PURSUANT TO INTERNAL REVENUE CODE
 SECTION 7463(b),THIS OPINION MAY NOT
  BE TREATED AS PRECEDENT FOR ANY
            OTHER CASE.
                         T.C. Summary Opinion 2013-105



                         UNITED STATES TAX COURT



  EFSTRATIOS AIVATZIDIS AND MARILYN CRIBBS PIEK, Petitioners v.
       COMMISSIONER OF INTERNAL REVENUE, Respondent



      Docket No. 16691-12S.                          Filed December 17, 2013.



      Efstratios Aivatzidis and Marilyn Cribbs Piek, pro sese.

      Anna A. Long, for respondent.



                              SUMMARY OPINION


      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
                                         -2-

Revenue Code in effect for the year at issue, and Rule references are to the Tax

Court Rules of Practice and Procedure.

      Respondent issued a statutory notice of deficiency to petitioners for 2009 in

which he determined a deficiency in income tax of $5,376 and an accuracy-related

penalty under section 6662(a) of $1,075.20.

      The issues for decision are whether petitioners: (1) are entitled to deduct on

Schedule A, Itemized Deductions, unreimbursed employee business expenses in

excess of those respondent allowed; (2) are entitled to deduct repair and

maintenance expenses on Schedule C, Profit or Loss From Business, in excess of

those respondent allowed; (3) are entitled to deduct a loss on Schedule E,

Supplemental Income and Loss; and (4) are liable for the accuracy-related penalty

under section 6662(a).1

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

facts and the exhibits received in evidence are incorporated herein by reference.

Petitioners resided in California when the petition was filed.




      1
       Respondent’s adjustment for self-employment tax is computational and will
be resolved by the determination of the Court on the other issues.
                                         -3-

                                    Background

      Petitioners timely filed their Federal income tax return for 2009. Petitioner

Efstratios Aivatzidis during the years relevant to this opinion was in the business

of contracting his services as a limousine driver. During 2009 petitioner Marilyn

Cribbs Piek, a registered nurse, was employed first at Tri-City Medical Center

(Tri-City) in an administrative position and then as an in-home health care worker

with “Oasis” in Oceanside, California.

      Petitioners purchased a house in Oceanside in 2006. Later that year, in

order to pursue certain business opportunities in and near Los Angeles, California,

petitioners moved to Santa Monica, California. While living in Santa Monica

petitioners rented out the Oceanside house. Tenants subjected the house to

“substantial damages” during 2006 through 2007. Petitioners made repairs before

receiving new tenants. The Oceanside house remained rented out through

December 2008. Petitioners attempted unsuccessfully to continue to rent it out in

2009, and they moved back in and remained there through December 2009.

      When petitioners filed their 2009 Federal income tax return, in addition to

their Schedule E they attached a Form 8582, Passive Activity Loss Limitations,

showing a loss of $4,336 for “Activities with net loss” and a loss of $22,701 for

“Prior years unallowed losses”. After application of the “phase-out” provision of
                                        -4-

section 469(i)(3), petitioners claimed a passive activity loss of $22,412 for 2009

that they deducted on Schedule E. Respondent, upon examination of the return,

disallowed the deduction.

      Petitioners deducted on Schedule C for the “Limousine Driver” business car

and truck expenses of $16,992 based on mileage, for which respondent made no

adjustment. They also deducted $5,567 as repair and maintenance expenses,

which respondent disallowed, and unreimbursed employee business expenses of

$20,0992 on Schedule A, of which respondent disallowed $3,257.

                                    Discussion

      Generally, the Commissioner’s determinations in a notice of deficiency are

presumed correct, and the taxpayer has the burden of proving that those

determinations are erroneous. See Rule 142(a); Welch v. Helvering, 290 U.S. 111,

115 (1933). In some cases the burden of proof with respect to relevant factual

issues may shift to the Commissioner under section 7491(a). The Court finds that

petitioners have not argued or shown that they have met the requirements of

section 7491(a) and the burden of proof does not shift to respondent.




      2
       The amount deducted after the sec. 67(a) reduction of miscellaneous
itemized expense deductions by 2% of adjusted gross income.
                                        -5-

Employee Business Expenses

      Petitioners deducted unreimbursed employee business expenses of $20,099

with respect to Mrs. Piek’s jobs as a health care professional. Respondent

determined that petitioners were entitled to deduct $16,842 of the amount shown

on the return. Petitioners failed to offer any evidence to prove that they are

entitled to a deduction in excess of what respondent allowed. Respondent’s

determination of petitioners’ allowable unreimbursed employee business expenses

is sustained.

Repair and Maintenance Expenses

      Petitioners deducted on the Schedule C for Mr. Aivatzidis’ limousine

business car and truck expenses of $16,992 based on mileage, for which

respondent made no adjustment, and $5,567 as actual vehicle repair expenses,

which respondent disallowed.

