TAX COURT OPINION

Case: Paul Katona
Docket Number: 7283-12S
Judge: Guy
Opinion Type: bench
Filed: 03/08/2013
Pages: 11

SEC UNITED STATES TAX COURT WASHINGTON, DC 20217 PAULKATONA, Petitioner, v. COMMISSIONER OF INTERNAL REVENUE, Respondent ) ) ) ) ) Docket No. 7283-12S. ) ) ) ) OR D E R 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 petitioner and to respondent a copy of the pages of the transcript of the trial in the abovecaptioned case before Special Trial Judge Daniel A. Guy, Jr., at Los Angeles, California, on January 28, 2013, 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, the decision line is amended and will read: "Decision will be entered pursuant to Rule 155." (Signed) Daniel A. Guy, Jr. Special Trial Judge Dated: Washington, D.C. March 8, 2013 SERVEDMar112013 Capital Reporting Company 3 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 Bench Opinion by Judge Daniel A. Guy, Jr. January 30, 2013 Paul Katona v. Commissioner Docket No. 7283-12S THE COURT: 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 upon as precedent in any other case. This proceeding for the redetermination of a deficiency is a small tax case conducted pursuant to the provisions of section 7463 of the Internal Revenue Code of 1986, as amended, and Rules 170 through 174 of the Tax Court Rules of Practice and Procedure. This bench opinion is made pursuant to the authority granted by section 7459(b) of the Internal Revenue Code of 1986, as amended, and Rule 152 of the Tax Court Rules of Practice and Procedure. 21 Hereinafter in this bench opinion, section references 22 23 24 are to the Internal Revenue Code of 1986, as amended, in effect for 2009. Petitioner Paul Katona, hereinafter 25 petitioner, resided in California at the time the 866.488.DEPO www.CapitalReportingCompany.com Capital Reporting Company 1 petition was filed, and he appeared pro se. Jared R. 2 Weidenbaum appeared on behalf of respondent. 3 4 5 6 7 8 9 Petitioner concedes that during 2009 he received, but failed to report, a taxable distribution of $11,710 from a qualified retirement account at Golden 1 Credit Union and that the distribution is subject to the 10% additional tax prescribed in section 72(t). The issues remaining for decision are: (1) 10 whether petitioner is entitled to a deduction for. 11 12 13 14 15 16 17 18 19 20 21 unreimbursed employee business expenses for the taxable year 2009, in excess of that allowed by respondent, and (2) whether petitioner is liable for an accuracy-related penalty under section 6662(a). The parties filed with the Court a stipulation of facts and a supplemental stipulation of facts, with attached exhibits, which are incorporated herein by this reference. On January 7, 2008, petitioner was hired as a full-time corrections officer at the Wasco State Prison (WSP) in Wasco, California (Wasco). 22 Petitioner was employed at WSP until June 2010. 23 During 2009, petitioner intended that his employment 24 25 at WSP would last longer than one year. During 2009, petitioner paid $4,375 in rent 866.488.DEPO www.CapitalReportingCompany.com Capital Reporting Company 5 1 2 3 4 5 for an apartment at 1630 7th Street in Wasco. Between June 3, 2009, and December 1, 2009, petitioner paid $5,530 in rent for a property located at 29518 Ryder Cup Lane in Tehachapi, California (Tehachapi), which is located about 90 miles from 6 Wasco. Petitioner also rented an apartment on Bear 7 Valley Road in Tehachapi during 2009, but the record 8 9 10 11 12 does not reflect the amount of rent that petitioner paid on this property. During 2009, petitioner had family living in Tehachapi. During 2009, petitioner also paid $44.80 for an overnight stay at the EconoLodge Motel in 13 Bakersfield, California, $110 for a two-night stay at 14 15 16 17 18 19 20 Pleasant Inn in Morro Bay, California, $414.27 for rent/utilities at an RV park in Bakersfield, and $495 to the Cinderella Hotel in Wasco. Petitioner was not required to maintain a residence in or near Wasco or ln or near Tehachapi as a condition of his employment at WSP. On his Federal income tax return for 2009, 21 petitioner claimed a deduction for unreimbursed 22 23 employee business expenses comprised of $10,500 in rent and/or hotel charges and $826 for utilities. 