                          T.C. Memo. 2012-4



                       UNITED STATES TAX COURT



                 MICHAEL S. OROS, Petitioner v.
          COMMISSIONER OF INTERNAL REVENUE, Respondent



     Docket No. 19400-09.              Filed January 5, 2012.



     Michael S. Oros, pro se.

     Amy B. Ulmer, for respondent.



             MEMORANDUM FINDINGS OF FACT AND OPINION


     VASQUEZ, Judge:   Respondent determined a $5,030 deficiency

in petitioner’s Federal income tax for 2006 and a $1,006

accuracy-related penalty under section 6662(a).1   The issues for



     1
        Unless otherwise indicated, all section references are to
the Internal Revenue Code (Code) in effect for the year in issue,
and all Rule references are to the Tax Court Rules of Practice
and Procedure.
                               - 2 -

decision are:   (1) Whether petitioner was in the trade or

business of being a book author in 2006, thereby entitling him to

deduct related expenses under section 162;2 and (2) whether

petitioner is liable for an accuracy-related penalty under

section 6662(a).

                         FINDINGS OF FACT

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

The stipulations of facts and the attached exhibits are

incorporated herein by this reference.   Petitioner resided in

Oregon when the petition was filed.

     Petitioner is, and was during 2006, a full-time employee of

Intel Corp. (Intel).   Petitioner has a marketing background and

holds a bachelor of science degree in international business

administration and a master’s degree in international business

administration.

     Before 2006 petitioner had no experience writing or

publishing books.   In 2006 petitioner completed a business plan

to write and self-publish a book about his upcoming worldwide

trip and the planning and execution of such a trip.   Petitioner,

although not professionally trained, is an experienced

photographer and intended to use the photographs he took during

his trip as a focal point of his book.


     2
        Respondent’s determination with respect to petitioner’s
itemized deductions is a computational adjustment that will be
resolved under Rule 155.
                                 - 3 -

Petitioner’s Trip

     On November 20, 2006, petitioner began a 4-month trip during

which he visited South America, Asia, Africa, and Australia.

During 2006 petitioner traveled exclusively throughout South

America.   During 2007 he traveled to Asia, Africa, and Australia.

Throughout the entire trip petitioner was on either a paid

vacation or a paid sabbatical from Intel.

     Petitioner spent an average of 3 days in each South American

country he visited.    On several occasions petitioner would return

to a country in order to photograph different events.   While in

South America he took 4,542 photographs of businesses, temples,

monuments, natural wonders, and wildlife. Petitioner maintained a

contemporaneous journal in which he wrote about his different

experiences.

Petitioner’s Travel Book

     As of March 2011 petitioner had not published or completed a

book about his worldwide trip.    Petitioner had written an “early

draft” of the book consisting of approximately 100 to 150 pages.

Petitioner did not produce a draft or outline of the book at

trial.

2006 Tax Return

     In preparing his 2006 tax return petitioner consulted his

tax return preparer.   The preparer had more than 36 years of

experience, and petitioner had used him for several years before
                                   - 4 -

2006.   The preparer advised petitioner on the tax treatment of

the expenses associated with his worldwide trip.

      Petitioner timely filed his Form 1040, U.S. Individual

Income Tax Return, for 2006.    He attached a Schedule C, Profit or

Loss From Business, which listed his principal business as “book

author”.    He reported no business gross receipts or income and

claimed $17,294 in travel expenses, $1,474 in meals expenses, and

$372 in telephone expenses for a total loss of $19,140.

Respondent subsequently disallowed petitioner’s travel and meals

expenses.    At trial petitioner introduced receipts and credit

card statements for expenses incurred on his 2006 trip.

                               OPINION

I.   Deductions for Travel and Meals

      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); New Colonial Ice Co. v. Helvering, 292 U.S. 435, 440

(1934).    Pursuant to section 162(a), a taxpayer is entitled to

deduct all of the ordinary and necessary business expenses paid

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

business.    In contrast, except where specifically enumerated in

the Code, no deductions are allowed for personal, living, or

family expenses.    Sec. 262(a).
                                 - 5 -

     Whether a taxpayer is engaged in a trade or business is

determined using a facts and circumstances test under which

courts have focused on the following three factors that indicate

the existence of a trade or business:     (1) Whether the taxpayer

undertook the activity intending to earn a profit; (2) whether

the taxpayer is regularly and actively involved in the activity;

and (3) whether the taxpayer’s activity has actually commenced.

