                            T.C. Summary Opinion 2016-37



                           UNITED STATES TAX COURT



             MICHAEL D. HIRSCH AND JANE HIRSCH, Petitioners v.
             COMMISSIONER OF INTERNAL REVENUE, Respondent



      Docket No. 28402-13S.                           Filed August 8, 2016.



      Michael D. Hirsch and Jane Hirsch, pro sese.

      Rose E. Gole, Jane J. Kim, and Eliezer Klein, for respondent.



                                SUMMARY OPINION


      PANUTHOS, Chief 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.1 Pursuant to section 7463(b), the decision to be entered is not


      1
          Unless otherwise indicated, subsequent section references are to the
                                                                        (continued...)
                                         2

reviewable by any other court, and this opinion shall not be treated as precedent

for any other case.

      Respondent determined Federal income tax deficiencies and accuracy-

related penalties as follows:

                                                   Penalty
                      Year         Deficiency    sec. 6662(a)
                      2009           $21,647         $4,329
                      2010             32,584         6,517
                      2011             15,112         3,022

      After concessions,2 the issues for decision are: (1) whether petitioners are

entitled to foreign earned income exclusions of $87,136, $91,500, and $52,154 for




1
 (...continued)
Internal Revenue Code (Code) in effect for the years in issue, and all Rule
references are to the Tax Court Rules of Practice and Procedure.
      2
        Respondent concedes that petitioners are entitled to deduct $7,114, $7,788,
and $3,715 of home mortgage interest for tax years 2009, 2010, and 2011,
respectively, and $4,088, $5,180, and $2,831 of real estate taxes for tax years
2009, 2010, and 2011, respectively. Additionally petitioners are entitled to deduct
$8,670 of State and local income taxes paid for 2009. Although at trial respondent
took issue with the capital loss carryforwards of $3,000 for each of the 2009,
2010, and 2011 years, he conceded this issue in his memorandum of law.
Petitioners concede that they received $740 in unreported taxable interest income
for tax year 2011, and $3,079 and $3,206 in unreported taxable State income tax
refunds from the States of New York and New Jersey, respectively, for tax year
2010.
                                          3

tax years 2009, 2010, and 2011, respectively;3 (2) whether petitioners are entitled

to employee business expense deductions claimed on Schedules A, Itemized

Deductions, for petitioner Michael D. Hirsch’s travel expenses between Israel and

the United States of $39,050, $30,266, and $36,938 for tax years 2009, 2010, and

2011, respectively; and (3) whether petitioners are liable for accuracy-related

penalties under section 6662 of $4,329, $6,517, and $3,022 for tax years 2009,

2010, and 2011, respectively.

Background

      Some of the facts have been stipulated, and we incorporate the stipulation

and the accompanying exhibits by this reference. At the time the petition was

timely filed petitioners resided in Israel. During the years in issue Michael D.

Hirsch (petitioner), a U.S. citizen, was employed full time by Merrill Lynch,

Pierce, Fenner & Smith Inc. (Merrill Lynch), as a team member of the Lynnvest

Group with the job title of investment associate. Petitioner serviced only clients of

the Lynnvest Group. Petitioner was initially hired by Advest, Inc. (Advest), in

1999 as an investment adviser; and after Merrill Lynch acquired Advest in 2005,


      3
        Petitioners claimed foreign earned income exclusions of $91,400 and
$73,217 for tax years 2009 and 2011, respectively, but conceded that they are not
entitled to foreign earned income exclusions in excess of $87,136 and $52,154 for
tax years 2009 and 2011, respectively.
                                          4

petitioner became an employee of Merrill Lynch. Petitioner resigned from Merrill

Lynch in December 2012.

      During the years in issue the Lynnvest Group’s offices were in New Jersey.

Approximately 80% of the Lynnvest Group’s clients were based in the United

States and approximately 75% of the Lynnvest Group’s income was from

investment management fees paid by clients.

