T.C. Summary Opinion 2010-166

UNITED STATES TAX COURT

AIDA B. ABIOG, Petitioner v.

COMMISSIONER OF INTERNAL REVENUE, Respondent

Docket No. 14886-09S. Filed November 2, 2010. 

Caroline DeLisle Ciraolo, for petitioner.

Tyler N. Orlowski, for respondent.

GOLDBERG, Special Trial Judge: This case was heard pursuant

to the provisions of section 7463 of the Internal Revenue Code in

effect at the time the petition was filed. Pursuant to section

7463(b), the decision to be entered is not reviewable by any

other court, and this opinion shall not be treated as precedent

for any other case. Unless otherwise indicated, subsequent

section references are to the Internal Revenue Code (Code) in
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effect for the years in issue, and all Rule references are to the

Tax Court Rules of Practice and Procedure.

Respondent determined deficiencies in petitioner’s 2005,

2006, and 2007 Federal income taxes of $2,406, $8,464, and $388

and section 6662(a) accuracy-related penalties for each year of

$481, $1,693, and $78, respectively. After concessions,1 the

issues for decision are: (1) Whether petitioner’s salary for

2005, 2006, and a portion of 2007 from the Baltimore, Maryland,

City Public Schools (BCPS) is exempt from Federal income tax

under the Convention With Respect to Taxes on Income, U.S.-Phil.,

art. 21, Oct. 1, 1976, 34 U.S.T. 1277 (article 21); (2) whether

petitioner is entitled to deduct certain employment, living,

transportation, and medical expenses that she claimed for 2005

and 2006; and (3) whether petitioner is liable for the accuracyrelated penalty under section 6662(a) for the 3 years at issue.

Background

Some of the facts have been stipulated and are so found. 

The stipulation of facts and the attached exhibits are

incorporated herein by this reference. Petitioner resided in

Maryland when she filed her petition.

1Respondent also determined that petitioner did not include

State income tax refunds and interest income in her gross income

for 2006 and 2007. Petitioner did not address these issues at

trial; therefore, the issues are deemed conceded. See Rule

149(b).
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Petitioner is a citizen of the Republic of the Philippines. 

She received a bachelor’s degree in elementary education and a

master’s degree in educational administration, both from a

university in the Philippines.2 Petitioner has taught since 1997

and was a sixth grade teacher for the Sofronio Espanala District

in Palawan, Philippines, from 2002 until she left the Philippines

in 2005. Petitioner entered the United States on June 22, 2005,

arriving in Baltimore to teach for BCPS as part of an

international teaching exchange program sponsored by the U.S.

Department of State (the State Department). 

Amity Institute (Amity) is a nonprofit organization the

State Department approved to operate an exchange teacher program. 

The exchange teacher program allows qualified foreign teachers to

enter the United States to teach for up to 3 years. Amity does

not directly recruit teachers from the Philippines. During 2004

and 2005 Amity worked with Badilla Corp. (Badilla), a business

entity from the Philippines, and with Avenida & Associates, Inc.

(Avenida), a business entity from the United States. Badilla and

Avenida are affiliated entities, and they worked together to

facilitate the placement of qualified Filipino teachers in

American schools. Badilla collected background information such

2In petitioner’s affidavit attached to her opposition to

respondent’s motion for partial summary judgment (the affidavit),

petitioner states that she received her degrees from Palawan

University. At trial, petitioner testified that she received her

degrees from Cagayan State University.
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as transcripts and résumés from teachers in the Philippines who

were interested in the exchange teacher program in the United

States. Badilla found its prospective Filipino teachers

principally by word of mouth and seminars conducted by its

executives. Avenida or Badilla charged placement fees and

additional charges to help teaching candidates with, among other

tasks, finding employers in the United States and obtaining

visas. In the United States, Avenida helped school districts

find promising teaching candidates by providing access to a

database of overseas jobseekers.

In late 2004 petitioner attended an orientation session for

an exchange teacher program Badilla sponsored. She ultimately

submitted her transcript and résumé to Badilla. BCPS worked with

Avenida to receive access to a preselected list of qualified

Filipino teachers. This was the first time BCPS had recruited

teachers from the Philippines. From the preselected teachers

BCPS administrators chose the candidates the school system wanted

to interview. In January 2005 George Duque, manager of

recruitment and staffing for BCPS, traveled to the Philippines to

interview petitioner and other teaching candidates. Shortly

afterwards Badilla informed petitioner that BCPS would be

offering her employment for the 2005-2006 school year. 

