t c memo united_states tax_court embroidery express llc petitioner v commissioner of internal revenue respondent brent l mcminn and lynette j mcminn petitioners v commissioner of internal revenue respondent docket nos filed date harry charles for petitioners jessica r nolen for respondent memorandum findings_of_fact and opinion paris judge these cases have been consolidated for trial briefing and opinion respondent determined deficiencies and accuracy-related_penalties under sec_6662 in the federal_income_tax of embroidery express llc embroidery express and brent l mcminn and lynette j mcminn for embroidery express respondent determined deficiencies of dollar_figure dollar_figure and dollar_figure for fiscal tax years ending date and respectively and accuracy-related_penalties of dollar_figure and dollar_figure for fiscal tax years ending date and respectively for mr and mrs mcminn respondent determined deficiencies of dollar_figure dollar_figure and dollar_figure for taxable years and respectively and accuracy-related_penalties of dollar_figure dollar_figure and dollar_figure for taxable years and years at issue respectively for embroidery express the issue for decision after concessions is whether embroidery express is entitled to depreciation and interest_expense deductions for vehicles subject_to the strict substantiation requirements of sec_274 all section references are to the internal_revenue_code code in effect for the years at issue and all rule references are to the tax_court rules_of_practice and procedure unless otherwise indicated the parties agree that embroidery express did not have additional dividend income of dollar_figure and dollar_figure for the fiscal tax years ending date and respectively and is not entitled to foreign tax_credits of dollar_figure and dollar_figure for the fiscal tax years ending date and respectively respondent concedes on brief that embroidery express had long-term gain of dollar_figure and ordinary gain of dollar_figure for the fiscal tax_year ending date from the sale of a bmw and is not liable for sec_6662 penalties for fiscal tax years ending date and for mr and mrs mcminn the issues for decision after concessions are whether they operated a cattle and deer activity and a resort activity with profit objectives are entitled to deduct business_expenses in amounts greater than respondent allowed are entitled to a loss deduction from the sale of a motor home are entitled to deduct charitable_contributions in amounts greater than respondent allowed and are liable for accuracy-related_penalties under sec_6662 all other issues are computational findings_of_fact some of the facts have been stipulated and are so found the stipulation of facts and the attached exhibits are incorporated herein by this reference petitioners resided in missouri and embroidery express had its principal_place_of_business in missouri at the time of filing their timely petitions the parties agree that mr and mrs mcminn received no dividend income during the years at issue did not have additional income of dollar_figure related to the sale of timber in and received additional income of dollar_figure in from a legal settlement respondent concedes on brief that petitioners conducted a trade_or_business activity related to their vehicle equipment rental business and do not have income adjustments related to that business for the years at issue and do not have additional income of dollar_figure and dollar_figure for and respectively flowing from anchor leasing inc when the court uses the term petitioners it is to refer to mr and mrs mcminn and not embroidery express before the years at issue mrs mcminn formed a successful and growing embroidery business and mr mcminn worked as a construction contractor as mrs mcminn’s business continued to grow mr mcminn left the construction business to build the embroidery business with his wife mr mcminn had a high school education and during the years at issue had assumed primary responsibility for petitioners’ embroidery business mrs mcminn educated their six children at home in the children k m dylan travis courtney kyle and bryan were and years old respectively during the years at issue petitioners claimed k m dylan and travis as dependents on their federal_income_tax returns in addition to the embroidery business petitioners had a deer hunting preserve and cattle activity and a resort activity petitioners had titled most of their assets in the name of b l m trust a joint revocable grantor_trust established by petitioners petitioners’ trust pursuant to rule a this court refers to minor children by their initials k m was petitioners’ only minor child at the time they filed their petition i petitioners’ activities a cattle and deer activity mr mcminn grew up working on a farm where his family raised cattle before the years at issue petitioners acquired acres of land that surrounded their residence to raise cattle however by the years at issue mr mcminn had decided that raising cattle was no longer profitable and he decided to use the land for a deer hunting preserve therefore during the years at issue petitioners no longer had any cattle petitioners did not have a written business plan or consult with experts for advice on developing a deer hunting preserve but instead relied on acquaintances for advice they had no experience in developing a deer hunting preserve they had a separate bank account for the deer hunting preserve and maintained records of the activity’s assets to deduct depreciation expenses as petitioners were considering the development of a deer hunting preserve they intended to continue deducting previously incurred depreciation expenses for assets related to the cattle activity petitioners did not market a deer hunting preserve nor did they purchase any deer they had previously built fences for the cattle activity but did not upgrade the fences for a deer hunting preserve to maintain a deer hunting preserve they were required to obtain a permit petitioners researched the permit issues with the missouri department of conservation and with game wardens but they ultimately decided not to pursue the deer hunting preserve because there was too much risk therefore they did not obtain the permit for the deer hunting preserve consequently petitioners did not open or operate the deer hunting preserve during the years at issue petitioners purchased several parcels of land for the cattle and deer activity petitioners purchased their first parcel of land for dollar_figure in they subsequently purchased additional parcels for the deer hunting preserve but the purchase prices of those parcels are not in the record nor is the total acreage of the property used for the activity however for the years at issue petitioners’ cost bases in assets for the cattle and deer activity including the land buildings and equipment totaled dollar_figure dollar_figure and dollar_figure respectively petitioners purchased the last parcel to be used for the deer hunting preserve approximately in after the years at issue petitioners listed the property for sale at dollar_figure million for the years at issue petitioners attached schedules f profit or loss from farming to their joint form sec_1040 u s individual_income_tax_return for the cattle and deer activity a 5-acre portion of their land was enrolled in a federal conservation program and most of the gross_receipts reported from the cattle and deer activity were received on the condition that petitioners keep that portion of the land clear of crops and harvesting for the years at issue petitioners derived total gross_income of dollar_figure from the activity on the schedules f petitioners claimed net losses of dollar_figure dollar_figure and dollar_figure respectively for the deer hunting preserve activity b resort activity in petitioners formed spring lake resort llc spring lake resort with the purpose of developing land as a resort they purchased the land and titled it in the name of petitioners’ trust the property includes a lake petitioners completed significant improvements on the land to create the resort before the formation of spring lake resort petitioners built a pavilion on the resort property that included restrooms and three campsites that could accommodate recreational vehicles after additional improvements the resort area included jet ski docks fish pads automatic fish feeders and fire pits a dam only a 5-acre portion of the land was enrolled in the federal conservation program the parties stipulated that the contract period was from date to date however the contract states that the period was from date to date accordingly the court will disregard the parties’ stipulation see 93_tc_181 disregarding a stipulation as inconsistent with a stipulated exhibit was rebuilt and a bridge was added petitioners spent at least dollar_figure on the improvements after the improvements were completed petitioners intended to rent campsites and market the property as a resort they planned to charge dollar_figure per day for use of the pavilion and dollar_figure per pound of fish caught from the lake a church occasionally rented the resort’s pavilion during the years at issue for dollar_figure per day for the years at issue petitioners did not pay for any advertising of the resort and did not publicly advertise access to the resort they did not have a written business plan or any expertise in the development of a resort they did not maintain separate books_and_records or a separate bank account for the resort however they did maintain depreciation schedules for tax reporting purposes they claimed depreciation_deductions for of the property values for and for and in order to account for personal_use for the years at issue they owned jet skis that they used on the lake in they built a new house by the lake for the years at issue petitioners reported a total gross_income of dollar_figure for spring lake resort and claimed net losses of dollar_figure dollar_figure and dollar_figure respectively ii petitioners’ embroidery business during the years at issue petitioners’ embroidery business was primarily involved in acquiring used embroidery machinery refurbishing it and selling it petitioners’ embroidery business involved significant travel because they purchased and sold embroidery machinery across the country and abroad they would purchase embroidery machinery and transport it back to their facilities in rural missouri to refurbish once petitioners had refurbished the machinery they would sell it and transport it for the buyer they had also acquired expertise in the transportation of large commercial embroidery machinery and would provide unrelated embroidery companies with specialized transportation services petitioners would purchase and refurbish approximately to embroidery machines a year each machine would cost between dollar_figure and dollar_figure the average machine that petitioners would purchase was to feet long and weighed approximately big_number pounds the business was very successful and petitioners averaged dollar_figure in sales per year to effect their business petitioners formed several related entities embroidery express advanced embroidery supply stitch it international inc stitch it and embroidery services inc embroidery services a embroidery express embroidery express was incorporated on date and was taxed as a subchapter_c_corporation embroidery express was organized primarily to rent and sell embroidery machines in mexico embroidery express owned three passenger automobiles throughout the years at issue on date embroidery express purchased a bmw for dollar_figure the bmw was used to transport clients from the airport and to entertain them while they were visiting petitioners’ office embroidery express purchased a toyota avalon for dollar_figure on date and subsequently sold it on date on date embroidery express purchased a toyota corolla for dollar_figure for the years at issue embroidery express claimed business_expense deductions for depreciation expenses and interest_expenses for the three passenger automobiles the court uses the term embroidery business to collectively refer to these entities petitioners’ office was in patton missouri which is approximately miles from the nearest commercial airport b advanced embroidery supply advanced embroidery supply was used to pay petitioners’ minor children petitioners reported the income and expenses of advanced embroidery supply on schedule c profit or loss from business sole_proprietorship attached to their federal_income_tax return for each of the years at issue for the years at issue petitioners claimed business_expense deductions for total wages paid to k m dylan travis and courtney of dollar_figure dollar_figure and dollar_figure respectively advanced embroidery supply issued forms w-2 wage and tax statement to the children for the wages they received the children reported the wages on their own tax returns using the forms w-2 during the years at issue