      While working for Merrill Lynch petitioner specialized in multifund

portfolios. Petitioner’s responsibilities included meeting and consulting with

prospective and current clients, selecting funds in which to invest, and reviewing

all portfolios at least monthly. Petitioner also performed quantitative and

qualitative research into mutual funds for client investments, which included

telephone and in-person discussions with fund managers.

      Petitioners moved to Israel in 1993.4 At the time of the move petitioner was

employed by Republic National Bank as chief investment officer. Petitioners

owned a home in Israel which was their primary residence and paid real estate

taxes on this property. Petitioners were citizens of both Israel and the United

States, and they voted in Israeli local and national elections in addition to absentee


      4
       The parties agree that the move to Israel in 1993 was for both personal and
business reasons.
                                          5

voting in U.S. elections. Petitioners were not members of any clubs or

organizations based in the United States but were members of a synagogue and the

English Speakers Residents Association (ESRA) in Israel. Petitioner’s decision to

live in Israel during the years in issue was motivated by his personal preference to

reside there. Petitioner continued to reside in Israel after his employment with

Republic National Bank ended. When petitioner began working for Merrill Lynch

in 2005, the company was well aware that he was living in Israel; however, Merrill

Lynch did not require that he live in Israel.

      Petitioner split his work time between Israel and the United States, spending

approximately two-thirds of his time in Israel and one-third of his time in the

United States. Petitioner was in the United States for at least 122, 85, and 105

days in 2009, 2010, and 2011, respectively. Petitioner did not have a regular

schedule but tried to be in the United States at least once a month, skipping

months such as December when clients might not be available. A typical trip to

the United States lasted about 10 days, with petitioner departing from Israel on the

Sunday of the first week and returning on Wednesday evening of the second week.

If petitioner had clients in Manhattan, he would work out of the Citicorp Center

office, which was designated the international office for employees based
                                          6

overseas. During these trips petitioner would stay at his daughter’s home in New

York.

        Petitioner used his sister-in-law’s address in New York as his mailing

address for Merrill Lynch. Petitioner’s Forms W-2, Wage and Tax Statement,

issued by Merrill Lynch for the relevant tax years, were mailed to his sister-in-

law’s address, and the same address was listed as petitioner’s personal address in

Merrill Lynch personnel records. Additionally, petitioner owned a car in the

United States which was registered in his name using his sister-in-law’s address in

New York.

        Petitioner was limited by the firm and his licensing as to where he could

conduct business. According to Merrill Lynch’s records, petitioner was

authorized to work only out of the branch offices where the Lynnvest Group was

located and Merrill Lynch’s various office locations in New Jersey and New York.

Petitioner’s home in Israel was not listed in Merrill Lynch employee records as an

alternate work location. Additionally, petitioner was not authorized to work out of

the Merrill Lynch office in Tel Aviv, Israel, and Merrill Lynch did not provide

petitioner with an Israeli telephone number when he was working in Israel.

Petitioner was not licensed to conduct business in Israel and was not registered by

Merrill Lynch with the Financial Industry National Regulatory Association
                                          7

(FINRA) in Israel. Registration is required for investment associates and financial

advisers in countries in which they conduct business.

      Petitioner’s ability to conduct business was limited by laws on U.S. citizens

working abroad, including in Israel.5 On July 1, 2005, Advest issued a

memorandum to petitioner limiting his ability to contact or meet with clients in

Israel. While in Israel, petitioner could not solicit, contact, meet with, or have

discussions or communications with existing or potential clients. Further,

petitioner could not add any new client accounts or open new accounts related to

existing clients in Israel, regardless of petitioner’s location. This policy remained

in place when Merrill Lynch acquired Advest, and Merrill Lynch issued a

memorandum on May 25, 2006, to that effect. While in Israel, petitioner was

limited to reviewing and monitoring trades and client portfolios and relaying this

information to the branch office. Because of these restrictions, petitioner could

not seek out clients or work with clients in Israel; he could only respond to clients

seeking out his services. Petitioner could not call a client or a prospect, or

advertise in any way; he could only react to a client by answering a telephone call

or meeting with a person that sought him out in Israel if he or she wanted to meet


      5
       The parties agree that post-9/11 laws regulating U.S. citizens working
abroad limited petitioner’s ability to conduct business in Israel.
                                           8

there. Petitioner could not return missed calls when in Israel; he could only

answer the telephone when a client called.

