TAX COURT OPINION

Case: Christian Chidi Otuonye & Grace Ugochi Otuonye
Docket Number: 16196-15S
Judge: Carluzzo
Opinion Type: bench
Filed: 07/08/2016
Pages: 8

SEC UNITED STATES TAX COURT WASHINGTON, DC 20217 CHRISTIAN CHIDI OTUONYE & GRACE UGOCHIOTUONYE, Petitioners, v. ) ) ) ) ) Docket No. 16196-15S COMMISSIONER OF INTERNAL REVENUE, Respondent. ) ) ) ORDER 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 to respondent a copy of the pages of the transcript of the trial in the above case before Special Trial Judge Lewis R. Carluzzo at New York, New York, containing his oral findings of fact and opinion rendered at the trial session at which the case was heard. In accordance with the oral findings of fact and opinion, an appropriate Order and Decision will be entered. (Signed) Lewis R. Carluzzo Special Trial Judge Dated: Washington, D.C. July 8, 2016 SERVED Jul 08 2016 Capital Reporting Company 3 1 Bench Opinion by Special Trial Judge Lewis R. 2 Carluzzo 3 4 June 23, 2016 . Christian Chidi Otuonye & Grace Ugochi Otuonye v. 5 . Commissioner 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 Docket No. 16196-15S 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 (bench opinion). Unless otherwise noted, section references made in this bench opinion are to the Internal.Revenue Code of 1986, as amended, in effect for the relevant periods, and Rule references are to the Tax Court Rules of Practice and Procedure. This bench opinion is made pursuant to the authority granted by Section 7459 (b) and Rule 152. This proceeding for the redeterminations of deficiencies is a small tax case subject to the provisions of Section 7463 and Rules 170 through 175. Pursuant to Section 7463(b), the decision entered in this case shall not be treated as precedent for any other case. £ Christian Chidi Otuonye (petitioner) and h(û( Ugochi Otuonye appeared on their own behalves. Duke 866.488.DEPO www.CapitalReportingCompany.com Capital Reporting Company 4 1 2 3 4 5 6 7 8 9 Kim appeared on behalf of respondent. Siana Danch, a third year law student enrolled in respondent's intern program, was allowed to participate in the proceeding on respondent's behalf. In a notice of deficiency dated March 25, 2015 (notice), respondent determined deficiencies in and imposed Section 6662(a) penalties with respect to petitioners' 2011 and 2012 federal income taxes. After concessions by petitioners, the 10 issues for decision for each year in issue are: (1) 11 whether petitioners are entitled to a deduction for 12 expenses incurred by petitioner for travel between 13 Philadelphia, Pennsylvania and Brooklyn, New York, 14 15 16 17 18 19 20 21 22 23 24 25 and (2) whether petitioners are liable for the penalty imposed in the notice. Some of the facts have been stipulated and are so found. At the time the petition was filed, petitioners lived in Philadelphia, Pennsylvania. Before making specific references to those facts and in order to place the facts in context, we find it helpful to summarize the principles of law that will inform our analysis and resolution. We begin by reciting some that are very familiar. That is, the Commissioner's determination in a notice of deficiency are presumed correct, and the taxpayer 866.488.DEPO www.CapitalReportingCompany.com Capital Reporting Company 5 1 2 3 bears the burden of proving that those determinations are erroneous. Rule 142(a); Welch v. Helvering, 290 U.S. 111, 115 (1933). Moreover, deductions are a 4 matter of legislative grace, and the taxpayer bears 5 6 7 8 the burden of proving that he or she is entitled to any deduction claimed. Rule 142(a); New Colonial Ice Co. v. Helvering, 292 U.S. 435, 440 (1934). Section 162(a) allows a taxpayer to deduct 9 all ordinary and necessary expenses paid or incurred 10 11 12 13 14 15 16 17 18 in connection with the taxpayer's trade or business. Expenses deductible under Section 162 include expenses paid or incurred by the taxpayer while traveling away from the taxpayer's home in pursuit of the taxpayer's trade or business. See Section 162(a)(2). Expenses paid or incurred by a taxpayer for family, living, or other personal reasons are only deductible as specifically provided in the Internal Revenue Code. See Section 262(a). 