Th ey are n o ten ti t l edt o d edu ct th e ex p en s e o f th e l ap t op co m p u t er. l
. $ 1,6 1 0 fo r M s . Has k in s ’ trav el ex pen s es Th e Has k i n s es arg u e t h atM s . Has k i n s p ai d$ 1 ,4 6 0 i n l o dg i n g an d$ 3 0 0 fo r fo o d fo r t h e tri p s h e t o o k fro m Ari zo n a t o Fl o ri da i n l at e 2 0 1 2 . As n o t ed earl i er, th e Has k in s es cl ai m eda d edu ct i o n fo r $ 1 ,4 6 0 i n l o d g i n g ex p en ses an dfo r h al f o f th e $ 3 00 fo o dex p en se (i .e., $ 15 0 ). Th e IRS co n t en ds th atb ecau se t he Has k i n s es d i dn o t ad du ce an y

d ocu m en t ary

ev i d en ce s up p ort i ng th e tri p ex pen s es , th e s tri ct
s ub s t an t i at i o n req u irem en t s are n o tm et . Th e Has k i n s es o ri g i nal l y rep o rt edth atthi s ex p en s e was an u n rei m b urs ed
em pl o y ee b u s i n es s ex p en s e. Ho wev er, t h ey h av e fai l ed t o p ro v e t h atth e t ri p i s th e
ex p en s e o f t h e b u si n es s o f p erfo rm i n g s erv i ces as an em p l o y ee. No r h av e t h ey p ro v enth atth e t ri p i s th e ex p en s e o f a b u s in es s o f a s el f-em p l o y edi nd i v i du al
. Th ey h av e p ro vi d edn o d o cu m en taryev i d en ce reg ard i n g th e t ri p o r th e ex p en s es- 3 8 -

[* 3 8 ] rel at edt o i t . 1 1 Thus , th e Has k i n s es h av e fai l edt o m eetth e s tri ct
s ub s t an t i at i o n req u irem en t s wi th res p ectt o th e ex pen s e. Sect io n 2 1 7 (a) al l o ws a t ax p ay er t o d edu ctm o v in g ex p en s es . Th e d educt i o n i s av ai l ab l e fo r t h e m o vi n g ex p en s es o f m em bers o f t he t ax p ay er’ s h o u s eh o l d . Sec. 2 1 7 (b )(2 ). No d educt i o n i s al l o wedu n der s ect io n 2 17 (a) u n l es s th e t ax p ay er en g ag es i n fu l l -t i m e wo rkfo r 3 9 week s o f t h e 1 2 -m o n th p eri o d fo l l o w i n g th e t ax p ay er’ s arri val atth e n ew l o cat io n . Sec. 2 1 7 (c)(2 ). M r. Has k i n s arri v edi n Fl o ri d a i n Au g u s t2 0 1 2 . Th erefo re t h e 1 2-m o n th p eri o daft er h i s arri v al i n Fl o ri d a s t art edi n Au g u st2 0 1 2 an den d ed i n Au g u s t2 0 13 . M r. Has k i n s was n o t
wo rk i n g wh en h e arri v ed i n Fl o ri d a i n Au g u st2 0 1 2 . Th i s p eri odo f
u n em p l o ym en tex ten d edi n t o 2 0 1 3 . Becau s e o f t h e l en g th o f t h i s p eri o d o f
u n em p l o ym en t , wh ich i ncl u d edo ver 1 7 week s fro m Sep t em b er 1 t o Decem

b er 3 1 , 2 0 1 2 , M r. Has k i n s d i dn o t wo rkm o re th an 3 9 week s o f t h e 1 2 -m o n th p eri o dfro m Au g u s t2 0 1 2 t o Au g us t2 0 1 3 . Co n seq u en t ly , h e d o es n o t s at i sfy th e 3 9 -weekt es t fo r d edu ct i n g m o v i n g ex p en s es . Si m i l arl y , M s . Has k i n s ’ m o v e t o Fl o ri da d o es n o t