Petitioner received a letter from BCPS dated January 6, 2005,

officially offering her employment for the 2005-2006 school year. 
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Generally, foreign teachers who want to teach in the United

States may obtain one of two types of visas. One is the H-1B

visa for working professionals. The second is the J-1 visa for

individuals coming to the United States under a cultural exchange

program approved by the State Department. The J-1 visa is more

convenient for foreign individuals who are new teachers in the

United States because the visa timing coincides with the academic

year in the United States. Petitioner paid Avenida $5,200 for

the following fees: A $3,200 placement fee, a $725 U.S.

documentation fee, a $500 J-1 visa processing fee, and $775 for

airfare and travel.

Amity sponsored petitioner’s J-1 visa. The State Department

authorized Amity to issue Form DS-2019, Certificate of

Eligibility for Exchange Visitor (J-1) Status. The form

identifies the visitor; identifies the visa sponsor; briefly

describes the exchange program, including the start and end

dates; identifies the category of exchange; and states the

estimated cost of the exchange program. The exchange teacher

program cost $3,000. At all relevant times, Gertrude Hermann was

Amity’s executive director.

An Amity representative explained to petitioner that if she

accepted the teaching offer, BCPS would be evaluating her

performance throughout the school year. If her performance was
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satisfactory, BCPS would continue her employment for the

following school year.

In a letter to petitioner dated April 11, 2005, Amity

confirmed BCPS’ offer. On April 19, 2005, petitioner signed an

Amity exchange teacher contract with Amity and BCPS. Amity

prepared a Form DS-2019 for petitioner’s signature and mailed it

to her. The length of time listed on the Form DS-2019 for

petitioner’s visa was 3 years, the same length of time as the

exchange teacher program. Petitioner signed the form and

returned it to Amity for processing.

Petitioner took three courses as prerequisites to teach for

BCPS. She also requested and received a 1-year leave of absence

from her teaching position in the Philippines, for the period

June 15, 2005, through June 14, 2006. Petitioner did not request

a second leave of absence. Petitioner arrived in Baltimore on

June 22, 2005. On June 30, 2005, petitioner signed a “3 months

with option to extend” lease for an apartment at The Belvedere

Towers Apartments. Petitioner exercised the option and resided

in that apartment until July 31, 2006. She signed a 1-year lease

on August 2, 2006, for a different apartment in the same

apartment building. At all relevant times, petitioner owned

property in the Philippines. 

During the years at issue up to the time of trial,

petitioner was married and had three children. In an email to
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Amity dated July 8, 2005, petitioner inquired into the process

for bringing her family to the United States. She was informed

that teachers participating in the exchange teacher program could

not bring family to the United States until the teachers received

a satisfactory evaluation from their schools. Thus, petitioner’s

first opportunity to bring her family to the United States would

be after she completed her first year of teaching for BCPS. 

Petitioner’s family came to the United States in August 2006 and

moved into the new apartment, with petitioner, that she leased on

August 2, 2006. Her husband requested and received two leaves of

absence from his employer in the Philippines. The first, for the

period November 14, 2006,3 through December 7, 2007, lists

“vacation” as the reason for the request. The second, for the

period December 5, 2007, through February 26, 2008, lists “sick”

as the reason for the request. Petitioner and her husband

purchased a single-family home in Baltimore in 2009.

On August 10, 2005, petitioner signed a standard Provisional

Contract for Conditional or Resident Teacher Certificate Holders

(BCPS employment contract), effective beginning August 24, 2005. 

The BCPS employment contract was for 1 year, terminating at the

end of the 2005-2006 school year. It is the only contract that

petitioner signed with BCPS. All first-year teachers who did not

3No explanation was provided for why petitioner’s husband’s

leave of absence did not begin August 2006 when he moved to

Baltimore.
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have full professional certification signed a similar BCPS

employment contract. BCPS assigned petitioner to teach sixth

grade mathematics at Diggs-Johnson Middle School (Diggs-Johnson).