advanced embroidery supply paid the children by the job with each child receiving a large payment at yearend that was based at least partially on the performance of petitioners’ embroidery business petitioners did not pay the children by the hour the children had access to the money that advanced embroidery supply paid them but they were required to save some money so that when each child reached the age of he or she could purchase a vehicle that cost at least dollar_figure each child was therefore able to purchase his or her own vehicle at the age of the children also were required to save some of the amounts paid as wages and tithe other_amounts and they could spend the remaining amounts as they chose some of the children also saved to purchase recreational vehicles the children completed a variety of tasks in k m who was then only was limited in her duties and advanced embroidery supply did not pay k m in in and k m would clean petitioners’ office the office included bathrooms a kitchen and a break room k m would also assist petitioners’ business with inventory and cleaning machines advanced embroidery supply paid k m wages in and in advanced embroidery supply paid k m dollar_figure dollar_figure dollar_figure and dollar_figure on february may july and december respectively for a total of dollar_figure petitioners claimed k m as a dependent on their federal_income_tax returns for the years at issue dylan and travis both assisted with the transportation of embroidery machines which required out-of-state trips moreover dylan and travis assisted petitioners’ employees with refurbishing embroidery machines dylan and travis also provided lawn care services for petitioners’ properties in dylan received wages of dollar_figure dollar_figure and dollar_figure on may august and december respectively for a total of dollar_figure in travis received wages from advanced embroidery supply of dollar_figure dollar_figure and dollar_figure on may august and december respectively for a total of dollar_figure in dylan received wages of dollar_figure dollar_figure dollar_figure dollar_figure and dollar_figure on february may june july and december respectively for a total of dollar_figure in travis received wages of dollar_figure dollar_figure dollar_figure dollar_figure and dollar_figure on february may june july and december respectively for a total of dollar_figure both travis and dylan were claimed as dependents on petitioners’ federal_income_tax returns for the years at issue before the years at issue courtney had completed her home schooling and during the years at issue she worked full time for petitioners courtney was a receptionist for their embroidery business sorting the mail answering calls and scheduling appointments she would also prepare documents for the transportation of embroidery machines in courtney received wages of dollar_figure dollar_figure dollar_figure and dollar_figure on april october december and december respectively for a total of dollar_figure advanced embroidery supply paid her wages of dollar_figure in and did not pay her wages in petitioners paid courtney on the basis of what they had paid former secretaries for the years at issue courtney was not claimed as a dependent on petitioners’ federal_income_tax return courtney married in date for advanced embroidery supply deducted dollar_figure of business_expenses for wages in contrast to what they had done for and petitioners did not provide a complete accounting of the wages paid to each child for but they introduced copies of checks written to the children dylan received checks for dollar_figure and dollar_figure dated may and october respectively travis received a check for dollar_figure dated december the parties stipulated that advanced embroidery supply paid courtney wages of dollar_figure in c stitch it stitch it was incorporated on date and was taxed as a subchapter_s_corporation petitioners used stitch it as their primary entity to purchase and sell embroidery machinery business travel and purchase of a motor home mr mcminn would travel to embroidery conventions and auctions to purchase and sell embroidery machinery petitioners would travel to approximately conventions a year petitioners purchased a motor home in the belief that it would be more convenient and cost effective than hotels to travel to the other checks written to the children were from entities other than advanced embroidery supply or were dated in the record does not include any checks to k m for petitioners also introduced bank deposit forms for the children but because those deposit forms do not show who paid the funds the court does not find them relevant to its analysis embroidery conventions petitioners would attach a trailer to the motor home to transport embroidery machines that they purchased or intended to sell at the conventions in addition to using the motor home for their embroidery business petitioners used it for personal_use and allocated expenses accordingly however after petitioners built the resort they used the motor home less for personal_use the motor home included two sets of motor home equipment stitch it valued the motor home and equipment at dollar_figure because stitch it did not use the motor home solely for business it calculated the motor home’s depreciable basis as dollar_figure petitioners claimed deductions for depreciation expenses with respect to the motor home on schedules k-1 partner’s share of income deductions credits etc attached to their federal_income_tax returns for the years at issue for the years at issue petitioners started using the motor home less frequently because their business had become more international and they could purchase and sell embroidery machinery through internet auctions the motor stitch it also claimed deductions for hotel expenses for the years at issue for the years at issue petitioners claimed that and respectively of the motor home’s use was personal home and equipment were therefore sold on date and stitch it claimed a loss deduction petitioners reported the loss on their federal_income_tax return vehicles stitch it used a chevy equinox a green chevy silverado a blue chevy silverado and a black chevy truck the three trucks were owned jointly by mr mcminn and stitch it mr mcminn was the primary driver of the chevy equinox stitch it calculated that the chevy equinox was used of the time for business and depreciated the vehicle accordingly the three trucks were full-size heavy-duty trucks that were used to move embroidery machinery petitioners purchased and sold approximately to embroidery machines a year the embroidery machines were generally moved at least twice because petitioners would purchase a machine move it to their facilities in rural missouri refurbish it sell it and deliver it for the buyer in addition to moving machines that stitch it purchased and sold petitioners would use their expertise to move commercial embroidery machines for unrelated embroidery companies for the years at issue petitioners claimed business_expense deductions for depreciation expenses with respect to the vehicles stitch it maintained logs of their trips in the trucks but did not produce those logs for this proceeding other expenses stitch it claimed various business_expense deductions for the years at issue including a home phone cellular phones property taxes repair and maintenance for the motor home airline tickets satellite television and lawn care stitch it claimed business_expense deductions for the years at issue for a phone in petitioners’ home mr mcminn testified that the business_purpose of the phone was for employees and clients to contact him after business hours stitch it claimed business_expense deductions for cellular phones for employees who traveled including mr mcminn stitch it also paid for cellular phones for mrs mcminn petitioners’ daughter courtney and a subcontractor stitch it claimed business_expense deductions for satellite television the satellite tv was available in petitioners’ office for clients to watch while waiting for appointments petitioners also had satellite television in their home d embroidery services embroidery services was incorporated on date and was taxed as a subchapter_s_corporation the primary purpose of embroidery services was to sell machines wholesale from stitch it to two customers in mexico embroidery services purchased a toyota tacoma truck on date kyle mcminn was the primary driver the toyota tacoma was used with a small trailer to transport embroidery machinery embroidery services allocated of the costs associated with the toyota tacoma for business use and the remaining for personal_use embroidery services claimed interest_expense deductions with respect to the toyota tacoma in addition to the primary purpose of embroidery services petitioners also purportedly used it as an entity to buy and sell land purchased in patton missouri petitioners acquired land in and in the name petitioners’ trust embroidery services deducted interest_expenses that petitioners claimed on schedules k-1 attached to their federal_income_tax returns for the years at issue petitioners contend that embroidery services owned the land and petitioners’ trust held the land for estate_planning purposes petitioners presented no documentary_evidence to prove that embroidery services had an ownership_interest in the land iii juice plus during the years at issue mrs mcminn operated juice plus juice plus was designed as a downline distribution network where products of national safety associates nsa were sold to distributors who would recruit associates the primary products sold were vitamins supplements and health foods petitioners operated juice plus out of their residence juice plus was a sole_proprietorship and petitioners reported the income and deducted the expenses of juice plus on schedules c during the years at issuedollar_figure to operate the business juice plus had a toyota sequoia a toyota highlander a computer and exercise equipment the toyota sequoia was acquired on date mrs mcminn used the vehicle to attend presentations on products and to sell nsa products petitioners did not keep a mileage log for the toyota sequoia but claimed depreciation_deductions on their return for the years at issue juice plus also claimed depreciation_deductions for the toyota highlander petitioners attached two separate schedules c for each of the years at issue labeled nsa - juice plus for mr mcminn and nsa - juice plus spouse for mrs mcminn in mrs mcminn operated juice plus as constructive health services llc petitioners purchased the computer on date the invoice is addressed to stitch it and includes the handwritten notation lynne-juice plus petitioners claimed depreciation expense deductions under sec_179 for the computer on the schedules c attached to their federal_income_tax returns on the basis of of the computer’s costdollar_figure petitioners purchased several pieces of exercise equipment throughout the years at issue on behalf of juice plus mr mcminn testified that the exercise equipment was used as a marketing tool for the nsa nutritional products and that clients paid to use the exercise equipment the exercise equipment was in a partitioned room in the office building used by petitioners’ embroidery business juice plus did not advertise or market the availability of a gym or exercise equipment mrs mcminn was not a personal trainer during the years at issue but she was studying to become one petitioners claimed depreciation expense deductions for the exercise equipment on their federal_income_tax returns for the years at issue on the basis of of the equipment’s value petitioners also purchased a second computer for juice plus on date and claimed depreciation expense deductions for that computer for and the expenses related to that computer do not appear to be at issue iv petitioners’ charitable giving petitioners were successful entrepreneurs and would tithe regularly for the years at issue petitioners claimed charitable_contribution deductions for these donations on schedules a itemized_deductions attached to their federal_income_tax returns petitioners donated dollar_figure and dollar_figure to faith tabernacle world outreach in and respectively in and petitioners donated a total of dollar_figure to youth with a mission in petitioners donated dollar_figure to the church of corinth in petitioners donated dollar_figure to faith family worship center petitioners claimed charitable_contribution deductions with respect to these donations in petitioners donated dollar_figure to kayit’s children’s home kayit’s children’s home is based in mexico and is not organized as a charity in the united_states petitioners claimed a charitable_contribution_deduction on their federal_income_tax return for the donation to kayit’s children’s home petitioners donated to children’s research foundation crf in and crf is a partner of the juice plus program and donations to crf would appear on forms 1099-misc