TAX COURT OPINION

Case: Kwadwo Larbi Asare
Docket Number: 18248-08S
Judge: Colvin
Opinion Type: bench
Filed: 05/14/2009
Pages: 14

UNITED STATES TAX COUR T WASHINGTON, DC 2021 7 KWADWO LARBI ASARE, Petitione r v . ) Docket No . 18248-08 S COMMISSIONER OF INTERNAL REVENUE, Respondent . Pursuant to Rule 152(b), TaxrCourt Rules of Practice and Procedure, it i s ORDERED that the Clerk of the Court shall transmit herewith to Petitioner and to respondent aicopy of the pages of the transcript of the trial in'ithe above case before Judge David Gustafson at Washington, D .C ., onApril 24, 2009, containing his oral findings of fact and opinion rendered at the conclusion of the trial . In accordance with the oral findings of fact and opinion, and to reflect a partial concession by respondent, decision will be entered under Rule 155 . (Signed) David Gustafson Judg e Dated : Washington, D .C . May 14, 2009 1 Bench Opinion by Judge David Gustafson April 24, 2009 2 Asare v . Commissioned Docket No . 18499-08S I 3 THE COURT : The Court has decided to render ora l 4 Findings of Fact and opinion in this case, and the followin g 5 represents the Courts oral Findings of Fact and Opinion . 6 The oral Findings of 'Fact and Opinion shall not be relied on 7 as precedent in any other case . 8 This Benc h Opinion is made pursuant to th e 9 authority granted by section 7459(b) of the Internal Revenu e 10 Code of 1986, as amended, and Rule 152 of the Tax Court! 11 Rules of Practice and Procedure . 12 By notice of deficiency dated April 28, 2008, [ 13 respondent determined a deficiency in the Federal income tax 14 of petitioner Kwadwo Larbi Asare for the year 2005, in th e 15 amount of $4,372, with addition to tax under sections 16 6662(a) and 6662(b)(1) in the amount of $874 .40 . The 17 Internal Revenue Service has conceded most, but not all , 18 the amounts at issue' . For the reasons explained hereafter, 19 we will sustain the deficiency to the extent the IRS has not 20 conceded, but we will not find Mr . Asare liable for the ; 21 addition to tax . 22 Trial of this case was conducted on April 23,,, 23 2009, in Washington, D .C . Mr . Asare testified, as did an 24 IRS employee . The parties' Stipulation of Facts, with 25 Exhibits 1-J through 7-J, was admitted into evidence . Heritage Reporting Corporation (202) 628-4888 Y 1 Exhibits 8-P, 9-R, and 10-R were also admitted . We find the 2 following facts : 3 Findings 4 Mr . Asare resided in Dumfries, Virginia, when h e 5 filed the petition in this suit . 6 In 2005, Mr . Asare lived in Manassas , Virginia ; 7 was a part-time student at Northern Virginia Community 8 College in Annandale Virginia (14 miles from his home) ; and 9 worked full time as security officer . He worked at thre e 10 different locations for his employer -- Dulles Airport (27 11 miles from his home), the John F . Kennedy Center for th e 12 Performing Arts (31 miles from his home), and at a locatio n 13 on the Washington, D .C . Mall ( 24 miles from his home) . The 14 furthest distance between these work locations was th e 15 30 miles between Dulles and the Mall . ( These distances wer e 16 not proved at trial, ; but we take judicial notice of them 17 pursuant to Fed . R . Evid . 201(b) .) On rare occasions he 18 worked at other locations in Washington, D .C . 19 For purposes of his work, Mr . Asare kept an Exce l 20 spreadsheet showing a daily, meticulous record of his shift 21 time, supervisor , post number , hours worked, and ( for eac h 22 two-week period) his take-home pay . (From the superviso r 23 and post number, Mr .jAsare can tell which location he worke d 24 at on any given day . He needed to keep this record, so 25 that he could confirm that his employer had correctly paid Heritage Reporting Corporation (202) 628-4888 5 1 him for his hours . Sometimes his employer made mistakes, 2 and in those instances his record was useful in correcting 3 his pay . 4 The record shows that he worked 247 days in 2005 . 5 On that record, he also recorded the miles that he drov e 6 between the work location and his school on many work days . 7 He did so because he believed he was entitled to deduct the 8 mileage expense of driving to his school . He did not recor d 9 the distance that he traveled from-home to work, but given 10 the information of the number of work days and the distances 11 involved, he probably drove more than 13,000 miles betwee n 12 home and work in 2005 . His employer did not reimburse him 13 for the cost of drivng those miles . 