TAX COURT OPINION

Case: Eric D. & Lynn Walker
Docket Number: 7566-06S
Judge: Carluzzo
Opinion Type: summary
Filed: 04/22/2008
Pages: 10

LADM . RECORDED SERVIC E 'iom71 ~ 1 CAL . STAT . S .T . JUDGE G ~ © FILE S T .C . Summary Opinion 2 08-41 UNITED STATES TAX COUR T ERIC D . WALKER AND LYNN WALKER, COMMISSIONER OF INTERNAL REVE N Petitioners v . E, Responden t Docket No . 7566-06S . F iled April 22, 2008 . Eric D . Walker, pro se . Brian A . Pfeifer, for respondent . CARLUZZO, Special Trial Judge : Thi s case was hear d pursuant to the provisions of section 74 63 .1 Pursuant to section 7463(b), the decision to be entered is n of reviewable by an y 1 Unless otherwise indicated, section references are to the Internal Revenue Code of 1986, as amend d, in effect for the relevant period . SERVED APR 2 2 2008 - 2 - other court, and this opinion shall not be cited as precedent for any other case . In a notice of deficiency issued to petitioners on January 19, 2006, respondent determined a $5,975 deficiency in and a $1,195 section 6662(a) accuracy-related penalty with respect to petitioners' 2002 Federal income tax . The issues for decision are : (1) Whether petitioners are entitled to certain trade or business expense deductions, some claimed on a Schedule A, Itemized Deductions, and some claimed on a Schedule C, Profit or Loss From Business ; and (2) whether petitioners are liable for the accuracy-related penalty . Background Some of the facts have been stipulated and are so found . Petitioners married on March 31, 2002 . They filed a timely joint Federal income tax return for that year . At the time the petition was filed, they resided in Florida . Eric D . Walker (petitioner) is an electrician who at all times relevant was a member of Local 613 of the International Brotherhood of Electrical Workers (IBEW) . Local 613 is located in Atlanta, Georgia, but petitioner did not work within the jurisdiction of Local 613, or anywhere within the State of Georgia, during 2002 . Instead, he traveled repeatedly up and down the east coast from Massachusetts to Florida in search of or in connection with available union-based employment . - 3 - opportunities . IBEW procedures required hat he announce his availability for employment in any given ocation by visiting the local chapter of the IBEW and signing wh a ever paperwork wa s required . This procedure had to be repe ed periodically as long as petitioner was unemployed, which he w during part of 2002 , and continued to look for jobs . Although he actively sought employme t using the proces s described above throughout 2002, petitioner was employed onl y from time to time from May 1 through No v mber 1, 2002, and only for various employers in New Jersey . Wh i le working in New Jersey petitioner stayed in a YMCA or in a rent d house . Petitione r spent 216 days in New Jersey during 2002 including those days when he was present there either workin g or looking for work . Following his marriage in March, pe itioner spent only 3 days in Georgia . Lynn Walker lived wit h her mother in Florida during 2002, both before and after petit oners were married . Petitioner spent a fair amount of time i Florida during that year .2 As of the end of November 2002, titioner considere d that his residence was in Florida . 2 Petitioner was in Florida 25 da during February ; 12 days during March ; days during June ; 6 days during Septemb November ; and all of December . s during January ; 7 day s days during April ; 3 r ; 8 days during - 4 - Petitioners' 2002 self-prepared, joint Federal income tax return was timely filed . That return includes a Schedule C and a Schedule A . The Schedule C identifies the business as "Spinal Connection Rehab and Wellness" and shows the proprietor as Lynn Walker . There is no income reported on the Schedule C, and various deductions totaling $9,087 result in a net loss in that amount which is claimed as a deduction on petitioners' 2002 return . As relevant here, on the Schedule A, petitioners claimed a $32,525 unreimbursed employee business expense deduction, most of which is attributable to meals and lodging expenses . Petitioners also claimed a $15,218 loss from an S corporation on their 2002 return . That loss is identified as a "nonpassive loss from [a] Schedule K-1" issued to petitioners by Spinal Connection Rehab and Wellness . In the above-referenced notice of deficiency, respondent : (1) Disallowed the deduction for the net loss reported on the Schedule C ; (2) disallowed a portion of the unreimbursed employe e business expense deduction claimed on the Schedule A ; (3) allowed the standard deduction applicable to petitioners' filing status as the remaining itemized deductions respondent allowed totaled less than the standard deduction ;3 and (4) imposed an accuracy- 3 The itemized deductions otherwise allowed are : (1) Taxes--$972 ; (2) Gifts to Charity--$745 ; and (3) Miscellaneous deductions, including unreimbursed employee business expenses--$5,498, before the application of sec . 