whistleblower 11099-13w petitioner v commissioner of internal revenue respondent docket no 11099-13w filed date whistleblower petitioned for review of the irs’ decision not to make an award to him for information that purportedly led to the collection of unpaid taxes and other_amounts he moved to compel production of documents r objects principally on grounds of relevance held r’s claim of lack of relevance pre- sents an unsettled question of law as to when the irs pro- ceeds on the basis of information provided by a whistleblower see sec_7623 sec_301_7623-2 proced admin regs held further the court will not in the context of this discovery dispute decide a question of law if r is interested in a pretrial ruling on matters of law his proper course of action under our rules would be to file a motion for summary_judgment held further r has failed to carry his burden of showing that the documents need not be produced held further we will grant the motion henry s lovejoy usman mohammad bryan c skarlatos and brian c wille for petitioner navid mehrjou and marianna lvovsky for respondent opinion halpern judge this is a case brought under sec_7623 sec_1 appealing respondent’s determination not to except as otherwise indicated all section references are to the internal_revenue_code_of_1986 as amended and all rule references are to the tax_court rules_of_practice and procedure whistleblower 11099-13w v commissioner make an award to petitioner for information provided by him and leading to the recovery_of unpaid taxes and other_amounts a so-called whistleblower award petitioner has moved motion respondent has responded to the motion response and objects to our granting it we will grant the motion to compel production of documents discovery dispute background the motion reflects the continuation of a discovery dispute that we addressed by order dated date sept order in which we granted petitioner’s previous motion to compel production of documents and ordered respondent to produce the requested documents in response to the sept order respondent did produce certain documents the motion prays that we compel respondent to produce information document requests idrs and responses with- out distinction requested idrs that petitioner believes respondent should have produced pursuant to the sept order respondent’s principal ground for objecting to produc- tion of the requested idrs is relevance petitioner’s whistleblower claim in 20l year petitioner filed a whistleblower claim with the internal_revenue_service irs in which he informed the irs of a tax_evasion scheme tes carried out by a target_corporation and its affiliates target the tes as described by petitioner involved target’s engaging in an inventory pur- chasing scheme that on account of target’s use of a last-in_first-out lifo_method of accounting for inventory allowed it to artificially inflate its cost_of_goods_sold for tax purposes petitioner claims that target used the tes to defer income taxes indefinitely he claims that he was employed by a cor- respondent had objected to petitioner’s previous motion on the grounds that the scope of our review under sec_7623 should be limited to the administrative record and that the information that petitioner sought was outside of that record and therefore irrelevant we granted petitioner’s previous motion relying in part on whistleblower one 10683-13w v com- missioner 145_tc_204 in which we held that the com- missioner cannot unilaterally decide what constitutes an administrative record united_states tax_court reports poration corporation x affiliated with target that traded commodities that were integral to the purchasing scheme that he had described the parties agree that petitioner identified an issue previously unknown to respondent and that respondent subsequently investigated target’s use of the tes respondent’s position however is that he did not use petitioner’s information to make any adjustments to target’s tax returns he states that his agents added the tes to their examination of target’s tax returns for two of its taxable years year sec_1 and respectively but that because they were unable to discover anything to substantiate petitioner’s claim that the tes violated federal tax law he made no adjustments and collected no proceeds on account of peti- tioner’s information he does admit to making other adjust- ments to target’s returns for year sec_1 and which apparently resulted in the collection of additional taxes from target petitioner believes that before the end of year because of the information he provided to the irs target stopped using the tes which increased its year tax bill and would increase its tax bills for subsequent years petitioner identi- fies inventory-related adjustments of dollar_figure million and dollar_figure million that respondent made to petitioner’s year and year reported income_tax respectively and that petitioner claims are in the very area-lifo valuation-that had been the subject of petitioner’s whistleblower claim finally petitioner claims that in year target announced its abandonment of the use of lifo altogether that according to petitioner increased its tax bill by at least dollar_figure billion for subsequent years petitioner believes that he is entitled to an award because it was his information that caused target to pay and the irs to collect additional tax petitioner has sought discovery to show that it was his information that led both to an immediate increase in tax collected from target and to larger future tax bills for target because of its changed behavior by the sept order we required respondent to produce documents relating to the three inventory-related adjustments for year sec_1 and that petitioner had identified documents that might indicate that there were more tes-related adjustments of which petitioner was unaware documents mentioned in other documents that appear to relate to adjustments or to the whistleblower investigation and documents that petitioner believed would whistleblower 11099-13w v commissioner help him compute the amount of additional tax target paid as a result of stopping its use of the tes as well as all non- produced documents created by the irs and related to peti- tioner’s whistleblower claim along with all nonproduced documents received by the irs from target as a result of his claim respondent’s production of documents respondent did produce in response to the sept order documents that petitioner characterizes as showing that far from the limited investigation of the tes that respondent originally claimed had occurred the irs had conducted a broad and far-ranging investigation of target’s inventory pur- chasing practices which resulted in dozens of idrs issued by multiple irs practice groups over many years that inves- tigation petitioner reiterates resulted in radical changes to target’s inventory practices and in numerous adjustments to target’s reported tax all of which resulted in respondent’s collecting additional federal tax from target on date petitioner wrote to respondent notifying him of the deficits that petitioner perceived in respondent’s compliance with the sept order and identi- fying certain idrs including responses that he believes respondent should have produced respondent did not rectify petitioner’s perceived faults in respondent’s production the motion followed and petitioner prays that we require respondent to produce the requested idrs of the requested idrs are idrs and responses identi- fied in petitioner’s date letter to respondent that relate to corporation x’s inventory procurement prac- tices its organizational structure its hedging and related activities undertaken petitioner claims to minimize the financial risks associated with target’s purchases to imple- ment the tes and its compensation practices as some evi- dence of whether corporation x’s purchases were tax moti- vated an additional of the requested idrs are idrs and responses that petitioner did not identify in his date letter to respondent but the existence of which respondent had disclosed to petitioner in a log produced in response to the sept order petitioner identifies those idrs as addressing target’s use of corporation x to carry out united_states tax_court reports the tes eg concerning hedging_transactions commodities trading and procurement derivatives reconciliation training programs and employees’ performance and compensation finally petitioner specifies three idrs identified in the date letter and not relating to corporation x that prompted respondent to issue two idrs that respondent did produce and that sought information on target’s cost_of_goods_sold calculations for the two years prior to year peti- tioner argues that if the resulting idrs were deemed rel- evant by respondent then the three causal idrs should be produced as well the response target and in the response respondent does not contradict petitioner’s representations about the scope of his examination of target respondent concedes the documents he demands may well illuminate various portions of the audit respondent insists however that the idrs petitioner requested deal not with the tes but with other issues that were part of the irs’ examination of its subsidiaries-primarily transfer_pricing issues between target and its subsidiaries he also objects to producing four idrs that were identified in petitioner’s date letter to him on the ground that petitioner had not sought those idrs in formal discovery as to the idrs not identified in that letter he notes in a footnote to the response that petitioner did not informally seek to resolve respondent’s objection to producing them and that the motion is the first time that he learned that petitioner considered them relevant in support of his relevance objection respondent states with respect to the requested idrs s uch documents are not relevant nor are such documents reasonably calculated to lead to the discovery of admissible evidence with respect to information respondent collecting proceeds based on petitioner’s informa- tion or respondent’s consideration and evaluation of peti- tioner’s whistleblower claim respondent’s use of the petitioner’s whistleblower 11099-13w v commissioner i sec_7623 whistleblower awards discussion sec_7623 provides for awards to those individuals ie whistleblowers who provide information to the government about third parties who are underpaying their tax specifi- cally sec_7623 provides if the secretary proceeds with any administrative or judicial action based on information brought to the secretary’s attention by an indi- vidual such individual shall receive as an award at least percent but not more than percent of the collected_proceeds resulting from the action including any related actions or from any settlement in response to such action ii relevance as pointed out in professor mccormick’s treatise on evi- dence there are two components to relevant evidence materiality and probative value mccormick on evidence sec_185 pincite 7th ed materiality concerns the fit between the evidence and the case it looks to the relation between the propositions that the evidence is offered to prove and the issues in the case if the evidence is offered to