internal_revenue_service index numbers 280g number release date refer reply to cc tege eb ec-plr-103047-00 date date employee corporation a corporation b stock_option plan date date date date year y this is in response to your letter of date submitted by your authorized representative requesting rulings under sec_280g of the internal_revenue_code specifically a ruling was requested under the facts outlined below whether employee is a disqualified_individual within the meaning of sec_280g of the code due to the value of stock ownership in corporation a the facts as submitted are as follows employee was employed by corporation a in year y employee was not an officer of corporation nor a member of the group consisting of the highest paid percent of the employees of the corporation during year y corporation a adopted the stock_option plan the stock_option plan provided for both incentive stock_options designed to meet the requirements of sec_422 of the code and nonstatutory_options options issued under the stock_option plan were governed by the stock_option plan and the stock_option agreement as amended under the stock_option agreement if options are outstanding at the time of a change in control as defined in the stock_option agreement but are not fully plr-103047-00 exercisable the options will generally accelerate so that the options will become exercisable immediately before the change in control the options will not become exercisable on an accelerated basis if the options are assumed by the successor_corporation in that case the options would be converted to options of the successor_corporation and would continue to become exercisable in accordance with the terms of the stock_option agreement however the stock_option agreement provides that if there is an involuntary termination as defined in the stock_option agreement of the employee’s services within months of a change in control the options that are outstanding at the time of the involuntary termination but are not fully exercisable would accelerate and become fully vested on date employee received incentive stock_options and nonstatutory stock_options under the stock_option plan options the options issued to employee generally became exercisable on a four-year vesting schedule on date corporation a underwent a change in control when it was acquired by corporation b employee became an employee of corporation b corporation b assumed corporation a’s stock_option plan and employee’s corporation a options were converted to corporation b options of equivalent value the vesting schedule remained the same following the change in control employee terminated employment with corporation b on date the termination constituted an involuntary termination under the stock_option agreement and employee’s options were accelerated and became exercisable on date the disqualified_individual determination_period is from date to date during the disqualified_individual determination_period employee’s ownership_interest in corporation a other than the options described above consisted of the right to purchase shares under the corporation a employee_stock_purchase_plan no corporation a stock was owned by employee’s spouse children grandparents or parents at any time during the disqualified_individual determination_period in addition employee was not a partner in any partnership that owned corporation a stock a beneficiary in any trust or a grantor in any trust that owned corporation a stock or a direct or indirect owner of percent of the value of any corporation that owned corporation a stock sec_280g of the code provides that no deduction will be allowed for any excess_parachute_payment sec_280g defines the term excess_parachute_payment as an amount equal to the excess of any parachute_payment over the portion of the base_amount allocated to such payment plr-103047-00 sec_280g of the code defines the term parachute_payment as any payment in the nature of compensation to or for the benefit of a disqualified_individual if i such payment is contingent on a change i in the ownership or effective_control of the corporation or ii in the ownership of a substantial portion of the assets of the corporation and ii the aggregate present_value of the payments in the nature of compensation to or for the benefit of such individual which are contingent on such change equals or exceeds an amount equal to three times the base_amount sec_4999 of the code imposes on any person who receives an excess_parachute_payment a tax equal to percent of the amount of the payment sec_280g defines a disqualified_individual as an individual who is an employee independent_contractor or other person specified in the regulations who performs personal service for any corporation and is an officer shareholder or other highly_compensated_individual sec_1_280g-1 of the proposed income_tax regulations q a published in the federal_register on date fed reg big_number provides that an individual is a disqualified_individual with respect to a corporation if at any time during the disqualified_individual determination_period the individual is an employee or independent_contractor of the corporation and is with respect to the corporation a shareholder an officer or a highly-compensated_individual q a provides that shareholders are disqualified individuals if they own stock of a corporation having a fair_market_value that exceeds the lesser_of dollar_figure million dollars or percent of the total fair_market_value of the outstanding shares of all classes of the corporation’s stock for purposes of determining the amount of stock owned by an individual the constructive_ownership rules of sec_318 shall apply sec_318 states that if a person has an option to acquire stock such stock shall be considered as owned by such person sec_1_280g-1 q a provides that the disqualified_individual determination_period is the portion of the year of the corporation ending on the date of the change in ownership or control of the corporation the change in ownership period and the twelve month period immediately preceding such change in ownership period for purposes of q a a corporation may elect to use its taxable_year or the calendar_year it has been represented that employee was not an officer or a highly- compensated individual during the disqualified_individual determination_period thus in order to be a disqualified_individual employee must have owned corporation a stock having a fair_market_value that exceeded the lesser_of dollar_figure million or percent of the total fair_market_value of the outstanding shares of all classes of the corporation’s stock it has been represented that in this case the dollar_figure million was the lesser amount and that other than the stock_options under the year y grants the fair_market_value of plr-103047-00 employee’s corporation a stock was less than dollar_figure million if employee constructively owns the stock under the year y option grants employee will be a disqualified_individual in determining which of the outstanding_stock options are considered to be stock during the disqualified_individual determination_period for purposes of q a options which are exercisable or are exercisable upon the occurrence of an insubstantial condition_precedent are considered outstanding_stock see revrul_89_64 1989_1_cb_91 conversely options which are not currently exercisable and are only exercisable upon the occurrence of a substantial condition_precedent are not outstanding_stock for this purpose here the facts indicate that only the options under the year y grants that were exercisable at the time of the change in control cause employee to constructively own the stock for purposes of q a options that were not exercisable at the time of the change in control did not cause such constructive_ownership accordingly based strictly on the information submitted and employee’s representations set forth above we rule as follows employee is not a disqualified_individual with respect to corporation a within the meaning of sec_280g of the code the provisions of sec_280g of the code do not apply to any payments including the vesting of options under the stock_option plan that are received by employee in connection with corporation a’s date change in control the provisions of sec_4999 of the code do not apply to any payments including the vesting of options under the stock_option plan that are received by employee in connection with corporation a’s date change in control except as specifically ruled on above no opinion is expressed or implied concerning the tax consequences of any aspect of any transaction or item discussed or referenced in this letter this ruling is directed only to the taxpayer requesting it sec_6110 of the code provides that it may not be used or cited as precedent the taxpayer should attach a copy of this ruling to any income_tax return to which it is relevant temporary or final regulations pertaining to one or more of the issues addressed in this ruling have not been adopted therefore this ruling will be modified or revoked by the adoption of temporary or final regulations to the extent that the regulations are inconsistent with any conclusion in the ruling however when the criteria in section dollar_figure of revproc_2000_1 2000_1_irb_4 are satisfied a ruling is not revoked or modified retroactively except in rare or unusual circumstances plr-103047-00 in accordance with the power_of_attorney on file with this office a copy of this letter is being sent to your authorized representative sincerely yours robert b misner assistant chief executive compensation branch office of the division counsel associate chief_counsel tax exempt and government entities enclosure copy for purposes


