                       T.C. Memo. 2011-214



                      UNITED STATES TAX COURT



         CHARLES R. AND SHANDA G. DOUGLAS, Petitioners v.
           COMMISSIONER OF INTERNAL REVENUE, Respondent



     Docket No. 24663-09.               Filed August 31, 2011.




     Howard S. Levy, for petitioners.

     Terry Serena, for respondent.



             MEMORANDUM FINDINGS OF FACT AND OPINION


     GOEKE, Judge:   Respondent determined a deficiency of $44,625

and an accuracy-related penalty of $8,925 under section 6662(a)1



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

for 2007.      After a concession,2 the issues remaining for decision

are:

       (1)   Whether petitioners are entitled to a flowthrough

deduction under section 179 for expenses of an aircraft owned by

an S corporation, Bantam Leasing, Inc. (Bantam).       We hold that

they are not;

       (2)   whether petitioners are liable for an increased

deficiency arising from the disallowance of other flowthrough

expenses from Bantam associated with the maintenance of an

aircraft.     We hold that they are; and

       (3)   whether petitioners are liable for an accuracy-related

penalty under section 6662(a) based on a substantial

understatement of income tax.      We hold that they are not.

                            FINDINGS OF FACT

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

       At the time the petition was filed, petitioners resided in

Ohio.      Since the time of its organization, the executive office

of Bantam has been in Bethel, Ohio.       Petitioners timely filed

their joint Federal income tax return for 2007.       In July 2009

respondent issued a notice of deficiency to petitioners




       2
      Respondent concedes that petitioners were not negligent
within the meaning of sec. 6662(c) in claiming the deductions at
issue.
                               - 3 -

determining a deficiency in income tax of $44,625 and an addition

to tax of $8,925.

     In 2007 and prior years Shanda Douglas was the sole owner

and officer of Bantam.   Charles Douglas was an employee of

Bantam, which operates an over-the-road trucking business.

     Roughly 75 percent of Bantam’s business is classified as

“critical timing” delivery services.   In this line of work,

punctual dispatch of cargo is important as Bantam’s accounts

could be placed in jeopardy should Bantam fail to deliver on

time.   Mr. Douglas believed an aircraft would minimize the risk

of losing customers on account of tardy delivery, not by moving

freight but by potentially replacing drivers who become ill or

who are unable to continue.   Mr. Douglas consulted his certified

public accountant (C.P.A.), Elaine Simmons, about the tax aspects

of purchasing an aircraft.

     Bantam purchased a Cessna 150 aircraft for $19,500 in

October 2006 and then sold it for $26,000 in August 2007.     Later

in 2007 Bantam purchased a Cessna 172 aircraft for $135,000, and

it reported this purchase on Form 4562, Depreciation and

Amortization, as an item which Bantam elected to expense under

section 179 up to the statutory maximum for 2007 of $125,000.

Bantam also deducted costs of $10,580 associated with upkeep and

storage of the aircraft in 2007.   Petitioners reported the

section 179 deduction as flowing through to their personal income
                                - 4 -

tax return.    The Form 4562 was attached to Bantam’s Form 1120S,

U.S. Income Tax Return for an S Corporation, which was prepared

and signed by C.P.A. Elaine Simmons.     Bantam maintained the

Cessna 172 at the Georgetown, Ohio, airport, which is in a county

adjoining the one where Bantam had its executive offices.

     Mr. Douglas began taking flying lessons in 2006 with the

Cessna 150 and continued his flying lessons in 2007 with the

Cessna 172.    By the end of 2007 Mr. Douglas had advanced no

further in Federal Aviation Administration certification than

holder of a student license.    From the time of Bantam’s purchase

of the Cessna 150 until the corporation sold it, this aircraft

was never used for transporting replacement drivers or for any

other Bantam business activity.    From the time of Bantam’s

purchase of the Cessna 172, including all of 2007, no employees

or officers of Bantam held a pilot’s license that would have

enabled them to use the aircraft to transport a replacement

driver.    The sole use of the aircraft in 2007 was for Mr.

Douglas’ flying lessons.