help prove a proposition that is not a matter in issue the evidence is immaterial what is in issue that is within the range of the litigated controversy is determined mainly by the pleadings read in the light of the rules of pleading and controlled by the substantive law the second aspect of relevance is probative value the tendency of evi- dence to establish the proposition that it is offered to prove id pincite rule of the federal rules of evidence incorporates the twin concepts of materiality and probative value id pincite under that rule evidence is relevant if a it has any tend- ency to make a fact more or less probable than it would be without the evidence and b the fact is of consequence in determining the action fed r evid the rule thus replaces the term material with the equivalent expression fact that is of consequence to the determin ation of the action see id subdiv b a fact that is ‘of consequence’ is material mccormick supra sec_185 pincite united_states tax_court reports rule governs discovery and paragraph b thereof pro- vides that the scope of discovery is any matter not privi- leged and which is relevant to the subject matter involved in the pending case the paragraph further provides it is not ground for objection that the information or response sought will be inadmissible at the trial if that information or response appears reasonably calculated to lead to discovery of admissible evidence iii respondent’s argument respondent does not in the response make clear which of the requested idrs are irrelevant because they are not mate- rial and which are irrelevant because they lack probative value or which are irrelevant for both reasons indeed respondent does not distinguish those two components of rel- evant evidence nevertheless it is clear that respondent would have us deny the motion on the ground that none of the requested idrs contradict or would lead to discovery of admissible evidence that would contradict his claim that he did not proceed on the basis of petitioner’s information to make any adjustment in target’s tax respondent does not deny that on the basis of petitioner’s information he added the tes to his examination of target for year sec_1 and nor does he deny that he made adjustments to target’s income for those two years what he does deny is that he proceeded on the basis of petitioner’s information about the tes to make those adjustments or to make any other adjustments implicitly he is making an argument about the meaning of the term proceeds based on in sec_7623 by emphasizing that he made no adjustments on petitioner’s issue he implies that the secretary proceeds with an the term relevant has a different meaning-and narrower scope- under fed r evid than it does under rule b our discovery rule adopted in and based on fed r civ p b see rule note 60_tc_1098 adoption of rule b cf eg 303_frd_109 d d c scope of fed r civ p b charles alan wright et al federal practice and procedure sec pincite 3d ed similar rule b permits discovery of non-privileged matters relevant to the subject matter involved in the pending case we assume that respondent’s relevancy objection to the re- quested idrs is made on the basis of the narrower fed r evid defi- nition of the term requiring probative value and materiality whistleblower 11099-13w v commissioner administrative adjustment based on a whistleblower’s information only when the adjustment redresses the specific errors in tax reporting alleged by the whistleblower although he fails to refer to either respondent’s implicit argument about the meaning of the term proceeds based on may have some purchase in the wording of sec_7623 and of an implementing regulation as will be discussed below on the basis of his implicit claim about that meaning we assume respondent’s argument is that he has no authority to make a whistleblower award to petitioner and because petitioner does not contradict respondent’s claim that he made no adjustments on petitioner’s issue the requested idrs are beside the point and therefore not mate- rial we will discuss below whether the interpretative question that respondent’s relevance objection raises is appropriately before the court in this discovery dispute since we conclude that it is not we will determine whether respondent has appropriately objected to production of the disputed idrs on other grounds viz the irrelevance of the requested idrs because they are not probative of any consequential fact iv petitioner’s argument to petitioner it does not matter that respondent did not act to shut down the tes on the basis of his information to petitioner it is a sufficient justification for an award that the investigation respondent undertook on the basis of his information put target on notice that the tes was under scrutiny by the irs that he believes caused target to abandon elements of the tes which almost immediately resulted in its paying more tax and eventually to abandon lifo which resulted in billions of dollars in increased tax collections moreover petitioner believes that respondent derived leads from the investigation that he undertook on the basis of petitioner’s information and that those leads led to respondent’s making adjustments for year sec_1 and to target’s reported income that are attributable to his information in contradistinction to respondent’s apparent view that an award under sec_7623 requires identification of an adjustment to a target’s tax that redresses the specific error sec_147 united_states tax_court reports in tax reporting alleged by the whistleblower petitioner apparently believes that merely showing a causal relation- ship is sufficient in other words one thing led to another v analysis a respondent’s implicit legal argument sec_301_7623-1 proced admin regs defines terms used in sec_7623 and in the regulations interpreting it in pertinent part sec_7623 provides authority for an award to a whistleblower if the secretary proceeds with a collection action that is based on information brought to his attention by a whistleblower sec_301 b proced admin regs addresses when the irs shall be deemed to proceed on the basis of information pro- vided by a whistleblower in pertinent part the regulation provides t he irs proceeds based on information provided by a whistleblower when the information provided substantially contributes to an action against a person identified by the whistleblower for example the irs proceeds based on the information provided when the irs initiates a new action expands the scope of an ongoing action or continues to pursue an ongoing action that the irs would not have initiated expanded the scope of or continued to pursue but for the information provided the irs does not proceed based on information when the irs analyzes the information provided or investigates a matter raised by the information provided four examples follow that statement of the general_rule example involves a whistleblower-prompted investigation of a taxpayer during the course of which the irs obtains through idrs and summonses facts that are unrelated to the activities described in the information provided by the whistleblower on the basis of those additional facts the irs expands the scope of its investigation of the taxpayer in part the example concludes that the portions of the irs’ pursuant to sec_301_7623-1 proced admin regs the section is effective on date and applies to information submitted on or after that date and to claims for award that are open on that date the determination that petitioner appeals from is dated date the pe- tition was filed on date we assume for purposes of the following discussion that petitioner’s claim for an award is open so long as it is sub judice notwithstanding that the parties have not addressed the issue of whether the regulation applies whistleblower 11099-13w v commissioner investigation relating to the additional facts obtained through the issuance of idrs and summonses are not actions with which the irs proceeds on the basis of information pro- vided by the whistleblower because the information provided did not substantially contribute to the irs’ administrative action based on the information provided by the whistle- blower sec_301_7623-2 example proced admin regs we need not at this point in the case address the merits of respondent’s lack-of-authority argument which respondent has not fully developed petitioner’s case grounded on the legal theory that the irs collected_proceeds from target on the basis of petitioner’s information about the tes is well pleaded it is not obviously contradicted by sec_7623 the validity of sec_301_7623-1 proced admin regs has not been tested nor does respondent argue that it applies the proper interpretation of sec_7623 is something that the court may decide in due course during these proceedings upon argument or briefing by the parties if respondent is interested in a pretrial ruling from the court on matters of law then his proper course of action under our rules would be to file a motion for summary_judgment under rule see hosp corp of am v commissioner tcmemo_1994_100 wl at respondent has not convinced us that the requested idrs are not material and for that reason not discoverable b further relevance objection nor has respondent convinced us that the requested idrs are not probative of or would not lead to admissible evidence with respect to petitioner’s theory of the case undoubtedly if we understand it correctly petitioner’s interpretation of the term proceeds based on is broad ie that the secretary proceeds on a whistleblower’s information if there is merely a causal relationship between the whistleblower’s informa- tion and the secretary’s collection of additional tax whether that additional tax is collected on the basis of adjustments to a taxpayer’s reported tax or on changes in the taxpayer’s behavior in reporting its tax sec_7623 may not support that broad interpretation but in a discovery dis- pute once the discovering party makes some minimal showing of the relevance of the information or response united_states tax_court reports sought to the subject matter involved in the pending case the party opposing the production of information has the bur- den of establishing that the documents sought by the other party are not relevant or otherwise not discoverable see eg 143_tc_183 respondent has failed to carry his burden of showing that the requested idrs are not discoverable c other arguments respondent’s principal objection to the motion is as we have discussed relevance he also objects to producing four of the requested idrs on the ground that petitioner cannot move to compel discovery for documents that he has not sought through discovery petitioner by his date letter made known his request for those four idrs and we see no benefit to making petitioner ask again for some- thing respondent has made clear he will not produce except upon order of the court with respect to the idrs peti- tioner did not identify in that letter we likewise see no ben- efit in making petitioner take any further steps to make his request for those idrs clear to respondent vi conclusion cognizant of the importance of the confidentiality concerns and disclosure restrictions embodied in sec_6103 we will in our order granting the motion require that all documents produced by respondent be subject_to the protective_order governing pretrial discovery in this case an appropriate order will be issued f


