                         T.C. Summary Opinion 2017-76



                        UNITED STATES TAX COURT



              JOSHUA BRANDON TILLER, Petitioner v.
          COMMISSIONER OF INTERNAL REVENUE, Respondent



      Docket No. 14640-16S.                       Filed October 2, 2017.



      Joshua Brandon Tiller, pro se.

      Dean H. Wakayama, Gregory Michael Hahn, Danae M. Rawson, and

Adam Z. Daheim (student), for respondent.



                             SUMMARY OPINION


      GUY, 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
                                         -2-

filed.1 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 is liable for Federal income tax

deficiencies and accuracy-related penalties as follows:

                                                       Penalty
                    Year         Deficiency          sec. 6662(a)

                    2013           $5,260              $1,052
                    2014            5,750               1,150

Petitioner filed a timely petition for redetermination with the Court pursuant to

section 6213(a). At the time the petition was filed, petitioner resided in the State

of Washington.




        1
       Unless otherwise indicated, section references are to the Internal Revenue
Code, as amended and in effect for the years in issue, and Rule references are to
the Tax Court Rules of Practice and Procedure. All monetary amounts are
rounded to the nearest dollar, and mileage totals are rounded to the nearest mile.
                                          -3-

      After concessions,2 the issues remaining for decision are whether petitioner

is (1) entitled to deductions for vehicle expenses for the years in issue and

(2) liable for accuracy-related penalties.

                                     Background3

      Petitioner dropped out of high school and enlisted in the U.S. Army. He

later earned a high school equivalency degree. After completing his tour of duty

with the Army, petitioner began working in the heavy construction industry,

primarily performing construction and repair work on highways and bridges.

During the years in issue petitioner resided in Roseville, California, about 20 miles

northeast of Sacramento, California.

I. Petitioner’s Employment

      A. 2013

      During most of 2013 petitioner worked for Myers & Sons Construction

(MSC), a company based in Sacramento. MSC assigned petitioner to work at



      2
        Petitioner conceded that he failed to report unemployment compensation of
$1,028 for the taxable year 2013. Respondent disallowed deductions that
petitioner claimed on Schedules A, Itemized Deductions, for various unreimbursed
employee business expenses for the years in issue. Petitioner challenges only the
disallowance of the portions of the deductions attributable to vehicle expenses.
Other adjustments are computational and will flow from our decision in this case.
      3
          Some of the facts have been stipulated and are so found.
                                         -4-

several MSC worksites in California, including some which were in or near

Roseville (including Sacramento, Jackson, and Stockton), and other more distant

worksites (Richmond, Modesto, and Bakersfield). MSC assigned petitioner to

make emergency repairs at a worksite in Bakersfield, and he drove his vehicle a

total of 1,172 miles on two round trips to that location. All of petitioner’s job

assignments were expected to be completed within a few days to a few months.

      While he was employed by MSC, petitioner did not have a regular place of

business to report for work--he drove directly from his home to MSC’s various

worksites. MSC did not reimburse its hourly employees (such as petitioner) for

vehicle expenses incurred while traveling to or from its worksites. The following

table lists the one-way distance from petitioner’s home in Roseville to MSC’s

worksites:

                           Location            Miles

                          Sacramento            20
                          Jackson               51
                          Stockton              67
                          Richmond              91
                          Modesto               92
                          Bakersfield          293
                                        -5-

      B. 2014

      Although petitioner was briefly unemployed at the start of 2014, he worked

for Flatiron West, Inc. (FWI), from March through December that year. He was

primarily assigned to a bridge project in the San Francisco Bay area but was

subject to reassignment to other FWI worksites at any time. While employed by

FWI, petitioner normally worked 12-hour shifts, six days per week.

      Petitioner usually drove directly from his home in Roseville to FWI’s bridge

project--a one-way trip of 105 miles. About one day per week, however, he

stopped at FWI’s office in Benicia, California, to pick up tools or to meet with his

boss. FWI’s office, which was on the same route that petitioner took to the bridge

project, was 73 miles from his home. FWI did not reimburse its hourly employees

(such as petitioner) for vehicle expenses incurred while traveling to or from its

worksites.