miscellaneous income that petitioners received in petitioners paid crf dollar_figure dollar_figure and dollar_figure in petitioners paid crf dollar_figure and dollar_figure petitioners claimed charitable_contribution deductions for the donations paid to crf in and for the years at issue petitioners donated dollar_figure dollar_figure and dollar_figure respectively to r l montgomery ministries r l montgomery ministries is not a registered tax-exempt_organization in the united_states r l montgomery is the purported operator of r l montgomery ministries and the purported agent of ranch house ministries petitioners claimed the amounts donated to r l montgomery ministries as charitable_contribution deductions for the years at issue in petitioners donated office equipment and office furniture to faith family worship center on their federal_income_tax return they claimed charitable_contribution deductions for the donations they valued the office equipment at dollar_figure and the office furniture at dollar_figure they described the office equipment and office furniture as office products computers and office the forms are not part of the record but the parties stipulated that petitioners received the forms from crf petitioners did not explain with specificity the juice plus program but from the record the court discerns that nsa would issue petitioners a form_1099 for products sold during a year and that form included the payments to crf furniture on a form_8283 noncash charitable_contributions attached to their return they attached a contemporaneous written acknowledgment from faith family worship center that generically described the property they did not have the office equipment or office furniture independently valued petitioners also donated a chevy suburban to faith family worship center in they valued it at dollar_figure by using the kelly blue_book web site they attached the kelly blue_book valuation to their federal_income_tax return they claimed a charitable_contribution_deduction of dollar_figure for the donation and reported receiving dollar_figure cash from faith family worship center petitioners reported a gain of dollar_figure on the disposition of the vehicle for petitioners claimed charitable_contribution deductions that flowed through from their entities embroidery services and stitch it of dollar_figure and dollar_figure respectively stitch it claimed dollar_figure of the dollar_figure for a donation to r l montgomery in mr mcminn traveled to jamaica with the pastor of his church to visit church missions and find a location to build a children’s home petitioners claimed dollar_figure as a charitable_contribution_deduction for unreimbursed travel_expenses with respect to the trip petitioners did not obtain a contemporaneous written acknowledgment from the church or any other qualified_organization for the trip v preparation of petitioners’ tax returns petitioners hired a full-time bookkeeper to maintain records for their activities petitioners also hired a licensed certified_public_accountant cpa to prepare their federal_income_tax returns for the years at issue the cpa also prepared all of petitioners’ entities’ returns including the tax returns for embroidery express for the fiscal tax years at issue the cpa had years of experience and had prepared petitioners’ tax returns for years to prepare petitioners’ tax returns the cpa would receive copies of petitioners’ records from the bookkeeper review the records and make corresponding adjustments in the financial statements because petitioners owned several vehicles the cpa would review reports from petitioners’ bookkeeper that stated the ratio of business use to personal_use for a particular vehicle determine that the vehicle was used entirely for business use or discuss the use of the vehicle with petitioners while preparing petitioners’ tax returns the cpa would also meet with petitioners to discuss issues on the returns and review petitioners’ documentation the cpa credibly testified that the process of preparing petitioners’ tax returns was extensive and that petitioners had provided the cpa with all the necessary documentation to prepare the returns in addition to preparing the tax returns the cpa acted as a business adviser to petitioners vi respondent’s notices of deficiency respondent issued embroidery express and petitioners timely notices of deficiency on date and both timely petitioned this court in petitioners’ notice_of_deficiency respondent determined inter alia that they had not operated their cattle and deer activity and their resort activity with profit objectives had not properly substantiated certain business_expenses were not entitled to a loss deduction from the sale of their motor home had not properly substantiated certain charitable_contributions and were liable for accuracy-related_penalties under sec_6662 in embroidery express’ notice_of_deficiency respondent determined inter alia that it had not properly substantiated depreciation expenses and interest_expenses with respect to its three passenger automobiles generally the period of limitations on assessment is three years after the return was filed see sec_6501 the notices of deficiency were issued after the expiration of the general periods of limitations for the years at issue the parties did not offer into evidence form sec_872 consent to extend the time to assess tax extending the period of limitations on assessment see sec_6501 however petitioners do not raise the period of limitations or the validity of the notices of deficiency as an issue because petitioners timely filed a petition we have juris- diction see sec_6213 sec_6214 opinion generally the commissioner’s determination set forth in a notice_of_deficiency is presumed correct and the taxpayer bears the burden of showing the determination is in error rule a 290_us_111 sec_7491 shifts the burden_of_proof to the commissioner if the taxpayer produces credible_evidence on any factual issues and satisfies the requirements of sec_7491 credible_evidence is the quality of evidence which after critical analysis the court would find sufficient upon which to base a decision on the issue if no contrary evidence were submitted without regard to the judicial presumption of irs correctness 116_tc_438 quoting h_r conf rept no pincite 1998_3_cb_747 petitioners have not shown that they meet the requirements of sec_7491 nor established their compliance with the substantiation and recordkeeping requirements see sec_7491 and b petitioners therefore bear the burden_of_proof sec_7491 requires a taxpayer to substantiate any item and maintain all records required under the code i profit objective of petitioners’ cattle and deer activity and resort activity sec_183 generally limits the amount of expenses that a taxpayer may deduct with respect to an activity_not_engaged_in_for_profit to the deductions provided in sec_183 sec_183 provides that deductions that would be allowable without regard to whether such activity is engaged in for profit are to be allowed sec_183 further provides that deductions which would be allowable only if such activity is engaged in for profit are to be allowed but only to the extent that the gross_income derived from such activity for the taxable_year exceeds the deductions under sec_183 an activity is not engaged in for profit if it is an activity other than one with respect to which deductions are allowable for the taxable_year under sec_162 or sec_212 or sec_183 in determining whether an activity is engaged in for profit for purposes of sec_183 the taxpayer must show that he or she engaged in the activity with an actual and honest objective of making a profit see eg 544_f3d_900 8th cir aff’g tcmemo_2007_309 91_tc_371 78_tc_642 aff’d without published opinion 702_f2d_1205 d c cir although the taxpayer’s expectation of a profit need not be reasonable he or she must have a good-faith objective of making a profit see eg keating v commissioner f 3d pincite dreicer v commissioner t c pincite 70_tc_715 aff’d on another issue 615_f2d_578 2d cir sec_1_183-2 income_tax regs the taxpayer bears the burden of proving the requisite intent see eg 72_tc_411 aff’d without published opinion 647_f2d_170 9th cir 59_tc_791 aff’d 495_f2d_1079 6th cir see also dreicer v commissioner t c pincite whether a taxpayer engaged in an activity with the requisite profit objective is determined from all the facts and circumstances e g hulter v commissioner t c pincite 88_tc_464 golanty v commissioner t c pincite sec_1_183-2 and b income_tax regs more weight is given to objective facts than to the taxpayer’s mere statement of his or her intent e g dreicer v commissioner t c pincite sec_1_183-2 income_tax regs sec_1_183-2 income_tax regs lists the following factors that should normally be taken into account in determining whether an activity is engaged in for profit the manner in which the taxpayer carried on the activity the expertise of the taxpayer or his advisors the time and effort expended by the taxpayer in carrying on the activity the expectation that assets used in the activity may appreciate in value the success of the taxpayer in carrying on other similar or dissimilar activities the taxpayer’s history of income or loss with respect to the activity the amount of occasional profit if any which is earned the financial status of the taxpayer and the extent to which elements of personal pleasure or recreation are involved the list of factors in the regulations is not exclusive and other factors may be considered in determining whether an activity is engaged in for profit no single factor is dispositive e g golanty v commissioner t c pincite sec_1_183-2 income_tax regs the determination of a profit objective does not depend on counting the number of factors that support each party’s position sec_1_183-2 income_tax regs a cattle and deer activity respondent disallowed net_loss deductions of dollar_figure dollar_figure and dollar_figure for the years at issue respectively because petitioners did not prove that the cattle and deer activity was operated for profit under sec_183 the court will analyze petitioners’ cattle and deer activity using the factors listed in sec_1_183-2 income_tax regs manner in which the taxpayer carries on activity the fact that the taxpayer carries on an activity in a businesslike manner may indicate a profit objective sec_1_183-2 income_tax regs factors to consider that may indicate a businesslike manner are whether the taxpayer a maintained complete and accurate books_and_records for the activity b conducted the activity in a manner substantially_similar to comparable activities that were profitable c changed operating procedures adopted new techniques or abandoned unprofitable methods in a manner consistent with an intent to improve profitability and d prepared a business plan id petitioners did not prepare a business plan or advertise the deer hunting preserve petitioners did not keep cattle or deer during the years at issue petitioners had purchased property used in the cattle and deer activity from to and knew by the years at issue that raising cattle was no longer a profitable venture they also had determined that the deer hunting preserve involved too much risk to pursue petitioners provided no evidence that during the years at issue they attempted to change course to make the activity profitable petitioners kept a bank account for the activity and tracked depreciation expenses but on the instant record the court cannot conclude that petitioners carried on the activity in a businesslike manner accordingly this factor favors respondent expertise of the taxpayer the taxpayer’s expertise research and extensive study of an activity as well as his or her consultation with experts may indicate a profit_motive mathis v commissioner tcmemo_2013_294 at sec_1_183-2 income_tax regs petitioners did not have any expertise in developing a deer hunting preserve and did not hire an expert to advise them instead they relied on acquaintances for informal advice mr mcminn had experience raising cattle while growing up but that experience taught him that by the years at issue raising cattle was not a profitable business accordingly this factor favors respondent time and effort allocated to activity the taxpayer’s devotion of much of his or her personal time and effort to carrying on an activity may indicate a profit_motive particularly if the activity does not involve substantial personal or recreational aspects sec_1_183-2 income_tax regs the time and effort spent on an activity that has substantial personal and recreational aspects may be due to a taxpayer’s enjoyment of the activity rather than the taxpayer’s objective of making a profit rinehart v commissioner tcmemo_1998_205 slip op pincite petitioners did not provide any details about the amount of time spent on the cattle and deer activity their embroidery business was successful during the years at issue and the court finds that they spent most of their