internal_revenue_service number release date index number -------------------------------- ------------------------------------------------------- ------------------------------------ --------------------------------------------- ---------------------------------- department of the treasury washington dc third party communication none date of communication not applicable_person to contact ------------------- id no ------------- telephone number --------------------- refer reply to cc psi b01 plr-133638-07 date date --------------------------------------------------------- legend x -------------------------------------------------------- ------------------------------------------- state d1 dear -------------- ----------------------- -------------- this responds to the letter dated date submitted on behalf of x requesting relief under ' b of the internal_revenue_code facts according to the information submitted x was incorporated on d1 under the laws of state the shareholder of x intended that x be treated as an s_corporation effective on d1 but the election to be treated as an s_corporation was not timely filed accordingly x requests a ruling that it will be treated as an s_corporation effective d1 law and analysis sec_1362 provides that a small_business_corporation may elect to be an s_corporation sec_1362 provides the rule on when an s election will be effective sec_1362 provides in relevant part that if an s election is made within the first plr-133638-07 two and one-half months of a corporation's taxable_year then the corporation will be treated as an s_corporation for the year in which the election is made under ' b however if an s election is made after the first two and one-half months of a corporation's taxable_year then that corporation will not be treated as an s_corporation until the taxable_year after the year in which the s election is filed sec_1362 provides that if no ' a election is made for any taxable_year and the secretary determines that there was reasonable_cause for the failure to timely make such election then the secretary may treat such an election as timely made for such taxable_year and ' b shall not apply x did not timely file an election to be treated as an s_corporation under ' a x has however established reasonable_cause for not making a timely s election and is entitled to relief under ' b conclusion based solely on the facts submitted and the representations made and provided that x otherwise qualifies as an s_corporation we conclude that x will be treated as an s_corporation effective d1 within days from the date of this letter x should submit a properly completed form_2553 with a copy of this letter attached to the appropriate service_center except as specifically set forth above no opinion is expressed or implied as to this ruling is directed only to the taxpayer requesting it sec_6110 the federal tax consequences of the facts described above under any other provision of the code specifically no opinion is expressed concerning whether x is in fact an s_corporation for federal tax purposes provides that it may not be used or cited as precedent enclosures dianna k miosi chief branch office of associate chief_counsel passthroughs and special industries copy of this letter copy for sec_6110 purposes sincerely


t c memo united_states tax_court nicholas m romer petitioner v commissioner of internal revenue respondent docket no filed date nicholas m romer pro_se ’ brlizabeth downs for respondent memorandum findings_of_fact and opinion thornton judge respondent determined the following deficiencies additions to tax and penalties with respect to ' at trial petitioner was represented by howard s kleyman who entered his appearance shortly before the trial date and withdrew as attorney of record immediately after the trial -- - petitioner’s federal income taxes ’ addition_to_tax civil_fraud penalty year deficiency sec_6654 a sec_6663 sdollar_figure dollar_figure sdollar_figure big_number big_number big_number big_number big_number after concessions by both parties the issues for decision are whether petitioner is entitled to deductions for aviation-related expenses not previously claimed on his federal_income_tax returns in excess of amounts agreed to by respondent whether petitioner is liable for civil_fraud penalties under sec_6663 and whether the period of assessment for taxable_year has expired unless otherwise indicated all section references are to the internal_revenue_code in effect during the years at issue and all rule references are to the tax_court rules_of_practice and procedure as discussed more fully infra the parties stipulated the amounts of petitioner’s unreported gross_income from various sources and certain allowable deductions related thereto in addition respondent concedes that petitioner is entitled to deductions with respect to losses on the sale of two aircraft for taxable years and in the respective amounts of dollar_figure and dollar_figure respondent also concedes that petitioner is entitled to a math error adjustment in his favor to reported schedule c profit or loss from business costs of operations in the amount of dollar_figure for taxable_year and rental deductions in the total amount of dollar_figure for taxable_year we have jurisdiction to redetermine additions to tax under sec_6654 only if no federal_income_tax returns were filed for the years before the court see sec_6665 see also meyer v commissioner 97_tc_555 sigel v commissioner tcmemo_2001_138 because petitioner filed a federal_income_tax return for each year before the court the continued - - findings_of_fact the parties have stipulated some of the facts which we incorporate in our findings by this reference when he filed his petition petitioner resided in franklin tennessee petitioner’s accounting activity during the years in issue petitioner was a certified_public_accountant c p a practicing with romer co a minneapolis minnesota accounting business that he founded in as part of his accounting practice petitioner prepared individual state and federal_income_tax returns for aircraft pilots petitioner’s aviation activities during the years in issue petitioner also engaged in various aviation activities as a licensed commercial pilot a certified flight instructor a licensed aircraft dealer an airline transport pilot anda charter pilot the aviation activities during the years in issue petitioner owned at different times four aircraft a piper navajo n1430s a piper navajo n55ct an aero commander n163d and a king air n623r collectively the aircraft petitioner used the aircraft in his aviation activities during the subject years petitioner had no charter certificate in order to fly his aircraft on charter flights continued court lacks jurisdiction to redetermine the sec_6654 a additions to tax q4e- petitioner associated himself with great lakes air d b a cirrus air charter great lakes and cirrus flight operations cirrus great lakes possessed a charter certificate and operated an air charter business cirrus sold fuel and provided maintenance to small aircraft during the years in issue great lakes and cirrus were owned in part by richard cross cross who was a pilot for sun country airlines and in part by an unrelated business_entity known as general housewares pursuant to an agreement with cross petitioner flew his aircraft on charter flights under great lakes’ charter certificate sometimes cirrus would arrange for other pilots to fly petitioner’s aircraft on charter trips apparently petitioner was entitled to receive all the income generated from flights using his aircraft and was credited with all the income and charged with associated expenses_incurred by great lakes or cirrus in an account that he maintained with great lakes great lakes account romer co provided accounting services for great lakes and cirrus and prepared their federal_income_tax returns the record is unclear as to the exact relationship of these other pilots to cirrus and to petitioner one of the pilots richard matthews testified that his income from the flights in question was reported on forms issued by great lakes and stated i believe we’d be called subcontractors during each of the years in issue petitioner received gross_receipts and incurred expenses with respect to his aviation activities petitioner’s tax returns for the years in issue petitioner personally prepared his federal_income_tax returns he reported no gross_income or expenses from his aviation activities on schedule c profit or loss from business he reported gross_receipts and net profit from bookkeeping and accounting as follows year gross_receipts net profit dollar_figure dollar_figure big_number big_number big_number big_number the criminal investigation in the early 1990's petitioner became the subject of an investigation by the internal_revenue_service criminal_investigation_division cid on several occasions in as part of that investigation undercover cid agents posing as new clients of romer co met with petitioner and surreptitiously recorded their conversations the criminal investigation culminated in the date indictment of petitioner on three counts of violating sec_7206 with respect to his individual federal_income_tax returns for taxable years and for willfully making and subscribing false tax -- - returns under penalties of perjury knowing that he had underreported gross_receipts from his accounting firm and had failed to report any gross_receipts from his aviation activities on date petitioner entered into a plea agreement pleading guilty to one count of willfully failing to supply information on his federal_income_tax return pursuant to sec_7203 the plea agreement states that petitioner admits that the civil_fraud penalty and interest applies to whatever additional tax he is deemed to owe after pursuing remaining civil remedies for tax years petitioner was ultimately sentenced to months’ imprisonment notice_of_deficiency in the notice_of_deficiency dated date respondent determined that petitioner had failed to report gross_receipts from his accounting and aviation activities and other sources in the following amounts romer aviation other year co activities income dollar_figure s big_number dollar_figure big_number big_number big_number big_number big_number respondent also determined that petitioner is subject_to the sec_6663 civil_fraud penalty and the sec_6654 addition_to_tax for failing to pay estimated_taxes for each of the subject years opinion a aviation expenses petitioner concedes that he failed to report gross_receipts in the amounts determined in respondent’s notice_of_deficiency he contends however that he is entitled to deduct associated business_expenses not claimed on his returns for the subject years he claims that these newly asserted deductions more than offset the gross_proceeds that he omitted from his returns and that conseguently he has no deficiency for any year in issue the parties have stipulated that petitioner is entitled to certain deductions not