II. Petitioner’s Tax Returns for 2013 and 2014

      Petitioner timely filed Federal income tax returns for 2013 and 2014 and

reported wages of $57,986 and $87,479, respectively. He attached Schedules A

and Forms 2106-EZ, Unreimbursed Employee Business Expenses, to his tax

returns. As is relevant here, petitioner reported that he drove 29,619 and 37,000

miles for business purposes during the taxable years 2013 and 2014, respectively.
                                         -6-

In computing unreimbursed employee business expenses on Form 2106-EZ,

petitioner used the optional standard mileage rates and claimed vehicle expense

deductions of $16,735 and $20,720 for 2013 and 2014, respectively.4

III. Additional Records

      Although petitioner had maintained mileage logs during the years in issue,

he lost the logs when he moved from California to Washington State. Before trial

petitioner attempted to recreate his mileage logs, relying in part on records that he

had obtained from MSC and FWI.

      Petitioner admitted at trial that his attempt to recreate his mileage log for

2013 was largely ineffective because the total mileage that he calculated for that

year was much higher than the mileage that he had originally reported on Form

2106-EZ (which had been drawn from his mileage log). Petitioner indicated that

the mileage that he had originally reported on Form 2106-EZ for 2013 was

accurate.

      At trial petitioner claimed a deduction for vehicle expenses for the taxable

year 2014 that is substantially less than the amount he originally claimed on Form

      4
        The Commissioner generally updates the optional standard mileage rate
annually. See sec. 1.274-5(j)(2), Income Tax Regs. Notice 2012-72, sec. 2,
2012-50 I.R.B. 673, 673, established the standard mileage rate of 56.5 cents per
mile for taxable year 2013. Notice 2013-80, sec. 3, 2013-52 I.R.B. 821, 821,
established the standard mileage rate of 56 cents per mile for taxable year 2014.
                                         -7-

2106-EZ for that year. Specifically, petitioner concluded that he was not entitled

to deduct vehicle expenses attributable to his daily commute between his home in

Roseville and FWI’s office in Benicia. He nevertheless maintains that he is

entitled to deduct vehicle expenses attributable to the total of his daily round trip

mileage between FWI’s office and his normal worksite in the San Francisco Bay

area.

                                      Discussion

        The Commissioner’s determination of a taxpayer’s liability in a notice of

deficiency normally is presumed correct, and the taxpayer bears the burden of

proving that the determination is incorrect. Rule 142(a); Welch v. Helvering, 290

U.S. 111, 115 (1933).5

        Deductions are a matter of legislative grace, and the taxpayer generally

bears the burden of proving entitlement to any deduction claimed. Rule 142(a);

INDOPCO, Inc. v. Commissioner, 503 U.S. 79, 84 (1992); New Colonial Ice Co.

v. Helvering, 292 U.S. 435, 440 (1934). A taxpayer must substantiate deductions

claimed by keeping and producing adequate records that enable the Commissioner

to determine the taxpayer’s correct tax liability. Sec. 6001; Hradesky v.

        5
        Petitioner has not asserted that the burden of proof as to any relevant
factual issue should shift to respondent under sec. 7491(a), and there is no
justification on this record for doing so.
                                        -8-

Commissioner, 65 T.C. 87, 89-90 (1975), aff’d per curiam, 540 F.2d 821 (5th Cir.

1976); Meneguzzo v. Commissioner, 43 T.C. 824, 831-832 (1965). A taxpayer

claiming a deduction on a Federal income tax return must demonstrate that the

deduction is allowable pursuant to a statutory provision and must further

substantiate that the expense to which the deduction relates has been paid or

incurred. Sec. 6001; Hradesky v. Commissioner, 65 T.C. at 89-90.

