t c memo united_states tax_court daniel e larkin and christine l larkin petitioners v commissioner of internal revenue respondent daniel e larkin and christine larkin petitioners v commissioner of internal revenue respondent docket nos filed date daniel e larkin pro_se grubert roger markley for respondent memorandum findings_of_fact and opinion gale judge these cases were consolidated for purposes of trial briefing and opinion petitioners petitioned the court with respect to respondent’s statutory notices of deficiency determining the following deficiencies additions to tax and penalties with respect to petitioners’ federal_income_tax for taxable years through subject years year deficiency dollar_figure big_number big_number big_number addition_to_tax sec_6651 penalty sec_6662 dollar_figure -0- big_number -0- dollar_figure big_number big_number big_number the notices of deficiency include adjustments with respect to certain items that passed through to mr larkin in his capacity as a partner in the law firm of squire sanders dempsey l l p ssd those items are partnership items within the meaning of sec_6231 as we lack jurisdiction in this proceeding to redetermine those partnership items see sec_6221 87_tc_783 we treat them as having been reported 1respondent issued a notice_of_deficiency covering and that was timely petitioned in docket no and a notice_of_deficiency covering and that was timely petitioned in docket no 2petitioners admit that mr larkin was a partner in ssd and the notices of deficiency treat ssd as a partnership within the meaning of sec_6231 petitioners have not shown that ssd was a small_partnership within the meaning of sec_6231 3unless otherwise indicated all section references are to the internal_revenue_code code as in effect for the subject years and all rule references are to the tax_court rules_of_practice and procedure all dollar amounts have been rounded to the nearest dollar correctly by ssd on the schedules k-1 partner’s share of income credits deductions etc issued to mr larkin for each subject year see sec_6222 the parties have settled some of the adjustments in the notices of deficiency we are left to decide the following issues whether sec_911 entitles petitioners to exclude from their gross_income for the subject years foreign_earned_income and housing costs of dollar_figure dollar_figure dollar_figure and dollar_figure respectively we hold in accordance with 4petitioners concede that they failed to report the following items for interest of dollar_figure from the larkin family_partnership lfp a small_partnership within the meaning of sec_6231 interest of dollar_figure from pnc bank national association pnc capital_gains of dollar_figure from lfp and dividends of dollar_figure from lfp respondent concedes that petitioners through lfp may credit dollar_figure against their rental income for in their opening brief petitioners attempt to place in issue the above- referenced interest for attributable to lfp and pnc which they conceded in the parties’ stipulations justice does not require that we disregard the stipulations underlying that concession and we decline to let petitioners now challenge those conceded items see rule e stating that stipulations are conclusive admissions and binding upon by the parties unless otherwise agreed upon by the parties or allowed by the court in the interest of justice 5as discussed below ssd issued mr larkin schedules k-1 for the subject years that reported among other things his share of ssd’s ordinary business income and guaranteed payments petitioners generally reported those items on schedules c profit or loss from business as if the items were income from mr larkin’s sole_proprietorship and they generally did so for through net of petitioners’ claimed exclusions under sec_911 although petitioners should have reported mr larkin’s share of ssd’s ordinary business income and guaranteed payments on schedules e supplemental income and loss see through partner’s instructions for schedules k-1 form_1065 pincite our continued respondent’s concession that sec_911 allows petitioners to exclude dollar_figure from their gross_income for each of and and dollar_figure for whether petitioners failed to report for a dollar_figure distribution from an individual_retirement_account ira we hold they did whether petitioners failed to report mr larkin’s distributive shares of ordinary_income from ssd of dollar_figure and dollar_figure for and respectively we hold that petitioners reported the dollar_figure distributive_share for but failed to report the dollar_figure distributive_share for whether petitioners may deduct the self-employment expenses that respondent disallowed for the subject years we hold they may deduct only the amounts stated herein whether petitioners may deduct dollar_figure of rental expenses for we hold they may not whether petitioners may deduct the itemized_deductions that respondent disallowed for the subject years we hold they may deduct only the amounts stated herein continued conclusions would remain the same regardless of whether that income was reported on schedules c or on schedules e whether petitioners are liable for self-employment taxes for the subject years as determined by respondent we hold they are whether petitioners may claim the foreign tax_credits that respondent disallowed for the subject years we hold they may not whether petitioners are liable for sec_6662 accuracy-related_penalties for the subject years we hold they are and whether petitioners are liable for sec_6651 additions to tax for and we hold they are findings_of_fact i preliminaries the parties stipulated certain facts and exhibits we find the stipulated facts accordingly and we incorporate those facts and exhibits herein petitioners were married and jointly filed a form_1040 u s individual_income_tax_return return for each subject year they are u s citizens and they resided in the united kingdom u k when their petitions were filed 6the parties also dispute whether respondent properly reduced petitioners’ deductions for exemptions pursuant to sec_151 the resolution of this issue is a computational adjustment that flows from our disposition of the other issues ii petitioners’ employment compensation other business activities and residence a mr larkin mr larkin is an attorney who during the subject years worked in the u k as a partner for the multinational law firm ssd earning--as discussed in more detail below--more than dollar_figure for each subject year before joining ssd at some point in mr larkin was employed at price waterhouse coopers llp pwc in the u k from at least as early as sometime in through date while at pwc mr larkin earned the following amounts and paid the following u k income taxes in u k pounds hereafter on the basis of a fiscal_year ending fye march fye amount earned big_number big_number big_number u k taxes paid big_number big_number big_number mr larkin’s services for ssd during the subject years included in addition to legal services providing business consulting services and related advice and serving as a director on the boards of one or more companies that were ssd’s 7mr larkin’s previous employer’s records document that he left that employer on date clients some of ssd’s clients assigned to mr larkin were his clients before he joined ssd those clients continued with mr larkin after he joined ssd because he and ssd agreed that mr larkin would continue to serve those clients personally but in his capacity as an ssd partner for each subject year mr larkin received payments from ssd that were for purposes of partnership_taxation rules guaranteed payments mr larkin participated in a pension_plan a keogh_plan that was funded through ssd and dollar_figure and dollar_figure of his distributions from ssd were contributed to that plan on his behalf during and respectively mr larkin also worked in the u k during the subject years in a real_estate business real_estate business that he operated as a sole_proprietorship none of petitioners’ returns for the subject years identified the real_estate business by name by principal business or by product or service and none included a schedule c that specifically reported any income or expense attributable to the real_estate business mr larkin first transferred funds to the real_estate business during 8respondent concedes that the real_estate business was a business within the meaning of sec_162 petitioners occasionally suggest that both of them operated the business but in the main refer to it as mr larkin’s business and we so find petitioners are also equivocal on the product s and or service s that the real_estate business provided during the subject years at trial mr larkin variously referred to the real_estate business as a real_estate trading business a business consulting and real_estate development business a real_estate investment continued and he through the real_estate business used those funds to buy property that petitioners sold in b mrs larkin mrs larkin reported her occupation as housewife or homemaker on petitioners’ through returns and left her occupation blank on their return c petitioners’ residence petitioners’ u k residence during the subject years was in claygate england d treetops treetops l l c treetops was a limited_liability_company that petitioners and another couple formed under wisconsin law in or about for the purpose of holding a vacation home on a lake in wisconsin during the subject years treetops’ owners were petitioners and the other couple with petitioners having continued business and a business consulting and real_estate development business we find that mr larkin’s sole_proprietor business was a real_estate development business 9petitioners moved sometime in to an address in cobham england as they provided that address on their return which was filed on date however one of petitioners’ utility bills in the record establishes that they were paying utilities at the claygate address through date of treetops’ equity interests and the other couple having the remainder treetops did not report any income for the subject years iii through returns a overview petitioners filed their return on date the return in relevant part includes the following documents a completed form_1040 a completed schedule a itemized_deductions a completed schedule c a completed schedule e a completed form_1116 foreign_tax_credit a completed form_2555 foreign_earned_income a completed form_4684 casualties and thefts a california schedule_k-1 partner’s share of income deductions credits etc california schedule_k-1 that ssd issued to mr larkin and which lists amounts from the schedule_k-1 that ssd issued to mr larkin a two-page sch k-1 supporting schedules statement relating to the schedule_k-1 that ssd issued to mr larkin a one-page schedule listing deductible items withheld in that ssd issued to mr larkin a schedule_k-1 that treetops issued to mr larkin for a schedule_k-1 that treetops issued to mrs larkin for and a statement accompanying the 10petitioners’ return does not include a copy of the schedule_k-1 that ssd issued to mr larkin schedules k-1 from treetops listing treetops’ expenses for mortgage interest and property taxes and the member’s share of each expense and the total thereof form_1040 petitioners reported on their form_1040 that their total income for was dollar_figure consisting of dollar_figure of income from mr larkin’s self-employment and a dollar_figure loss from rental real_estate they claimed that they were entitled to deduct dollar_figure of itemized_deductions and dollar_figure for personal exemptions leaving them with taxable_income of dollar_figure they reported that they were subject_to tax including the alternative_minimum_tax of dollar_figure and that they were entitled to claim a dollar_figure foreign_tax_credit that completely offset that tax schedule a petitioners claimed on the schedule a that their itemized_deductions consisted of the following items and corresponding amounts item real_estate_taxes home mortgage interest and points gifts by cash or check casualty or theft_loss other expense sec_1 total amount dollar_figure big_number big_number big_number big_number big_number 1petitioners did not specifically identify these other expenses 2while petitioners reported that these items total dollar_figure they actually total dollar_figure schedule c petitioners reported on the schedule c that mr larkin was an attorney working for ssd as a sole proprietordollar_figure the address they reported for the sole_proprietorship was an address other than their residence petitioners also reported on this schedule that mr larkin’s income and expenses indicated as computed on an accrual_method of accounting from his self-employment were as follows income and expenses gross_receipts expenses depreciation insurance other than health interest other than mortgage office expense pension and profit-sharing_plans amount dollar_figure big_number big_number big_number big_number 11for each subject year notwithstanding mr larkin’s status as a partner in ssd petitioners reported items of income and expense from the partnership on a schedule c rent vehicles machinery and equipment repairs and maintenance taxes and licenses travel deductible meals and entertainment utilities medical home_leave business use of home1 total net profit big_number big_number big_number big_number big_number big_number big_number big_number big_number big_number big_number 1the schedule c instructs taxpayers to attach form_8829 expenses for business use of your home with respect to this expense petitioners’ return does not include a form_8829 schedule e petitioners reported on the schedule e that they owned an interest in a rental real_estate property they reported the following items of income and expense as to that interest_income and expenses amount income rents received expenses repairs depreciation total net_loss dollar_figure big_number big_number big_number big_number form_1116 petitioners reported on the form_1116 that they paid_or_accrued foreign taxes of dollar_figure from through dollar_figure they also reported that they carried back or carried over dollar_figure of those taxes and had dollar_figure of the dollar_figure available for credit dollar_figure dollar_figure they reported that they were entitled to claim dollar_figure of the dollar_figure as a foreign_tax_credit for form_2555 petitioners reported on the form_2555 that mr larkin was an attorney real_estate developer whom ssd employed during the year and that mr larkin was for the first time filing a form_2555 to claim the foreign_earned_income and housing costs exclusions they also reported that mr larkin received foreign_earned_income of dollar_figure from wages salaries bonuses commissions etc and paid dollar_figure of qualified housing_expenses for the yeardollar_figure they also reported that they were entitled to claim a dollar_figure housing 12the face of the form_1116 includes a part ii foreign taxes paid_or_accrued part ii includes two boxes one labeled paid and the other labeled accrued and states in bold text right above the boxes that you must check one as to a credit claimed for foreign taxes petitioners reported in part ii that they paid_or_accrued dollar_figure of foreign taxes from through but they did not indicate by checking the appropriate box whether the taxes were paid_or_accrued 13petitioners calculated the dollar_figure by adding the dollar_figure of ordinary continued exclusion and an dollar_figure foreign_earned_income_exclusion for a total exclusion of dollar_figure the dollar_figure of gross_income reported on the schedule c represents the difference between the dollar_figure and the dollar_figure shown on the form_2555 form_4684 petitioners reported on the form_4684 that the dollar_figure casualty or theft_loss claimed on their schedule a related to dining room ceiling alcove fixtures they also reported that their basis in the referenced property was dollar_figure before the loss and that the property had no value after the loss schedules k-1 a ssd the california schedule_k-1 attached to the return indicated that the schedule_k-1 reported that mr larkin’s partnership shares of ssd’s ordinary business income of ssd’s net_income from rental_real_estate_activities of ssd’s interest_income and of ssd’s dividend income were dollar_figure dollar_figure dollar_figure and dollar_figure respectively and that his guaranteed payments totaled dollar_figure the california schedule_k-1 also indicated that the schedule_k-1 reported that mr larkin’s continued income and dollar_figure of guaranteed payments shown on the schedule_k-1 that ssd issued to mr larkin discussed below and then subtracting the sum of a dollar_figure loss plus dollar_figure in charitable_contributions also shown on that schedule share of ssd’s net_loss with respect to capital assets was dollar_figure and that his share of ssd’s charitable_contributions was dollar_figure the two-page statement attached to the return reported among other things that contributions to pension_plan totaled dollar_figure the one-page schedule attached to the return reported as to mr larkin that among other things ssd had withheld dollar_figure for medical insurance premiums b treetops treetops issued each petitioner a schedule_k-1 stating that each owned a interest in treetops each schedule_k-1 also stated that each petitioner’s distributive_share of treetops’ deductions was dollar_figure a statement included in the return reported that treetops’ mortgage interest and property taxes for the year were dollar_figure and dollar_figure respectively dollar_figure in total and that the member’s share of each deduction was dollar_figure and dollar_figure respectively dollar_figure in total b overview petitioners’ return in relevant part includes the following documents a completed form_1040 a completed schedule a a completed schedule c a completed form_2555 a completed form_4684 a schedule_k-1 that ssd issued to mr larkin and an accompanying one-page sch k-1 supporting schedules statement with respect to mr larkin and a completed form_1065 u s return of partnership income for treetops accompanied by a copy of the schedules k-1 that treetops issued to its four owners and a statement listing treetop’s deductions for and each petitioner’s share of those deductions the return does not include a form_1116 although petitioners claimed a foreign_tax_credit of dollar_figure on the return form_1040 petitioners reported on their form_1040 that their total income for was dollar_figure consisting solely of income from mr larkin’s self-employment they claimed that they were entitled to deduct dollar_figure of itemized_deductions and dollar_figure for personal exemptions leaving them with taxable_income of dollar_figure they reported that they were subject_to a tax including the alternative_minimum_tax of dollar_figure and as noted that they were entitled to claim a dollar_figure foreign_tax_credit that completely offset that tax schedule a petitioners claimed on the schedule a that their itemized_deductions consisted of the following items and corresponding amounts item real_estate_taxes home mortgage interest and points gifts by cash or check casualty or theft losses other expenses net of of agi total schedule c amount dollar_figure big_number big_number big_number big_number big_number petitioners reported on the schedule c that mr larkin was an attorney working for ssd as a sole_proprietor they reported the address of the sole_proprietorship as an address other than their residence they also reported that mr larkin’s income and expenses as computed on an accrual_method of accounting from his self-employment were as follows income and expenses gross_receipts expenses depreciation insurance other than health interest other than mortgage office expense pension and profit-sharing_plans rent vehicles machinery and equipment repairs and maintenance taxes and licenses travel deductible meals and entertainment utilities medical amount dollar_figure big_number big_number big_number big_number big_number big_number big_number big_number big_number big_number big_number home_leave business use of home total net profit form_2555 big_number big_number big_number big_number petitioners reported on the form_2555 that mr larkin was an attorney whom ssd employed during the year they also reported that mr larkin received foreign_earned_income of dollar_figure from wages salaries bonuses commissions etc and paid dollar_figure of qualified housing_expenses for the yeardollar_figure they also reported that they were entitled to claim a dollar_figure housing exclusion and an dollar_figure foreign_earned_income_exclusion for a total exclusion of dollar_figure the dollar_figure of gross_income reported on the schedule c equals the dollar_figure wages’ reported on the form_2555 plus mr larkin’s dollar_figure distributive_share of interest_income reported on the schedule_k-1 that ssd issued to him minus the dollar_figure exclusion claimed on the form_2555 14petitioners apparently calculated the dollar_figure in wages by adding the dollar_figure of guaranteed payments and the dollar_figure of rental real_estate income shown on the schedule_k-1 that ssd issued to mr larkin discussed below the parties have stipulated that petitioners failed to report this dollar_figure but we conclude that this stipulation is contrary to the facts see rule e 66_tc_312 form_4684 petitioners reported on the form_4684 that the dollar_figure casualty or theft_loss related to a van a sailboat garden lighting and a fourth item that is illegible they also reported that their bases in these properties before the loss were dollar_figure dollar_figure dollar_figure and dollar_figure respectively that the fair market values of these properties before the loss were dollar_figure dollar_figure dollar_figure and dollar_figure respectively and that the fair market values of these properties after the loss were dollar_figure dollar_figure dollar_figure and dollar_figure respectively schedules k-1 a ssd the schedule_k-1 that ssd issued to mr larkin for reported that his partnership shares of ssd’s ordinary business income of ssd’s net_income from rental_real_estate_activities of ssd’s interest_income and of ssd’s dividend income were dollar_figure dollar_figure dollar_figure and dollar_figure respectively and that his guaranteed payments totaled dollar_figure the schedule_k-1 also reported that mr larkin’s share of the losses from capital assets totaled dollar_figure and that his share of other deductions was dollar_figure the one-page supporting statement repeated the just-stated amounts and characterizations of mr larkin’s shares of ssd’s net_income from rental_real_estate_activities of ssd’s interest_income and of ssd’s dividend income as well as his guaranteed payments and a portion of the loss from capital assets and made no mention of any payment of medical insurance premiums or contribution to mr larkin’s pension_plan b treetops petitioners’ return includes a copy of a form_1065 for treetops for treetops’ return reports that treetops’ only item_of_income or expense was other deductions totaling dollar_figure and that these deductions consisted of mortgage interest of dollar_figure and property taxes of dollar_figure the schedules k-1 and accompanying statement that treetops issued to petitioners for report that each petitioner owned a interest in treetops and that each petitioner’s distributive_share of the other deductions was dollar_figure c overview petitioners’ return was filed on date the return included in relevant part the following documents a completed form_1040 a completed schedule a a completed schedule c a completed form_1116 a completed form_2555 two schedules k-1 that treetops apparently issued to petitioners and a wisconsin schedule 3k-1 partner’s share of 15these schedules list certain limited information as to treetops but do not continued income deductions etc wisconsin schedule 3k-1 that treetops issued to mrs larkin petitioners did not attach to their return a schedule_k-1 from ssd or any schedule or statement that ssd prepared with respect to that year form_1040 petitioners reported on their form_1040 that their total income for was dollar_figure consisting solely of income from mr larkin’s self-employment they claimed that they were entitled to deduct dollar_figure of itemized_deductions and dollar_figure for personal exemptions leaving them with a taxable_income of dollar_figure they reported that they were subject_to tax including the alternative_minimum_tax of dollar_figure and that they were entitled to claim a dollar_figure foreign_tax_credit that completely offset that tax schedule a petitioners reported on the schedule a that their itemized_deductions consisted of the following items and corresponding amounts continued report any amounts of income deductions or credits nor do they state to whom they were issued income and expenses amount real_estate_taxes home mortgage interest and points gifts by cash or check other expenses net of of agi total dollar_figure big_number big_number big_number big_number 1while petitioners reported that these items total dollar_figure they actually total dollar_figure schedule c petitioners reported on the schedule c that mr larkin was an attorney working for ssd as a sole_proprietor they reported the address of the sole_proprietorship as an address other than their residence they also reported that mr larkin’s income and expenses as computed on an accrual_method of accounting from his self-employment were as follows income and expenses gross_receipts expenses depreciation insurance other than health interest other than mortgage office expense pension and profit-sharing_plans rent vehicles machinery and equipment repairs and maintenance taxes and licenses travel deductible meals and entertainment amount dollar_figure big_number big_number big_number big_number big_number big_number big_number big_number big_number utilities medical home_leave business use of home total net profit form_1116 big_number big_number big_number big_number big_number big_number petitioners reported on the form_1116 that they paid_or_accrued foreign taxes of dollar_figure from through dollar_figure they also reported that they carried back or carried over dollar_figure of those taxes and thus had dollar_figure of the dollar_figure available for credit they reported that they were entitled to claim dollar_figure of the dollar_figure as a foreign_tax_credit for form_2555 petitioners reported on the form_2555 that mr larkin was an attorney employed at ssd during the year and that he received foreign_earned_income from wages salaries bonuses commissions etc of dollar_figure--the figure ssd reported as mr larkin’s guaranteed payments on the schedule_k-1 16as previously discussed as to the form_1116 the face of the form_1116 contains the same box and instructions with respect to reporting whether the claimed foreign taxes were paid_or_accrued petitioners reported in part ii of the form_1116 that they paid_or_accrued dollar_figure of foreign taxes from through but they did not indicate by checking the appropriate