                   T.C. Summary Opinion 2011-95



                     UNITED STATES TAX COURT



          JAC E. AND CYNTHIA L. BAKER, Petitioners v.
          COMMISSIONER OF INTERNAL REVENUE, Respondent



     Docket No. 25951-08S.             Filed July 19, 2011.



     Ellin V. Palmer, for petitioners.

     Cassidy B. Collins, for respondent.



     DEAN, Special Trial Judge:   This case was heard

pursuant to the provisions of section 7463 of the Internal

Revenue Code in effect when the petition was filed.     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.   Unless otherwise indicated,

subsequent section references are to the Internal Revenue Code in
                                - 2 -

effect for the years in issue, and all Rule references are to the

Tax Court Rules of Practice and Procedure.

     Respondent determined the following deficiencies and

penalties with respect to petitioners’ 2005, 2006, and 2007

Federal income tax returns:

                                                   Penalty
         Year                 Deficiency        Sec. 6662(a)1
         2005                   $3,945              $791
         2006                    3,900               780
         2007                    2,462               492
     1
      All penalty amounts are rounded to the nearest dollar.

     After concessions,1 the issues for decision are whether:

(1) Each petitioner’s tax home is the couple’s personal

residence; and (2) petitioners are entitled to deduct certain

unreimbursed employee business expenses reported on Schedule A,

Itemized Deductions.

                              Background

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

The stipulation of facts, the supplemental stipulation of facts,

and the exhibits received into evidence are incorporated herein


     1
      Respondent concedes that petitioners are entitled to
deductions for tax preparation fees and that Mrs. Baker is
entitled to deductions for work uniform expenses. Respondent
also concedes that Mr. Baker is entitled to deduct incidental
expenses of $716, $1,124, and $1,181 for 2005, 2006, and 2007,
respectively. Petitioners did not address amounts respondent
disallowed for “other expenses” of $3,111, $1,251, and $552 for
2005, 2006, and 2007, respectively. Therefore, these amounts are
deemed conceded.
                                - 3 -

by reference.    At the time petitioners filed their petition, they

resided in the State of Washington.

     At all relevant times Mr. Baker was employed as a tug master

for Young Brothers, Ltd. (Young Brothers), based in Honolulu,

Hawaii.   Young Brothers provides interisland cargo services

throughout the islands that constitute the State of Hawaii.      Mr.

Baker would fly from Seattle to Honolulu for work.   According to

U.S. Coast Guard certificates of discharge to merchant seaman,

Mr. Baker worked the following shifts during the years in issue:

          2005                   2006                 2007
    Jan. 1-Jan. 15           Jan. 4-Feb. 1       Jan. 1-Jan. 8
    Feb. 28-Mar. 23          Mar. 2-Apr. 5       Jan. 8-Jan. 10
    Mar. 23-Mar. 27          May 4-June 2        Jan. 10-Jan. 20
    Mar. 28-Apr. 1           July 5-Aug. 7       Mar. 7-Apr.17
    May 1-May 26            Sept. 16-Oct. 29     May 16-June 18
    July 2-July 5            Nov. 29-Dec. 16     July 28-Aug. 12
    July 5-July 7            Dec. 27-Dec. 31     Sept. 1-Sept. 30
    July 7-July 9                                Oct. 15-Oct. 24
    July 9-Aug. 4                                Nov. 1-Dec. 1
    Sept. 1-Sept. 28
    Sept. 28-Oct. 4
    Nov. 2-Dec. 2

     Young Brothers did not reimburse Mr. Baker for the expenses

he incurred for travel between his personal residence in

Washington and Hawaii.   Mr. Baker generally worked for 1 month
                                - 4 -

and then had 1 month off.    Mr. Baker also accrued vacation time

that could be used during his shifts.

     For most of Mr. Baker’s shifts, he worked on the vessel

Malulani and began and ended each voyage in the Honolulu, Hawaii,

port.    Each tug voyage lasted approximately 3 days.   On eight

occasions during the years in issue, Mr. Baker either began or

ended his voyage in a port other than Honolulu:    five of these

occasions were in neighboring islands in Hawaii and three were in

the continental United States.2

     From the time Mr. Baker arrived at the port in Honolulu

until his 1-month shift ended, he was allowed to sleep aboard the

vessel upon which he worked.    Young Brothers did not provide Mr.

