                      T.C. Memo. 2010-144



                    UNITED STATES TAX COURT



WILLARD MICHAEL CHRISTINE AND PATRICIA ETHEL BORGIA, Petitioners
                               v.
          COMMISSIONER OF INTERNAL REVENUE, Respondent



    Docket No. 15410-08.             Filed June 30, 2010.



         R determined a deficiency in income tax for Ps’
    2005 taxable year on account of disallowed business
    expense deductions.

         Held: Although Ps established that H’s author
    activities were an existing trade or business engaged
    in for profit, they failed to substantiate most of
    their claimed deductions, and those expenses are
    therefore nondeductible.

         Held: Ps are not liable for a penalty under sec.
    6673(a)(1), I.R.C.



    Willard Michael Christine, pro se.

    Amy Long and Miles Friedman, for respondent.
                                 - 2 -

             MEMORANDUM FINDINGS OF FACT AND OPINION


     WHERRY, Judge:     This case is before the Court on a timely

petition for redetermination of a $3,994 income tax deficiency

that respondent determined for petitioners’ 2005 tax year.      The

issues for decision are:     (1) Whether petitioners are entitled to

deduct unreimbursed employee business expenses of $9,876 for the

2005 tax year; (2) whether petitioners are entitled to deduct

home office expenses of $11,235 for the 2005 tax year; and (3)

whether the Court should impose a penalty on petitioners under

section 6673(a)(1).1

                           FINDINGS OF FACT

     Some of the facts have been stipulated by the parties.      The

stipulations, with accompanying exhibits, are incorporated herein

by this reference.     At the time the petition was filed,

petitioners resided in California.

     During 2005 Willard Christine was employed by the Los

Angeles Times (L.A. Times) as a horse racing reporter.       In 2005

the L.A. Times reimbursed Mr. Christine for approximately

$32,473.15 of employee expenses.2


     1
      Unless otherwise indicated, all section references are to
the Internal Revenue Code (Code) of 1986, as in effect for the
year in issue, and all Rule references are to the Tax Court Rules
of Practice and Procedure.
     2
      This determination is based on records of the L.A. Times
kept in the ordinary course of business for the 2005 tax year,
                                                   (continued...)
                                 - 3 -

     Petitioners filed a joint Form 1040, U.S. Individual Income

Tax Return, for the 2005 tax year.       On Schedule A, Itemized

Deductions, petitioners claimed $9,876 for unreimbursed employee

business expenses and $11,235 for home office expenses less

$2,709 (2 percent of adjusted gross income).       During examination

of their 2005 joint Federal income tax return, petitioners mailed

respondent more than 700 pages of copied receipts, calendar

pages, and account statements.    The March 28, 2008, notice of

deficiency disallowed petitioners’ $18,402 of claimed

miscellaneous deductions.

     A trial was held on June 16, 2009, in Los Angeles,

California.   On January 8, 2010, respondent filed a motion to

impose a penalty under section 6673.       On February 12, 2010, at

the Court’s direction, petitioners filed a response to

respondent’s motion.

                              OPINION

I.   Burden of Proof

     As a general rule, the Commissioner’s determination of a

deficiency is presumed correct, and the taxpayer bears the burden

of proving that the determination is improper.       See Rule 142(a);

Welch v. Helvering, 290 U.S. 111, 115 (1933).       However, pursuant


     2
      (...continued)
including an expense report for Mr. Christine, consisting of
approximately 80 pages of itemized and reimbursed expenses for
the 2005 and 2006 tax years and “the Tribune Company American
Express Travel & Entertainment Cardholder Agreement Form”.
                               - 4 -

to section 7491(a)(1), the burden of proof on factual issues that

affect the taxpayer’s tax liability may be shifted to the

Commissioner where the “taxpayer introduces credible evidence

with respect to * * * such issue.”     The burden will shift only if

the taxpayer has, inter alia, complied with substantiation

requirements pursuant to the Code and “cooperated with reasonable

requests by the Secretary for witnesses, information, documents,

meetings, and interviews”.   Sec. 7491(a)(2).   Petitioners did not

argue that the burden should shift, and they failed to comply

with the substantiation and cooperation requirements.

Accordingly, the burden of proof remains on petitioners.

II.   Unreimbursed Employee Expenses

      A.   General Rules

      Deductions are a matter of legislative grace, and the

taxpayer bears the burden of proving that he is entitled to any

claimed deductions.   INDOPCO, Inc. v. Commissioner, 503 U.S. 79,

84 (1992).   Taxpayers must maintain records relating to their

income and expenses and must prove their entitlement to all

claimed deductions, credits, and expenses in controversy.     See

sec. 6001; Rule 142(a); INDOPCO, Inc. v. Commissioner, supra at

84; Welch v. Helvering, supra at 115.

      Pursuant to section 162(a), a taxpayer is entitled to deduct

all of the ordinary and necessary unreimbursed business expenses

paid or incurred during the taxable year in carrying on a trade
                                - 5 -

or business.    Lucas v. Commissioner, 79 T.C. 1, 6 (1982).