      Under section 162(a), a deduction is allowed for ordinary and necessary

expenses paid or incurred during the taxable year in carrying on any trade or

business. The term “trade or business” includes performing services as an

employee. Primuth v. Commissioner, 54 T.C. 374, 377-378 (1970). Whether an

expenditure satisfies the requirements for deductibility under section 162 is a

question of fact. See Commissioner v. Heininger, 320 U.S. 467, 475 (1943). A

deduction normally is not available, however, for personal, living, or family

expenses. Sec. 262(a).

      Section 274(d) prescribes more stringent substantiation requirements to be

met before a taxpayer may deduct certain categories of expenses, including

expenses related to the use of listed property as defined in section 280F(d)(4). See

Sanford v. Commissioner, 50 T.C. 823, 827 (1968), aff’d per curiam, 412 F.2d 201
                                         -9-

(2d Cir. 1969). The term “listed property” includes passenger automobiles. Sec.

280F(d)(4)(A)(i).

      To satisfy the requirements of section 274(d), a taxpayer generally must

maintain adequate records or produce sufficient evidence corroborating his own

statement, establishing the amount, date, and business purpose for an expenditure

or business use of listed property. Sec. 1.274-5T(b)(6), (c)(1), Temporary Income

Tax Regs., 50 Fed. Reg. 46016-46017 (Nov. 6, 1985). Section 1.274-5T(c)(2),

Temporary Income Tax Regs., 50 Fed. Reg. 46017-46018 (Nov. 6, 1985), provides

in relevant part that “adequate records” generally consist of an account book, a

diary, a log, a statement of expense, trip sheets, or a similar record made at or near

the time of the expenditure or use, along with supporting documentary evidence.

Section 1.274-5(j)(2), Income Tax Regs., provides that the strict substantiation

requirements of section 274(d) for vehicle expenses must be met even where the

optional standard mileage rate is used. Moreover, the Court may not use the rule

established in Cohan v. Commissioner, 39 F.2d 540, 543-544 (2d Cir. 1930), to

estimate expenses covered by section 274(d). Sanford v. Commissioner, 50 T.C.

at 827; sec. 1.274-5T(a), Temporary Income Tax Regs., 50 Fed. Reg. 46014

(Nov. 6, 1985).
                                       - 10 -

      The Court may permit a taxpayer to substantiate expenses through

secondary evidence where the underlying documents have been unintentionally

lost or destroyed. Boyd v. Commissioner, 122 T.C. 305, 320 (2004); Davis v.

Commissioner, T.C. Memo. 2006-272. A taxpayer is required, however, to

reconstruct pertinent records to the fullest extent possible. See Roumi v.

Commissioner, T.C. Memo. 2012-2; Chong v. Commissioner, T.C. Memo.

2007-12.

I. Vehicle Expenses

      Petitioner claimed deductions for unreimbursed employee business

expenses, including vehicle expenses for his daily round trips to MSC’s and FWI’s

worksites. Respondent maintains that petitioner’s vehicle expenses are

nondeductible personal expenses under section 262.

      As a general rule, a taxpayer’s costs of commuting between his or her

residence and place of business or employment are nondeductible personal

expenses. See Fausner v. Commissioner, 413 U.S. 838, 839 (1973);

Commissioner v. Flowers, 326 U.S. 465, 473-474 (1946); sec. 1.262-1(b)(5),

Income Tax Regs. This general rule is attributable “to the assumption that people

will choose to live near their place of employment.” Dahood v. United States, 747

F.2d 46, 48 (1st Cir. 1984).
                                        - 11 -

      There are various exceptions to the general rule governing commuting

expenses. See Bogue v. Commissioner, T.C. Memo. 2011-164, aff’d, 522 F.

App’x 169 (3d Cir. 2013). Under one exception, a taxpayer is entitled to deduct

transportation costs (including vehicle expenses) attributable to work at a series of

temporary worksites that are distant from the taxpayer’s residence. Schurer v.