The BCPS employment contract required teachers to take the

Praxis I and II tests, which are part of the teacher

certification process that many States require, including

Maryland. Petitioner completed the Praxis I test in late 2006

and the Praxis II in 2007. Petitioner received a Maryland

education certificate in 2007, valid from July 1, 2005, through

June 30, 2010. 

Working in the United States provided petitioner with a

salary that was considerably greater than what she had earned in

the Philippines. Petitioner had earned approximately 10,000

Filipino pesos a month teaching in the Philippines, equivalent to

$179 per month or $2,148 per year. Petitioner’s annual salary

for her first year of teaching for BCPS was $37,157, which

increased to $51,263 and $58,262 for her second and third years,

respectively. 

With respect to Federal income tax withholding, petitioner

did not provide BCPS with Form 8233, Exemption From Withholding

on Compensation for Independent (and Certain Dependent) Personal

Services of a Nonresident Alien Individual. Consequently, BCPS

withheld Federal income tax from petitioner’s salary during 2005,

2006, and 2007. 
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Petitioner engaged professional tax preparers to prepare her

2005, 2006, and 2007 Federal income tax returns.4 For 2005 and

2006 petitioner filed Forms 1040NR, U.S. Nonresident Alien Income

Tax Return. For 2007 she filed Form 1040, U.S. Individual Income

Tax Return. Petitioner reported that her salary from BCPS for

the 2005 and 2006 calendar years was exempt from taxation in the

United States under article 21. Petitioner included all of her

earnings from BCPS for 2007 on her 2007 Federal income tax

return. In her amended petition, however, she contended that the

first 6 months of her 2007 earnings from BCPS were also exempt

from Federal income tax under the 2-year exclusion of article 21.

Petitioner claimed total itemized deductions of $25,636 for

2006. This amount consisted of $4,152 for State and local taxes,

$175 for charitable contributions, $21,259 for unreimbursed

employee expenses, and $50 for tax preparation fees. She claimed

no deductions for 2005, and she claimed the $7,850 head of

household standard deduction for 2007. As a result of the income 

exclusion, income tax withholding, and deductions, petitioner

requested refunds for each year 2005 through 2007.

Petitioner returned to the Philippines on June 9, 2008,

before her J-1 visa expired on June 27, 2008. She applied for

4In the affidavit, petitioner states that Fred Pacheco

prepared all of the returns at issue. At trial, she testified

that Mr. Pacheco prepared the 2005 and 2006 returns and that

Martha Newby prepared the 2007 return. 
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and obtained an H-1B visa valid from July 14, 2008, through June

20, 2010. Petitioner was subsequently granted another H-1B visa

valid from October 1, 2009, through September 30, 2012. She

returned to the United States, and as of the date of trial, she

continued to be employed by BCPS. 

The Internal Revenue Service (IRS) selected petitioner’s

2005, 2006, and 2007 Federal income tax returns for examination. 

The examining agent sent three questionnaires to petitioner: 

Form 8784, Questionnaire - Temporary Living Expenses; Form 9210,

Alien Status Questionnaire; and Form 9250, Questionnaire - Tax

Treaty Benefits. Petitioner completed the forms, dated her

signature September 20, 2008, and returned the forms to the IRS. 

The Court received into evidence copies of the three

questionnaires that petitioner had completed. On Forms 8784 and

9210 petitioner wrote that June 22, 2005, was her date of initial

arrival and that at that time she expected to remain in the

United States for 3 years. She answered the next question on

both forms indicating that she revised and renewed her visa

status so that she could stay in the United States for another 3

years. 

In the notice of deficiency dated March 23, 2009, the IRS

adjusted petitioner’s income to include the earnings from BCPS

for 2005 and 2006 that petitioner had excluded under article 21. 

In addition, the IRS disallowed the total amount of $21,259
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deducted as unreimbursed employee expenses for 2006. The $21,259 

consisted of $9,150 for rent, $500 for home furnishings, $1,320

for transportation costs, $1,368 for household insurance, $2,500

for meals, $200 for school supplies, and $6,221 for job search

expenses. The $21,259 amount was categorized as “job search

costs” on petitioner’s 2006 Schedule A, Itemized Deductions. 

Petitioner filed her petition contesting all of respondent’s

adjustments. 