      Before petitioner starting working at Advest in 1999, he established an

arrangement with Charles Lipton. This arrangement continued throughout the

years in issue. As part of this arrangement, Mr. Lipton was responsible for

operational and administrative matters and was in charge of sales, and petitioner

had the role of investment manager. Petitioner and Mr. Lipton decided to work

under one broker number, with the number in Mr. Lipton’s name in the U.S., and

petitioner and Mr. Lipton split profits evenly.

      During his time in Israel petitioner performed investment management

research and portfolio management work. Merrill Lynch’s operating system was

installed on a laptop, and petitioner had full access to the Merrill Lynch system to

check daily activity or new client accounts, information he needed to perform his

investment research and portfolio management work in Israel. Petitioner kept

work files in his home in Israel which consisted of notes from prior meetings and

calls with portfolio managers of various funds. The files at his home in Israel

could have been moved to the United States and stored there.

      Merrill Lynch did not reimburse travel and other expenses for investment

associates, including petitioner, for the years in issue.
                                          9

      Petitioners timely filed their joint Federal income tax returns for 2009,

2010, and 2011. Respondent issued a notice of deficiency disallowing petitioners’

foreign earned income exclusions and unreimbursed employee expense

deductions, among other items.6 Petitioners timely filed with the Court a petition

seeking redetermination of the deficiencies as well as the accuracy-related

penalties.

      For the reported unreimbursed employee expenses petitioner provided

copies of airplane travel invoices to respondent in the amounts of $15,644,

$22,089, and $16,615 for 2009, 2010, and 2011, respectively. Petitioner also

produced copies of receipts for taxicabs, parking, tolls, and other fees, but there

are discrepancies with some of the receipts.7

                                     Discussion

I.    Burden of Proof

      In general, the Commissioner’s determination set forth in a notice of

deficiency is presumed correct, and the taxpayer has the burden of proving


      6
       See supra note 1 for a discussion of other income and expense items in the
notice of deficiency that were conceded by the parties.
      7
       Petitioner provided respondent with copies of travel receipts, including
taxicab, parking, and toll fees, as Exhibit 11-P. Petitioner offered the receipts as
evidence. While respondent objected to some of the receipts on grounds of
hearsay and authenticity, we need not make any ruling given our holding infra.
                                          10

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

to section 7491(a), the burden of proof as to factual matters shifts to the

Commissioner under certain circumstances. Petitioners did not allege or otherwise

show that section 7491(a) applies. See sec. 7491(a)(2)(A) and (B). Therefore,

petitioners bear the burden of proof on the issues raised in the notices of

deficiency. See Rule 142(a).

II.   Foreign Earned Income Exclusion

      Section 61(a) specifies that “[e]xcept as otherwise provided”, gross income

includes “all income from whatever sources derived”. The United States employs

a worldwide tax system, taxing its citizens on their income regardless of its

geographic sources. There are exceptions to the general rule, such as the foreign

earned income exclusion under section 911. However, exemptions and exclusions

from taxable income are construed narrowly, and the taxpayers must bring

themselves within the clear scope of the exclusions. See, e.g., Commissioner v.

Jacobson, 336 U.S. 28 (1949).

      Section 911(a) provides that a “qualified individual” may elect to exclude

from gross income, subject to limitations set forth in subsection (b)(2), his or her

“foreign earned income”. Foreign earned income is the income earned from

services performed within a foreign country. Sec. 911(b)(1)(A). To be entitled to
                                         11

this exclusion, a taxpayer must satisfy two distinct requirements. First, he must be

an individual “whose tax home is in a foreign country.” Sec. 911(d)(1). Second,

he must be either a “bona fide resident of a foreign country or countries for an

uninterrupted period which includes an entire taxable year” or a U.S. resident or

citizen present in a foreign country during at least 330 days in a 12-month period.