Commissioner, 3 T.C. 544 (1944). The Commissioner has memorialized this

so-called temporary distant worksite exception in Rev. Rul. 99-7, 1999-1 C.B.

361, which states that a taxpayer may deduct travel expenses “incurred in going

between the taxpayer’s residence and a temporary work location outside the

metropolitan area where the taxpayer lives and normally works.”

      A work location may be considered temporary (as opposed to indeterminate

or indefinite) if employment there is expected to last only a short time. Norwood

v. Commissioner, 66 T.C. 467, 469 (1976); see sec. 162(a) (flush language).

Where employment is temporary, some otherwise personal expenses connected

with such employment may be considered to arise from the exigencies of business

and not from the taxpayer’s personal choice to live at a distance from his work.

Norwood v. Commissioner, 66 T.C. at 469 (citing Peurifoy v. Commissioner, 358

U.S. 59, 62 (1958)).
                                       - 12 -

      Because the term “metropolitan area” is ill defined for the purpose of

determining whether transportation expenses qualify for deduction under section

162, the Court considers all the facts and circumstances in deciding whether

transportation expenses were incurred in traveling to a temporary worksite

unusually distant from the area where the taxpayer lives and normally works.

Bogue v. Commissioner, T.C. Memo. 2011-164; see Ellwein v. United States, 778

F.2d 506, 511 (8th Cir. 1985); Dahood, 747 F.2d at 48.

      A second exception to the general rule that commuting expenses are

nondeductible personal expenses, the so-called regular work location exception,

was first articulated by the Commissioner in Rev. Rul. 90-23, 1990-1 C.B. 28.

The current version of the exception is set forth in Rev. Rul. 99-7, 1999-1 C.B. at

362, which states: “If a taxpayer has one or more regular work locations away

from the taxpayer’s residence, the taxpayer may deduct daily transportation

expenses incurred in going between the taxpayer’s residence and a temporary

work location in the same trade or business, regardless of the distance.” In Bogue

v. Commissioner, T.C. Memo. 2011-164, the Court questioned the rationale of the

regular work location exception and treated it as a concession by the

Commissioner.
                                        - 13 -

      A work location is regular if it is a location at which the taxpayer works or

performs services regularly. Id. A work location is either a regular work location

or a temporary work location--it cannot be both at the same time. Id.6

      It is not lost on the Court that construction workers, particularly heavy-

construction workers such as petitioner, often do not have “a permanent locus of

employment” and such workers are “required to travel from job to job in order to

practice their trade.” Peurifoy v. Commissioner, 358 U.S. at 62 (Douglas, J.,

dissenting). And as the Peurifoy case and others like it show, petitioner is not the

first construction worker to struggle with the complex legal rules that govern

deductions for what can be significant transportation expenses getting to and from

work. Ultimately, however, the Court is obliged to apply the law to the facts as

they are presented in the evidentiary record.

      A. Vehicle Expenses for Tax Year 2013

      In 2013 petitioner worked at MSC worksites around the Roseville/

Sacramento area and at more distant locations. He drove his vehicle directly to

and from the worksites and was not eligible to be reimbursed by MSC for his




      6
       Petitioner does not assert that his residence in Roseville was his principal
place of employment for either of the taxable years in issue.
                                        - 14 -

vehicle expenses. Petitioner maintains that he should be permitted to deduct for

2013 his vehicle expenses attributable to his trips to temporary distant worksites.7

      We agree with petitioner that MSC’s worksites in Richmond, Modesto, and

Bakersfield qualify as temporary distant worksites within the meaning of Rev. Rul.

99-7, supra. Those worksites ranged from 91 to 293 miles (one way) from

Roseville, and petitioner’s work there was expected to be completed within a few

days to a few months. With the exception of two trips to Bakersfield, however, we

are obliged to deny petitioner the deduction he seeks for vehicle expenses because

he has failed to satisfy the strict substantiation requirements prescribed in section

274(d).

