t c memo united_states tax_court richard and brenda nelon petitioners v commissioner of internal revenue respondent docket no filed date e k morley for petitioners amy j sargent for respondent memorandum findings_of_fact and opinion gerber judge in a notice_of_deficiency dated date respondent determined the following income_tax deficiencies and additions with respect to petitioner richard nelon's federal income taxes additions to tax sec sec sec sec year deficiency f b a b dollar_figure -0- 1dollar_figure -0- dollar_figure big_number -0- -0- dollar_figure big_number big_number dollar_figure -0- -0- big_number big_number big_number -0- -0- big_number big_number big_number -0- -0- big_number in addition with respect to the taxable_year respondent has determined an addition_to_tax pursuant to sec_6653 in an amount equal to percent of the interest due on the underpayment attributable to fraud respondent also determined a deficiency and additions to tax against petitioners jointly for the taxable_year additions to tax sec sec year deficiency b a dollar_figure 1dollar_figure dollar_figure respondent also determined with respect to the taxable_year an addition_to_tax pursuant to sec_6653 in an amount equal to percent of the interest due on the underpayment attributable to fraud finally as an alternative position respondent determined that if the court does not find liability for sec_6651 and or b then the delinquency addition_to_tax should apply in each year and the negligence addition should also be applied for and after concessions the remaining issues for our consideration are whether petitioner richard nelon is liable for additions to tax for fraud under sec_6653 a and b for the taxable years and and section references are to the internal_revenue_code in effect for the taxable years at issue rule references are to this court’s rules_of_practice and procedure under sec_6653 for the taxable_year whether petitioner richard nelon is liable for additions to tax for fraudulent_failure_to_file income_tax returns under sec_6651 for the taxable years through whether petitioner richard nelon is liable in the alternative for a percent addition_to_tax under sec_6651 and whether petitioner richard nelon is liable in the alternative for a percent addition_to_tax under sec_6653 and b for and and sec_6653 for findings of fact2 petitioners richard and brenda nelon resided in rutherfordton north carolina at the time the petition in this case was filed richard nelon petitioner left high school when he was years old and he is inexperienced in bookkeeping and financial matters petitioner operated a logging business in the area around rutherfordton as a sole_proprietorship this activity was his primary source_of_income during the years through the activity in question was physically demanding and dangerous work in practice petitioner would have to cut the standing timber put it on the truck and deliver the logs to the yard the stipulations of facts and the exhibits are incorporated by this reference brenda nelon is a party only with respect to the tax_year petitioner received compensation in the amounts and years at issue amount year dollar_figure big_number big_number big_number big_number big_number big_number payer bristol industries inc gilkey lumber co gilkey lumber co gilkey lumber co gilkey lumber co gilkey lumber co gilkey lumber co the payers supplied forms to respondent and petitioner reflecting the above-listed payments during the aforementioned years petitioner did not make any estimated payments of income_tax petitioner also did not file any income_tax returns for the years at issue petitioner maintained some records of his expenses for his logging business in the form of receipts which he could not locate for purposes of trial sometime in petitioner hired larry r melton melton to paint his residence melton who was not a qualified_tax adviser was involved in a tax_protester group the primary precept of members of the protester group was that they were not subject_to federal income taxes consonant with that belief melton advised that petitioner was not required to pay taxes to the u s government petitioner accepted melton's advice and he joined the protester group attended meetings and paid dues during and beginning with his taxable_year petitioner did not file a federal_income_tax return in accord with his belief that he was not subject_to the federal_income_tax an accountant prepared petitioner's federal_income_tax return in respondent audited petitioner's return petitioner represented himself in the audit process and did not agree with the adjustments respondent's agent proposed or that he owed additional tax for his tax_year petitioner believed that his income and deductions for had been correctly reported petitioner took no further action the additional tax was assessed and respondent seized petitioner's bank account for satisfaction of the assessed deficiency the results of his audit during made petitioner angry and frustrated because of that experience and following the seizure of the proceeds of his bank account in petitioner chose to no longer maintain a bank account on date respondent's agent david walden walden advised petitioner by letter that his through tax years were being subjected to examination brenda nelon's taxable_year was also under examination by walden by a date letter walden was advised that petitioner was under no obligation to communicate with respondent's agents and that petitioner was not subject_to the federal_income_tax the letter also acknowledged that petitioner did not file federal_income_tax returns for the years in question the letter was written by another person but was signed by petitioner petitioner did not meet with walden or produce requested