See McManus v. Commissioner, T.C. Memo. 1987-457, affd. without

published opinion 865 F.2d 255 (4th Cir. 1988).

     To prove regular and active involvement in a trade or

business, the taxpayer must show extensive business activity over

a substantial period as opposed to a one-time venture or

investment.    Id.   A taxpayer may have more than one trade or

business.     Wright v. Commissioner, 31 T.C. 1264, 1267 (1959),

affd. 274 F.2d 883 (6th Cir. 1960).      Specifically, writing can

qualify as a trade or business even if it is not the sole

activity of the taxpayer.     Id.   However, “there must be some

conscientious intent and effort to engage in and continue in the

writing field for the purpose of producing income and a

livelihood in order to have writing qualify as a trade or

business within the meaning of section 162(a) of the Code.”        Id.

     Some of the facts in the record suggest that petitioner was

engaged in a trade or business.     Petitioner had a business plan

regarding his book.    He took thousands of pictures and kept a
                               - 6 -

detailed journal while on his trip.    He arranged his itinerary

based on events he wanted to photograph for his book.

Additionally, respondent has not questioned petitioner’s profit

motive.

     On the other hand, petitioner has failed to present

convincing proof of many of the other relevant factors.      He has

failed to present any evidence of continuous or repeated activity

as an author.   As of March 2011 petitioner had not published or

completed the travel book or any other book.    Petitioner

testified that he plans to write other books, but there is no

evidence that he has begun working on those books.

     Petitioner admits that before 2006 he was not in the trade

or business of being an author and that his travel book would

have been his first book.   We do not mean to say that an initial

publication can never be considered part of a trade or business.

However, petitioner has failed to prove that he was engaged in

the writing field for the purposes of producing income and a

livelihood.

     Additionally, during 2006 petitioner was a full-time

employee of Intel.   Although “writing need not be the sole

activity of a taxpayer to qualify as a trade or business, the

fact that * * * [the taxpayer] devoted time to another job must

be considered.”   Hawkins v. Commissioner, T.C. Memo. 1979-101,

affd. without published opinion 652 F.2d 62 (9th Cir. 1981); see
                               - 7 -

also Trans v. Commissioner, T.C. Memo. 1999-233 (taxpayer’s wages

from full-time employment strongly suggested that he was

regularly and actively involved in his full-time employment

rather than his claimed computer consulting trade or business).

     Petitioner failed to produce evidence to show some intent or

effect on his part to engage in and continue in the writing field

with substantial regularity and with the purpose of producing

income and a livelihood.   In Hawkins v. Commissioner, supra, we

noted that the taxpayer’s published book of poetry “could just as

easily be an isolated venture for the personal satisfaction of

* * * [the taxpayer] seeing * * * [her] poetry in print as it

could be a product of trade or business.”    Id.   The same could be

said of petitioner; his planned travel book could just as easily

be an isolated venture for the personal satisfaction of taking a

worldwide trip and seeing his travel adventures in print as it

could be a product of a trade or business.

     Petitioner fails to meet his burden of proving that his

writing activities qualified as a trade or business within the

meaning of section 162(a).   Consequently, the expenses incurred

in connection with the trip are not deductible as ordinary and

necessary expenses of a trade or business.

     Moreover, assuming petitioner was in the trade or business

of being an author, he fails to meet the strict substantiation

requirements of section 274(d).   In general, section 274(d)
                                 - 8 -