Baker any meals while the vessel was docked at the Honolulu port;

but as soon as the vessel left Honolulu, Young Brothers provided

all of Mr. Baker’s meals.    This included when the vessel was

docked at neighboring islands for the unloading of a barge’s

cargo.   As Mr. Baker incurred expenses related to his employment,

he documented them in a calendar.    Mr. Baker’s employment with

Young Brothers was permanent and for an indefinite period.

     Around 1985 Mrs. Baker was training to be a flight attendant

with Regent Air (Regent).    Her rotation with Regent would have


     2
      Mr. Baker began or ended four voyages in the Hono Hi,
Hawaii, port. He ended one voyage in the Kahului, Hawaii, port.
Mr. Baker also began or ended a voyage in the Seattle,
Washington, Portland, Oregon, and Astoria, Oregon, ports.
                                - 5 -

been a nonstop flight from Honolulu, Hawaii, to New York.     During

Mrs. Baker’s training Regent lost its financiers and the airline

discontinued its plans for the nonstop route from Honolulu to New

York.    Although the opportunity with Regent was no longer

available, Mrs. Baker’s interest in being a flight attendant had

been piqued, and she began looking for opportunities with other

airlines.

     Mrs. Baker found that opportunity with Delta Airlines

(Delta).    Mrs. Baker has been a flight attendant with Delta for

25 years.    During the years in issue Mrs. Baker’s base station

was JFK International Airport (JFK) in New York, New York.    She

flew from Seattle, Washington, to New York, New York, to begin

each flight rotation.

     At all relevant times Mrs. Baker kept an apartment in New

York City that she shared with nine other individuals.3   During

the years in issue she worked an international rotation serving

only European countries.    In 2005 Mrs. Baker flew the 1st through

the 15th of each month.    In 2006 and 2007 she flew one to four

times a month.    An international rotation would generally last

from 3 to 4 days.    Although Mrs. Baker recorded rotation numbers

and lengths of rotations on her calendar, no evidence was



     3
      The record contains no other information about the
apartment or Mrs. Baker’s portion of the expenses associated with
the apartment.
                                - 6 -

presented that documented the European cities in which she had

layovers or the days she was in those cities.

     Mrs. Baker received flight pay and a per diem from Delta.

Flight pay started when the airplane door closed and the airplane

pushed back from the gate.    Mrs. Baker’s “time away from base”

pay (TAFB), or per diem, began when she signed in at JFK for her

rotation and ended when she returned to New York.    Delta’s TAFB

for international rotations for the years in issue was $2.40 an

hour.   Mrs. Baker’s employment with Delta was permanent and for

an indefinite period.

     Mrs. Baker incurred expenses for traveling from her home to

Seattle-Tacoma International Airport (SEA-TAC).    Delta did not

reimburse Mrs. Baker for the expenses she incurred for travel

between her personal residence and SEA-TAC, nor the expenses she

incurred for travel from SEA-TAC to New York City.    When Mrs.

Baker was in New York City and not working, she had to purchase

her own meals.   She also incurred expenses for taxis from her New

York City apartment to JFK.    While the airplane was in flight,

Mrs. Baker was provided one meal.    Upon arrival at a layover

destination, Delta provided transportation to a hotel and covered

the cost of the hotel room.    Delta did not cover tips paid to the

taxi or van drivers who shuttled the flight crew to hotels.      Mrs.

Baker did not claim her actual expenses while on layovers in

Europe because she had “my per diem, or my government allowance.”
                               - 7 -

Mrs. Baker used a calendar to record the expenses she incurred in

the United States.   All of the receipts she provided for the

years in issue were for her mileage costs in Seattle and expenses

she incurred in the United States.

     Petitioners’ 2005, 2006, and 2007 Federal income tax returns

were prepared by the certified public accountant (C.P.A.) who had

prepared their returns for several years before the years in

issue.   Petitioners’ C.P.A. also prepared the couple’s amended

returns for 2005 and 2006.   In 2005 petitioners claimed job

expenses and miscellaneous itemized deductions of $22,414, of

which $13,353 and $5,155 were unreimbursed employee business

expenses for Mr. Baker and Mrs. Baker, respectively.4   In 2006

petitioners claimed job expenses and miscellaneous itemized

deductions of $17,621, of which $11,281 and $3,744 were

unreimbursed employee business expenses for Mr. Baker and Mrs.

