t c summary opinion united_states tax_court phillip doris petitioner v commissioner of internal revenue respondent docket no 25551-09s filed date phillip doris pro_se audra m dineen for respondent haines judge this case was heard pursuant to sec_7463 of the internal_revenue_code in effect when the petition was filed pursuant to sec_7463 the decision to be entered is not reviewable by any other court and this opinion shall not be treated as precedent for any other case 1unless otherwise indicated all section references are to the internal_revenue_code as amended for the year at issue and rule references are to the tax_court rules_of_practice and procedure amounts are rounded to the nearest dollar respondent determined a deficiency of dollar_figure and an accuracy-related_penalty pursuant to sec_6662 of dollar_figure with respect to petitioner’s federal_income_tax after concessions the issues for decision are whether petitioner is entitled to deductions claimed on schedule a itemized_deductions for unreimbursed employee business_expenses whether petitioner is entitled to deductions claimed on schedule c profit or loss from business for expenses related to his kart racing activity and whether petitioner is liable for the accuracy-related_penalty pursuant to sec_6662 background some of the facts have been stipulated and are so found the stipulation of facts and the supplemental stipulation of facts together with the attached exhibits are incorporated herein by this reference at the time petitioner filed his petition he resided in california petitioner is employed as a correctional officer by the state of california at san quentin state prison san quentin and has held this position since in petitioner worked an average of hours per week at san quentin earning wages of dollar_figure as a correctional officer petitioner is required to complete hours of annual training covering among other things weapons qualification use of pepper spray use of force sexual harassment cell extractions and gang activity this training is provided by the in-service training department at san quentin to teach correctional officers the proper techniques to use on the job petitioner is also required to complete a quarterly weapons qualifications test this test is conducted at san quentin and san quentin provides all necessary weapons and ammunition for this test correctional officers at san quentin are required to purchase two types of uniforms class a uniforms which are formal dress uniforms must be worn by a correctional officer for certain types of activities such as public posts court details the transportation of inmates and other special events class b uniforms are more casual and consist of either a pair of jeans and a shirt or a jumpsuit petitioner enrolled in additional self-defense instruction and practiced martial arts not required by san quentin he also purchased ammunition for personal_use as well as tactical trousers a radio holder pepper spray a baton and a lapel none of these purchases were required by san quentin petitioner spent much of his spare time at raceways and working on race karts kart racing activity petitioner began racing karts in the early 1980s and enjoyed racing karts and being around speedways in petitioner began offering karts to customers for rent he used the name doris racing for this activity and charged dollar_figure for minutes of use of his karts doris racing was the first time petitioner tried to operate a kart racing activity or any other activity in this manner petitioner did not advertise doris racing in local publications petitioner did not maintain a separate bank account for doris racing petitioner’s records consist of handwritten notes and certain receipts related to doris racing petitioner’s records were created at the end of every month petitioner did not keep a log in tracking his income and expenses from doris racing petitioner’s kart racing activity never earned a profit and in petitioner stopped operating doris racing on date respondent issued a statutory_notice_of_deficiency to petitioner denying his schedule a deductions for unreimbursed employee business_expenses and schedule c deductions with respect to doris racing on date petitioner timely mailed his petition to this court i unreimbursed employee business_expenses discussion on his schedule a petitioner reported unreimbursed employee business_expenses consisting of the following dollar_figure uniform purchases big_number uniform cleaning subscriptions self-defense instruction big_number weapons range fees and ammunition big_number big_number deductions are a matter of legislative grace and the taxpayer must prove he is entitled to the deductions claimed rule a 292_us_435 sec_162 provides that there shall be allowed as a deduction all the ordinary and necessary expenses paid_or_incurred during the taxable_year in carrying on any trade_or_business taxpayers are required to maintain records sufficient to establish the amounts of allowable deductions and to enable the commissioner to determine the correct_tax liability sec_6001 112_tc_183 respondent disallowed each of petitioner’s above-listed deductions as personal we consider each in the order listed uniform purchases and uniform cleaning petitioner claimed a deduction for uniforms purchased and uniform cleaning for his job as a correctional officer at san quentin expenses for work clothing are deductible if the clothing or uniform is of a type specifically required as a condition_of_employment the uniform is not adaptable to general use as ordinary clothing and the uniforms are not worn as ordinary clothing 30_tc_757 wasik v commissioner tcmemo_2007_148 beckey v commissioner tcmemo_1994_514 petitioner was required to purchase uniforms for his job at san quentin and we are satisfied that at least the class a uniforms required by san quentin are not adaptable to general use and are not worn as ordinary clothing nonetheless petitioner received a uniform allowance from san quentin of dollar_figure in a uniform receipt for dollar_figure was the only evidence petitioner produced outside of his own testimony to substantiate his claimed uniform purchase expense because petitioner received an allowance in excess of his substantiated costs he is not entitled to a deduction petitioner’s only evidence to substantiate his claimed uniform cleaning expense is a credit card statement showing an dollar_figure dry cleaning charge the credit card statement does not state whether this expense was incurred to clean petitioner’s uniforms further even if we were to assume this expense was incurred for that purpose the dollar_figure fits within petitioner’s uniform allowance for accordingly we sustain respondent’s determination with respect to uniform purchases and cleaning subscriptions petitioner has failed to present any evidence to substantiate his dollar_figure claimed deduction for subscriptions accordingly we sustain respondent’s determination with respect to the subscriptions self-defense instruction expenditures made by a taxpayer for education are deductible with certain exceptions not relevant here if the education either maintains or improves skills required by the individual in his employment or other trade_or_business or meets the express requirements of the individual’s employer or the requirements of applicable law or regulations imposed as a condition to the retention by the individual of an established employment relationship status or rate of compensation sec_1_162-5 income_tax regs whether education maintains or improves skills required by the taxpayer in his business is a question of fact 77_tc_1124 affd without published opinion 9th cir date joseph v commissioner tcmemo_2005_169 the fact that a taxpayer’s education is helpful to him in the performance of his duties does not establish that its cost is a deductible business_expense joseph v commissioner supra taxpayers must show that there is a direct and proximate relationship between the education expense and the skills required in their business boser v commissioner supra pincite petitioner conceded at trial that outside self-defense instruction was not required by san quentin he decided to take 2otherwise qualifying expenses are not deductible if the education is required in order to meet the minimum educational requirements for qualification in the taxpayer’s employment or qualifies the taxpayer for a new trade_or_business sec_1_162-5 income_tax regs self-defense classes because he felt that the extra knowledge would help him deal with the dangers that come with working at a prison all correctional officers at san quentin received hours of annual training including training on the use of force petitioner has failed to present any evidence describing the nature of his self-defense instruction and whether such training is consistent with the training required by san quentin further petitioner has not presented any evidence to substantiate the cost and amount_paid for the claimed deduction accordingly we sustain respondent’s determination with respect to the self-defense instruction weapons range fees and ammunition petitioner presented four documents to substantiate miscellaneous weapons expenses totaling approximately dollar_figure the first document is an invoice for an dollar_figure expense related to petitioner’s personal firearm petitioner has not presented proof of payment with respect to this expense accordingly we sustain respondent’s determination with respect to the firearm the second and third documents are receipts for purchases from quartermaster a uniform and equipment manufacturing company the first receipt dated date shows a payment of dollar_figure with petitioner’s credit card for tactical trousers a radio holder and pepper spray the second receipt dated date shows a payment of dollar_figure with petitioner’s credit card for two pairs of tactical pants a baton and a lapel petitioner has substantiated that these expenses were incurred however he has not presented any evidence outside of his own self-serving testimony to establish that they were required for his job at san quentin accordingly we sustain respondent’s determination with respect to petitioner’s purchases from quartermaster next petitioner presented a dollar_figure receipt from northbay firearms for weapon cleaning petitioner conceded that this expense was incurred to clean his personal firearm accordingly we sustain respondent’s determination with respect to petitioner’s expense at northbay firearms finally petitioner has failed to present any evidence of expenses_incurred with respect to range fees or ammunition accordingly we sustain respondent’s determination with respect to range fees and ammunition ii petitioner’s kart racing activity we must next decide whether petitioner’s kart racing activity for amounts to a trade_or_business pursuant to sec_162 and if so whether petitioner has substantiated his claimed deductions with respect to this activity to be engaged in a trade_or_business an individual must be involved in an activity with continuity and regularity and the primary purpose for engaging in the activity must be for income or profit 480_us_23 a sporadic activity a hobby or an amusement diversion does not qualify id deciding whether an individual is carrying_on_a_trade_or_business requires an examination of the facts involved in each case 312_us_212 under sec_183 if an individual engages in an activity without the primary objective of making a profit deductions attributable