records or documents on date respondent issued a statutory_notice_of_deficiency to petitioner determining deficiencies in income_tax for the and tax years and related additions to tax on the same date respondent also issued a statutory_notice_of_deficiency to both richard nelon and brenda nelon for the taxable_year determining a deficiency in income_tax and related additions to tax at trial petitioner acknowledged that he did not file income_tax returns for through and that he followed the advice of melton and the protester group that he did not have to pay income taxes after trial the parties filed a stipulation of settled issues among the issues settled respondent conceded that there was no deficiency in income_tax due from nor overpayment due to petitioner brenda nelon for the taxable_year the parties also stipulated that petitioner was entitled to deductions in connection with his logging business as follows year amount dollar_figure big_number big_number big_number big_number big_number opinion the parties have agreed that petitioner earned_income and incurred deductions for the through taxable years the only remaining controversy is whether petitioner is liable for the addition_to_tax for fraud or in the alternative negligence and failure_to_file for and sec_6653 and for sec_6653 provide for an addition_to_tax in an amount equal to percent of the underpayment that is attributable to fraud for and sec_6653 provides for an additional_amount equal to percent of the interest due on any part of the underpayment attributable to fraud sec_6653 provides that if any portion of an underpayment is due to fraud the entire underpayment is treated as fraudulent unless the taxpayer proves some portion of the underpayment is not due to fraud for and sec_6651 provides for a maximum addition_to_tax of percent if any failure_to_file is fraudulent if the failure_to_file is not due to reasonable_cause and it is not fraudulent sec_6651 provides for a maximum addition_to_tax of percent the addition_to_tax in the case of fraud is a civil sanction provided primarily as a safeguard for the protection of the revenue and to reimburse the government for the heavy expense of investigation and the loss resulting from the taxpayer's fraud 303_us_391 respondent bears the burden of proving fraud by clear_and_convincing evidence sec_7454 rule b respondent's burden is met if it is shown that petitioner intended to evade taxes known to be due and owing by conduct intended to conceal mislead or otherwise prevent the collection_of_taxes and that there is an underpayment_of_tax 398_f2d_1002 3d cir 80_tc_1111 26_tc_107 the existence of fraud is a question of fact to be resolved upon consideration of the entire record 96_tc_858 affd 959_f2d_16 2d cir fraud is never presumed but rather must be established by affirmative evidence 829_f2d_828 9th cir affg tcmemo_1986_223 direct evidence of the requisite fraudulent intent is seldom available but fraud may be proved by circumstantial evidence 317_us_492 rowlee v commissioner supra pincite the taxpayer's entire course of conduct may establish the requisite intent 53_tc_96 over the years courts have developed various factors or badges which tend to establish fraud 91_tc_874 these include a pattern of understatement of income inadequate books_and_records failure_to_file tax returns concealment of assets failure to cooperate with tax authorities income from illegal activities implausible or inconsistent explanations of behavior an intent to mislead which may be inferred from a pattern of conduct lack of credibility of the taxpayer's testimony dealings in cash 889_f2d_910 9th cir affg norman v commissioner tcmemo_1987_265 edelson v commissioner supra pincite 796_f2d_303 9th cir affg tcmemo_1984_601 92_tc_661 rowlee v commissioner supra pincite these badges_of_fraud are nonexclusive 94_tc_316 the list of the badges_of_fraud however is illustrative we consider the totality of the facts and circumstances of each case to determine whether there is fraudulent intent 98_tc_511 recklitis v commissioner supra respondent contends that the following facts taken as a whole prove that petitioner had the intent to fraudulently evade paying income_tax on at least some part of the underpayment for the years in issue his failure_to_file income_tax returns for the years through through that failure_to_file a corresponding consistent failure to report substantial amounts of income from the logging business the failure to maintain books_and_records of the amounts derived from the logging business his failure to pay estimated income taxes for the years in question and the cashing rather than depositing of checks derived from the logging business in the instant case petitioner did not file income_tax returns for the taxable years through the parties have stipulated this fact it is also without dispute that petitioner did not report relatively large amounts of income and expenses in connection with his logging business an initial analysis reveals that some of the badges_of_fraud are present petitioner earned substantial amounts of income that were not reported did not keep adequate_records and failed to provide records to or meet with respondent's agent due to the audit of his federal_income_tax return and the seizure of his bank account petitioner decided to close his bank account and to some extent deal in cash petitioner however did not misrepresent secrete or attempt to deceive although we do not approve of petitioner's reasons for failing to file returns and failing to submit to respondent's examination those events on this record do not satisfy respondent's burden to clearly and convincingly prove fraud on this record we do not find that petitioner's underpayment was due to an