Baker, respectively.   In 2007 petitioners claimed job expenses

and miscellaneous itemized deductions of $12,134, of which

unreimbursed employee business expenses were $10,435.   The 2007

unreimbursed employee business expenses are attributable only to

Mr. Baker.   No Forms 2106, Employee Business Expenses, were filed

with any of the Federal income tax returns for the years in

issue.

     4
      The 2-percent floor of sec. 67(a) was applied to
petitioners’ job expenses and miscellaneous itemized deductions
for each year in issue.
                                - 8 -

     Respondent mailed petitioners a notice of deficiency that

disallowed all of their job expenses and miscellaneous itemized

deductions for 2005 and 2007 and all but $195 of the expenses and

deductions claimed for 2006.   Respondent also determined a

section 6662(a) accuracy-related penalty for each year in issue.

                             Discussion

I.   Burden of Proof

     The Commissioner’s determinations are presumed correct, and

generally taxpayers bear the burden of proving otherwise.     Rule

142(a)(1); Welch v. Helvering, 290 U.S. 111, 115 (1933).

Petitioners moved for a section 7491(a)(1) burden shift in their

pretrial memorandum.   Petitioners failed to meet the

substantiation and recordkeeping requirements of section 7491.

See sec. 7491(a)(2)(A) and (B).   Therefore, the burden remains on

petitioners.

     Tax deductions are a matter of legislative grace, and the

taxpayer bears the burden of proving entitlement to the

deductions claimed.    Rule 142(a)(1); INDOPCO, Inc. v.

Commissioner, 503 U.S. 79, 84 (1992).     Taxpayers are required to

substantiate claimed deductions by keeping and producing adequate

records that enable the Commissioner to determine the correct tax

liability.   Sec. 6001; Hradesky v. Commissioner, 65 T.C. 87, 90

(1975), affd. per curiam 540 F.2d 821 (5th Cir. 1976).
                                - 9 -

     If a taxpayer establishes that he or she has incurred a

deductible expense yet is unable to substantiate the exact

amount, the Court may estimate a deductible amount, bearing

heavily against the taxpayer whose inexactitude is of his or her

own making.    Cohan v. Commissioner, 39 F.2d 540, 544 (2d Cir.

1930).   The taxpayer must present sufficient evidence for the

Court to form an estimate because without such a basis any

allowance would amount to unguided largesse.    Williams v. United

States, 254 F.2d 559, 560-561 (5th Cir. 1957); Vanicek v.

Commissioner, 85 T.C. 731, 742-743 (1985).

     However, the Court may not estimate a taxpayer’s expenses

with respect to the items enumerated in section 274(d).      Sanford

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

412 F.2d 201 (2d Cir. 1969).   Section 274 requires strict

substantiation for any traveling expense under section 162.     Sec.

274(d)(1).    Section 274(d) and the regulations thereunder require

taxpayers to substantiate their deductions by adequate records or

sufficient evidence establishing the amount, time, place, and

business purpose of the expense to corroborate the taxpayer’s own

testimony.    See sec. 1.274-5T(b), Temporary Income Tax Regs., 50

Fed. Reg. 46014 (Nov. 6, 1985).   In the absence of evidence

establishing the elements of the expenditure or use, deductions

must be disallowed entirely.   Sec. 274(d); Sanford v.
                                - 10 -

Commissioner, supra; see also sec. 1.274-5T(a), Temporary Income

Tax Regs., 50 Fed. Reg. 46014 (Nov. 6, 1985).

II.   Section 162 Expenses

      Section 162 generally allows a deduction for ordinary and

necessary expenses paid or incurred during the taxable year in

carrying on a trade or business.    An expense is considered

ordinary if commonly or frequently incurred in the trade or

business of the taxpayer.     Deputy v. du Pont, 308 U.S. 488, 495-

496 (1940).    An expense is necessary if it is appropriate and

helpful in carrying on a taxpayer’s trade or business.

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

Helvering, supra at 113.     Services performed by an employee

constitute a trade or business for this purpose.     O’Malley v.

Commissioner, 91 T.C. 352, 363-364 (1988).

      Section 162(a)(2) allows a taxpayer to deduct traveling

expenses, including amounts expended for meals and lodging, if

such expenses are:    (1) Ordinary and necessary, (2) incurred

while away from home, and (3) incurred in the pursuit of a trade

or business.    Commissioner v. Flowers, 326 U.S. 465, 470 (1946).