to the activity are allowable only to the extent of gross_income from the activity see 72_tc_28 the court_of_appeals for the ninth circuit to which an appeal in this case would lie absent stipulation to the contrary has held that an activity is engaged in for profit if the taxpayer’s predominant primary or principal objective in engaging in the activity was to realize an economic profit independent of tax savings 4_f3d_709 9th cir affg tcmemo_1991_212 the taxpayer generally bears the burden of establishing that the activity was engaged in for profit see rule a sec_1_183-2 income_tax regs sets forth a nonexclusive list of factors to be considered in evaluating a taxpayer’s profit objective the manner in which the taxpayer carries on the activity the expertise of the taxpayer or his advisers 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 losses with respect to the activity the amount of occasional profits if any from the activity the financial status of the taxpayer and elements of personal pleasure or recreation 781_f2d_724 9th cir affg lahr v commissioner tcmemo_1984_472 91_tc_686 n affd 893_f2d_656 4th cir 72_tc_411 affd without published opinion 647_f2d_170 9th cir sec_1_183-2 income_tax regs no single factor or group of factors is determinative golanty v commissioner supra pincite 70_tc_715 affd 615_f2d_578 2d cir sec_1_183-2 income_tax regs a final_determination is made only after considering all facts and circumstances indep elec supply inc v commissioner supra pincite antonides v commissioner supra pincite golanty v commissioner supra pincite the proper focus of the test is the taxpayer’s subjective intent however objective indicia may be used to establish that intent 864_f2d_93 9th cir affg 88_tc_1086 see also wolf v commissioner supra pincite indep elec supply inc v commissioner supra pincite the expectation of making a profit need not be reasonable 85_tc_557 78_tc_642 affd without published opinion 702_f2d_1205 d c cir golanty v commissioner supra pincite however greater weight is given to objective facts than to a taxpayer’s self-serving statement of intent indep elec supply inc v commissioner supra pincite antonides v commissioner supra pincite 84_tc_1244 affd 792_f2d_1256 4th cir to make our determination we address the nine factors found in sec_1_183-2 income_tax regs see lowe v commissioner tcmemo_2010_129 the manner in which the taxpayer carries on the activity the fact that the taxpayer carries on the activity in a businesslike manner may indicate that the activity is engaged in for profit sec_1_183-2 income_tax regs three common inquiries are considered in this context whether the taxpayer maintained complete and accurate books_and_records for the activity whether the taxpayer conducted the activity in a manner substantially_similar to those of other comparable activities that were profitable and whether the taxpayer changed operating procedures adopted new techniques or abandoned unprofitable methods in a manner consistent with an intent to improve profitability giles v commissioner tcmemo_2005_28 sec_1_183-2 income_tax regs maintaining complete and accurate books_and_records may indicate that an activity is engaged in for profit rozzano v commissioner tcmemo_2007_177 petitioner’s recordkeeping system was limited to handwritten notes and various receipts in a file petitioner’s handwritten notes were not produced contemporaneously with his activity but were produced once a month further petitioner failed to maintain any records of his income and expenses from doris racing thus petitioner has not shown that he maintained complete and accurate books_and_records for doris racing conducting an activity in a manner substantially_similar to other activities of the same nature can indicate that the activity is engaged in for profit remler v commissioner tcmemo_2005_265 indicators of such include advertising maintaining a separate business bank account the development of a written business plan and having a plausible strategy for earning a profit id petitioner did not present a written business plan for doris racing further he admitted that he used his personal bank account and credit cards for purchases related to doris racing petitioner did not advertise locally but he testified that he paid individuals in foreign countries to recruit clients he further testified that he took promotional pictures of his clients on the racetrack petitioner failed however to present any substantive evidence of advertising none of the individuals petitioner claims to have hired testified at trial and petitioner failed to present any documentation of the tasks performed by these individuals or proof that they were paid petitioner also failed to describe how pictures of his clients on the racetrack were used for promotions or present any evidence of such promotions accordingly petitioner has failed to demonstrate that he conducted doris racing in a manner similar to other kart racing businesses changing operating methods adopting new techniques or abandoning unprofitable methods in a manner consistent with an intent to improve profitability may indicate that the activity is engaged in for profit giles v commissioner supra see also sec_1_183-2 income_tax regs doris racing was never profitable yet petitioner never adopted new techniques such as local_advertising petitioner abandoned doris racing because it was unprofitable without attempting to make any substantive changes to his alleged business model this does not demonstrate an intent to improve profitability petitioner has not shown that he carried on doris racing in a businesslike manner accordingly this factor favors respondent the expertise of the taxpayer or his advisers preparation for the activity by extensive study of its accepted business economic and scientific practices or consultation with those who are expert therein may indicate that the taxpayer has a profit_motive where the taxpayer carries on the activity in accordance with such practices sec_1 b income_tax regs in analyzing this factor a distinction must be drawn between expertise in the mechanics of an activity and expertise in the business practices of the activity zidar v commissioner tcmemo_2001_200 citing 809_f2d_355 7th cir affg t c memo in zidar v commissioner supra we held that a taxpayer’s stock car racing activity was an activity_not_engaged_in_for_profit where the taxpayer had a longstanding interest in stock car racing but no expertise in the economics or business of owning a stock car the facts of this case are analogous petitioner had a longstanding interest in kart racing but there is no evidence that he studied or understood the accepted business practices of kart racing or consulted experts in the field petitioner testified that he had been involved in racing and had seen how it works he further testified he was familiar with what people in the kart racing business do petitioner’s self-serving testimony does not establish an understanding of the kart racing business accordingly this factor favors respondent the time and effort expended by the taxpayer in carrying on the activity the time and effort devoted to an activity may indicate that the activity is engaged in for profit particularly where the activity does not have a substantial personal or recreational aspect sec_1_183-2 income_tax regs see also sousa v commissioner tcmemo_1989_581 amount of time spent on a fishing and boating activity not necessarily indicative of profit objective where taxpayer derived great personal pleasure from the activity a taxpayer’s withdrawal from another occupation to devote most of his time to the activity may also indicate that the activity is engaged in for profit sec_1_183-2 income_tax regs although petitioner devoted a substantial amount of his spare time to his kart racing activity in the record reflects that he derived a great deal of personal pleasure from the activity accordingly the amount of time petitioner spent on the activity is not necessarily indicative of a profit objective further petitioner’s primary occupation in was as a correctional officer for san quentin petitioner worked at san quentin approximately hours per week and he has not presented any evidence that his work schedule at san quentin was scaled down because of the time he spent working on doris racing accordingly this factor favors respondent the expectation that assets used in the activity may appreciate in value the term ‘profit’ encompasses appreciation in the value of assets such as land used in the activity sec_1_183-2 income_tax regs petitioner did not argue or produce other evidence to show that he bought assets for doris racing with the expectation that they would appreciate in value accordingly this factor favors respondent the success of the taxpayer in carrying on other similar or dissimilar activities 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 sec_1_183-2 income_tax regs petitioner does not have a history of carrying on similar activities his only other source_of_income was his job at san quentin accordingly this factor favors respondent the taxpayer’s history of income or losses with respect to the activity a taxpayer’s history of income or loss with respect to an activity may indicate the presence or absence of a profit objective sec_1_183-2 income_tax regs see also golanty v commissioner t c pincite a series of losses during the startup phase of an activity does not necessarily indicate the activity is not engaged in for profit sec_1 b income_tax regs doris racing was never a profitable activity however lack of profitability in the startup stage is not unusual for a small_business accordingly we find this factor neutral the amount of occasional profits if any from the activity the amount of profits in relation to the amount of losses_incurred and in relation to the amount of the taxpayer’s investment and the value of the assets used in the activity may provide useful criteria in determining the taxpayer’s intent sec_1_183-2 income_tax regs a n opportunity to earn a substantial ultimate profit in a highly speculative venture is ordinarily sufficient to indicate that the activity is engaged in for profit even though losses or only occasional small profits are actually generated id as discussed above doris racing was never profitable petitioner did not present a written business plan or demonstrate any strategic initiative towards making it financially successful he has failed to present any evidence including speculative evidence that doris racing had the opportunity to earn a profit accordingly this factor favors respondent the financial status of the taxpayer substantial income from sources other than the activity particularly if the losses from the activity generate substantial tax benefits may indicate that the activity is not engaged in for profit especially if there are personal or recreational elements involved sec_1_183-2 income_tax regs petitioner earned wage income of dollar_figure from his job as a correctional officer at san quentin because petitioner earned significant income from a source other than doris racing this factor favors respondent elements of personal pleasure or recreation the presence of personal motives in carrying on of an activity may indicate that the activity is not engaged in for profit especially where there are recreational or personal elements involved sec_1_183-2 income_tax regs ‘ w here the possibility for profit is small given all the other factors and the possibility for gratification