internal_revenue_service department of the treasury washington dc index number number person to contact release date telephone number refer reply to cc dom p si - plr-114331-99 date date x a d1 year dear this letter responds to a letter dated date and subsequent correspondence written on behalf of x by its authorized representative requesting a ruling under sec_1362 of the internal_revenue_code the information submitted states that x was incorporated on d1 of year a the sole shareholder of x intended that x elect to be an s_corporation beginning in year its first taxable_year a relied on x’s accounting firm and attorney to take care of all of the filings required to be an s_corporation however a form_2553 election by a small_business_corporation was not timely filed on behalf of x because x’s accountant and x’s attorney each believing the other would file the form did not timely file a form_2553 for x for year sec_1362 of the code provides that if -- a an election under sec_1362 is made for any taxable_year after the date prescribed by sec_1362 for making such election for such taxable_year or no such election is made for any taxable_year and b the secretary determines that there was reasonable_cause for the failure to timely make such election the secretary may treat such an election as timely made for such taxable_year based solely on the facts and the representations submitted mr a jett reeve sec_2 we conclude that x has established reasonable_cause for failing to make a timely election to be an s_corporation for x’s first taxable_year accordingly provided that x makes an election to be an s_corporation by filing a completed form_2553 with the appropriate service_center effective for its year taxable_year within days following the date of this letter then such election will be treated as timely made for x’s year taxable_year a copy of this letter should be attached to the form_2553 except as specifically set forth above no opinion is expressed concerning the federal tax consequences of the facts described above under any other provision of the code including whether x was or is a small_business_corporation under sec_1361 of the code this ruling is directed only to the taxpayer who requested it sec_6110 of the code provides that it may not be used or cited as precedent pursuant to a power_of_attorney on file with this office a copy of this letter is being sent to x’s authorized representatives sincerely yours branch h grace kim assistant to the chief office of the assistant chief_counsel passthroughs and special industries enclosures copy of this letter copy for sec_6110 purposes


t c memo united_states tax_court robert lee jr petitioner v commissioner of internal revenue respondent docket no 15735-03l filed date robert lee jr pro_se cindy wofford alan levine and erin k huss for respondent memorandum opinion panuthos chief special_trial_judge this collection review case is before the court on respondent’s motion for summary_judgment as discussed in detail below we conclude that there section references are to sections of the internal_revenue_code as amended and rule references are to the tax_court rules_of_practice and procedure is no dispute as to a material fact and that respondent is entitled to judgment as a matter of law background2 petitioner a retired federal employee is inveterately opposed to paying federal income taxes in lee v commissioner tcmemo_2002_95 affd 61_fedappx_471 9th cir we observed that petitioner failed to file federal_income_tax returns for and and we sustained the commissioner’s determinations that petitioner was liable for deficiencies and additions to tax for each of those taxable years in addition we imposed a penalty upon petitioner pursuant to sec_6673 in the amount of dollar_figure on the ground that his arguments were meritless and asserted solely for purpose of delay the record in the present case includes a form_4340 certificate of assessments payments and other specified matters which demonstrates that on date respondent entered assessments against petitioner for the taxable_year reflecting the tax_deficiency additions to tax and penalty under sec_6673 set forth in the court’s decision at docket no as well as statutory interest on the record reflects and or the parties do not dispute the following facts the court entered its decision at docket no on date date respondent issued to petitioner a notice of balance due for the taxable_year on date respondent mailed to petitioner a final notice_of_intent_to_levy and notice of your right to a hearing requesting that petitioner pay his outstanding tax_liability for on date petitioner submitted to respondent a request for collection_due_process_hearing challenging the validity of the assessment for specifically petitioner argued that respondent failed to provide petitioner with either a record of the assessment or a notice of the assessment on date the parties met for the purpose of conducting an administrative hearing regarding respondent’s proposed levy however the hearing was terminated when the appeals officer informed petitioner that he would not be permitted to make an audio recording of the hearing on date respondent mailed to petitioner a notice_of_determination concerning collection action s under sec_6320 and or in the notice respondent determined that it was appropriate to proceed with the proposed levy because petitioner had previously challenged respondent’s notice_of_deficiency for in the tax_court and therefore he was barred from challenging his underlying tax_liability pursuant to sec_6330 petitioner failed to file federal_income_tax returns from to and therefore he was not eligible to make an offer_in_compromise or to pay his outstanding tax_liability in installments and the appeals officer reviewed petitioner’s administrative file and concluded that respondent met all of the administrative and legal procedures governing the assessment and collection of petitioner’s outstanding tax_liability for on date petitioner filed with the court a petition for lien and levy action under sec_6330 citing the court’s holding in 121_tc_8 petitioner’s sole contention in the petition is that respondent abused his discretion in issuing a notice_of_determination to petitioner without permitting petitioner to make an audio recording of the administrative hearing after filing an answer to the petition respondent filed a motion for summary_judgment citing the court’s holding in kemper v commissioner tcmemo_2003_195 respondent contends that considering the record as a whole and particularly petitioner’s predisposition to bring frivolous actions respondent’s decision to deny petitioner the opportunity to make an audio recording of the administrative hearing was at most harmless error further respondent argued that under the circumstances it was not necessary nor would it be productive at the time the petition was filed petitioner resided in tempe arizona to remand the case to respondent’s appeals_office for further proceedings this matter was called for hearing at the court’s motions session held in washington d c on date counsel for respondent appeared at the hearing and offered argument in support of respondent’s motion no appearance was entered by or on behalf of petitioner at the hearing however on date petitioner filed with the court a written_statement under rule c in opposition to respondent’s motion following the hearing the court issued an order directing petitioner to file with the court an amended petition setting forth a valid claim for relief under sec_6330 the court subsequently granted petitioner’s motion for an extension of time to comply with the court’s order nevertheless petitioner failed to file an amended petition as directed discussion summary_judgment is intended to expedite litigation and avoid unnecessary and expensive trials see 90_tc_678 summary_judgment may be granted with respect to all or any part of the legal issues in controversy if the pleadings answers to interrogatories 5had petitioner filed an amended petition setting forth a valid claim for relief under sec_6330 it might have been appropriate to remand the case to respondent’s appeals_office depositions admissions and any other acceptable materials together with the affidavits if any show that there is no genuine issue as to any material fact and that a decision may be rendered as a matter of law rule b 98_tc_518 affd 17_f3d_965 7th cir 90_tc_753 85_tc_527 the moving party bears the burden of proving that there is no genuine issue of material fact and factual inferences will be read in a manner most favorable to the party opposing summary_judgment 85_tc_812 79_tc_340 based on our review of the record we are satisfied that there is no genuine issue as to any material fact and that respondent is entitled to judgment as a matter of law petitioner’s conduct in his earlier deficiency case at docket no coupled with the arguments that he made in his request for collection_due_process_hearing clearly demonstrate that petitioner initiated the collection review procedures set forth in sec_6330 solely for the purpose of delay as discussed below the arguments that petitioner included in his request for a collection_due_process_hearing have no merit moreover petitioner ignored the opportunity that the court extended to him to file an amended petition setting forth a legitimate claim for relief considering all the facts and circumstances we agree with respondent that the appeals officer’s decision to preclude petitioner from making an audio recording of the administrative hearing was at most harmless error moreover petitioner has given us no reason to believe that remanding this matter to respondent’s appeals_office would be productive or otherwise advance the policies underlying sec_6330 consistent with our reasoning in kemper v commissioner supra we conclude that a remand is unwarranted the form_4340 attached to respondent’s motion in this case shows that respondent properly assessed the tax_liability that respondent intends to collect and respondent properly notified petitioner of the assessment by way of a notice of balance due see eg 953_f2d_531 9th cir numerous cases establish that no particular form of verification of an assessment is required that no particular document need be provided to a taxpayer at an administrative hearing conducted under sec_6330 and that a form_4340 such as that included in this record and other transcripts of account 6as previously discussed petitioner was given every opportunity to file a proper amended petition setting forth a valid claim for relief however petitioner failed to comply with the court’s order to file an amended petition satisfy the verification requirements of sec_6330 see 118_tc_365 ndollar_figure affd 329_f3d_1224 11th cir 118_tc_162 117_tc_183 petitioner has not alleged any irregularity in the assessment procedure that would raise a question about the validity of the assessments or the information contained in the form_4340 moreover petitioner has failed to raise a spousal defense make a valid challenge to the appropriateness of respondent’s intended collection action or offer alternative means of collection these issues are now deemed conceded rule b the record reflects that respondent has complied with all applicable laws and administrative procedures in this case consistent with the preceding discussion it follows that respondent is entitled to judgment as a matter of law sustaining respondent’s determination to proceed with collection to reflect the foregoing an order and decision will be entered granting respondent’s motion for summary_judgment