Sec. 911(d)(1)(A) and (B).

      Since the parties agree that petitioners are bona fide residents of Israel, a

foreign country, we need not consider whether petitioner qualifies as a “bona fide

resident of a foreign country or countries for an uninterrupted period which

includes an entire taxable year”. See sec. 911(d)(1)(A). Thus we consider

whether petitioner’s “tax home” during the years 2009 through 2011 was in Israel

under section 911(d)(1).

      Section 911(d)(3) defines the term “tax home” for an individual taxpayer as

his “home for purposes of section 162(a)(2)”. Under section 162(a)(2) a

taxpayer’s tax home is generally considered to be the location of his regular or

principal place of business, and not where his personal residence is located.

Mitchell v. Commissioner, 74 T.C. 578, 581 (1980). A taxpayer’s “abode” is his

personal residence, and for purposes of section 911(d)(3) “abode” has a “domestic

rather than vocational meaning”. Bujol v. Commissioner, T.C. Memo. 1987-230,
                                          12

53 T.C.M. (CCH) 762, 763-764 (1987), aff’d without published opinion, 842 F.2d

328 (5th Cir. 1988). The Court determines the taxpayer’s country of abode by

considering where he has the strongest economic, family, and personal ties. Id.,

53 T.C.M. (CCH) at 764; see Evans v. Commissioner, T.C. Memo. 2015-12, at *9.

      A principal place of business can be identified by looking at the employer’s

practices and the place the employer has identified as the taxpayer’s principal

place of business in its records. See Bjornstad v. Commissioner, T.C. Memo.

2002-47, 2002 WL 238507, at *2; Sislik v. Commissioner, T.C. Memo. 1989-495,

58 T.C.M. (CCH) 115 (1989), aff’d per curiam, 1992 U.S. App. LEXIS 15691

(D.C. Cir. May 22, 1992).8 In Sislik, the taxpayer, a commercial pilot for Pan Am,

was a bona fide resident of Nassau, Bahamas, for solely personal reasons. Sislik

v. Commissioner, 58 T.C.M. (CCH) at 115-116. The taxpayer’s “base station,”

where Pan Am considered his flights to originate, was John F. Kennedy

International Airport (JFK) in New York. Id. at 116. On paper a Pan Am pilot’s

flight patterns originated and returned to his base station, and his administrative

      8
       Since petitioner resided in Israel at the time the petition was filed, appeal of
any decision (if a decision in this case were appealable) would be to the Court of
Appeals for the District of Columbia Circuit. See secs. 7463(b), 7482(b)(1)(A),
7701(a)(39)(A). We have previously held that even though a case is designated a
small tax case and not subject to appeal, the Court’s holding in Golsen will apply.
See Golsen v. Commissioner, 54 T.C. 742, 757 (1970), aff’d, 445 F.2d 985 (10th
Cir. 1971).
                                         13

records were maintained there. Id. Additionally, the taxpayer was under the

administrative supervision of his base station except when in flight, when he was

supervised by the nearest Pan Am base station. Id. The Court held for these

reasons the taxpayer’s “identifiable principal place of business”, and thus his tax

home, was JFK in New York. Id. at 119.

      Further, in Bjornstad v. Commissioner, 2002 WL 238507, at *1, the

taxpayer was employed as a musician with a band based in Chicago, Illinois, but

chose to live in Stoughton, Wisconsin, with his parents so he could save money.

The taxpayer would regularly travel by bus to Chicago for a long weekend,

leaving on Thursday or Friday and returning on Monday. Id. The taxpayer

traveled to Chicago because the band performed regular shows in the city,

including a regular show Sunday nights at a nightclub, and the band would depart

from Chicago when it traveled to other cities for engagements. Id. For these

reasons the Court held that the taxpayer’s regular place of business was in

Chicago, and thus Chicago was the taxpayer’s tax home. Id. at *5-*6.