is substantial it is clear that the latter possibility constitutes the primary motivation for the activity ’ dodge v commissioner tcmemo_1998_89 quoting burger v commissioner t c memo affd without published opinion 188_f3d_507 6th cir petitioner conceded that he enjoys being involved in kart racing he began racing karts in the early 1980s and has been around kart racing ever since it is clear from the record that petitioner derived significant personal pleasure and recreation from doris racing accordingly this factor favors respondent after considering all of the above factors as applied to the unique facts and circumstances of this case we conclude that doris racing was an activity_not_engaged_in_for_profit within the meaning of sec_183 as a result we sustain respondent’s determination with respect to petitioner’s schedule c deductions iii sec_6662 penalty sec_6662 and b imposes a penalty equal to percent of the amount of an underpayment attributable to negligence or disregard of rules or regulations negligence includes any failure to make a reasonable attempt to comply with the provisions of the internal_revenue_code including any failure to maintain adequate books_and_records or to substantiate items properly sec_6662 sec_1_6662-3 income_tax regs petitioner’s failure to produce records substantiating his schedule a itemized_deductions supports the imposition of the accuracy-related_penalty for negligence with respect to those deductions for further petitioner’s attempt to deduct expenses from a personal activity supports the imposition of the accuracy-related_penalty for negligence with respect to his schedule c deductions for sec_6662 and b imposes an accuracy-related_penalty upon any underpayment_of_tax resulting from a substantial_understatement_of_income_tax the penalty is equal to percent of the portion of any underpayment attributable to a substantial_understatement_of_income_tax id the term substantial_understatement is defined as exceeding the greater of percent of the tax required to be shown on the return for the taxable_year or dollar_figure sec_6662 the applicability of sec_6662 will depend on the magnitude of the understatement of income_tax as calculated under rule if petitioner’s understatement of income_tax as calculated under rule exceeds the greater of dollar_figure or percent of the tax required to be shown on the return in respondent will have met his burden of production under sec_7491 if not respondent will have failed to meet his burden of production under sec_7491 an accuracy-related_penalty is not imposed on any portion of the underpayment as to which the taxpayer acted with reasonable_cause and in good_faith sec_6664 the taxpayer bears the burden_of_proof with regard to those issues 116_tc_438 petitioner has failed to show reasonable_cause substantial_authority or any other basis for reducing the penalties accordingly we find petitioner liable for the sec_6662 penalty for as commensurate with respondent’s concessions and our holding see id pincite in reaching our holdings we have considered all arguments made and to the extent not mentioned we conclude that they are moot irrelevant or without merit to reflect the foregoing decision will be entered under rule


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 plr-119240-18 date date re ------------------------------------------------------------ legend donor spouse year year trust a_trust b_trust c trust d trust e trust f cpa - --------------------------------------------- - -------------------------------------------- - ------- - ------- - -------------------------------- - ------------------------------------ - ---------------------------------- - ------------------------------------ - --------------------------------------- - -------------------------------------- - ----------------- dear --------------------------- this letter responds to the letter dated date submitted by your authorized representative requesting an extension of time pursuant to sec_2642 of the internal_revenue_code and sec_301_9100-3 of the procedure and administration regulations to make an election under sec_2632 to opt_out of the generation-skipping_transfer gst_exemption automatic allocation rules under sec_2632 with respect to transfers to certain trusts facts the facts submitted and the representations made are as follows plr-119240-18 in year a date after date donor created three irrevocable trusts trust a_trust b and trust c for the primary benefit of his children and his children’s issue in year spouse created three trusts trust d trust e and trust f for the primary benefit of her sister and her nephews trusts a through f have gst tax potential donor made gifts to trusts a through c in year and spouse made gifts to trusts d through f in year donor and spouse retained cpa to provide advice and prepare their year and year form sec_709 united_states gift and generation-skipping_transfer_tax return reporting the year and year transfers to the trusts both donor and spouse signified their consent to treat the year and year transfers as made one-half by the respective donor and one-half by the respective spouse under sec_2513 although donor and spouse did not intend for gst_exemption to be allocated to trust a_trust b and trusts d through f cpa erroneously failed to elect out of the automatic allocation of gst_exemption for the year and year transfers to those trusts new counsel discovered these errors upon review of the form sec_709 donor and spouse request an extension of time to elect out of the automatic allocation rules with respect to the year and year transfers to trust a_trust b and trusts d through f law and analysis sec_2513 provides generally that if both spouses consent then a gift made by one spouse to any person other than the donor’s spouse is considered for purposes of the gift_tax as made one-half by the donor and one-half by the donor’s spouse but only if at the time of the gift each spouse is a citizen or resident_of_the_united_states sec_2601 imposes a tax on every generation-skipping_transfer gst made by a transferor to a skip_person a gst is defined under sec_2611 as a taxable_distribution a taxable_termination and a direct_skip sec_2602 provides that the amount of gst tax imposed by sec_2601 is the taxable_amount multiplied by the applicable_rate sec_2641 defines the applicable_rate as the product of the maximum_federal_estate_tax_rate and the inclusion_ratio with respect to the transfer sec_2631 provides that for purposes of determining the inclusion_ratio every individual shall be allowed a gst_exemption amount which may be allocated by such individual or his executor to any property with respect to which such individual is the transferor sec_2631 provides that any allocation under sec_2631 once made shall be irrevocable plr-119240-18 sec_2631 provides that for purposes of sec_2631 the gst_exemption amount for any calendar_year shall be equal to the basic exclusion amount under sec_2010 for such calendar_year sec_2632 provides that any allocation by an individual of his or her gst_exemption under sec_2631 may be made at any time on or before the date prescribed for filing the estate_tax_return for such individual’s estate determined with regard to extensions regardless of whether such a return is required to be filed sec_2632 provides that the manner in which allocations are to be made shall be prescribed by forms or regulations issued by the secretary sec_2632 provides that if any individual makes an indirect_skip during such individual’s lifetime any unused portion of such individual’s gst_exemption is treated as allocated to the property transferred to the extent necessary to make the inclusion_ratio for such property zero if the amount of the indirect_skip exceeds such unused portion the entire unused portion shall be allocated to the property transferred under sec_2632 the term indirect_skip means any transfer of property other than a direct_skip subject_to the tax imposed by chapter made to a gst_trust as defined in sec_2632 under sec_2632 a gst_trust is a_trust that could have gst potential with respect to the transferor unless the trust satisfies any of the exceptions listed in sec_2632 i - vi sec_2632 provides that an individual may elect to have the automatic allocation rules of sec_2632 not apply to an indirect_skip or any or all transfers made by such individual to a particular trust sec_2632 provides that the election may be made on a timely filed gift_tax_return for the calendar_year for which the election is to become effective sec_26_2632-1 of the generation-skipping_transfer_tax regulations provides in part that a transferor may prevent the automatic allocation of gst_exemption elect out with respect to any transfer or transfers constituting an indirect_skip made to a_trust a transferor may elect out with respect to one or more or all current-year transfers made by the transferor to a specified trust or trusts sec_26_2632-1 provides that to elect out the transferor must attach an election out statement to a form_709 filed within the time period provided in sec_26_2632-1 in general the election out statement must identify the trust and specifically must provide that the transferor is electing out of the automatic allocation of gst_exemption with respect to the described transfer or transfers under sec_26_2632-1 to elect out the form_709 with the attached election out statement must be filed on or before the due_date for timely filing the form_709 for the calendar_year in which the transfer to be covered by the election out was made plr-119240-18 sec_2642 provides generally that the secretary shall by regulation prescribe such circumstances and procedures under which extensions of time will be granted to make an allocation of gst_exemption described in sec_2642 or and an election under sec_2632 or c sec_2642 provides that in determining whether to grant relief under sec_2642 the secretary shall take into account all relevant circumstances including evidence of intent contained in the trust instrument or instrument of transfer and such other factors as the secretary deems relevant for purposes of determining whether to grant relief the time for making the allocation or election shall be treated as if not expressly prescribed by statute notice_2001_50 2001_2_cb_189 provides that under sec_2642 the time for allocating the gst_exemption to lifetime transfers and transfers at death the time for electing out of the automatic allocation rules and the time for electing to treat any trust as a gst_trust are to be treated as if not expressly prescribed by statute the notice further provides that taxpayers may seek an extension of time to make an allocation described in sec_2642 or b or an election described in sec_2632 or c under the provisions of sec_301_9100-3 sec_301_9100-1 through provide the standards the commissioner will use to determine whether to grant an extension of time to make an election sec_301_9100-2 provides an automatic_extension of time for making certain elections sec_301_9100-3 provides the standards used to determine whether to grant an extension of time to make an election whose date is prescribed by a regulation and not expressly provided by statute in accordance with sec_2642 and notice_2001_50 taxpayers may seek an extension of time to make an allocation described in sec_2642 or b or an election described in sec_2632 or c under the provisions of sec_301_9100-3 sec_301_9100-3 provides in part that requests for relief subject_to