However, an employee cannot deduct such expenses to the extent

that the employee is entitled to reimbursement from his or her

employer for expenditures related to his or her status as an

employee.    Orvis v. Commissioner, 788 F.2d 1406, 1408 (9th Cir.

1986), affg. T.C. Memo. 1984-533; Lucas v. Commissioner, supra at

7.   Along with other miscellaneous itemized deductions,

unreimbursed employee expenses are subject to the two percent of

adjusted gross income limitation under section 67(a).

       The taxpayer bears the burden of proving that claimed

expenses were ordinary and necessary as required by section 162.

In certain circumstances, the taxpayer must meet specific

substantiation requirements in addition to section 162.    See sec.

274.    To be “ordinary” the transaction which gives rise to the

expense must be of a common or frequent occurrence in the type of

business involved.    Deputy v. du Pont, 308 U.S. 488, 495 (1940).

To be “necessary” an expense must be “appropriate and helpful” to

the taxpayer’s business.    Welch v. Helvering, supra at 113.

Additionally, the expenditure must be “directly connected with or

pertaining to the taxpayer’s trade or business”.    Sec. 1.162-

1(a), Income Tax Regs.

       A claimed expense (other than those subjected to heightened

scrutiny under section 274) may be deductible even where the

taxpayer is unable to fully substantiate it.    There must,
                               - 6 -

however, be sufficient evidence in the record to provide a basis

upon which an estimate may be made and to permit us to conclude

that a deductible expense, rather than a nondeductible personal

expense, was incurred in at least the amount allowed.     Williams

v. United States, 245 F.2d 559, 560 (5th Cir. 1957); Cohan v.

Commissioner, 39 F.2d 540, 543-544 (2d Cir. 1930); Vanicek v.

Commissioner, 85 T.C. 731, 742-743 (1985).    But see Sanford v.

Commissioner, 50 T.C. 823, 827-828 (1968), affd. per curiam 412

F.2d 201 (2d Cir. 1969); sec. 1.274-5T(a), Temporary Income Tax

Regs., 50 Fed. Reg. 46014 (Nov. 6, 1985).    In these instances,

the Court is permitted to make as close an approximation of the

allowable expense as it can, bearing heavily against the taxpayer

whose inexactitude is of his or her own making.    Cohan v.

Commissioner, supra at 543-544.

     Section 274(d) applies to:   (1) Any traveling expense,

including meals and lodging away from home; (2) entertainment,

amusement, and recreational expenses; or (3) the use of “listed

property”, as defined in section 280F(d)(4), including personal

computers.   To deduct such expenses, the taxpayer must

substantiate by adequate records or sufficient evidence to

corroborate the taxpayer’s own testimony:    (1) The amount of the

expenditure or use; (2) the time and place of the travel,

entertainment, amusement, recreation, or use; (3) its business

purpose; and in the case of entertainment, (4) the business
                               - 7 -

relationship to the taxpayer of each expenditure or use.   Sec.

274(d).

     To satisfy the adequate records requirement of section 274,

a taxpayer must maintain records and documentary evidence that in

combination are sufficient to establish each element of an

expenditure or use.   Sec. 1.274-5T(c)(1) and (2), Temporary

Income Tax Regs., 50 Fed. Reg. 46016, 46017 (Nov. 6, 1985).

Although a contemporaneous log is not required, corroborative

evidence to support a taxpayer’s reconstruction “of the elements

* * * of the expenditure or use must have a high degree of

probative value to elevate such statement” to the level of

credibility of a contemporaneous record.   Sec. 1.274-5T(c)(1),

Temporary Income Tax Regs., supra.

     Petitioners presented to respondent hundreds of pages of

receipts, bills, and account statements to substantiate

unreimbursed employee expenses for 2005.    Much of the information

presented is illegible and unorganized.    However, the claimed

expenses can be separated into two groups:    (1) Those relating to

Mr. Christine’s employment as an L.A. Times reporter; and (2)

those relating to author activities Mr. Christine undertook in

2005.

     The materials submitted to substantiate the claimed

unreimbursed employee expenses relating to Mr. Christine’s

employment at the L.A. Times appear to fall into the following
                                      - 8 -

categories:       Travel expenses, entertainment expenses, mileage

expenses, and other miscellaenous expenses.

     B.      L.A. Times Unreimbursed Employee Expenses

             1.     Travel Expenses

     Strict substantiation requirements of section 274(d) apply

to travel expenses.       Petitioners presented various documentation

relating to air travel, accommodations, car rentals, and meals

and transportation expenses for L.A. Times business-related

travel in 2005.       However, petitioners were also reimbursed by the

L.A. Times over $30,000 for employee expenses for the 2005 tax

year, most of which were travel related.         Upon careful

examination of the record, it is unclear to the Court which

expenses petitioners are claiming as deductions and which

expenses they are acknowledging were reimbursed by the L.A.

Times.

