                         T.C. Summary Opinion 2019-35



                        UNITED STATES TAX COURT



              DEBORAH LOUISE BIEGALSKI, Petitioner v.
           COMMISSIONER OF INTERNAL REVENUE, Respondent



      Docket No. 4671-18S.                         Filed December 3, 2019.



      Deborah Louise Biegalski, pro se.

      Francesca Chou, Frederick C. Mutter, and Lyle B. Press, for respondent.



                              SUMMARY OPINION


      COLVIN, Judge: This case was heard pursuant to the provisions of section

74631 of the Internal Revenue Code in effect when the petition was filed.


      1
       Section references are to the Internal Revenue Code in effect at all relevant
times. Rule references are to the Tax Court Rules of Practice and Procedure. We
                                                                      (continued...)
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Pursuant to section 7463(b), 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.

      Respondent determined that petitioner had deficiencies and is liable for

penalties in Federal income tax for taxable years 2014 and 2015 as follows:

                                                             Penalty
                     Year            Deficiency             sec. 6662
                  2014                 $9,815                 $1,745
                  2015                 16,491                  2,650

      After concessions, the issues for decision are:

      1. Whether, as petitioner contends, we lack jurisdiction because the notice

of deficiency is invalid. We hold that the notice of deficiency is valid and that we

have jurisdiction.

      2. Whether petitioner may deduct expenses of commuting to work at First

Tek, Inc. (First Tek), after she signed contracts and work orders ensuring that she

would work at First Tek for longer than one year. We hold that she cannot.

      3. Whether petitioner may, as she contends, deduct 80% of the costs of her

cell phone. We hold that petitioner may, as respondent contends, deduct only 50%

of those costs.


      1
       (...continued)
round all monetary amounts to the nearest dollar.
                                        -3-

      4. Whether petitioner is liable for accuracy-related penalties under section

6662(a) for the years at issue. We hold that she is.

                                    Background

      Some of the facts have been stipulated and are so found. Petitioner resided

in New Jersey when she filed her petition.

A.    Petitioner’s Work as an Independent Contractor

      On September 17, 2013, petitioner signed an “Independent Contractor

Service Agreement” (contract) with First Tek, an information technology services

provider in Piscataway, New Jersey. The contract stated that petitioner would

“provide temporary staff augmentation services * * * for the period(s) as set forth

in each attachment hereto (Work Orders).” Petitioner signed a work order (first

work order) with First Tek on September 20, 2013. The parties agree that under

the first work order petitioner provided services from October 14, 2013, to

October 10, 2014. On a date not specified in the record petitioner and First Tek

executed another work order (second work order), which covered the period from

October 11, 2014, to October 10, 2015. On May 15, 2015, petitioner left First Tek

and began working as an employee at a large financial firm, where she continued

to work at the time of trial. Petitioner used her personal cell phone for work-

related calls and emails at First Tek and at her subsequent place of employment.
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B.    Preparation and Audit of Petitioner’s 2014 and 2015 Tax Returns

       Petitioner’s Forms 1040, U.S. Individual Income Tax Return, for 2014 and

2015 were due on April 15, 2015, and April 15, 2016, respectively. When

petitioner was preparing her tax return for 2014, she retrieved receipts she had

placed in storage and found that many of them had become moldy, hampering her

efforts to prepare that return. Petitioner filed her Forms 1040 for tax years 2014

and 2015 on October 15, 2015, and January 30, 2016, respectively. Petitioner

reported that her total tax liabilities were $5,215 and $1,395 for 2014 and 2015,

respectively.

      On December 13, 2016, petitioner met with an Internal Revenue Service

(IRS) tax compliance officer as part of an examination of her 2014 and 2015 tax

returns. At that meeting petitioner gave the compliance officer amended tax

returns for 2014 and 2015. Respondent did not process or file her amended

returns. Respondent’s determinations in the notice were based on petitioner’s

filed returns, not her amended returns. On December 14, 2016, the immediate

supervisor of the compliance officer signed and sent petitioner a Letter 915 (30-

day letter) that included Form 4549, Income Tax Examination Changes, which

recommended accuracy-related penalties under section 6662(a) for 2014 and 2015

as part of the total amounts due. The compliance officer made the initial
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determination of the penalties that were reflected in the 30-day letter signed by the

supervisor.

                                     Discussion

A.    Burden of Proof

      The Commissioner’s determination in a notice of deficiency is generally

presumed to be correct, and the taxpayer bears the burden of proving otherwise.

Rule 142(a); INDOPCO, Inc. v. Commissioner, 503 U.S. 79, 84 (1992); Welch v.

Helvering, 290 U.S. 111, 115 (1933). The burden of proof with respect to a

factual issue relevant to a taxpayer’s liability for income tax may shift from the

taxpayer to the Commissioner if the taxpayer has complied with substantiation

requirements, maintained all records required by the Internal Revenue Code, and

cooperated with reasonable requests by the Secretary for information, documents,

and meetings. Sec. 7491(a)(2). In addition, for the burden to shift, the taxpayer

must introduce credible evidence with respect to the issue. See sec. 7491(a)(1). A

taxpayer bears the burden of proving that he or she has met the requirements of

section 7491(a). See H.R. Conf. Rept. No. 105-599, at 239 (1998), 1998-3 C.B.

