TAX COURT OPINION

Case: John Joseph Van Ermen & Carolyn Jean Van Ermen
Docket Number: 23364-16
Judge: Morrison
Opinion Type: bench
Filed: 04/02/2018
Pages: 10

UNITED STATES TAX COURT WASHINGTON, DC 20217 PA JOHN JOSEPH VAN ERMEN & CAROLYN JEAN VAN ERMEN, Petitioners v. Docket No. 23364-16. COMMISSIONER OF INTERNAL REVENUE, Respondent ORDER OF SERVICE OF TRANSCRIPT Pursuant to Rule 152(b), Tax Court Rules of Practice and Procedure, it is ORDERED that the Clerk of the Court shall transmit herewith to petitioners and respondent a copy of the pages of the transcript of trial in the above case before Judge Richard T. Morrison, at Chicago, Illinois, on March 21, 2018, containing his oral findings of fact and opinion rendered at the conclusion of trial. In accordance with the oral findings of fact and opinion, an order and will be entered. (Signed) Richard T. Morrison Judge Dated: Washington, D.C. April 2, 2018 SERVED Apr 03 2018 3 1 2 3 4 5 6 7 8 9 Bench Opinion by Judge Richard T. Morrison March 21, 2018 John Joseph Van Ermen & Carolyn Jean Van Ermen v. Commissioner of Internal Revenue Docket No. 23364-16 THE COURT HAS DECIDED TO RENDER ORAL FINDINGS OF FACT AND OPINION IN THIS CASE, AND THE FOLLOWING REPRESENTS THE COURT'S ORAL FINDINGS OF FACT AND OPINION. THE ORAL FINDINGS OF FACT AND OPINION SHALL NOT BE RELIED 10 ON AS PRECEDENT IN ANY OTHER CASE. 11 This bench opinion is made pursuant to the 12 authority granted by section 7459(b) of the Internal 13 Revenue Code of 1986, as amended, and Rule 152 of the Tax 14 Court Rules of Practice and Procedure. 15 16 17 18 19 In this bench opinion, all section references are to the Internal Revenue Code of 1986, as amended and in effect for the tax years in issue. All Rule references are to the Tax Court Rules of Practice and Procedure. The petitioners filed a timely petition after 20 the respondent mailed them a July 26, 2016 notice of 21 deficiency determining deficiencies of $4,522 for 2013 and 22 23 24 25 $2,578 for 2014, and section 6662(a) penalties of $904.40 in 2013 and $515.40 in 2014. We make five holdings. First, we sustain the determinations in the 51E|||| (973)406-2250loperations@esaibermet|wwwescríbers.net notice of deficiency that the petitioners had unreported 4 income in 2013 and 2014. These determinations are found in lines 1.a, 1.b, 1.c, and 1.f of the notice of deficiency. The petitioners failed to challenge these determinations in the petition and have therefore waived any challenge to these determinations. See Rule 34(b)(4). When this case was originally set for trial in October 2017, the respondent filed a pretrial memorandum in which he took the position that because the petitioners had failed to challenge these determinations in the petition, they were 1 2 3 4 5 6 7 8 9 10 11 12 barred from challenging these determinations. The October 13 2017 trial date was continued. Since then, the 14 petitioners have not sought to file an amended petition to 15 controvert the unreported-income determinations. They did 16 not articulate a challenge to those determinations until 17 18 the day of trial, March 19, 2018. At trial, we did not rule on the validity of the respondent's argument that the 19 petitioners' failure to plead a challenge to the 20 determinations of unreported income bars them from 21 challenging the determinations. We reserved ruling until 22 after the trial. We now consider the argument. 23 24 The petitioners contend that a notice from the IRS before the notice of deficiency did not make any 25 unreported-income determinations. But the notice of ) BilllHHil $73)406-2250|operations@escribers.net|wwmescnbers.net 5 1 2 3 4 5 6 7 8 9 deficiency is the document against which petitioners must plead to preserve their challenges. The respondent reasonably relied on the petitioners' failure to plead a challenge to the unreported-income determinations. The respondent noted this failure in 2017. The petitioners did not attempt to correct the failure. Nor did they notify the respondent or the Court that they intended to raise the issue of unreported income. The respondent, who has the burden of proving a connection between the 10 petitioners and the activity giving rise to the unreported 11 12 income, was prejudiced by the petitioners' failure to plead their challenge to the unreported income 13 determinations. At trial, the respondent was relatively 14 unprepared on the unreported-income issue. He would have 15 been better prepared had the petitioners raised the issue 16 earlier. 