sec_301_9100-3 will be granted when the taxpayer provides the evidence to establish to the satisfaction of the commissioner that the taxpayer acted reasonably and in good_faith and the grant of relief will not prejudice the interests of the government sec_301_9100-3 provides that a taxpayer is deemed to have acted reasonably and in good_faith if the taxpayer reasonably relied on a qualified_tax professional including a tax professional employed by the taxpayer and the tax professional failed to make or advise the taxpayer to make the election based on the facts submitted and the representations made we conclude that the requirements of sec_301_9100-3 have been satisfied accordingly donor and spouse are granted an extension of time of days from the date of this letter to make an election under sec_2632 that the automatic allocation rules do not apply to the year and year transfers to trust a_trust b and trusts d through f plr-119240-18 donor and spouse should make the election on supplemental form sec_709 for year and year the supplemental form sec_709 should be filed with the cincinnati service_center at the following address internal_revenue_service center cincinnati oh a copy of this letter should be attached to the supplemental form sec_709 a copy is enclosed for this purpose in accordance with the power_of_attorney on file with this office a copy of this letter is being sent to your authorized representatives except as expressly provided herein no opinion is expressed or implied concerning the tax consequences of any aspect of any transaction or item discussed or referenced in this letter this ruling is directed only to the taxpayer requesting it sec_6110 of the code provides that it may not be used or cited as precedent the rulings contained in this letter are based upon information and representations submitted by the taxpayer and accompanied by a penalty of perjury statement executed by an appropriate party while this office has not verified any of the material submitted in support of the request for rulings it is subject_to verification on examination sincerely associate chief_counsel passthroughs and special industries by leslie h finlow leslie h finlow senior technician reviewer branch office of associate chief_counsel passthroughs and special industries enclosures copy for sec_6110 purposes copy of this letter cc


t c summary opinion united_states tax_court shirley ucol-cobaria petitioner v commissioner of internal revenue respondent docket no 14887-09s filed date caroline delisle ciraolo for petitioner tyler n orlowski for respondent goldberg special_trial_judge this case was heard pursuant to the provisions of sec_7463 of the internal_revenue_code in effect at the time the petition was filed pursuant to sec_7463 the decision to be entered is not reviewable by any other court and this opinion should not be treated as precedent for any other case unless otherwise indicated subsequent section references are to the internal_revenue_code code in effect for the years in issue and all rule references are to the tax_court rules_of_practice and procedure respondent determined deficiencies in petitioner’s federal income taxes of dollar_figure dollar_figure and dollar_figure and sec_6662 accuracy-related_penalties of dollar_figure dollar_figure and dollar_figure for and respectively after concessions the issues for decision are whether petitioner’s salary for and a portion of from the baltimore maryland city public schools bcps is exempt from federal_income_tax under the convention with respect to taxes on income u s -phil art date u s t article whether petitioner is entitled to deduct certain employment living and other itemized expenses that she claimed for and and whether petitioner is liable for the accuracy-related_penalty under sec_6662 for any or all of the years at issue background 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 petitioner resided in maryland when she filed her petition 1respondent also determined that petitioner did not include state_income_tax refunds and interest_income in her gross_income for and petitioner did not address these issues at trial therefore the issues are deemed conceded see rule b petitioner is a citizen of the republic of the philippines she received a bachelor’s degree in physical therapy from san juan de dios educational foundation inc she then attended de la salle university where she received a certificate in teaching in and a master’s degree in teaching in both of these institutions are in the philippines petitioner was an eighth grade science teacher at paref woodrose school in muntinlupa city philippines from until she left the philippines in petitioner entered the united_states on date arriving in baltimore to teach for bcps as part of an international teaching exchange program sponsored by the u s department of state the state department amity institute amity is a nonprofit organization the state department approved to operate an exchange teacher program the exchange teacher program allows qualified foreign teachers to enter the united_states to teach for up to years amity does not directly recruit teachers from the philippines during and amity worked with badilla corp badilla a business_entity from the philippines and with avenida associates inc avenida a business_entity from the united_states badilla and avenida are affiliated entities and they worked together to facilitate the placement of qualified filipino teachers in american schools badilla collected background information such as transcripts and résumés from teachers in the philippines who were interested in the exchange teacher program in the united_states badilla found its prospective filipino teachers principally by word of mouth and seminars conducted by its executives avenida or badilla charged placement fees and additional charges to help teaching candidates with among other tasks finding employers in the united_states and obtaining visas in the united_states avenida helped school districts find promising teaching candidates by providing access to a database of overseas jobseekers in late petitioner attended an orientation session for an exchange teacher program badilla sponsored she ultimately submitted her transcript and résumé to badilla bcps worked with avenida to receive access to a preselected list of qualified filipino teachers this was the first time bcps had recruited teachers from the philippines from the preselected teachers bcps administrators chose the candidates the school system wanted to interview in date george duque manager of recruitment and staffing for bcps traveled to the philippines to interview petitioner and other teaching candidates shortly afterwards badilla informed petitioner that bcps would be offering her employment for the school year petitioner received a letter from bcps dated date officially offering her employment for the school year generally foreign teachers who want to teach in the united_states may obtain one of two types of visas one is the h-1b visa for working professionals the second is the j-1 visa for individuals coming to the united_states under a cultural exchange program approved by the state department the j-1 visa is more convenient for foreign individuals who are new teachers in the united_states because the visa timing coincides with the academic school year in the united_states petitioner’s parents paid avenida dollar_figure for the following fees a dollar_figure placement fee a dollar_figure u s documentation fee a dollar_figure j-1 visa processing fee and a dollar_figure for airfare and travel amity sponsored petitioner’s visa the state department authorized amity to issue form ds-2019 certificate of eligibility for exchange visitor j-1 status the form identifies the visitor identifies the visa sponsor briefly describes the exchange program including the start and end dates identifies the category of exchange and states the estimated cost of the exchange program at all relevant times gertrude hermann was amity’s executive director an amity representative explained to petitioner that if she accepted the teaching offer bcps would be evaluating her performance throughout the school year if her performance was satisfactory bcps would continue her employment for the following school year in a letter to petitioner dated date amity confirmed bcps’s offer on date petitioner signed an amity exchange teacher contract with amity and bcps amity prepared a form ds-2019 for petitioner’s signature and mailed it to her the length of time listed on the form ds-2019 for petitioner’s visa wa sec_3 years the same length as the exchange teacher program petitioner signed the form and returned it to amity for processing petitioner resigned from her teaching position in the philippines to teach for bcps upon her arrival in baltimore on date petitioner signed a 1-year lease for an apartment at symphony woods apartments on date petitioner signed a standard provisional contract for conditional or resident teacher certificate holders bcps employment contract effective beginning date the bcps employment contract was for year terminating at the end of the school year it is the only contract that petitioner signed with bcps all first-year teachers who did not have full professional certification signed a similar bcps employment contract bcps assigned petitioner to teach at lombard middle school lombard the bcps employment contract required teachers to take the praxis i and ii tests which are part of the teacher certification process that many states require including maryland petitioner completed the praxis i test in late petitioner received a maryland education certificate in valid from date through date as of trial petitioner had not completed the praxis ii test soon after she began teaching at lombard petitioner began experiencing significant difficulties with student behavior and attitude petitioner also sustained physical injuries when two students began fighting in her classroom and a table was pushed against her leg in a date email to amity petitioner chronicled her difficulties and requested a transfer to baltimore county schools_for the following school year petitioner began her email by stating i’m really having second thoughts of continuing my teaching here at baltimore city for the next school year petitioner’s transfer request was denied and she continued teaching at lombard working in the united_states provided petitioner with a salary that was considerably greater than what she had earned in the philippines in the philippines petitioner had earned approximately big_number filipino pesos a month equivalent to dollar_figure per month or dollar_figure per year petitioner’s annual salary for her first year of teaching for bcps was dollar_figure which increased to dollar_figure and dollar_figure for her second and third years respectively with respect to federal_income_tax withholding petitioner did not provide bcps with form_8233 exemption from withholding on compensation_for independent and certain dependent_personal_services of a nonresident_alien_individual consequently bcps withheld federal_income_tax from petitioner’s salary during and instead petitioner incorrectly attached form_8233 to her federal_income_tax return and she did not complete the section of the form that requested the applicable dates of exemption petitioner engaged professional tax preparers to prepare her and federal_income_tax returns for and petitioner filed form sec_1040nr u s nonresident_alien