1 1 At t ach edt o th e Has k in s es ’ rep l y b ri ef i s a co py

o f a U-Hau l equ i p m en t co n tract s h o wi n g th atM s . Has k i n s ren t ed a t rai l er h i t ch o n No vem b er 8 , 2 0 1 2 , an d retu rn edth e t rai ler h i t ch o n No v em b er 1 4 , 2 0 1 2. Ho w ev er, an at t ach m en tt o a b ri ef d o es n o tco n s t i tu t e ad m i s s i b l e ev id en ce an dm ay n otb e co n s id eredb y

th e Co u rt . Kwo n g v . Co m

m i ss i o n er, 6 5 T.C. 9 5 9 , 9 6 7 n .1 1 (1 97 6 ); Perk i n s v . Co m m i s s i o n er, 4 0 T.C. 3 30 , 3 4 0 (1 9 6 3 ).- 3 9 -

[* 3 9 ] ju s t i fy

a d edu ct i o n fo r m o v i n g ex p en s es fo r h er as th e t ax p ay er. Th i s i s b ecau s e th ere i s n o ev i d en ce M s . Has k in s h ad fu ll -t i m e wo rki n Fl o ri da. Th u s , s ect i on 2 1 7 (a) d oes n o tal l o w a d edu ct i o n fo r t h e ex pen s es o f t h e t ri p . W e h o ldth atth ere i s n o d edu ct io n fo r t h e ex p en s es o f t h e t ri p . 3
. Sect io n 6 6 6 2 (a) p en al ty fo r 2 0 1 2 W e n ex td et erm in e wh et h er t h e Has k i n s es are l i ab le fo r th e p en al ty u n d er
s ect i on 6 6 6 2 (a) fo r 2 01 2 . Sect i o n 6 6 6 2(a) i m p os es a 2 0 % p en al ty

o n the p o rt i o n
o f an u nd erp aym en t o f t ax at tri b u t ab l e t o an y o f t h e cau s es l is t edi n s ect i o n 6 6 6 2 (b ). Th es e cau s es i n cl u d e (1 ) a s ub s tan t i al u n d ers t at em en to f i n co m e t ax an d (2 ) n eg l i g en ce o r d i s reg ardo f ru l es o r reg u l at i o n s. Sec. 6 6 62 (a) an d (b )(1 )
an d (2 ). Anu n d ers t at em en t o f i n co m e t ax i s th e ex ces s o f (1 ) t h e co rrect t ax o v er (2 ) t h e t ax rep o rt edm i n us an y reb at e (wi th i n the m ean in g o f s ect i o n 6 2 11 (b )(2 )). Sec. 6 6 62 (d )(2 )(A). An u n ders t at em en to f i nco m e t ax i s s ub s t an ti al i f t w o
co n di t i o n s are m et : (1 ) t h e u n d ers t at em en tex ceed s 1 0 % o f t h e co rrect t ax an d (2 ) t h e u n d ers t at em en tex ceed s $ 5 , 0 0 0 . Sec. 6 6 62 (d )(1 )(A). Anu n d erp aym en ti s t h e am ou n t b y wh i ch th e co rrect t ax ex ceed s th e ex ces s
o f (1 ) t he s u m

o f (a) t h e t ax rep o rt edp l u s (b ) am o u n t s n o t s o rep o rt edth atwere p rev i o u s l y as s es s ed(o r co l l ect edwi th o u tas s es sm en t ) o v er (2 ) an y reb at es m ad e- 4 0 -