box whether the taxes were paid_or_accrued issued to himdollar_figure petitioners further reported that they paid dollar_figure of qualified housing_expenses for the year entitling them to claim a dollar_figure housing exclusion which when added to an dollar_figure foreign_earned_income_exclusion entitled them to a total exclusion of dollar_figure the dollar_figure of gross_income reported on the schedule c represents the approximate difference between the dollar_figure and the dollar_figure shown on the form dollar_figure the form_2555 instructed petitioners to report the dollar_figure in parentheses on the front of form_1040 as an item of other income and then to subtract the dollar_figure from their income to arrive at their total income schedules k-1 a ssd ssd issued mr larkin a schedule_k-1 for which reported that his partnership shares of ssd’s ordinary business income of ssd’s net_income from rental_real_estate_activities and of ssd’s interest_income were dollar_figure dollar_figure and 17in contrast with their reporting on the form_2555 petitioners did not include in the foreign_earned_income reported on the form_2555 mr larkin’s distributive_share of ssd’s ordinary_income of dollar_figure as reported to him on the schedule_k-1 issued to him by ssd 18the parties have not explained the dollar_figure discrepancy between the dollar_figure of reported gross_income and the dollar_figure figure that results when dollar_figure of foreign_earned_income reported on the form_2555 is reduced by dollar_figure foreign_earned_income_exclusion reported on that form dollar_figure respectively and that his guaranteed payments totaled dollar_figure the schedule_k-1 also reported that mr larkin’s share of gains from capital assets totaled dollar_figure b treetops petitioners attached to their return a wisconsin schedule 3k-1 that treetops issued to mrs larkin for the schedule reported that mrs larkin owned a interest in treetops and that her distributive_share of treetops’ loss for was dollar_figure a statement accompanying the schedule reported that treetops’ deductions were mortgage interest and property taxes of dollar_figure and dollar_figure respectively dollar_figure in total and that mrs larkin’s share of the total deduction was dollar_figure d overview petitioners’ return in relevant part included the following documents a completed form_1040 a completed schedule a a completed schedule c a completed schedule e a completed form_1116 a completed form_2555 a schedule_k-1 that ssd issued to mr larkin and an accompanying two-page sch k-1 supporting schedules statement relating to mr larkin’s interest in ssd a one-page schedule listing deductible items withheld in that ssd furnished to mr larkin as to his interest in ssd and a schedule_k-1 that treetops issued to larmodt l l c with an accompanying statement form_1040 petitioners reported on their form_1040 that their total income for was dollar_figure consisting of dollar_figure of income from mr larkin’s self-employment dollar_figure of income from schedule e and a negative dollar_figure adjustment relating to form dollar_figure they claimed that they were entitled to deduct dollar_figure of itemized_deductions and dollar_figure for personal exemptions leaving them with a taxable_income of dollar_figure they reported that they were subject_to a tax including the alternative_minimum_tax of dollar_figure and that they were entitled to claim a dollar_figure foreign_tax_credit that completely offset that tax schedule a petitioners claimed on the schedule a that their itemized_deductions consisted of the following items and corresponding amounts 19the record does not further identify larmodt l l c or its owners 20we note a discrepancy in petitioners’ total of dollar_figure item real_estate_taxes home mortgage interest and points gifts by cash or check other expenses net of of agi total schedule c amount dollar_figure big_number big_number big_number big_number petitioners reported on the schedule c that mr larkin was an attorney working for ssd as a sole_proprietor they reported the address of the sole_proprietorship as an address other than their residence they also reported that mr larkin’s income and expenses as computed on an accrual_method of accounting from his self-employment were as follows income and expenses gross_receipts expenses depreciation insurance other than health interest other than mortgage office expense pension and profit-sharing_plans rent vehicles machinery and equipment repairs and maintenance taxes and licenses travel deductible meals and entertainment utilities medical home_leave amount dollar_figure big_number big_number big_number big_number big_number big_number big_number big_number big_number big_number big_number big_number business use of home total net profit big_number 1big_number 2big_number 1while petitioners reported that these items total dollar_figure they actually total dollar_figure 2while petitioners reported the net profit as dollar_figure the reported gross_income of dollar_figure less the reported total expenses of dollar_figure equals dollar_figure the reported gross_income less the correct total of the reported expenses dollar_figure equals dollar_figure schedule e petitioners reported on the schedule e the following items of income income income from partnerships_and_s_corporations lfp income from estates and trusts barb james larkin total amount dollar_figure big_number big_number form_1116 petitioners reported on the form_1116 that they paid_or_accrued foreign taxes of dollar_figure from through dollar_figure they reported that they carried back or carried over dollar_figure of those taxes and thus had dollar_figure of the dollar_figure 21as we previously discussed in the case of the and forms the face of the form_1116 contains the same box and instructions with respect to reporting whether the claimed foreign taxes were paid_or_accrued petitioners reported in part ii of the form_1116 that they paid_or_accrued dollar_figure of foreign taxes from through but they did not indicate by checking the appropriate box whether the taxes were paid_or_accrued available for credit petitioners did not report on the form that they were claiming any portion of the dollar_figure as a foreign_tax_credit for although they claimed a dollar_figure foreign_tax_credit on their form_1040 that completely offset the tax reported as due form_2555 petitioners reported on the form_2555 that mr larkin was employed by ssd during without specifying his occupation they also reported that mr larkin received foreign_earned_income of dollar_figure from wages salaries bonuses commissions etc and paid dollar_figure of qualified housing_expenses for the yeardollar_figure they also reported that they were entitled to claim a dollar_figure housing exclusion and an dollar_figure foreign_earned_income_exclusion for a total exclusion of dollar_figure they reported and subtracted the dollar_figure on the front of their form_1040 as other income from form to arrive at their total income 22petitioners apparently calculated the dollar_figure by adding the dollar_figure of mr larkin’s guaranteed payments reported on the schedule_k-1 that ssd issued to him discussed below and his dollar_figure share of ordinary_income also reported on that schedule the record does not disclose the source of the dollar_figure discrepancy between the sum of dollar_figure dollar_figure or dollar_figure and the reported dollar_figure schedules k-1 a ssd the schedule_k-1 that ssd issued to mr larkin for reported that mr larkin’s shares of ssd’s ordinary business income of ssd’s net_income from rental_real_estate_activities of ssd’s interest_income and of ssd’s dividend income were dollar_figure dollar_figure dollar_figure and dollar_figure respectively and that his guaranteed payments totaled dollar_figure the schedule_k-1 also reported that mr larkin’s share of ssd’s net losses from capital assets totaled dollar_figure and that his share of ssd’s other deductions was dollar_figure the two-page statement reported among other things that contributions to keogh_plan totaled dollar_figure the one-page schedule reported as to mr larkin that among other things ssd had withheld dollar_figure for medical insurance premiums b treetops petitioners’ return includes a schedule_k-1 that treetops issued to larmodt l l c for it does not include any schedule_k-1 issued to either petitioner by treetops for that year iv ira distribution petitioners received a dollar_figure distribution during from an ira at morgan stanley dean witter inc a distribution in this amount is not specifically identified on petitioners’ return or on any schedule attached thereto v irs revenue_officer on or about date an internal_revenue_service irs revenue_officer mailed to petitioners a letter advising them that the irs was attempting to collect unpaid tax from them approximately two weeks later he sent petitioners another letter setting a meeting with them for date at the u s embassy in london to discuss unpaid amounts and unfiled returns this letter noted that irs records showed that petitioners had not filed federal_income_tax returns for or and owed over dollar_figure as to and inclusive of income taxes interest and penalties mr larkin met with the revenue_officer as scheduled and they discussed petitioners’ and taxable years as well as petitioners’ estimated_tax payments for vi time allotted for trial preparation and notice regarding documentary_evidence with respect to their docketed_case covering their and taxable years petitioners were given five months advance notice of their scheduled trial date the standing_pretrial_order accompanying that notice advised petitioners that any documentary_evidence that a party expected to use at trial except for impeachment purposes and that had not been stipulated shall be identified in writing and exchanged by the parties at least days before the first day of the trial session the initial trial date was approximately months after respondent issued the notice_of_deficiency for those yearsdollar_figure shortly before the initial trial date the parties jointly moved for a continuance on the grounds that petitioners needed additional time to secure documents to substantiate their claimed foreign tax_credits the court granted a continuance with the result that the trial was postponed an additional months in sum the trial occurred almost years after issuance of the notice_of_deficiency and months after petitioners received a continuance to afford them additional time to obtain documents with respect to their docketed_case covering the and taxable years the comparable period between issuance of the notice_of_deficiency and the trial date was more than months 23the parties stipulated that respondent issued the notice_of_deficiency for and on date and the notice_of_deficiency for and on date the notices of deficiency are stipulated exhibits a review of the notices of deficiency reveals an obvious error in the parties’ stipulations concerning the issuance dates they are reversed we therefore find contrary to the stipulations that the notice_of_deficiency was issued on date and the notice_of_deficiency was issued on date see 139_tc_67 ndollar_figure court may disregard a stipulation that is clearly contrary to the record i overview opinion respondent made various determinations in these cases and petitioners’ opening brief challenges some but not all of the determinations we consider any issue or argument that petitioners did not advance on brief as having been abandoned see 121_tc_308 117_tc_117 n 91_tc_524 ndollar_figure and we decide only the issues that petitioners address on brief we pause first to discuss the credibility of the sole witness mr larkin and the burden_of_proof we then turn to the determinations at issue and redetermine them seriatim ii witness credibility we consider mr larkin’s credibility for purposes of evaluating his testimony we then weigh his testimony and each piece of documentary_evidence draw appropriate inferences and choose between conflicting inferences in finding the facts in these cases the mere fact that mr larkin’s testimony was unopposed does not mean that we will make findings consistent with it we will not accept the testimony of witnesses at face value to the extent it is implausible or not credible in view of the totality of the surrounding circumstances see 115_tc_43 aff’d 299_f3d_221 3d cir we generally found mr larkin’s testimony to be unconvincing he routinely testified vaguely or in a conclusory manner or with an obviously self- serving motive we generally do not rely on mr larkin’s testimony to support petitioners’ positions in these cases except to the extent his testimony is corroborated by reliable documentary_evidence iii burden_of_proof petitioners contend that respondent bears the burden_of_proof for two reasons petitioners primarily argue that respondent bears the burden_of_proof under sec_7491 to that end they assert that they presented at trial f ully credible_evidence respecting underlying factual issues and all other evidence and records required to support claims were made available to the service during the examination and review process and remains available to this day they also assert that the examining agent declined to review documentation that they presented during the examination and that respondent’s counsel objected at trial to the introduction of documents eventually not included in evidence they argue secondarily that the burden_of_proof is on respondent because respondent’s determination is without any foundation