      We find that petitioner’s abode was in Israel. Petitioners lived in Israel and

owned a house on which they paid real estate taxes. Petitioners had Israeli

citizenship, voted in Israeli elections, and were members of a synagogue and

ESRA in Israel. Petitioner traveled to the United States only to meet with clients
                                         14

and perform other work-related duties. Petitioner did not maintain a residence in

the United States. When he was in town for work, he stayed at his daughter’s

house in New York. Thus, petitioner’s strongest economic, family, and personal

ties were in Israel. See Evans v. Commissioner, at *9; Bujol v. Commissioner, 53

T.C.M. (CCH) at 763-764.

      We conclude that petitioner’s tax home was in the United States and not

Israel. Similar to the taxpayer’s employer in Sislik, which designated JFK airport

in New York as the base of operations, petitioner’s employer identified the

Lynnvest Group’s New Jersey offices as petitioner’s authorized work location, his

principal place of business. According to Merrill Lynch’s records, petitioner

worked out of the New Jersey offices and had an address where he received his

mail from Merrill Lynch, including his Forms W-2, in nearby New York.

Petitioner was also authorized to work out of other locations in New Jersey and

New York, but according to employment records he was not authorized to work

out of his home in Israel or out of the Merrill Lynch office in Tel Aviv, Israel.

Merrill Lynch did not provide petitioner with an Israeli telephone number or office

space. See Bjornstad v. Commissioner, 2002 WL 238507, at *5-*6; Sislik v.

Commissioner, 58 T.C.M. (CCH) at 119.
                                          15

      Petitioner argues that his place of business was in Israel because he

performed all of his research and fund management while in Israel. Petitioner also

claims that he had to be in Israel to have access to his work files stored in his

home office, claiming that he needed the research and notes in those work files to

conduct his specialized investment approach through mutual funds. But there was

nothing about these files that necessitated their storage in Israel; instead petitioner

kept them there because of his personal choice to live in Israel and work from his

home in Israel. Petitioner also could have performed this research while in the

United States, using the laptop with Merrill Lynch’s operating system. There was

nothing about the nature of his work or Merrill Lynch’s requirements that

necessitated his conducting the research while in Israel. The choice to work in

Israel was made solely for personal reasons. See Sislik v. Commissioner, 58

T.C.M. (CCH) at 115-116.

      Petitioner indicates that when he had clients in Manhattan, at Merrill

Lynch’s suggestion he would meet these clients at the Citicorp Center office, an

office designated for use by overseas-based employees when they had clients in

the United States. Petitioner asserts that this reaffirms that he was considered an
                                          16

“international employee.”9 The fact that Merrill Lynch permitted petitioner to use

office space in New York to entertain clients did not make him an international

employee. There is nothing in Merrill Lynch’s records to indicate that petitioner

was considered an employee of a location other than the Lynnvest Group’s offices

in New Jersey.

      Petitioner also suggests that he was not licensed as a financial adviser or

registered with FINRA because of his desire to continue his arrangement with Mr.

Lipton while in Israel. This may have been the case when petitioner moved to

Israel in 1993, but the parties agree that laws restricting U.S. citizens working in

foreign countries prevented petitioner from registering and working as a financial

adviser and soliciting clients in Israel during the years in issue. This restriction

was affirmed by policies set forth in memoranda issued by both Advest and

Merrill Lynch. Additionally, this arrangement with Mr. Lipton to work under one

broker number was a personal decision and was not required or requested by

Merrill Lynch.

      On the basis of this record we are satisfied that petitioner’s tax home was in

the New York metropolitan area, and not Israel. We conclude that petitioner failed


      9
       We presume that petitioner believes that his being considered an
“international employee” would change the outcome of this case.
                                          17

to meet both requirements for the foreign earned income exclusion under section

911(d)(1). The parties agree that petitioner qualified as a bona fide resident of a

foreign country and thus met the second requirement under section 911(d)(1).