      Petitioner admitted at trial that his effort to recreate his mileage log for 2013

was largely ineffective. Although we found petitioner to be completely honest and

forthright, and we have no doubt that he drove long distances to MSC’s worksites,

he was unable to provide the Court with reliable evidence of the number of days

that he actually worked at each MSC worksite. Unfortunately, petitioner’s attempt


      7
       Petitioner’s vehicle expenses attributable to his daily commute to MSC
worksites in and around Roseville and Sacramento do not qualify for the
temporary distant worksite exception. In short, those worksites were in the
general area where petitioner lived and normally worked, and we do not
understand petitioner to argue otherwise. See Sanders v. Commissioner, T.C.
Memo. 2012-200.
                                        - 15 -

to compute an “average” of the days that he worked at these distant worksites is

essentially guesswork and is insufficient to satisfy the strict substantiation

requirements of section 274(d) and related regulations. As noted above, the Court

may not use the rule established in Cohan v. Commissioner, 39 F.2d at 543-544, to

estimate expenses covered by section 274(d). Sanford v. Commissioner, 50 T.C.

at 827; sec. 1.274-5T(a), Temporary Income Tax Regs., 50 Fed. Reg. 46014

(Nov. 6, 1985).

      Although petitioner is not entitled to the bulk of the deduction that he

claimed for unreimbursed employee business expenses for the taxable year 2013,

the record shows that he made two round trips to Bakersfield to perform

emergency repair work for MSC. Consequently, petitioner is entitled to a

deduction of $662 for vehicle expenses for 2013 (1,172 miles × 56.5 cents per

mile) but only to the extent that his miscellaneous expenses exceed the 2% floor

imposed by section 67(a).

      B. Vehicle Expenses for Tax Year 2014

      Petitioner worked for FWI for 10 months in 2014, primarily at a bridge

project in the San Francisco Bay area. He was required to stop at FWI’s office in

Benicia (73 miles from his home in Roseville) to pick up tools or to meet with his

supervisor about one day per week. Otherwise, he drove directly to and from the
                                       - 16 -

assigned worksite--about 105 miles one way from Roseville. Petitioner was not

eligible to be reimbursed by FWI for his vehicle expenses.

      Petitioner argues that FWI’s office in Benicia qualified as his regular place

of employment in 2014. In this regard, petitioner maintains that although he is not

entitled to a deduction for vehicle expenses attributable to his daily commute from

his home in Roseville to Benicia, he should be allowed a deduction for vehicle

expenses attributable to the daily round trip mileage between Benicia and FWI’s

San Francisco Bay worksite--a total of 16,523 miles for the year.

      We accept that FWI’s office in Benicia was petitioner’s principal place of

employment in 2014. As a general rule, the location of a taxpayer’s principal

place of employment is the taxpayer’s tax home, not the location of the taxpayer’s

personal residence. Mitchell v. Commissioner, 74 T.C. 578, 581 (1980); Kroll v.

Commissioner, 49 T.C. 557, 561-562 (1968). Once a taxpayer accepts

employment that is located either permanently or for an indefinite time away from

his old principal place of employment, the taxpayer’s tax home shifts to the

location of the new principal place of employment. Allen v. Commissioner, T.C.
                                         - 17 -

Memo. 2009-102 (citing Coombs v. Commissioner, 608 F.2d 1269 (9th Cir.

1979)); see also Kroll v. Commissioner, 49 T.C. at 562-563.8

      A taxpayer is entitled to deduct vehicle expenses associated with any trips

from his principal office to client offices or worksites, including a return trip to the

principal office, if any. See Heuer v. Commissioner, 32 T.C. 947 (1959), aff’d,

283 F.2d 865 (5th Cir. 1960); see also Green v. Commissioner, 59 T.C. 456, 459

(1972); Joly v. Commissioner, T.C. Memo. 1995-413; Bass v. Commissioner, T.C.