19 Generally, expenses for commuting between a 20 taxpayer's residence and the taxpayer's regular place 21 22 23 24 25 of business are not deductible, see Section 1.262- 1 (b) (5) , regardless of the distance between those places. See Commissioner v. Flowers, 326 U.S. 465 (1946). There are exceptions to this general rule, and one addresses the situation where the taxpayer's 866.488.DEPO www.CapitalReportingCompany.com Capital'Reporting Company 6 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 residence is also the taxpayer's principle place of business. See, e.g., Gorokhovsky v. Commissioner, T.C. Memo. 2013-65. Only that exception has excepLiun here. With these fundamental principles in mind, we turn to the facts in this case, which are not in dispute and easily summarized. During the years in issue, petitioner owned and operated as a sole proprietorship, a business that had offices in two locations, one in his residence in Philadelphia, Pennsylvania, and the other in Brooklyn, New York. He regularly and often traveled between Philadelphia and Brooklyn by car in order to conduct his business at both locations, and on each of the petitioner's return, for the years in issue, he deducted the cost for doing so. In the notice, respondent disallowed those costs. The evidence shows that most of 19 petitioner's time in pursuit of his trade or business 20 21 22 23 24 25 was spent in Brooklyn and a great majority of his clients were located there. On that basis, we find that the office in petitioner's residence was not petitioner's principle place of business, and therefore, the exception to the general rule, alluded to above, does not apply. 866.488.DEPO www.CapitalReportingCompany.com Capital Reporting Company 7 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 Otherwise, because petitioner's travel between Philadelphia and Brooklyn is considered commuting, the expenses he paid or incurred to do so are not allowable as a deduction for either year in issue. Respondent's disallowances of those deductions is sustained. Turning our attention to the penalties, we note that the underpayment of tax for each year is computed in the same manner and equal to the deficiency determined in the notice for that year. See Sections 6211(a), 6664(a). For 2011, the underpayment of tax is a substantial understatement of income tax because it exceeds the relevant statutory threshold. See Section 6664(b) (2),(d). According to the notice for 2011, petitioners are liable for the penalty if only upon that ground. We agree respondent has met his burden of production, 18 with respect to the imposition of the penalty for 19 20 21 22 23 24 25 2011, upon the ground that the underpayment of tax required to have been shown on petitioners' 2011 federal income tax return is a substantial understatement of income tax. Petitioners have offered no evidence to establish that they had reasonable cause for the underpayment. See Section 6664(c); Higbee v. Commissioner, 116 T.C. 438 (2001). 866.488.DEPO www.CapitalReportingCompany.com Capital Reporting Company The situation, in respect to the penaljty, . 8 is different for 2012. Because of the amount of! the underpayment of tax for that year, the penalty ip applicable only if the underpayment is due to petitioners' negligence or intentional disregard! of I rules or regulations. See Section 6662(b) (1), (ci). 1 2 3 4 5 6 7 Other than what might be inferred from adjustments 8 9 10 11 12 13 14 made in the notice and petitioners' concessions of several of those adjustments, no direct evidence on their negligence has been introduced. Although we can envision a situation that would support the imposition of the penalty upon the ground of negligence merely on the basis of the disallowance of a claim deduction, we do not view this as that case. 15 Otherwise, in the absence of direct evidence for 16 2012, we decline to impose the penalty on the basis 17 18 19 20 21 22 23 24 25 of any adverse inferences that might be drawn from the disallowance of any deduction claimed on petitioners' 2012 return, or any adjustment that.they have might be conceded for that year. To reflect the foregoing, an appropriate decision will be entered. This concludes the Court's bench opinion in this matter. (Whereupon, at 2:19 p.m., the above- 866.488.DEPO www.CapitalReportingCompany.com Capital Reporting Company entitled matter was concluded.) 9 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 (cid:16)042 866.488.DEPO www.CapitalReportingCompany.com