claimed on his return with respect to both his aviation activities and the romer co accounting business giving effect to the parties’ concessions and stipulations results in net losses from petitioner’s aviation activities for each of the years in issue but indicates positive net_income from petitioner’s other activities seeking to eliminate any remaining net_income and indeed to produce significant net losses from his accounting business and other respondent concedes that petitioner is entitled to the following schedule c deductions including depreciation which were not claimed on petitioner’s federal_income_tax returns romer aviation year co activities s big_number s big_number big_number big_number big_number --- - sources petitioner seeks to deduct the following additional expenses relating to his aviation activities not previously claimed on his return and not agreed to by respondent the unagreed expenses year amount dollar_figure big_number big_number ' this amount includes additional_depreciation of dollar_figure that petitioner is claiming on one of his aircraft the dollar_figure amount is also based in part on petitioner’s alleged duplicate living_expenses assuming that nashville tenn is petitioner’s tax_home if minneapolis minn is assumed to be petitioner’s tax_home the amount claimed is dollar_figure sec_162 generally allows a deduction for all ordinary and necessary expenses paid_or_incurred during the taxable_year in carrying_on_a_trade_or_business an expense is ordinary if it is customary or usual within a particular trade business or industry or relates to a transaction of common or frequent occurrence in the type of business involved 308_us_488 an expense is necessary if it is appropriate and helpful for the development of the business 320_us_467 expenses that are personal in nature are generally not allowed as deductions sec_262 when a taxpayer establishes that he has incurred deductible expenses but is unable to substantiate the exact amounts we can estimate the deductible amount but only if the taxpayer presents --- - sufficient evidence to establish a rational basis for making the estimate see 39_f2d_540 2d cir see also 85_tc_731 sec_274 supersedes the general_rule of cohan v commissioner supra and precludes us from estimating the taxpayer’s expenses with regard to certain items see 50_tc_823 affd per curiam 412_f2d_201 2d cir sec_274 imposes strict substantiation requirements for expenses relating to among other things travel entertainment and listed_property including automobiles and other_property used as a means of transportation sec_1_274-5t temporary income_tax regs fed reg date to obtain a deduction for such items the taxpayer must substantiate by either adequate_records or sufficient evidence corroborating his own statement the amount of the expense the time and place of travel or entertainment the business_purpose of the expense and the business relationship to the taxpayer of the person entertained sec_274 beale v commissioner tcmemo_2000_158 sec_1_274-5 income_tax regs to meet the adequate_records test a taxpayer must maintain an account book diary statement of expense or similar record prepared contemporaneously with the expenditure and documentary_evidence of certain expenditures -- - such as receipts or bills see sec_1_274-5 income_tax regs in combination these records must be sufficient to establish each element--amount time and place business_purpose and business relationship--of the expenditure for which a deduction is sought in the absence of adequate_records to substantiate each element of an expense under sec_274 a taxpayer may alternatively establish such element a by his own statement whether written or oral containing specific information in detail as to such element and b by other corroborative evidence sufficient to establish such element see sec_1 c income_tax regs deductions are a matter of legislative grace and the taxpayer bears the burden of establishing entitlement to any claimed deduction see rule a see also 503_us_79 292_us_435 65_tc_87 affd per curiam 540_f2d_821 5th cir the taxpayer is required to maintain records sufficient to establish the amount of his income and deductions see sec_6001 sec_1 a e income_tax regs for the most part the business records that petitioner relies upon to establish his claimed deductions do not reflect the sort of systematic record keeping that one might expect of a practicing c p a rather they more closely resemble the proverbial shoebox his extensive miscellany of documents includes photocopied bank statements checks some canceled some not credit card invoices flight log pages and so forth many of these documents contain cryptic and oftentimes indecipherable notations generally handwritten petitioner suggests various explanations for the inadequacy of his records none of which we find convincing ’ ’ on brief petitioner makes passing allegations that respondent seized all of his financial and other records together with most of cirrus’ records and that when respondent returned those records they were not in the same order or condition in which they had been when seized petitioner does not explain why he would not have retained copies of the documents that he turned over to respondent or indeed what has become of the originals even if we were to assume for sake of argument that petitioner’s allegations were true these allegations do not address the larger point that petitioner might be reguired to maintain more systematic records than he alleges to have turned over to respondent in any event petitioner offered no evidence as to how respondent’s treatment of the records hindered his ability to present his case at trial additionally petitioner suggests on brief that he once possessed certain records eg fuel purchase receipts appointment books billing records and aircraft maintenance records that would have bolstered his case but that prior to trial he had either discarded these records or no longer had them in his custody or control thereby preventing their use at trial we find petitioner’s allegations unconvincing particularly in light of the ongoing criminal investigation of petitioner before his plea agreement in moreover petitioner bears the burden_of_proof and we cannot assume that the discarded or lost records would have helped him petitioner further complains that but for respondent’s evidentiary objections and vigorous application of the federal rules of evidence he would have been able to offer sufficient evidence to substantiate his alleged expenses the short answer is that petitioner cannot carry his evidentiary burden with incompetent evidence this court is obligated to follow the continued apparently recognizing the shortcomings in his documentary_evidence petitioner seeks to overcome them by his own detailed and highly self-serving testimony as a preliminary matter we note that petitioner was not a credible witness as previously discussed he is an experienced c p a and self-professed tax expert who consciously ignored the requirements of the internal_revenue_code he offers many excuses but no good reason why his contemporaneous business records so poorly substantiate his claimed deductions and why in fact he omitted the claimed deductions from his tax returns only to assert them in niggling detail years later after being indicted and conceding that he omitted great sums of gross_income the explanations petitioner has offered---eg that he was motivated by his desire to avoid detection by various state and federal authorities who might find continued federal rules of evidence see sec_7453 71_tc_1120 at trial petitioner was represented by counsel who was given ample opportunity to respond to respondent’s evidentiary objections and to raise objections of his own regarding evidentiary matters or any other matter relating to the conduct of the trial among petitioner’s many implausible arguments is one that he believed there was no harm in his omitting the gross_income because he knew thanks to his tax expertise that he would have been entitled to even greater amounts of deductions if he had claimed them that would have eliminated any net tax_liability and in fact would have produced losses for tax purposes we do not believe that petitioner would have consciously foregone claiming such losses in the course of this proceeding we have observed in petitioner no hint of such largesse toward the fisc we do observe however that petitioner’s continued attempts to exonerate himself with such ludicrous arguments reflect adversely on his credibility the conduct of his various business activities problematical or illegal--do nothing to enhance his credibility petitioner’s demeanor on the stand his admitted criminal conduct and as discussed in more detail infra impeaching evidence originating from his criminal investigation all combine to undermine his credibility severely petitioner’s testimony struck us as in good part invention contrived to meet the needs of trial according to his self-professed knowledge if belated appreciation of the applicable legal requirements in short we are unable to give petitioner’s testimony much weight aviation_fuel petitioner seeks to deduct expenses not claimed on his return that he allegedly incurred for aviation_fuel the parties agree that petitioner is entitled to deductions for fuel expenses paid_by debits on petitioner’s great lakes account by check and by his visa credit card the credit card for taxable years and in the respective aggregate amounts of dollar_figure dollar_figure and dollar_figure the parties disagree as to whether petitioner is entitled to deductions for aviation_fuel expenditures that petitioner alleges he made in cash in the amounts of dollar_figure dollar_figure and dollar_figure for the years and respectively the parties also disagree as to whether petitioner is entitled to deductions for fuel expenses charged to petitioner’s credit card in taxable years and in the amounts of dollar_figure and dollar_figure respectively as to the claimed cash purchases of fuel petitioner has no receipts to support his expenditures petitioner attempts to fill this evidentiary void by the following methodology first petitioner uses his flight logbooks for each of the subject years to obtain the total hours that he alleges were flown in each of his aircraft next petitioner postulates the number of gallons each aircraft consumed per hour of flight to estimate the total number of gallons of fuel each of his aircraft consumed each year based on the hours he claims the aircraft were flown then to arrive at his total fuel expenses for each year petitioner postulates the average cost of a gallon of aviation_fuel for the years in question and multiplies that figure by the number of gallons he estimates each aircraft to have consumed finally petitioner subtracts from the total fuel expenses for each year the amount of fuel expenditures he has documentation for and arrives at the amount he says he must have purchased with cash in each year we find petitioner’s methodology deficient in practically every respect in particular petitioner has failed to corroborate his self-serving testimony with any competent proof as to the fuel efficiency of