Petitioner did not meet the first requirement of the foreign earned income

exclusion since his tax home was in the United States and not in a foreign country

as required by section 911(d)(1). Accordingly, petitioner is not entitled to claim

the foreign earned income exclusion for 2009, 2010, or 2011.

III.   Travel and Other Expenses

       Generally, a taxpayer who is an employee may deduct unreimbursed

employee expenses as an ordinary and necessary business expense under section

162. Lucas v. Commissioner, 79 T.C. 1, 6 (1982). In addition, section 6001

requires a taxpayer to maintain sufficient records to allow the determination of the

taxpayer’s correct tax liability.

       Regarding travel to and from a taxpayer’s place of work, the “normal

expectation * * * is that the taxpayer will choose to live near his place of

employment.” See Frederick v. United States, 603 F.2d 1292, 1295 (8th Cir.

1979). A taxpayer must have some business justification beyond merely personal

reasons for maintaining a residence that is remote from his place of business if he

wishes to deduct the travel expenses or duplicate living expenses. See Tucker v.
                                         18

Commissioner, 55 T.C. 783, 787-788 (1971). As discussed previously, we have

concluded that petitioner’s tax home was in the United States (New York

metropolitan area) and that he resided in Israel for personal reasons.

      There is an exception to the general rule where a taxpayer’s employment is

expected to be temporary or last for a short period. In such circumstances a

taxpayer may be able to deduct the travel expenses to and from the temporary job

site. Id. at 786. Work prospects that are expected to continue for an “indefinite”

period of time do not fall within this temporary employment exception. Walker v.

Commissioner, 101 T.C. 537, 549-550 (1993); Nulsen v. Commissioner, T.C.

Memo. 1984-307, 48 T.C.M. (CCH) 297, 299 (1984). A taxpayer is not

considered “temporarily away from home” on a work assignment if the assignment

is for more than 1 year. Sec. 162(a) (flush language). The purpose for allowing

deductions for travel to and from a temporary business location is to assist a

taxpayer who must temporarily be away from his residence for an employment-

based need, when it would be unreasonable to expect him to move indefinitely.

Tucker v. Commissioner, 55 T.C. at 786.

      For taxpayers not falling within this temporary work assignment exception,

costs of traveling to and from a place of business are considered personal and not

deductible. Commissioner v. Flowers, 326 U.S. 465, 473-474 (1946). In Flowers
                                         19

the Court held that the taxpayer, whose job for a railroad was based in Mobile,

Alabama, but who chose for personal reasons to live in Jackson, Mississippi, could

not deduct the expenses for traveling back and forth between Mobile and Jackson

as an ordinary and necessary business expense. Id. at 467, 473-474. When hired

by his employer for the relevant tax years, the taxpayer accepted his job with the

condition that he be allowed to keep living in Jackson. The railroad

accommodated his request but did not have a business reason for the taxpayer to

live in Jackson. Id. at 474. Further, in Bjornstad v. Commissioner, 2002 WL

238507, at *3, the Court held that the taxpayer could not deduct travel expenses

between the taxpayer’s tax home in Chicago and his home in Stoughton,

Wisconsin, because the taxpayer was living in Stoughton solely for personal

reasons and did not have a business justification.