17 We sustain the determinations in the notice of 18 deficiency regarding unreported income. 19 Second, we hold that the petitioners are not 20 entitled to moving-expense deductions, which they reported 21 22 as $12,600 in 2013 and $7,400 in 2014. As of February 2011, Mr. Van Ermen and his 23 family were living in Oak Park, Illinois. His last job 24 had ended in 2009. In February 2011, Mr. Van Ermen 25 accepted a job in Tampa, Florida. He rented an apartment 73)406-2250|operations@escribersnet]www.escribers.net 6 1 2 3 4 5 6 7 8 9 10 11 in Tampa. His family remained in the house in Oak Park. He flew back and forth between Illinois and Florida. He continued with this arrangement from February 2011 until 2015, when his employment in Tampa ended. He seeks to deduct the costs of his flights between Illinois and Florida in 2013 and 2014 and the rent for his Tampa apartment in 2013 and 2014. Section 217(a) provides a deduction for "moving expenses paid or incurred during the taxable year in connection with the commencement of work by the taxpayer at a new principal place of work." Section 217(b)(1) 12 provides that the term "moving expenses" means only the 13 reasonable expenses of moving household goods and personal 14 effects from the "former residence" to the new residence 15 16 17 18 19 20 21 and of traveling (including lodging) from the "former residence" to the "new place of residence". Section 217(b)(2) allows a deduction for the moving expenses of family members. Mr. Van Ermen's new place of work was at the headquarters of his new employer in Tampa. Therefore he is entitled to deduct moving expenses in connection with 22 the commencement of this work. 23 24 His new place of residence was the apartment in Tampa. His former residence was the house in Oak Park. 25 Thus, under the traveling-expense provlslon of section (973)406-2250|operations@escriberssiet|www.escnbers.net 7 1 2 3 4 5 6 7 8 9 10 11 12 217(b)(1), his cost of traveling from Oak Park to Tampa is a deductible moving expense. However, sec. 1.217-2(b)(4), Income Tax Regs., provides that only the cost of one trip by the taxpayer is deductible. Under the same provision, return trips to see family are not deductible. Therefore, the costs of the multiple trips by Mr. Van Ermen between Oak Park and Tampa in 2013 and 2014 are not deductible under the regulation. This result can also be stated with reference to the language of the Code. The Code allows a deduction for "moving" expenses, including the cost of travel from a "former residence" to a "new place of residence". The cost of trips made in 2013 and 2014 13 cannot be the expenses of a move that took place in 14 February 2011. By 2013 and 2014, Mr. Van Ermen had 15 already moved -- to Tampa. 16 The term "moving expenses" can include the cost 17 of temporary housing for up to one month in the general 18 19 location of the new principal place of work. Section 1.217-2(b)(6) Income Tax Regs. By 2013 and 2014, the one- 20 month limit had been exceeded. For this reason and 21 others, Mr. Van Ermen cannot deduct the cost of his Tampa 22 apartment for 2013 and 2014. 23 We sustain the notice of deficiency's 24 disallowance of moving expenses. All findings of fact 25 regarding this issue are on a preponderance of evidence. crioers (973)406-2250|operations@escribersmetlwww.escribers.net 8 1 2 3 4 5 6 7 8 9 10 11 12 13 14 Third, we hold that the petitioners are liable for section 6662(a) penalties for 2013 and 2014. Section 6662(a) imposes a 20% penalty on the portion of an underpayment that is attributable to various causes, one of which is "negligence or disregard of rules or regulations". The respondent argues that the underpayments for 2013 and 2014 are attributable to the negligence cause. But the respondent also argues that the petitioners have waived any challenge to their liability for penalties. The reason is that the petitioners did not challenge the penalties in their petition. Portions of the underpayments are due to the failure to report income. With respect to these portions, the respondent was substantially prejudiced by the 15 petitioners' failure to challenge the penalties earlier. 