intent to evade taxes known to be due and owing by conduct intended to conceal mislead or otherwise prevent the collection_of_taxes stoltzfus v united_states supra pincite rowlee v commissioner supra pincite acker v commissioner supra pincite respondent places great emphasis on the fact that petitioner had an accountant for the taxable_year contending that this reflects a history of filing timely tax returns and thus petitioner knew of the filing_requirements petitioner however did not set out to evade tax he thought to be due instead he came to believe that he was not obligated to file a federal tax_return and that he had no obligation to pay federal tax on this record we find that his belief was not an intentional attempt to fraudulently evade the payment of tax respondent also argues that petitioner attempted to conceal assets by dealing in cash petitioner's resolve to close his bank account and therefore use cash was not coupled with his belief that he was not obligated to pay tax petitioner based on his belief failed to file his and later years' returns it was only after his bank account was seized in in connection with the audit of his tax_return that petitioner closed his bank account by petitioner had failed to file several federal_income_tax returns petitioner believed that he had correctly reported his income and deductions for by using a professional return preparer accountant petitioner who is not well educated or versed in business and tax matters represented himself in the audit from his perspective he had properly filed his return and the resulting seizure of his bank account caused him to react by closing the bank account there is no indication that the audit of petitioner's return involved the so-called protester arguments or that he failed to cooperate with respondent's agent petitioner did not cooperate with the revenue_agent in the determination of his tax_liability for through on occasion this has been found to be an indicium of fraud see rowlee v commissioner t c pincite 75_tc_1 67_tc_181 affd without published opinion 578_f2d_1383 8th cir here however petitioner did not attempt to deceive or mislead the revenue_agent instead he acknowledged that he did not file any federal_income_tax returns and provided his reasons for not meeting with the agent or filing returns in this regard tax_protester arguments even though meritless and frivolous without more do not necessarily amount to fraud 86_tc_1253 petitioner's failure to cooperate here was to his own detriment respondent had received forms from the company ies that had paid petitioner for harvested timber in each year petitioner by his failure to come forward however did not obtain the benefit of the deductions to which he was entitled in connection with the harvesting of timber his failure to cooperate did not keep respondent from being able to determine his income or receipts at trial petitioner admitted that he knew melton was not an accountant or an attorney experienced in tax matters but he believed melton's advice that he did not owe tax petitioner is not well versed in tax and financial matters and has only limited formal education we cannot say that his holding to so-called protester tenets was with intent to defraud or misrepresent in we stated in kotmair v commissioner t c that the taxpayer's protester arguments may have been meritless frivolous wrongheaded and even stupid but we cannot hold that they amounted to fraud without something more were we to do so every failure-to-file protester case would be automatically converted into a fraud case general a taxpayer's negligence whether slight or gross is not enough to prove fraud 5_tc_608 respondent maintains that petitioner's failure_to_file timely income_tax returns was part of a pattern of fraud although a taxpayer's failure_to_file is prima facie evidence of negligence for purposes of sec_6653 see 92_tc_342 affd 898_f2d_50 5th cir it is insufficient in and of itself to prove fraud rowlee v commissioner supra pincite the record here simply does not show any affirmative acts of concealment or misrepresentation so as to constitute fraud such as filing false information or attempting to mislead respondent 763_f2d_1139 10th cir affg tcmemo_1984_152 for respondent to sustain her position as to the fraud addition_to_tax it is not enough that respondent can show the taxpayer to be devious see 351_f2d_1 2d cir affg 42_tc_660 27_tc_561 affd 252_f2d_681 6th cir 19_bta_518 the evidence must be clear_and_convincing in the instant case we find that the evidence falls short of being clear_and_convincing accordingly we find that petitioner is not liable for additions to tax or penalties based on fraud in the alternative respondent determined that petitioner is liable for the additions to tax for failure to timely file for all the years in issue sec_6651 imposes an addition_to_tax for a taxpayer's failure_to_file timely returns required to be filed including income_tax returns unless the taxpayer can establish that such failure is due to reasonable_cause and not due to willful neglect the addition_to_tax i sec_5 percent of the amount required to be shown on the return for each month beyond the return's due_date not exceeding percent sec_6651 petitioner bears the burden of showing respondent's determination to be in error and that there was reasonable_cause for his failure to timely file rule a respondent in the alternative also determined a 5-percent addition_to_tax for each of the years through for negligence or intentional disregard of rules or regulations sec_6653 for and and sec_6653 for provide for a 5-percent addition_to_tax if any part of the underpayment is due to negligence or intentional_disregard_of_rules_and_regulations if sec_6653 applies for