67(a) . - 5 - related penalty under section 6662(a) upo the ground that, among other reasons, the underpayment of tax re uired to be shown on petitioners' 2002 return is a substantial understatement of income tax . Other adjustments made in th notice of deficiency are computational or have been agreed upon by the parties . Discussio n 1 . Deduction for Net Loss Claimed on the Schedule C Petitioners now agree that they are not entitled to a deduction for the net loss shown on the chedule C . Although less than certain, it appears that the e penses that generated the loss might have been duplicated in t e loss claimed from the above-referenced S corporation . Tha loss has not bee n disallowed . 2 . Disallowed Portion of the Employee Business Expense Deduction According to the notice of deficien y, the portion of th e employee business expenses deduction att ibutable to "travel, meals and lodging" was disallowed because respondent determine d that those expenses , if paid or incurre were not paid o r incurred while petitioner was traveling away from home in pursuit of his employment . According t respondent, petitione r maintained "no fixed place of abode o r usiness locality," consequently, "each place where * * * etitioner worked became his] principal place of business an d * tax home ." Accordin g to petitioner, his residence and tax ho e, at least until the end of November 2002, was in Stockbridge, Georgia, where he lived with his brother in his brother' s house . Petitioner now acknowledges that amounts claimed on his 2002 return for lodging were overstated, but claims entitlement to : (1) A portion of the claimed deduction for lodging ; and (2) the entire claimed deduction for meals . Expenses incurred by an individual for meals and lodging are normally considered nondeductible personal or living expenses . Sec . 262(a) . On the other hand , expenses paid or incurred for meals and lodging, if properly substantiated, are deductible if paid or incurred by an individual while traveling away from home in pursuit of the individual's trade or business . Secs . 162(a)(2), 274(d) . In this regard, the reference to the individual's trade or business includes the trade or business of being an employee, O'Malley v . Commissioner , 91 T .C . 352, 363-364 (1988), and the reference to the individual's home means the individual's tax home, Henderson v . Commissioner , T .C . Memo . 1995-559, affd . 143 F .3d 497 (9th Cir . 1998) . In general, the location of an individual's tax home is the location of his or her principal place of employment . Daly v . Commissioner , 72 T .C . 190, 195 (1979), affd . 662 F .2d 253 (4th Cir . 1981) . If, during the taxable year, the individual has no principal place of employment, this Court considers th e individual's permanent place of residence to be his or her tax home . Rambo v . Commissioner , 69 T .C . 920 923-925 (1978) . If an individual has no principal place of empl yment or permanent residence during the taxable year, then t is Court considers that individual to have no tax home from which the individual can be away from for purposes of deducting meals and lodging expenses otherwise deductible under section 162(a)(2) . Wirth v . Commissioner , 61 T .C . 855, 859 (1974) . Petitioner's profession and status s an IBEW member required that he seek and/or accept empl yment on a temporary basis in various locations during 2002 . He had no principal place of business during that year .4 Wh ther petitioner had a permanent place of residence during 2002 is questionable . If he did, then it was at his brother's house my up until the date of his wedding on March 31, and it was in F orida at some point starting in November . The meals and lodging expense deductions here in dispute relate to the period between those dates, and the record does not support a finding that e paid or incurred any living expense in connection with his b other's house or any other "permanent place of residence" while at the same time he was present and working in New Jersey o elsewhere . See Kroll v . 