24 Petitioner's 2009 tax return was prepared by Mr. 25 Oscar Roza, a return preparer that petitioner has 866.488.DEPO www.CapitalReportingCompany.com Capital Reporting Company 6 1 used for many years. After preparing the return, 2 Mr. Roza did not review it with petitioner and 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 petitioner did not undertake to review the return himself before mailing it to the Internal Revenue Service. Petitioner conceded all of the adjustments in the notice of deficiency, i.e., the failure to report a taxable distribution from a qualified retirement plan and the applicability of the 10% additional tax under section 72(t) on that distribution. In his answer to the petition, respondent alleged that petitioner is not entitled to deduct unreimbursed employee business expenses of $11,326 and, therefore, is liable for an increased deficiency of $2,363 (for a total deficiency of $7,105) and an accuracy-related penalty of $1,421. See sec. 6214 (a). Although respondent bears the burden of proof in respect of the increased deficiency and accuracy-related penalty asserted in his answer, see Rule 142(a), we decide this case on the preponderance of the evidence rather than upon an allocation of the burden of proof. See Estate of Harper v. Commissioner, T.C. Memo. 2002-121. Section 162(a) (2) permits a deduction for 866.488.DEPO www.CapitalReportingCompany.com Capital Reporting Company 1 2 3 traveling expenses incurred by the taxpayer while away from his home in the pursuit of a trade or business. To be allowed a deduction, the taxpayer 4 must demonstrate that the expenses are: (1) 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 reasonable and necessary traveling expenses, (2) incurred "while away from home", and (3) incurred in the pursuit of business. Commissioner v. Flowers, 326 U.S. 465, 470 (1946). However, the cost of commuting between a taxpayer's residence and place of business, including lodging, are generally nondeductible personal expenses, regardless of the distances involved. See Fausner v. Commissioner, 413 U.S. 838, 839 (1973); Commissioner v. Flowers, 326 U.S. at 473-474; Feistman v. Commissioner, 63 T.C. 129, 134-135 (1974); secs. 1.162-2 (e), 1.262-1(b) (5), Income Tax Regs. The Court has held that the term "home" as used in section 162(a) (2) generally means the vicinity of the taxpayer's principal place of employment and not where his principal residence is located. Mitchell v. Commissioner, 74 T.C. 578, 581 (1980). Under an exception to the general rule, a taxpayer's personal residence may be his "home" for purposes of section 162(a) (2) if the taxpayer's principal place of business is temporary, rather than 866.488.DEPO www.CapitalReportingCompany.com Capital Reporting Company 8 indefinite or indeterminate. See Peurifoy v. Commissioner, 358 U.S. 59, 60 (1958). Respondent contends that petitioner is not entitled to deduct the lodging and utility expenses that he claimed as unreimbursed employee business expenses because his employment at WSP was either permanent or indefinite, and, therefore, petitioner was not traveling "away from home" within the meaning of section 162(a)(2). Petitioner contends that after accepting employment at WSP, he lived in a number of temporary residences that would allow for a reasonable commute to WSP, and, therefore, he should be entitled to deduct the amounts he paid for rent and utilities. The purpose of section 162(a) (2) and the "away from home" provision is to mitigate the burden on taxpayers who because of the exigencies of a trade or business must maintain two places of abode and thereby incur additional and duplicate living expenses. Tucker v. Commissioner, 55 T.C. 783, 786 (1971); Kroll v. Commissioner, 49 T.C. 557, 562 (1968). When a taxpayer accepts temporary work in a place away from his or her residence, a deduction for certain living expenses incurred at the temporary post of duty is permitted because it would not be 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 866.488.DEPO www.CapitalReportingCompany.com Capital Reporting Company 9 1 2 3 4 5 6 7 8 9 10 11 12 13 14 reasonable to expect the taxpayer to relocate his or her residence under such circumstances. See Tucker v. Commissioner, 55 T.C. at 786. A taxpayer's place of business or duty station is "temporary" if the employment is such that termination within a short period could be foreseen. Mitchell v. Commissioner, 74 T.C. at 581. If the taxpayer accepts employment of either a permanent or indefinite duration in a place away from his or her residence, the taxpayer's tax home shifts to the new place of business. See, e.g., Coombs v. Commissioner, 608 F.2d 1269, 1276 (9th Cir. 1979), aff'g in part and rev'g in part 67 T.C. 426 (1976). The record in this case indicates that 15 petitioner considered his employment at WSP to be 16 17 18 19 either permanent or indefinite at all times relevant to this case. During 2009, petitioner expected his employment at WSP to last longer than one year. Indeed, petitioner was employed at WSP for some 29 20 months between January 2008 and June 2010. 