and then sec_6653 provides for a further addition_to_tax equal to percent of the interest attributable to that portion of the underpayment resulting from negligence or intentional_disregard_of_rules_and_regulations negligence is defined as a lack of due care or failure to do what a reasonable and prudent person would do under the circumstances 85_tc_934 petitioner bears the burden of showing that he was not negligent rule a 58_tc_757 petitioner did not contend either at trial or on brief that his failure_to_file returns was due to reasonable_cause or that his actions were reasonable on this record we find that petitioner is liable for additions to tax for failure_to_file and negligence for the years indicated above in addition we find that petitioner is liable for additions to tax under sec_6654 as determined by respondent to reflect the foregoing decision will be entered under rule


t c memo united_states tax_court john allen and glenna a lyle petitioners v commissioner of internal revenue respondent docket no filed date john allen lyle and glenna a lyle pro sese gerald l brantley for respondent memorandum findings_of_fact and opinion gerber judge respondent by means of a statutory_notice_of_deficiency determined a deficiency in petitioners income_tax of dollar_figure and a sec_6662 penalty of dollar_figure unless otherwise indicated all section references are to the internal_revenue_code in effect for the year under consideration and all rule references are to this court's rules_of_practice and procedure the issues for our consideration are whether the correspondence in this case from respondent's employee estopped respondent from determining a deficiency in petitioners' federal_income_tax whether respondent correctly determined that petitioners must recognize income from social_security_benefits in the amount of dollar_figure for the taxable_year whether petitioners are entitled to deduct dollar_figure in alleged job-hunting expenses whether petitioners are entitled to deduct temporary_living_expenses of dollar_figure whether petitioners' gambling_losses are limited to their income from gambling for taxable_year and whether petitioners are liable for the accuracy-related_penalty under sec_6662 separate findings_of_fact and opinion are hereafter set forth with respect to each of the first five issues those portions of the stipulation of facts that pertain to a particular issue are incorporated by this reference in the findings_of_fact for the issue to which they relate it refund letter findings_of_fact at the time of the filing of the petition in this case petitioner john allen lyle resided in el paso texas petitioner glenna a lyle resided in nashville tennessee glenna a lyle is a petitioner in this case because she joined in filing federal_income_tax returns with her husband john allen lyle petitioner on date petitioners sent a letter to the problem resolution office of the internal_revenue_service concerning the status of their request for refund on their additional amended income_tax return filed for the problem resolution caseworker replied ina letter dated date that the refund had been allowed and indicated that it would be used to offset petitioners’ tax account the letter further indicated that since only dollar_figure of the dollar_figure refund from was needed to full pay the account you will also receive a refund for of dollar_figure opinion we must decide whether the letter from respondent's caseworker estops respondent from determining a deficiency for petitioners’ federal_income_tax petitioners assert that because the letter indicated that only dollar_figure was needed to full pay petitioners' federal tax_liability respondent has forfeited the right to determine a deficiency for petitioners' federal_income_tax respondent contends that the doctrine_of equitable_estoppel should not be applied in this case we agree with respondent the doctrine_of equitable_estoppel is applied against the government only with utmost caution and restraint see 90_tc_684 taxpayers must prove at least the following elements before courts will apply equitable_estoppel against the government a false representation or wrongful misleading silence by the party against whom the estoppel is claimed an error in a statement of fact and not in an opinion or statement of law the taxpayer's ignorance of the true facts the taxpayer's reasonable reliance on the acts or statements of the one against whom estoppel is claimed and adverse effects suffered by the taxpayer from the acts or statements of the one against whom estoppel is being claimed see 104_tc_13 supplemented by 104_tc_417 petitioners have failed to establish that all of the elements for equitable_estoppel have been satisfied the correspondence which petitioner relies on to support his contention simply described how the allowed refund for would be applied to petitioners' tax account the correspondence did not make any representation that petitioners owed no additional tax therefore petitioners have failed to establish that there has been a false representation by respondent moreover it was not reasonable for petitioners to rely on the letter from respondent's caseworker for the proposition that petitioners owed no additional income_tax for the letter was written in response to petitioners' request for refund on an amended income_tax return filed for the letter does not purport to be a determination regarding petitioners return and does not state that petitioners' income_tax return has been accepted as filed nor does it address any of the specific issues encompassed in the notice_of_deficiency accordingly respondent is not estopped from determining a deficiency in petitioners' income_tax il social_security_benefits findings_of_fact