t c memo united_states tax_court isidoro rodriguez and irene rodriguez petitioners v commissioner of internal revenue respondent docket no filed date isidoro rodriguez and irene rodriguez pro_se melissa e avrutine for respondent memorandum findings_of_fact and opinion thornton chief_judge respondent determined a dollar_figure deficiency in petitioners’ federal_income_tax and a dollar_figure accuracy-related_penalty pursuant to sec_6662 the issues for decision are whether during petitioner isidoro rodriguez was an employee or an independent_contractor with respect to legal services he provided to law firms that were clients of two legal staffing agencies whether petitioners are entitled to deduct certain alleged business_expenses and whether petitioners are liable for an accuracy-related_penalty pursuant to sec_6662 findings_of_fact the parties have stipulated some facts which are incorporated by this reference isidoro and irene rodriguez husband and wife are u s citizens they resided in virginia when they filed their petition 1unless otherwise indicated all section references are to the internal_revenue_code code in effect for the year at issue and all rule references are to the tax_court rules_of_practice and procedure all monetary amounts are rounded to the nearest dollar 2as a result of respondent’s determinations with respect to petitioners’ income modified_adjusted_gross_income and tax respondent also made computational adjustments to petitioners’ claimed education and child tax_credits we expect these computational adjustments to be revised in the rule computation in accordance with this opinion i the law offices of mr rodriguez a background since mr rodriguez has maintained and operated as a sole_proprietorship a law office in barranquilla republic of colombia colombia upon her marriage to mr rodriguez in and after becoming a licensed attorney in colombia mrs rodriguez became a coequal proprietor of the law office this law office provides legal services to nonresident u s citizens and non-u s citizens before u s federal courts in mrs rodriguez managed the law office’s four employees controlled its finances and provided legal services to its clients petitioners have a second law office and law library in santa veronica colombia providing legal services to clients residing in the city of cartagena colombia and the republic of panama the property on which this law office is situated includes gardens a swimming pool and living quarters in a separate building in because of increasing violence in colombia and the threat of kidnapping of u s citizens petitioners moved to virginia they continued to maintain and operate their law offices in colombia in they established a home law office in annandale virginia to represent clients this home_office occupied a big_number square-foot space within their big_number square-foot home petitioners’ lease on their annandale home commenced on date and ran through date during before may petitioners also resided in alexandria virginia but did not have a home_office there in mrs rodriguez worked as a full-time paralegal with the law firm of kennedy dolan in silver spring maryland b mr rodriguez’s disbarment in date the virginia state bar disciplinary board board revoked mr rodriguez’s license to practice law in virginia on date mr rodriguez began civil litigation to pursue judicial review of the board’s order in date the supreme court of virginia affirmed the board’s order and the supreme court of the united_states subsequently denied certiorari ii temporary legal staffing agencies from to mr rodriguez intermittently provided temporary legal services to law firms as described in more detail below in legalsource 3we take judicial_notice that after being disbarred in virginia mr rodriguez was also disbarred by this court he unsuccessfully appealed his disbarment by this court to the u s court_of_appeals for the d c circuit 398_fedappx_614 d c cir we also take judicial_notice that in mr rodriguez was disbarred by the supreme court of the united_states in re disbarment of rodriguez 130_sct_3352 corp legalsource and update legal update engaged mr rodriguez as a temporary contract attorney to work on short-term projects for their clients legalsource and update collectively agencies are temporary staffing agencies that provide attorneys paralegals and litigation support staff to law firms and corporate legal departments to obtain work through either of the agencies an attorney is required to submit an application and participate in an interview with the agency the agencies either assign their temporary contract attorneys to specific client projects or else allow their clients to choose specific attorneys from lists the agencies provide both agencies consider their temporary contract attorneys to be at-will employees dischargeable at the agencies’ discretion a legalsource in mr rodriguez began working on short-term legal projects through legalsource in legalsource assigned mr rodriguez to perform temporary legal services for one of its clients the law firm of howrey llp howrey in howrey’s virginia office this assignment lasted from about january to date ie shortly before mr rodriguez’s disbarment in virginia mr rodriguez worked on temporary litigation projects at howrey such as electronic 4legalsource is in washington d c update is headquartered in new york n y and has offices in various cities including washington d c discovery document review legalsource considered mr rodriguez to be its employee mr rodriguez was compensated by legalsource for his services at howrey on an hourly basis including overtime pay legalsource determined mr rodriguez’s rate of pay neither legalsource nor howrey authorized bonuses vacation pay or personal leave nor did they provide mr rodriguez with health insurance or other_benefits such as the opportunity to participate in a sec_401 plan neither legalsource nor howrey reimbursed mr rodriguez for his expenses of bar admission legal education cell phones law office books or equipment or any other items mr rodriguez entered into a conflicts and confidentiality agreement with howrey and was under the control of their staff while working there howrey’s staff coordinated mr rodriguez’s work schedule they were aware that he maintained his own law offices and required time to provide legal services for other clients and to conduct his own litigation mr rodriguez performed his assignments for howrey at its virginia offices howrey hired supervised and paid all persons who assisted mr rodriguez in performing his work there howrey also provided all computer equipment software and other office supplies necessary for mr rodriguez to fulfill his duties there howrey’s full-time supervising attorneys assigned reviewed and approved mr rodriguez’s work product and signed his temporary agency time sheet indicating the hours he worked and reflecting the projects accomplished in those hours howrey forwarded the timesheets to legalsource to pay his wages legalsource issued mr rodriguez’s paycheck for his services at howrey the pay stubs list mr rodriguez as employee and designate howrey as the earning company for the particular assignment for which the wages were paid for legalsource issued mr rodriguez a form_w-2 wage and tax statement identifying itself as employer and mr rodriguez as employee the form_w-2 shows wages tips other comp of dollar_figure representing amounts legalsource paid mr rodriguez for services he performed at howrey in the form_w-2 shows amounts withheld for federal and state income taxes employment_taxes and medicare taxes box statutory_employee is left blank on the form_w-2 b update legal in update assigned mr rodriguez to perform temporary legal services for one of its clients the law firm of winston strawn llp winston strawn in washington d c this assignment lasted from about november to date mr rodriguez worked at least hours a week at winston strawn and was compensated on an hourly basis update determined his rate of pay he received overtime pay for work over hours per week neither update nor winston strawn paid mr rodriguez any bonus vacation pay or compensation_for personal leave time nor did they reimburse or pay mr rodriguez for his expenses of bar admission legal education cell phones law office books or equipment or any other items update considered mr rodriguez to be its employee the employee handbook which update provided him indicated that attorneys providing temporary services to update’s clients were update’s employees update offered certain benefits including health dental and vision insurance to temporary attorneys commencing on the first day of the first new month in which the temporary attorney worked for update 5update provided paid time off to employees with more than hours_of_service and the opportunity to participate in a sec_401 plan to employees who worked for the company longer than one year mr rodriguez worked too few hours in to be eligible for these benefits having started with update in mid-date mr rodriguez became eligible for health insurance benefits on date mr rodriguez entered into a confidentiality agreement with winston strawn and was under the control of their staff while working there winston strawn’s staff coordinated his work schedule they were aware that he maintained his own law offices and required time to provide legal services for other clients and to conduct his own litigation mr rodriguez performed his assignments for winston strawn at their law offices winston strawn hired supervised and paid all persons who assisted mr rodriguez in performing his temporary legal services there and provided all necessary office supplies and equipment winston strawn’s full-time attorneys assigned mr rodriguez to work on tasks such as reviewing discovery documents and preparing privilege logs winston strawn’s full-time attorneys reviewed mr rodriguez’s work product and signed his timesheets indicating the hours he had worked and projects he had completed winston strawn forwarded the timesheets to update to pay mr rodriguez’s wages update issued mr rodriguez’s paychecks for his services at winston strawn the pay stubs list mr rodriguez as employee and do not mention winston strawn for update issued mr rodriguez a form_w-2 identifying itself as employer and mr rodriguez as employee the form_w-2 shows wages tips other comp of dollar_figure representing amounts update paid mr rodriguez for services he performed at winston strawn in the form_w-2 shows amounts withheld for federal and state income taxes employment_taxes and medicare taxes box statutory_employee is left blank on the form_w-2 iii tax_return for petitioners jointly filed a form_1040 u s individual_income_tax_return they attached to the return a schedule c profit or loss from business sole_proprietorship labeling the activity