income_tax return for she filed form_1040 u s individual_income_tax_return petitioner reported that her salary from bcps for the and calendar years was exempt from taxation in the united_states under article petitioner included all of her earnings from bcps for on her federal_income_tax return in her amended petition however she contended that the first months of her earnings from bcps were also exempt from federal_income_tax under article 21’s 2-year exclusion petitioner claimed itemized_deductions of dollar_figure and dollar_figure for and respectively related to her employment living and transportation_expenses she claimed the dollar_figure standard_deduction for as a result of the income exclusion income_tax_withholding and deductions petitioner requested refunds for each year through petitioner returned to the philippines on date before her j-1 visa expired on date she applied for and obtained an h-1b visa valid from date through date she then returned to the united_states and as of the date of trial she continued to be employed by bcps the internal_revenue_service irs selected petitioner’s and federal_income_tax returns for examination the examining agent sent three questionnaires to petitioner form_8784 questionnaire - temporary_living_expenses form_9210 alien status questionnaire and form_9250 questionnaire - tax_treaty benefits petitioner completed the forms dated her signature date and returned the forms to the irs the court received into evidence copies of the three questionnaires that petitioner had completed on form_8784 petitioner marked that she did not request a leave of absence from her employer in the philippines and she added that there was no reason for her to request a leave of absence on form_9210 petitioner wrote that date was her date of initial arrival and that at that time she expected to remain in the united_states for years she answered the next question on form_9210 indicating that she revised and renewed her visa status so that she could stay in the united_states for another years in the notice_of_deficiency dated date the irs adjusted petitioner’s income to include the earnings from bcps for and that petitioner had excluded under article in addition the irs disallowed dollar_figure of the dollar_figure in itemized_deductions that petitioner claimed for and dollar_figure of the dollar_figure in itemized_deductions that she claimed for and allowed the dollar_figure standard_deduction for the dollar_figure of disallowed deductions for consisted of dollar_figure for legal documentation fees dollar_figure for a laptop computer dollar_figure for computer_software dollar_figure for school supplies and dollar_figure for union dues the dollar_figure of the disallowed deductions for consisted of dollar_figure in rent including utilities dollar_figure for transportation between her apartment and her teaching job at lombard dollar_figure for an agency fee dollar_figure for airfare dollar_figure for computer equipment and supplies and dollar_figure for state refund not received petitioner filed her petition contesting all of respondent’s adjustments respondent moved under rule for partial summary_judgment concerning the issue of whether petitioner qualified in the years at issue for the exemption under article petitioner objected to the granting of the motion the issue was fully briefed by both parties the motion was set for hearing at trial when the case was called for trial the motion was heard the parties relied on their respective positions set forth in their briefs the motion for partial summary_judgment has been denied the case was then tried and the court heard testimony from petitioner mr duque and ms hermann the court also received into evidence a form bcps completed for amity entitled addendum to amity confirmation of employment form the addendum mr duque signed and dated the form date the addendum showed that bcps had retained of the percent of the filipino teachers in the past years who had taught for bcps through amity’s exchange teacher program i income under article discussion petitioner was a nonresident_alien for the years at issue because of her j-1 visa status and her participation in the exchange teacher program see sec_7701 in particular sec_7701 provides that a nonresident_alien is a person who is not a citizen or resident_of_the_united_states within the meaning of sec_7701 generally a nonresident_alien_individual engaged in trade_or_business_within_the_united_states is taxed on the taxable_income effectively connected with that trade_or_business sec_871 the phrase 2as a teacher petitioner is considered an exempt_individual and therefore not treated as present for purposes of the substantial_presence_test see sec_7701 d i a ii trade_or_business_within_the_united_states generally includes the performance of personal services within the united_states at any time within the taxable_year sec_864 compensation paid to a nonresident_alien in exchange for the performance of services in the united_states constitutes income that is effectively connected with the conduct of trade_or_business in the united_states sec_1_864-4 income_tax regs consequently petitioner’s wages would ordinarily be included in gross_income under the code sec_894 however provides that the provisions of the code will be applied to any taxpayer with due regard to any treaty obligations of the united_states that apply to the taxpayer therefore the treatment of petitioner’s wages might be altered by applicable treaty provisions see id the united_states is a party to an income_tax convention with the republic of the philippines the convention provides an exemption from u s income_taxation on income earned by filipino teachers teaching in the united_states if the requirements of the convention are satisfied article states article teachers where a resident of one of the contracting states is invited by the government of the other contracting state a political_subdivision or local authority thereof or by a university or other recognized educational_institution in that other contracting state to come to that other contracting state for a period not expected to exceed years for the purpose of teaching or engaging in research or both at a university or other recognized educational_institution and such resident comes to that other contracting state primarily for such purpose his income from personal services for teaching or research at such university or educational_institution shall be exempt from tax by that other contracting state for a period not exceeding years from the date of his arrival in that other contracting state to qualify for the exemption under article a taxpayer must meet the following requirements the taxpayer was a resident of the philippines before coming to the united_states she was invited by the government or a recognized educational_institution within the united_states she was invited for a period not expected to exceed years the purpose of the invitation was for her to teach or engage in research at the recognized educational_institution and she did in fact come to the united_states primarily to carry out the purpose of the invitation all of the requirements of article must be satisfied in order for petitioner to qualify for the income exemption the only requirement in dispute is whether petitioner’s invitation to teach in the united_states was for a period not expected to exceed years the text of article does not specifically state whose expectation controls the length of the invitation to teach for a period not to exceed years petitioner argues that her expectation as the invitee is the only expectation that matters respondent counters that either the expectation of the invitor bcps should be decisive or that the court should weigh the expectations of all the parties associated with the exchange teacher program in the light of this ambiguity in the text of article we will consider all the relevant facts and circumstances including the expectations of all the parties santos v commissioner t c __ __ slip op pincite we will construe article liberally see n w life assurance co of can v commissioner 107_tc_363 then we will make an objective determination of whether petitioner was invited to the united_states for a period not expected to exceed years see santos v commissioner supra a burden_of_proof generally the commissioner’s determination_of_a_deficiency is presumed correct and the taxpayer bears the burden of proving that the deficiency is incorrect rule a 290_us_111 furthermore any deductions allowed are a matter of legislative grace and the taxpayer bears the burden of proving his entitlement to them rule a 503_us_79 292_us_435 under sec_7491 the burden may shift to the commissioner regarding factual matters affecting a taxpayer’s liability for tax if the taxpayer produces credible_evidence and meets other requirements of the section petitioner moved for a burden shift under sec_7491 contending that she produced credible_evidence and met the other requirements of the section respondent objected contending that petitioner has failed to introduce credible_evidence to support her assertion that her stay in the united_states was expected to last years or less we need not and we explicitly do not decide which party bears the burden_of_proof because as discussed above applying santos v commissioner supra we will decide this case on an objective consideration of all the relevant facts and circumstances b analysis we begin our analysis with a discussion of the evidence that relates to petitioner’s expectation petitioner’s reliance on the 1-year apartment lease and the 1-year bcps employment contract is unconvincing one-year apartment leases are commonplace and do little to indicate a tenant’s long-term expectation to remain in an area likewise bcps required all of its first-year teachers to sign what amounts to a standard 1-year employment contract the fact that the contract did not guarantee employment beyond the first year does not mean that petitioner expected to stay in the united_states for only year amity had informed petitioner that so long as her performance was satisfactory bcps would retain her we believe it likely that petitioner had sufficient confidence in her teaching skills to assume that her performance would be satisfactory and therefore she could expect that bcps would employ her for the second and third years and perhaps beyond petitioner also testified that in her mind the information in her 3-year j-1 visa application that amity prepared and she signed simply established an upper time limit and did not imply a commitment to stay in the united_states for years petitioner uses the same argument with respect to the 3-year exchange teacher program while it is true that the documents did not obligate her to remain in the united_states we find it particularly hard to believe that petitioner did not expect to remain in the united_states for the duration of the exchange program more persuasive are petitioner’s own words in her answers on the three irs questionnaires her answers indicate that her initial expectation was to remain in the united_states for the entire length of the visa and of the 3-year exchange teacher program in response to this evidence against her petitioner testified that she did not have any help filling out the forms and that the questions were confusing this testimony is not credible because petitioner has a master’s degree in education she speaks fluent english and the questions on the forms are