petitioners reported receiving social_security_benefits of dollar_figure on their income_tax return petitioners did not however compute the taxable_portion of their social_security_benefits to be included in their gross_income respondent treated their failure to enter the taxable_portion as a computational adjustment and determined that the taxable_portion of the benefits was dollar_figure opinion sec_86 governs the taxability of social_security_benefits applying that section respondent determined that the taxable_portion of the benefits was dollar_figure petitioners do not dispute the accuracy of respondent's calculation rather petitioners argue that the taxation of social_security_benefits is an ex post facto law in violation of article i of the constitution their position has no merit the prohibition against ex post facto laws applies only to penal legislation that imposes or increases criminal punishment for conduct predating its enactment see 342_us_580 the ex post facto clause is not applicable ina civil context see 225_us_227 accordingly sec_86 does not violate the ex post facto clause of the constitution iii job-hunting expenses findings_of_fact in date petitioners moved to nashville tennessee from el paso texas after mrs lyle accepted a job in nashville petitioner who had years of experience as an el paso public school teacher attempted to find employment in the nashville area from january to date petitioner had three interviews with the following prospective employers three springs wilderness program a christian academy and the metro nashville school district at the time of the interviews petitioner was living in an apartment in nashville petitioner drove the following distances one way for his three interviews miles for the first interview miles for the second interview and miles for the third interview none of the interviews resulted in employment on date petitioner left nashville for las vegas nevada for the joint purposes of gambling and finding a job in the teaching profession mrs lyle remained in nashville petitioner drove to las vegas from nashville a distance of about big_number miles petitioner had three job interviews while in las vegas the first job interview was in bull head city arizona a distance of about miles from the hotel that petitioner was residing in the record does not disclose the distances petitioner traveled for his second and third interviews petitioner was unable to secure a teaching position in the las vegas area while in las vegas petitioner contacted a high school principal he knew in el paso texas who hired petitioner over the telephone petitioner gambled every day from his arrival in april until he left nevada for el paso texas in late date petitioners claimed dollar_figure in job-hunting expenses on their federal_income_tax return respondent disallowed the claimed expenses opinion sec_162 permits a deduction for ordinary and necessary expenses_incurred in carrying_on_a_trade_or_business including traveling expenses which include amounts expended for meals_and_lodging other than amounts that are lavish_or_extravagant under the circumstances while away from home in the pursuit of a trade_or_business in addition to deducting expenses relating to temporary employment away from home a taxpayer may also deduct expenses_incurred in seeking employment see 54_tc_374 these expenditures are deductible under sec_162 regardless of whether employment is obtained see 58_tc_219 deductible job-seeking expenses can include travel_expenses while away from home see kozera v commissioner tcmemo_1986_604 the deduction for expenses_incurred away from home is intended to mitigate the burden of a taxpayer who because of the travel requirements of his trade_or_business must maintain two places of abode and therefore must incur duplicate living_expenses see 85_tc_462 affd without published opinion 807_f2d_177 9th cir in order to be allowed as a deduction under sec_162 a taxpayer must establish that the travel_expenses were reasonable and necessary incurred while away from home and incurred in pursuit of a trade_or_business see 86_tc_589 petitioners claimed substantial amounts attributable to lodging food travel postage long-distance telephone calls and car insurance as job- hunting expenses these expenses were incurred during the period january through date respondent has two alternative theories for denying the job- hunting expenses first respondent contends that petitioner had no tax_home in and therefore none of the traveling expenses can be deducted because they were not incurred while away from home id in the alternative respondent contends that even if petitioner's tax_home was nashville only the portion of the expenses directly attributable to job hunting are deductible generally a taxpayer's home for purposes of sec_162 sec_1s the city or location of his or her principal_place_of_business and not where his or her personal_residence is located see 74_tc_578 however an employee without a principal_place_of_business may treat a permanent place of residence at which he incurs substantial continuing living_expenses as his tax_home see 49_tc_636 nevertheless where a taxpayer has neither a principal_place_of_business nor a permanent place of residence a taxpayer has no tax_home from which to be away such taxpayers' homes are wherever they happen to be see 513_f2d_697 6th cir affg tcmemo_1974_160 barone v commissioner supra while the subjective intent of taxpayers is to be considered in determining whether they have tax homes this court and others consistently have held that the objective financial criteria bear a closer relationship to the underlying purpose of the deduction see barone v commissioner supra pincite whether petitioner had a tax_home is