[* 4 0 ] (wh ere a reb at e i s d efi n edas s o m u ch o f an ab at em en t , cred i t , refu n do r
o th er rep aym en t , as was m ad e o n th e g ro u n dth atth e co rrect t ax was l es s than th e
ex ces s o f am o u n t (1 ) o v er reb at es p rev i o u s l y m ad e). Sec. 6 6 6 4 (a). Sect io n 6 6 6 4 (c)(1 ) p ro v i d es th atth e p en al ty u n d er s ect i o n 6 6 62 (a) d o es n ot ap p ly t o an y p o rt i o n o f t h e u n d erp aym en tt o the ex t en tth at th e t ax p ay er h ad
reas on ab l e cau s e fo r t h at po rt i o n o f t h e u n d erp aym en tan dact edi n g o o dfai th wi t h
res p ectt o t h atp o rt i o n. Sect i o n 1 .6 6 6 4 -4 (b )(1 ), In co m e Tax Reg s ., p ro v id es : Gen eral ly , th e m o sti m

p o rt an tfact o r i s the ex t en to f t h e t ax p ay er’ s effo rtt o as ses s th e t ax p ay er’ s p ro p er t ax l i ab i l i ty . Ci rcu m st an ces th at m ay i n d icat e reas o nab l e cau s e an dg o odfai th i n cl u d e an h o n es t m i s u n d ers t an d i n g o f fact o r l aw t h ati s reas o n ab l e i n l i gh t o f al l o f t h e fact s an dci rcu m s t an ces , i n cl u d i n g the ex p eri en ce, kn owl ed g e, an d edu cat i on o f t h e t ax p ay er. * * * Rel i an ce o n * * * th e ad v i ce o f a p ro fes s io nal t ax ad vi s or * * * d o es n o tn eces s ari l y d em on s trat e reas o n ab l e cau s e an dg o o dfai th
. * * * Rel i an ce o n * * * p ro fes s i on al ad v i ce * * * co n s t i tu t es reas o n ab l e cau se an dg oo dfai th i f, u n der al l th e ci rcu m s t an ces , s u ch rel i an ce was reas o n ab l e an dth e t ax p ay er act edi n g o o dfai th . * * * To es tab li s h reas on ab l e cau s e an dg oo dfai th th ro u g h rel i an ce o n p ro fes s i o n al ad v ice, t h e t ax p ay er m

u s ts h o wth atthree t es t s are s at i s fi ed : “ (1 ) [t ] h e ad v i s er was
a co m p et en tp ro fes s i on al wh o h ad s uffi ci en t ex pert i s e t o ju s t ify rel i an ce, (2 ) t h e t ax p ay er p ro v i d edn eces s ary an daccu rat e i n fo rm at i o n t o th e ad v is er, an d (3 ) t h e t ax p ay er act u al l y

rel i edi n g o o dfai th o n th e ad vi s er’ s ju d g m en t .” Neo n at o l o g y As s ocs ., P.A. v
. Co m

m i ss i o n er, 1 1 5 T.C. 4 3 , 9 9 (2 0 0 0 ), aff’ d, 2 9 9 F.3 d 2 2 1 (3 d- 4 1 -

[* 4 1 ] Ci r. 2 0 0 2). To s at i sfy th e th i rdt es t, th e t ax p ay er m u s ts h o w thatth e t ax p ro fes s i on al “ o p i n e[d ] o n th e l eg i t i m acy ” o f t h e as p ect s o f t he ret u rnthatwere l at er ch al l en gedb y

th e IRS. Id . at1 00
. Th e IRS b ears the i n it i al b u rd eno f p ro du ct i o n reg ard i n g th e ap pl i cab i l i ty o f th e s ect i o n 6 6 6 2 (a) p en al ty . Sec. 7 4 9 1 (c). On ce t h e IRS m eet s i t s b u rd en o f p ro duct i o n , th e t ax p ay er m u s tco m e fo rwardwi th p ers u as iv e ev i d en ce th atth e
s ect i on 6 6 6 2 (a) p en al ty