time on that business and they did not spend significant time on developing the deer hunting preserve neither did they ever obtain the required permit to carry out the deer hunting preserve accordingly this factor favors respondent the expectation that assets used in the activity may appreciate in value an expectation that assets used in the activity may appreciate in value may indicate a profit objective even if the taxpayer derives no profit from current operations sec_1_183-2 income_tax regs however the court may infer a profit objective from such expected appreciation only when the appreciation exceeds operating_expenses and would be sufficient to recoup the accumulated losses of prior years foster v commissioner tcmemo_2012_207 slip op pincite see golanty v commissioner t c pincite petitioners purchased the first parcel of land for the cattle and deer activity for dollar_figure and after the years at issue the property was listed for sale at dollar_figure million but petitioners had not sold it although the record does not indicate the purchase_price of the other parcels petitioners’ tax returns show that the total cost_basis in the assets for the activity did not exceed dollar_figure petitioners did not testify that there was an expectation that the land would appreciate however the court may infer this when the appreciation exceeds the losses accumulated in prior years because petitioners’ property substantially appreciated in excess of the losses this factor favors petitioners success of taxpayer in carrying on other related businesses sec_1_183-2 income_tax regs provides the fact that the taxpayer has engaged in similar activities in the past and converted them from unprofitable to profitable enterprises may indicate that he is engaged in the present activity for profit even though the activity is presently unprofitable petitioners did not prove that they have had success in similar activities they presented no evidence that they have ever operated a successful deer hunting preserve they are successful entrepreneurs and had developed a successful embroidery machine business but failed to prove that they were successful in a business related to a deer hunting preserve or raising cattle accordingly this factors favors respondent the taxpayer’s history of income or loss with respect to the activity and the amount of occasional profit if any18 a history of continued losses with respect to an activity may indicate that the taxpayer lacked a profit objective see id subpara the amounts of profits the court considers together the two factors in the heading in relation to the amounts of losses_incurred may provide evidence of the taxpayer’s intent see id subpara although a series of losses during the initial or startup stage of an activity may not necessarily indicate a lack of profit_motive a record of large losses over many years is persuasive evidence that the taxpayer did not have such a motive golanty v commissioner t c pincite petitioners’ cattle and deer activity had net losses of dollar_figure dollar_figure and dollar_figure respectively for the years at issue petitioners enrolled acres of the land in a federal conservation program and most of the gross_receipts that they reported for the cattle and deer activity were received from that program on the condition that petitioners keep the land clear of crops and harvesting petitioners had a total gross_income during the years at issue of dollar_figure accordingly these factors favor respondent in 769_f3d_616 8th cir rev’g and remanding 140_tc_350 the u s court_of_appeals for the eighth circuit to which an appeal in this case would lie absent a stipulation to the contrary see sec_7482 held that conservation reserve program payments were not subject_to self-employment_tax when the taxpayer did not actively operate a farming_business the parties did not dispute petitioners’ self-employment_tax liability with respect to the cattle and deer activity petitioners reported self- employment_tax for only with respect to the juice plus business addition- ally although the activities on the acres of land enrolled in the conservation program may have been conducted with a profit objective petitioners did not argue that this was a separate activity in fact petitioners reported income and expenses for the entire property on the same schedules f for the years at issue accordingly the court considers the activity in its entirety the financial status of the taxpayer substantial income from sources other than the activity may indicate that the activity is not engaged in for profit sec_1_183-2 income_tax regs a taxpayer with substantial income unrelated to the activity can more readily afford a hobby foster v commissioner slip op pincite this is particularly true if the losses from the activity might generate substantial tax benefits golanty v commissioner t c pincite because petitioners had substantial income from their embroidery business they could afford a hobby with losses that offset other income accordingly this factor favors respondent whether elements of personal pleasure or recreation are involved the presence of personal motives and recreational elements in carrying on an activity may indicate that the activity is not engaged in for profit sec_1 b income_tax regs petitioners’ residence was surrounded by the land used for the cattle and deer activity and they were able to use it for personal enjoyment and recreation accordingly this factor favors respondent conclusion on the record before us the court concludes that petitioners have failed to prove that they engaged in the cattle and deer activity with the objective of making a profit although the land used for the activity appreciated substantially petitioners spent little time on the activity had no expertise in the activity received little income compared to the amounts of the losses had the resources to incur the losses and received personal benefits from the activity accordingly respondent’s determination is sustained b resort activity respondent disallowed petitioners’ claimed losses for their resort activity spring lake resort for the years at issue of dollar_figure dollar_figure and dollar_figure respectively because petitioners failed to prove that they engaged in the activity with a profit objective after careful consideration of the factors in sec_1 b income_tax regs the court finds that petitioners did not engage in the resort activity with the objective of making a profit the court’s analysis follows the same analysis used for the cattle and deer activity above see supra part i a manner in which the taxpayer carries on activity petitioners did not have a written business plan for the resort activity and petitioners did not conduct a financial analysis of the activity they did not maintain separate books_and_records or a separate bank account for the resort activity however they maintained depreciation schedules for tax reporting purposes they did not publicly advertise the resort activity and there were no road signs indicating the existence of a resort accordingly this factor favors respondent expertise of the taxpayer petitioners did not have any expertise in developing a resort and did not hire an expert to advise them accordingly this factor favors respondent time and effort allocated to activity petitioners did not provide any evidence about the amount of time spent developing the resort petitioners had a successful embroidery business and the court finds that their time was spent primarily on that business accordingly this factor favors respondent the expectation that assets used in the activity may appreciate in value petitioners did not prove that they had an expectation that the assets used for the resort activity would appreciate neither did they prove that the assets did appreciate but presumably the property did appreciate because petitioners took several steps to improve it spending approximately dollar_figure on improvements however the appreciation also benefited petitioners personally because their new residence was near the resort’s lake and their trust owned the property accordingly this factor is neutral at best success of taxpayer in carrying on other related businesses petitioners did not prove that they had been successful in similar activities they presented no evidence that they had ever operated a successful resort they were successful entrepreneurs who had created a successful embroidery business but they failed to prove that they were successful in businesses related to a resort accordingly this factor favors respondent the taxpayer’s history of income or loss with respect to the activity and the amount of occasional profits if any the resort activity showed a loss for each of the years at issue petitioners contend that the resort made a profit in later years from renting out the property for weddings but they provided no documentary_evidence to prove this claim additionally for the years at issue the resort had minimal gross_receipts totaling dollar_figure accordingly these factors favor respondent the financial status of the taxpayer petitioners have substantial income from their embroidery business but only minimal income from the resort activity because their embroidery business had such substantial income they could afford a hobby with losses that offset some of their other income accordingly this factor favors respondent whether elements of personal pleasure or recreation are involved petitioners renovated the resort property extensively by adding a pavilion with three campsites restroom facilities jet ports decks docks fire rings a bridge fish pads auto fish feeders and a dam they built a personal_residence near the resort’s lake they used the lake for personal pleasure and owned jet skis to use on the lake additionally they used their motor home less because the family could use the resort thus the resort had significant elements of personal pleasure and recreation accordingly this factor favors respondent conclusion on the record before us the court concludes that petitioners have not proved that they engaged in the resort activity with the objective of making a profit although the land used for the activity may have appreciated petitioners spent little time on the activity had no expertise in the activity received little income compared to the amount of the losses had the resources to incur the losses and received significant personal pleasure and recreation from the activity accordingly respondent’s determination with respect to the resort activity is sustained ii business_expense deductions deductions are a matter of legislative grace and the taxpayer bears the burden of proving entitlement to any deduction claimed on a return 503_us_79 292_us_435 sec_162 permits a deduction for ordinary and necessary expenses paid_or_incurred during the taxable_year in carrying on any trade_or_business welch v helvering u s pincite an expense is ordinary if it is customary or usual within a particular trade business or industry 308_us_488 an expense is necessary if it is appropriate and helpful for the business 320_us_467 additionally for a deduction under sec_162 the expenditure must be directly connected with or pertaining to the taxpayer’s trade_or_business sec_1_162-1 income_tax regs no deduction is allowed for personal living or family_expenses sec_262 with respect to the deductibility of salaries sec_162 requires not only that the expense be ordinary and necessary but also that the amount be reasonable for personal services actually rendered to the payer sec_162 emphasis added when an amount deducted as wages involves a familial relationship this court closely scrutinizes the transaction to determine whether there is a bona_fide employer-employee relationship and whether payments were made for services actually performed for the business see 48_tc_439 this is particularly true when the deduction is attributable to payments from a parent to the parent’s child a normal supposition when payments are made to dependent_children or when items are purchased by a parent for dependant children is that the money or items are in the nature of support and nondeductible see sec_262 holtz v commissioner tcmemo_1982_436 44_tcm_640 however a payment made to minor children by a parent for services rendered in connection with the parent’s trade_or_business might very well qualify as a business_expense deduction see denman v commissioner t c pincite in addition to the general business_expense deduction rule_of sec_162 sec_167 permits a deduction for depreciation from the exhaustion and wear_and_tear of property used in a trade_or_business alternatively a taxpayer may elect to treat the cost of certain property used in an active trade_or_business as a current_expense in the year that property is placed_in_service sec_179 d sec_163 permits a deduction for all interest_paid or accrued within the taxable_year on indebtedness sec_163 however provides that in the case of a taxpayer