the law offices of isidoro rodriguez with an address in barranquilla colombia on the schedule c petitioners reported gross_receipts of dollar_figure and total expenses of dollar_figure petitioners’ 6petitioners reported the following expenses on their schedule c expense automobile travel meals entertainment business use of home advertising depreciation and sec_179 employee_benefits amount dollar_figure big_number big_number big_number big_number continued schedule c gross_receipts consisted of dollar_figure in self-employment_income received by the law offices of isidoro rodriguez from the law offices’ nonlitigation clients dollar_figure of income as reflected on the form_w-2 from legalsource and dollar_figure of income as reflected on the form_w-2 from update continued office administration insurance interest rent or lease--other business property repairs and maintenance supplies taxes licenses utilities wages benefits filing fees transcripts copies litigation supplies professional dues fees postage delivery continuing legal education law book supplements and purchases employee legal education and data processing education course money transfer fees total big_number big_number big_number big_number big_number big_number big_number big_number big_number big_number big_number big_number big_number big_number 7the only wages petitioners reported on line of their form_1040 was dollar_figure of income reflected on a form_w-2 that mrs rodriguez received from kennedy dolan for her paralegal services petitioners reported no employment- related expenses on their schedule a itemized_deductions iv notice_of_deficiency in the notice_of_deficiency respondent reclassified all the amounts that mr rodriguez received from update and legalsource and which petitioners had reported on schedule c as wage income respondent also disallowed all of petitioners’ reported schedule c expense deductions the explanation for disallowing these deductions stated in full only statutory_employee income can be offset by expenses reported on schedule c profit or loss from business or schedule c-ez since your employer did not indicate on form_w-2 wage and tax statement that you were a statutory_employee we can not allow the expenses used to offset that income on schedule c or schedule c-ez if this is incorrect please send us a statement from your employer s verifying that you are a statutory_employee if you are not a statutory_employee you must include the income as wages on your tax_return allowable related expenses on form_2106 employee business_expenses can be claimed as an itemized_deduction on schedule a on the basis of these determinations respondent also made computational adjustments to petitioners’ claimed child tax and education credits i burden_of_proof opinion as a general_rule the commissioner’s determination of a taxpayer’s liability is presumed correct the taxpayer bears the burden of proving that it is incorrect rule a 290_us_111 in certain circumstances the burden_of_proof shifts to the commissioner if the taxpayer introduces credible_evidence with respect to any factual issue relevant to ascertaining the taxpayer’s tax_liability sec_7491 for reasons discussed in more detail below insofar as the burden_of_proof is relevant to our analysis we conclude that the burden_of_proof does not shift to respondent pursuant to sec_7491 on brief petitioners contend that the burden_of_proof should shift to respondent because they assert respondent issued the notice_of_deficiency without conducting an investigation or audit as a general_rule this court does not look behind a notice_of_deficiency to examine the evidence used or the propriety of respondent’s motives or of the administrative policy or procedure involved in making his determinations 62_tc_324 see 79_tc_185 w hat goes on during audits is immaterial to the de novo record on which we decide deficiency cases kovacevich v commissioner tcmemo_2009_160 wl at n the rationale for this rule is that a trial before the tax 8respondent bears the burden of production with respect to penalties see sec_7491 we discuss this matter infra court is a de novo proceeding and our decision is based on the merits of the record before us and not on the merits of the administrative record 73_tc_394 greenberg’s express inc v commissioner t c pincite petitioners contend that in this case we should recognize an exception to these well-settled principles because they assert respondent’s officers and agents engaged in criminal conduct by issuing the notice_of_deficiency in retaliation for litigation that mr rodriguez had instituted with respect to his disbarment the record does not support petitioners’ allegations the record convinces us that respondent issued the notice_of_deficiency because of discrepancies between the tax_return that petitioners filed and the forms w-2 that legalsource and update issued to mr rodriguez in any event this court has no jurisdiction to redress alleged criminal violations ii employment classification the principal issue for decision is whether petitioners correctly reported mr rodriguez’s business_expenses on schedule c as those of a self-employed_individual rather than on schedule a as itemized expenses as respondent contends they should have the distinction matters because schedule a itemized deductions are subject_to various limitations that do not apply to schedule c deductions more particularly an individual performing services as an employee generally may deduct expenses_incurred in the performance of such services as miscellaneous_itemized_deductions on schedule a only to the extent the expenses exceed of the taxpayer’s adjusted_gross_income sec_62 sec_63 d a and b a itemized_deductions may be limited under sec_68 and may have alternative_minimum_tax implications under sec_56 independent contractors and self-employed persons may report their compensation less related expenses as business income on schedule c thereby avoiding limitations on the deductibility of employee business_expenses and other itemized_deductions reportable on schedule a see weber v commissioner 103_tc_378 aff’d 60_f3d_1104 4th cir feaster v commissioner tcmemo_2010_157 to be properly reported on schedule c a taxpayer’s expenses must come from a trade_or_business of his or her own other than that of being an employee see rosato v commissioner tcmemo_2010_ for this purpose a statutory_employee under sec_3121 is not an employee and may deduct business_expenses on schedule c see cole v commissioner tcmemo_2006_44 petitioners do not claim that mr rodriguez was a statutory_employee petitioners argue that mr rodriguez was an independent_contractor or was self-employed in and is thereby entitled to deduct business_expenses on schedule c respondent contends that in mr rodriguez was the common_law_employee of the agencies and that his unreimbursed employee_expenses with respect to these employers are thus properly reportable on schedule a as discussed below we decide this issue by reference to the preponderance_of_the_evidence and not by reference to the placement of the burden_of_proof consequently we need not decide whether pursuant to sec_7491 the burden_of_proof should shift to respondent as to this issue even though the income_tax treatment of a taxpayer’s trade_or_business expense deductions depends on whether the taxpayer is performing services as an employee subtitle a of the code does not define employee rosato v commissioner tcmemo_2010_39 we apply common_law rules to determine whether the taxpayer is an employee weber v commissioner t c pincite 9on brief respondent concedes that petitioners are entitled to certain schedule c deductions with respect to their dollar_figure in self-employment gross_receipts whether a common_law employer-employee relationship exists in a particular situation is a question of fact id in determining whether a worker is a common_law_employee or an independent_contractor relevant factors include the degree of control the principal exercises over the details of the work which party invests in work facilities used by the individual the opportunity of the individual for profit or loss whether the principal can discharge the individual whether the work is part of the principal’s regular business the permanency of the relationship the relationship the parties believed they were creating and whether the principal provides employee_benefits see id pincite schramm v commissioner tcmemo_2011_212 no one factor is determinative all the facts and circumstances of the relationship must be considered and weighed according to their significance in the particular case 117_tc_263 del monico v commissioner tcmemo_2004_92 in making the determination a realistic interpretation of the term employee should be adopted and doubtful questions should be resolved in favor of employment 900_f2d_49 5th cir see donald g cave a profl law corp v commissioner tcmemo_2011_48 aff’d a f t r 2d ria 5th cir degree of control the degree of control that the principal exercises over the worker is the most important consideration in determining the nature of a working relationship see 538_us_440 115_f3d_256 4th cir hawkins v commissioner tcmemo_1993_350 because a supervisor’s control_over a professional employee is generally more tenuous and general than the control_over nonprofessional employees a lesser degree of control may result in a finding of employee-employer status see weber v commissioner t c pincite gamal-eldin v commissioner tcmemo_1988_150 aff’d without published opinion 876_f2d_896 9th cir to possess a degree of control_over a worker indicative of employment the principal need not direct the worker’s every move it is sufficient that the principal has the right to do so see weber v commissioner t c pincite sec_31_3401_c_-1 employment_tax regs similarly the principal need not set the worker’s hours or supervise every detail of the work environment to control the worker 823_f2d_337 9th cir setting their own hours does not necessarily make workers independent contractors see 331_us_704 gen inv corp v united_states f 2d pincite ewens miller inc v commissioner t c pincite the agencies provided mr rodriguez temporary job placements and directed him where to work mr rodriguez turned in time sheets to the agencies which paid him on the basis of the hours he worked for the agencies’ clients and at a rate that the agencies determined the agencies directed mr rodriguez to perform services required by their clients in the manner dictated by their clients who controlled the details of mr rodriguez’s work for them these considerations are indicative of employment relationships between the agencies and mr rodriguez see cole v commissioner tcmemo_2006_44 citing similar