i s i n ap p l i cab l e, fo r ex am p l e b ecau se a p ort i o n o f t h e
u n d erp aym en t i s due t o reas on ab l e cau s e an dthe t ax p ay er act edi n g o odfai th wi t h
res p ectt o t h e p ort i o n . Hi gb ee v . Co m m i s s i o n er, 1 16 T.C. 4 3 8 , 4 4 6-4 4 7 (2 0 0 1 ). Sect io n 6 7 5 1 (b ) p ro v i d es th atth e i n i t i al d et erm i n at i o n t o i m p o s e cert ai n p en al t i es , i n cl u d i n g th e s ect i o n 6 6 62 (a) p en al ty , m u s t b e p ers o n al ly

ap p ro v edi n wri t in g b y

th e i m m ed i at e s up erv i s o r o f t h e p ers o n m ak i n g th e d et erm i n at i o n . See Graev v . Co m

m i s si o ner, 1 4 9 T.C. 4 8 5 , 4 9 3 (2 01 7 ) (h o ld i n g t h atth e IRS’ s b u rd en
o f p ro du ct i o n u n d er s ect i o n 7 4 9 1 (c) i n cl u d es es tab l i s h i n g co m p l ian ce wi th s ect i on 6 7 5 1 (b )), s up p l em en ti ng an do v erru l in g i n p art 1 4 7 T.C. 4 6 0 (2 0 1 6 ). Th e Has k i n s es co nced edattri al th atth e s up erv i s o ry -ap p ro v al req ui rem en t
o f s ect i o n 6 7 51 (b ) h as b een m et . Sh o u l dth e Ru l e 1 5 5 co m p ut at i o n s s h o w a
s ub s t an t i al u n ders t at em en to f i nco m e t ax fo r 2 0 1 2 , th e IRS wi l l h av e m eti t s b u rd eno f p ro du ct i o n fo r th e s ect i o n 6 6 62 (a) p en al ty .- 4 2 -

[* 4 2 ] Th e rem ai n i n g i s s ue fo r u s t o d eci d e i s wh et h er t h ere i s an y p ort i o n o f t h e
u n d erp aym en t fo r 2 0 1 2 th ati s du e t o reas on ab le cau s e an dfo r wh i ch th e Has ki n s es act edi n g o o d fai th
. Th e Has k i n s es co nt en d th atth ere are fo u r reas o n s s h o wi n g th atth ey h ad
reas on ab l e cau s e fo r, an d act edi n g o o dfai th wi th res p ectt o , cl ai m i ng th e fo rei g n earn ed -i n co m e ex cl u s i o n fo r 2 0 1 2
. Fi rs t , th ey

co nt en d th at , atth e SAIC t ax b ri efi n g i n t h e fal l o f 2 01 1 , M s . Has ki n s was t ol d t hats h e n eed edt o s at i s fy o n l y th e 3 3 0 -d ay

t es t t o qu al i fy

fo r t h e fo rei gn -earn ed -i n co m e ex cl u s i o n . Ab o u t th i s b ri efi n g, s h e t es t i fi edth at“ th e
co m p an y SAIC h adt ol dm e i f y o um eetth e 3 3 0 d ay s i n co u n try , th en y o u qu al i fy
. ” Th e p ro p o si t i on th at th e 3 3 0 -d ay t es t i s th e o n l y

req u i rem en tfo r cl ai m i ng th e fo rei g n -earn ed -i n co m e ex cl u s io n i s co nt raryt o th e t ex to f s ect i o n 9 1 1 . Sect i o n 9 1 1 (d )(1 ) requi res an i n d i v i du al t o b o th h av e a t ax h o m e i n a fo rei g n
co u nt ry an ds at i s fy

th e 3 3 0 -d ay

t es t(o r al t ern at i vel y th e res i d en cy t es t). M o re g en eral l y , th e Has k in s es h av e n o tp ro v en thath er p art ici p at i o n i n th e SAIC t ax b ri efi n g ju s t i fi es th e co n cl u s i o n th ats h e m ad e a reas o n ab l e at t em p tt o co m p l y wi t h th e p ro v i s i o n s o f s ect i o n 9 1 1 . Th e reco rdl eav es u n an s wereds ev eral i m p o rt an t qu es ti o n s ab o u tth e SAIC t ax b ri efi n g . W ere t he p ers o n s wh o g av e t h e t ax- 4 3 -