other than a corporation no deduction is allowed for personal_interest investment_interest is not included in the definition of personal_interest see sec_163 investment_interest generally means any interest which is paid_or_accrued on indebtedness properly allocable to property_held_for_investment sec_163 for noncorporate taxpayers investment_interest is deductible only to the extent of the taxpayer’s net_investment_income for the taxable_year sec_163 a taxpayer ordinarily must maintain adequate_records to substantiate the amounts of income and entitlement to any deductions claimed see sec_6001 sec_1_6001-1 income_tax regs if however a taxpayer with inadequate or nonexistent business records is able to prove that it paid_or_incurred a deductible business_expense but does not prove the amount of the expense the court may estimate the amount allowable in some circumstances cohan_rule see 39_f2d_540 2d cir the taxpayer must introduce sufficient evidence to permit the court to conclude that the taxpayer paid_or_incurred a deductible expense in at least the amount allowed see 245_f2d_559 5th cir vanicek v commissioner t c in estimating the amount allowable the court bears heavily upon the taxpayer who failed to maintain required records and to substantiate expenses as the code requires see cohan v commissioner f 2d pincite under sec_274 a taxpayer must satisfy strict substantiation requirements before a deduction is allowed for certain items to deduct expenses related to travel meals and entertainment gifts or listed_property the taxpayer must substantiate by adequate_records or by sufficient evidence corroborating the taxpayer’s own statement the amount of the expense eg mileage the time and place of the expense the purpose of the expense and in the case of entertainment the business relationship between the taxpayer and the person being entertained sec_274 see 112_tc_183 listed_property includes passenger automobiles property used as a means of transportation_property of a type generally used for purposes of entertainment recreation or amusement computers and any other_property of a type specified by the secretary by regulations sec_280f listed_property does not include property used as a means of transportation when substantially_all of the use of the property is in a trade_or_business of providing to unrelated persons services consisting of the transportation of persons or property for compensation or hire see sec_280f another exception to the strict substantiation requirements of sec_274 is available for a qualified_nonpersonal_use_vehicle which is any vehicle which by reason of its nature is not likely to be used more than a de_minimis amount for personal purposes sec_274 i although the cohan_rule is not applicable to expenses under sec_274 see 50_tc_823 aff’d per curiam 412_f2d_201 2d cir a taxpayer may substantiate an expense under sec_274 by his own statement whether written or oral containing specific information in detail about them and by other corroborative evidence sufficient to establish them sec_1_274-5t temporary income_tax regs fed reg date a embroidery express respondent disallowed deductions that embroidery express claimed for depreciation expenses of dollar_figure dollar_figure and dollar_figure for fiscal years ending date through respectively and interest_expenses of dollar_figure dollar_figure and dollar_figure for fiscal years ending date through respectively arising from three passenger automobiles the court must therefore determine whether embroidery express is entitled to the claimed deductions the three passenger automobiles are a bmw a toyota avalon and a toyota corolla the passenger automobiles are listed_property see sec_280f and thus embroidery express must satisfy the strict substantiation requirements of sec_274 to deduct the expenses embroidery express did not produce a mileage log for the vehicles mr mcminn vaguely testified that he used the bmw to pick up clients from the airport and entertain them although the court finds mr mcminn’s testimony credible with respect to the bmw his explanation is insufficient to satisfy the strict substantiation requirements under sec_274 mr mcminn did not explain the uses for the toyota avalon or toyota corolla therefore respondent’s determination is sustained b advanced embroidery supply respondent disallowed petitioners’ deductions for wages that advanced embroidery supply paid to their children k m travis dylan and courtney advanced embroidery supply paid petitioners’ children dollar_figure dollar_figure and dollar_figure during the years at issue respectively the children reported the wages on their own tax returns using forms w-2 that advanced embroidery supply petitioners’ other children also received wages from petitioners’ other entities courtney also received wages from embroidery services respondent did not disallow deductions for these wages issued the court must determine whether petitioners are entitled to the business_expense deductions for the children’s wages as stated above sec_162 requires not only that the wage expenses be ordinary and necessary but also that the amounts be reasonable for personal services actually rendered to the payer ie advanced embroidery supply sec_162 emphasis added reasonable_compensation is determined by comparing the compensation paid to an employee with the value of the services performed in return haffner’s serv stations inc v commissioner tcmemo_2002_38 slip op pincite aff’d 326_f3d_1 1st cir when an amount deducted as wages involves a familial relationship as it does in this case this court closely scrutinizes the transaction to determine whether there is a bona_fide employer-employee relationship and whether payments were made for services actually performed for the business see denman v commissioner t c pincite the court will therefore closely scrutinize the wages paid to the children and determine whether those wages were reasonable courtney had completed school and was a full-time_employee during the years at issue courtney was in older than the other children and not a dependent of petitioners k m dylan and travis were still in school and could work only after school because the court finds that the arrangement with courtney was different from arrangements with the other children the court will analyze the wages paid to courtney separately from those paid to the other children k m dylan and travis mr mcminn credibly testified about the work the children performed k m cleaned the office of petitioners’ embroidery business assisted with inventory and helped clean embroidery machines dylan and travis assisted with repairs to embroidery machines delivery of the machines and lawn care although petitioners paid their children by the job they failed to maintain adequate_records to substantiate the expenses petitioners did not present any documentary_evidence proving the nature or frequency of the jobs the children completed throughout the years at issue petitioners would have presumably maintained such records if the amounts paid at yearend were for jobs that the children had completed during that year however because the court finds that petitioners’ children performed some work for petitioners’ embroidery business respondent objects on the grounds of relevance to the admission of undated timecards that petitioners seek to have admitted into evidence petitioners did not argue on brief why the timecards are relevant nor did they rely on them in their argument the timecards do not describe the work that the children completed nor do they state when the work was completed the court does not rely on the timecards in its analysis and will therefore overrule respondent’s objection as moot but petitioners failed to maintain adequate_records that prove the amount of work the children completed the court will attempt to determine whether there is a sufficient basis to estimate the amount of reasonable_compensation and allow deductions accordingly see cohan v commissioner f 2d pincite mr mcminn and three of petitioners’ children testified regarding the children’s work some testimony about the children’s work was corroborated by an unrelated party the court finds this testimony credible to establish that the children actually worked for petitioners’ embroidery business and that the children were paid_by the job on the basis of the record and after considering each child’s education skills and available time for their ages the court finds that the amounts paid throughout the first months of the year were reasonable for the work each child completed for petitioners’ embroidery business petitioners are therefore allowed to deduct those payments the court’s further inquiry will focus on payments to the children in december of each year dylan and travis also provided significant lawn care services that took at least two days a week petitioners failed to prove whether the embroidery business required lawn services or whether the lawn services were for petitioners’ other activities the court has already found that petitioners’ other activities were not operated for profit see supra part i and therefore deductions for wages would be limited see sec_183 because petitioners are allowed to deduct only minimal wages for dylan and travis and the two children provided services other than lawn care the court is satisfied that the allowed amounts were for services actually provided to petitioners’ embroidery business the children were generally paid small amounts throughout the year for the jobs that they completed and bonuses in december of each year petitioners placed little economic value on the jobs their children completed throughout the year but paid them significant bonuses at yearend partially on the basis of the performance of petitioners’ embroidery business although mr mcminn testified that he paid the children on the basis of what he would pay an unrelated party petitioners introduced no evidence proving that an unrelated party would receive a similar bonus for the same work the bonuses were the largest part of the children’s wages and were paid at yearend after petitioners had the opportunity to determine the financial status of the business the court is therefore not convinced that unrelated parties would act similarly although the children had access to the money that they received they were required to save certain amounts and tithe other_amounts and they were allowed to spend some amounts k m dylan and travis were also claimed as petitioners’ dependents the record thus supports a finding that the bonuses were not typical of a bona_fide employer-employee relationship but were partially for familial support of petitioners’ dependent_children however because the court is convinced that the children did work for petitioners’ embroidery business and the wages paid throughout the year adequately represent each child’s services petitioners are allowed to deduct the average of the child’s other monthly payments in that year and the remaining balance of the december payments is disalloweddollar_figure petitioners did not provide an itemized accounting of the wages paid or the dates those wages were paid to the children in petitioners introduced copies of two checks to dylan and one check to travis for petitioners are allowed to deduct the payments to dylan of dollar_figure and dollar_figure on may and date respectively the payment to travis was for dollar_figure on date this yearend payment is not deductible for the same reasons addressed above and the deduction will be limited to the average allowed deduction for travis’ wages in and the remaining deductions for wage expenses for are petitioners made bonus payments to the children date and deductions for these payments are disallowed but for an average monthly payment amount determined for each child petitioners are allowed to deduct dollar_figure payments in the first months to k m in dollar_figure dollar_figure dollar_figure of the dollar_figure yearend payment to k m in for dylan petitioners are allowed to deduct dollar_figure for and dollar_figure for of the yearend payments for travis petitioners are allowed to deduct dollar_figure for and dollar_figure for of the yearend payments travis completed similar work for each of the years at issue because the work during is substantially_similar to the work in and petitioners are entitled to deduct the average of the allowed wage deductions of and for the court has allowed total wage deductions of dollar_figure for and dollar_figure for petitioners are therefore allowed to deduct dollar_figure for continued disallowed because petitioners did not prove that they incurred any additional wage expensesdollar_figure courtney before the years at issue courtney had completed her home schooling and during the years at issue she worked full-time for petitioners she acted as a receptionist for petitioners’ embroidery business sorting the mail answering calls and scheduling appointments she would also prepare documents