     For example, petitioners included in the materials they

submitted to substantiate unreimbursed employee expenses for 2005

a receipt from the Algonquin Hotel dated October 31, 2005, for

total amount billed of $3,331.         This receipt relates to

accommodation and telephone charges for the period October 21 to

October 31, 2005.       Petitioners wrote on the receipt “Biz Breeders

Cup”.     However, the L.A. Times expense report for Mr. Christine

for 2005 indicates that $3,331 was “paid to” Mr. Christine in

relation to “lodging” for the Breeders Cup that ended on
                               - 9 -

October 31, 2005.   Additionally, in the entry for “Breeders Cup”,

the L.A. Times expense report for Mr. Christine indicates that a

further $3,209.08 was reimbursed to petitioners in relation to

“airfare”, “mileage”, “meals”, “car rental”, “telephone”,

“other”, “entertainment”, “gifts”, “parking/tolls”,

“taxi/bus/limo”, and “tips”.   Yet the materials petitioners

submitted include receipts related to Breeders Cup travel for

tolls, meals, parking, car rental, entertainment, mileage, and

taxicabs.   Petitioners have not shown that any of the travel

expenses they submitted in relation to Breeders Cup travel were

not included in the expenses previously reimbursed by the L.A.

Times.

     The L.A. Times reimbursed Mr. Christine for similar travel

expenses relating to 10 other races in 2005, including the

Belmont Stakes, Del Mar, Hollywood Park, the Florida Derby and

the Preakness.   Yet petitioners included in the materials they

submitted to substantiate unreimbursed employee expenses for 2005

receipts and statements relating to the same categories of

expenses for these races as were reimbursed by the L.A. Times.

     Mr. Christine testified during trial that he understands he

cannot claim a deduction for expenses that were previously

reimbursed by his employer, but from the record the Court cannot

discern which expenses petitioners are claiming as unreimbursed.

On the basis of the materials admitted into evidence, petitioners
                                - 10 -

are attempting to claim travel expenses for 2005 that the L.A.

Times has previously reimbursed.

     Mr. Christine testified at trial that he did not recall the

dollar amount of the expenses that the L.A. Times reimbursed him

for in 2005 and that he did not subtract this reimbursed amount

from the total amount of his employee business expenses.

Nevertheless, he was surprisingly able to determine the

difference between the amount that he had claimed on his return

and the amount that the L.A. Times had reimbursed him.

     Employee expenses are not deductible if an employee is

entitled to reimbursement from his or her employer for

expenditures related to his or her status as an employee.     Lucas

v. Commissioner, 79 T.C. 1 at 7.    Petitioners have failed to

carry their burden of proving that any of the separately claimed

travel expenses were not reimbursable by the L.A. Times or did

not constitute personal expenses.    The Court cannot determine

from the material presented which travel expenses were

reimbursed.    Because petitioners have not shown that the claimed

expenses were indeed unreimbursed and unreimbursable, we must

deny all the travel expenses.

          2.     Entertainment Expenses

     Section 274(d) requires the taxpayer to substantiate the

amount, time, place, and business purpose of each entertainment

expense, “by adequate records or by sufficient evidence
                              - 11 -

corroborating the taxpayer’s own statement”.     Campbell v.

Commissioner, 164 F.3d 1140, 1143 (8th Cir. 1999), affg. in part

and remanding T.C. Memo. 1997-502.     Petitioners submitted pages

of receipts, bank statements, and credit card bills but did not

provide a business purpose for any of the claimed expenses.     On

some of the submitted materials petitioners wrote the name of a

particular race and in some instances, a person’s name as well.

Presumably the expense relates to the named race, but the Court

cannot determine from the information provided why petitioners

included various names next to each expense or in what way such

person relates to the claimed expense.    Petitioners did not

testify as to a business purpose at trial, nor have they provided

any additional information for any of the claimed entertainment

expenses.

     Petitioners were reimbursed by the L.A. Times for numerous

“meals” and “entertainment” expenses for 2005.    Petitioners have

provided no evidence that the claimed entertainment expenses were

not previously reimbursed or reimbursable.    Petitioners did not

carry their burden of properly substantiating any of the claimed

unreimbursed entertainment expenses relating to Mr. Christine’s

L.A. Times employment.   Accordingly, petitioners are not entitled

to a deduction for any entertainment expenses.
                                - 12 -

          3.   Mileage Expenses

     The strict substantiation requirements of section 274(d)

also apply to away-from-home business mileage expenses.        Smith v.

Commissioner, 80 T.C. 1165, 1172 (1983).    The amount of the

business travel may be substantiated by the use of a

contemporaneous log or by any reasonable means establishing the

number of miles traveled, the date, the place, and the business

purpose of such miles.   Id.    Additionally, the amount for

away-from-home business mileage can be determined on the basis of

a mileage allowance.   The Commissioner has established mileage

allowances deemed to substantiate the amount of the expense

incurred operating a vehicle.    The standard mileage rates for

2005 are set forth in Rev. Proc. 2004-64, 2004-2 C.B. 998, and

Announcement 2005-71, 2005-2 C.B. 714.

     Mr. Christine does not own an automobile, and the mileage

expenses claimed in 2005 are related to rental car usage.       Mr.

Christine testified that he used the standard mileage rate for

miles that he drove a rental car which he considered business

miles that were not reimbursed.    The standard mileage rate for

employees who claim deductions for the cost of operating

automobiles for business purposes applies only to personally

owned or leased automobiles.     Kravette v. Commissioner, T.C.