[* 4 3 ] b ri efi n g kn o wl ed g eab l e en o u g h t o g i v e t ax ad v i ce t o M s . Has k i ns ? Di dth ey kn o w fact s s p eci fi c t o M s . Has k i n s ? Wh atex act l y d id they t el l M s . Has k i n s ? Seco n d , th e Has k i n s es co n t en d th atth e J u n e 1 1 , 2 0 1 2 em ai l fro m M r. Stu dni ck i co n fi rm edth atM s . Has k i ns was en t i t l ed t o th e fo rei g n -earn ed -i n co m e
ex cl u s i o n . Al th o ug h M r. Stu dn i ck i ’ s em ai l d i s cu s s edth e 3 30 -d ay req u irem en tfo r th e fo rei gn -earn ed -i n co m e ex cl u s i o n , th e em ai l d i dn o t s ay th i s was th e o n l y req u i rem en tfo r cl ai m i ng th e ex cl u s i o n . Th ere i s n o reas o n t o t h i n kthatM r. Stu dni ck i was qual i fi edt o g i ve t ax ad v i ce an yway . Th e Has k i n s es h av e n o t p ro v enth atth e ex ch an g e o f em ai l s i n J u n e 2 0 12 ju s t i fi es th e co n cl u si on th atM s . Has ki n s m ad e a reas on ab l e at t em p tt o co m pl y wi th t h e p ro v i s i o n s o f s ect i on 9 1 1
. Th i rd , the Has k i n s es co nt en dth at , wh enM s . Has k i n s u sedth e web s it e t ax s l ay er.co m i n Oct ob er 2 0 12 t o p rep are t h e 2 0 1 1 return , th e web s i t e as k edh er qu es ti o n s ab o u th er el i g i b i l i ty t o cl ai m th e fo rei g n -earn ed -i n co m e ex cl u s i on an d d et erm i n edth ats h e was el i g i b le. YetM s . Has k i ns d i dn o ts ay wh atqu es t i o n s were p o s edb y th e web s it e, wh atan s wers s h e g av e i n res po n s e, o r wh ats p eci fi c ad v ice t h e web s i t e s up p l i ed . Fu rt herm o re, t h e reco rdd o es n o trev eal wh et h er s h e
was co m m u ni cat i ng wi th an actu al p ers o n o r wi th an au t o m at ed p ro ces s . Th e Has ki n s es h av e n o t p ro v en th atth e co m m u n i cat i o ns M s. Has k i n s h adwi th th e- 4 4 -

[* 4 4 ] t ax s l ay er.co m

web s i t e ju s t i fy

th e co n cl u s io n th ats h e m ad e a reas o n ab l e at t em p tt o co m p l y wi th th e req ui rem en t s o f s ect i o n 9 11
. Fo u rt h , M s . Has k in s cl ai m edth ats h e kn ew o th er co n tract o rs i n Afg h an i s tan wh o h ad cl ai m edth e fo rei g n-earn ed -i n co m e ex cl u s i o n o n thei r retu rn s an dwere
n o tau di t ed . Th is fact u al cl ai m i s m ad e o n b ri ef an di s n o ts up po rt edb y th e
reco rd . W e d o n o tco ns i d er i t. See Bi al o v . Co m m i s s i o n er, 8 8 T.C. 1 1 3 2 , 1 1 4 0 (1 9 8 7). Rel i an ce o n p ro fes s i o n al ad v i ce m ay co n s t i tu te reas o nab l e cau s e an dg o o d fai th
. Sec. 1 .6 6 6 4 -1 (b )(1 ), In co m e Tax Reg s . Ho wev er, n o n e o f t h e
co m m u n icat io ns d i s cu s s edab o v e (i .e., the ad v ice g iv en atthe SAIC t ax b ri efi n g , th e em ai l fro m