straightforward not requiring any technical knowledge furthermore petitioner introduced no evidence that she expressed to any of the parties involved that she expected to return to the philippines within her first years in the united_states similarly petitioner did not testify at trial that she expected to return home within the first years instead she stated that she determined her expectation regarding the length of her stay on a year-to-year evaluation of her situation we also find it highly significant that despite the students’ bad behavior her physical injury and the denial of her request to transfer to a less harsh classroom environment petitioner remained in baltimore teaching at lombard and as of the date of trial continued to work for bcps petitioner’s actions indicate a strong commitment to staying in the united_states despite the difficulties the fact that petitioner resigned her teaching position in the philippines while not a decisive factor also weighs against her argument in addition we cannot ignore the financial incentive of remaining in the united_states for as long as possible petitioner and her family incurred more than dollar_figure in expenses for petitioner to participate in the exchange teacher program and to relocate to the united_states this is not an insignificant sum in comparison to her earnings in the philippines moreover her earnings immediately grew eightfold from dollar_figure to dollar_figure when she moved from the philippines to the united_states further her earnings_of dollar_figure in which was her third year at bcps were percent greater than her first-year salary at bcps from the perspective of bcps the school system certainly would not have invested so much time money and effort in recruiting teachers from the philippines if it did not expect that the teachers would remain at least for the length of the year exchange teacher program mr duque likewise testified that bcps wanted to retain the teachers it hired for as long as possible corroborating this testimony is the evidence from the addendum showing that bcps retained an extremely high percentage percent of the filipino teachers it hired through the exchange program additionally ms hermann testified that bcps similar to the other school systems that hired foreign teachers through the exchange program expected the teachers to stay for the entire 3-year program she added that it had been amity’s experience that only a small percentage of filipino teachers returned to the philippines before completing the 3-year exchange teacher program and that most participants decided to remain in the united_states beyond the years the testimony of these witnesses is plausible reliable and persuasive in conclusion after an objective examination of all of the relevant facts and circumstances we find that petitioner and bcps expected petitioner to stay in the united_states for at least years which is greater than the not expected to exceed years requirement of article therefore petitioner’s income for date to date the first years she was in the united_states is not exempt from federal_income_tax under article ii disallowed itemized_deductions sec_162 allows a deduction for ordinary and necessary business_expenses paid_or_incurred during the taxable_year in carrying on any trade_or_business the performance of services as an employee is considered a trade_or_business for sec_162 purposes 54_tc_374 for an expense to be necessary it must be appropriate and helpful to the taxpayer’s business 290_us_111 an expense will be considered ordinary if it is a common or frequent occurrence in the type of business in which the taxpayer is involved 308_us_488 in order to deduct a business_expense a taxpayer must not have received reimbursement and must not have had the right to obtain reimbursement from his employer 788_f2d_1406 9th cir affg tcmemo_1984_533 85_tc_798 a year legal documentation fees petitioner claimed a dollar_figure deduction for for legal documentation fees petitioner testified that her parents paid these fees this type of transaction is more appropriately characterized as a nontaxable_gift from petitioner’s parents than as an expense incurred and paid_by petitioner see eg cavalaris v commissioner tcmemo_1996_308 therefore we sustain respondent’s disallowance of this deduction unreimbursed employee business_expenses petitioner’s disallowed unreimbursed employee business_expenses for consisted of dollar_figure for a laptop computer dollar_figure for software dollar_figure for school supplies and dollar_figure for union dues laptop computers and computer_software are listed_property sec_280f sec_274 imposes strict substantiation requirements for listed_property to substantiate expenses for listed_property a taxpayer must show either by adequate_records or by sufficient evidence corroborating the taxpayer’s own statement the amount of each separate expenditure with respect to an item of listed_property the amount of each business use based on the appropriate measure and the total use of the listed_property for the taxable_period the date of the expenditure or use and the business_purpose for an expenditure or use with respect to any listed_property sec_1_274-5t temporary income_tax regs fed reg date petitioner did not substantiate the business use of the laptop and software therefore we sustain respondent’s disallowance of the deduction for petitioner’s laptop and software expenses petitioner deducted dollar_figure for school supplies she provided receipts for dollar_figure worth of school supplies purchased in we are satisfied that petitioner spent dollar_figure for school supplies in and was not reimbursed by bcps therefore petitioner is entitled to a deduction of dollar_figure for school supplies for see sec_62 certain expenses of elementary and secondary school teachers are deductible to determine adjusted_gross_income petitioner also claimed dollar_figure for union dues for petitioner provided as evidence her bcps paycheck for the 2-week period of november the paycheck showed a biweekly deduction of dollar_figure and a year-to-date deduction of dollar_figure for union dues that she paid to the baltimore teachers union we infer that petitioner received two more bi-weekly paychecks in december with the same amount deducted for union dues therefore petitioner has substantiated that she paid dollar_figure in union dues in and is entitled to a deduction in that amount b year personal living and commuting expenses respondent disallowed petitioner’s itemized_deductions of dollar_figure for rent including utilities and dollar_figure for commuting between her apartment and her teaching job at lombard as a general_rule personal living_expenses are nondeductible sec_262 sec_1_162-2 sec_1_262-1 income_tax regs sec_162 however allows a taxpayer to deduct ordinary and necessary travel_expenses including meals_and_lodging paid_or_incurred while away from home in pursuit of a trade_or_business 326_us_465 the reference to home in sec_162 means the taxpayer’s tax_home 74_tc_578 49_tc_557 as a general_rule a taxpayer’s tax_home is in the vicinity of his principal place of employment not where his personal_residence is located if different from his principal place of employment mitchell v commissioner supra pincite kroll v commissioner supra pincite an exception to the general_rule exists where a taxpayer accepts temporary rather than indefinite employment away from his personal_residence in that case the taxpayer’s personal_residence may be his tax_home 358_us_59 the purpose of the exception is to mitigate the burden of the taxpayer who must incur duplicate living_expenses due to the exigencies of business kroll v commissioner supra pincite for purposes of sec_162 the taxpayer is not treated as being temporarily away from home if the period of employment exceed sec_1 year sec_162 flush language petitioner contends that her employment with bcps was temporary because the bcps employment contract she signed was for only year she contends that her tax_home was in the philippines as that was where she resided in other words according to petitioner her rent utilities and commuting expenses for are deductible because she expected to stay in the united_states for no more than a year and thus her job was temporary respondent argues that petitioner’s employment at bcps was indefinite and that her tax_home became baltimore when she moved there to teach for bcps for the following reasons we agree with respondent petitioner resigned her teaching job in the philippines and moved to baltimore on date she began teaching at lombard for bcps in date we have already found that petitioner intended to remain working for bcps in the baltimore area for at least years which is clearly more than year accordingly petitioner’s employment with bcps was not temporary baltimore was petitioner’s principal place of employment and thus baltimore was her tax_home moreover petitioner testified that she lived with her parents before her move thus she has not established either that she had a personal_residence in the philippines or that she incurred duplicate living_expenses consequently petitioner is not entitled to claim a deduction for her rent utilities or commuting expenses for other itemized_deductions respondent disallowed petitioner’s other itemized_deductions for which consisted of dollar_figure for an agency fee dollar_figure for airfare dollar_figure for computer equipment and supplies and dollar_figure for state refund not received the agency fee was a portion of the total fee of dollar_figure that petitioner paid to amity for her participation in the exchange teacher program bcps paid dollar_figure of the fee during petitioner’s first year in the program petitioner was responsible for the two subsequent annual payments of dollar_figure one made in the second year of the program and one in the third petitioner had to pay the fee to continue her participation in the exchange program petitioner did not substantiate her dollar_figure payment in but we are satisfied that petitioner paid a fee of dollar_figure in to maintain her standing in the program therefore petitioner is entitled to a deduction of dollar_figure for petitioner testified that she paid dollar_figure for a round trip flight to the philippines in but she did not provide any evidence corroborating the payment or that the flight was associated with her trade_or_business of being an employee of bcps and was not a personal trip therefore we sustain respondent’s disallowance of the dollar_figure deduction for airfare petitioner claimed a deduction for computer equipment and supplies of dollar_figure for she provided no explanation for having to purchase a second computer for bcps in years and she provided no substantiation of the purchase or of the business use of the computer see sec_274 for these reasons we sustain respondent’s disallowance of the dollar_figure computer equipment and supplies expense petitioner provided no explanation or evidence to support the dollar_figure deduction she claimed in for state refund not received therefore we sustain respondent’s disallowance iii accuracy-related_penalty taxpayers may be liable for a 20-percent penalty on the portion of an underpayment_of_tax attributable to negligence disregard of rules or regulations or a substantial_understatement_of_income_tax sec_6662 and b and the term negligence in sec_6662 includes any failure to make a reasonable attempt to comply with the code and the term disregard includes