Respondent moved under Rule 121 for partial summary judgment 

concerning the issue of whether petitioner qualified in the years

at issue for the exemption under article 21. Petitioner objected

to the granting of the motion. The issue was fully briefed by

both parties. The motion was set for hearing at trial. When the

case was called for trial, the motion was heard. The parties

relied on their respective positions set forth in their briefs. 

The motion for partial summary judgment has been denied.

The case was then tried, and the Court heard testimony from

petitioner, Mr. Duque, and Ms. Hermann. The Court also received

into evidence a form BCPS completed for Amity entitled “Addendum

to Amity Confirmation of Employment Form 2007/2008” (the

addendum). Mr. Duque signed and dated the form July 1, 2007. 

The addendum showed that BCPS had retained 170 of the 178 (95.5

percent) Filipino teachers in the past 2 years who had taught for

BCPS through Amity’s exchange teacher program. 
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Discussion

I. Income Under Article 21

Petitioner was a nonresident alien for the years at issue

because of her J-1 visa status and her participation in the

exchange teacher program. See sec. 7701(b). In particular,

section 7701(b)(1)(B) provides that a nonresident alien is a

person who is not a citizen or resident of the United States

within the meaning of section 7701(b)(1)(A).5 Generally, a

nonresident alien individual engaged in trade or business within

the United States is taxed on the taxable income effectively

connected with that trade or business. Sec. 871(b). The phrase

“trade or business within the United States” generally includes

the performance of personal services within the United States at

any time within the taxable year. Sec. 864(b). Compensation

paid to a nonresident alien in exchange for the performance of

services in the United States constitutes income that is

effectively connected with the conduct of trade or business in

the United States. Sec. 1.864-4(c)(6)(ii), Income Tax Regs. 

Consequently, petitioner’s wages would ordinarily be included in

gross income under the Code. Section 894(a), however, provides

that the provisions of the Code will be applied to any taxpayer

5As a teacher, petitioner is considered an exempt

individual, and, therefore, not treated as present for purposes

of the substantial presence test. See sec. 7701(b)(1)(A)(ii),

(3)(D)(i), (5)(A)(ii).
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with due regard to any treaty obligations of the United States

that apply to the taxpayer. Therefore, the treatment of

petitioner’s wages might be altered by applicable treaty

provisions. See id.

The United States is a party to an income tax convention

with the Republic of the Philippines. The convention provides an

exemption from U.S. income taxation on income earned by Filipino

teachers teaching in the United States if the requirements of the

convention are satisfied. Article 21 states:

Article 21

TEACHERS

(1) Where a resident of one of the Contracting

States is invited by the Government of the other

Contracting State, a political subdivision or local

authority thereof, or by a university or other

recognized educational institution in that other

Contracting State to come to that other Contracting

State for a period not expected to exceed 2 years for

the purpose of teaching or engaging in research, or

both, at a university or other recognized educational

institution and such resident comes to that other

Contracting State primarily for such purpose, his

income from personal services for teaching or research

at such university or educational institution shall be

exempt from tax by that other Contracting State for a

period not exceeding 2 years from the date of his

arrival in that other Contracting State. 

To qualify for the exemption under article 21, a taxpayer

must meet the following requirements: (1) The taxpayer was a

resident of the Philippines before coming to the United States;

(2) she was invited by the Government or a recognized educational

institution within the United States; (3) she was invited for a
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period not expected to exceed 2 years; (4) the purpose of the

invitation was for her to teach or engage in research at the

recognized educational institution; and (5) she did in fact come

to the United States primarily to carry out the purpose of the

invitation. All of the requirements of article 21 must be

satisfied in order for petitioner to qualify for the income

exemption. The only requirement in dispute is whether

petitioner’s invitation to teach in the United States was “for a

period not expected to exceed 2 years”. 

The text of article 21 does not specifically state whose

expectation controls the length of the invitation to teach for a

period not to exceed 2 years. Petitioner argues that her

expectation as the invitee is the only expectation that matters. 

Respondent counters that either the expectation of the invitor,

BCPS, should be decisive, or the Court should weigh the

expectations of all the parties associated with the exchange

teacher program. In the light of this ambiguity in the text of

article 21, we will consider all the relevant facts and

circumstances, including the expectations of all the parties. 