14 Mr . Asare also believed that he was entitled t o 15 deduct the parking expense he incurred at his work locations 16 and at his school, so he faithfully kept receipts for hi s 17 parking expense . At , trial he presented receipts tha t 18 account for some 91 days of parking at the Kennedy Center 19 and some 63 days of parking at Dulles . ( He also presente d 20 receipts for 17 days of parking at his school . ) 21 For his schooling in 2005 Mr . Asare incurre d 22 tuition and fees of $1,526 .88, had a partial scholarship of 23 $1,094 .80, and thus paid a net $432 .08 in tuition and fees . 24 He also spent $558 purchasing books and other expense s 25 directly from his school . Respondent concedes the foregoing I Heritage Reporting Corporation (202) 628-4888 6 1 $990 ( i .e ., $432 + $558 ) as qualified tuition and related 2 expenses . In addition , Mr . Asare bought software from hi s 3 school for $ 93 .98 which he could have bought elsewhere , 4 spent $1,046 to buy from another source a computer that'was 5 necessary for his school work, and may have spent anothe r 1 6 $419 .80 to purchase from his school commercially publishe d 7 textbooks that he cold have bought elsewhere . He also made 8 various school-related expenditures from other sources,for 9 which he kept receipts . 10 Mr . Asare had been a student for several years, 11 and in two of those prior years he had already claimed,ifo r 12 Federal tax purposes a "Hope Scholarship Credit" fo r 13 educational expenses 14 During 200 5 Mr . Asare received a Federal tax ' 15 refund check for a prior year in the amount of $2,186 .34 . 16 This check included ~$ 90 of interest, but Mr . Asare did not 17 realize that . 18 During 200 5 Mr . Asare incurred mortgage interest 19 expense in the amoun t of $14,361 and taxes in the amount o f I 20 $2,410 ( both of which the IRS now concedes are deductible) . 21 Mr . Asare ' s tax return for 200 5 22 Mr . Asare took his receipts and records to a ta x 23 return preparer , whoim he believes to be a certified public 24 accountant . The pre parer advised him as to how he should 25 report his mileage , parking, and educational expenses, an d Heritage Reporting Corporation ( 202) 628-4888 7 1 Mr . Asare followed the advice and submitted the return a s 2 the preparer had prepared it . 3 Mr . Asare timely filed his tax return for 2005 on 4 April 15, 2006 . On that return he reported his wages and a 5 state tax refund as jincome, but he failed to report the $90 6 of interest income he had received from the IRS . A s 7 deductions, he reporte d 8 $14,361 ]home -- mortgage interest ; . 9 $2,410 in taxes ; an d 10 $4,023 in net miscellaneous expenses, after. 11 reducing the $4,896 total by $873 (i .e ., 2 percent 12 of his adjusted gross income as reported) . Thi s 13 miscellaneous expense consisted of mileage and 14 parking . 15 By Mr . Asare's reckoning, his tentative tax due 16 was $2,579 . However, he claimed an educational "Hop e 17 Scholarship Credit" of $1,4'05, bringing down the amount of 18 tax due to $1,174 . His tax' withholdings from his wages ; had 19 greatly exceeded that amount, so he claimed and wa s 20 evidently allowed a refund of tax . 21 The IRS Exa m 22 The IRS examined Mr . Asare's 2005 return ; and'o n 23 April 28, 2008, the IRS issued to Mr . Asare a statutory ; 24 notice of deficiency which asserted a deficiency of taxi i n 25 the amount of $4,372 , with an addition to tax under section s Heritage Reporting Corporation (202) 628-4888 8 1 6662 (a) and 6662 (b ) 1), in the amount of $874 .40, based'on 2 the addition of $90 of interest income and the disallowanc e 3 of Mr . Asare's claimed mortgage interest expense, taxes , 4 miscellaneous expenses, and Hope Credit . Mr . Asare !timely 'filed a petition in the Tax Court on July 24, 2008, as king this Court to redetermine hi s 7 deficiency . 8 IRS Concession s 9 In this li tigation, the IRS has conceded mostlo f 10 the deductions at issue . It has conceded that Mr . Asare is 11 entitled to deduct the $14,361 in home mortgage interest and 12 $2,410 in taxes, a s claimed . It has also conceded that, Mr . 13 Asare is entitled to claim not the Hope Credit but the 2 0 14 percent "Lifetime Learning Credit" on his $990 of concede d 15 qualified expenditures . After those concessions, the 16 remaining issues are' -- 17 1 . Whether Mr . Asare is entitled to deduct any of 18 his mileage and parking expenses as miscellaneou s 19 deductions ; 20 2 . Whether Mr . Asare is entitled to any education 21 credit, greater than the IRS has conceded, for any of hi s 22 educational expenses ; and 23 3 . Whether Mr . Asare is liable for an addition to 24 tax under sections 6662(a) and 6662(b)(1) -- i .e ., fo r 25 " [n]egligence or disregard of rules or regulations . " Heritage Reporting Corporation (202) 628-4888 1 Opinio n 2 The IRS's determination is presumed correct, and the 3 taxpayer bears the burden to prove his entitlement to'the 4 deductions he claimed . Rule 142(a) ; Welch v . Helverinct .'t 5 Miscellaneous Deductions for Mileage and Parkin g 9 6 Section 16'2(a) allows a taxpayer to deduct all the s i 7 ordinary-and necessary expenses paid or incurred duringjthe 8 tax year in carrying on any trade or business, including the 9 trade or business of performing services as an employee! . 