16 We therefore hold that the petitioners are barred from 17 18 challenging their penalty liabilities to the extent they result from the unreported-income determinations in the 19 notice of deficiency. We sustain the determination in the 20 notice of deficiency that the underpayments attributable 21 22 to the unreported income are due to negligence. Other portions of the underpayments are due to 23 the petitioners' reporting of the erroneous moving-expense 24 deductions. We need not determine whether challenges to 25 penalties with respect these portions of the underpayments EEllllEl (973)406-2250|operations@escribersaiet|wwmescnbers.net 9 1 2 3 4 5 6 7 8 9 10 11 12 are barred. This is because the evidence at trial showed that reporting the moving-expense deductions was due to A negligence. Thus we conclude that the respondent has met his burden of producing evidence with respect to the penalty, see sec. 7491(c), and that the petitioners have not met their burden of persuasion with respect to the penalty. See Rule 142(a). Our reasoning follows. Mr. Van Ermen testified that he relied on IRS Publication 521 to determine that he was entitled to deduct the moving-expense deductions for 2013 and 2014. In particular, Mr. Van Ermen noted that Publication 521 stated that a taxpayer could move to a new location 18 13 months after beginning work at the new location and still 14 15 deduct the costs of the move. He testified that this statement meant that there was no "timing" requirement for 16 deducting a travel expense. But this statement concerns 17 only the statutory requirement that the moving expenses 18 must be "in connection with the commencement of work by 19 the taxpayer at a new principal place of work." Sec. 20 217(a); sec. 1.217-2(a) (3 Income Tax Regs. There is also 21 22 23 24 the one-trip limit in the regulations. This rule is A summarized in the publication as follows: "However, you can only deduct expenses for one trip per person." This statement should have warned Mr. Van Ermen against 25 deducting his 2013 and 2014 trips from Oak Park to Tampa CriDers (973)406-2250|operationscescribersmet|www.escribers.net 10 1 2 3 4 without doing further research. And nothing in the publication suggests that Mr. Van Ermen could deduct the rental costs of his Tampa apartment in 2013 and 2014. And neither the cost of the trips nor the apartment rent fit 5 within a common-sense definition of moving costs, which 6 7 8 9 should have counseled caution. Negligence includes the failure of the taxpayer to exercise ordinary and reasonable care in the preparation of a tax return. Sec. 1.6662-3(b)(1), Income Tax Regs. Under the circumstances, 10 we conclude that Mr. Van Ermen did not exercise ordinary 11 12 13 14 and reasonable care. In addition we find there was no reasonable cause for taking the deductions and they were not taken in good faith. See sec. 6664(b)(1). We sustain the determination in the notice of deficiency that the 15 underpayments attributable to the moving-expense 16 deductions are due to negligence or disregard of rules or 17 18 regulations. We hold that the petitioners are liable for the 19 section 6662(a) penalties for 2013 and 2014 in the amounts 20 determined in the notice of deficiency. 21 22 23 approved. Fourth, we hold that the penalties were properly The respondent has the burden of producing 24 evidence that the penalties were approved under section 25 6751(b). Graev v. Commissioner, 149 T.C. No. 23 (2017). CriberS (973)406-2250|operations@escribersmet|www.escribers.net The initial determination to impose the penalties was made by Barbra A. Bennett. Her determination was approved by 11 her immediate supervisor, Lynette R. Peterson. The penalties were approved under section 6751(b). Fifth, we will deny respondent's motion to dismiss Ms. Van Ermen from the case for lack of prosecution. An order will be issued denying respondent's 1 2 3 4 5 6 7 8 9 motion to dismiss the case for lack of prosecution as to 10 petitioner Carolyn Jean Van Ermen, and a decision will be 11 12 entered for respondent. This concludes the oral findings of fact and 13 opinion. 14 15 16 17 18 19 20 21 22 23 24 25 (Whereupon, at 10:30 a.m., the above-entitled matter was concluded.) 973)406-2250|operations@escribersmet[www.escribers.net