they assert that the determination lacks a foundation because the irs declined to conduct an appropriate examination under the rules applicable to taxpayers residing abroad we do not agree that respondent bears the burden_of_proof the commissioner’s determinations set forth in a notice_of_deficiency are generally presumed correct 290_us_111 see also rule a sec_7491 however provides an exception that shifts the burden_of_proof to the commissioner as to any factual issue relevant to a taxpayer’s liability for income_tax if the taxpayer introduces credible_evidence with respect to the issue and the taxpayer has satisfied certain other conditions including that he has complied with the substantiation requirements for any item set forth in the code and has maintained all records required by the code see sec_7491 and a taxpayer bears the burden of proving that he has met the requirements of sec_7491 135_tc_471 aff’d 668_f3d_888 7th cir in addition a showing by the taxpayer that a determination is arbitrary excessive or without foundation also may shift the burden_of_proof to the commissioner see 293_us_507 116_f3d_1309 9th cir 91_tc_179 aff’d without published opinion 872_f2d_411 3d cir petitioners have not persuaded us that either sec_7491 or the arbitrary excessive or without foundation rule applies as to the former sec_6001 requires taxpayers to maintain such records as prescribed by the secretary and he has done so in regulations that direct the maintenance of records sufficient to establish the amount of gross_income deductions credits or other matters required to be shown in an income_tax return sec_1_6001-1 income_tax regs petitioners have not established that they have met this requirement as to any of the subject yearsdollar_figure while they introduced some documents at trial in support of their claimed deductions and credits and mr larkin testified that he had other documents at home in england the introduced documents and testimony do not satisfy petitioners’ burden to establish for purposes of sec_7491 that they maintained the necessary records as to the deductions and credits at issue nor have petitioners met the credible_evidence requirement credible_evidence is evidence that after critical analysis the court would consider sufficient to decide an issue for the party presenting the evidence if no contrary evidence were submitted and we have previously held that a taxpayer who provides only self-serving testimony and inconclusive documentation failed to 24in addition as we hold below petitioners have generally failed to satisfy the substantiation requirements of the code as to the disputed deductions or credits for each subject year provide credible_evidence see 116_tc_438 see also 394_f3d_1030 8th cir holding the same aff’g tcmemo_2003_212 while petitioners blame respondent for the lack of necessary evidence in the record eg asserting that during the examination they made additional documents available to the irs and that respondent’s counsel objected to the introduction of documentation into evidence the responsibility to produce the requisite admissible evidence rests with petitioners mr larkin is an experienced attorney and during the subject years was a partner in a large multinational law firm he surely understood the necessity to maintain documentation and to produce it at trial as well as in the examination to support petitioners’ claims his claim at the trial that he had additional documents at home rings especially hollow given his professional background we also are unpersuaded by petitioners’ claim that respondent’s determination lacked the requisite foundation because as they maintain the irs declined to conduct an appropriate examination under the rules that apply for taxpayers residing abroad the court generally will not look behind a notice_of_deficiency to examine the propriety of the commissioner’s motives or the evidence used or procedures involved in making the determinations reflected in a notice_of_deficiency see 62_tc_324 refusing to examine the commissioner’s failure to provide an appeals_conference a trial in this court commenced in challenge of a notice_of_deficiency is a proceeding de novo to redetermine a taxpayer’s correct_tax liability taxpayers such as petitioners have the opportunity to include in the record any document testimony or other evidence that is relevant even if it was not previously accepted or considered by the irs during the examination as long as it is admissible under the applicable procedures and rules we base our findings and holdings on the merits of these cases and not on any previous record developed at the administrative level see id pincite we conclude that petitioners bear the burden_of_proof as to the deficiencies and we hold accordingly iv exclusions for foreign_earned_income and housing costs as reflected in our findings petitioners reported mr larkin’s guaranteed payments in each subject year on their schedules c as gross_receipts for each subject year except they reported as gross_receipts the guaranteed payments net of the sec_911 foreign_earned_income and housing cost exclusions that they claimed for each year in the notices of deficiency respondent treated the gross_receipts figures from each year’s schedule c as petitioners’ reported guaranteed payments and adjusted the amounts for each subject year except to make them consistent with the guaranteed_payment amounts reported by ssd on the schedules k-1 issued to mr larkin effectively disallowing any exclusions under sec_911 for petitioners reported the entire amount of mr larkin’s guaranteed payments as gross_receipts on their schedule c that is without netting out their claimed sec_911 exclusion instead mr larkin’s guaranteed payments from ssd are generally speaking partnership items see sec_6231 sec_301_6231_a_3_-1 proced admin regs consequently petitioners were generally speaking required either to treat the guaranteed payments on their returns for the subject years consistently with the ssd partnership returns or to file statements identifying the inconsistency see sec_6222 and b petitioners having failed either to report the guaranteed payments consistently with the schedules k-1 issued by ssd or to file statements identifying the inconsistencies respondent was entitled to make computational adjustments to conform petitioners’ reporting of the guaranteed_payment amounts with the schedules k-1 issued by ssd without having to initiate a partnership level proceeding with respect to ssd pursuant to sec_6225 see sec_6222 however petitioners’ return positions for all subject years except 2006--in which they reported the guaranteed_payment amounts after netting out a foreign_earned_income and housing exclusion for each year--constitute claims that they are entitled to exclude a portion of the guaranteed payments in each such year pursuant to section dollar_figure their eligibility for such exclusions requires partner level determinations entitling them to deficiency procedures to resolve the issue see sec a a i 95_tc_193 generally a u s citizen whose tax_home is in a foreign_country and who is a bona_fide_resident of a foreign_country for an uninterrupted period that includes an entire taxable_year may elect to exclude from gross_income his foreign_earned_income and to exclude or deduct depending upon whether he is an employee or self-employed his housing_cost_amount up to certain maximum amounts see sec_911 respondent now concedes that petitioners are entitled to the maximum foreign_earned_income_exclusion under sec_911 for each subject year reflecting that concession we hold that petitioners are entitled to exclude dollar_figure from income for each of and and dollar_figure for pursuant to sec_911 respondent disputes however that petitioners are in addition entitled to any exclusion for housing costs under that section for the reasons discussed below we agree with respondent 25their claim to a sec_911 exclusion for was reported on the return as a negative adjustment to other income on line of the form_1040 as respondent’s instructions for that form provide the parties each frame their dispute as concerning whether petitioners may exclude any housing cost amounts for each subject year but as respondent argues elsewhere with respect to mr larkin’s liability for self-employment taxes mr larkin was self-employed during the subject years and consequently the only housing cost benefits to which petitioners may be entitled are deductions of those amounts pursuant to sec_911dollar_figure under that section a self-employed individual’s housing_cost_amount may be deducted in computing adjusted_gross_income subject_to certain limitations not applicable heredollar_figure a taxpayer’s housing_cost_amount comprises the housing_expenses paid_or_incurred during the taxable_year for the taxpayer’s foreign housing above a base housing amount floordollar_figure sec_911 sec_1_911-4 c income_tax regs sec_911 was amended in by inserting a new paragraph and consequently redesignating former paragraphs and as paragraphs and respectively and by modifying inter alia the base housing amount floor of sec_911 discussed further infra tax_increase_prevention_and_reconciliation_act_of_2005 tipra pub_l_no sec_515 and b stat pincite thus what was formerly sec_911 is now codified as sec_911 these amendments were effective for taxable years beginning after date tipra sec_515 sec_120 stat pincite thus they are applicable for petitioners’ taxable_year unless otherwise noted references hereafter are to sec_911 before its amendment in 27see sec_911 for the housing_cost_amount deduction limitations 28beginning in the housing_expenses which may be included in calculating a taxpayer’s housing_cost_amount are further limited by a ceiling continued for taxable years through the base housing amount floor is determined by multiplying of the salary of a u s employee compensated at an annual rate of grade gs-14 step by a fraction representing the number of days during the taxable_year in which the taxpayer’s tax_home is in a foreign_country and the taxpayer satisfies either the bona_fide residence test of sec_911 or the presence test of sec_911dollar_figure sec_911 for the taxable_year the base housing amount floor is determined by multiplying of the foreign_earned_income_exclusion amount by that same fraction id petitioners have offered four sets of invoices to substantiate expenses_incurred in connection with their u k residence during the subject years mortgage interest payments local property_tax payments utility payments and home repair and maintenance payments home mortgage interest and local property_tax payments are not eligible housing_expenses see sec_911 although utility and maintenance_expenses are eligible continued amount prescribed in present sec_911 tipra sec_515 however as discussed infra since the amount of housing_expenses petitioners substantiated for does not exceed the base housing amount floor those expenses necessarily do not exceed the sec_911 ceiling rendering it inapplicable in this case 29there appears to be no dispute and the record supports that mr larkin satisfied the bona_fide residence test for each of the subject years which means the multiplying fraction would be housing_expenses see sec_911 sec_1_911-4 income_tax regs even if we treat the proffered invoices for those expenses as substantiating the listed amounts as paid those expenses total only big_number big_number and for and respectively in order to be deductible petitioner’s housing_expenses for those years must have exceeded base housing amount floors of dollar_figure dollar_figure dollar_figure and dollar_figure respectivelydollar_figure after we converted the pound amounts listed in the invoices to dollar figures giving petitioners the benefit of using the strongest pound to dollar exchange rate that occurred within each subject year their substantiated housing costs still fall far below the foregoing base housing amount floors as the substantiated amounts converted to dollars in the manner described would equal dollar_figure dollar_figure dollar_figure 30the salary figures for a u s employee compensated at an annual rate of grade gs-14 step for and are available at https archive opm gov oca 03tables html gs asp https archive opm gov oca 04tables html gs asp and https archive opm gov oca 05tables html gs asp respectively the salary figures for and were dollar_figure dollar_figure and dollar_figure respectively taking of those figures yields a base housing amount floor of dollar_figure dollar_figure and dollar_figure for and respectively similarly taking of the foreign_earned_income_exclusion amount for dollar_figure yields a base housing floor of dollar_figure 31we take judicial_notice of the following exchange rates as the strongest pound to dollar rates that occurred during and respectively rounded to the nearest cent as published by the international monetary fund dollar_figure dollar_figure dollar_figure and dollar_figure see http www imf org external np fin data param_rms_mth aspx and dollar_figure for the subject years respectively consequently petitioners are not entitled to any housing_cost_amount deductions for the subject years v ira distribution petitioners admit in their petition that they received a dollar_figure ira distribution from morgan stanley dean witter inc in but contend that it was reported to them on a schedule_k-1 relating to a deceased parent and that they reported the distribution on their schedule e they point to part iii of their schedule e and assert that the distribution is clearly shown net of the associated