“The exigencies of business rather than the personal conveniences

and necessities of the traveler must be the motivating factors.”

Id. at 477.

      This Court has generally defined the word “home” (or tax

home) as used in section 162(a)(2) to mean the vicinity of a
                                - 11 -

taxpayer’s principal place of business.    Mitchell v.

Commissioner, 74 T.C. 578, 581 (1980); Daly v. Commissioner, 72

T.C. 190 (1979), affd. 662 F.2d 253 (4th Cir. 1981); Kroll v.

Commissioner, 49 T.C. 557, 561-562 (1968).    Under this

definition, commuting expenses are not deductible and are

considered personal expenses.    Anderson v. Commissioner, 60 T.C.

834, 835 (1973); see sec. 262.

     On the other hand, if a taxpayer accepts temporary

employment outside of the vicinity of his principal place of

residence, his travel expenses are generally deductible because

it would be unreasonable for him to move his residence for

temporary employment.   Ireland v. Commissioner, T.C. Memo. 1979-

386 (citing Tucker v. Commissioner, 55 T.C. 783, 786 (1971)).       If

a taxpayer does not have a principal place of business, his

personal residence will be considered his tax home.      Johnson v.

Commissioner, 115 T.C. 210, 221 (2000) (citing Rambo v.

Commissioner, 69 T.C. 920 (1978), Dean v. Commissioner, 54 T.C.

663 (1970), and Leach v. Commissioner, 12 T.C. 20 (1949)).      A

taxpayer must have a tax home from which to be away to be

entitled to a deduction under section 162(a)(2).    Henderson v.

Commissioner, T.C. Memo. 1995-559, affd. 143 F.3d 497 (9th Cir.

1998).   “Married couples that both work and file a joint tax

return may have separate tax homes.”     Allen v. Commissioner, T.C.

Memo. 2009-102; see Hammond v. Commissioner, 20 T.C. 285, 287-288
                                  - 12 -

(1953), affd. 213 F.2d 43 (5th Cir. 1954); Chwalow v.

Commissioner, T.C. Memo. 1971-185, affd. 470 F.2d 475, 478 (3d

Cir. 1972).     In order to decide what expenses and deductions

petitioners are entitled to, the Court must first decide where

each petitioner’s tax home is located.       The “determination of a

taxpayer’s tax home is a question of fact to be decided on the

entire record.”     Nicholls v. Commissioner, T.C. Memo. 1995-291

(citing Coombs v. Commissioner, 608 F.2d 1269, 1274 (9th Cir.

1979), affg. in part and revg. in part 67 T.C. 426 (1976)).

     A.      Mr. Baker’s Tax Home

     Petitioners relied heavily upon the cases of Johnson v.

Commissioner, supra, and Westling v. Commissioner, T.C. Memo.

2000-289.5    In Johnson the taxpayer husband was a merchant seaman

who lived in Freeland, Washington, and was the captain of a

vessel that sailed worldwide to deliver equipment to the U.S.

military.     The taxpayer husband’s employer’s primary office was

in Jacksonville, Florida.     Johnson v. Commissioner, supra at 211.

The taxpayer husband and his crew flew to and from whatever port

around the world the vessel was docked in to begin and end each

work shift.     Id. at 211-212.     The Court found that the taxpayer

husband had no principal place of business and that his personal

residence was his tax home.       Id. at 221.   To support its finding

     5
      Petitioners’ C.P.A. also prepared the taxpayers’ returns in
Johnson v. Commissioner, 115 T.C. 210 (2000), and Westling v.
Commissioner, T.C. Memo. 2000-289.
                               - 13 -

the Court noted that the taxpayer-husband’s family did not travel

with him and that there was no reason to second guess the

taxpayer-husband’s decision to maintain his principal residence

in Washington State instead of Florida or one of the many cities

to which he traveled.    Id. at 222.

      In Westling v. Commissioner, supra, the Court did not

discuss the taxpayer’s tax home but whether he was entitled to

use the Federal per diem rates to determine his incidental

expenses for his employment as a merchant seaman.      The taxpayer’s

employer’s primary office was in Juneau, Alaska, and the taxpayer

piloted a tugboat to various ports in and around southeast

Alaska.   Id.   The taxpayer also began and ended his shifts on the

tugboat at several different ports.     Id.   Although there was no

discussion of the taxpayer’s tax home, the Court found that the

taxpayer was entitled to deduct his incidental expenses using the

Federal per diem rate because the taxpayer’s meals and lodging

were supplied by his employer at no charge when he was working.