a factual question and the burden_of_proof is on petitioner see rule a -- - in the present case petitioner's testimony pertaining to these objective factors was vague at best petitioner testified concerning his expenditures in nashville and las vegas however his explanations were lacking in meaningful detail although petitioner did not have a principal_place_of_business during much of several objective factors indicate that nashville during the period from january through date was petitioner's permanent place of residence first petitioners resided in nashville from date through date a period of months second during the period beginning january and until date petitioners paid rent on an apartment in nashville a substantial living expense a job-hunting expenses in nashville since nashville was petitioner's permanent place of residence he was not away from home during his job-searching in nashville and therefore the expenditures_for lodging in nashville are not deductible petitioner drove a total of miles to various job interviews in the nashville area and is entitled to a travel deduction of dollar_figure as a job-hunting expense miles time sec_30 cents per mile see revproc_94_73 1994_ 2_cb_816 no amount for meals postage long-distance telephone calls or car insurance is allowable because petitioner has not substantiated that these expenses were related to his job-hunting b job-hunting expenses in las vegas petitioner also claimed significant travel_expenses for the period beginning april through date since we have determined that petitioner's tax_home was nashville the expenses must be allocated between petitioner's gambling and job-hunting activities it is difficult to discern the amount of time petitioner spent on his gambling versus his job-hunting activities considering all of the facts and circumstances we conclude petitioner spent approximately one-quarter of his time job-hunting in las vegas accordingly petitioner is entitled to a dollar_figure deduction for food and lodging no amount for postage long-distance telephone calls or car insurance is allowable because petitioner has not substantiated that these expenses were related to his job-hunting if an employee travels to an area to seek new employment and also engages in personal activities traveling expenses are deductible only if the trip is related primarily to seeking new employment see sec_1_162-2 income_tax regs the amount of time during the period of the trip that is spent on personal activity compared to the amount of time spent on seeking new employment is important in determining whether the trip is primarily personal see id petitioner spent most of his time in las vegas gambling rather than seeking new employment accordingly petitioner is not entitled to deduct his travel_expenses from nashville to las vegas petitioner drove a total of miles to his job interview in bull head city arizona and is entitled to a travel deduction of dollar_figure as a job-hunting expense miles time sec_30 cents per mile see revproc_94_73 1994_ 2_cb_816 iv temporary_living_expenses findings_of_fact after accepting a teaching position in el paso texas over the telephone petitioner left las vegas in late date petitioner's job commenced on date as of date years after the job commenced petitioner continued to reside in el paso and his wife continued to reside in nashville opinion petitioner asserts that he is entitled to deduct dollar_figure in living_expenses as temporary_living_expenses these expenses were incurred during the period from august through date petitioner contends that he is entitled to deduct his living_expenses during this period because he lived in el paso for less than months during we find petitioner's argument to be flimsy and farfetched the fact that petitioner lived at a certain address for less than months during the taxable_year is not necessarily relevant or important to the question of whether he is entitled to deduct living_expenses an employee employed temporarily at a distance from his home is allowed to deduct the costs of meals_and_lodging at his temporary job site on the theory that he is away from home 55_tc_783 as discussed previously the purpose of this rule is to mitigate the hardship suffered by taxpayers who must maintain two places of abode and therefore incur duplicate living_expenses see barone v commissioner supra however an employee who accepts employment of an indefinite duration cannot deduct living costs at the distant job site see 358_us_59 in addition when a husband and wife are employed or conduct business indefinitely in two widely separated locations they cannot deduct living_expenses incurred at either site see 67_tc_1 petitioner has not established that his job in el paso was temporary he offered no evidence that the teaching position was for a limited time after which he intended to return to nashville on the contrary the entire record indicates that el paso had become petitioner's principal_place_of_business following his move from las vegas petitioner arrived in el paso in late july for a job commencing on date as of date years after the job commenced petitioner continued to reside in el paso accordingly petitioners are not entitled to deduct the dollar_figure in living_expenses as temporary_living_expenses v gambling_losses findings_of_fact petitioner gambled every day from april until he left las vegas in late date petitioners claimed gaming wins of dollar_figure and gambling expenses and losses of dollar_figure on their federal_income_tax return respondent disallowed petitioners' gambling expenses and losses in excess of gambling winnings opinion petitioners maintain that pursuant to sec_162 the net wagering losses represented a deductible trade_or_business expense