tax gross up from the estate in part iii petitioners reported a dollar_figure deduction or loss and dollar_figure of income with respect to a schedule_k-1 related to barb james larkin petitioners’ return does not include a schedule_k-1 related to barb james larkin nor does it include a schedule_k-1 that specifically reports a dollar_figure ira distribution we do not find that the ira distribution is clearly shown in the referenced part of schedule e in fact we decline to find that the dollar_figure distribution is reported in the return at alldollar_figure we sustain respondent’s determination that petitioners failed to report a dollar_figure ira distribution 32while petitioners did report on their schedule e that they realized dollar_figure of income as to a schedule_k-1 related to barb james larkin we are unable to find on the basis of the limited record at hand that the dollar_figure is related to the ira distribution vi distributive_share of ssd partnership ordinary_income respondent determined in the notices of deficiency that petitioners had failed to report mr larkin’s distributive shares of ordinary_income from ssd of dollar_figure and dollar_figure for and respectively ssd issued schedules k-1 to mr larkin for and reporting the foregoing amounts as described those distributive shares are partnership items within the meaning of sec_6231 see sec_301_6231_a_3_-1 proced admin regs consequently as with the guaranteed payments previously discussed petitioners were required either to treat mr larkin’s distributive_share of ordinary_income from ssd on their and returns consistently with the ssd partnership returns as reported to mr larkin on the schedules k-1 or to file statements identifying the inconsistency see sec_6222 and b they did not file statements identifying any inconsistent reporting for either year respondent’s position that petitioners had failed to report mr larkin’s distributive shares of ordinary_income from ssd would entitle him to make adjustments to petitioners’ returns to render them consistent with the schedules k- issued to mr larkin without having to initiate partnership level proceedings with respect to ssd pursuant to sec_6225 see sec_6222 as noted respondent made those adjustments in the notices of deficiency issued to petitioners in these circumstances we have jurisdiction to adjudicate the effect of these partnership items on petitioners’ tax_liabilities as partner level determinations are required to do so see 118_tc_541 as outlined in our findings our review of the record persuades us that petitioners reported mr larkin’s dollar_figure distributive_share of ssd’s ordinary_income for they did so by including it in the gross_receipts reported on schedule c albeit net of the sec_911 exclusion they claimed we accordingly do not sustain respondent’s determination that petitioners failed to report this amount we reach the contrary conclusion with respect to petitioners argue that as with they reported mr larkin’s dollar_figure distributive_share of ordinary_income from ssd as part of gross_receipts on the schedule c net of the sec_911 exclusion they claimed on the basis of our review of the figures we disagree petitioners reported dollar_figure of gross_receipts on their schedule c given the pattern that is readily apparent in their computation of schedule c gross_receipts on the and returns we can surmise that petitioners calculated the gross_receipts figure by subtracting the dollar_figure sec_911 exclusion they claimed on form_2555 from the dollar_figure in guaranteed payments reported to mr larkin on the schedule_k-1 the result is dollar_figure which leaves dollar_figure of the dollar_figure in reported gross_receipts unaccounted for--a figure too small to encompass petitioners’ having reported dollar_figure as gross_receipts before reducing that figure by their claimed sec_911 exclusion consequently we sustain respondent’s determination that petitioners failed to report mr larkin’s distributive_share of ordinary_income from ssd of dollar_figure vii deductions arising from the real_estate business a overview petitioners reported on their schedules c for the subject years that all of mr larkin’s self-employment expenses listed thereon were related to his work for ssd as a self-employed attorney respondent disallowed petitioners’ deductions for all of the reported expenses respondent determined primarily that the reported expenses were the partnership’s and therefore not deductible by petitioners see 558_fedappx_374 5th cir aff’g and remanding on another issue tcmemo_2011_289 75_tc_288 aff’d without published opinion 665_f2d_1050 7th cir respondent determined alternatively that petitioners had failed to substantiate that the expenses were actually incurred and paid or that the expenses served a business purposes petitioners now argue inconsistently with their reporting on the schedules c that the expenses-- w ith the exception of ira and medical insurance contributions and some other items required under the relevant partnership agreements to be paid directly by partners --related to the real_estate business petitioners assert that mr larkin was a self-employed consultant and real_estate developer during the subject years and that these activities were separate from his legal practicedollar_figure petitioners assert that all expenses reported on the schedules c are fully substantiated and deductible and generally routine and customary we disagree with petitioners’ claim that they may deduct the expenses reported on their schedules c for the subject years petitioners appear to contend that the expenses should be deductible because they are routine and customary for the business activities in which mr larkin engaged without regard to whether they have been substantiated we of course disagree petitioners bear the burden 33petitioners incorrectly refer to mr larkin’s keogh account as an ira 34although it is not clear it appears that petitioners’ position is that amounts that ssd received from mr larkin’s former clients were actually realized by mr larkin through his real_estate business we earlier expressed our rejection of mr larkin’s testimony to this effect and we now reject petitioners’ related position as well of proving the character and amount of each expense reported and that they incurred and paid themdollar_figure see rule a 503_us_79 welch v helvering u s pincite sec_162 generally allows a taxpayer to deduct all ordinary and necessary expenses paid_or_incurred in carrying_on_a_trade_or_business where those expenses relate to the business use of the taxpayer’s residence he may deduct a portion of residence-related expenses allocable to business use if a portion of the residence is used exclusively on a regular basis as his business’ principal_place_of_business or a place for meeting with customers clients or 35petitioners argue that by virtue of the fact that they resided abroad they should be relieved of producing documentation at trial to substantiate the expenses for which they claimed deductions however there is no exception from the obligation to substantiate deductions for taxpayers residing abroad we note further in this regard that the standing_pretrial_order issued to petitioners when these cases were first set for trial advised them of the requirement that documents to be used at trial generally must be exchanged beforehand and that they had an especially lengthy period to prepare for trial they were granted a continuance from the original trial date for the express purpose of obtaining additional documentation to support their positions petitioners also suggest for the first time on brief--without support of sworn testimony--that their documents were lost when they moved apparently in late or in any event a taxpayer in these circumstances generally must make a reasonable effort to reconstruct substantiation where documents have been lost or destroyed for reasons beyond his control see beck v commissioner tcmemo_2001_198 smith v commissioner tcmemo_1998_33 watson v commissioner tcmemo_1988_29 there is no evidence that petitioners made any such attempt to reconstruct their substantiation patients in the normal course of the businessdollar_figure see sec_280a and b see also 506_us_168 trade_or_business deductions for travel_expenses are allowable only if the taxpayer satisfies the stricter substantiation requirements of sec_274 in addition to the requirements of sec_162 under sec_274 no deduction is allowed for expenses_incurred for travel away from a taxpayer’s home including meals_and_lodging unless the taxpayer substantiates by adequate_records or by sufficient evidence corroborating the taxpayer’s own statement the amount of each expense the time and place of the travel and the business reason or expected business benefit from the travel see sec_274 see also sec_1_274-5t c temporary income_tax regs fed reg date the court may sometimes apply the rule_of 39_f2d_540 2d cir to estimate a taxpayer’s expenses when the record does not otherwise establish them but there is a basis upon which to make a reasonable estimate see 85_tc_731 but the cohan_rule may not be applied to estimate expenses that are 36residence-related expenses also may be deductible where they relate to certain storage space or to certain structures unattached to a dwelling_unit see sec_280a and petitioners do not argue that either of those provisions is applicable and we do not further discuss them subject_to sec_274 see 50_tc_823 aff’d per curiam 412_f2d_201 2d cir deductions with respect to certain listed_property including computers are also subject_to the strict substantiation rules of sec_274 see sec_274 sec_280f among other requirements the taxpayer must establish the amount of each business use and the total use of the listed_property during the taxable_period sec_1_274-5t temporary income_tax regs fed reg date we turn to the disputed deductions with this law in mind b home_office expenses petitioners contend that the expenses reported on the schedules c for insurance office expense rent repairs and maintenance taxes and licenses and utilities were paid with respect to their residence and constitute of the total_amounts paid for these items they reported they contend on account of the fact that a 300-square-foot spare bedroom in their residence representing approximately of the residence’s total square footage was used exclusively for petitioners’ schedule c real_estate business we conclude that petitioners have not shown entitlement to deductions for the business use of their residence first they have produced no substantiation whatsoever for most of the foregoing expenses there is no substantiation for any insurance expense office expense rent or taxes and licensesdollar_figure that leaves the expenses reported for repairs and maintenance and for utilities with respect to which petitioners provided various bills and invoices as substantiation even if we assume that some portions of these expenses have been substantiated we conclude that petitioners are not entitled to deduct those portions because they have not established that they met the requirements of sec_280a or b that their bedroom office was used exclusively either as the principal_place_of_business for their real_estate business or as a place used by clients in the normal course of business 37the record includes an invoice for the purchase of a computer and related equipment in according to mr larkin’s testimony the computer was the source of the depreciation expenses reported on the schedules c for the subject years we consider that item infra 38the schedules c for the subject years indicate that the rent expenses were for vehicles machinery and equipment there is no substantiation in the record for rental expenses of any type petitioners also claimed a loss from a rental_activity on a schedule e for which is considered infra 39petitioners offered into evidence two real_estate tax bills issued with respect to their u k residence for certain of the subject years according to mr larkin’s testimony however those bills are offered to substantiate the real_estate tax deductions claimed as itemized_deductions on petitioners’ schedules a for the subject years we reach the foregoing conclusion on the basis of the preponderance_of_the_evidence we note first that the address petitioners provided on the schedule c for each subject year was not their residence but instead the address for the london office of ssd mr larkin further testified that the real_estate business began to generate income in and that his arrangement with ssd required that revenue from his nonlegal business activities be routed through ssd we note further that with two exceptions not pertinent the only income petitioners reported for the subject years came from ssd thus whatever income the real_estate business may have generated was accounted for through ssd consequently we find that at a minimum the bookkeeping for the real_estate business was conducted at the ssd london office mr larkin’s testimony concerning his spouse’s involvement in the real_estate business was vague and inconsistent in any event to the extent mrs larkin may have participated in the conduct of the business there was no suggestion that she conducted it to the exclusion of mr larkin we further draw the reasonable inference that the real_estate business activities were generally conducted during normal business hours and further infer that mr larkin generally 40the two exceptions were a schedule e attached to petitioners’ return that reported dollar_figure of rent received from a rental