any careless reckless or intentional disregard sec_6662 negligence has also been defined as the failure to exercise due care or the failure to do what a reasonable person would do under the circumstances see 92_tc_1 affd 925_f2d_348 9th cir 85_tc_934 an understatement of income_tax is substantial if it exceeds the greater of percent of the tax required to be shown on the return or dollar_figure sec_6662 the sec_6662 accuracy-related_penalty does not apply where the taxpayer shows that he or she acted in good_faith and with reasonable_cause sec_6664 the determination of whether a taxpayer acted in good_faith and with reasonable_cause depends on the facts and circumstances of each case and includes the knowledge and experience of the taxpayer and the reliance on the advice of a professional such as an accountant sec_1_6664-4 income_tax regs for a taxpayer to rely reasonably upon advice of a tax adviser the taxpayer must at a minimum prove by a preponderance_of_the_evidence that the adviser was a competent professional with sufficient expertise to justify reliance the taxpayer provided necessary and accurate information to the adviser and the taxpayer actually relied in good_faith on the adviser’s judgment 115_tc_43 affd 299_f3d_221 3d cir most important in this determination is the extent of the taxpayer’s effort to determine the proper tax_liability id the commissioner has the burden of production under sec_7491 with respect to the accuracy-related_penalty under sec_6662 to satisfy that burden the commissioner must produce sufficient evidence showing that it is appropriate to impose the penalty 116_tc_438 respondent has satisfied his burden by producing evidence that petitioner reported no income for and part of creating understatements of income taxes due that were substantial nonetheless petitioner sought the advice of one return preparer for her and form sec_1040nr and a different preparer for her form_1040 petitioner stated that her preparer for and was an accountant in the philippines and an enrolled_agent in the united_states respondent did not dispute the competency of either preparer the preparer of the form sec_1040nr counseled petitioner that her income was exempt from taxation in the united_states under article petitioner having no formal training in taxation and being new to the u s tax system reasonably relied upon the advice of a competent tax_return_preparer and acted in good_faith respondent’s adjustments for were minor and again petitioner engaged a competent preparer to prepare her federal_income_tax return therefore we do not sustain respondent’s determination that the sec_6662 accuracy-related_penalty applies for or iv conclusion the court has considered all arguments made in reaching our decision and to the extent not mentioned we conclude that they are moot irrelevant or without merit to reflect the foregoing decision will be entered under rule


t c summary opinion united_states tax_court maria elena towell petitioner v commissioner of internal revenue respondent docket no 8002-09s filed date maria elena towell pro_se mark j tober for respondent wells judge this case was heard pursuant to the provisions of sec_7463 of the internal_revenue_code in effect when the petition was filed pursuant to sec_7463 the 1all section references are to the internal_revenue_code code in effect for the year in issue and all rule references are to the tax_court rules_of_practice and procedure unless otherwise indicated all amounts are rounded to the nearest dollar decision to be entered is not reviewable by any other court and this opinion shall not be treated as precedent for any other case respondent determined a deficiency in petitioner’s federal_income_tax of dollar_figure the issues that remain for decision are whether petitioner is entitled to a deduction pursuant to sec_170 for a claimed dollar_figure cash charitable_contribution and whether petitioner is entitled to a deduction pursuant to sec_170 for a claimed dollar_figure noncash charitable_contribution background some of the facts and certain exhibits have been stipulated the stipulations of fact are incorporated in this opinion by reference and are found accordingly at the time the petition was filed petitioner resided in florida petitioner purchased a timeshare interest timeshare for dollar_figure from westgate miami beach ltd westgate on date petitioner executed a mortgage agreement with westgate for the purchase of her timeshare on date 2a timeshare interest represents an individual’s interest in a jointly owned or rented property such as a vacation condominium which is shared by several persons who take turns occupying the property black’s law dictionary 7th ed petitioner made full payment and satisfaction of the mortgage with westgate during petitioner donated her timeshare to tracets foundation tracets tracets which claims to be a sec_501 foundation is dedicated to preserving lakes and streams for future generations tracets partnered with wholesale timeshare services and emidsouth inc to coordinate the transfer of the timeshare from petitioner on date petitioner signed a general warranty deed transferring ownership of her timeshare to emidsouth inc petitioner did not have an appraisal of the value of the timeshare made when it was transferred petitioner attached form_8283 noncash charitable_contributions to her return for tax_year on form_8283 in the section for donated property of dollar_figure or less petitioner listed the donation of her timeshare 3respondent does not challenge whether tracets meets the definition of an organization to which a contribution is eligible for a charitable deduction sec_170 accordingly we deem that issue conceded because of respondent’s concession an estimate of the allowable deduction could be made see 39_f2d_540 2d cir the court has not definitively decided whether cohan is available to estimate charitable_contributions see kendrix v commissioner tcmemo_2006_9 finding that the court has not yet squarely addressed the inherent conflict between sec_170 and the application of cohan to unverified or inadequately substantiated charitable_contributions however because petitioner presented no evidence on the value of the timeshare there is no basis on which to estimate an allowable_amount to tracets stated that it had a fair_market_value of dollar_figure and stated that an appraisal was used to determine the fair_market_value discussion deductions are a matter of legislative grace and taxpayers bear the burden of proving that they are entitled to the deductions claimed see rule a 503_us_79 292_us_435 sec_170 provides there shall be allowed as a deduction any charitable_contribution payment of which is made within the taxable_year a charitable_contribution shall be allowable as a deduction only if verified under regulations prescribed by the secretary generally contributions of money cash check or other monetary gift can be substantiated by either a canceled check a receipt or other reliable written records sec_1_170a-13 income_tax regs additionally 4petitioner has not raised any issue regarding sec_7491 and because she has failed to substantiate her claims or introduce credible_evidence for any of the issues sec_7491 does not apply see sec_7491 and a 5for contributions of money in any amount made during tax years beginning after date taxpayers are required to maintain a bank record or a written communication from the donee showing the name of the donee organization the date of the contribution and the amount of the contribution sec_170 there is no de_minimis exception to the recordkeeping requirement sec_170 see also sec continued for contributions of dollar_figure or more deductions are not allowed unless the taxpayer substantiates the contribution by a contemporaneous written acknowledgment by the donee organization sec_170 the 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 or if such goods or services consist solely of intangible religious benefits a statement to that effect sec_170 to be considered contemporaneous the written acknowledgment must be obtained by the taxpayer before the earlier of the due_date of the return including extensions or the filing of the return sec_170 petitioner failed to give testimony or offer documentary_evidence regarding her cash contribution accordingly we continued 170a-15 a proposed income_tax regs fed reg date however this section does not apply because petitioner’s tax_year began on date 6separate 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 see sec_1 170a- f income_tax regs sustain respondent’s denial of petitioner’s claimed deduction for a cash charitable_contribution of dollar_figure charitable_contributions greater than dollar_figure are subject_to heightened substantiation requirements sec_170 for noncash contributions greater than dollar_figure a deduction is allowed if a taxpayer obtains a qualified_appraisal of such property and attaches to the return for the taxable_year in which such contribution is made such information regarding such property and such appraisal as the secretary may require sec_170 sec_170 was added to the code pursuant to the american_jobs_creation_act_of_2004 publaw_108_ sec_883 118_stat_1631 to codify the substantiation requirements previously addressed in the regulations and applies to contributions made after date smith v commissioner tcmemo_2007_368 affd 364_fedappx_317 9th cir a qualified_appraisal is conducted by a qualified_appraiser in accordance with generally acceptable appraisal standards and is treated as a qualified_appraisal under the regulations and other guidance provided by the secretary sec_170 sec_170 was amended by the pension_protection_act of publaw_109_280 sec c 120_stat_1085 as amended sec_170 codifies the definition of qualified appraisals and appraisers and is effective generally for appraisals prepared with respect to returns or submissions filed after date id sec e as petitioner’s return was filed after date the amended sec_170 applies however a deduction will not be denied if the failure to meet the requirements of sec_170 is due to reasonable_cause and not willful neglect sec_170 petitioner failed to provide evidence of any appraisal of her timeshare petitioner testified that she never received an appraisal from westgate upon the purchase of her timeshare in regulations issued before the addition of sec_170 required the qualified_appraisal to be made not earlier than days before the date of contribution and before the due_date of the original return plus extensions on which the contribution is first claimed or in the case of an amended_return the filing_date sec_1_170a-13 income_tax regs on date the internal_revenue_service issued transitional guidance to provide a safe_harbor for taxpayers in conjunction with new sec_170 notice_2006_96 2006_2_cb_902 the transitional guidance provides that the requirements of sec_1_170a-13 income_tax regs that are consistent with sec_170 still apply including the time limits id regardless of whether she received an appraisal from westgate in petitioner never obtained a qualified_appraisal of her timeshare in conjunction with her contribution to tracets see sec_170 moreover petitioner did not offer any reason for her failure to obtain a qualified_appraisal therefore petitioner has not proved that her failure to meet the requirements of sec_170 was due to reasonable_cause and not willful neglect accordingly we sustain respondent’s denial of petitioner’s claimed deduction for a noncash charitable_contribution of dollar_figure we have considered all of the contentions and arguments of the parties that are not discussed herein and we conclude they are without merit irrelevant or moot to reflect the foregoing decision will be entered for respondent