Id.

      Mr. Baker’s employment situation is factually different from

those of the taxpayers in Johnson and Westling.      Mr. Baker’s

employer’s primary office was in Honolulu, Hawaii.     The home port

of the vessel Malulani, on which Mr. Baker worked most of his

shifts, was Honolulu.   Although the vessel traveled to several

ports throughout the State of Hawaii, Mr. Baker began and ended
                                - 14 -

most of his voyages at the vessel’s home port in Honolulu.      Only

eight times in 3 years did Mr. Baker begin or end a voyage in a

port other than Honolulu.     No evidence was presented that there

was a business reason for Mr. Baker’s personal residence’s being

in Washington and not Honolulu.     Mr. Baker’s decision to commute

from Washington to Honolulu was a personal decision, not a

business decision.    See Commissioner v. Flowers, 326 U.S. at 477;

see also sec. 262.     Therefore, Mr. Baker’s tax home for the years

in issue was Honolulu, the location of his principal place of

business.

       B.   Mrs. Baker’s Tax Home

       Mrs. Baker began and ended each of her flight rotations at

JFK.    Delta considered JFK to be Mrs. Baker’s base station.     This

Court has consistently held that an airline employee’s principal

place of business is his or her base station.     See Sislik v.

Commissioner, T.C. Memo. 1989-495 (Pan American World Airways,

Inc. pilot’s tax home was JFK, not his condominium in the

Bahamas), affd. per order (D.C. Cir., May 22, 1992); Dean v.

Commissioner, T.C. Memo. 1976-379 (Trans World Airline first

officer’s tax home was JFK, not his personal residence in Kansas

City, Missouri).     Mrs. Baker’s situation is not different from

those cited above.     Mrs. Baker chose to live in Washington and

commute to JFK.    Therefore, Mrs. Baker’s tax home was JFK for the

years in issue, the location of her principal place of business.
                              - 15 -

     C.   Petitioners’ Unreimbursed Employee Business Expenses

     Petitioners presented evidence of travel expenses, including

meals and lodging, and incidental expenses that they claimed they

incurred while traveling away from home for purposes of section

162(a)(2).

     The Internal Revenue Service publishes an annual revenue

procedure that offers optional methods of substantiation for

employees who incur:   (1) Meals and incidental expenses (M&IE)

while traveling away from home and who receive a per diem

allowance from an employer; or (2) unreimbursed incidental

expenses but pay or incur no meal costs.   See Rev. Proc. 2005-10,

2005-1 C.B. 341; Rev. Proc. 2005-67, 2005-2 C.B. 729; Rev. Proc.

2006-41, 2006-2 C.B. 777; Rev. Proc. 2007-63, 2007-2 C.B. 809.6

     Under the revenue procedures, an employee who receives an

M&IE only per diem from her employer may treat the lesser of the

employer’s per diem or the Federal M&IE rate for the locality of

travel for that day or partial day as deemed substantiated.     Rev.

Proc. 2005-10, sec. 4.02, 2005-1 C.B. at 343; Rev. Proc. 2005-67,

sec. 4.02, 2005-2 C.B. at 731; Rev. Proc. 2006-41, sec. 4.02,

2006-2 C.B. at 779-780.   A per diem is treated as an M&IE only

per diem if the employer pays the actual expenses for lodging

directly to the provider of the lodging.   Rev. Proc. 2005-10,


     6
      Each subsequent revenue procedure superseded the prior
revenue procedure and restated the rules almost verbatim.
                              - 16 -

sec. 4.02; Rev. Proc. 2005-67, sec. 4.02; Rev. Proc. 2006-41,

sec. 4.02.   Rev. Proc. 2005-10, sec. 4.04(3), 2005-1 C.B. at 343,

and its progeny provide special M&IE rates that transportation

industry employees may use.