real_estate property that was offset by dollar_figure in expenses generating a loss that respondent disallowed and a schedule e attached to petitioners’ return that reported partnership income of dollar_figurefrom the larkin family_partnership and estates and trust income of dollar_figure from barb james larkin was present at the ssd london office at these times thus we conclude mr larkin conducted a greater-than-insubstantial portion of the real_estate business activities from the ssd london office given the reasonable inferences concerning mr larkin’s conduct of the real_estate business activities and the site of the business’s bookkeeping we conclude that petitioners have failed to demonstrate that the bedroom office in their residence was the principal_place_of_business of the real_estate business petitioners have not shown or even suggested that the bedroom office was used for meeting clients accordingly petitioners are not entitled to deduct any amounts arising from the claimed business use of their residence during the subject yearsdollar_figure c depreciation petitioners reported a depreciation expense on their schedule c for each subject year mr larkin testified that these items represented depreciation of computer equipment located in the bedroom office at petitioners’ residence petitioners have substantiated the purchase of a computer and related equipment with an invoice from and the fact that a computer was still in their 41mr larkin testified that an unspecified portion of the insurance expense related to an automobile that petitioners used in the real_estate business to meet with one of the business’ partners and to meet with developers he produced no substantiation regarding the insurance expenses however and we accordingly are not persuaded that petitioners are entitled to deduct any portion of the insurance expense that may have related to an automobile possession through at least with an invoice for computer repairs dated date a depreciation deduction is available only with respect to property used in a trade_or_business or held_for_the_production_of_income sec_167 as noted computers are listed_property and therefore no deductions are allowed with respect to them unless their business use is substantiated in a manner that demonstrates the proportion of business use to total use see sec_1 5t b i b temporary income_tax regs supra according to mr larkin’s testimony the computer in question was in the bedroom office in petitioners’ residence and regularly used by mrs larkin in the circumstances we simply do not find credible any assertion or implication that the computer was used for business--at least not without some additional proof such as the existence of a second computer in the residence devoted to personal_use even if we credited mr larkin’s self-serving testimony to the effect that mrs larkin regularly assisted in the real_estate business activities that fact would fall well short of establishing the amount of business use of the computer during the subject years petitioners have not demonstrated or even suggested the proportions of business versus personal_use of the computer as required by sec_1_274-5t temporary income_tax regs supra to sustain any deduction for business use of the computer accordingly we sustain respondent’s disallowance of the deductions for depreciation expenses that petitioners claimed on the schedules c for the subject years d interest petitioners reported nonmortgage interest_expenses of dollar_figure dollar_figure dollar_figure and dollar_figure on their schedules c for and respectively mr larkin testified that the interest_expenses related mainly to personal lines of credit used in the real_estate business he also testified that he obtained against his residence a big_number general line of credit for real_estate investments the only possible substantiation for the interest_expenses reported on the schedules c are two letters addressed to petitioners from a representative of the international private banking division of riggs co both letters refer to certain interest that would be due from petitioners on future dates in and but the letters do not establish that the interest was in fact paid we accordingly sustain respondent’s determination disallowing any deductions for the interest petitioners reported on the schedules c e pension and profit sharing petitioners reported a dollar_figure pension_plan expense on the schedule c for each subject year respondent determined and argues that petitioners failed to establish that mr larkin made any contributions to a pension_plan during the subject yearsdollar_figure we disagree for and at least the supporting schedules to the schedules k-1 that ssd issued to mr larkin list contributions made on his behalf to a pension or keogh_plan of dollar_figure and dollar_figure respectively we are satisfied from the surrounding circumstances that the supporting schedules are reliable and that they demonstrate that keogh_plan contributions in those amounts were made on mr larkin’s behalf from his partnership_distributions there are no such supporting schedules in the record for and we accordingly hold that petitioners are entitled to deduct pension_plan contributions of dollar_figure and dollar_figure for and respectively and we sustain respondent’s disallowance of the deductions for pension_plan contributions for and 42respondent has not disputed mr larkin’s eligibility as a self-employed_individual to deduct contributions to a keogh_plan for the subject years see generally sec_404 respondent contends only that petitioners have failed to substantiate that any contributions were made on mr larkin’s behalf from his earned_income f travel meals and entertainment petitioners reported travel_expenses of dollar_figure dollar_figure dollar_figure and dollar_figure on their schedules c for and respectively they reported meals and entertainment_expenses after reducing the amounts by the limitation imposed by sec_274 of dollar_figure dollar_figure dollar_figure and dollar_figure for those same years respectively the notices of deficiency determined that deductions for all such expenses should be disallowed for inter alia lack of substantiation petitioners proffered no substantiation at trial mr larkin testifying that he had documentation of the expenses at home in the u k this testimony does not meet the substantiation requirements of sec_274 we therefore sustain respondent’s determination disallowing any deductions for these expenses g medical insurance premiums petitioners reported medical_expenses on the schedules c of dollar_figure dollar_figure dollar_figure and dollar_figure for and respectively all of which respondent disallowed for lack of substantiation mr larkin’s testimony clarified that the expenses so listed represented medical insurance premiums for himself and his family relating to a policy in the name of ssd that ssd paid on his behalf a self-employed_individual generally is allowed a deduction for amounts paid during the taxable_year for medical insurance see sec_162 this treatment extends to a partner on whose behalf a partnership has paid for medical insurance see revrul_91_26 c b dollar_figure mr larkin testified that the medical_expenses reported on the schedules c are substantiated through the schedules k-1 and accompanying statements that ssd issued to him attached to petitioners’ return is a schedule issued to him by ssd reporting that dollar_figure was withheld from his partnership_distributions for medical insurance premiums petitioners’ return contains a similar schedule but it reports that dollar_figure in medical insurance premiums was withheld petitioners’ and returns do not contain any ssd-issued or other document referencing medical insurance premiums the ssd statements or lack thereof as to and when viewed in the light of all of the credible_evidence in the record persuade us that ssd withheld and paid dollar_figure in medical insurance premiums on mr larkin’s behalf for dollar_figure 43respondent has not argued that mr larkin failed to satisfy any requirement of sec_162 or revrul_91_26 1991_1_cb_184 he contends that petitioners have failed to substantiate the deductions claimed 44petitioners have offered no explanation for the dollar_figure difference between continued the ssd statement for persuades us that no such premiums were paid and there is no substantiation for any payment of medical insurance premiums for and we accordingly hold that petitioners are entitled to deduct dollar_figure in medical insurance premiums for in computing their adjusted_gross_income and we sustain respondent’s disallowance of deductions for the remaining amount reported as a medical expense on petitioners’ schedule c and all amounts so listed on petitioners’ schedules c h home_leave petitioners reported expenses for home_leave on the schedules c of dollar_figure dollar_figure dollar_figure and dollar_figure for and respectively deductions for all of which respondent disallowed mr larkin testified that petitioners and their three daughters traveled to the united_states annually during the subject years to visit relatives and friends and that ssd did not reimburse him for the costs associated therewith the amounts reported as home_leave expenses reflect the costs of the annual visits petitioners cite no code section or other authority that would allow them to deduct these apparently personal expenses and we are not persuaded that they may continued the dollar_figure reported on the ssd-issued statement and the dollar_figure reported as a medical expense on their schedule c deduct any part of them see sec_262 generally disallowing a deduction for personal living or family_expenses we sustain respondent’s disallowance of the deductions for these expenses for all subject years viii rental expenses respondent disallowed a deduction for dollar_figure of rental expenses that petitioners claimed on a schedule e for on the grounds that petitioners failed to establish that the expenses were incurred and paid or were attributable to property_held_for_the_production_of_income mr larkin testified that the dollar_figure was his distributive_share of the expenses reported on the schedule_k-1 that ssd issued to him for petitioners argue that they may deduct those expenses because p roper substantiation of this expense was provided with the k-1 filed by ssd we do not find attached to petitioners’ return any schedule_k-1 or other information_return that lists the referenced expenses nor are we persuaded that these expenses are related to ssd given the absence of any substantiation that these expenses were incurred or paid we sustain respondent’s determination disallowing the deduction ix itemized_deductions a overview respondent disallowed all of petitioners’ itemized_deductions claimed on schedule a for each subject year on the grounds that petitioners failed to substantiate that the expenses were incurred and paid or that they qualified as deductible expenses petitioners argue that these amounts are routine and have been fully substantiated and contend that they are entitled to deduct them we analyze each itemized_deduction seriatim bearing in mind that in order to prevail petitioners must substantiate the expenses underlying these deductions notwithstanding whether the expenses are of the type that comparable taxpayers commonly incur b real_estate_taxes and home mortgage interest petitioners claimed itemized_deductions on schedules a for home mortgage interest and real_estate_taxes for each subject year they rely upon the schedules k-1 that treetops issued to them to substantiate a portion of the deductions mr larkin testified that the remaining amounts of home mortgage interest and real_estate_taxes relate to interest and taxes paid with respect to petitioners’ u k residence in general for cash_basis taxpayers who elect to itemize deductions interest_paid during the taxable_year with respect to indebtedness incurred in acquiring a principal and a second residence is deductible see sec_63 and e h - sec_1_121-1 income_tax regs likewise such taxpayers may deduct state and local and foreign real_property_taxes paid within the taxable_year sec_164 treetops was a small_partnership within the meaning of sec_6231 as the record establishes that it had at most two partners petitioners and another married couple --married couples being treated for this purpose as a single partner see sec_6231 i --and there is no evidence that treetops made an election at any time not to be treated as a small_partnership see sec_6231 consequently the unified_audit and litigation procedures of the tax equity and fiscal responsibility act of tefra pub_l_no sec_402 stat pincite do not apply to treetops see howell v commissioner tcmemo_2012_303 at n mcknight v commissioner tcmemo_1991_514 supplemented by 99_tc_180 aff’d 7_f3d_447 5th cir as a result the partnership items reported on the schedules k-1 treetops issued to petitioners are subject_to redetermination in this proceeding rather than in a partnership-level proceeding governed by the tefra provisions and petitioners must substantiate expenses reported on the schedules k-1 they have not done so and accordingly they are not entitled to deduct the interest and real_estate_taxes reported on the schedules k-1 that treetops issued to them the only possible substantiation for the remaining home mortgage interest is the two letters addressed to petitioners from a representative of the international private banking division of riggs co previously discussed however as previously noted these letters do not establish that