Memo. 1987-124; Kozlowski v. Commissioner, T.C. Memo. 1977-81;

Rev. Proc. 2004-64, sec. 4, 2004-2 C.B. at 900.     Consequently,
                                - 13 -

petitioners may not use the standard mileage rate for computing

expenses of travel in rental cars.       Because petitioners did not

provide alternative evidence to substantiate the mileage

expenses, e.g., a contemporaneous log of business travel,

petitioners are not entitled to a deduction for vehicle expenses.

          4.      Laptop Expenses

     Petitioners submitted approximately seven different expenses

labeled “laptop”.    It appears from the record that most of these

expenses are for the purchase of computer software and/or

computer accessories.    Expenses relating to the personal use of

computers are subject to the strict substantiation requirements

of section 274.    Hence, to deduct such expenses, the taxpayer

must substantiate the amount of the expenditure, its business

purpose, and the business relationship to the taxpayer of each

expenditure or use.    Sec. 274(d).

     Petitioners have not presented to the Court any information

relating to claimed laptop expenses, other than receipts.

Accordingly, petitioners have not met the substantiation

requirements with regards to the laptop expenses and they are

disallowed under section 274(d).

          5.      Miscellaneous Expenses

     Petitioners claimed miscellaneous L.A. Times unreimbursed

employee expenses relating to dry cleaning, trade publications,

and mailing expenses.    As previously stated, section 162(a)
                               - 14 -

authorizes a deduction for “all the ordinary and necessary

expenses paid or incurred during the taxable year in carrying on

any trade or business”.   A trade or business expense is ordinary

for purposes of section 162 if it is normal or customary within a

particular trade, business, or industry and is necessary if it is

appropriate and helpful for the development of the business.

Commissioner v. Heininger, 320 U.S. 467, 471 (1943); Deputy v. du

Pont, 308 U.S. at 495.    In contrast, “personal, living, or family

expenses” are generally nondeductible.   See sec. 262(a).

     Petitioners have provided no evidence that dry cleaning is a

normal or customary expense in the business of sports writing,

nor have they shown that dry cleaning Mr. Christine’s clothes,

which were suitable for ordinary everyday wear, was appropriate

or helpful for the pursuit of his business.   On the basis of the

record, Mr. Christine’s dry cleaning is properly classified as a

personal expense and hence is not a deductible business expense

under section 162.   See Coppin v. Commissioner, T.C. Memo. 2009-

221; Boltinghouse v. Commissioner, T.C. Memo. 2007-324; Johnson

v. Commissioner, T.C. Memo. 1982-2; Tilney v. Commissioner, a

Memorandum Opinion of this Court dated Feb. 9, 1953.

     Petitioners submitted expenses relating to various trade

publications, including an expense for a subscription to the L.A.

Times.   Taxpayers are entitled to deduct all ordinary and

necessary unreimbursed and unreimbursable business expenses paid
                                - 15 -

or incurred during the taxable year in carrying on a trade or

business.    See sec. 162(a); Lucas v. Commissioner, 79 T.C. at 6.

     Mr. Christine testified that the L.A. Times would provide

him with a free paper if he drove in to its offices.     Respondent

claims that because Mr. Christine was eligible for a free paper

via his status as an employee of the L.A. Times, he is not able

to claim his subscription as an unreimbursed employee expense.

     The L.A. Times offices are approximately 20 miles from

petitioners’ home.    An employee cannot deduct expenses to the

extent that the employee is entitled to reimbursement from his

employer for expenditures related to his employment.     Lucas v.

Commissioner, supra at 7.     However, it is not reasonable to

expect Mr. Christine to drive 20 miles each way to obtain a free

newspaper.    Accordingly, the subscription to the L.A. Times is

allowable as an unreimbursed employee expense under section 162.

On the basis of the record, petitioners are entitled to

unreimbursed employee expenses for trade publications in the

following amounts for 2005:    $252 for the L.A. Times

subscription, $10 for the “CHRB Annual Report”, $35.54 for the

“Daily Racing Form”, $155.28 for the New York Times, $38 for the

“Daily Racing Form’s Simulcast Weekly”, $70 for “Derby Books”,

and $50.81 for the “Daily Racing Form”, for a total of $611.63 of

allowable deductions.
                               - 16 -

     Petitioners also submitted various mailing expenses labeled

“biz” for the 2005 tax year.   Mr. Christine testified that the

mailing expenses were business related to the L.A. Times.

Respondent claims that because the L.A. Times would have paid for

Mr. Christine’s mailing expenses had he driven to their offices,

he is not able to claim his mailing expenses as an unreimbursed

employee expense.

     As previously noted, the L.A. Times offices are

approximately 20 miles from petitioners’ home.   Accordingly, it

is not reasonable to expect Mr. Christine to drive 20 miles each

way for the purposes of mailing.   On the basis of the record, the

Court finds that petitioners are entitled to a total of $156.98

for unreimbursed mailing expenses in 2005.

     Petitioners also submitted two expenses relating to

unreimbursed membership fees for 2005, one for the National Turf

Writers Association and another for the Los Angeles Press Club.