for the transportation of embroidery machines in courtney received wages of dollar_figure dollar_figure dollar_figure and dollar_figure on april october december and december respectively for a total of dollar_figure advanced embroidery supply paid her wages of dollar_figure in and did not pay her wages in the court finds that courtney was petitioners’ full-time_employee although petitioners paid her in an unusual fashion courtney and mr mcminn both credibly testified regarding her duties for petitioners’ embroidery business petitioners paid courtney on the basis of what they had paid former secretaries she was not claimed as a dependent of petitioners for any of the years at issue and continued the court also allows dollar_figure of wage deductions for courtney in see infra part ii b she married in for the amount of work courtney completed as a full- time employee the wages paid were not unreasonable petitioners may therefore claim business_expense deductions for wages paid to courtney c stitch it respondent disallowed depreciation expense deductions that stitch it claimed because petitioners failed to properly substantiate the deductions for a motor home motor home equipment a chevy equinox a green chevy silverado a blue chevy silverado and a black chevy truck respondent also disallowed deductions for home and cell phones property taxes motor home repair and maintenance airline tickets satellite tv and lawn care as personal expenses the court must determine whether petitioners are entitled to the deductions depreciation_deductions respondent disallowed depreciation_deductions that petitioners reported on schedules k-1 from stitch it attached to their federal_income_tax returns for the years at issue stitch it claimed depreciation_deductions for a motor home and equipment a chevy equinox a green chevy silverado a blue chevy silverado and a black chevy truck all of the vehicles are listed_property see sec_280f and ii and subject_to the strict substantiation requirements of sec_274 petitioners contend that the vehicles are not listed_property because the vehicles were substantially used in a trade_or_business of providing to unrelated persons services consisting of the transportation of persons or property for compensation or hire see sec_280f the court considers whether each of the vehicles meets this exception below the motor home and equipment were used while petitioners were traveling to approximately conventions and auctions annually to buy and sell embroidery machines petitioners would attach a trailer to the motor home to transport the embroidery machines that they purchased or intended to sell the motor home was also used for personal recreation although mr mcminn testified that the motor home was used less for personal recreation after the resort was built petitioners’ business use of the motor home appears to be minimal because petitioners attended only conventions a year and did not provide any documentation as to location or dates ie convention or booth registration therefore the record does not allow the court to conclude that the motor home and equipment were substantially used in petitioners’ business for providing to unrelated persons services consisting of transportation of persons or property for compensation or hire see sec_280f accordingly the motor home and equipment are listed_property see sec_280f petitioners did not provide a mileage log for the motor home and have provided no evidence that complies with the substantiation requirements of sec_274 mr mcminn testified generally about the number of conventions he attended and some of the conventions’ locations but his testimony alone is insufficient to substantiate the depreciation expenses respondent’s determination with respect to the motor home is therefore sustained the chevy equinox was driven primarily by mr mcminn petitioners did not present any evidence about the use of this vehicle and did not provide any evidence that satisfies the requirements of sec_274 because petitioners presented no evidence of the vehicle’s use it is listed_property and subject_to the strict substantiation requirements of sec_274 accordingly respondent’s determination is sustained the three trucks were used to transport embroidery machines petitioners transported approximately to embroidery machines a year petitioners would purchase an embroidery machine and transport it to their warehouse to refurbish it after it was refurbished they would sell it and transport it for the buyer they would also provide transportation services to embroidery companies a client of petitioners testified that he hired petitioners to transport his embroidery machines petitioners’ children transported the embroidery machines and had their own personal vehicles so they did not need to drive the trucks for personal_use the court therefore finds that the three trucks meet the sec_280f exception and are not listed_property because the three trucks are not listed_property the court may estimate the expense that petitioners incurred see cohan v commissioner f 2d pincite- the court finds that petitioners presented sufficient evidence for the court to determine that the claimed depreciation_deductions were reasonable and petitioners actually incurred the expenses petitioners’ embroidery business was very successful and required the movement of hundreds of embroidery machines the expenses of three trucks are reasonable for the size of petitioners’ business although mr mcminn testified that mileage logs were created those logs were not offered into evidence however the court heard testimony from mr mcminn four of petitioners’ children and an unrelated client that hired petitioners to transport embroidery machines the court finds that testimony credible to establish that the trucks were used in the embroidery business accordingly petitioners are entitled to deduct the depreciation expenses with respect to the three trucks personal expenses personal expenses are generally not deductible see sec_262 respondent determined that stitch it deducted expenses for home and cellular phones property taxes motor home repair and maintenance airline tickets satellite tv and lawn care as business_expenses that are actually personal expenses the court must determine whether petitioners are entitled to the deductions cellular phones airline tickets and motor homes are all subject_to the strict substantiation requirements of sec_274 see sec_274 sec_280f the court considers whether petitioners complied with the requirements of sec_274 respondent disallowed business_expense deductions for cellular phone expenses of mrs mcminn petitioners’ daughter courtney and a subcontractor petitioners did not produce logs showing personal and business use of the cellular phones because cellular phones are listed_property see sec_280f and petitioners presented no evidence that complies with the sec_274 for taxable years beginning after date cellular phones are no longer in the definition of listed_property in sec_280f which was amended by the small_business jobs_act of pub_l_no sec_2043 sec_124 stat pincite because the years at issue are before petitioners’ cellular phones are subject_to the strict substantiation requirements of sec_274 requirements respondent’s determination with respect to the cellular phones is sustained petitioners claimed business_expense deductions for airline tickets airline tickets are subject_to the strict substantiation requirements of sec_274 sec_274 petitioners provided no evidence about the airline tickets such as the purpose of any trips the dates or the locations petitioners failed to properly substantiate the expenses accordingly respondent’s determination is sustained petitioners claimed business_expense deductions for motor home repairs and maintenance the motor home is listed_property see sec_280f the court has already disallowed petitioners’ depreciation_deductions for the motor home because petitioners failed to satisfy the strict substantiation requirements of sec_274 see supra part ii d because petitioners must satisfy the strict substantiation requirements in order to claim a deduction with respect to the motor home respondent’s determination is sustained petitioners claimed business_expense deductions for property taxes a home phone and lawn care that are not listed_property but they must maintain adequate_records to substantiate the expenses or provide the court some basis to estimate them see cohan v commissioner f 2d pincite petitioners provided no evidence regarding the property_tax expense and the lawn care expense mr mcminn testified that he needed a phone at his house for business purposes however respondent allowed business_expense deductions for a business cellular phone mr mcminn provided no evidence as to why the cellular phone was inadequate nor did he provide documentary_evidence showing that his home had multiple phone lines see sec_262 treating the first phone line in a residence as a personal_expense and not deductible accordingly respondent’s determinations with respect to the property taxes home phone and lawn care are sustained with respect to the satellite television petitioners had satellite television available in the reception area of their office for clients to enjoy while waiting for appointments petitioners also had satellite television in their home petitioners provided no evidence except mr mcminn’s testimony that the satellite television had different receivers to show that the bills were separate and that this was not a personal_expense see sec_262 disallowing personal expenses additionally property taxes are generally deductible see sec_164 but petitioners provided no evidence as to whether for example stitch it owned the property or they owned the property that incurred the liability or the nature of the property petitioners’ activities that were not operated with a profit objective see supra part i required lawn care if some of these lawn care expenses are for those activities they would not be deductible for stitch it petitioners have not shown that this expense was ordinary and necessary for their business see sec_162 accordingly respondent’s determination is sustained d embroidery services respondent disallowed deductions for interest_expenses for land in patton missouri and for a toyota tacoma with respect to embroidery services the court must therefore determine whether petitioners are entitled to the disallowed deductions the toyota tacoma was driven primarily by petitioners’ son kyle mcminn although vehicles are generally listed_property see sec_280f and subject_to the strict substantiation requirements of sec_274 an exception applies if substantially_all of the use of a vehicle is in a trade_or_business of providing unrelated persons services consisting of the transportation of persons or property for compensation or hire see sec_280f the toyota tacoma along with the three stitch it trucks were used to transport embroidery machines the court has found that the three stitch it trucks were not subject_to the strict substantiation requirements of sec_274 see supra part ii d for the same reasons the court finds that the toyota tacoma is not subject_to the strict substantiation requirements because the toyota tacoma is not listed_property the court may estimate the allowable expense see cohan v commissioner f 2d pincite embroidery services allocated of the cost of the toyota tacoma as a business_expense and as a personal_expense petitioners’ business required moving embroidery machines with trucks and trailers around to big_number times a year petitioners had a substantial embroidery business and the use of four trucks appears reasonable for the transportation of the embroidery machines on the basis of the record the court finds that the interest_expense deductions for the toyota tacoma were reasonable as claimed and petitioners are therefore entitled to the disallowed interest deductions respondent also disallowed interest deductions relating to land in patton missouri petitioners contend that embroidery services is entitled to deductions for interest_expenses under sec_163 because the land was held as an investment mr mcminn testified that he had purchased the land with the intent of selling it in parcels however petitioners’ trust owned the land during the years at issue and the land was not conveyed to embroidery services because embroidery services does not have an ownership_interest in the land it is not entitled to deductions for interest_expenses petitioners may individually be entitled to deductions for the interest if they can prove the property was held as an investment petitioners failed to present any documentary_evidence showing an investment motive petitioners did not present any evidence that parcels of the property had been sold or listed for sale the record includes only a bank receipt with a handwritten notation that acreage was sold to bryan mcminn the bank receipt does not state exactly what acreage was sold or