any interest was actually paid there is no other documentary_evidence in the record that would substantiate the amounts or timing of any home mortgage interest payments during the subject years we accordingly sustain respondent’s determination disallowing the home mortgage interest deductions petitioners claimed for the subject years petitioners offer as substantiation for the remaining real_estate_taxes two tax bills from the elmbridge borough council in esher surrey each bill indicates that the property being taxed is petitioner’s u k residence the first bill dated date states that the amount due for the fiscal_year ended date is big_number and acknowledges payments to the bill’s date of big_number with a balance due of this bill persuades us that petitioners have substantiated the payment of big_number in real_property_taxes for the second bill dated date states that the amount due for the fiscal_year ended date is big_number and acknowledges payments to the bill’s date of this bill persuades us that petitioners have substantiated the payment of in real_property_taxes for we hold that petitioners are entitled to deduct these amounts for the years noteddollar_figure c gifts petitioners claimed charitable_contribution deductions for cash contributions on schedules a of dollar_figure dollar_figure dollar_figure and dollar_figure for and respectively all of which respondent disallowed for lack of substantiation sec_170 allows a deduction for charitable_contributions paid within the taxable_year only if verified under regulations prescribed by the secretary sec_1_170a-13 income_tax regs provides that a taxpayer who makes a charitable_contribution of money shall maintain with respect to the contribution either a canceled check a receipt from the donee charitable_organization or other reliable written records showing the name of the donee the date of the contribution and the amount of the contribution mr larkin testified that the gifts were contributions that he made mainly to church and to charities and that these gifts were customary and appropriate he 45we expect the parties as part of their rule_155_computations to agree to a conversion rate to u s dollars of these amounts and to take into account whether any itemized_deductions to which we have held petitioners are entitled would exceed the standard_deduction respondent determined to allow for each year conceded that he did not have any substantiation to offer at trial for any of the claimed gifts in the absence of any substantiation from petitioners we sustain respondent’s determination in full d casualty losses petitioners claimed casualty or theft_loss deductions on schedules a of dollar_figure and dollar_figure for and respectively both of which respondent disallowed for lack of substantiation an individual taxpayer may generally deduct losses on property not connected with a trade_or_business to the extent that the losses arise from a casualty such as a fire or storm see sec_165 c the amount of the deduction is the lesser_of either the difference between the fair_market_value of the property immediately before and after the casualty or the adjusted_basis of the property diminished by dollar_figure for each incident of loss and by the amount compensated for by insurance or otherwise see sec_165 sec_1_165-7 income_tax regs accordingly to substantiate a casualty_loss deduction petitioners must prove among other things the adjusted_basis and the fair_market_value of the property immediately before and after each casualty see 46_tc_751 aff’d 387_f2d_420 8th cir petitioners did not provide any credible_evidence to substantiate their bases in the relevant property or the fair_market_value of any of the property immediately before or after the claimed casualty we accordingly sustain respondent’s determination in full e other expenses petitioners claimed other expenses deductions on schedules a of dollar_figure dollar_figure dollar_figure and dollar_figure for and respectively all of which respondent disallowed for lack of substantiationdollar_figure mr larkin conceded that he did not have at trial any substantiation for the other expenses but that they were customary and appropriate in the absence of any substantiation from petitioners we sustain respondent’s determination in fulldollar_figure x self-employment_tax petitioners did not report any self-employment_tax liability for any of the subject years respondent determined that petitioners were liable for self- 46the amounts petitioners deducted for were net of the of agi floor on miscellaneous_itemized_deductions imposed by sec_67 the amount they deducted for was computed without that limitation 47petitioners do not seek to deduct state and municipal nonresident taxes ssd reported on the one-page schedules related to the and schedules k-1 and we do not consider that issue employment_taxes of dollar_figure dollar_figure dollar_figure and dollar_figure for and respectively individual taxpayers are liable for self-employment_tax on their self-employment_income see sec_1401 self-employment_income generally includes an individual’s net_earnings_from_self-employment in a trade_or_business a partner’s distributive_share of income or loss from any trade_or_business carried on by a partnership of which he is an owner and guaranteed payments from the partnership see sec_1402 sec_1_1402_a_-1 income_tax regs see also tietig v commissioner tcmemo_2001_190 82_tcm_304 aff’d 57_fedappx_414 11th cir petitioners bear the burden of proving that they are not liable for the self-employment_tax that respondent determined see rule a tietig v commissioner t c m cch pincite there is no dispute that mr larkin had self-employment_income equal to his guaranteed payments and distributive_share of ordinary_income from ssd for the subject years instead petitioners argue that their self-employment_income is not subject_to self-employment_tax because they have been paying into the uk social insurance schemes and have met the tests under the uk us tax_treaty for credit against us obligations respondent argues that petitioners have not established that they were required to pay into a u k social insurance system that would serve to eliminate their liability for u s self-employment_tax or that petitioners actually paid into the u k system we agree with respondent petitioners support their position primarily with a date letter that the national insurance contributions office of hm revenue customs in the u k sent to mr larkin the letter states that it contains details of your nics national insurance contributions from date to date as to those years the letter states mr larkin made the following contributions in u k pounds for tax_year as an employed person cla sec_1 self-employed cla sec_2 voluntary credits dollar_figure dollar_figure dollar_figure -0- -0- -0- -0- -0- -0- -0- -0- -0- -0- -0- -0- -0- -0- -0- -0- -0- -0- -0- -0- -0- -0- -0- -0- -0- -0- -0- -0- -0- -0- -0 -0- -0- -0- -0- -0- -0- 48it is apparent from the letter that a fiscal_year ending april is used for purposes of the u k social insurance system mr larkin testified that in addition to the amounts shown in this letter petitioners paid into the u k social insurance system through a variety of means such as through partnership payments through individual payments and through their payment of taxes petitioners claim that they have proven that they were required to and did make payments in the u k that were the equivalent of paying u s self-employment taxes we disagree while it is true that petitioners contributed to the u k social insurance system during through petitioners have failed to persuade us that they made any payments to that system during the subject years in addition petitioners have cited no provision nor are we aware of any such provision that would exempt mr larkin from liability for self-employment taxes for the subject years simply because for the three prior years he contributed dollar_figure into the u k social insurance system we accordingly sustain respondent’s determination that mr larkin is liable for self-employment taxes for the subjects years as described above xi foreign tax_credits petitioners claimed foreign tax_credits of dollar_figure dollar_figure dollar_figure and dollar_figure for and respectively the credits offset the tax reported as due for each year respondent disallowed them all on the grounds petitioners had failed to document adequately the payment of taxes to a foreign government sec_901 generally allows a taxpayer a foreign_tax_credit for foreign_income_taxes paiddollar_figure subject_to the rules of sec_904 which generally limit the credit to the amount of u s tax on foreign_income the credit generally equals the amount of income_tax paid during the taxable_year to a foreign_country or a u s possession see sec_901 generally any unused_foreign_tax credit may be carried back and credited against u s income_tax_liability for the preceding_taxable_year or in the case of excess foreign taxes arising in taxable years beginning before date the preceding two years and then to the extent still unused may be carried forward and credited against u s income_tax for the following taxable years see sec_904 respondent concedes that petitioners have demonstrated that they paid income taxes to the u k aggregating big_number during fye date and there is no evidence in the record that petitioners paid any additional u k income taxes after date petitioners maintain that they are entitled 49a cash-basis taxpayer generally must take the foreign_tax_credit for the year in which the foreign taxes were paid unless the taxpayer elects to take the credit in the year in which the foreign taxes accrue see sec_905 we understand petitioners’ position to be that they did not make such an election and we proceed accordingly to carry forward foreign tax_credits in the amounts claimed for the subject yearsdollar_figure respondent disagrees contending that petitioners have failed to demonstrate what portion of the foregoing u k taxes paid were creditable against their u s income_tax_liability for the taxable years before the subject years namely and consequently respondent contends petitioners have not shown whether or to what extent they had foreign_tax_credit carryovers for the subject years we agree with respondent a taxpayer claiming a carryover of a credit must establish both the existence of the credit and the amount of any credit that may be carried over to a subsequent year see rule a 89_tc_816 cf 115_tc_605 petitioners’ through federal_income_tax returns are not in the record 50in an effort to substantiate their claimed foreign_tax_credit carryovers petitioners offered into evidence forms purporting to cover the years through that mr larkin had prepared at the request of respondent’s office of appeals when the subject year returns were under review the forms list the foreign taxes that petitioners claim they paid during the years covered by the forms as well as foreign taxes purportedly paid in years before and available to be carried forward to that year for crediting the figures on these forms differ markedly from the figures used on the returns as originally filed casting doubt on both in any event a tax_return does not establish the truth of or substantiate the matters set forth therein it is merely a statement of the taxpayer’s claim see 71_tc_633 62_tc_834 7_tc_245 aff’d 175_f2d_500 2d cir consequently the only foreign tax_payments that have been substantiated are those discussed above the record does establish however that mr larkin earned compensation_for the fiscal years ended date and of big_number big_number and big_number respectively creating a reasonable inference that he incurred u s federal_income_tax liabilities for and dollar_figure those federal_income_tax liabilities for the years immediately preceding the subject years would have absorbed some or all of the foreign tax_credits arising from the payment of the u k income taxes that petitioners have demonstrated consequently petitioners have failed to prove the amount of any foreign_tax_credit carryovers available for the subject years and we accordingly sustain respondent’s disallowance of the foreign tax_credits claimed xii sec_6662 accuracy-related_penalties respondent determined for each subject year that petitioners are liable for an accuracy-related_penalty under sec_6662 on the basis of negligence and a substantial_understatement_of_income_tax the primary basis that respondent advances on brief is the latter we limit our discussion to that ground 51mr larkin commenced work as a partner at ssd sometime during the fiscal_year ended date his compensation from ssd for the period is not in the record but in view of the fact that his annual compensation_for the subject years exceeded dollar_figure in each year a reasonable inference exists that his compensation_for ssd during the fiscal_year ended date was not insignificant sec_6662 and b imposes a accuracy-related_penalty for any portion of an underpayment that is attributable to a substantial_understatement_of_income_tax an understatement is the excess of the amount of tax required to be shown on the return over the amount of tax imposed that is shown on the return reduced by any rebate see sec_6662 an understatement is substantial if it exceeds the greater of of the tax required to be shown on the return or in the case of an individual dollar_figure see sec_6662 the commissioner bears a burden of production with respect to the applicability of an accuracy-related_penalty see sec_7491 that burden requires that the commissioner produce