his aircraft or the cost of aviation_fuel during the relevant time periods indeed petitioner’s testimony leaves us unpersuaded that he actually incurred the cash expenditures _- _- moreover the evidence fails to establish that petitioner’s alleged aviation_fuel expenses--either those allegedly paid in cash or those charged to his credit card--were exclusively for business purposes petitioner testified that his aircraft were never flown for nonbusiness purposes this testimony is directly contradicted by petitioner’s prior statements during the criminal investigation of petitioner undercover cid agents posing as potential clients for romer co secretly taped conversations with petitioner the transcripts from those conversations which are part of the record in this case reveal that petitioner not only used his aircraft for recreational purposes but that he claimed personal expenses_incurred on recreational trips as business_expenses for instance during an date conversation petitioner discussed with undercover cid agents who were using the pseudonyms bill fraizer and dave hamilton the possibility of their buying his aircraft and operating it under cirrus’ charter certificate bill fraizer but if we --- if we had you keep track of our expenses cirrus could send everything to you couldn’t they nick roemer romer sure but then what you would show on your tax_return is you’re an air charter business and each of you would do it and you would show x amount of income coming in and then all of your expenses the maintenance and all of that kind of stuff but then beyond that you would deduct any other fun things you’re doing that otherwise you don’t have a place to deduct right now bill fraizer okay nick roemer romer you know your trips out to wherever dave hamilton uh-huh bill fraizer yeah nick roemer romer and you deduct all of your personal flying on it when i’d fly my airplanes i used to take a lot of ski trips out to colorado and i and i deduct all of the fuel and all of the expenses associated with those and those were just nothing but going out skiing for the weekend dave hamilton sure bill fraizer sure nick roemer romer so in terms of the income_tax side of it you can really put a big hole in your tax_return with an airplane and as long as you’re spending other money having fun doing other things you go down to florida deep sea fishing or something you take an airplane down there the irs has no knowledge of what the purpose of that trip was particularly in the light of these damning admissions we do not believe petitioner’s testimony that he used the aircraft exclusively for business purposes petitioner argues that his credit card receipts substantiate business purposes for all the aviation_fuel he purchased on his credit card the receipts do not substantiate business purposes directly petitioner argues however that entries in his flight logbooks complete the picture the photocopied pages of flight logbooks placed into evidence by petitioner contain several columns of information including generally the dates of flights the make and model of the aircraft flown and where the aircraft traveled one of the columns in the flight logbooks is entitled procedures---maneuvers petitioner contends that he contemporaneously listed the business_purpose of each flight in the flight logbooks by making notations in the procedures-- maneuvers column of the approximately flights listed in petitioner’s flight logbooks however only slightly over half have accompanying notations in the procedures-maneuvers column the notations that do exist are generally indecipherable and do not enable the court to determine the business_purpose of the subject flights ’ petitioner’s testimony whereby he attempts to supplement or explain the documentary_evidence we do not find reliable or trustworthy petitioner also offered the testimony of two witnesses cross and richard matthews matthews to establish that all of the flights in his aircraft were for business purposes we found the testimony of cross and matthews to be vague and evasive in material respects in these circumstances we are not required to and do not accept their testimony see 449_f2d_311 9th cir affg per curiam tcmemo_1969_48 266_f2d_698 9th cir affg and remanding on another issue t c memo the cryptic notations include statements such as no heater or landings one notation contains simply a check mark many of the notations are merely names without further explanation -- - 87_tc_74 shackelford v commissioner tcmemo_1994_271 in sum although petitioner was intimately familiar with the substantiation requirements of the tax code he chose not to keep adequate_records of alleged fuel expenditures that went unclaimed on his federal tax returns as filed and that he claims now to offset gross_income that he concedes he improperly omitted from his federal tax returns petitioner has failed to adequately substantiate the unagreed aviation_fuel expenses depreciation on petitioner’s aircraft in date petitioner purchased a king air-n623r aircraft king air for dollar_figure and subsequently placed it in service on his tax_return petitioner claimed no depreciation deduction with respect to the king air petitioner now asserts that he is entitled to depreciation_deductions of dollar_figure with respect to the king air based on an asserted 5-year useful_life of the aircraft and the availability of additional dollar_figure first-year depreciation pursuant to sec_179 respondent concedes that petitioner is entitled to a depreciation deduction of dollar_figure with respect to the king air based on a 7-year class_life and the half-year_convention under sec_168 sec_167 allows as a depreciation deduction a reasonable allowance for the exhaustion wear_and_tear of property used ina trade_or_business depreciation on tangible - - assets placed_in_service after date as the king air was is generally determined under the accelerated_cost_recovery_system acrs of sec_168 see sec_168 c m amusements inc v commissioner tcmemo_1993_527 application of acrs is generally mandatory and precludes computation of depreciation based on estimated_useful_life for tangible_property acquired after see c m amusements inc v commissioner supra grinalds v commissioner tcmemo_1993_66 acrs deductions are determined using the applicable_recovery_period along with prescribed depreciation methods and conventions sec_168 here the parties disagree only about the applicable_recovery_period so we confine our consideration to that issue under acrs aircraft are classified as 7-year_property sec_168 c revproc_87_56 1987_2_cb_674 asset cla sec_45 clarified and modified by revproc_88_22 1988_1_cb_785 the applicable_recovery_period for 7-year_property is years see sec_168 therefore pursuant to sec_168 petitioner must depreciate the king air over years accordingly petitioner is not entitled to additional_depreciation based on an asserted 5-year useful_life of the king air furthermore petitioner is not entitled to any allowance under sec_179 generally sec_179 permits a taxpayer to elect to expense the cost of tangible_personal_property for - - the year that the property is placed_in_service the allowance is limited to dollar_figure reduced but not below zero by the amount by which the cost of the sec_179 property placed_in_service exceeds dollar_figure see sec_179 thus the allowance is zero if the cost of the sec_179 property exceeds dollar_figure because petitioner purchased the king air in for dollar_figure no sec_179 allowance is available ’ parts and repairs for taxable_year petitioner seeks deductions totaling dollar_figure for unagreed expenses allegedly incurred for various parts and repairs required for his aircraft respondent generally contends that petitioner has failed to substantiate the business_purpose for each expenditure on the basis of our review of the documentary_evidence in the record we find that petitioner has adequately substantiated an expenditure of dollar_figure for an aircraft part he has failed however adequately to substantiate business_purpose for the remaining unagreed expenses at issue which include numerous small payments allegedly made to auto parts stores a hardware it also appears that petitioner made no proper election for the sec_179 allowance see sec_179 given our holding that petitioner is not entitled to any sec_179 allowance however we need not address this issue ‘t respondent does not contend that any of petitioner’s alleged expenditures_for parts should have been capitalized under sec_263 accordingly we do not reach this issue - store and various food vendors eg domino’s pizza and arby’s supplies petitioner seeks to deduct unagreed expenses allegedly incurred in purchasing supplies for his aviation activities in and the supplies allegedly purchased include among other things grass seed snacks e g peanuts candy soft drinks loofa sponges toothpaste mouthwash soap light bulbs tools sporting goods items a shower curtain batteries miscellaneous items from auto parts stores liquor and clothing petitioner contends that some of the alleged purchases were made with cash for these items there is no corroborating documentation to substantiate other items petitioner has entered into evidence various receipts credit card statements canceled checks and a check register none of these documents directly establish business_purpose petitioner seeks to fill these evidentiary gaps with his own self-serving testimony which we do not find credible or reliable on the basis of our review of all the evidence we conclude and hold that petitioner has failed to adequately substantiate the amounts or business purposes of his alleged supplie sec_12 petitioner’s documentary_evidence includes cash register receipts from retail department or hardware stores listing numerous purchases in generally small amounts petitioner purported to recall with great specificity the circumstances and business_purpose of individual small-dollar items on these decade-old receipts we did not find his testimony credible -- - expenditures many of which appear to reflect significant elements of personal consumption even if we were to assume arguendo that some of these expenditures were for items used aboard petitioner’s aircraft this fact would not in and of itself substantiate business_purpose for as previously discussed in the criminal investigation petitioner admitted that he used his aircraft for personal purposes even if we were to assume arguendo that some of these expenditures were for legitimate business purposes the evidentiary record does not provide a rational basis for identifying or estimating such expenditures to the exclusion of the personal expenditures that we believe are included in these unagreed expenses petitioner has failed to establish entitlement to deductions he claims for supplies labor expenses petitioner seeks to deduct as business_expenses two checks totaling dollar_figure drawn on romer co ’s checking account and made payable to jennie sheffers sheffers petitioner contends that he gave the checks to sheffers as payment for washing and waxing his aircraft the checks themselves do not have any notation as to why they were made payable to sheffers besides petitioner’s own self-serving