considerations in finding that a temporary employment agency exercised a considerable degree of control_over the taxpayer who worked as a temporary employee for the agency investment in facilities mr rodriguez provided services to the agencies’ clients in the clients’ offices nothing in the record suggests that mr rodriguez had any investment in these facilities or that he supplied the equipment he used while working there this factor weighs in favor of common_law_employee status opportunity for profit or risk of loss the agencies paid mr rodriguez at an hourly rate for the services he performed for their clients he was not paid a bonus and there is no evidence that he otherwise had any opportunity for profit or risk of loss in the services he provided this factor weighs in favor of common_law_employee status right to discharge the principal’s retention of the right to discharge a worker is indicative of a common_law employer-employee relationship see weber v commissioner t c pincite the agencies considered mr rodriguez an at-will employee and retained the right to discharge him at any time this factor weighs in favor of common_law_employee status see kumpel v commissioner tcmemo_2003_ integral part of regular business the work performed by mr rodriguez as one of many temporary employees was within the scope of the agencies’ businesses of providing their clients temporary employees and was also within the scope of those clients’ businesses this factor weighs in favor of common_law_employee status see 64_tc_974 rosemann v commissioner tcmemo_2009_185 permanency of relationship a continuing relationship indicates an employment relationship while a transitory relationship may be indicative of independent_contractor status ewens miller inc v commissioner t c pincite further a relationship established to accomplish a specified objective is indicative of an independent_contractor relationship see 55_tc_142 in mr rodriguez worked for about months on a project for legalsource’s client howrey he also worked for about four consecutive weeks for update’s client winston strawn although the record is somewhat vague in this regard it appears that although mr rodriguez may have performed other services for the agencies in other years the services were intermittent and the projects were all short term we find this factor to weigh in favor of independent_contractor status we note however that this factor alone is not sufficient to preclude a finding of common_law_employee status see potter v commissioner tcmemo_1994_356 relationship contemplated by the parties representatives from both agencies testified that they considered mr rodriguez to be their employee the agencies withheld income taxes employment_taxes and medicare taxes from mr rodriguez’s wages these actions are consistent with treating mr rodriguez as a common_law_employee provision for employee_benefits provision of benefits such as health insurance life_insurance paid vacations and retirement plans are indicative of an employment relationship weber v commissioner t c pincite legalsource provided no such employee_benefits to mr rodriguez with respect to legalsource this factor weighs in favor of independent_contractor status update offered its employees health dental and vision insurance as well as a sec_401 plan mr rodriguez was eligible to enroll in update’s insurance plan and would have been eligible for its sec_401 plan had he worked for update for more than one year with respect to update this factor weighs in favor of common_law_employee status conclusion on the basis of the preponderance_of_the_evidence taking into account all the facts and circumstances we conclude and hold that mr rodriguez was a common_law_employee of both of the agencies accordingly mr rodriguez’s unreimbursed employee_expenses with respect to these employers are properly reportable if at all as itemized_deductions on schedule a iii business_expense substantiation in the notice_of_deficiency respondent not only determined that petitioners had improperly reported alleged business_expense deductions on schedule c but also disallowed all the claimed deductions in this proceeding respondent concedes that petitioners are entitled to certain of these deductionsdollar_figure respondent does not argue that petitioners must claim these conceded deductions as itemized_deductions on schedule a respondent having conceded that petitioners had dollar_figure of schedule c income from the law offices of isidoro rodriguez we interpret respondent’s position to be that allowable expenses with respect to that business are deductible on schedule c the parties disagree as to whether petitioners have adequately substantiated additional expenses and who bears the burden_of_proof as previously indicated the taxpayer generally bears the burden of proving the commissioner’s determinations erroneous rule a deductions are a matter of legislative grace and the taxpayer bears the burden of proving that he is 10respondent concedes that petitioners are entitled to deductions of dollar_figure for meal and entertainment_expenses dollar_figure for home_office expenses consisting of dollar_figure for rent and dollar_figure for home_office utilities dollar_figure for office administrative expenses dollar_figure for utilities expenses dollar_figure for filing fees and transcripts dollar_figure for copies and litigation supplies dollar_figure for professional dues and fees dollar_figure for postage dollar_figure for continuing legal education expenses dollar_figure for law books and supplements and dollar_figure for money transfer fees entitled to any claimed deductions 503_us_79 292_us_435 the taxpayer bears the burden of substantiating the amount and purpose of each expense claimed as a deduction see 116_tc_438 65_tc_87 aff’d per curiam 540_f2d_821 5th cir taxpayers must maintain records relating to their expenses and must prove their entitlement to all claimed deductions credits and expenses see sec_6001 rule a sec_7491 provides that if in any court_proceeding a taxpayer introduces credible_evidence with respect to any factual issue relevant to ascertaining the taxpayer’s proper tax_liability the commissioner shall have the burden_of_proof with respect to that issue credible_evidence is evidence the court would find sufficient upon which to base a decision on the issue in the taxpayer’s favor absent any contrary evidence see higbee v commissioner t c pincite sec_7491 applies however only if the taxpayer complies with all substantiation and recordkeeping requirements under the code and cooperates with the commissioner’s reasonable requests for witnesses information documents meetings and interviews sec_7491 and b for reasons discussed in detail infra we have allowed on the basis of the preponderance_of_the_evidence the deduction of certain expenses beyond the amounts respondent conceded for all other expenses we conclude that petitioners have failed to substantiate in amounts greater than respondent has conceded the amounts and purpose of the disputed expenses claimed as deductions accordingly sec_7491 does not operate to shift the burden_of_proof to respondent and the burden_of_proof remains with petitionersdollar_figure 11although petitioners have not expressly raised this issue we have also considered whether respondent’s contention that petitioners have failed to substantiate the amounts and purpose of certain items claimed as business_expense deductions should be treated as a new_matter under rule a as to which respondent should bear the burden_of_proof since the notice_of_deficiency does not expressly describe lack of substantiation as the basis of respondent’s determination and respondent never amended his answer to expressly raise this ground it is well settled that the commissioner’s determinations may be affirmed for reasons other than those assigned in the notice_of_deficiency provided that the taxpayer has not been surprised and substantially disadvantaged in the presentation of his or her case because of the manner in which the statutory notice and pleadings were drawn see 74_tc_955 59_tc_551 we do not believe that petitioners have been surprised or substantially prejudiced in presenting evidence to substantiate the disputed deductions to the contrary the record shows that well before trial petitioners presented to respondent large quantities of documents that they rely upon in attempting to substantiate their claimed deductions these materials are the subject of extensive stipulations between the parties and petitioners adduced testimony at trial in an effort to substantiate the amounts and business_purpose of the disputed deductions moreover respondent’s disallowance of the claimed deductions for lack of substantiation is implicitly within the ambit of the determination which disallowed all the claimed schedule c deductions we continued sec_162 generally allows a deduction for all ordinary and necessary expenses paid_or_incurred during the taxable_year in carrying_on_a_trade_or_business an expense is ordinary if it is customary or usual within a particular trade business or industry or relates to a transaction of common or frequent occurrence in the type of business involved 308_us_488 an expense is necessary if it is appropriate and helpful for the development of the business 320_us_467 a taxpayer’s general statement that expenses were incurred in pursuit of a trade_or_business is insufficient to establish that the expenses had a reasonably direct relationship to any such trade_or_business 50_tc_177 aff’d per curiam 409_f2d_1359 2d cir personal expenses are generally not allowed as deductions sec_262 when a taxpayer establishes that he or she has incurred deductible business_expenses but is unable to substantiate the exact amounts we can estimate the deductible amount but only if the taxpayer presents sufficient evidence to continued conclude that respondent’s contentions as to lack of substantiation are at most a new reason for disallowing petitioners’ schedule c deductions rather than a new_matter consequently no amendment to the answer was required and the burden_of_proof remains with petitioners see considine v commissioner t c pincite and cases cited thereat establish a rational basis for making the estimate see 39_f2d_540 2d cir see also 85_tc_731 sec_274 supersedes the general_rule of cohan and precludes us from estimating the taxpayer’s expenses with regard to certain items see 50_tc_823 aff’d per curiam 412_f2d_201 2d cir sec_274 imposes strict substantiation requirements for expenses relating to among other things travel entertainment and listed_property including automobiles and other_property used as a means of transportation sec_280f sec_1_274-5t temporary