747, 993; S. Rept. No. 105-174, at 45 (1998), 1998-3 C.B. 537, 581. Petitioner

does not contend that she met the requirements of section 7491(a) for shifting the
                                         -6-

burden of proof. Thus, the burden of proof does not shift under section 7491(a).

See Rule 142(a); Welch v. Helvering, 290 U.S. at 115.

B.    Validity of the Notice of Deficiency

      Petitioner contends that the notice of deficiency is invalid and therefore we

lack jurisdiction. First, she contends that respondent’s use of her original returns,

and not her amended returns, to determine her deficiencies for 2014 and 2015 was

erroneous and invalidates the notice. We disagree. Petitioner first provided the

amended returns to the IRS after respondent began to audit her 2014 and 2015

returns. Thus, respondent was not required to base the determinations on the

amounts reported in the amended returns. See Roberts v. Commissioner, T.C.

Memo. 2012-144, 2012 WL 1842549, at *2, sec. 1.6664-2(c)(2) and (3), Income

Tax Regs. However, respondent may treat amounts reported on amended returns

as concessions by the taxpayer. See McClellan v. Commissioner, T.C. Memo.

2014-257, at *23.

      Second, petitioner contends that the notice of deficiency does not describe

the basis for respondent’s determination of her tax liabilities for her commuting

and cell phone expenses and thus is invalid because it does not comply with

section 7522. Section 7522(a) provides in pertinent part:
                                         -7-

      Any notice to which this section applies shall describe the basis for,
      and identify the amounts (if any) of, the tax due, interest, additional
      amounts, additions to the tax, and assessable penalties included in
      such notice. An inadequate description under the preceding sentence
      shall not invalidate such notice.

      Section 7522 makes clear that failure to include the basis for a

determination would not invalidate the notice. However, if the basis for the

determination was not described in the notice of deficiency and the new basis

requires the presentation of different evidence, the burden of proof shifts to the

Commissioner to prove why the deficiency in the notice should be sustained. Shea

v. Commissioner, 112 T.C. 183, 197 (1999). The notice in this case provides a

basis for every item determined by respondent relating to petitioner’s 2014 and

2015 tax returns. For example, the notice states that petitioner “cannot deduct

business travel expense[s] paid or incurred for away from home assignments that

last for more than one year at a single location.” Regarding petitioners’ cell phone

expenses, the notice states that because petitioner “did not establish that the

business expense shown on * * * [her] tax return was paid or incurred during the

taxable year and that the expense was ordinary and necessary to * * * [her]

business, * * * [respondent] disallowed the amount shown.” Thus, the burden

does not shift to respondent.
                                        -8-

      Third, petitioner contends that respondent violated her right to privacy by

sending a copy of the notice to her former representative under a power of attorney

who, she claims, had withdrawn, and thus the notice of deficiency is invalid. A

witness for respondent testified that the IRS has no record that her representative

had withdrawn. Petitioner testified that she had an email from her representative

which stated he had withdrawn. However, she did not offer the email into

evidence. On this record petitioner has not shown that respondent erred in sending

a copy of the notice to her representative. We hold that the notice is valid and that

we have jurisdiction.

C.    Petitioner’s Commuting Expenses

      Petitioner contends she can deduct her commuting expenses for 2014 and

2015 because her work at First Tek was for two different periods each lasting less

than one year and because the work she performed in the first period was unrelated

to her work in the separate period. Respondent determined that petitioner may not

deduct her commuting expenses after September 30, 2014, on the grounds that she

did not reasonably expect the length of her services to exceed one year until

October 1, 2014.

      Section 162(a) generally permits the deduction of ordinary and necessary

business expenses. However, a taxpayer’s commuting expenses (expenses of
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traveling regularly between the taxpayer’s home and workplace) generally are not

deductible under section 162(a). Fausner v. Commissioner, 413 U.S. 838 (1973).

However, Rev. Rul. 99-7, 1999-1 C.B. 361, 361, states that taxpayers may deduct

daily commuting expenses if they are commuting between their “residence and a

temporary work location outside the metropolitan area where the taxpayer[s] live[]

and normally work[].” That revenue ruling states:

      If employment at a work location initially is realistically expected to
      last for 1 year or less, but at some later date the employment is
      realistically expected to exceed 1 year, that employment will be
      treated as temporary (in the absence of facts and circumstances
      indicating otherwise) until the date that the taxpayer’s realistic
      expectation changes, and will be treated as not temporary after that
      date. [Id. at 362.]

      The first work order applied to the period from October 14, 2013, to

October 10, 2014. When the parties signed the second work order, extending

petitioner’s period of service beyond one year to October 10, 2015, she reasonably

expected to work at First Tek for more than one year. While the record does not

show the specific date that the parties signed the second work order, respondent’s

position is consistent with the reasonable assumption that the second work order

was signed around September 30, 2014.