Memo. 1981-146. About one day per week petitioner stopped at FWI’s office for

a meeting or to pick up tools and then continued on to the worksite. There is no

indication that petitioner stopped at FWI’s office at the end of the day before he

returned home to Roseville. Under the circumstances, petitioner would be entitled

to deduct vehicle expenses attributable to his one-way trip from FWI’s office to

the worksite one day per week--a total of 40 trips of 32 miles each or a total of

1,280 miles.


      8
        An exception to the general rule exists where a taxpayer accepts temporary,
rather than indefinite, employment away from his personal residence; in that case,
the taxpayer’s personal residence may be considered his tax home. Peurifoy v.
Commissioner, 358 U.S. 59, 60 (1958). The purpose of the exception is to
mitigate the burden of the taxpayer who must incur duplicate living expenses
because of the exigencies of business. Kroll v. Commissioner, 49 T.C. 557, 562
(1968). There is no evidence in the record that petitioner’s employment with FWI
was temporary as opposed to indefinite.
                                        - 18 -

      Unfortunately, the resulting vehicle expenses of $717 (1,280 miles × 56

cents per mile) attributable to these trips do not exceed the 2% floor for

miscellaneous itemized deductions imposed under section 67(a). Moreover,

petitioner’s remaining itemized deductions for 2014 fall well short of the standard

deduction of $6,200 for that year--the amount that respondent allowed in the

notice of deficiency. See sec. 63(c). Accordingly, we sustain the income tax

deficiency that respondent determined for 2014.

II. Accuracy-Related Penalty

      Section 6662(a) and (b)(1) and (2) imposes a penalty equal to 20% of the

amount of any underpayment of tax that is attributable to: (1) negligence or

disregard of rules or regulations or (2) any substantial understatement of income

tax. Negligence is a lack of due care or failure to do what a reasonable and

ordinarily prudent person would do under the circumstances. Neely v.

Commissioner, 85 T.C. 934, 947 (1985). An understatement of income tax is

“substantial” if the understatement exceeds the greater of 10% of the tax required

to be shown on the return or $5,000. Sec. 6662(d)(1)(A). Respondent bears the

burden of production with respect to the penalty. See sec. 7491(c).9

      9
       Respondent has satisfied his burden of production. The understatements in
dispute exceed 10% of the tax required to be shown on petitioner’s returns, which
                                                                     (continued...)
                                        - 19 -

      However, section 6664(c) provides that no penalty shall be imposed with

respect to any portion of an underpayment if it is shown that there was reasonable

cause for such portion and that the taxpayer acted in good faith with respect to

such portion. Swihart v. Commissioner, T.C. Memo. 1998-407. The Court must

consider all the facts and circumstances in determining whether the taxpayer acted

with reasonable cause and in good faith. Sec. 1.6664-4(b)(1), Income Tax Regs.

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

his proper tax liability. Id.

      Considering all the facts and circumstances, including petitioner’s lack of

sophistication regarding tax matters, the complexity of the tax laws governing

commuting expenses, and the loss of his original mileage logs, we conclude that

he has shown reasonable cause and that he acted in good faith in respect of the

portions of the underpayments for 2013 and 2014 that are attributable to the

disallowance of deductions for vehicle expenses. No penalty may be imposed

under section 6662(a) in respect of those portions of the underpayments.




      9
       (...continued)
are greater than $5,000. Moreover, petitioner conceded without explanation an
item of unreported income for 2013 and the disallowance of deductions for
unreimbursed employee expenses (other than vehicle expenses) for both of the
taxable years in dispute.
                                       - 20 -

      In the absence of an explanation regarding the portions of the

underpayments attributable to (1) the balance of the unreimbursed employee

business expense deductions that respondent disallowed and (2) petitioner’s

failure to report unemployment compensation for 2013, however, we conclude that

petitioner is liable for the penalty imposed under section 6662(a) with respect to

these portions.

      To reflect the foregoing,


                                                Decision will be entered

                                       under Rule 155.