sufficient evidence that it is appropriate to impose an accuracy-related_penalty see higbee v commissioner t c pincite once the commissioner has met this burden the burden_of_proof is upon the taxpayer to prove that the accuracy-related_penalty does not apply because as applicable here the taxpayer acted with reasonable_cause and in good_faith as to the underpayment see sec_6664 higbee v commissioner t c pincite- the deficiency amounts that we have sustained herein establish that petitioners have an understatement of income_tax for each subject year that exceeds the greater of dollar_figure or of the amount required to be shown on the return we conclude that respondent has met his burden of production petitioners will avoid the accuracy-related_penalties only to the extent that they prove that they acted with reasonable_cause and in good_faith as to the underpayments or any portion thereof whether they satisfy this standard is a factual determination their effort to assess their proper tax_liability is generally the most important factor see sec_1_6664-4 income_tax regs petitioners argue that they have established reasonable_cause because their returns report all of mr larkin’s income from ssd and as to the through returns report their income credits deductions and exclusions in the way that the revenue_officer told them todollar_figure mr larkin testified that petitioners’ returns were complicated because in part in and he worked both as a partner for ssd and in his real_estate business that he was confused on how to report both activities that petitioners could find no qualified_person to help them prepare the returns and that he sought the guidance of the irs as to the preparation of the 52petitioners subpoenaed the revenue_officer to appear at trial at the commencement of the trial respondent’s counsel informed the court that the revenue_officer was in florida on an exigent family matter mr larkin an experienced attorney did not seek to enforce the subpoena or ask the court to leave the record open for the purpose of eliciting the revenue officer’s testimony at a later time mr larkin also did not identify any issues upon which petitioners desired to elicit testimony from the revenue_officer although petitioners in their answering brief now request that respondent make the revenue_officer available for questioning the evidentiary record in these cases is closed returns he further testified that he met with the revenue_officer that the revenue_officer specifically directed him how to report the items related to ssd to the real_estate business and to petitioners’ income exclusion and that he and the revenue_officer agreed that petitioners should file petitioners’ and returns on the agreed-upon basis mr larkin further testified that he discussed the matter with some of his colleagues who were tax professionals and that they confirmed the revenue officer’s direction we find mr larkin’s memory on this subject_to be far from clear and we decline to rely upon that testimony his communications with the revenue_officer were limited and we are not persuaded that the revenue_officer directed mr larkin let alone that mr larkin and the revenue_officer agreed on the proper way to report items on petitioners’ tax returns the revenue_officer contacted petitioners to collect their unpaid taxes for prior years and while the revenue officer’s ensuing discussions and correspondence with mr larkin addressed the goal that petitioners file certain returns the record does not lead us to conclude that the revenue_officer directed mr larkin on how the referenced items should be reported on petitioners’ tax returns we do not find for example any notes recordings or other tangible evidence to support mr larkin’s testimony on this matter although we do find that mr larkin was mindful to prepare handwritten notes of at least one of his conversations with the revenue officerdollar_figure nor do we accept mr larkin’s testimony that he tried to locate a qualified professional who was knowledgeable on both the u s and the u k tax regimes to advise him on the matter but that he was unable to find such an individual mr larkin admitted that he regularly consulted accountants and tax professionals concerning his u s and u k income_tax returns and that he consulted professionals to confirm what the revenue_officer told him he also admitted that ssd has instructional programs on federal and u k taxation but that he attended none of these programs he knew of accountants or similar professionals whom he could have consulted but declined to do so because he stated such advice was expensive and advice that he had received from one professional tax adviser regularly tended to be inconsistent with the advice he received from another professional and ssd has documentation that its overseas attorneys could obtain to help them fill out their tax returns we also note that petitioners’ status as u s citizens residing abroad arose in and that they had been required to take that status into account when filing their federal_income_tax returns for all years thereafter 53while mr larkin testified that he had such notes back at his home in the u k his obligation at trial was to proffer whatever documentary_evidence he had perhaps most importantly the understatement of income_tax for each year is due to petitioners’ failure to navigate successfully any complex tax provisions arising from the u k situs of mr larkin’s gainful employment for example to the extent petitioners reported mr larkin’s guaranteed payments and other partnership_distributions on their schedules c rather than schedules e net of their claimed foreign_earned_income_exclusion that idiosyncratic reporting did not give rise to any understatements of income_tax they have been accorded the maximum foreign_earned_income_exclusion for each year and they were denied any deductions for foreign_housing_costs because they failed to substantiate them in amounts above applicable floors--even though they reported substantially larger housing_expenses on their returns the remainder of each understatement of income_tax is due primarily to an utter failure to substantiate items reported on their returns running into the thousands of dollars and to a lesser extent to failures to report income of which petitioners were fully aware in sum the absence of reasonable_cause here is patent we are not persuaded that petitioners made a good- faith effort to determine their tax_liability for any of the subject years we sustain respondent’s determinations of the accuracy-related_penalties xiii sec_6651 additions to tax respondent determined that petitioners are liable for additions to tax pursuant to sec_6651 for and for failure_to_file timely that section imposes an addition_to_tax for failure_to_file a return by its due_date unless the taxpayer demonstrates that the failure_to_file was due to reasonable_cause and not due to willful neglect the addition_to_tax equal sec_5 of the tax that is due and not paid for each month or fraction thereof that the return is late but may not exceed in total see sec_6651 b thus the maximum addition_to_tax is reached when a return is more than months late reasonable_cause may exist if a taxpayer exercised ordinary business care and prudence and was nonetheless unable to file a return within the time prescribed by law see sec_301_6651-1 proced admin regs willful neglect connotes a conscious intentional failure or reckless indifference with respect to timely filing 469_us_241 the commissioner bears the burden of production with respect to the addition_to_tax under sec_6651 see sec_7491 higbee v commissioner t c pincite to meet this burden he must produce sufficient evidence that it is appropriate to impose the addition_to_tax once the commissioner has met his burden the burden_of_proof as to reasonable_cause or other mitigating factors shifts to the taxpayer see higbee v commissioner t c pincite petitioners’ return was due_date and was filed may dollar_figure petitioners’ return was due on date and was filed on july dollar_figure accordingly respondent has met his burden of production with respect to the additions to tax see id 54although sec_1_6081-5 income_tax regs grants an additional two months beyond april for filing in the case of u s citizens or residents whose tax homes are outside the united_states sec_1_6081-5 income_tax regs as in effect for returns requires that a statement be attached to the return to the effect that the taxpayer satisfies the tax_home requirement there is no evidence that any such statement was attached to petitioners’ return in any event it makes no difference whether petitioners’ return was due on april or date as the maximum penalty for a delay exceeding four months would apply absent reasonable_cause given that the return was not filed until date 55that is the date of petitioners’ signatures on the return and respondent agrees that date is the date of filing 56the certified copy of the form_4340 certificate of assessments payments and other certified matters in the record for petitioners’ taxable_year form records the grant of an extension to date consistent with sec_1_6081-5 income_tax regs 57although the form_4340 records that petitioners’ return was filed on date respondent concedes on brief that the return was filed on date the date of petitioners’ signatures on the return again it makes no difference whether the return was filed on july or date as either date is one month and a fraction of a second month beyond the due_date resulting in an addition equal to of the tax due and not paid absent reasonable_cause petitioners argue that they are not liable for the addition_to_tax for because they timely filed their return within an extended period agreed to both orally and in writing by an irs employee given the issues of first impression being resolved and the recent death of petitioner husband’s parents after an extended illness in the case of one petitioners add that the irs employee assured them that they could file their return by the extended date without adverse consequences mr larkin further testified that his parents died one month apart from each other in the first five months of and that his life was chaotic around the time that the return was due mr larkin further testified that he believed that petitioners had sufficient foreign_tax_credit carryovers to to offset any_tax otherwise due for that year and that petitioners therefore believed that they had extra time to file the return given the absence of any_tax liability for that year petitioners argue that they are not liable for the addition_to_tax for because they timely filed the return within an automatic four- month extended period applicable to overseas residents we disagree with petitioners’ claim that they had reasonable_cause for filing their and returns untimely first as to their claim that they were granted an extension for filing the return we find nothing in the record to support that claim mr larkin’s notes on his meeting with the revenue_officer on date indicated that they discussed the filing of an extension for for which year a tax_return was soon due but those notes made no mention of the revenue officer’s allowing petitioners to file their already late return without penalty in addition while they claim that they received such an extension in writing we find no such writing in the record likewise while they claim that an irs employee also orally granted them such an extension we find no credible_evidence of that eitherdollar_figure in fact petitioners’ position that the revenue_officer gave them a valid extension as to their return seems illogical considering that the tax_return was long overdue when the revenue_officer first contacted petitioners as to the return we add that petitioners have cited nothing in the code or in an administrative rule prescribed thereunder that would give them in their capacity as u s citizens living abroad an automatic four-month extension nor do we conclude that petitioners met the reasonable_cause exception by virtue of their claim that mr larkin believed that petitioners had sufficient tax_credits for to negate any_tax for that year or due to the death of mr larkin’s parents as to the former the code provides no exception to imposing an addition_to_tax under sec_6651 on the grounds of a perceived overpayment_of_tax for 58moreover even if these statements were made those oral statements are not binding on the commissioner see 111_tc_215 n the year as to the latter while undoubtedly mr larkin experienced some diminished capacity as a result of both his parents dying in close succession the test in these circumstances is whether the taxpayer had capacity to attend to other responsibilities besides return filing see wright v commissioner tcmemo_1998_224 slip op at and cases thereat cited aff’d 173_f3d_848 2d cir in view of the fact that mr larkin at least59 was functioning as a partner at a major law firm and earning in excess of dollar_figure annually during the relevant period we conclude that petitioners did not have reasonable_cause for their failure to timely file returns we therefore sustain respondent’s determination that petitioners are liable for additions to tax under sec_6651 for and xiv epilogue we have considered all arguments that the parties made for holdings contrary to those that we reach herein and to the extent not discussed we have rejected those arguments as without merit in order to reflect the foregoing decisions will be entered under rule 59there is no evidence concerning mrs larkin’s capacity during the relevant periods