      There is nothing on petitioners’ Schedule C to indicate that they used more

than one vehicle in the limousine business.3 Petitioners testified at trial, however,

that Mr. Aivatzidis used two vehicles in conducting his limousine business in

      3
       A taxpayer may use a standard mileage rate as established by the Internal
Revenue Service (IRS) in lieu of substantiating actual expenses for the business
use of a passenger automobile. See sec. 1.274-5(j)(2), Income Tax Regs. A
taxpayer may use either method but not both. Larson v. Commissioner, T.C.
Memo. 2008-187.
                                        -6-

2009. According to Mrs. Piek, Mr. Aivatzidis used an SUV and a “Town Car” in

2009. Mr. Aivatzidis used the optional standard mileage rate to calculate his

expenses for the SUV, he testified, and his actual repair and maintenance expenses

for the Town Car. Mr. Aivatzidis testified that he had had an accident in 2008 that

damaged the front of the Town Car and the damage cost $1,690 to repair. Mr.

Aivatzidis testified that the car was involved in a second accident in either 2008 or

2009 that caused $2,100 of damage. He added that he paid for the repairs himself

because he was afraid his insurance premiums would increase if he made an

insurance claim.

      Petitioners’ problem here is that they failed to provide any substantiation for

any automobile repair or maintenance expense paid in 2009 or, in fact, any

evidence that they owned a Town Car that was damaged. Respondent’s

adjustment to petitioners’ deduction for repair and maintenance expenses on

Schedule C is sustained.

Schedule E Deduction

      Respondent argues that section 280A precludes petitioners’ Schedule E

deduction of a real estate loss relating to the Oceanside house. The Court agrees

with respondent. Section 280A(a) provides that save for exceptions that do not

apply to petitioners, no deductions from income otherwise allowable may be taken
                                        -7-

with respect to a dwelling that is used by the taxpayer as a residence during the

taxable year. The provision does not disallow deductions normally available to

homeowners, such as mortgage interest and real estate taxes. Sec. 280A(b).

Respondent did not adjust petitioners’ deductions on Schedule A of real estate

taxes of $6,930 and mortgage interest of $26,680.

      A dwelling is used as a residence of the taxpayer during the taxable year if

the taxpayer uses it for personal purposes more than the greater of 14 days or 10%

of the number of days it is used as a rental unit. Sec. 280A(d)(1). Petitioners were

unable to rent the Oceanside house to third parties and lived in it for six months

during 2009. Because petitioners failed to rent the house at all during 2009,

section 280A(g)(1) also prevents petitioners from deducting “rental” expenses.

Respondent’s determination to deny petitioners’ Schedule E deduction is

sustained.4

 Accuracy-Related Penalty

      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);

      4
       As petitioners did not dispose of the Oceanside property in 2009, they are
not entitled to deduct passive losses accumulated in earlier years. See secs.
469(f)(1), (g), 280A(c)(3).
                                        -8-

Trowbridge v. Commissioner, T.C. Memo. 2003-164, aff’d, 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, 116 T.C. at 446.

      Respondent determined that for 2009 petitioners underpaid a portion of their

income tax because of negligence or intentional disregard of rules or regulations.

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

underpayment attributable to negligence or disregard of rules or regulations.

      Negligence is defined as any failure to make a reasonable attempt to comply

with the provisions of the Internal Revenue Code, and the term “disregard”

includes any careless, reckless, or intentional disregard. See sec. 6662(c).

Negligence also 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.

      The accuracy-related penalty is not imposed with respect to any portion of

an underpayment if a taxpayer demonstrates that there was reasonable cause for

that portion of the underpayment and that they acted in good faith with respect to

that portion. See sec. 6664(c). Section 1.6664-4(b)(1), Income Tax Regs.,

specifically provides: “Circumstances that may indicate reasonable cause and

good faith include an honest misunderstanding of fact or law that is reasonable in
                                         -9-

light of * * * the experience, knowledge, and education of the taxpayer.” The

most important factor is the extent of the taxpayer’s effort to assess his proper tax

liability for the year. Id.

       On the basis of petitioners’ failure to keep adequate books and records or to

substantiate items properly, the Court concludes that respondent has produced

sufficient evidence to show that the imposition of the accuracy-related penalty under

section 6662(a) is appropriate for 2009.

       Petitioners for 2009 failed to substantiate itemized deductions and Schedule C

expenses and deducted Schedule E expenses for a home in which they lived during

the year. Petitioners did not show that there was reasonable cause for, and that they

acted in good faith with respect to, any portion of the underpayment of tax for 2009.

       Therefore, respondent’s determination of the accuracy-related penalty under

section 6662(a) and (b)(1) for 2009 is sustained.

       To reflect the foregoing,


                                                     Decision will be entered

                                               for respondent.