10 Primuth v . Commissioner . H~wever, section 262 prohibits ,a 11 deduction for expensss thatllare personal in nature . 12 Generally , taxpayers are not allowed to deduct the 13 daily cost traveling to and from school, including the cos t 14 of transportation and parking . See Kamins v . Commissioner . 15 Therefore, Mr . Asare is not entitled to deduct any mileag e 16 or parking expenses with respect to his travel to and fro m 17 Northern Virginia Community, College . 18 The analys is as to work-related travel expense i s 19 somewhat more complicated . Generally, taxpayers are not 20 allowed to deduct the daily cost of commuting to and from 21 work, including the cost of transportation and parking,las 22 that expense is considered to be personal and nondeductible . 23 Commissioner v . Flowers ; Reg . sec . 1 .162-2(e) . However , 24 there are exceptions to this general rule, see Rev . Rull. i 25 99-7, two of which blear mention here : Heritage Reporting Corporation (202') 628-4888 1 0 1 First, a taxpayer who has arrived at his firs t 2 work location and has ended his regular commute may deduct 3 the transportation expenses he incurs in traveling to a 4 second job or to a second location on a primary job . Taylor 5 v . Commissioner ( citiing Green v . Commissioner ) . Mr . Asare 6 did have multiple work locations . However, he did no t 7 allege that he ever had to travel between multiple work : 8 locations on a single day, so this exception does not apply . 9 Second, a taxpayer may deduct the expense o f 10 traveling to and from a temporary work location outside, the 11 metropolitan area where the taxpayer lives and normally ' 12 works . See Brockman v . Commissioner . In 2005, Mr . Asar e 13 lived in Manassas, V irginia , and he reported to work a t 14 three different loca tions for his employer , which were no 15 farther than 31 mile s from his home and no farther from each 16 other than 30 miles . Respondent contends that all three o f 17 Mr . Asare ' s work locations were within the same metropolitan 18 area where he lived and normally worked . 19 The term " metropolitan area," for purposes o f 20 deducting daily tra n sportation expenses under the exception 21 found in Rev . Rul . 9 9-7, supra , is not defined in tha t 22 revenue ruling or th'e prior revenue rulings on the subject . 23 Webster's Third New International Dictionary defines this 24 word "metropolitan " as "of, relating to, or constituting a 25 region including a c ity and the densely populate d Heritage Reporting Corporation (202) 628-4888 Vr 1 1 1 surrounding areas that are socially and economicall y 2 integrated with it . " Courts that have addressed this issue 3 have generally looked at the distance between the work site 4 and the taxpayer' s residence . See, e .g ., Boehmer v . 5 Commissioner . 6 The distance between Mr . Asare's residence in ' 7 Manassas and the most remote work location was 31 miles, an d 8 thus the work locations were not distant from his residence 9 by modern commuting standards . By . comparison , in Harris v . 10 Commissioner , work locations requiring round trips of as 11 long as 100 miles , 134 miles , and even 162 miles from the 12 taxpayer ' s home were nonetheless held to be within the same 13 metropolitan area . Therefore , we find that Mr . Asare's . 14 three work locations and residence were all in the same ; 15 metropolitan area . Accordingly , we conclude that Mr . .Asare 16 is not entitled to deduct any business mileage or parking 17 expense under section 162 with respect to his travel to an d 18 from work . 19 Educational Expense s 20 Under section 25A, a taxpayer may claim one or 21 both of two credits , based on the taxpayer ' s "qualified : 22 tuition and related e xpenses " -- a 100 percent Hope Credit , 23 which he may claim in no more than two taxable years, and a 24 20 percent Lifetime redit, which he may claim without that 25 limit . Mr . Asare acknowledges that he claimed the Hope ' Heritage Reporting Corporation (202) 628-4888 1 2 1 Credit in two tax years before 2005, and that it was a 2 mistake to claim this higher credit . He concedes he is 3 entitled only to the Lifetime Credit . 