See Santos v. Commissioner, 135 T.C. __, __ (2010) (slip op. at

17). We will construe the language of the treaty liberally. See

N.W. Life Assurance Co. of Can. v. Commissioner, 107 T.C. 363,

378 (1996). Then we will make an objective determination of

whether petitioner was invited to the United States “for a period
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not expected to exceed 2 years”. See Santos v. Commissioner,

supra.

A. Burden of Proof

Generally, the Commissioner’s determination of a deficiency

is presumed correct, and the taxpayer bears the burden of proving

that the deficiency is incorrect. Rule 142(a); Welch v.

Helvering, 290 U.S. 111, 115 (1933). Furthermore, any deductions

allowed are a matter of legislative grace, and the taxpayer bears

the burden of proving his entitlement to them. Rule 142(a);

INDOPCO, Inc. v. Commissioner, 503 U.S. 79, 84 (1992); New

Colonial Ice Co. v. Helvering, 292 U.S. 435, 440 (1934). 

Under section 7491(a) the burden may shift to the

Commissioner regarding factual matters affecting a taxpayer’s

liability for tax if the taxpayer produces credible evidence and

meets other requirements of the section. Petitioner moved for a

burden shift under section 7491(a), contending that she produced

credible evidence and met the other requirements of the section. 

Respondent objected, contending that “petitioner has failed to

introduce credible evidence to support her assertion that her

stay in the United States was expected to last 2 years or less.” 

We need not, and we explicitly do not, decide which party bears

the burden of proof because as discussed above, applying Santos

v. Commissioner, supra, we will decide this case on an objective

consideration of all the relevant facts and circumstances.
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B. Analysis

We begin our analysis with a discussion of the evidence that

relates to petitioner’s expectation. Petitioner’s reliance on

the apartment leases and the 1-year BCPS employment contract is

unconvincing. One-year apartment leases are commonplace and do

little to indicate a tenant’s long-term expectation to remain in

an area. Moreover, petitioner resided in her first apartment for

a year and 1 month. Her family moved to Baltimore in August

2006, at or about the time she signed her second apartment lease,

which was for 1 year. Thus petitioner’s two leases covered a

period of more than 2 years. 

Likewise, BCPS required all of its first-year teachers to

sign what amounts to a standard 1-year employment contract. The

fact that the contract did not guarantee employment beyond the

first year does not mean that petitioner expected to stay in the

United States for only 1 year. Amity had informed petitioner

that so long as her performance was satisfactory, BCPS would

retain her. Petitioner testified that she expected to receive a

satisfactory evaluation from BCPS. We believe that petitioner

could reasonably expect that BCPS would employ her for the second

and third years and perhaps beyond. In fact, petitioner did

receive a satisfactory evaluation at the end of the 2005-2006

school year, and petitioner’s family moved to Baltimore to reside

with her.
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More persuasive are petitioner’s own words in her answers on

the three IRS questionnaires. Her answers indicate that her

initial expectation was to remain in the United States for the

entire length of the J-1 visa and the entire length of the 3-year

exchange teacher program. In response to this evidence against

her, petitioner testified that she did not have any help filling

out the forms and that no one explained the forms to her. 

Although this may be true, petitioner’s testimony does little to

support her argument because she has a master’s degree in

educational administration, she speaks fluent English, and the

questions on the forms are straightforward, not requiring any

technical knowledge. 

Furthermore, petitioner introduced no evidence that she

expressed to any of the parties involved that she expected to

return to the Philippines within her first 2 years in the United

States. Similarly, petitioner did not testify at trial that she

expected to return home within the first 2 years. Instead, she

stated that she determined her expectation regarding the length

of her stay on a “year-to-year” evaluation of her situation.

It is important to note that one goal of the exchange

teacher program was for the exchange teacher to share her

experiences in the United States with Filipino students when the

teacher returned to the Philippines at the conclusion of the

exchange program. When questioned about this goal, petitioner
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testified that she wanted to share what she learned in the United

States with Filipino students “if I had a chance to”.

Petitioner’s testimony bolsters the argument that she expected to

be in the United States for as long as she could legally stay in

the country and that she had no expectation of returning to the

Philippines within 2 years. 