income_tax regs fed reg date to deduct such items the taxpayer must substantiate by either adequate_records or by sufficient evidence corroborating his own statement the amount of the expense the business_purpose of the expense and the business relationship to the taxpayer of the person using the property sec_274 beale v commissioner tcmemo_2000_158 sec_1_274-5a income_tax regs to meet the adequate_records test a taxpayer must maintain an account book a diary a log a statement of expense trip sheets or a similar record prepared contemporaneously with the expenditure and documentary_evidence of certain expenditures such as receipts or bills see sec_1 5t c temporary income_tax regs fed reg date in combination these records must be sufficient to establish each element--amount time and place business_purpose and business relationship--of the expenditure for which a deduction is sought see sec_1_274-5t temporary income_tax regs fed reg date in the absence of adequate_records to establish each element of an expense under sec_274 a taxpayer may alternatively establish an element a by his own statement whether written or oral containing specific information in detail as to such element and b by other corroborative evidence sufficient to establish such element sec_1_274-5t temporary income_tax regs fed reg date in the case of listed_property these elements to be established are the amount of the expenditure the amount of each business use the date of the expenditure and the business_purpose sec_1_274-5t i - iii temporary income_tax regs fed reg date automobile expenses petitioners claimed a deduction for dollar_figure in automobile expenses related to a ford pinto that was in colombia the only substantiation petitioners provided was seven receipts only three of which were legible and totaled dollar_figure petitioners did not provide any other documentary_evidence or testimony to establish the amounts of expenditures dates of business use of the vehicle business_purpose of such use mileage for business use or total mileage for all uses of the automobile petitioners have not met the substantiation requirements of sec_274 and may not deduct any automobile expenses travel_expenses petitioners claimed a deduction for travel_expenses totaling dollar_figure comprising the following dollar_figure virginia state bar hearing richmond va va supreme court richmond va--rodriguez v davi sec_133 trip to ny--meet possible client trip to ny--meet possible client trip to barranquilla colombia via ny big_number trip to barranquilla colombia via ny big_number tolls gas and bus to and from santa veronica total big_number of the dollar_figure petitioners reported with respect to the virginia state bar vsb hearing they provided legible receipts to substantiate dollar_figure for a hoteldollar_figure of the dollar_figure petitioners reported with respect to a hearing with the virginia supreme court they provided legible receipts to substantiate dollar_figure for a hotel meals tolls 12of the other receipts petitioners provided with regard to this expense one is for a domino’s pizza order that indicates that it was delivered to petitioners’ home address in annandale virginia the remaining receipts are illegible and gasdollar_figure of the dollar_figure and dollar_figure that petitioners reported for trips to new york they provided legible receipts to substantiate tolls gas and meals of dollar_figure petitioners provided handwritten schedules indicating the dates and business_purpose of travel for the above-mentioned business trips and are entitled to deduct a total of dollar_figure dollar_figure dollar_figure dollar_figure in travel_expenses on their schedule c with respect to the remaining expenses petitioners reported for business travel to and within colombia petitioners provided some receipts but have not established a business_purpose for the trips the record does not establish that petitioners’ trips to colombia were for business purposes one of the receipts provided by petitioners is for a dollar_figure plane ticket for mr rodriguez’s son to travel from colombia to new yorkdollar_figure petitioners assert that the son traveled to new york to testify in a trial related to his alleged expulsion from the united_states by the u s government this litigation is not related to petitioners’ trade_or_business petitioners are not entitled to deduct any travel_expenses apart from the dollar_figure mentioned above 13the remaining receipts submitted were illegible 14the evidence of this ticket is an email written in spanish meals and entertainment of the dollar_figure in meals and entertainment_expenses petitioners reported respondent concedes that they are entitled to deduct dollar_figure as to the remaining dollar_figure of expenses petitioners provided no documentation or testimony to support them and thus are not entitled to deduct them expenses related to business use of home as a general_rule sec_280a denies deductions with respect to the use of a dwelling_unit that the taxpayer used as a residence during the taxable_year sec_280a however permits the deduction of expenses allocable to a portion of a dwelling_unit that the taxpayer used exclusively and on a regular basis as the principal_place_of_business for a taxpayer’s trade_or_business respondent concedes that approximately one-third of petitioners’ annandale residence qualifies as a home_office on their federal_income_tax return petitioners claimed home_office_deductions totaling dollar_figure consisting of dollar_figure for rent dollar_figure for insurance and dollar_figure for utilities with respect to petitioners’ claimed rent expense respondent conceded a total of dollar_figure consisting of dollar_figure for date and dollar_figure for date petitioners’ rental agreement for the annandale residence calls for monthly rent payments of dollar_figure one-third of this amount is dollar_figure which coincides with the allocated business use of the residence and respondent’s concession for petitioners’ rent payment on date respondent provided no explanation for his calculation of dollar_figure with respect to petitioners’ date rent payment and does not make any argument on brief with respect to any of petitioners’ other claimed rent deductions petitioners provided the first page of their residential lease as support for their dollar_figure monthly rent payments on their annandale residence we find that petitioners have provided a rational basis for us to estimate the amount of their rent deduction see cohan v commissioner f 2d pincite petitioners rented the annandale residence for approximately months during including the dollar_figure respondent conceded for june and september petitioners have substantiated dollar_figure per month for this period or dollar_figure petitioners provided an invoice for the dollar_figure home_office deduction they claimed for insurance petitioners have not established that this claimed expense related to their home_office in their annandale residence rather than their alexandria residence which did not have a home officedollar_figure petitioners are not entitled to deduct the claimed insurance expense 15this amount is equal to six payments of dollar_figure for the months of june july august october november and date and one payment of dollar_figure for date 16the invoice is addressed to mrs rodriguez at the alexandria address on their federal_income_tax return petitioners claimed deductions totaling dollar_figure for home_office utilities in the stipulations and on brief petitioners increased this amount to dollar_figure in support of these deductions petitioners provided invoices for home and cellular phones water electricity and gas petitioners also claimed a deduction for internet service but provided no documentation in support thereof of the dollar_figure home_office utility expense deduction petitioners claimed respondent conceded a total of dollar_figure several water electric and gas invoices petitioners provided as substantiation relate to their alexandria residence which did not have a home_office these expenses are not deductible respondent conceded one-third of most amounts relating to the water electricity and gas invoices petitioners supplied with respect to their annandale residence for respondent did not however concede amounts for four such invoices totaling dollar_figure one-third of which is dollar_figure all of these invoices relate to petitioners’ annandale residence during and provide a rational basis for estimating the utility expense deduction relating to the home_office for the months covered by the invoices see cohan v commissioner f 2d pincite 17respondent conceded various amounts paid to washington gas fairfax water and dominion virginia power on brief and by stipulation petitioners included a total of dollar_figure for home and cellular telephone service in their claimed home_office utility expenses under sec_262 the cost of basic local_telephone_service with respect to the first telephone line provided to a residence is a personal_expense and is not deductible cellular phones are listed_property under sec_280f and are subject_to the strict substantiation requirements of sec_274 thus the taxpayer must show by either adequate_records or by sufficient evidence corroborating his own statement the amount of the expense the business_purpose of the expense and the business relationship to the taxpayer of the person using the property sec_274 for their home telephone service petitioners provided only the first page for each monthly invoice this documentation did not provide any detail as to what portion if any of each invoice related to charges in excess of those for the cost of basic local service for the first line provided to petitioners’ annandale residence other home telephone service invoices that petitioners provided related to their alexandria residence which did not have a home_office petitioners testified that they had one cellular phone for personal_use and one for business both phones were billed on a single invoice each month as with their home phone service petitioners provided only the first page of each monthly cellular phone invoice this documentation does not provide sufficient detail to distinguish between charges for business and personal_use and does not meet the strict substantiation requirements of sec_274 petitioners are not entitled to deduct any of their claimed expenses for home or cellular phone service petitioners are not entitled to deduct internet service expenses because they did not provide adequate substantiation we conclude that petitioners have sufficiently substantiated home utility expenses of dollar_figure in addition to the dollar_figure respondent conceded for