testimony we have no corroborative evidence as to why these checks were drawn we find it telling that these checks were drawn on romer co ’s checking account rather than on the checking account set up for petitioner’s - - aviation activities petitioner admitted at trial that he used romer co ’s checking account to pay his personal expenses thus the evidence does not rule out the possibility that petitioner made the checks at issue payable to sheffers to cover personal expenses petitioner has failed to substantiate business_purpose for these payments pilot expenses petitioner contends that pilots who flew his aircraft generally charged their expenses to his credit card he also contends that he reimbursed one pilot named adrian grimm grimm dollar_figure by paying that amount directly to grimm’s creditors petitioner claims he is entitled to deduct the dollar_figure as a business_expense under sec_162 in support of his claim petitioner introduced into evidence five checks made payable to parties that petitioner contends were grimm’s creditors while the checks themselves make no mention of grimm the notations in petitioner’s check register contain such statements as adrian grimm-fuel expense for adrian or just adrian petitioner has failed adequately to establish that the payments in question were for pilot services rendered rent petitioner seeks a deduction for a check in the amount of dollar_figure for hangar rent for date on the basis of the documentary_evidence in the record we conclude that petitioner - has adequately substantiated and is entitled to the dollar_figure deduction at issue fees petitioner seeks deductions for three payments in in the respective amounts of dollar_figure dollar_figure and dollar_figure and three payments in in the respective amounts of dollar_figure dollar_figure and dollar_figure for fees petitioner has offered no evidence regarding the dollar_figure and dollar_figure payments in nor any of the three payments in consequently we deem petitioner to have conceded that these items are not deductible as for the alleged dollar_figure payment it appears--for reasons that are unclear from the record--that petitioner initially paid this amount to cross who at some undetermined later date refunded most if not all of it to petitioner ’ petitioner has failed to show that he is entitled to deduct the alleged dollar_figure payment miscellaneous cash expenditures petitioner seeks to deduct various cash expenditures that he allegedly made during the subject years for among other things aviation maps charts hotels parts and apartment furnishings respondent disallowed petitioner’s deductions for these cash expenditures petitioner admitted that a portion of the dollar_figure was refunded to him but could not recall the amount cross testified that he refunded pretty much the whole thing to petitioner - - for the vast majority of the cash expenditures he seeks to deduct petitioner has no receipts or other records of the expenditures the only proof petitioner presents to evidence these expenditures consists of his self-serving and uncorroborated testimony under the circumstances we are not required to accept this testimony and we do not see tokarski v commissioner t c pincite shackelford v commissioner tcmemo_1994_271 thus petitioner is not entitled to deduct these expenditures as to those expenditures_for which petitioner presented receipts he failed to present evidence of the business_purpose for each expenditure many of these expenditures appear to be of a personal nature accordingly petitioner is not entitled to any of the deductions sought for these expenditures subscriptions for petitioner seeks to deduct a dollar_figure subscription payment to a trade publication trade-a-plane subscription expenses with respect to trade and professional magazines relating to a taxpayer’s trade_or_business are deductible under sec_162 see 54_tc_1642 affd 457_f2d_369 9th cir in petitioner was a licensed aircraft dealer engaged in the business of buying and selling aircraft on the basis of documentary_evidence in - - the record we conclude that petitioner has adequately established entitlement to the claimed subscription expense home_office expenses petitioner claims home_office_deductions of dollar_figure and dollar_figure for taxable years and respectively petitioner alleges that because there was no office space at great lakes available to him he used space in his home as the principal_place_of_business for his aviation activities respondent denies that petitioner’s residence constituted the principal_place_of_business for petitioner’s aviation activities accordingly respondent has disallowed petitioner any deduction for home_office expense generally an individual taxpayer may not deduct expenses with respect to a dwelling_unit that the taxpayer uses as a residence during a taxable_year see sec_280a this general_rule does not apply however where the taxpayer uses a portion of the residence regularly and exclusively as either the taxpayer’s principal_place_of_business or a place of business which is used by clients or customers in meeting or dealing with the taxpayer in the normal course of the taxpayer’s business see sec_280a a and b petitioner does not allege that he met clients at his home rather he contends that ‘4 the exception provided in sec_280a c is inapplicable as petitioner has not alleged that he used any separate structure not attached to his dwelling_unit -- p7 - his home was the principal_place_of_business for his aviation activities where a taxpayer’s business is conducted in part at the taxpayer’s residence and in part at another location there are two primary considerations in determining whether the home_office gualifies as the taxpayer’s principal_place_of_business the relative importance of the functions or activities performed at each business location and the time spent at each location see 506_us_168 113_tc_106 as a threshold matter we are unpersuaded of the truth of petitioner’s allegation that he had no office space at great lakes available to him ’ for this reason alone we question whether petitioner’s home was his principal_place_of_business 's effective for taxable years beginning after date sec_280a was amended so that the term principal_place_of_business now includes a place of business that the taxpayer uses to perform administrative or management activities related to the taxpayer’s trade_or_business if there is no other fixed location of the trade_or_business where the taxpayer conducts substantial administrative or management activities sec_280a as amended by the taxpayer_relief_act_of_1997 publaw_105_34 111_stat_788 ‘ when applying for an aircraft dealer’s license petitioner represented to the minn dept of transp that he leased from great lake sec_150 sq ft of office space at the anoka airport to use as an operating base for his aircraft dealer business the issuance of an aircraft dealer’s license by the minn dept of transp to petitioner was based in part upon this representation petitioner now claims that he had no office space at great lakes and was forced to use his home to conduct business activities we find petitioner’s convenient change_of story troubling - - petitioner alleges that he used space in his home for among other things storing supplies parts and materials flight planning business planning purchasing aircraft parts and searching for aircraft sales the only proof petitioner presents to evidence these allegations consists of his self-serving and uncorroborated testimony for the reasons discussed supra we do not accept his testimony see tokarski v commissioner supra pincite shackelford v commissioner supra comparing the time that petitioner spent at home with the amount of time he spent at other places where aviation-related activities occurred supports a determination that petitioner’s home was not his principal_place_of_business see fryer v commissioner tcmemo_1974_77 nothing in the record suggests that the amount of time petitioner spent engaged in aviation- related activities at home was significant in relation to the amount of time he spent at other business locations where aviation-related activities occurred for example from petitioner’s testimony at trial we understand that a large part of his work as an aircraft dealer involved travel away from his home thus without more we cannot say that petitioner spent more time at his home_office on aircraft sales than he did traveling see commissioner v soliman supra pincite beale v commissioner tcmemo_2000_158 - - accordingly having failed to prove that his home was his principal_place_of_business petitioner is not entitled to deductions for home_office expenses automobile mileage expenses petitioner seeks to deduct minneapolis-area vehicle mileage expenses of dollar_figure dollar_figure and dollar_figure for taxable years and respectively he alleges that these expenses arose from driving his automobiles from either his residence or from romer co to among other places airports and various retailers to make purchases for his aviation activities a taxpayer’s costs of commuting to and from his place of business are nondeductible personal expenses see 413_us_838 326_us_465 63_tc_129 sec_1_162-2 and sec_1_262-1 income_tax regs a taxpayer’s costs of transportation between his residence and local job sites may be deductible if his residence serves as his principal_place_of_business and the travel is in the nature of normal and deductible business travel strohmaier v commissioner t c pincite 76_tc_839 73_tc_766 as we held above petitioner failed to prove that his residence was the principal_place_of_business for his aviation activities consequently mileage expenses for trips either to -- - or from petitioner’s residence are nondeductible commuting expenses the record provides no reliable basis for segregating petitioner’s nondeductible personal_use of his automobile from any business use eg trips from romer co to a local airport or to purchase supplies for this reason alone petitioner has failed to establish entitlement to the claimed mileage deductions even if we were to assume arguendo that whatever miles petitioner might have driven in the course of normal and deductible business travel could be on some rational basis segregated from his commuting mileage petitioner has still failed to substantiate his expenses adequately passenger automobiles are listed_property under sec_280f a thus the mileage expenses are subject_to the heightened substantiation requirements of sec_274 and no deduction is allowed with respect to the listed_property unless for each claimed expenditure or use of listed_property petitioner substantiates the requisite elements of amount time and business or investment purpose see sec_1_274-5a income_tax regs sec_1_274-5t temporary income_tax regs fed reg date petitioner has failed to satisfy these statutory requirements petitioner claims mileage expense deductions based on his application of the federal standard mileage rates to miles he estimates that he drove in business travel these mileage --- - estimates in turn he claims to base on flight logbooks some retail store receipts and a map of the minneapolis area petitioner failed to keep a mileage