                               T.C. Memo. 2018-70



                         UNITED STATES TAX COURT



     SARWAT-BEN R. BENJAMIN AND REHAN RABADI, Petitioners v.
        COMMISSIONER OF INTERNAL REVENUE, Respondent



      Docket No. 3291-16.                         Filed May 22, 2018.



      Sarwat-Ben R. Benjamin and Rehan Rabadi, pro sese.

      Jeri L. Acromite, for respondent.



            MEMORANDUM FINDINGS OF FACT AND OPINION


      KERRIGAN, Judge: Respondent determined deficiencies in petitioners’

Federal income tax and accuracy-related penalties for taxable years 2012, 2013,

and 2014 (years in issue) as follows:
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[*2]                                                      Penalty
                Year              Deficiency            sec. 6662(a)

                2012                $6,401                 $880
                2013                23,018                 4,604
                2014                22,081                 4,416

       Unless otherwise indicated, all section references are to the 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. All monetary amounts are

rounded to the nearest dollar.

       After concessions, the issues for our consideration are: (1) whether

petitioners are entitled to deduct moving expenses for each of the years in issue;

(2) whether they are entitled to itemized deductions that they claimed on

Schedules A, Itemized Deductions, for the years in issue; and (3) whether they are

liable for the accuracy-related penalties under section 6662(a).

                                 FINDINGS OF FACT

       Some of the facts are stipulated and are so found. Petitioners resided in

California when they timely filed the petition.

       During the years in issue petitioner husband worked as a field engineer for

various clients at various jobsites around the country. He traveled to other States

including Texas, New Mexico, and Arizona. When petitioner husband traveled to
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[*3] perform his work at client jobsites, he maintained a residence in California

where his family lived.

      He obtained his jobs with different clients through temporary employment

agencies. RCS Industries employed petitioner husband from April 22 through

November 1, 2013, in Houston, Texas. He was hired as a contract employee and

was not reimbursed for any expenses during his employment.

      Petitioners filed joint Federal income tax returns for the years in issue. On

their return for each tax year in issue they deducted moving expenses. They

claimed numerous itemized deductions on Schedules A attached to their returns.

Their claimed itemized deductions included unreimbursed employee expenses and

miscellaneous deductions for tax preparation fees and other expenses. Respondent

disallowed petitioners’ claimed deductions for moving expenses and certain of the

itemized deductions claimed on Schedules A.

      For the years in issue they claimed deductions for charitable contributions,

including cash and noncash contributions, and charitable contribution carryovers

from prior years.1 Respondent disallowed the carryover of charitable

contributions.


      1
       Respondent has conceded the charitable contribution deductions for the
years in issue.
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[*4] Respondent determined accuracy-related penalties under section 6662(a) for

each of the years in issue. On October 7, 2015, the group manager for the Internal

Revenue Service (IRS) examining agent executed a Civil Penalty Approval Form

approving the penalties determined in the notice of deficiency (notice) sent

November 17, 2015.

                                     OPINION

      Generally, a taxpayer bears the burden of proving that the Commissioner’s

determinations in a notice of deficiency are erroneous. Rule 142(a)(1); Welch v.

Helvering, 290 U.S. 111, 115 (1933). Petitioners have neither claimed nor shown

that they meet the specifications of section 7491(a) to shift the burden of proof to

respondent as to any relevant factual issue.

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

burden of proving that he or she is entitled to any deduction claimed. Rule 142(a);

Deputy v. du Pont, 308 U.S. 488, 493 (1940); New Colonial Ice Co. v. Helvering,

292 U.S. 435, 440 (1934). This includes the burden of substantiation. Hradesky

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

Cir. 1976).

      Taxpayers are required under the Code to maintain records adequate to

substantiate their income and deductions. Sec. 6001. These records should be
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[*5] sufficient to establish the amount of the gross income or other items shown on

the tax return. Sec. 1.6001-1(a), Income Tax Regs. Taxpayers shall retain these

records as long as they may become material in the administration of the Code.

Sec. 1.6001-1(e), Income Tax Regs.

I.    Moving Expenses

      Section 217(a) allows a deduction for expenses incurred as “moving

expenses paid or incurred during the taxable year in connection with the

commencement of work by the taxpayer as an employee or as a self-employed

individual at a new principal place of work.” Section 217(b)(1) generally defines

“moving expenses” as the reasonable expenses of moving household goods and

personal effects from the former residence to the new residence and related travel.

It does not include meals. Sec. 217(b)(1) (flush language).