a total of dollar_figure part of the expenses that petitioners claimed for repairs and maintenance of their home_office related to the repair of an air conditioner petitioners provided a dollar_figure canceled check dated date issued to air express appliance co mrs rodriguez testified that the air conditioning repair was for the annandale residence and other evidence supports this testimony we conclude that petitioners have adequately substantiated and are entitled to deduct one-third of the dollar_figure air conditioning repair expense or dollar_figure as a home_office expense in sum including respondent’s dollar_figure in concessions petitioners have substantiated dollar_figure for their home_office consisting of dollar_figure for rent dollar_figure for utilities and dollar_figure for the air conditioning repair sec_280a limits a taxpayer’s deductions for business use of a home to the amount by which the activity’s gross_income from the taxpayer’s business use of the home exceeds the sum of deductions which are allowable regardless of whether the taxpayer used the residence for business such as mortgage interest and property taxes plus deductions for expenses of the business which are not allocable to the business use of the residence tobin v commissioner tcmemo_1999_328 in other words a taxpayer may not claim a deduction that would give rise to or increase a net_loss from the business to which the deduction relates visin v commissioner tcmemo_2003_246 aff’d 122_fedappx_363 9th cir additionally sec_280a provides that the taxpayer may carry forward any resulting disallowed deductions to the next year see sec_280a flush language accordingly the amount of allowable home_office expenses that petitioners may deduct for or carry forward to will be computed under rule advertising depreciation employee_benefits and office administrative expenses petitioners claimed a deduction of dollar_figure for advertising depreciation employee_benefits and office administrative expensesdollar_figure petitioners did not 18this amount consists of dollar_figure for advertising dollar_figure for depreciation and sec_179 expenses dollar_figure for employee_benefits and dollar_figure for office administrative expenses provide sufficient documentation or testimony to substantiate these claimed expenses and are not entitled to any deductions with respect to these items apart from the dollar_figure of office administrative expenses that respondent has conceded insurance expense petitioners claimed an dollar_figure deduction for insurance expenses on brief petitioners argue that they maintained insurance for one of the colombian offices professional risk insurance for mrs rodriguez car insurance for a ford vehicle and irene rodriguez colombian pension the substantiation that petitioners provided in support of these items does not match the descriptions or amounts of the expenses claimeddollar_figure in addition petitioners did not provide any testimony or other evidence to substantiate these expenditures or to establish that they were not personal petitioners are not entitled to any deduction for these claimed insurance expenses interest_expenses petitioners claimed a deduction of dollar_figure for interest_expenses consisting of dollar_figure for interest with respect to a life_insurance loan dollar_figure for interest on a loan on a florida condominium dollar_figure for interest on a car loan and dollar_figure for 19to support these expenses petitioners submitted expense reports that are written in spanish as well as a bill from suramericana that is also written in spanish interest on office credit cards on brief petitioners claim that the interest was paid on loans that they took out for life_insurance and short term credit to conduct litigation purchase car to conduct business and on business rental property of rodriguez rodriguez the documentation that petitioners provided consists of two insurance loan statements from the knights of columbus one of which relates partially to an illegible receipt that petitioners claim is for interest_paid on a loan for a florida condominium and a financing statement for a ford taurus the interest on which does not correspond to the interest amount petitioners claimed petitioners provided no documentation or testimony to support the amount they claimed for interest on office credit cards with respect to petitioners’ loans from the knights of columbus petitioners have provided no testimony or evidence to establish that the funds borrowed were used for their business petitioners testified that the florida condominium was used for personal purposes and have provided no testimony or other evidence to support a business usedollar_figure with respect to the ford taurus petitioners provided no documentary_evidence or testimony to establish the expense amount they claimed the dates of business use of the vehicle the business_purpose of such use the mileage for business use and the total mileage for all uses of the vehicle see sec 20mrs rodriguez testified that petitioners did not have an office in florida d in addition petitioners provided no documentation to support their claimed interest on office credit cards petitioners are not entitled to any interest_expense deductions lease of other business property expense petitioners claimed a deduction of dollar_figure in expenses for an alleged special assessment on their office in barranquilla colombia to support this deduction petitioners provided a self-translated version of a mortgage release document dated date in relevant part the document states that banco commercial av villas declares that for office of world trade center building of barranquilla- tower a it received the amount requested for release of mortgage of dollar_figure mr rodriguez’s testimony with respect to the special assessment did not adequately explain its purpose or how it related to petitioners’ law practice further mr rodriguez testified that the special assessment actually occurred in the mortgage release that petitioners rely upon to support the assessment indicates that the bank received the funds in nothing in the record supports the amount of the assessment that petitioners have reported or establishes that the alleged expense was incurred during the year at issue petitioners are not entitled to any deduction for the alleged special assessment repairs and maintenance expense petitioners claimed a deduction of dollar_figure for repairs and maintenance_expenses consisting of a total of dollar_figure related to their colombian law offices and dollar_figure for air conditioning parts and labor the only support that petitioners provided for these claimed expenses is a dollar_figure canceled check dated date made out to air express appliance co we have already allowed a portion of this amount as a home_office expense deduction for the repair of an air conditioner petitioners provided no additional evidence to support the remaining expenses reported and are not entitled to deduct them supplies expense petitioners claimed a deduction for dollar_figure in supplies expenses as support petitioners provided two receipts and a credit card statement from home depot a fedex kinkos receipt and an additional receipt that is illegible the home depot documentation petitioners provided includes numerous items that appear to be personal and the fedex kinkos receipt does not include an adequate description of the purchased items petitioners have not shown that the expenses claimed have a business_purpose and are not personal accordingly petitioners are not entitled to any supplies expense deduction taxes and licenses expense petitioners claimed a deduction of dollar_figure for taxes and licenses related to their colombian law offices most of the supporting documentation that petitioners provided relates either to their florida condominium or to vehicles as previously mentioned petitioners have not established a business use for their florida condominium with respect to the vehicles petitioners provided no documentary_evidence or testimony to establish the dates of business use of the vehicles the business_purpose of such use the mileage for business use or the total mileage for all uses of the vehicles as required under sec_274 the remaining documentation that petitioners provided consists of handwritten notes indicating amounts allegedly paid for property taxes on the colombian law offices these notes are insufficient to establish the amounts of the property taxes or that they were actually incurred petitioners are not entitled to any deductions for taxes and licenses utilities expense for colombian offices petitioners claimed a deduction of dollar_figure for utilities related to their colombian law offices petitioners provided sufficient supporting documentation for internet service long distance phone service and international phone cards totaling dollar_figure respondent concedes dollar_figure of this amountdollar_figure petitioners provided no additional support for their remaining reported utility expenses for their colombian offices accordingly petitioners are entitled to deduct a total of dollar_figure for utilities including the dollar_figure that respondent has conceded wages and benefits petitioners claimed deductions totaling dollar_figure for expenses relating to salaries unemployment benefits mid year end year benefits paid vacation benefits and paid leave a reasonable allowance for salaries or other compensation_for_personal_services actually rendered may be deducted under sec_162 as an ordinary_and_necessary_expense paid_or_incurred during the taxable_year in carrying_on_a_trade_or_business petitioners provided a summary sheet of their monthly ledgers as well as a translation of the document from spanish into english prepared by mrs rodriguez in addition petitioners provided monthly ledger sheets for january february march april may july 21respondent conceded several individual expenses and added them together to arrive at a total of dollar_figure this was a computational mistake by respondent the correct sum of all of the individual expenses conceded is dollar_figure respondent conceded months of internet service at dollar_figure per month for a total of dollar_figure the evidence submitted by petitioners indicates that they paid dollar_figure in of the months of and dollar_figure in date thus entitling them to a deduction of dollar_figure august and date the monthly ledger sheets are in spanish despite the language obstacle it is clear that the summary sheet does not accurately summarize the monthly ledgers the numbers and names of the categories listed on the summaries and the monthly ledgers do not match petitioners are not entitled to