We also find it highly significant that despite the fact

that petitioner stated that she enjoyed teaching in the

Philippines more than in the United States, she remained in

Baltimore teaching at Diggs-Johnson and as of the date of trial

continued to work for BCPS. Petitioner’s actions indicate a

strong commitment to staying in the United States. The fact that

petitioner did not renew her leave of absence in the Philippines,

while not a decisive factor, also weighs against her argument.

In addition, we cannot ignore the financial incentive of

remaining in the United States for as long as possible. 

Petitioner incurred more than $8,000 in expenses to participate

in the exchange teacher program and to relocate to the United

States. We also cannot ignore the fact that petitioner inquired

into the process for bringing her family to the United States

before she started teaching and then spent a substantial amount

of money to move her family to Baltimore in 2006. The money

petitioner spent to move herself and her entire family to

Baltimore is not an insignificant sum in comparison to her
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earnings in the Philippines. Moreover, her earnings immediately

grew seventeenfold from $2,148 to $37,157 when she moved from the

Philippines to the United States. Further, her earnings of

$58,262 in 2007, which was her third year at BCPS were, 57

percent greater than her first-year salary.

From the perspective of BCPS, the school system certainly

would not have invested so much time, money, and effort in

recruiting teachers from the Philippines if it did not expect

that the teachers would remain at least for the length of the 3-

year exchange teacher program. Mr. Duque likewise testified that

BCPS wanted to retain the teachers it hired for as long as

possible. Corroborating this testimony is the evidence from the

addendum showing that BCPS retained an extremely high percentage,

95.5 percent, of the Filipino teachers it hired through the

exchange program. Additionally, Ms. Hermann testified that BCPS,

similar to the other school systems that hired foreign teachers

through the exchange program, expected the teachers to stay for

the entire 3-year program. She added that it had been Amity’s

experience that only a small percentage of Filipino teachers

returned to the Philippines before completing the 3-year exchange

teacher program and that most of participants decided to remain

in the United States beyond the 3 years. The testimony of these

witnesses is plausible, reliable, and persuasive.
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In conclusion, after an objective examination of all of the

relevant facts and circumstances, we find that petitioner and

BCPS expected petitioner to stay in the United States for at

least 3 years, which is longer than the “not expected to exceed 2

years” requirement of article 21. Therefore, petitioner’s income

for June 2005 to June 2007, the first 2 years she was in the

United States, is not exempt from Federal income tax under

article 21.

II. 2006 Disallowed Unreimbursed Employee Expenses--$21,259

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

business expenses paid or incurred during the taxable year in

carrying on any trade or business. The performance of services

as an employee is considered a trade or business for section 162

purposes. Primuth v. Commissioner, 54 T.C. 374, 377 (1970). For

an expense to be necessary, it must be “appropriate and helpful”

to the taxpayer’s business. Welch v. Helvering, 290 U.S. at 113-

114. An expense will be considered ordinary if it is a common or

frequent occurrence in the type of business in which the taxpayer

is involved. Deputy v. du Pont, 308 U.S. 488, 495 (1940). In

order to deduct a business expense, a taxpayer must not have

received reimbursement and must not have had the right to obtain

reimbursement from his employer. Orvis v. Commissioner, 788 F.2d

1406, 1408 (9th Cir. 1986), affg. T.C. Memo. 1984-533; Leamy v.

Commissioner, 85 T.C. 798, 810 (1985).
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A. Job Search Costs and School Supplies--$6,421

Included in the disallowed unreimbursed employee expenses is

$6,221 for job search costs and $200 for school supplies.

Petitioner’s $6,221 for job search costs is a combination of

expenses she paid in 2005 and 2006. She paid $5,200 for her J-1

visa and $382 for classes and fees in the Philippines as a

prerequisite to teach for BCPS in 2005. Petitioner substantiated

these amounts and is entitled to a deduction for those amounts in

2005. 

Petitioner paid $750 for the exchange program fee and $50

for fingerprinting in 2006. The exchange program fee was $3,000. 

BCPS paid $1,500 of the fee during petitioner’s first year of the

program. Petitioner was responsible for the two subsequent

annual payments of $750, one made in the second year of the

program and one in the third. Petitioner had to pay the fee to

continue her participation in the exchange program. Petitioner

did not substantiate her $750 payment in 2006, but we are

satisfied that petitioner paid a fee of $750 in 2006 to maintain

her standing in the program. Petitioner did substantiate the $50

fee she paid for fingerprinting. Therefore, petitioner is

entitled to a deduction in those amounts for 2006.