Membership in these organizations can be considered an ordinary

business expense related to the profession of sports writing in

Los Angeles.   Accordingly, petitioners are entitled to a

deduction for unreimbursed membership fees in the following

amounts for 2005:   $40 for membership in the National Turf

Writers Association and $80 for membership in the Los Angeles

Press Club.
                                - 17 -

     C.   Author Expenses

     Whether Mr. Christine’s author expenses are deductible

depends upon whether they are hobby expenses, startup expenses,

or ordinary and necessary expenses of Mr. Christine’s already

active trade or business.

          1.      Section 183 “Hobby” Losses

     Section 183, which applies to activities engaged in by

individuals, generally limits the deductions for an “activity not

engaged in for profit” to the amount of gross income received

from the activity.    Sec. 183(a) and (b).     Section 183(c) defines

an “activity not engaged in for profit” as “any activity other

than one with respect to which deductions are allowable for the

taxable year under section 162 or under paragraph (1) or (2) of

section 212.”    Pursuant to the jurisprudence of the Court of

Appeals for the Ninth Circuit, the court to which an appeal of

this case would lie absent a stipulation to the contrary, an

activity is engaged in for profit if the taxpayer’s “predominant,

primary or principal objective” in engaging in the activity was

for profit.     Wolf v. Commissioner, 4 F.3d 709, 713 (9th Cir.

1993), affg. T.C. Memo. 1991-212.     In this context, the term

“profit” denotes economic profit, independent of tax savings.

Id.; Antonides v. Commissioner, 91 T.C. 686, 693-694 (1988),

affd. 893 F.2d 656 (4th Cir. 1990).      Whether the requisite profit

objective exists must be resolved on the basis of all surrounding
                               - 18 -

facts and circumstances.    Golanty v. Commissioner, 72 T.C. 411,

426 (1979), affd. without published opinion 647 F.2d 170 (9th

Cir. 1981); sec. 1.183-2(b), Income Tax Regs.     A taxpayer’s

profit objective need not be reasonable, but it must be bona

fide.    Golanty v. Commissioner, supra at 426.

       Section 1.183-2(b), Income Tax Regs., sets forth a

nonexclusive list of nine factors to consider in ascertaining a

taxpayer’s objective in engaging in an activity.     These factors

are:    (1) The manner in which the taxpayer carries on the

activity; (2) the expertise of the taxpayer or his advisers; (3)

the time and effort spent by the taxpayer in carrying on the

activity; (4) the expectation that assets used in the activity

may appreciate in value; (5) the success of the taxpayer in

carrying on other similar or dissimilar activities; (6) the

taxpayer’s history of income or losses with respect to the

activity; (7) the amount of occasional profits, if any; (8) the

financial status of the taxpayer; and (9) elements of personal

pleasure or recreation.    None of these factors is controlling in

and of itself, and a decision as to a taxpayer’s intent is not

governed by a numerical preponderance of the factors.       Golanty v.

Commissioner, supra at 426; Allen v. Commissioner, 72 T.C. 28, 34

(1979); sec. 1.183-2(b), Income Tax Regs.

        Taking into account the above factors and considering the

record as a whole, the Court concludes that during 2005 Mr.
                              - 19 -

Christine had a bona fide intention to derive a profit from his

author activities.   In addition to Mr. Christine’s testimony on

this issue, which the Court found to be credible and forthright,

the evidence in the record shows an intent and effort by Mr.

Christine to engage in and continue in the writing field with the

purpose of producing supplemental income and a livelihood.

     We first look to the manner in which Mr. Christine carried

on the activities.   Mr. Christine managed some aspects of this

activities in a businesslike fashion.   While Mr. Christine did

not keep a separate checking account or a well-organized set of

books, he did attempt to keep an accounting, albeit difficult to

decipher, of the expenses he incurred to research his books,

including bills, receipts, and schedules for his expenses.    In

sum, although Mr. Christine could and should have been more

organized in keeping track of his expenditures, his efforts to

make a financial success of his writing activity show a profit

objective.   We conclude this factor is neutral.

     With regard to the second factor, Mr. Christine is a writer

by trade and has been actively engaged in the writing business

for approximately 60 years.   He wrote a book in 1972 that earned

him approximately $10,000 in royalties, as well as some sports

anthology books in later years.   Mr. Christine also engaged an

“agent” of sorts to assist him in publishing his second book.      We
                               - 20 -

conclude there is no question that Mr. Christine has the

requisite expertise to satisfy this factor.

     The third factor focuses on the time and effort expended by

the taxpayer in carrying on the activity.   There is little doubt

that, during the years at issue, Mr. Christine spent numerous

hours per week on his writing activity.   Respondent emphasizes

that Mr. Christine worked full time for the L.A. Times during

2005 and for the previous 22 years, suggesting that in some

manner Mr. Christine’s book-writing could not rise to the level

of a trade or business because he also had a full-time job.

     We disagree with respondent.   Mr. Christine’s employment at

the L.A. Times does not preclude the possibility that his writing

activity constituted a separate trade or business.   We have

recognized that a taxpayer may engage in more than one trade or

business at any one time.    See Gestrich v. Commissioner, 74 T.C.