      Section 217(c) provides conditions for the deductibility of moving

expenses. Moving expenses shall be deductible only if the taxpayer’s new

principal place of work is at least 50 miles farther from his residence than was his

former principal place of work or, if he had no former principal place of work, is

at least 50 miles from his former residence. Sec. 217(c)(1)(A) and (B). Section

217(c)(2) provides that no deduction shall be allowed unless (A) the taxpayer is a

full-time employee at the new principal place of work during the 12-month period
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[*6] following his arrival in the general location of his or her new principal place

of work for at least 39 weeks or (B) during the 24-month period following the

taxpayer’s arrival in the general location of his or her new principal place of work,

the taxpayer is a full-time employee or performs services as a self-employed

individual on a full-time basis for at least 78 weeks and at least 39 weeks are in the

first 12-month period.

      Petitioner husband testified that he incurred costs in moving his work gear

and equipment from his residence in California to jobsites in other States. He

provided numerous receipts that showed payments for hotels, meals, and car

rentals. His testimony did not establish which expenses, if any, should be

classified as moving expenses. He continued to maintain his principal residence in

California during the times that he traveled to perform work for clients.

      Petitioner husband did not establish by his testimony or any other evidence

that he stayed and worked in a new location for the requisite 39 weeks to be

eligible to deduct moving expenses. Petitioners have failed to carry their burden

of proving that they satisfied the conditions of section 217(c). We sustain

respondent’s disallowance of the deductions for moving expenses.
                                        -7-

[*7] II.     Itemized Deductions

       A.    Unreimbursed Employee Expenses

       Section 262(a) provides that personal, living, or family expenses are not

deductible. Section 162(a)(2) allows traveling expenses to be deducted if they are

ordinary and necessary expenses and have been incurred while the taxpayer is

away from home in the pursuit of a trade or business. Barone v. Commissioner, 85

T.C. 462, 465 (1985), aff’d without published opinion, 807 F.2d 177 (9th Cir.

1986). For the purpose of section 162, home is the vicinity of a taxpayer’s

principal place of employment and not where his or her personal residence is

located. Mitchell v. Commissioner, 74 T.C. 578, 581 (1980). The idea is to

mitigate the burden of a taxpayer who, because of his or her trade or business,

must maintain two places of abode and incur additional and duplicate living

expenses. Liljeberg v. Commissioner, 148 T.C. __, __ (slip op. at 16) (Mar. 16,

2017); Kroll v. Commissioner, 49 T.C. 557, 562 (1968).

       Expenses associated with maintaining a residence far from one’s principal

place of employment for personal reasons are not deductible. Liljeberg v.

Commissioner, 148 T.C. at __ (slip op. at 16); Tucker v. Commissioner, 55 T.C.

783, 786 (1971). However, a taxpayer may claim his or her personal residence as

his or her home when away from home on temporary, rather than indefinite or
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[*8] permanent, basis. Peurifoy v. Commissioner, 358 U.S. 59, 60 (1958); Kroll v.

Commissioner, 49 T.C. at 562. A taxpayer cannot take a job of uncertain duration

and choose to live in his or her original residence and have that original residence

qualify as his or her home for purposes of section 162. See Wirt v. Commissioner,

T.C. Memo. 1988-329. A taxpayer must have a business reason to maintain a

distant, separate residence. Liljeberg v. Commissioner, 148 T.C. at __ (slip op. at

24); see Tucker v. Commissioner, 55 T.C. at 786.

      Petitioner husband testified that he traveled to and from different jobsites

during the years in issue and that he incurred travel and living expenses while

performing his work. There was no evidence that petitioner husband’s absences

from his home in California were temporary. Petitioner husband provided no

evidence of any business purpose for maintaining a residence in California.

Petitioner husband chose for personal reasons to maintain his family residence far

from the location of his employment. Therefore, petitioner husband’s travel and

living expenses are not deductible. See Commissioner v. Flowers, 326 U.S. 465

(1946).
                                         -9-

[*9] B.      Charitable Contributions and Contribution Carryovers

      Section 170(a) generally allows a deduction for charitable contributions

made within the taxable year. Section 170(d)(1) provides that if the amount of

charitable contributions made within a taxable year exceeds 50% of the taxpayer’s

“contribution base” for that year, any excess contribution is to be treated as a

charitable contribution paid in each of the five succeeding taxable years in order of

time. Deductions claimed for charitable contributions in excess of $250 are

subject to certain substantiation requirements. See sec. 170(f)(8).