4 We disagree with the suggestion made in the notice of deficiency that New Jersey was petition is tax home during 2002 . His employment there was clearly tempor ry . This distinction, however, makes no difference to whether petitioner is entitled to deduct expenses for meals and lodging w ile working in New Jersey . - 8 - Commissioner , 49 T .C . 557, 562 (1968) (noting that the purpose of section 162(a)(2) is to "mitigate the burden of the taxpayer who, because of the exigencies of his trade or business, must maintain two places of abode and thereby incur additional and duplicate living expenses") . Because petitioner had neither a principal permanent place of residence nor a principal place of employment during the period to which the deductions for meals and lodging expenses relate, he is not considered to have a tax home for that period . Because the deductions for meals and lodging expenses relate to a period for which petitioner had no tax home, he is not entitled to those deductions . Respondent's disallowance of the portion of the employee business expense deduction attributable to amounts for meals and lodging is sustained . Respondent acknowledges that petitioner is entitled to tolls and vehicle expenses incurred in connection with his search for employment during 2002 . The amounts already allowed for such expenses exceed the amounts petitioners substantiated and, when taken into account with other itemized deductions allowed or not challenged, do not exceed the $7,850 standard deduction applicable to petitioners' filing status . See sec . 63(b) and (c) . It is unnecessary, therefore, to consider petitioners' entitlement to such deductions any further, and respondent's allowance of the standard deduction in lieu of the itemized 3 . The Section 6662(a) Accuracy-Related Penalt y Section 6662(a) imposes an accuracy related penalty of 20 percent of any portion of an underpaymen of tax, if among other reasons, the underpayment is attributabl to a substantia l understatement of income tax . Sec . 6662 (b) (2) , (d) . An understatement of income tax is a substantial understatement o f income tax if it exceeds the greater of $5,000 or 10 percent of the tax required to be shown on the tax ayer's return .5 Sec . 6662(d)(1) . Ignoring conditions not re evant here, for purpose s of section 6662 an understatement is de fined as the excess of th e amount of the tax required to be shown the taxpayer's retur n over the amount of the tax which is sho n on the return . Sec . 6662(d)(2)(A) . In this case the unders atement of income tax i s computed in the same manner as and is e ual to the deficiency in dispute ; that is, $5,975 . See secs . 6 2 1, 6662 (d) (2) . Under section 7491(c) respondent h s the burden of production with respect to the accuracy related penalty under section 6662(a) . To meet that burden, espondent must com e forward with sufficient evidence to sho that imposition of th e penalty is appropriate . See Higbee v . commissioner , 116 T .C . 5 Ten percent of the tax required petitioners' 2002 return is $892 .50 . - 10 - conceded, the adjustments in the notice of deficiency that give rise to the deficiency . Respondent has satisfied his burden of production under sec . 7491(c) with respect to the accuracy- related penalty under section 6662(a) determined in the notice of deficiency because the underpayment of tax exceeds $5,000 . The accuracy-related penalty does not apply to any part of an underpayment of tax if it is shown the taxpayer acted with reasonable cause and in good faith . Sec . 6664(c)(1) . The determination of whether a taxpayer acted in good faith is made on a case-by-case basis, taking into account all the pertinent facts and circumstances . Sec . 1 .6664-4(b)(1), Income Tax Regs . Petitioners bear the burden of proving that they had reasonable cause and acted in good faith with respect to the underpayment . See Higbee v . Commissioner , supra at 449 . This they have failed to do . Respondent's imposition of the section 6662(a) accuracy- related penalty is sustained . To reflect the foregoing, Decision will be entere d for respondent .