525, 529 (1980), affd. without published opinion 681 F.2d 805 (3d

Cir. 1982); Sherman v. Commissioner, 16 T.C. 332, 337 (1951).

     The fourth factor takes into consideration the expectation

that assets used in the activity will appreciate in value.

Because there are few, if any, fixed assets involved in writing,

this factor is irrelevant.

     The fifth factor, the success of the taxpayer in carrying on

other similar or dissimilar activities, is easily met given Mr.

Christine’s engagement as a writer for nearly 60 years.    Writing
                              - 21 -

has been his livelihood and has supported him and his family for

a “lifetime”.

     The next two factors, the taxpayer’s history of income or

losses with respect to the activity and the amount of occasional

profits, are examined in tandem.   Mr. Christine was approached by

Bay Meadows racetrack in 2005 to write a book on the history of

the racetrack before it went out of business.   There was no

written contract, but according to Mr. Christine “it was a

handshake deal”.   Mr. Christine then went on to research and

write for approximately the next 4 years.   He eventually sold the

book to the Bay Meadows racetrack for approximately $35,000,

receiving his first payment of $22,500 in January 2009.

Additionally, Mr. Christine has made approximately $10,000 in

royalty income from his book-writing activity in prior years.

Given Mr. Christine’s history of income and loss from book-

writing, the Court finds that these factors are met and strongly

support petitioners’ position.

     Respondent asserts that with regard to the next factor, the

financial status of the taxpayer, petitioners’ profit objective

is suspect because Mr. Christine’s writing activity resulted in a

loss that generated tax benefits in 2005.   Petitioners did not

realize any income from the book-writing activity until 2009 and

were able to use book-writing losses in 2005 to shelter their

other income.   However, we do not believe that petitioners’
                                 - 22 -

income was so high as to make tax savings their primary

objective.3      Rather, we find it clear from Mr. Christine’s

testimony and from the objective evidence that he was a writer

and a book author who desired financial success and intended to

make a profit from his book-writing activity.

     The last factor looks to elements of personal pleasure or

recreation.      Writing has been Mr. Christine’s occupation for

nearly 60 years.      It is apparent to the Court that Mr. Christine

does not merely engage in writing activity for pleasure, but

rather, it is his livelihood.      The fact that Mr. Christine may

enjoy writing does not change the result that he is in the trade

or business of writing.      See Jackson v. Commissioner, 59 T.C.

312, 317 (1972).

     The Court is convinced that Mr. Christine engaged in his

book-writing activity during 2005 with a profit objective.

            2.     Startup Expenditures

        Pursuant to section 195(a), startup expenditures are not

generally deductible.      However, at the election of the taxpayer,

startup expenditures may be treated as deferred expenses and

amortized over at least a 60-month period beginning in the month

in which the active trade or business begins.      See sec.

195(b)(1), (c).      Section 195(c) provides in part:



     3
        Petitioners reported approximately $85,000 in income for
2005.
                               - 23 -

     (1) Startup expenditures.--The term “startup expenditure”
means any amount–-

          (A)   paid or incurred in connection with--

               (i) investigating the creation or
          acquisition of an active trade or business, or

                (ii)   creating an active trade or business, or

               (iii) any activity engaged in for profit and
          for the production of income before the day on
          which the active trade or business begins, in
          anticipation of such activity becoming an active
          trade or business, and

          (B) which, if paid or incurred in connection with the
     operation of an existing active trade or business (in the
     same field as the trade or business referred to in
     subparagraph (A)), would be allowable as a deduction for the
     taxable year in which paid or incurred.

     The taxpayer must elect to amortize his or her startup

expenditures.   Sec. 195(d).

     The critical distinction in this area is between expenses

incurred in connection with an existing trade or business, which

are deductible under section 162(a), and expenses incurred in

establishing a new business, which are not currently deductible.

Respondent contends that book writing was a new trade or business

for Mr. Christine and any expenses associated with such activity

should be treated as startup expenses and amortized in accordance

with section 195.   As previously determined, Mr. Christine was

involved in the active trade or business of writing with a profit

objective.   Given Mr. Christine’s earlier book writing activity

dating back to 1972, the Court does not make a distinction
                               - 24 -

between his book-writing activity and his other for-profit

journalism activity.   Rather, we consider them as part of the

same active trade or business and consider the expenses

deductible, subject to the constraints of sections 162 and 274.

See Colo. Springs Natl. Bank v. United States, 505 F.2d 1185,

1190 (10th Cir. 1974).

     Petitioners claimed various expenses relating to book-

writing activity for 2005, including travel, entertainment,

research, and storage expenses.

     The book-writing travel and entertainment expenses

petitioners claimed consist mostly of hotel and meal charges.

These expenses are subject to the strict substantiation

requirements of section 274(d).