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 b02 plr-102529-10 date july x ------------------------------------------------------------------------------------------------------------ ----------------------- state -------- a b c d ------------------------------------------------------------------------------------------------------------ ------------------------- ------------------------------------------------------------------------------------------------------------ ------------------------- ------------------------------------------------------------------------------------------------------------ ------------------------- ------------------------------------------------------------------------------------------------------------ ------------------------- date date date date year ---------------- ------------------------- ----------------------- ----------------------- ------- dear ---------------- this responds to a letter dated date and subsequent correspondence submitted on behalf of x by its authorized representative requesting a ruling under sec_1362 of the internal_revenue_code plr-102529-10 the information submitted states that x was incorporated in state on date x made an election to be treated as an s_corporation effective date x has had four shareholders a b c and d during the period at issue in this request from date to date x made disproportionate distributions to its shareholders by failing to make distributions to a from date to date x had only one class of common_stock outstanding with each share having an identical right to distribution and liquidation proceeds no provision in x’s articles of incorporation or bylaws or other binding agreement altered that right x represents that it did not intend to create a second class of stock or to terminate x’s s_corporation_election and that the circumstances resulting in the possible termination of the election were not motivated by tax_avoidance or retroactive tax planning x and its shareholders consent to make such adjustments consistent with the treatment of x as an s_corporation as may be required by the secretary x represents that it will make necessary adjustments to rectify the disproportionate distributions made from date to date additionally b c and d agree to treat these disproportionate distributions as loans and to repay these amounts plus accrued interest to x sec_1362 provides that if an election under sec_1362 by any corporation a was not effective for the taxable_year for which made determined without regard to sec_1362 by reason of a failure to meet the requirements of sec_1361 or to obtain shareholder consents or b was terminated under sec_1362 or the secretary determines that the circumstances resulting in the ineffectiveness or termination were inadvertent no later than a reasonable period of time after discovery of the circumstances resulting in the ineffectiveness or termination steps were taken a so that the corporation is a small_business_corporation or b to acquire the shareholder consents and the corporation and each person who was a shareholder of the corporation at any time during the period specified pursuant to sec_1362 agrees to make such adjustments consistent with the treatment of the corporation as an s_corporation as may be required by the secretary with respect to such period then notwithstanding the circumstances resulting in the ineffectiveness or termination the corporation will be treated as an s_corporation during the period specified by the secretary based solely on the facts submitted and the representations made we conclude that x's s_corporation_election may have terminated on date because x may have had more than one class of stock however we conclude that if x's s election was terminated such a termination was inadvertent within the meaning of sec_1362 we further hold that pursuant to the provisions of sec_1362 x will be treated as continuing to be an s_corporation from date and thereafter provided x’s s_corporation_election was valid and provided that the election was not otherwise terminated under sec_1362 this ruling is contingent upon b c and d issuing to x within days of this letter notes for the repayment of the disproportionate distributions this ruling is further contingent upon x filing income_tax returns for year and thereafter consistent with this ruling plr-102529-10 except as specifically set forth above no opinion is expressed concerning the federal tax consequences of the facts described above under any provision of the code specifically no opinion is expressed for federal tax purposes regarding x’s eligibility to be an s_corporation nor the validity of the loans from b c and d to x this ruling is directed only to the taxpayer who requested it sec_6110 of the code provides that it may not be used or cited as precedent in accordance with the power_of_attorney on file with this office we are sending a copy of this letter to x’s authorized representative sincerely richard t probst branch reviewer branch office of the associate chief_counsel passthroughs special industries enclosures copy of this letter copy for sec_6110 purposes cc


chief_counsel department of the treasury internal_revenue_service washington d c date number info release date cc tege eoeg et1 - genin-125664-04 uilc memorandum for director submission processing cincinnati oh attn entity unit tax exempt and government entities cc tege eoeg et1 - genin-125664-04 railroad retirement act tax status from office of division counsel associate chief_counsel subject in accordance with the coordination procedure established between the service and the railroad retirement board rrb the rrb has provided us with its opinion that the following business is not an employer under the railroad retirement act and the railroad unemployment insurance act we have reviewed the opinion of the rrb and based upon the information submitted to us by the rrb we also conclude that the railroad associates corporation is not an employer under the railroad_retirement_tax_act please take the appropriate action regarding this business cc mr wayne van dyck internal_revenue_service 1st st suite the railroad associates corporation ein mr shawn m mccorkle president coo post office box hershey pa janine cook roanoke va


internal_revenue_service number release date index numbers --------------------------- ------------------------------------------------------------ ---- -------------------------------- -------------------------------------- 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-100339-16 date july legend x ---------------------------------------------------- -------------------------------------------------------- a b c date date date date year n state -------------------------------------------------- ------------------------------ ----------------------------- -------------------------- ---------------------- ----------------------- --------------------------- ------- -------- ----------- plr-100339-16 dear ---------------- this is in response to a letter dated date and subsequent correspondence submitted on behalf of x by x’s authorized representative requesting an extension of time under sec_301_9100-3 of the procedure and administration regulations to file an election under sec_754 of the internal_revenue_code facts according to the information submitted x was formed as a limited_liability_company under the laws of state on date and is treated as a partnership for federal tax purposes x purchased n of the membership interests of a b and c on date date and date respectively x filed its income_tax return for year without making a sec_754 election x represents that it relied upon its tax advisor when preparing the tax_return for year and that it was not advised to make a sec_754 election x further represents that it has acted reasonably and in good_faith that granting relief will not prejudice the interests of the government and that it is not using hindsight in making the election law and analysis sec_754 provides that a partnership may elect to adjust the basis of partnership property when there is a distribution_of_property or a transfer of a partnership_interest an election under sec_754 applies with respect to all distributions of property by the partnership and to all transfers of interests in the partnership during the taxable_year with respect to which the election was filed and all subsequent taxable years sec_1_754-1 of the income_tax regulations provides that an election under sec_754 to adjust the basis of partnership property under sec_734 and sec_743 with respect to a distribution_of_property to a partner or a transfer of an interest in a partnership must be made in a written_statement filed with the partnership return for the taxable_year during which the distribution or transfer occurs for the election to be valid the return must be filed not later than the time prescribed by sec_1 e including extensions for filing the return for such taxable_year under sec_301_9100-1 the commissioner may grant a reasonable extension of time to make a regulatory election or a statutory election but no more than six months except in the case of a taxpayer who is abroad under all subtitles of the internal_revenue_code except subtitles e g h and i sec_301_9100-1 defines the term plr-100339-16 regulatory election as including an election whose due_date is prescribed by a regulation published in the federal_register sec_301_9100-1 through provide the standards that the commissioner will use to determine whether to grant an extension of time to make an election sec_301_9100-1 sec_301_9100-2 provides automatic extensions of time for making certain elections sec_301_9100-3 provides rules for requesting extensions of time for regulatory elections that do not meet the requirements of sec_301_9100-2 requests for relief under sec_301_9100-3 will be granted when the taxpayer provides evidence to establish that the taxpayer acted reasonably and in good_faith and that granting relief will not prejudice the interests of the government section a conclusion based solely on the facts submitted and the representations made we conclude that the requirements of sec_301_9100-1 and sec_301_9100-3 have been satisfied as a result x is granted an extension of time of one hundred twenty days from the date of this letter to make a sec_754 election for year the election should be made in a written_statement filed with the applicable service_center for association with x’s tax_return for year a copy of this letter should be attached to the statement filed except as expressly provided herein no opinion is expressed or implied concerning the tax consequences of any aspect of any transaction or item discussed or referenced in this letter this ruling is directed only to the taxpayer requesting it sec_6110 provides that it may not be used or cited as precedent plr-100339-16 pursuant to the power_of_attorney on file with this office a copy of this letter is being sent to your authorized representative sincerely associate chief_counsel passthroughs special industries by joy c spies joy c spies senior technician reviewer branch office of the associate chief_counsel passthroughs special industries enclosures copy of this letter copy for sec_6110 purposes