      Petitioners claimed additional deductions on Schedules A for the years in

issue for charitable contribution carryovers. They did not provide any evidence to

substantiate contributions that were disallowed for the years in issue or not

deducted for previous tax years. They failed to meet their burden of proof with

respect to the deductions claimed for contribution carryovers. We sustain

respondent’s disallowance of petitioners’ claimed deductions for charitable

contribution carryovers.

      C.     Other Miscellaneous Deductions

      Petitioners failed to address at trial or provide evidence regarding the other

itemized deductions that respondent disallowed in the notice, including

miscellaneous deductions for tax preparation fees and other expenses. We
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[*10] conclude that they have failed to meet their burden of proof as to those

claimed deductions.

III.   Section 6662(a) Penalties

       Respondent determined that for each year in issue petitioners are liable for

an accuracy-related penalty pursuant to section 6662(a). An accuracy-related

penalty may apply if there is an underpayment attributable either to negligence or

disregard of rules or regulations within the meaning of section 6662(b)(1) or to a

substantial understatement of income tax within the meaning of section

6662(b)(2). An understatement of income tax is substantial for any taxable year

where the amount of the understatement exceeds the greater of 10% of the tax

required to be shown on the return for the taxable year or $5,000. Sec.

6662(d)(1)(A). As determined in the notice, petitioners’ understatements of

income tax for the years in issue were substantial, and respondent determined

penalties under section 6662(a) and (b)(2).

       The Commissioner bears the burden of production with respect to this

penalty. Sec. 7491(c). Once the Commissioner meets this burden, the taxpayer

must come forward with persuasive evidence that the Commissioner’s

determination is incorrect. See Rule 142(a); Higbee v. Commissioner, 116 T.C.

438, 446-447 (2001). Section 6751(b)(1) provides that “[n]o penalty under this
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[*11] title shall be assessed unless the initial determination of such assessment is

personally approved (in writing) by the immediate supervisor of the individual

making such determination or such higher level official as the Secretary may

designate.” In Graev v. Commissioner, 149 T.C. __ (Dec. 20, 2017),

supplementing and overruling in part 147 T.C. 460 (2016), we held that the

Commissioner’s burden of production under section 7491(c) includes establishing

compliance with the supervisory approval requirement of section 6751(b).

      Respondent provided a Civil Penalty Approval Form meeting the

requirements of section 6751(b). Respondent has satisfied the burden of

production with respect to the penalties, and the burden of proof remains with

petitioners to show that the penalties are inappropriate. See Rule 142(a); Higbee

v. Commissioner, 116 T.C. at 446-447.

      The section 6662(a) penalty may not be imposed with respect to any portion

of an underpayment of tax for which it is shown that the taxpayer had reasonable

cause and acted in good faith. Sec. 6664(c)(1). Regulations promulgated under

section 6664(c) provide that the determination of reasonable cause and good faith

“is made on a case-by-case basis, taking into account all pertinent facts and

circumstances.” Sec. 1.6664-4(b)(1), Income Tax Regs.
                                       - 12 -

[*12] Petitioner husband testified that he considered applicable law and IRS

guidance before claiming the moving expense and itemized deductions at issue.

Generally, his testimony demonstrated that he misunderstood the law as it applied

to his expenses. From his testimony it appears that petitioner husband did not

understand that section 217(c)(2) required him to work a minimum of 39 weeks in

the general location of his new place of employment within a 12-month span.

      In appropriate circumstances we have granted taxpayers relief from the

section 6662(a) accuracy-related penalty where an underpayment of tax was due to

an honest mistake of law. See, e.g., Van Wyk v. Commissioner, 113 T.C. 440, 449

(1999). Generally, we limit such relief to situations in which the law was unclear,

the taxpayer made a reasonable good-faith effort to comply with the law, and

under all the facts and circumstances it would be unfair to penalize the taxpayer

for an honest mistake. See id.

      The provisions governing the claimed deductions in this case are not

unclear. Petitioners have not established that they made a sufficient good-faith

effort to determine whether the extensive deductions that they claimed for their

individual expenses were allowable under the Code. They failed to maintain

adequate records to substantiate properly the amounts and purposes of their

reported itemized deductions. See sec. 6001; sec. 1.6001-1(a), Income Tax Regs.
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[*13] Petitioners have not established that they acted with reasonable cause and in

good faith with respect to any portions of the underpayments for the years in issue.

Respondent made concessions for charitable contribution deductions disallowed

previously in the notice. Taking into account respondent’s concessions and our

holdings in this opinion, we sustain the section 6662(a) accuracy-related penalties

determined for the years in issue to the extent that substantial understatements of

income tax remain.

      To reflect the foregoing,


                                                Decision will be entered under

                                       Rule 155.