deductions because they have not provided sufficient documentation to establish the amounts of these claimed expenses or that they were actually incurred filing fees and transcripts petitioners claimed a deduction of dollar_figure for filing fees and transcript expenses related to litigation on brief petitioners increased the amount claimed to dollar_figure petitioners provided supporting invoices and canceled checks for several of the reported expenses totaling dollar_figure all of which respondent conceded petitioners also submitted receipts for tolls gas a rental car and credit card statements which include charges for cvs shopper’s food toys ‘r’ us quizno’s kfc walmart and amazon com petitioners provided no testimony or other documentary_evidence to establish that any of these expenses related to their business to the extent that the receipts are for expenses that may relate to business travel petitioners have not met the strict substantiation requirements of sec_274 lastly petitioners submitted canceled checks made out to the department of homeland security petitioners did not provide testimony or documentary_evidence establishing that these expenditures related to their business petitioners are therefore entitled to deduct only the dollar_figure for filing fees and transcripts that respondent has conceded copies and litigation supplies petitioners claimed a total deduction of dollar_figure for copies and litigation supplies respondent conceded a total of dollar_figure of these expenses of the total amount claimed petitioners apportioned dollar_figure to paper toner copies etc petitioners apportioned the remaining dollar_figure among expenses related to one virginia court_of_appeals case and five u s supreme court cases of the receipts petitioners provided to substantiate the dollar_figure amount several were for personal items including a refrigerator groceries tropical fish fish food magazines photographs weed killer and bottled water other receipts did not include sufficient descriptions to identify the items purchased apart from the amounts respondent conceded petitioners did not sufficiently establish through documentary_evidence or supporting testimony the expense amounts or that the expenditures related to their business with respect to the remaining dollar_figure petitioners provided no documentation or supporting testimony to substantiate the expenses petitioners are therefore entitled to deduct only the dollar_figure respondent conceded for copies and litigation supplies professional dues and fees petitioners claimed a dollar_figure deduction for expenses related to professional dues and fees of this amount respondent conceded a total of dollar_figure for bar dues and professional associations with respect to the remaining items petitioners have either not provided documentation to substantiate that they incurred each particular expense or have not established a business_purpose for expenses that appear to be personal such items include dues for the national rifle association the american legion costco and aaa petitioners are entitled to deduct only the dollar_figure that respondent has conceded for professional dues and fees postage delivery petitioners claimed a total deduction of dollar_figure for expenses relating to postage and delivery fees petitioners provided receipts for several items that clearly related to their law practice and respondent conceded most of these items for a total of dollar_figure respondent did not concede dollar_figure for a fedex shipment of legal documents to petitioners’ law office in barranquilla colombia the shipment related to petitioners’ law practice and we conclude that they are entitled to deduct this item the remaining documentation that petitioners have provided includes receipts for shipments to transunion virginia tech university discover card and united healthcare in addition several receipts are for shipments that were made in a year other than and shipped to unidentified individuals the shipments included personal items such as a guitar other than the items that respondent has conceded and the dollar_figure fedex shipment expense mentioned above petitioners have either not provided documentation to substantiate that they incurred the particular expense or have not established a business_purpose for what appear to be personal expenses including the expenses that respondent has conceded petitioners are entitled to deduct dollar_figure for postage and delivery fees continuing legal education expenses petitioners claimed a dollar_figure deduction for continuing legal education cle expenses on brief they increased this amount to dollar_figure of this amount respondent conceded dollar_figure respondent did not concede dollar_figure that petitioners claimed for a versa cle tape and dollar_figure for what petitioners describe as cle alien act with respect to the versa cle tape petitioners provided a credit card receipt for a payment made to versa for the amount claimed the receipt however does not provide sufficient detail to establish what items were purchased petitioners have not established that the expenditure was related to their business and not personal petitioners did not provide any documentation with respect to their expense claim for the cle alien act petitioners are entitled to deduct only the dollar_figure that respondent has conceded for continuing legal education expenses law book supplements and purchases petitioners claimed a dollar_figure deduction for law book expenses included in this amount is dollar_figure which petitioners describe on brief as misc receipts petitioners provided no documentation or testimony to support the misc receipts they claimed petitioners did however provide several receipts for law-related publications totaling dollar_figure all of which respondent has conceded the remaining items petitioners claimed include a geology textbook which mrs rodriguez testified was for mr rodriguez’s son a time magazine subscription a to kill a mockingbird dvd and a book about military weapons petitioners have not established that any of these items were related to their business and not personal petitioners are entitled to deduct only the dollar_figure that respondent has conceded for law book expenses employee legal education and data processing education course petitioners claimed a dollar_figure deduction related to an employee legal and data processing education course in colombia as support petitioners provided two money transfer receipts one for dollar_figure and another for dollar_figure that mrs rodriguez sent to an individual in colombia petitioners provided no documentation or testimony to establish that this money was used to pay for the legal and data processing education course for any employee petitioners are not entitled to any deduction for this claimed expense money transfer fees petitioners claimed a dollar_figure deduction for expenses related to money transfer fees of this amount respondent conceded dollar_figure petitioners provided several receipts for money transfers to their colombian law office that included items specifically designated as fees all of which respondent conceded petitioners also provided similar money transfer receipts that included a total of dollar_figure of telex fees which respondent did not concede these fees like those items specifically designated fees were charged to complete the money transfers and are thus deductible petitioners are entitled to deduct including the dollar_figure that respondent has conceded dollar_figure for expenses related to money transfer fees iv accuracy-related_penalties sec_6662 imposes an accuracy-related_penalty of of any underpayment that is attributable to causes specified in subsection b sec_6662 applies the penalty to any underpayment attributable to a substantial understatement of income_tax meaning that the amount of the understatement exceeds the greater of of the tax required to be shown on the return for the tax_year or dollar_figure sec_6662 generally the commissioner bears the burden of production with respect to any penalty including the accuracy-related_penalty sec_7491 higbee v commissioner t c pincite to meet that burden the commissioner must come forward with sufficient evidence indicating that it is appropriate to impose the relevant penalty id once the commissioner has met the burden of production the taxpayer has the burden of proving that the penalties are inappropriate see rule a higbee v commissioner t c pincite respondent determined that petitioners are liable for a penalty under sec_6662 because they substantially understated their income_tax for the year at issue the exact amount of petitioner’s understatement will depend upon the rule_155_computations which we order below to the extent that those computations establish that petitioner has a substantial_understatement_of_income_tax respondent has met his burden of production see prince v commissioner tcmemo_2003_ the amount of an understatement on which the penalty is imposed will be reduced by the portion of the understatement that is attributable to the tax treatment of an item that was supported by substantial_authority or for which the relevant facts were adequately disclosed in the return or in a statement attached to the return sec_6662 additionally no penalty will be imposed with respect to any portion of an underpayment if it is shown that there was reasonable_cause for such portion and the taxpayer acted in good_faith with respect to such portion see sec_6664 petitioners have failed to show that they made adequate disclosures with respect to the relevant facts or that they had substantial_authority or acted with reasonable_cause and in good_faith with respect to any portion of their underpayment accordingly we hold that they are liable for the sec_6662 penalty insofar as the rule_155_computations show a substantial_understatement_of_income_tax in reaching the foregoing holdings we have considered all of the parties’ arguments and to the extent not addressed herein we conclude that they are moot irrelevant or without meritdollar_figure 22on brief petitioners appear for the first time to request abatement of interest in order for this court to have jurisdiction over such a request respondent must first continued to reflect the foregoing decision will be entered under rule continued issue a notice of final_determination under sec_6404 and a tax_court petition for review of that determination must be filed sec_6404 rule 131_tc_54 the record does not establish that respondent issued a notice of final_determination under sec_6404 accordingly we do not have jurisdiction to determine whether petitioners are entitled to abatement of interest