                           NOT FOR PUBLICATION                             FILED
                    UNITED STATES COURT OF APPEALS                         DEC 28 2016

                            FOR THE NINTH CIRCUIT                       MOLLY C. DWYER, CLERK
                                                                         U.S. COURT OF APPEALS




ENGSTROM, LIPSCOMB & LACK,                       No.   15-70591
APC,
                                                 Tax Ct. No. 27364-12
              Petitioner-Appellant,

 v.                                              MEMORANDUM*

COMMISSIONER OF INTERNAL
REVENUE,

              Respondent-Appellee.


                           Appeal from a Decision of the
                             United States Tax Court

                     Argued and Submitted December 6, 2016
                              Pasadena, California

Before: CALLAHAN, BEA, and IKUTA, Circuit Judges.

      Engstrom, Lipscomb & Lack, APC (“Engstrom”) appeals from the Tax

Court’s decision finding that Engstrom had tax deficiencies in tax years 2008 and




      *
             This disposition is not appropriate for publication and is not precedent
except as provided by Ninth Circuit Rule 36-3.
2010 and that accuracy-related penalties were warranted. We have jurisdiction

pursuant to 26 U.S.C. § 7482(a)(1), and affirm.1

      Pursuant to 26 U.S.C. § 274(d), to claim a travel expense as a deduction, the

taxpayer must substantiate the expense with evidence showing, among other

things, the cost and business purpose of the claimed expense. Treasury Regulation

§ 1.274-5T(c)(2)(ii)(B) provides that, “[w]here the business purpose is evident

from the surrounding facts and circumstances, a written explanation of such

business purpose will not be required.” Relying on Treasury Regulation § 1.274-

5T(c)(2)(ii)(B), as well as the evidence it presented to the Tax Court, Engstrom

claims that it is entitled deduct all of its payments to G&L Aviation.

      The Tax Court’s determination that Engstrom’s evidence was adequate to

substantiate some, but not all, of Engstrom’s payments to G&L Aviation is not

error, clear or otherwise. See Sparkman v. Comm’r, 509 F.3d 1149, 1159 (9th Cir.

2007) (stating that clear error review applies to the Tax Court’s substantiation

findings). First, despite arguing that it had agreed to pay G&L Aviation the

amounts claimed as deductions in exchange for 24-hour-standby use of G&L

Aviation’s aircrafts, Engstrom produced no written record of such an agreement



      1
             As the parties are familiar with the facts and procedural history, we
restate them here only as necessary to explain our decision.
                                          2
and the offered testimony did not clearly establish the alleged agreement’s

existence. The Tax Court could rely on evidence that weighed against Engstrom’s

theory, such as the fact that the planes were flown for personal use, and that

Engstrom’s claimed payment for standby use also included rent for a Staples

Center suite that Engstrom has since conceded is not properly deductible.

      The Tax Court did not err in the method it adopted for determining business

purpose and calculating allowable deductions. Engstrom’s evidence did not clearly

show that all of the flights in question had a business purpose. Of the flights with a

substantiated business purpose, Engstrom put forward no evidence establishing

their individualized cost. Thus, the Tax Court could rely upon Ms. Rebekah

Herbert’s testimony to set each flight’s value. See Norgaard v. Comm’r, 939 F.2d

874, 879 (9th Cir. 1991) (stating that the Tax Court has “considerable latitude in

estimating the amount of the allowable deduction”). As a result, the Tax Court’s

conclusion that Engstrom could not deduct as a travel expense the entire amount it

had paid to G&L Aviation is not error.

      Additionally, the Tax Court’s finding that Engstrom could not deduct Walter

Lack’s payments to G&L Aviation as a travel expense is not error. Engstrom

contends that Lack’s payments to G&L Aviation constitute deductible loans, as the

payments related to Lack’s travel on behalf of Engstrom and both parties intended


                                          3
for Engstrom to reimburse Lack the amounts he had paid. In Welch v.

Commissioner, we stated that, in addition to “ask[ing] whether, when the funds

were advanced, the parties actually intended repayment,” courts are to employ the

following non-exhaustive, seven-factor test when determining whether a

transaction constitutes a “true loan”:

      (1) whether the promise to repay is evidenced by a note or other
      instrument; (2) whether interest was charged; (3) whether a fixed
      schedule for repayments was established; (4) whether collateral was
      given to secure payment; (5) whether repayments were made; (6)
      whether the borrower had a reasonable prospect of repaying the loan
      and whether the lender had sufficient funds to advance the loan; and
      (7) whether the parties conducted themselves as if the transaction
      were a loan.

204 F.3d 1228, 1230 (9th Cir. 2000). “[N]o single factor is dispositive.” Id.

      In light of Welch’s instruction, the Tax Court did not err in finding that

Lack’s payments were not loans. See id. at 1230–31 (applying clear error review

to the Tax Court’s loan determination). While there is some evidence to support

Engstrom’s position, there is more than enough evidence to sustain the Tax Court’s

conclusion that Lack’s payments were to satisfy his personal obligations to G&L

Aviation, not Engstrom’s. Accordingly, Engstrom is not entitled to claim Lack’s

payments to G&L Aviation as a travel expense.




                                          4
      Last, the Tax Court did not err in concluding that accuracy-related penalties

were warranted. Accuracy-related penalties are assessed when a tax underpayment

is due to a taxpayer’s “[n]egligence or disregard of rules or regulations.” 26 U.S.C.

§ 6662(a)–(b). Here, the assessment of the penalties hinged upon whether the

claimed travel expenses were adequately substantiated. Because the majority of

these expenses were not, and Engstrom failed to demonstrate that its lack of

substantiation was reasonable, see id. § 6664(c)(1) (stating that accuracy-related

penalties shall not be imposed “if it is shown that there was a reasonable cause for”

a tax underpayment and “the taxpayer acted in good faith”), the Tax Court

correctly concluded that accuracy-related penalties could be assessed against

Engstrom.

      AFFIRMED.




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