whether it was the property at issue petitioners have thus failed to prove that the land was held as an investment accordingly respondent’s determination with respect to the interest_expense deductions for the land is sustained e juice plus respondent disallowed depreciation_deductions for a toyota sequoia a computer and exercise equipment claimed on petitioners’ federal_income_tax returns with respect to juice plus for the years at issue the court must therefore determine whether petitioners are entitled to the deductions respondent’s revenue_agent believed that the toyota sequoia was used in the juice plus business and allowed petitioners standard mileage rate deductions petitioners did not keep a contemporaneous mileage log for the toyota sequoia mr mcminn testified that his wife needed the vehicle to attend presentations for juice plus the toyota sequoia is a passenger_automobile and therefore is listed_property see sec_280f petitioners’ explanation is insufficient to meet the strict substantiation requirements under sec_274 and therefore they are not entitled to depreciation_deductions for the toyota sequoia greater than the amounts that respondent alloweddollar_figure respondent disallowed depreciation expense deductions for a computer because petitioners did not prove that juice plus actually incurred the expense the invoice for the computer is addressed to stitch it computers are listed_property see sec_280f sec_30 and subject_to the strict substantiation requirements of sec_274 petitioners presented no evidence that would satisfy the sec_274 requirements additionally they failed to prove that petitioners also claimed depreciation expense deductions for a toyota highlander with respect to juice plus during the years at issue the court is unable to determine whether respondent disallowed the depreciation expense deductions with respect to this vehicle if so petitioners did not provide any evidence such as a mileage log with respect to this vehicle and the depreciation expense deductions would be disallowed computers are not listed_property if they are used exclusively at a regular business establishment and are owned or leased by the person operating the establishment sec_280f whalley v commissioner tcmemo_1996_533 slip op pincite a home_office is treated as a regular business establishment only if the home_office is exclusively used on a regular basis as the taxpayer’s principal_place_of_business or as a place of business in which the taxpayer meets patients clients or customers within the course of the taxpayer’s business sec_280f sec_280a and b petitioners do not argue that this exception applies and the court finds that it does not apply because juice plus did not purchase the computer juice plus incurred the expense of purchasing the computer stitch it purchased the computer and would be entitled to a deduction but petitioners also failed to prove that the computer was used in stitch it’s business accordingly respondent’s determination with respect to the computer is sustaineddollar_figure respondent disallowed depreciation_deductions claimed for exercise equipment because petitioners did not prove that the expenses were for a business_purpose see sec_262 disallowing deductions for personal living or family_expenses mrs mcminn the primary operator of juice plus was not a personal trainer although she was studying to become one petitioners contend that the equipment was used to promote the nutritional products of juice plus and that clients were charged to use the equipment petitioners did not provide any documentary_evidence proving that clients used the equipment nor did they advertise a gym their primary purpose in purchasing the exercise equipment was for mrs mcminn to become a personal trainer and not as a marketing tool for juice plus accordingly they have failed to prove that the exercise equipment petitioners purchased a second computer for juice plus on date neither party provided any evidence or argument with respect to the second computer the court therefore does not address it expenses of a taxpayer that qualify him or her for a new trade_or_business are not deductible as business_expenses sec_1_162-5 income_tax regs was purchased for a business_purpose respondent’s determination is sustained iii loss from the sale of the motor home sec_165 generally permits a taxpayer to claim as a deduction any loss sustained during the taxable_year and not_compensated_for_by_insurance_or_otherwise however sec_165 limits the scope of this deduction for individuals individuals may deduct only losses_incurred in a trade_or_business losses_incurred in transactions entered into for profit and certain casualty and theft losses sec_165 - additionally sec_274 limits deductions for listed_property petitioners sold their motor home and equipment in and claimed a loss deduction respondent disallowed the deduction because petitioners failed to prove that the motor home and equipment were used in a trade_or_business the court has previously held that the motor home and equipment are subject_to the strict substantiation requirements of sec_274 see supra part ii d because petitioners were required to comply with the strict substantiation requirements of sec_274 for any deduction with respect to the motor home and equipment and have failed to do so they are not entitled to the claimed loss deduction accordingly respondent’s determination is sustained iv petitioners’ charitable_contribution deductions sec_170 allows a taxpayer a deduction for any charitable_contribution made in compliance with the statute the taxpayer is allowed the charitable_contribution_deduction if the charitable_contribution is provided to a corporation trust or community chest fund or foundation created or organized in the united_states and operated exclusively for religious or charitable purposes sec_170 charitable_contributions given directly to individuals for their personal benefit are deemed private gifts and are not deductible charitable_contributions under sec_170 because they are not given to or for_the_use_of a charitable_organization see eg 2_tc_441 18_bta_66 taxpayers are also required to maintain records substantiating their contributions in the form of a canceled check receipt or other reliable written record sec_1_170a-13 income_tax regs sec_170 provides that no deduction shall be allowed for charitable_contributions of dollar_figure or more unless the contribution is substantiated with a contemporaneous written acknowledgment from the donee organization the contemporaneous written acknowledgment need not take any particular form see schrimsher v commissioner tcmemo_2011_71 slip op pincite quoting h_r conf rept no pincite ndollar_figure 1993_3_cb_393 but it must meet the requirements of sec_170 the doctrine_of substantial compliance does not apply to excuse compliance with the strict substantiation requirements of sec_170 averyt v commissioner tcmemo_2012_198 slip op pincite if a taxpayer fails to meet the strict substantiation requirements of sec_170 the entire deduction is disallowed see sec_170 374_f3d_881 9th cir the deterrence value of sec_170’s total denial of a deduction comports with the effective administration of a self-assessment and self- reporting system aff’g 118_tc_528 sec_170 provides that a contemporaneous written acknowledgment must include i the amount of cash and a description but not value of any property other than cash contributed ii whether the donee organization provided any goods or services in consideration in whole or in part for any property described in clause i iii a description and good_faith estimate of the value of any goods or services referred to in clause ii a written acknowledgment is contemporaneous if the taxpayer obtains the acknowledgment on or before the earlier of the date the return was filed or the due date including extensions for filing the return for the year in which the charitable_contribution was made see sec_170 for a charitable_contribution of property other than money a deduction is allowed for the fair_market_value of the property as of the date contributed sec_170 however the amount of the deduction for a charitable_contribution of property must be reduced by the amount of gain which would not have been long-term_capital_gain had the property been sold at its fair_market_value id the taxpayer must also maintain a receipt from the donee organization for each item of donated property that includes the name of the donee the date and location of the contribution and a detailed description of the property sec_1_170a-13 income_tax regs for any nonmonetary charitable_contribution of dollar_figure or more the taxpayer must obtain a qualified_appraisal for the donated property and attach a completed appraisal_summary on form_8283 sec_170 sec_1_170a-13 income_tax regs generally an appraisal is qualified if it is prepared no more than days before the contribution date by a qualified_appraiser and incorporates specified information including a statement that the appraisal was prepared for income_tax purposes a description of the valuation method used to determine the contributed property’s fair_market_value and a description of the specific basis for the valuation sec_1_170a-13 and ii income_tax regs a charitable_contribution_deduction is allowed for unreimbursed expenditures made incident to performing services for an organization including traveling expenses sec_1_170a-1 income_tax regs however a taxpayer is entitled to a charitable_contribution_deduction for traveling expenses under sec_170 only when there is no significant_element_of_personal_pleasure_recreation_or_vacation in such travel sec_170 a taxpayer is required to substantiate travel_expenses through adequate_records and a contemporaneous statement that the donee organization prepares and includes a description of the services provided by the taxpayer a statement of whether the donee organization provided goods or services for the unreimbursed expenditures and if so the value of those services sec_1_170a-13 and ii income_tax regs petitioners claimed several charitable_contribution deductions during the years at issue that respondent disallowed respondent allowed most of the charitable_contribution deductions including the charitable_contributions to faith tabernacle world outreach youth with a mission church of corinth and faith family worship center the court considers now each disallowed charitable_contribution_deduction a kayit’s children’s home petitioners claimed a charitable_contribution_deduction of dollar_figure on their return for a donation to the kayit’s children home a children’s home in mexico respondent disallowed the deduction because kayit’s children’s home is not organized as a charity within the united_states a charitable_contribution_deduction is allowed only if the donee is operated exclusively for religious or charitable purposes and the donee is organized in the united_states sec_170 because kayit’s children’s home is not organized as a charity in the united_states respondent’s determination is sustained b children’s research foundation petitioners claimed charitable_contribution deductions of dollar_figure dollar_figure and dollar_figure for donations to crf in petitioners also claimed charitable_contribution deductions of dollar_figure and dollar_figure for donations to crf in the parties stipulated that t he children’s research foundation which is linked to the juice plus program is shown on the forms issued to the mcminns respondent contends that the court should not allow the deductions because petitioners did not introduce the forms or provide contemporaneous written acknowledgments see sec_170 a taxpayer is required to maintain for each contribution either a canceled check or a receipt from the donee organization showing the donee the date of the contribution and the amount of the contribution sec_1_170a-13 and ii income_tax regs in the absence of a canceled check or a receipt a taxpayer must produce other reliable written records id subdiv iii although petitioners did not introduce the forms showing the amounts paid to crf the court finds the parties’ stipulation sufficient to substantiate the payments to crf therefore the court must determine whether petitioners complied with the contemporaneous written acknowledgment requirements a contemporaneous written acknowledgment that satisfies sec_170 is required for contributions of dollar_figure or more sec_170 however s eperate contributions of less than dollar_figure are not subject_to the requirements of sec_170 regardless of whether the sum of the contributions made by a taxpayer to a donee organization during a taxable_year equals dollar_figure or more villareale v commissioner tcmemo_2013_74 at n sec_1_170a-13 income_tax regs petitioners were not required to substantiate the payments of less than dollar_figure with a contemporaneous written acknowledgment therefore the three payments of less than dollar_figure are allowed petitioners