4 For both of these education credits, the taxpaye r 5 must show "qualified tuition and related expenses ," whic h 6 (under section 25A(f)(1)), means "tuition and fees required I 7 for the enrollment or attendance" of the taxpayer . Thi s 8 clearly reaches Mr . Asare's tuition expense, which the IRS 9 has conceded . 10 Mr . Asare'I other education expenses are mor e 11 problematic . The regulations make it clear that, in order 12 for an expenditure to be qualified, it must be "required to 13 be paid to the eligible educational institution as a 14 condition of the student's enrollment or attendance ." Sec . 15 1 .25A-2(d)(2) . That is, if a student may purchase a 16 textbook or other item from a source other than th e 17 educational institution, then it is not a qualifie d 18 expense -- not even if it happens to be purchased at the 19 campus bookstore . The statute allows the credit fo r 20 "tuition and fees", and this term is not intended to reach 21 the cost of typical required textbooks . 22 In making its concession of $558 of additiona l 23 education expenses , he IRS has generously construed the 24 regulation and has applied it liberally to concede th e 25 eligibility of Mr . A;sare's expenses . The remainder o f Heritage Reporting Corporation (202) 628-4888 13 1 Mr . Asare's education-related expenses (chiefly, hi s 2 computer and textbooks that he was free to purchase from any 3 source) are not "qualified tuition and related expenses" . 4 Mr . Asare is entitled to the 20 percent Lifetime 5 Learning Credit on $990 of his education-related expenses -- I 6 i .e ., a credit of .$198 . (It is not clear why the IRS stated 7 the amount as $184 . ) 8 Negligence Penalty 9 We find that Mr . Asare is not liable for th e 10 accuracy-related penalty under section 6662 ( a) and (b)(1) . 11 6662(b)(1) applies in the case of "[n]egligence or disregar d 12 of rules or regulations ." Under 6662(c), "negligence " 13 includes "any failure to make a reasonable attempt to comply 14 with the provisions of this title, and the term 'disregard' 15 includes any careless, reckless, or intentional disregard ." 16 Section 6664(c)(1) provides : that " [n] o penalty shall be , 17 imposed * * * with respect to any portion of an underpayment 18 if it is shown that there was reasonable cause for suc h 19 portion and that the taxpayer acted in good faith wit h 20 respect to such portion ." If the taxpayer is able to show 21 that he was not negligent, or to show reasonable cause for 22 the position taken on his return, then the accuracy-related 23 penalty for negligence will not apply . The decision as . to 24 whether the taxpayer acted with reasonable cause and goo d 25 faith depends upon all the facts and circumstances . Reg . HeritIge Reporting Corporation (202) 628-4888 1 4 1 Sec . 1 .6664-4(b)(1) . Relevant factors include th e 2 taxpayer's efforts to assess his proper tax liability , 3 including the taxpayer's reasonable and good-faith reliance 4 on the advice of a professional such as an accountant o r 5 attorney . 6 Mr . Asare carefully retained receipts and records 7 so as to be able to substantiate his mileage and parking 8 expenses with respect to his commute to and from bot h 9 Northern Virginia Community College and his three places of 10 work . While he is not entitled to deduct these expenses , 11 for the reasons we have stated , the rules that must b e 12 consulted and applied to reach that result are neithe r 13 intuitive nor inevitable . Similarly, Mr . Asare carefully i 14 maintained substantiation of his education-related 15 expenses -- and those expenses were indeed education- 16 related . They did not all qualify for the credit under 17 section 25A, but someone can be conscientious abou t 18 reporting such expenses, as Mr . Asare was, and still not 19 know where the line should be drawn . Mr . Asare took hi s 20 travel and education expense records to a certified publi c 21 accountant whom he paid to prepare his return for 2005 . We 22 find truthful Mr . Asare's testimony that he relied on hi s 23 accountant to correctly prepare his return, and we find tha t 24 in so doing either he was non-"negligent," or else he ha d 25 "reasonable cause" . Heritage Reporting Corporation (202) 628-4888 1 5 1 To reflect Respondent's concessions and the 2 Court's holding of non-liability for penalty, decision will 3 be entered under Rule 155 . 4 This concludes the Court ' s oral Findings of Fact 5 and Opinion in this case . 6 (Whereupon, at 2 :15 p .m ., the bench opinion in the 7 above-entitled matter was concluded . ) 8 9 10 11 12 13 14 15 16 17 /./ 18 19 20 21 22 23 2 4 25 Heritage Reporting Corporation ~ (202) 628-4888