disallows any deduction for certain types of expenses, including

travel and entertainment expenses, unless the taxpayer

substantiates by adequate records or sufficient evidence

corroborating the taxpayer’s own testimony the amount, time,

place, business purpose, and business relationship of the

expenses.   Respondent agrees that petitioner has established the

amount, time, and place of $18,054 of his claimed expenses, but

he has not established the business purpose of each of those

expenses.   At trial petitioner testified broadly to his trip’s

overall business purpose.   However, his blanket statement that

all expenses incurred on his trip had a business purpose is not

sufficient.   See Shaller v. Commissioner, T.C. Memo. 1984-584

(“the business purposes of each expenditure must be substantiated

by written statement unless it is obvious from the context”),

affd. without published opinion 813 F.2d 403 (4th Cir. 1986).3

II.   Accuracy-Related Penalty

      Respondent determined that petitioner is liable for a

section 6662(a) accuracy-related penalty for 2006.   Pursuant to

section 6662(a) and (b)(1) and (2), a taxpayer may be liable for

a penalty of 20 percent of the portion of an underpayment of tax



      3
       Under sec. 195(b), in the taxable year in which a taxpayer
begins an active trade or business, the taxpayer may elect to
amortize startup expenditures. Because petitioner has not shown
that his trade or business actually commenced in 2006, he is not
entitled to deduct or begin amortizing any portion of his 2006
expenses under sec. 195.
                                - 9 -

attributable to (1) negligence or disregard of rules or

regulations or (2) a substantial understatement of income tax.

Negligence “includes any failure to make a reasonable attempt to

comply with the provisions of this title”, and disregard

“includes any careless, reckless, or intentional disregard.”

Sec. 6662(c).    “Negligence” includes any failure by the taxpayer

to keep adequate books and records or to substantiate items

properly.    Sec. 1.6662-3(b)(1), Income Tax Regs.   An

“understatement” is the difference between the amount of tax

required to be shown on the return and the amount of tax actually

shown on the return.    Sec. 6662(d)(2)(A).   A “substantial

understatement” of income tax exists if the understatement

exceeds the greater of (1) 10 percent of the tax required to be

shown on the return for a taxable year or (2) $5,000.     See sec.

6662(d)(1)(A).    The burden of production is on respondent to

produce evidence that it is appropriate to impose the relevant

penalty.    See sec. 7491(c); Higbee v. Commissioner, 116 T.C. 438,

446 (2001).

     Because we have sustained respondent’s adjustment, the

amount of tax required to be shown on petitioner’s 2006 return is

$17,494.    Petitioner reported total tax of $12,464 for 2006.

Accordingly, petitioner understated his 2006 tax liability by

$5,030.    Petitioner’s understatement constitutes a “substantial

understatement” of income tax because it exceeded the greater of
                                - 10 -

(1) 10 percent of the tax required to be shown on the return for

the taxable year, or (2) $5,000.    Respondent has therefore met

his burden of production.

     The accuracy-related penalty under section 6662(b)(1) or (2)

is not imposed with respect to any portion of the underpayment as

to which the taxpayer shows that he acted with reasonable cause

and in good faith.    Sec. 6664(c)(1); Higbee v. Commissioner,

supra at 448.     Reliance on the advice of a tax professional may

establish reasonable cause and good faith.      See United States v.

Boyle, 469 U.S. 241, 250 (1985).    A taxpayer claiming reliance on

professional advice must show that:      (1) The adviser was a

competent professional who had sufficient expertise to justify

reliance, (2) the taxpayer provided necessary and accurate

information to the adviser, and (3) the taxpayer actually relied

in good faith on the adviser’s judgment.      Neonatology Associates,

P.A. v. Commissioner, 115 T.C. 43, 99 (2000), affd. 299 F.3d 221

(3d Cir. 2002).

     In preparing his 2006 tax return, petitioner consulted a tax

return preparer with more than 36 years of experience.      The

preparer advised petitioner on the tax treatment of the expenses

associated with his worldwide trip.      Petitioner relied upon his

return preparer’s advice in claiming deductions on his Schedule C

for his 2006 trip expenses.    On the record before us, we find

that petitioner has carried his burden of proving that there was
                             - 11 -

reasonable cause for, and that he acted in good faith with

respect to, the underpayment in this case.   Because the

reasonable cause and good faith exception is a defense to both

negligence and a substantial understatement of income tax, the

section 6662 penalty does not apply.   See sec. 6664(c)(1).

     Accordingly, we hold that petitioner is not liable for an

accuracy-related penalty under section 6662(a).

     To reflect the foregoing,


                                          Decision will be entered

                                   under Rule 155.