      Petitioner contends that she would never expect her service as an

independent contractor to last more than one year, but the two work orders show
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otherwise. She also contends that the periods under the two work orders should

not be aggregated because the work performed under the second work order was

unrelated to the work performed under the first work order. We disagree; the total

period of service controls even if the duties change during the period of service.

Norwood v. Commissioner, 66 T.C. 467, 470 (1976).

      Respondent concedes that petitioner can deduct her commuting expenses

from January 1 to September 30, 2014. Respondent contends, and we hold, that

she may not deduct her expenses for commuting after that date.

D.    Cell Phone Expenses

      Petitioner contends she may deduct 80% of her cell phone costs for 2014 as

ordinary and necessary business expenses under section 162(a). Respondent

determined and contends that petitioner may deduct 50% of those expenses. We

agree with respondent.

      Petitioner offered no evidence showing that more than 50% of her cell

phone use was work related. On this record we sustain respondent’s determination

that petitioner may deduct only 50% of her cell phone expenses. See Windham v.

Commissioner, T.C. Memo. 2017-68, at *23-*24.
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E.    Accuracy-Related Penalty

      Respondent determined that petitioner had an underpayment for each tax

year attributable to a substantial understatement of income tax and therefore that

she is liable for accuracy-related penalties of $1,745 and $2,650 for 2014 and

2015, respectively. Sec. 6662(a), (b)(2). Petitioner contends she had reasonable

cause and acted in good faith as established under section 6664(c)(1) and section

1.6664-4(b)(1), Income Tax Regs.

      Section 6662(a) and (b)(2) imposes an accuracy-related penalty equal to

20% of the portion of an underpayment of tax attributable to a substantial

understatement of income tax. An understatement of income tax is substantial if it

exceeds the greater of 10% of the tax required to be shown on the return or

$5,000. Sec. 6662(d)(1)(A); sec. 1.6662-4(b), Income Tax Regs.

      The Commissioner bears the burden of production for accuracy-related

penalties determined under section 6662(a). See sec. 7491(c); Higbee v.

Commissioner, 116 T.C. 438, 446-447 (2001). As part of the Commissioner’s

burden of production for section 6662(a) penalties, section 6751(b)(1) provides

that the Commissioner must show that there was written supervisory approval of

the initial penalty determination. See sec. 7491(c); Clay v. Commissioner, 152

T.C. __, __ (slip op. at 43-44) (Apr. 24, 2019); Graev v. Commissioner, 149 T.C.
                                         - 12 -

485, 493 n.14 (2017) (citing Chai v. Commissioner, 851 F.3d 190, 221 (2d Cir.

2017), aff’g in part, rev’g in part T.C. Memo. 2015-42), supplementing and

overruling in part 147 T.C. 460 (2016).

      Petitioner contends that on the basis of her amended returns her

understatements do not exceed 10% of the tax owed and are less than $5,000. As

explained above, respondent is under no obligation to (and did not) determine her

deficiencies on the basis of the amounts shown in the amended returns. The

understatement of tax petitioner owed for 2014 ($9,815) is greater than $5,000,

which is greater than 10% of the $15,030 respondent determined she owed. The

understatement of tax petitioner owed for 2015 ($16,491) is greater than $5,000,

which is greater than 10% of the $17,886 respondent determined she owed.

Therefore, petitioner’s reported tax liabilities on her original returns constitute

substantial understatements.

      Respondent’s burden under section 6751(b)(1) was met in that the tax

compliance officer’s immediate supervisor signed the 30-day letter sent to

petitioner on December 14, 2016, that included accuracy-related penalties under

section 6662(a).

      A taxpayer is not liable for a penalty under section 6662 if the taxpayer had

reasonable cause for the underpayment and acted in good faith. See sec.
                                        - 13 -

6664(c)(1); sec. 1.6664-4(a), Income Tax Regs. When taking into account all

facts and circumstances, including the taxpayer’s experience, education, and

sophistication, an honest misunderstanding of fact or law may indicate reasonable

cause and good faith. Higbee v. Commissioner, 116 T.C. at 449 (citing Remy v.

Commissioner, T.C. Memo. 1997-72); see sec. 1.6664-4(b)(1), Income Tax Regs.

Generally, the most important factor is the extent of the taxpayer’s effort to

properly assess his or her tax liability. Sec. 1.6664-4(b)(1), Income Tax Regs. In

addition, reliance on professional advice may indicate reasonable cause and good

faith if such reliance was reasonable and the taxpayer acted in good faith. Id.

      Petitioner does not claim that she sought professional advice for her 2014 or

2015 tax return or describe what steps she took to learn whether she was entitled

to deduct her commuting expenses or 80% of her cell phone expenses. She

prepared and submitted amended tax returns but did so belatedly during the audit

which led to this case. We hold that she has not shown that she made a good faith

effort to accurately report her 2014 and 2015 tax on her filed returns, and thus she

is liable for the penalties under section 6662(a) for those years.
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To reflect the foregoing,


                                     Decision will be entered under

                            Rule 155.