     In some instances for meal expenses, petitioners have

written a name on the receipt.    However, petitioners did not

provide the Court with adequate records or testimony explaining

the amounts of the expenditures, the time and place of the travel

or entertainment, the business purpose of such travel or

entertainment, or the business relationship to petitioners of

each expenditure.    Accordingly, petitioners have failed to carry

their burden of proof and are not entitled to a deduction for any

travel or entertainment expenses relating to book-writing

activity for 2005.
                                - 25 -

     Research expenses attributable to purchasing books or other

intangible property are ordinary and necessary in the context of

book writing.    Accordingly, from the record, petitioners are

allowed a deduction in their 2005 taxable year of $428.83 for

research expenses related to book writing.4

     Mr. Christine testified as to offsite storage expenses for

2005 of approximately $90 per month.     However, the storage

expenses were not documented anywhere in the written materials

petitioners submitted.    Accordingly, the Court will not allow a

deduction for storage expenses.

III. Home Office Expenses

     Section 280A generally prohibits the deduction of the costs

of a taxpayer’s residence.    Section 280A(c)(1), however, permits

a deduction for the allocable portion of a residence that is

regularly and exclusively used as a taxpayer’s principal place of

business or as a place of business which is used by customers in

the normal course of the taxpayer’s trade or business.     In

deciding whether a residence is the principal place of business,

it must be compared to all of the other places where business is

transacted.     See Commissioner v. Soliman, 506 U.S. 168, 174

(1993).   A deduction is allowed only when the residence is the

most important or significant place for the business.     The two



     4
      This amount was calculated on the basis of research-related
receipts petitioners submitted.
                                - 26 -

primary considerations are the relative importance of the

activities performed at each business location and the time spent

at each place.   See id. at 175.   The relative importance of

business activities engaged in at the office in the home “may be

substantially outweighed by business activities engaged in at

another location.”   See Strohmaier v. Commissioner, 113 T.C. 106,

112 (1999).

     In the case of a taxpayer who is an employee, the home

office must be for the convenience of the employer; it cannot

just be a place in which the employee chooses to do some of his

work.   Sec. 280A(c)(1) (flush language); Frankel v. Commissioner,

82 T.C. 318, 323, 326 (1984).    It must be used exclusively for

the employer’s work and not for personal use.     Sec. 280A(c)(1);

Cadwallader v. Commissioner, 919 F.2d 1273, 1275 (7th Cir. 1990),

affg. T.C. Memo. 1989-356.   If the conditions in section 280A are

satisfied, then “even if the home office is not a separate

structure there is a reasonable probability that the taxpayer’s

house is actually larger than it would be if he did not

imperatively require a home office.”     Cadwallader v.

Commissioner, supra at 1275.    Further, the “added expense of the

office is incurred solely to produce income; it yields no, or at

least very little, personal utility.”     Id.   A taxpayer may have

only one principal place of business for each business in which

he is engaged.   See Curphey v. Commissioner, 73 T.C. 766, 776
                              - 27 -

(1980).   To determine the principal place of business within the

meaning of section 280A(c)(1)(A) the Court must ascertain the

“focal point” of a taxpayer’s business activities.   Jackson v.

Commissioner, 76 T.C. 696, 700 (1981); Baie v. Commissioner, 74

T.C. 105, 109 (1980).

     When Mr. Christine first began his employment with the L.A.

Times, they provided him with a desk and chair; but a few years

later he came into the office to find his chair was missing.     Mr.

Christine explained that there are approximately 60 sports

journalists working for the L.A. Times and if “as many as half of

us had ever shown up on the same day we would have been working

from one another’s laps”.   The fact that the employer provides

inadequate office facilities is not dispositive of whether a home

office is for the convenience of the employer.   See Dudley v.

Commissioner, T.C. Memo. 1987-607, affd. without published

opinion 860 F.2d 1078 (6th Cir. 1988).   However, it is unclear

from the record whether Mr. Christine was able to conduct his

book-writing activity at the L.A. Times.   Therefore, the Court

must look to whether Mr. Christine’s home office is his principal

place of business and vital to his profession as a writer.

     Mr. Christine testified that out of the six rooms in his

home, he used one of the bedrooms and the garage exclusively for

his writing, with the latter being used for storage. Petitioners

calculated their home office expenses by computing one-third of
                              - 28 -

the total rent, insurance, and utilities and adding to that

figure all of the television expenses, because they subscribed to

two horse-racing channels.

     Mr. Christine testified that he wrote stories for the L.A.

Times from his home, press boxes, hotel rooms or on location, but

he did not testify as to the specific amount of time he spent

writing in each location as compared to writing in his home.

Additionally, during 2005 Mr. Christine was engaged in the

business of writing nonfiction and historical fiction

anthologies, as well as sports writing for the L.A. Times.

However, the record does not show how much time Mr. Christine

spent on each respective activity.

     We question the accuracy of petitioners’ calculations in

computing their home office deduction.    They included in their

estimate one-third of all their home expenses but provided no

evidence to the Court that this is an accurate reflection of the

costs of maintaining their home office.    Second, petitioners did

not explain to the Court why a home office was vital to Mr.

Christine’s profession as a writer or that it was the “focal

point” of his business.   From the record, it is apparent Mr.

Christine spent a significant amount of his time traveling and

writing stories from locations other than his home.    The Court

cannot conclude that petitioners’ residence was the most

important or significant place for Mr. Christine’s business,
                               - 29 -

given that the record contains little to no information regarding

how much time Mr. Christine spent writing in his home versus

other locations.