Petitioner deducted $200 for school supplies. She provided

receipts for $106 worth of school supplies purchased in 2005. 

Petitioner provided no receipts for any amounts spent for school
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supplies in 2006. The proper year for the deduction for school

supplies is 2005. We are satisfied that petitioner spent $106

for school supplies in 2005 and was not reimbursed by BCPS.

Therefore, petitioner is entitled to a deduction of $106 for

school supplies for 2005. See sec. 62(a)(2)(D) (certain expenses

of elementary and secondary school teachers are deductible to

determine adjusted gross income). 

B. Personal Living and Commuting Expenses--$13,470

Respondent also disallowed unreimbursed employee expenses

consisting of $9,150 for rent, $2,500 for meals, $500 for

furniture rental or home furnishings, and $1,320 for commuting

between her apartment and her teaching job at Diggs-Johnson. As

a general rule, personal living expenses are nondeductible. Sec.

262; secs. 1.162-2(a), 1.262-1(b)(5), Income Tax Regs. Section

162(a)(2), however, allows a taxpayer to deduct ordinary and

necessary travel expenses, including meals and lodging, paid or

incurred while away from home in pursuit of a trade or business. 

Commissioner v. Flowers, 326 U.S. 465, 470 (1946). 

The reference to “home” in section 162(a)(2) means the

taxpayer’s “tax home”. Mitchell v. Commissioner, 74 T.C. 578,

581 (1980); Kroll v. Commissioner, 49 T.C. 557, 561-562 (1968).

As a general rule, a taxpayer’s tax home is in the vicinity of

his principal place of employment, not where his personal

residence is located, if different from his principal place of
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employment. Mitchell v. Commissioner, supra at 581; Kroll v.

Commissioner, supra at 561-562. An exception to the general rule

exists where a taxpayer accepts temporary, rather than

indefinite, employment away from his personal residence; in that

case, the taxpayer’s personal residence may be his tax home. 

Peurifoy v. Commissioner, 358 U.S. 59, 60 (1958). The purpose of

the exception is to mitigate the burden of the taxpayer who must

incur duplicate living expenses due to the exigencies of

business. Kroll v. Commissioner, supra at 562. For purposes of

section 162(a)(2), the taxpayer is not treated as being

temporarily away from home if the period of employment exceeds 1

year. Sec. 162(a) (flush language).

Petitioner contends that her employment with BCPS was

temporary because the BCPS employment contract she signed was for

only 1 year. She contends that her tax home was in the

Philippines, as that was where she resided with her family. In

other words, according to petitioner, her rent, home furnishings,

and commuting expenses for 2006 are deductible because she

expected to stay in the United States for no more than a year,

the length of the BCPS employment contract, and thus, her job was

temporary. 

Respondent argues that petitioner’s employment at BCPS was

indefinite and that Baltimore became her tax home when she moved
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there to teach beginning August 2005 for BCPS. For the following

reasons, we agree with respondent.

Petitioner took a 1-year leave of absence from her teaching

job in the Philippines when she moved to Baltimore on June 22,

2005. She began teaching at Diggs-Johnson for BCPS in August

2005. We have already found that petitioner intended to remain

in the Baltimore area for at least 3 years to work for BCPS,

which is clearly more than 1 year. Although petitioner testified

to owning property in the Philippines, she provided no evidence

of duplicate living expenses. Accordingly, Baltimore was

petitioner’s principal place of employment and thus Baltimore was

her tax home. Moreover, petitioner’s employment at BCPS was for

more than 1 year and, therefore, not temporary. Consequently,

petitioner is not entitled to claim a deduction for her rent,

meals, home furnishings, or commuting expenses for 2006.

C. Household Insurance--$1,368

Finally, respondent disallowed an unreimbursed employee

expense of $1,368 for “household insurance”. The total amount in

dispute is actually for health insurance. Generally, health

insurance premiums are a medical expense deductible as an

itemized deduction to the extent they exceed 7.5 percent of

adjusted gross income. Sec. 213(a), (d)(1)(D); Kirsch v.