log and failed to document in any way the business use of his vehicles use of the federal standard mileage rates serves only to substantiate the amount of expenses see revproc_89_66 1989_2_cb_792 updated and amplified by revproc_90_59 1990_2_cb_644 petitioner’s records do not substantiate the remaining elements of time and business_purpose petitioner’s unsupported self-serving testimony did not adequately substantiate any of the necessary elements under sec_274 therefore petitioner is not entitled to deductions for his alleged automobile expenses travel_expenses petitioner contends that for each of the years at issue he is entitled to deduct unagreed travel_expenses which fall into two general categories a travel_expenses relating to petitioner’s minneapolis-based aviation activities and b travel_expenses relating to petitioner’s nashville-based employment with flagship airlines under sec_262 personal living_expenses are generally nondeductible a taxpayer may deduct travel_expenses including amounts for meals_and_lodging incurred while away from home in the pursuit of a trade_or_business sec_162 see commissioner v flowers supra pincite for purposes of sec_162 a a taxpayer is not away from home unless he or she is - - on a trip that requires sleep or rest see 389_us_299 this rule requires a stop of sufficient duration that it would normally be related toa significant increase in expenses 435_f2d_1290 lst cir affg 54_tc_1210 to be deductible as an expense incurred while away from home a travel expense must be reasonable and necessary and incurred in pursuit of business sec_162 see commissioner v flowers supra pincite to be deductible under sec_162 travel_expenses must meet the heightened substantiation requirements of sec_274 see sec_274 d a travel_expenses relating to petitioner’s minneapolis-- based aviation activities petitioner claims travel_expenses relating to his minneapolis--based aviation activities these travel_expenses include but are not limited to meals lodging rental cars tips shoe shines and laundry petitioner kept no contemporaneous log diary journal or calendar of these expenses instead petitioner presented voluminous documentary_evidence consisting of photocopies of his flight logbooks receipts canceled checks credit card statements and a check register many of these expenditures were allegedly made with cash and petitioner has offered no documentary_evidence to substantiate that they were actually made - - we have held on numerous occasions that merely presenting the court with a blizzard of receipts and other documents falls woefully short of meeting the requirements of sec_274 lynch v commissioner tcmemo_1983_173 see 72_tc_730 66_tc_879 giving petitioner the benefit of the doubt however we have painstakingly scoured petitioner’s documentary_evidence in an attempt to decipher whether in the aggregate or otherwise petitioner presented adequate_records to substantiate any of these alleged travel_expenses under sec_274 on the basis of our review of all the evidence we conclude that petitioner has failed to comply with the statutory requirements of sec_274 petitioner’s detailed but highly self-serving and noncredible testimony does nothing to cure these infirmities moreover the record does not establish which if any of the expenses at issue were incurred in connection with trips that required petitioner to sleep or rest within the meaning of united_states v correll supra so as to constitute expenses for travel away from home within the meaning of sec_162 on brief petitioner suggests that he satisfies the sleep_or_rest_rule because the typical charter flight was of such duration that faa requirements would reguire the pilot to rest for several hours nothing in the record specifically establishes however on which trips petitioner might have rested or for how long or that the duration of the rest would be - -- related to a significant increase in petitioner’s expenses see 54_tc_1210 consulting management engineer who made to 19-hour business trips during which he generally rested once or twice briefly in his automobile was not away from home within the meaning of sec_162 accordingly petitioner has failed to establish that the claimed expenses were incurred on travel away from home within the meaning of sec_162 because petitioner has not adequately substantiated the time place and business_purpose of his travel and has failed to establish that his travel was away from home within the meaning of sec_162 we also reject petitioner’s contention that he is entitled to deductions for the cost of meals and incidentals based on the applicable federal meal and incidental expense m ie per_diem rate for each day he traveled out of town on business ’ sec_1_274-5t temporary income_tax regs fed reg date grants the commissioner the authority to establish a method under which a taxpayer may elect to use a specified amount for meals and incidentals paid_or_incurred while traveling away from home in lieu of substantiating the actual costs per_diem substantiation method for the taxable years at issue commissioner established that method through revproc_89_67 1989_2_cb_795 rev_proc amplified modified and clarified by revproc_90_60 1990_2_cb_651 rev_proc although use of the federal meal and incidental expense m ie rate does eliminate some of the substantiation requirements of sec_274 essentially the cost element the taxpayer is not relieved of substantiating the time place and business_purpose of the travel see sec_1_274-5t temporary income_tax regs fed reg date rev_proc continued -- - b travel_expenses relating to petitioner’s nashville- based employment with flagship airlines background on date flagship airlines a division of american airlines inc in nashville tennessee employed petitioner as a pilot ’ shortly thereafter petitioner moved to tennessee from march through date and thereafter petitioner resided in antioch tennessee located near nashville ’ after moving to tennessee petitioner leased his house in minneapolis to an unidentified tenant after moving to tennessee petitioner divided his time between nashville and minneapolis where he continued to attend to his accounting business and his other aviation activities petitioner alleges that he would typically spend two three and sometimes four consecutive days in nashville and then return to minneapolis continued at sec c b pincite revproc_89_67 at sec c b pincite ‘8 on his federal_income_tax return petitioner reported wages from flagship airlines in the amount of dollar_figure for purposes of simplicity and clarity and because antioch is located close to nashville references hereinafter to nashville will include references to antioch the record does not specifically indicate where petitioner lodged when he was in minneapolis after moving to tennessee - - petitioner contends that minneapolis remained his tax_home in for petitioner seeks to deduct as travel_expenses dollar_figure of duplicate living_expenses that he allegedly incurred while residing and working in nashville away from his tax_home of minneapolis these asserted deductions fall into three general categories rent and utilities for an apartment in nashville meals and incidental_expenses relating to his nashville employment and expenditures_for the purchase and repair of two automobiles in nashville petitioner argues alternatively that if nashville were his tax_home in he is entitled to deduct dollar_figure for duplicate living costs he incurred in minneapolis respondent contends that petitioner’s tax_home for taxable_year was nashville and that petitioner is not entitled to deduct living costs incurred in minneapolis discussion petitioner’s tax_home in the context of sec_162 home generally means the vicinity of the taxpayer’s principal place of employment rather than the site of the taxpayer’s personal_residence see 74_tc_578 when a taxpayer has businesses or employment in two places distant from one another his tax_home for purposes of sec_162 i sec_21 to the extent that petitioner has asserted deductions for his costs of traveling between minneapolis and nashville these costs appear to be embodied in the asserted travel_expenses previously addressed -- - the city where he spends more of his time engages in greater business activity and derives a greater proportion of his income see 490_f2d_1249 6th cir revg tcmemo_1972_154 56_tc_1092 lagrone v commissioner tcmemo_1988_451 affd without published opinion 876_f2d_893 5th cir for this purpose the place where the taxpayer maintains his or her permanent residence may be relevant but is not conclusive see ziporyn v commissioner tcmemo_1997_151 lagrone v commissioner supra during petitioner had two business activities---his accounting and aviation activities in minneapolis--that were distant from his employment with flagship airlines in nashville although petitioner maintained his personal_residence in nashville for most of all other factors point toward minneapolis as his tax_home it appears that in petitioner spent less than half his days in nashville working for flagship airlines and the remaining time in minneapolis working for romer co and performing other aviation activities more significantly petitioner earned only dollar_figure in income from flagship airlines in while earning gross_income of approximately dollar_figure from romer co in minneapolis and an additional dollar_figure from his other aviation activities based in minneapolis we conclude that minneapolis was petitioner’s tax_home nashville rent from date and at all relevant times thereafter petitioner maintained his personal_residence in nashville where he rented and furnished an apartment as far as the record reveals he maintained no regular living quarters in minneapolis his tax_home petitioner seeks deductions for his nashville rent and utility expenses as far as the record reveals petitioner’s decision to maintain his personal_residence at his minor employment post in nashville rather than near his principal_place_of_business in minneapolis was a personal choice made for the sake of his own convenience such a decision does not operate to convert personal living_expenses into deductible business_expenses see 57_tc_427 affd without published op465_f2d_1399 2d cir lagrone v commissioner supra there is no evidence in the record to indicate that flagship airlines required petitioner to live in the nashville area in this regard this case is less like 615_f2d_493 9th cir allowing commercial pilot’s travel_expenses between his san francisco california airline duty post and reno nevada where he resided as a condition of retaining employment with the nevada air national guard upon which petitioner relies than dean v commissioner tcmemo_1976_379 disallowing commercial pilot’s travel_expenses between his new york airline duty post and kansas -- -- city missouri where he resided for personal reasons to which his employment with the kansas air force reserve was incidental in any event the record provides no basis for determining what portion if any of petitioner’s rental expenses might be properly attributable to his presence in nashville for the performance of business duties as opposed to his presence there for personal reasons we conclude