      Although it might have been inadequate, the L.A. Times did

provide Mr. Christine with an office.    Additionally, on the basis

of the record, the Court cannot conduct an accurate comparison of

the time Mr. Christine spent writing at his home relative to the

time he spent working elsewhere or determine that a home office

was vital to his profession.   Accordingly, the Court finds that

petitioners failed to meet the requirements of section

280A(c)(1)(A) and are not entitled to a deduction for the

expenses of maintaining a home office.

IV.   Section 6673 Penalty

      Section 6673(a)(1) authorizes the Tax Court to impose a

penalty not in excess of $25,000 on a taxpayer for proceedings

instituted primarily for delay or in which the taxpayer’s

position is frivolous or groundless.    “A position maintained by

the taxpayer is ‘frivolous’ where it is ‘contrary to established

law and unsupported by a reasoned, colorable argument for change

in the law.’”   Williams v. Commissioner, 114 T.C. 136, 144 (2000)

(quoting Coleman v. Commissioner, 791 F.2d 68, 71 (7th Cir.

1986)).

      Courts generally impose section 6673(a)(1) penalties in

cases in which the taxpayer’s lack of good faith was evident.
                             - 30 -

See May v. Commissioner, 752 F.2d 1301, 1307 (8th Cir. 1985).

For example, in a number of cases the Court has imposed a section

6673 penalty against taxpayers who have filed successive

petitions raising the same arguments, even though the arguments

had been rejected in the prior suits and the taxpayers informed

that the arguments were frivolous.5   In other cases, the Court

has assessed a section 6673 penalty after finding that the

taxpayer had knowledge that the claim was frivolous and had

asserted it merely to delay payment of taxes, whether actual

knowledge6 or constructive knowledge that the claim was

frivolous.7


     5
      See Lukovsky v. Commissioner, 734 F.2d 1320 (8th Cir. 1984)
(two prior suits); Coulter v. Commissioner, 82 T.C. 580 (1984)
(one prior suit); Grimes v. Commissioner, 82 T.C. 235 (1984) (one
prior suit); Sydnes v. Commissioner, 74 T.C. 864 (1980), affd.
647 F.2d 813 (8th Cir. 1981) (two prior suits).
     6
      See, e.g., Beard v. Commissioner, 82 T.C. 766 (1984)
(taxpayer admitted he had studied cases, statutes, and
regulations pertaining to Federal income taxes and that he knew
the theory on which he based his claim had been rejected as
frivolous), affd. 793 F.2d 139 (6th Cir. 1986); Wilkinson v.
Commissioner, 71 T.C. 633 (1979) (Commissioner sent copies of
opinions which had rejected taxpayer's contentions as frivolous
and taxpayer admitted to having read them); Vickers v.
Commissioner, T.C. Memo. 1983-429 (Commissioner advised taxpayers
in deficiency notice that their claim had no legal basis);
Stamper v. Commissioner, T.C. Memo. 1983-248 (taxpayer had been
advised in three previous years that his claim was frivolous and
Commissioner advised him in deficiency notice that his position
had been repeatedly rejected as frivolous and cited, in the
notice, those cases to taxpayer).
     7
      See, e.g., Abrams v. Commissioner, 82 T.C. 403 (1984);
Manley v. Commissioner, T.C. Memo. 1983-558 (counsel had
                                                   (continued...)
                              - 31 -

     On January 8, 2010, respondent moved the Court to penalize

petitioners under section 6673(a)(1).    Respondent contends that

petitioners have maintained proceedings in this case primarily

for delay and that their position is frivolous or groundless.

Respondent cites petitioners’ unreasonable failure to pursue

available administrative remedies as grounds for a section

6673(a) penalty.   Respondent also points to petitioners’ refusal

to respond to requests to provide information relating to

reimbursement policies of Mr. Christine’s employer.   During a

conference with the Internal Revenue Service on May 20, 2009, Mr.

Christine admitted that he was making the Government “jump

through hoops”.

     Petitioners should have been more organized with regard to

substantiation for their claimed expenses, but the Court does not

agree with respondent that petitioners’ conduct warrants a

penalty under section 6673(a)(1).   Section 6673(a)(1) is reserved

for extreme cases, as mentioned above.   We find that petitioners

took their position in good faith and with reasonable cause and

hence, their claims cannot be classified as frivolous or

primarily for the cause of delay.   Therefore, we shall exercise

great restraint and shall not at this time impose a penalty under

section 6673(a)(1).   Petitioners are warned, however, that we


     7
      (...continued)
previously represented another taxpayer raising same claim in
which argument had been rejected as frivolous).
                             - 32 -

shall not be so inclined should they again advance before the

Court arguments, such as those advanced in this case, and not

provide sufficient evidence to sustain them.

V.   Conclusion

     The Court has considered all of petitioners’ contentions,

arguments, requests, and statements.   To the extent not discussed

herein, we conclude that they are merit less, moot, or

irrelevant.

     To reflect the foregoing and concessions by both parties,


                                          An appropriate order

                                   will be issued, and decision

                                   will be entered under Rule

                                   155.