21 Considering all the facts and circumstances, we 22 23 24 25 conclude that petitioner's employment at WSP during 2009 is best characterized as either permanent or indefinite. See, e.g., Doyle v. Commissioner, 354 F.2d 480, 483 n.3 (9th Cir. 1966), aff'g T.C. Memo. 866.488.DEPO www.CapitalReportingCompany.com Capital Reporting Company 10 1 2 3 1964-110. Consequently, it is reasonable to expect petitioner to have moved his residence to Wasco, or a community nearby, to mitigate the expense of 4 maintaining two residences. His apparent decision to 5 maintain a residence in Tehachapi, while also taking 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 up lodging in Wasco, cannot be said to arise from the exigencies of his trade or business, but instead is attributable to purely personal considerations. In sum, we sustain respondent's determination that petitioner is not entitled to a deduction for expenses incurred while away from home in pursuit of a trade or business under section 162(a) (2). Section 6662(a) imposes a penalty of 20% on the portion of the underpayment of tax attributable to, among other things, a substantial understatement of income tax. Sec. 6662(b) (2). An understatement of income tax is substantial within the meaning of section 6662 if, as relevant here, the understatement exceeds $5,000. See sec. 6662 (d); sec. 1.6662-4 (b), Income Tax Regs. The understatement of income tax, an amount computed in the same manner as the deficiency in this case, exceeds $5,000. See secs. 6211, 6662(d) (2), 6664 (a). Section 6664 (c) (1) provides that the 25 section 6662(a) accuracy-related penalty does not 866.488.DEPO www.CapitalReportingCompany.com Capital Reporting Company 11 1 2 3 4 5 6 7 8 9 apply to any portion of any underpayment if there was reasonable cause for, and the taxpayer acted in good faith with respect to, the underpayment. The determination of whether the taxpayer acted with reasonable cause and in good faith is made on a case- by-case basis, taking into account the pertinent facts and circumstances. Sec. 1.6664-4 (b) (1), Income Tax Regs. The underpayment of tax required to be 10 shown on petitioner's 2009 return is attributable to 11 petitioner's failure to report income (the taxable 12 13 14 15 16 17 18 19 20 retirement distribution) and erroneously claiming a deduction for unreimbursed employee business expenses. Although petitioner relied on a paid tax return preparer and trusted him to properly prepare his tax return for 2009, there is no evidence in the record regarding Mr. Roza's particular experience or qualifications that would support the conclusion that petitioner reasonably relied on him. Moreover, there is no indication that Mr. Roza reviewed the return 21 with petitioner, and petitioner testified that he did 22 23 24 25 not undertake to review the return on his own. Taxpayers have a duty to review their tax returns before signing and filing them, and the duty of filing accurate returns cannot be avoided by 866.488.DEPO www.CapitalReportingCompany.com Capital Reporting Company 12 1 placing responsibility on a tax return preparer. 2 Metra Chem Corp. v. Commissioner, 88 T.C. 654, 662 (1987); Magill v. Commissioner, 70 T.C. 465, 479-480 (1978), aff'd, 651 F.2d 1233 (6th Cir. 1981). We are not persuaded that petitioner's reliance on his return preparer was reasonable or in good faith. Thus, on the record presented, we are unable to conclude that petitioner acted with reasonable cause and in good faith within the meaning of section 6664 (c) (1). Accordingly, petitioner is liable for the accuracy-related penalty under section 6662 (a) . Consistent with the preceding discussion, a decision will be entered for respondent. This concludes the Court's oral findings of fact and opinion in this case. (Whereupon, at 12:40 p.m., the above- entitled matter was concluded.) 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 866.488.DEPO www.CapitalReportingCompany.com