respondent contends that the deduction of net wagering losses is precluded by sec_165 we agree with respondent sec_165 provides that losses from wagering transactions shall be allowed only to the extent of the gains from such transactions in other words a taxpayer is not entitled as a matter of law to deduct a net gambling loss petitioner relies on 480_us_23 for the proposition that net gambling_losses are properly deductible in full as trade_or_business_expenses under sec_162 petitioners' discussion of groetzinger ignores the fact that the sec_165 restriction was not at issue in groetzinger the issue in groetzinger was whether a full-time gambler who made wagers solely on his own account was engaged in a trade_or_business under sec_162 for purposes of treating his gambling_losses as a tax preference item under the minimum_tax scheme governed by sec_55 and sec_56 see valenti v commissioner tcmemo_1994_483 petitioners are not entitled to gambling_losses in excess of their income from gambling ’ vi accuracy-related_penalty under sec_6662 respondent also determined that petitioners were negligent and liable for an accuracy-related_penalty under sec_6662 sec_6662 and b imposes an accuracy-related_penalty equal to percent of the portion of an underpayment that is attributable to negligence or disregard of rules or regulations in determining whether petitioners were negligent in the preparation of their returns we take into account petitioner's tax experience petitioner a self-proclaimed trained tax specialist should have realized that the deduction of months of living_expenses as job-hunting expenses after a limited job- hunting effort was not reasonable combining that with petitioner's gambling_losses presents a situation that was too petitioners made several other arguments which we found to be outlandish such as their request for dollar_figure billion in punitive_damages to the extent we have not addressed petitioners' other arguments we find them to be without merit -- - good to be true within the meaning of sec_1 b income_tax regs accordingly petitioners are liable for the sec_6662 penalty to reflect the foregoing decision will be entered under rule


internal_revenue_service department of the treasury number release date index number washington dc person to contact telephone number refer reply to cc corp br06-plr-156443-01 date date distributing controlled corp1 a b c a year1 type a date this letter is in reply to your letter dated date requesting supplemental rulings regarding the distribution by distributing to its shareholders of the stock of controlled a directly wholly owned subsidiary of distributing formed on date the distribution the internal_revenue_service irs issued a ruling letter dated date the prior ruling concerning the federal_income_tax consequences of the distribution and related transactions the prior ruling included rulings to the effect that distributing would not recognize gain_or_loss as a result of the contribution of property to controlled and the cash distribution received from controlled and that the distribution would qualify for tax-free treatment under sec_355 all capitalized terms in this supplemental ruling_request not otherwise defined plr-156443-01 herein have the meanings assigned to them in the prior ruling and all identifying and other factual information representations and discussions of authority set forth in the original ruling_request dated date are hereby incorporated by reference as described in the original ruling_request controlled will borrow approximately a prior to the distribution and will use the proceeds of this borrowing i to increase working_capital and ii to distribute approximately b to distributing in connection with the contribution distributing will use all of the proceeds of the b distribution to pay down its existing debt including commercial paper and to buy back shares on the open market within a from the distribution date it was expected that controlled would borrow these funds from third parties accordingly distributing made the following representation no intercorporate debt will exist between distributing and controlled at the time of or subsequent to the distribution other than as may arise by reason of financing activities or the provision of goods and services in the ordinary course of business at arm’s length terms or under certain transition contracts between the parties indebtedness owed by controlled to distributing immediately after the distribution if any will not constitute stock_or_securities consistent with the information provided by distributing to the irs distributing and controlled entered into negotiations with an unrelated financial_institution the lead arranger for the purpose of establishing a a credit facility the terms of a credit facility have been substantially negotiated at this point the lead arranger and the borrower typically would market the deal seeking commitments from other financial institutions to participate as lenders in the credit facility however the lead arranger has recently informed distributing that as a reaction to the september terrorist attacks in the united_states the overall credit markets for type a credits such as the ones planned to be utilized by controlled are from a practical perspective closed at this time while it is anticipated that this is a temporary market phenomenon distributing’s financial advisors do not believe it is likely that this disruption in the institutional lending markets will be resolved before the end of year1 accordingly there is only a remote possibility that controlled would be able to establish a credit facility with third party lenders in the next several weeks which would be necessary in order to promptly complete the distribution