Commissioner, T.C. Memo. 1995-451. Petitioner provided evidence

that she paid health insurance premiums of $36 in 2005, $36 in
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2006, and $180 in 2007. Petitioner has substantiated these

amounts, and she is entitled to a deduction of $36 for 2005 and

$36 for 2006 if the requirements of section 213 are met. 

Although petitioner also substantiated the $180 she paid in 2007,

she did not itemize her deductions that year, claiming instead

the standard deduction for a head of household.

III. Accuracy-Related Penalty

Taxpayers may be liable for a 20-percent penalty on the

portion of an underpayment of tax attributable to negligence,

disregard of rules or regulations, or a substantial

understatement of income tax. Sec. 6662(a) and (b)(1) and (2). 

The term “negligence” in section 6662(b)(1) includes any

failure to make a reasonable attempt to comply with the Code, and

the term “disregard” includes any careless, reckless, or

intentional disregard. Sec. 6662(c). Negligence has also been

defined as the failure to exercise due care or the failure to do

what a reasonable person would do under the circumstances. See

Allen v. Commissioner, 92 T.C. 1, 12 (1989), affd. 925 F.2d 348,

353 (9th Cir. 1991); Neely v. Commissioner, 85 T.C. 934, 947

(1985). Negligence also includes any failure by the taxpayer to

keep adequate books and records or to substantiate items

properly. Sec. 1.6662-3(b)(1), Income Tax Regs. An

“understatement of income tax” is substantial if it exceeds the
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greater of 10 percent of the tax required to be shown on the

return or $5,000. Sec. 6662(d)(1)(A).

The section 6662 accuracy-related penalty does not apply

where the taxpayer shows that he or she acted in good faith and

exercised reasonable cause. Sec. 6664(c)(1). The determination

of whether a taxpayer acted in good faith and with reasonable

cause depends on the facts and circumstances of each case and

includes the knowledge and experience of the taxpayer and the

reliance on the advice of a professional, such as an accountant. 

Sec. 1.6664-4(b)(1), Income Tax Regs. For a taxpayer to rely

reasonably upon advice of a tax adviser, the taxpayer must, at a

minimum, prove by a preponderance of the evidence that: (1) The

adviser was a competent professional with sufficient expertise to

justify reliance, (2) the taxpayer provided necessary and

accurate information to the adviser, and (3) the taxpayer

actually relied in good faith on the adviser’s judgment. 

Neonatology Associates, P.A. v. Commissioner, 115 T.C. 43, 99

(2000), affd. 299 F.3d 221 (3d Cir. 2002). Most important in

this determination is the extent of the taxpayer’s effort to

determine the proper tax liability. Id.

The Commissioner has the burden of production under section

7491(c), with respect to the accuracy-related penalty under

section 6662. To satisfy that burden, the Commissioner must

produce sufficient evidence showing that it is appropriate to
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impose the penalty. Higbee v. Commissioner, 116 T.C. 438, 446

(2001). Respondent has satisfied his burden by producing

evidence that petitioner reported no income for 2005, 2006, and

part of 2007, failed to substantiate claimed deductions, and had

a substantial understatement of income tax for 2006.

Nonetheless, petitioner sought the advice of one return

preparer for her 2005 and 2006 Forms 1040NR and a different

preparer for her 2007 Form 1040. Petitioner stated that her

preparer for 2005 and 2006 was an accountant in the Philippines

and an enrolled agent in the United States. Respondent did not

dispute the competency of either preparer. The preparer of the

Forms 1040NR counseled petitioner that her income was exempt from

taxation in the United States under article 21. Petitioner,

having no formal training in taxation and being new to the U.S.

tax system, reasonably relied upon the advice of a competent tax

preparer and acted in good faith. Respondent’s adjustments for

2007 were minor, and again, petitioner engaged a competent

preparer to prepare her 2007 Federal income tax return. 

Therefore, we do not sustain respondent’s determination that the

section 6662 accuracy-related penalty applies for 2005, 2006, or

2007.
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IV. Conclusion

The Court has considered all arguments made in reaching our

decision, and to the extent not mentioned, we conclude that they

are moot, irrelevant, or without merit.

To reflect the foregoing,

Decision will be entered

under Rule 155.