     Rev. Proc. 2005-10, sec. 7.05, 2005-1 C.B. at 349, and its

progeny provide that an employee may claim as an itemized

deduction any expenses that exceed the amount deemed

substantiated under section 4.02 of the revenue procedures if all

of the expenses are substantiated, if the deemed substantiated

portion of the per diem is included on Form 2106, and if any

portion of the per diem allowance that exceeds the amount deemed

substantiated is included in gross income.   Substantiation of the

expenses will not be required if the employee claims a deduction

equal to or lesser than the amount computed under section 4.03 of

the revenue procedures minus the amount deemed substantiated

under sections 4.02 and 7.01 of the revenue procedures.   Rev.

Proc. 2005-10, sec. 7.05; Rev. Proc. 2005-67, sec. 7.05, 2005-2

C.B. at 737; Rev. Proc. 2006-41, sec. 7.05, 2006-2 C.B. at 785.

     An employee who does not incur meal expenses while traveling

away from home may use the optional rate of $3 per day to

substantiate only incidental expenses for any CONUS or OCONUS7

locality of travel instead of actual expenses.   Rev. Proc. 2005-

     7
      CONUS is an abbreviation for “continental United States”
and OCONUS is an abbreviation for “outside the continental United
States”.
                                - 17 -

10, sec. 4.05, 2005-1 C.B. at 344; Rev. Proc. 2005-67, sec. 4.05,

2005-2 C.B. at 732; Rev. Proc. 2006-41, sec. 4.05, 2006-2 C.B. at

780; and Rev. Proc. 2007-63, sec. 4.05, 2007-2 C.B. at 812.    Rev.

Proc. 2005-10, sec. 6.05(4), 2005-1 C.B. at 348, and its progeny

state that the amount of incidental expenses computed under

section 4.05 of the revenue procedures is not subject to the

section 274(n) limitation on the deductibility of food and

beverage expenses.

            1.    Mr. Baker’s Unreimbursed Employee Business
                  Expenses

     Mr. Baker testified to and entered into evidence

documentation for travel expenses he incurred between Washington

and Honolulu, Hawaii, and incidental expenses he incurred while

in Honolulu.     Because we find above that Mr. Baker’s tax home was

Honolulu, Hawaii, for the years in issue, Mr. Baker was not “away

from home” for purposes of section 162(a)(2) when he was in

Honolulu.    Therefore, Mr. Baker is not entitled to deductions for

the travel and incidental expenses he claimed for travel to

Honolulu or incurred while he was in the Honolulu port for the

years in issue.

     Mr. Baker also had several days of travel that either began

or ended away from his tax home of Honolulu.    Any expenses Mr.

Baker incurred on those days must be substantiated under the

rules of section 274(d) and its regulations because Mr. Baker did
                                - 18 -

not receive a per diem from his employer and the expenses he

claimed he incurred were for more than just incidentals.

     Mr. Baker introduced into evidence his calendars for 2005,

2006, and 2007 and his certificates of discharge for the years in

issue.   In 2005 Mr. Baker began and ended each of his shifts at

his tax home, the port in Honolulu.      He is not entitled to deduct

any additional expenses in excess of the incidental expenses

respondent conceded for 2005.    See supra note 1.

     In 2006 and 2007 Mr. Baker began or ended a voyage away from

home on 8 days.    Mr. Baker testified to and presented other

evidence for $76 of meal expenses and $40 for other expenses that

he incurred while traveling away from home during 2006 and $23 of

meal expenses that he incurred while traveling away from home for

2007.    Mr. Baker has substantiated these amounts and is entitled

to the deductions he claimed for those days.8

            2.    Mrs. Baker’s Unreimbursed Employee Business
                  Expenses

     Mrs. Baker also testified to and entered into evidence

documentation for travel expenses she incurred between Washington

and New York, New York, and expenses incurred while in New York

City.    Because we find above that Mrs. Baker’s tax home was JFK

she is not entitled to a deduction for the travel expenses she


     8
      Seventy-five percent of Mr. Baker’s meal expenses are
deductible under the special rule for individuals subject to
Federal hours of service in sec. 274(n)(3).
                              - 19 -

incurred for travel between Washington and New York or the

expenses incurred in New York City.

     The M&IE expenses Mrs. Baker incurred in excess of Delta’s

per diem while on layovers in Europe may be deductible if

properly substantiated.9   See Rev. Proc. 2005-10, sec. 7.05; Rev.

Proc. 2005-67, sec. 7.05; Rev. Proc. 2006-41, sec. 7.05.    Mrs.