      Petitioner has not claimed he was on a temporary work assignment.10

Similar to the taxpayers in Flowers and Bjornstad, petitioner chose to reside in a

      10
         Although petitioner did not claim he was on a temporary work assignment,
we did consider whether he could be considered on a temporary work assignment
to determine whether he fell under the exception set forth in Tucker v. Commis-
sioner, 55 T.C. 783 (1971). Petitioner’s position with Merrill Lynch was as a
regular employee, to last for an indefinite period, and his position lasted longer
than 1 year, approximately 7 years from 2005 until the end of 2012. Thus peti-
tioner’s work assignment with Merrill Lynch was not temporary. See sec. 162(a)
(flush language); Walker v. Commissioner, 101 T.C. 537, 539-540 (1993); Nulsen
v. Commissioner, T.C. Memo. 1984-307, 48 T.C.M. (CCH) 297, 299 (1984).
                                         20

location remote from his employer’s place of business for personal reasons. His

employer did not require him to live remotely, nor did his employer benefit from

this choice of residence. Even if petitioners’ move to Israel in 1993 was made

partially for business reasons, petitioner was working for a different employer at

the time. During the years in issue petitioner’s decision to live in Israel was purely

personal. Also similar to the taxpayer’s employer in Flowers, petitioner’s

employer accommodated his choice of residence but did not gain anything from

the arrangement, for reasons previously discussed. See Commissioner v. Flowers,

326 U.S. at 474; Bjornstad v. Commissioner, 2002 WL 238507, at *2.

      Thus petitioner’s unreimbursed expenses for travel between Israel and the

United States for tax years 2009, 2010, and 2011 are considered personal expenses

and are not deductible as ordinary and necessary business expenses. Since none of

petitioner’s unreimbursed travel expenses are deductible ordinary and necessary

business expenses, we do not address whether his records were sufficient to

substantiate the expenses.

IV.   Accuracy-Related Penalty

      Section 6662(a) and (b)(2) imposes a penalty of 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 the amount of the
                                        21

understatement for the taxable year exceeds the greater of 10% of the tax required

to be shown on the return or $5,000. See sec. 6662(d)(1); sec. 1.6662-4(b),

Income Tax Regs. To compute an understatement, the amount of tax shown on the

return is subtracted from the amount of tax required to be shown on the return.

Sec. 1.6662-4(b)(ii)(2), Income Tax Regs. The Commissioner bears the burden of

production with respect to a section 6662 penalty. Sec. 7491(c). Respondent met

his burden of production by showing that petitioner’s wages did not qualify as

foreign earned income and he could not claim unreimbursed employee expense

deductions. The burden of proof thus shifts to petitioner to show that the penalty

does not apply. See Higbee v. Commissioner, 116 T.C. 438, 447 (2001).

      The understatement for each year is greater than the greater of $5,000 or

10% of the tax required to be shown on the return. Because of concessions by

respondent and petitioners, the computation of the understatements appears to

require Rule 155 computations.11


      11
         See below the calculations for understatements based on the notice of
deficiency. Although respondent made some concessions for petitioner’s
deductions, the amounts conceded were relatively small compared to the amounts
of foreign earned income exclusions and unreimbursed employee expense
deductions disallowed. Even after concessions it is clear that the understatement
is greater than the greater of $5,000 or 10% of the tax required to be shown on the
return for each year.

                                                                      (continued...)
                                           22

          The section 6662(a) accuracy-related penalty does not apply with respect to

any portion of an underpayment if the taxpayer proves that there was reasonable

cause for such portion and that he acted in good faith. Sec. 6664(c)(1). The

determination of whether a taxpayer acted with reasonable cause and in good faith

depends on the pertinent facts and circumstances, including: (1) the taxpayer’s

efforts to assess the proper tax liability; (2) the knowledge and the experience of

the taxpayer; and (3) any reliance on the advice of a professional, such as an

accountant. Sec. 1.6664-4(b)(1), Income Tax Regs. An honest misunderstanding

of fact or law that is reasonable in the light of the knowledge, experience, and

education of the taxpayer may constitute reasonable cause and good faith. Id. The

taxpayer bears the burden of proving that he or she falls within this exception.

Higbee v. Commissioner, 116 T.C. at 447.