                               OPINION

     Section 179(a) allows taxpayers to elect to expense certain

depreciable business assets and currently deduct the cost of

property for the taxable year in which the property is placed in

service.    According to section 1.179-4(e), Income Tax Regs., the

time property is “placed in service” means the time that property
                                 - 5 -

is first placed by the taxpayer in a condition or state of

readiness and availability for a specifically assigned function,

whether for use in a trade or business, for the production of

income, in a tax-exempt activity, or in a personal activity.    If

the property is used partially for business, a deduction under

section 179 is allowed only if the business use is more than 50

percent of the property’s use.    Sec. 1.179-1(d), Income Tax Regs.

Mr. Douglas used the aircraft in 2007 for personal flying

lessons, and the aircraft was never used in the conduct of a

trade or business of Bantam.   Petitioners bear the burden of

proving that the aircraft was used for a business purpose of

Bantam regarding the section 179 flowthrough expense.   Respondent

bears the burden of proof regarding the increased deficiency

adjustment disallowing the aircraft maintenance expenses which

was asserted in respondent’s trial memorandum.   See Rule 142(a).
     Depreciation deductions may be available under the “idle

asset” rule in situations where an asset, while not in actual

use, was nevertheless devoted to the business of the taxpayer and

was ready for use should the occasion arise.   See Piggy Wiggly

S., Inc. v. Commissioner, 84 T.C. 739, 745-746 (1985), affd. 803

F.2d 1572 (11th Cir. 1986).    In the context of the established

facts, however, petitioners’ attempt to employ the “idle asset”

rule cannot succeed as their aircraft does not fit within the

rule’s requirements.   The Cessna 172 was not idle in that it was
                               - 6 -

used for training by Mr. Douglas, and it was simply never

available for its alleged business function of providing an

expedited method of transporting drivers to retrieve disabled

vehicles.   An aircraft cannot be considered ready and available

for business use without a suitable pilot to fly it.   During 2007

no employees or officers of Bantam held a pilot’s license that

would have enabled them to use the aircraft to transport a

replacement driver.   Petitioners’ vague assertion that there were

“stand-by pilots” in 2007 is not credible.   There is no evidence

in the record, aside from Mr. Douglas’ statement, that there were

any “stand-by” pilots for the aircraft; and there is no evidence

at all that would support a finding that Bantam had access to

standby pilots on an expedited schedule, which was the alleged

business reason for the aircraft.   There is no evidence in the

record of any agreement between a qualified pilot and Bantam that

might suggest his or her availability for the purpose of flying

drivers to disabled vehicles on short notice.

     The Cessna 172 aircraft was not available to perform its

alleged function in 2007.   Therefore, we find that petitioners

are not entitled to a flowthrough deduction under section 179.

Furthermore, the increased deficiency of $10,580 is also

sustained because respondent has established that the deductions

in question related to the aircraft.
                               - 7 -

     Finally, we come to the issue of whether petitioners should

be liable for a penalty for the underpayment of their Federal

income tax for 2007.   A taxpayer may be liable for a 20-percent

penalty on the portion of an underpayment of tax attributable to

a substantial understatement of income tax.   See sec. 6662(a),

(b)(2); sec. 1.6662-2(a)(2), Income Tax Regs.    The accuracy-

related penalty does not apply, however, to any portion of an

underpayment for which there was reasonable cause and with

respect to which the taxpayer acted in good faith.    See sec.

6664(c)(1); sec. 1.6664-4(a), Income Tax Regs.    Reasonable cause

has been found when a taxpayer selects a competent tax adviser,

supplies the adviser with all relevant information and,

consistent with ordinary business care and prudence, relies on

the adviser’s professional judgment as to the taxpayer’s tax

obligations.   Sec. 6664(c)(1); Estate of Young v. Commissioner,

110 T.C. 297 (1998).

     Mr. Douglas did consult with his C.P.A. tax return preparer,

Elaine Simmons, about the aircraft-related deductions, and his

reliance on her advice was in good faith.   Accordingly, we do not

sustain respondent’s determination of the accuracy-related

penalty because petitioners chose a competent adviser, properly

provided information, and relied in good faith on her advice.

Petitioners accordingly had reasonable cause for, and acted in

good faith with respect to, the underpayment for 2007 and
                                 - 8 -

therefore are not liable for the section 6662(a) accuracy-related

penalty.

     A Rule 155 computation will be necessary to compute the

amount of the increased deficiency, but no addition to tax is

applicable.

     To reflect the foregoing,


                                              Decision will be entered

                                         under Rule 155.