Baker testified that she did not keep track of her expenses while

in Europe because she had a per diem.   Mrs. Baker may use the

lesser of Delta’s per diem or the Federal per diem rate for the

locality of travel for the portion of her expenses that is deemed

substantiated.   See Rev. Proc. 2005-10, sec. 4.02; Rev. Proc.

2005-67, sec. 4.02; Rev. Proc. 2006-41, sec. 4.02.    She may not

use the Federal per diem for the locality of travel in addition

to her Delta per diem to substantiate her expenses.

     Mrs. Baker did not include Form 2106, as required, with her

Federal income tax return for any of the years in issue, which if

provided would have included the amount of her expenses that was

deemed substantiated.   Although Mrs. Baker provided rotation

numbers in her calendars, she did not provide the names of the


     9
      Mrs. Baker testified that she did not keep receipts for
expenses she incurred while in Europe because she received a per
diem. Mrs. Baker did note in her calendars for the years in
issue that she incurred tips and testified that those tips were
not reimbursed by Delta. Although Mrs. Baker testified that she
did not include expenses from Europe in her deductions for the
years in issue, the tip amounts were included in computations for
her expense totals for each year.
                               - 20 -

European cities or the dates on which she had layovers in those

cities.10   Without such information, the Court cannot determine

which rate–-Delta’s per diem or the Federal per diem rate–-should

be used for the deemed substantiated portion of Mrs. Baker’s

expenses.11

     Additionally, respondent made no adjustment to and the Court

has no means of computing the amount of any of Mrs. Baker’s

expenses in excess of the deemed substantiated amount.

Therefore, Mrs. Baker is not entitled to deduct any of the

unreimbursed employee business expenses she claimed for 2005 or

2006 beyond what respondent has conceded.

III. Section 6662(a) Accuracy-Related Penalty

     Section 6662(a) and (b)(1) imposes a 20-percent accuracy-

related penalty on the portion of an underpayment that is

attributable to negligence or disregard of rules and regulations.

Negligence is defined as any failure to make a reasonable attempt

to comply with the provisions of the Internal Revenue Code, and


     10
      Petitioners introduced into evidence lists of cities and
their corresponding per diems. Cities in the United States and
Europe were highlighted. No further explanation of the lists was
given at trial. If the lists were offered as the locations to
which Mrs. Baker flew for the years in issue, the lists
contradict Mrs. Baker’s testimony that she flew only to European
cities during the years in issue.
     11
      It appears that respondent did not adjust petitioners’
income to include any portion of Mrs. Baker’s per diem that might
have exceeded the amount deemed substantiated; thus, the Court
does not address that issue.
                              - 21 -

the term “disregard” includes any careless, reckless, or

intentional disregard.   Sec. 6662(c).

     Section 7491(c) imposes on the Commissioner the burden of

production in any court proceeding with respect to the liability

of any individual for penalties and additions to tax.      Higbee v.

Commissioner, 116 T.C. 438, 446 (2001); Trowbridge v.

Commissioner, T.C. Memo. 2003-164, affd. 378 F.3d 432 (5th Cir.

2004).   In order to meet the burden of production under section

7491(c), the Commissioner need only make a prima facie case that

imposition of the penalty or addition to tax is appropriate.

Higbee v. Commissioner, supra at 446.     Respondent has met that

burden here.

     An accuracy-related penalty will not apply if the taxpayers

demonstrate that there was reasonable cause for the underpayment

and that they acted in good faith.     Sec. 6664(c)(1).   Section

1.6664-4(b)(1), Income Tax Regs., incorporates a facts and

circumstances test to determine whether the taxpayer acted with

reasonable cause and in good faith.     The most important factor is

the extent of the taxpayer’s effort to assess his or her proper

tax liability.   Id.

     After considering the totality of the facts and

circumstances, we are satisfied that petitioners, who used the

same C.P.A. for the years in issue that they had used for several

prior years, acted in good faith and come within the reasonable
                             - 22 -

cause exception of section 6664(c)(1).    Accordingly, we hold that

petitioners are not liable for the section 6662(a) accuracy-

related penalties for the years in issue.

                           Conclusion

     We have considered all of the parties’ arguments, and, to

the extent not addressed herein, we conclude that the arguments

are moot, irrelevant, or without merit.

     To reflect the foregoing,


                                          Decision will be entered

                                   under Rule 155.