M r. Stud ni ck i , an dth e co m m un i cat i o n s fro m t ax s l ay er.co m ) m eet s th e t h ree t es t s fo r rel i ab i l i ty as p ro fes s i o n al ad v i ce. See Neo n at o l o gy As s o cs ., P.A. v . Co m

m i s s i on er, 1 1 5 T.C. at9 9 . Fi rs t , th e Has k in s es d idn o t p ro v e t h atan y
o f t h e co m

m u n i cat io ns were m ad e b y a kn o wl ed g eab l e, ex p eri en cedad v i s er. Seco n d , th e Has k i n s es d i dn o t p ro v e t h atthey g av e al l th e i nfo rm at i o n n eces s ary t o ev al u at e en t i t l em en tt o th e fo rei g n -earn ed -i n co m e ex cl u s i o n . Th ird , th ey d i d
n o tp ro v e t h atan y o n e actu al l y arri v edatth e ju d g m en to r g av e t h e o pi n i o n th atM s . Has ki n s was en t i t l edt o th e fo rei g n -earn ed -i n co m e ex cl u si o n .- 4 5 -

[* 4 5 ] Th e Has k i n s es arg u e t h atM s . Has k i n s d i d n oth av e acces s t o a real t ax p ro fes s i on al wh en s h e p rep aredth e 2 0 11 retu rn b ecau s e s h e was i n Afg han i s t an . M s . Has k i n s was i n Afg h an i s t an fro m Oct o b er 2 0 1 1 t o No vem

b er 2 0 1 2 . Th i s p eri o di n cl u d es Oct o b er 2 0 1 2 wh en s h e p rep aredth e 2 0 1 1 retu rn . Ho wev er, M s . Has ki n s was i n t h e Un i t edSt at es i n 2 0 1 3 wh en s h e p rep ared th e 2 0 1 2 ret u rn . M s . Has ki n s d i d n o t co n s u l t a t ax p ro fes s i o n al reg ard i ng th e 2 0 1 2 return . No r d i ds h e d o an y res earch o n h er o wnt o d et erm i n e wh et her s he was en t i t l edt o th e fo rei g n earn ed -i n co m e ex cl u s i o n . As s h e cred i b l y t es ti fi ed : “ [I] t was n o tu n ti l I recei v ed th e n o ti ce fro m

th e IRS s ay i n g I d i dn o t m eetthe req u i rem en t s , th atI s t art edd o i n g
res earch t o fi n do utwh atth e act u al req ui rem en t s were.” Th u s , M s . Has ki n s d i dn o tg etp ro fes s i o n al ad v i ce o n th e m at t er. No r d i d
s h e d o res earch h ers el f. Th e Has k i n s es d i d n o t h av e reas o n ab l e cau s e fo r, o r acti n g oo dfai th wi th
res p ectt o, cl ai m i n g th e fo rei gn -earn ed -i n co m e ex cl u s i o n . Th erefo re th ey d i dn o t h av e reas o n ab le cau s e fo r, o r acti n g o o d fai th wi th res p ect t o , th e p o rt io n o f t h e
u n d erp aym en t co rres p on d i n g t o th ei r cl ai m o f t h e fo rei g n -earn ed -i n co m e
ex cl u s i o n . As we p rev i o u s ly o b s erv ed , the Has k i n s es d o n o targ u e t h atth ey h ad
reas on ab l e cau s e fo r, o r act edi n g o o dfai th wi th res p ectt o , an y o ther p ort i on s o f th e u n derp aym en t.- 4 6 -

[* 4 6 ] Th e Has k i n s es are l i ab l e fo r t he accu racy -rel at ed p en al ty u n der s ect i o n 6 6 6 2 (a) fo r 2 0 1 2 t o th e ex t en tth ere was a s ub s t an t i al u n d ers t at em en to f i n co m e t ax fo r t haty ear. To refl ectthe fo reg o i n g , Deci s i o n wi ll b e en t eredu n d er Ru l e 1 5 5
.