were required and failed to substantiate their charitable con- tribution deductions with contemporaneous written acknowledgments for the two payments to crf of dollar_figure or more see sec_170 the parties’ stipulation is inadequate for the court to conclude that petitioners complied with the strict substantiation requirements of sec_170 including a statement of whether goods or services were received because the stipulation does not state what information the forms included the substantiation requirements of sec_170 are strict and the record does not allow the court to conclude that information that meets the requirements of sec_170 was included on the forms petitioners are therefore entitled to deduct the payments of dollar_figure and dollar_figure for and the payment of dollar_figure for respondent’s determination with respect to the two payments to crf of dollar_figure or more is sustained c r l montgomery ministries petitioners claimed charitable_contribution deductions of dollar_figure dollar_figure and dollar_figure for the years at issue respectively for donations to r l montgomery ministries r l montgomery ministries is not a registered tax-exempt_organization in the united_states r l montgomery is an individual who claims to be an agent of ranch house ministries petitioners contend that they are entitled to charitable_contribution deductions for the donations to r l montgomery ministries because its operator r l montgomery was an agent of ranch house ministries which is a tax-exempt_organization in the united_states even if the court were to agree with petitioners that r l montgomery was an agent of ranch house ministries petitioners have not proven that the funds were transferred to ranch house ministries additionally petitioners have not proven that they satisfied the contemporaneous written acknowledgment requirements of sec_170 for charitable_contributions of dollar_figure or more respondent’s determination is therefore sustained d office equipment and office furniture petitioners claimed charitable_contribution deductions for for the donation of office equipment and office furniture to faith family worship center valued at dollar_figure and dollar_figure respectively petitioners attached a form_8283 to their return and generically described the property as office products computers and office furniture they also attached to their return a contemporaneous written acknowledgment from faith family worship center that generically described the donated property petitioners’ receipt fails to provide a description of the property in detail reasonably sufficient under the circum- stances see sec_1_170a-13 income_tax regs the court therefore has no basis to determine whether the value of petitioners’ charitable_contribution is reasonable respondent’s determination is therefore sustained e chevy suburban in petitioners donated a chevy suburban valued at dollar_figure to faith family worship center petitioners claimed a charitable_contribution_deduction of dollar_figure on their tax_return for the donation and reported receiving dollar_figure cash from faith family worship center petitioners reported a gain of dollar_figure on the disposition of the suburban because petitioners failed to obtain a qualified_appraisal respondent disallowed dollar_figure of the dollar_figure charitable_contribution_deduction respondent also disallowed petitioners’ claimed depreciation expense deductions with respect to the suburban after adjustment for the disallowed depreciation petitioners’ basis in the suburban increased which reduced petitioners’ reported gain on the disposition of the suburban from dollar_figure to dollar_figure the court must decide whether petitioners’ gain a taxpayer who lacks a donee receipt is required to keep reliable written records containing among other things i the name and address of the donee organization to which the contribution was made ii the date and location of the contribution iii a description of the property in detail reasonable under the circumstances including the value of the property and iv the fair_market_value of the property at the time the contribution was made and the method used to determine the fair_market_value sec_1_170a-13 income_tax regs see also 136_tc_515 petitioners did not provide any such records on the disposition of the vehicle should be reduced and whether petitioners are entitled to a greater charitable_contribution_deduction than respondent allowed petitioners claimed the depreciation_deductions for the chevy suburban on schedules c for a vehicle and equipment rental_activity for the years at issue respondent initially disallowed the deductions because petitioners had not shown that they conducted a trade_or_business under sec_183 with respect to the activity on brief respondent conceded that petitioners did conduct a trade_or_business with respect to the vehicle and equipment rental_activity therefore because respondent now concedes that the vehicle and equipment rental_activity was operated for profit and did not challenge any specific deductions with respect to that activity petitioners are entitled to the depreciation_deductions for the chevy suburban petitioners therefore correctly reported their gain on the disposition of the suburban as dollar_figure to substantiate the claimed charitable_contribution_deduction petitioners attached to their return a page from the kelly blue_book web site indicating the fair_market_value of the suburban as dollar_figure an appraisal_summary by a qualified_appraiser is required for charitable_contributions deductions exceeding dollar_figure see sec_170 sec_1_170a-13 income_tax regs a page from kelly blue_book is not a qualified_appraisal because the donation is greater than dollar_figure and an appraiser was required to verify the vehicle and sign the appraisal see sec_170 sec_1_170a-13 income_tax regs therefore petitioners are entitled to deduct only dollar_figure as a charitable_contribution for the chevy suburbandollar_figure f charitable_contribution deductions from petitioners’ business in petitioners claimed charitable_contribution deductions that flowed through to petitioners’ federal_income_tax return from embroidery services and stitch it of dollar_figure and dollar_figure respectively of stitch it’s deduction dollar_figure is from an amount donated to r l montgomery petitioners contend that this amount was transferred to ranch house ministries for the same reasons that the court disallowed the deductions to r l montgomery ministries see supra part iv c the deduction for the amount_paid to r l montgomery is disallowed petitioners did not present any evidence about the other_amounts deducted and therefore have not carried their burden respondent’s determination is sustained respondent contends that petitioners are entitled to deduct only dollar_figure because an appraisal is required for charitable_contribution deductions of dollar_figure or more however sec_170 requires a qualified_appraisal for a deduction of more than dollar_figure therefore the maximum that petitioners can deduct without a qualified_appraisal is dollar_figure g jamaica mission travel for petitioners claimed a charitable_contribution_deduction of dollar_figure for unreimbursed travel_expenses for a mission trip to jamaica respondent disallowed the deduction because petitioners did not obtain a contemporaneous written acknowledgment and did not comply with the recordkeeping requirements see sec_170 sec_1_170a-13 income_tax regs the parties stip- ulated that petitioners did not obtain a contemporaneous written acknowledgment because a contemporaneous written acknowledgment is required for a charitable_contribution_deduction of dollar_figure or more see sec_170 respondent’s determination is sustained v sec_6662 a --accuracy-related penalty sec_6662 and b and authorizes a accuracy-related_penalty on the portion of an underpayment of federal_income_tax attributable to negligence or disregard of rules or regulations or a substantial_understatement_of_income_tax negligence is defined as any failure to make a reasonable attempt to comply with the provisions of the code see sec_6662 sec_1_6662-3 income_tax regs there is a substantial_understatement_of_income_tax for any year if the amount of the understatement for the taxable_year exceeds the greater of of the tax required to be shown on the tax_return or dollar_figure sec_6662 higbee v commissioner t c pincite under sec_7491 the commissioner bears the burden of production with regard to penalties for an individual taxpayer higbee v commissioner t c pincite once the commissioner has met the burden of production the taxpayer has the burden of proving that the penalties are inappropriate because of reasonable_cause or substantial_authority see rule a higbee v commissioner t c pincite pursuant to sec_6664 no penalty shall be imposed under sec_6662 with regard to any portion of an underpayment if the taxpayer can show that there was reasonable_cause for such portion and that the taxpayer acted in good_faith with respect to such portion whether a taxpayer acted with reasonable_cause and in good_faith is decided on a case-by-case basis taking into account all pertinent facts and circumstances sec_1_6664-4 income_tax regs generally the most important factor is the extent of the taxpayer’s effort to assess his proper tax_liability id see also remy v commissioner tcmemo_1997_72 slip op pincite reliance on the advice of a tax professional may but does not necessarily establish reasonable_cause and good_faith for the purpose of avoiding a sec_6662 penalty 469_us_241 a taxpayer’s reliance on a competent tax professional may establish reasonable_cause and good_faith when the taxpayer provides necessary and accurate information to the adviser and actually relies in good_faith on the adviser’s judgment see 593_fedappx_965 11th cir aff’g tcmemo_2013_80 115_tc_43 aff’d 299_f3d_221 3d cir respondent contends that petitioners are liable for the sec_6662 penalties because there were substantial understatements of income_tax or alternatively because they were negligent the parties made concessions before trial and on brief and the court did not sustain some of the items in the notice_of_deficiency the court finds that in the event the computations under rule establish that there is an underpayment attributable to a substantial_understatement_of_income_tax for any year then respondent has met his burden of production petitioners argue that they acted in good_faith and with reasonable_cause because they relied on their bookkeeper and their cpa mr mcminn had a high school education and to maintain records he hired a full-time bookkeeper a cpa was also hired to review the bookkeeper’s records and prepare the tax returns the cpa had been licensed for years and he had prepared petitioners’ tax returns for years to prepare petitioners’ tax returns the cpa would review the bookkeeper’s records make corresponding adjustments in the financial statements and meet with mr mcminn to discuss positions on the return as well as his business ventures the cpa credibly testified that the process of preparing the tax returns was extensive and that mr mcminn had provided the cpa with all the necessary documentation to prepare the returns to calculate the depreciation_deductions for the vehicles the cpa either received a report from the bookkeeper showing the percentage of business and personal_use derived from mileage logs decided that the vehicle was for business use or discussed with mr mcminn the ratio of business and personal_use of the vehicle the cpa also testified that he believed the chevy suburban deduction was properly substantiated the record indicates that mr mcminn relied heavily on both his bookkeeper and his cpa of years to maintain financial information and properly substantiate deductions mr mcminn believed that his tax positions were conservative and that he had properly complied with the code although a taxpayer is ultimately responsible for his own recordkeeping see sec_6001 the court holds that petitioners reasonably relied on their bookkeeper and their cpa petitioners clearly did not provide adequate documentation to substantiate all of their tax positions however they relied on their cpa to ensure that the proper documentation was obtained from the record with respect to the positions that petitioners took without proper substantiation or that were contrary to the code the court finds that the cpa chose the positions to take and petitioners reasonably relied on him as their trusted expert adviser of years because we find that petitioners acted with good_faith and reasonable_cause a discussion of whether petitioners are liable for negligence is not warranted vi conclusion the court has considered all of the arguments made by the parties and to the extent they are not addressed herein they are considered unnecessary moot irrelevant or without merit to reflect the foregoing decisions will be entered under rule