and hold that the nashville apartment rental and utilities expenses are not deductible travel_expenses under sec_162 nashville meals and incidental_expenses as previously discussed the evidence in the record does not adequately substantiate the time place or business_purpose of petitioner’s travel petitioner seems to suggest that with respect to the days he resided in nashville the time place and business_purpose of his travel are substantiated because of his employment there with flagship airlines we disagree particularly as to the element of business_purpose as previously discussed for the majority of taxable_year petitioner’s sole personal_residence was in nashville petitioner failed to establish the requisite business_purpose for his stays in nashville to the extent petitioner’s claim is predicated on travel_expenses that might have been incurred in connection with his employment with flagship airlines while he was away from his - - nashville residence petitioner has also failed to establish entitlement to deductible business_expenses from evidence in the record it appears that in flagship airlines used the per_diem substantiation method to reimburse petitioner dollar_figure in travel_expenses under an accountable_plan within the meaning of sec_1_62-2 income_tax regs amounts treated as paid to an employee under an accountable_plan are excluded from the employee’s income see sec_1_62-2 income_tax regs accordingly no deduction is allowed with respect to such reimbursed expenses if the employer reimbursement is less than the deductible business_expenses the employee incurred on behalf of his employer deductibility of the excess business_expenses by the employee is subject_to the heightened substantiation requirements of sec_274 see sec_1_274-5t f temporary income_tax regs fed reg date with respect to the business travel for which flagship airlines made reimbursements petitioner has failed to substantiate that he incurred deductible business_expenses in excess of the reimbursements accordingly petitioner is entitled to no deduction with respect to such travel the form_w-2 petitioner received from flagship airlines for taxable_year listed dollar_figure in box of the form and used the designation code l the code l designation is used in box to report employee expense payments made under an accountable_plan where the payment is equal to government specified rates such as the per_diem substantiation method see instructions for forms w-2 and w-2p - al --- in sum petitioner is not entitled to deductions for meals and incidental_expenses relating to his nashville residency or employment iv nashville automobile expenses petitioner alleges that he purchased two junk airport cars for his transportation in nashville and that he used them solely because he was conducting business in nashville he seeks to deduct dollar_figure relating to the purchase and repair of these cars petitioner has failed to prove that the automobiles he purchased in nashville were used solely for business purposes it stands to reason that they were not given that petitioner’s personal_residence was in nashville even if we were to assume arguendo that the automobiles were used for business purposes petitioner’s claim for deductions still must fail sec_263 denies a deduction for the cost of acquisition of machinery and equipment and similar_property having a substantial life beyond the taxable_year see sec_1_263_a_-1 and a -2 a income_tax regs moreover automobiles are listed_property under sec_280f thereby requiring petitioner to meet the heightened substantiation requirements of sec_274 petitioner has failed to establish with any particularity the time and place of the use of the cars or the business_purpose of each use petitioner thus fails to meet the substantiation requirements of sec_274 - -- in conclusion petitioner is not entitled to his claimed deductions for unagreed travel_expenses entertainment_expenses petitioner seeks to deduct as entertainment_expenses dollar_figure and dollar_figure respectively for two meals that he alleges were business related deductibility of these items is governed by sec_274 see sec_274 petitioner failed to offer direct evidence substantiating the amount time place or date of these claimed entertainment expenditures see sec_1_274-5 income_tax regs accordingly petitioner is entitled to no deduction for his alleged entertainment_expenses alleged interest payments to petitioner’s mother petitioner alleges that he borrowed money from his mother during the subject years to fund his aviation activities he seeks to deduct three checks totaling dollar_figure allegedly paid to his mother for interest on the alleged loan he concedes that there is no documentary_evidence of either the loan or his obligation to repay his mother sec_163 generally allows a deduction for all interest_paid or accrued within the taxable_year on indebtedness indebtedness means an unconditional and legally enforceable obligation for the payment of money see 115_f2d_856 3d cir affg 41_bta_319 68_tc_792 -- - we review the economic realities of transactions between family members with heightened scrutiny see 55_tc_172 the presumption is that a transfer between closely related parties is a gift id petitioner has not overcome this presumption apart from petitioner’s own self-serving testimony there are no indicia of an underlying legally enforceable indebtedness between petitioner and his mother see 40_tc_563 indeed petitioner did not even show the amount of the loan furthermore even if we were to assume arguendo that there was bona_fide indebtedness between petitioner and his mother he has failed to establish that any interest_paid was properly allocable to a trade_or_business or met any of the other exceptions to the statutory rule disallowing deductions for personal_interest see sec_163 petitioner is not entitled to the claimed deductions for alleged interest payments to his mother b civil_fraud penalty if any part of any underpayment of a tax required to be shown on a return is due to fraud there is an addition_to_tax of percent of the portion of the underpayment that is attributable to fraud see sec_6663 respondent must prove fraud by clear_and_convincing evidence see sec_7454 rule b fraud is the intentional wrongdoing of a taxpayer to evade tax believed to be - owing see 92_tc_661 a finding of fraud reguires a showing that the taxpayer intended to evade tax known or believed to be owing by conduct intended to conceal mislead or otherwise prevent the collection_of_taxes see 781_f2d_1566 11th cir affg tcmemo_1985_63 fraud is never presumed but must be proved by clear_and_convincing evidence see petzoldt v commissioner supra pincite because direct proof of a taxpayer’s intent is rarely available however fraudulent intent may be established by circumstantial evidence see 317_us_492 bradford v commissioner f 2d 9th cir affg tcmemo_1984_601 korecky v commissioner supra pincite 79_tc_995 affd 748_f2d_331 6th cir the taxpayer’s entire course of conduct may be examined to establish the requisite intent see 56_tc_213 53_tc_96 for the reasons described below we conclude that respondent has established that petitioner had underpayments for each of the years in issue and that he had fraudulent intent with respect thereto based on the stipulations regarding both petitioner’s unreported income and the deductions allowed by respondent and based on our holdings herein regarding petitioner’s alleged - -- additional deductions respondent offered clear_and_convincing evidence that there were underpayments for each year in issue see house v commissioner tcmemo_2000_22 the record is replete with evidence of petitioner’s fraudulent intent over a 3-year period petitioner consistently underreported large amounts of gross_receipts and net_income a consistent pattern of underreporting large amounts of income is evidence of fraud see 348_us_121 301_f2d_484 5th cir affg tcmemo_1959_172 petitioner is a tax professional and a c p a who prepares tax returns for a living and represents clients before the internal_revenue_service his experience and knowledge of the tax law sec_1s circumstantial evidence that he was aware of his obligation to report his income and that in consistently underreporting his income he did so with fraudulent intent see 732_f2d_1459 6th cir affg tcmemo_1982_603 55_tc_85 as previously discussed his explanations of his unreported income were implausible and unconvincing we view petitioner’s lack of credibility as circumstantial evidence of his fraudulent intent petitioner boasted to the undercover cid agents that he disguised personal expenses_incurred on personal trips in his aircraft as business_expenses the use of a business to cloak -- - the personal nature of expenses is evidence of fraud see 89_tc_1280 42_tc_358 affd 355_f2d_929 6th cir although it appears that the accounting_records of romer co were adequate for petitioner to accurately determine and report his income therefrom he chose not to with respect to his aviation activities petitioner failed to maintain adequate_records of his income and expenses and this failure is circumstantial evidence of fraud see bradford v commissioner supra pincite 102_tc_632 finally in petitioner pleaded guilty to one count of violating sec_7203 for the willful failure to supply information on his federal_income_tax return in his plea agreement petitioner admitted that the civil_fraud penalty and interest applies to whatever additional tax he is deemed to owe after pursuing remaining civil remedies for tax years petitioner’s admission even if assumed to be nonbinding is at the least evidence that his underpayments for these years were due to fraud see williams v commissioner tcmemo_1994_560 in sum respondent has shown by clear_and_convincing evidence that petitioner underreported his income in the subject years with the fraudulent intent of evading taxes petitioner has failed to rebut the presumption that the entire underpayment a7 - for each of the years in issue is due to fraud see sec_6663 accordingly petitioner is liable for the fraud_penalty under sec_6663 for each of the years in issue based upon the underpayments to be determined in the rule_155_computations cc statute_of_limitations petitioner filed his federal_income_tax return for taxable_year on date respondent mailed the notice_of_deficiency on date with little elaboration petitioner alleges on brief that the period of limitations has run for taxable_year generally the amount of any_tax must be assessed within years after a return is filed see sec_6501 if the commissioner proves that the taxpayer’s return was false or fraudulent with the intent to evade tax however tax may be assessed at any time sec_6501 we have held that respondent proved by clear_and_convincing evidence that petitioner’s tax returns for the years through were filed with the fraudulent intent to evade taxes accordingly respondent is not time barred from assessing tax_liability against petitioner for any of the subject years we have considered all other arguments advanced by petitioner for a contrary result and find them to be moot irrelevant or without merit to reflect the foregoing decision will be entered under rule