11
     (...continued)
                                                                       10% of
          Year    Tax reported Understatement       Tax required     Tax required
          2009          -0-          $21,647          $21,647           $2,165
          2010        $19,780         32,584           52,364            5,236
          2011          -0-           15,112           15,112            1,511
                                         23

      A taxpayer may demonstrate reasonable cause and good faith by showing

reliance on professional advice from a tax return preparer where the taxpayer has

disclosed all the relevant facts to the preparer. Evans v. Commissioner, at *16. In

Evans the taxpayers, who were seeking a foreign earned income exclusion for the

taxpayer husband’s income earned in Russia, had their returns prepared by a

competent tax return preparer. Id. The taxpayer husband’s mother, who oversaw

his financial affairs under a power of attorney, provided the preparer with the

information to prepare the returns and gave him “full disclosure * * * of all

relevant facts” concerning the employment in Russia. Id. at *6, *16. The Court

held that since the foreign earned income exclusion is a “technical area of tax

law”, the taxpayers “reasonably relied on the advice they were given.” Id. at *17.

      Petitioner is a professional investment associate with a background in

finance who has been practicing for many years. Petitioner is a sophisticated

taxpayer who understands financial markets well and is experienced in researching

complex issues. See sec. 1.6664-4(b)(1), Income Tax Regs.

      Petitioners’ tax returns for all three years in issue were prepared by a

professional, Mr. Kantzos, a C.P.A. based in the United States. Unlike the Court

in Evans, we do not know the competence of the preparer or whether petitioners

supplied Mr. Kantzos with all relevant information. There is insufficient evidence
                                              24

to establish whether petitioners provided Mr. Kantzos with complete and accurate

information about the nature of petitioner’s work or the restrictions imposed by

law and by his employer in conducting business in Israel. Additionally, it is not

clear whether petitioner’s preparer was informed that Merrill Lynch did not

require him to live in Israel.12 See Evans v. Commissioner, at *16. Petitioner also

has not provided evidence of any efforts he might have made to ascertain whether

his tax treatment of the foreign earned income and travel expenses was correct.

We are not satisfied that petitioners can claim reliance on the advice of a tax

professional as a basis for reasonable cause. See Higbee v. Commissioner, 116

T.C. at 447; sec. 1.6664-4(b)(1), Income Tax Regs.

      Petitioners also assert as a basis for reasonable cause and good faith that

respondent examined their returns for tax years 2006 through 2008, and the

examiners did not disallow items similar to those at issue here during the

examination(s).13 Petitioners claim that they relied on the examiners not taking


      12
           Petitioners’ tax return preparer did not testify at trial.
      13
        In his response to respondent’s motion for partial summary judgment,
which we denied on August 4, 2015, petitioner asserted that petitioners’ tax
returns for years 2006 through 2008 were examined by respondent, and that the
exclusions and deductions at issue were allowed. Petitioner asserts that “[n]one of
the supposedly relevant case law cited in the Request was ever put forward by any
IRS personnel” and that he even received a refund for one of the years. On the
                                                                      (continued...)
                                         25

issue with their exclusions and deductions as affirmation that their methodology

was correct. Since each year stands on its own and is separately considered, even

if respondent had previously allowed the exclusions and deductions at issue for tax

years 2006 through 2008, respondent is not bound to follow the same treatment for

tax years 2009 through 2011. See Saunders v. Commissioner, T.C. Memo. 2012-

200, slip op. at 7.

       Petitioners have provided insufficient evidence to show that there was

reasonable cause for the underpayment and that they acted with reasonable cause

and in good faith. Accordingly we hold that petitioners are liable for the accuracy-

related penalty for tax years 2009, 2010, and 2011.

       We have considered all of the parties’ arguments, and, to the extent not

addressed herein, we conclude that they are moot, irrelevant, or without merit.

       To reflect the foregoing,


                                                      Decision will be entered

                                              under Rule 155.


13
  (...continued)
basis of petitioner’s statements it is unclear whether there were one or three
examinations; he refers to an examination for years 2006 through 2008 but also
refers to three examinations and three separate audit teams. Petitioner also made
this assertion at trial. Petitioner has not provided evidence of the examination(s)
or the results thereof.