distributing has publicly announced that it plans to complete the distribution before the end of the fourth quarter of year1 distributing believes that failure to complete the distribution as promptly as possible would have significant adverse effects on distributing to resolve the situation without unduly delaying the distribution distributing proposes to take the following new steps on a date prior to the distribution corp1 and controlled will enter into a a credit facility under which controlled will borrow plr-156443-01 approximately b from corp1 the loan the loan will have i a non-renewable term of a ii an arm’s length interest rate and iii other terms and conditions customary in similar arm’s length loans in addition controlled will have a right to repay the loan at any time without penalty and it will be required to repay the loan as soon as it enters into a new credit facility or otherwise refinances the loan with unrelated parties on a date prior to the distribution controlled will distribute b to distributing in connection with the contribution the cash distribution as soon as practicable but in no event later than the maturity_date of the loan controlled will enter into a new a credit facility or will otherwise refinance the loan with unrelated parties immediately thereafter controlled will use the proceeds of this refinancing to repay the loan distributing will use all of the proceeds of the cash distribution to pay down its existing debt including commercial paper and to buy back shares on the open market within a from the distribution date as described in the original ruling_request immediately after the contribution distributing will own all of the outstanding_stock of controlled in the distribution distributing will distribute to its shareholders stock constituting control of controlled within the meaning of sec_368 although controlled will borrow from an affiliate of distributing such borrowing will have a term of a and will likely be repaid prior to maturity therefore the loan will not constitute a security for tax purposes because the loan will not be a security distributing will not own any stock_or_securities of controlled after the distribution thus the proposed transaction will meet the control requirements of sec_355 sec_355 sec_368 and sec_368 of the code the distribution is not being used principally as a device for the distribution of earnings_and_profits of distributing controlled or any other relevant corporation the distribution serves a valid corporate business_purpose the irs accepted these purposes and issued a favorable prior ruling the need for the loan arises from a change in market conditions that is unrelated to the distribution and that was not foreseen by distributing at the time it submitted the original ruling_request the purpose of this loan is to provide temporary financing that would permit the distribution to proceed without further delay these factors establish the absence of a device to distribute the earnings_and_profits of distributing and controlled plr-156443-01 the following additional representations have been made in connection with the proposed transaction a the indebtedness owed by controlled to distributing after the distribution of the controlled stock will not constitute stock_or_securities b controlled will repay or otherwise refinance the loan with unrelated parties no later than a after the distribution of controlled’s stock likewise should it become possible for controlled to establish a multi year credit facility with third party lenders on the basis of corp1’s agreement to participate in such a credit facility i corp1 would expect to provide less than c of the credit facility and ii corp1 will cease to be a lender under such credit facility due to the refinancing of the credit facility to an unrelated party or corp1’s disposition of its interest in the obligation to an unrelated party no later than a after the distribution of controlled’s stock c all of the representations made by distributing contained in the ruling letter control number plr-132455-00 other than the representation concerning indebtedness remain true as of the current date based solely on the information submitted and on the representations set forth above we hold as follows no gain_or_loss will be recognized by distributing upon the cash distribution followed by the transfer of the proceeds of the cash distribution to creditors or shareholders of distributing no gain_or_loss will be recognized by distributing or corp1 as a result of making the loan or controlled’s repayment of the loan in accordance with its terms sec_361 the distribution will qualify as a transaction described in sec_355 and will not constitute a disqualified_distribution described in sec_355 no gain_or_loss will be recognized by distributing upon the distribution of all of its stock in controlled sec_361 no gain_or_loss will be recognized by and no amount will be included in the income of the distributing shareholders upon their receipt of controlled stock in the distribution sec_355 no opinion is expressed about the tax treatment of the proposed transaction under other provisions of the code and regulations or about the tax treatment of any conditions existing at the time of or effects resulting from the proposed transaction that are not directly covered by the above rulings 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 a copy of this letter plr-156443-01 should be attached to the federal_income_tax returns of the taxpayers involved for the taxable_year in which the transaction covered by this ruling letter is consummated 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 alfred c bishop jr branch chief branch office of associate chief_counsel corporate