                  T.C. Summary Opinion 2010-168



                      UNITED STATES TAX COURT



        PATROCINIO POBADORA MALAZARTE, JR., Petitioner v.
           COMMISSIONER OF INTERNAL REVENUE, Respondent



     Docket No. 16393-09S.            Filed November 3, 2010.



     Leonardo A. Conseco, for petitioner.

     Jonathan Hauck and Tyler N. Orlowski, for respondent.



     GOLDBERG, Special Trial Judge:   This case was heard pursuant

to the provisions of section 7463 of the Internal Revenue Code in

effect at the time 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 Revenue Code (Code) in
                               - 2 -

effect for the years in issue, and all Rule references are to the

Tax Court Rules of Practice and Procedure.

     Respondent determined deficiencies in petitioner’s Federal

income taxes of $3,164 and $10,376, and section 6662(a) accuracy-

related penalties of $633 and $2,075, for 2005 and 2006,

respectively.   After concessions,1 the issues for decision are

whether petitioner’s salary for 2005 and 2006 from the Baltimore

County, Maryland, Public Schools (BCPS) is exempt from Federal

income tax under the Convention With Respect to Taxes on Income,

U.S.-Phil., art. 21, Oct. 1, 1976, 34 U.S.T. 1277 (article 21);

(2) whether petitioner is entitled to certain itemized deductions

for 2006; and (3) whether petitioner is liable for the accuracy-

related penalties under section 6662(a) for each of the 2 years

at issue.

                            Background

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

The stipulation of facts and the attached exhibits are

incorporated herein by this reference.   Petitioner resided in

Maryland when he filed his petition.

     Petitioner is a citizen of the Republic of the Philippines.

In 2005 petitioner was married and had three children and owned a


     1
      Respondent’s notice of deficiency determined that
petitioner failed to include a $650 State income tax refund and
$12 of interest income in his 2006 gross income. Petitioner did
not address these issues in his petition or at trial; therefore,
the issues are deemed conceded. See Rules 34(b), 149(b).
                                - 3 -

home in the Philippines.    He received a bachelor’s degree in

political science from the University of San Jose-Recoletos.      He

received a master’s degree in education from the University of

San Carlos and a master’s degree in teaching with a

specialization in special education from the University of the

Visayas.   Petitioner also finished all of the academic

requirements for a doctorate in education at Cebu Normal

University (Cebu Normal).    All of the institutions petitioner

attended are in the Philippines.    Petitioner has 17 years of

teaching experience in the Philippines, 10 years at private high

schools and 7 at Cebu Normal.    His ending monthly salary at Cebu

Normal was 14,000 pesos, equivalent to $250.

     Amity Institute (Amity) is a nonprofit organization the

Department of State (State Department) approved to operate an

exchange teacher program.    The exchange teacher program allows

qualified foreign teachers to enter the United States to teach

for up to 3 years.   Amity does not directly recruit teachers from

the Philippines.   During 2004 and 2005 Amity worked with Badilla

Corp. (Badilla), a business entity from the Philippines, and with

Avenida & Associates, Inc. (Avenida), a business entity from the

United States.   Badilla and Avenida are affiliated entities that

worked together to facilitate the placement of qualified Filipino

teachers in American schools.    Badilla collected background

information such as transcripts and résumés from teachers in the
                               - 4 -

Philippines who were interested in the exchange teacher program

in the United States.   Badilla found its prospective Filipino

teachers principally by word of mouth and seminars conducted by

its executives.   Avenida or Badilla charged placement fees and

additional charges to help teaching candidates with, among other

tasks, finding employers in the United States.   The fees were:    A

$3,200 placement fee, a $725 U.S. documentation fee, a $500 J-1

visa fee, and $775 for airfare and travel.   In the United States

Avenida helped school districts find promising teaching

candidates by providing access to a database of overseas

jobseekers.   In 2004 petitioner attended an orientation session

for an exchange teacher program Badilla sponsored, at which time

he submitted his application and résumé.

     Dr. Donald A. Peccia joined BCPS in October 2004 as the

assistant superintendent of human resources, a position he

retained through the date of trial.    As of the date of trial, Dr.

Peccia’s department employed 71 people who were responsible for

the recruitment, retention, and rewarding of the school system’s

17,000 full-time and thousands of part-time and temporary

employees, working in over 170 schools.

     To meet a shortfall in teachers, Dr. Peccia initiated the

idea of BCPS’ recruiting internationally, beginning with a small

“pilot-type program” in the Philippines.   In a letter dated

January 28, 2005, Dr. Peccia contacted Avenida stating that BCPS
                               - 5 -

would like to hire 12 or more qualified Filipino teachers.    From

a preselected group of Filipino teachers BCPS administrators

chose the candidates that the school system wanted to interview.

     In March 2005 Herman James and Joyce Reier, personnel

officers for BCPS, traveled to the Philippines to interview

teaching candidates.   On March 10, 2005, Ms. Reier interviewed

petitioner.   Mr. James and Ms. Reier coordinated with Dr. Peccia,

and they agreed to hire 20 teachers from the Philippines.    On the

same day as petitioner’s interview Ms. Reier provided him with a

preliminary BCPS contract for the 2005-2006 school year.

Petitioner signed the preliminary contract and dated his

signature March 10, 2005.   Petitioner “understood” that BCPS

would be evaluating his performance throughout the school year.

If his performance was satisfactory, BCPS would continue his

employment for the following school year.

     Generally, foreign teachers who want to teach in the United

States may obtain one of two types of visas.   One is the H-1B

visa for working professionals.   The second is the J-1 visa for

individuals coming to the United States under a cultural exchange

program approved by the State Department.   The J-1 visa is more

convenient for foreign individuals who are new teachers in the

United States because the visa timing coincides with the academic

school year in the United States.
                                 - 6 -

     Badilla referred petitioner to Amity, which in turn

sponsored petitioner’s J-1 visa.    The State Department authorized

Amity to issue Form DS-2019, Certificate of Eligibility for

Exchange Visitor (J-1) Status.    The form identifies the visitor;

identifies the visa sponsor; briefly describes the exchange

program, including the start and end dates; identifies the

category of exchange; and states the estimated cost of the

exchange program.   The cost of the exchange teacher program was

$3,000.   At all relevant times, Gertrude Hermann was Amity’s

executive director.

     Badilla invited petitioner and the other teachers who had

received employment offers from BCPS to meet at Badilla’s office

in the Philippines on June 14, 2005.     At the meeting Badilla

provided many completed forms that each teacher needed to sign,

including an administrative fee agreement, Amity’s exchange

teacher program contract, and a Form DS-2019.     The length of time

listed on the Form DS-2019 was 3 years, the same length as the

exchange teacher program.   Badilla reiterated that BCPS required

satisfactory performance to continue employment beyond the first

year.   Petitioner signed the forms and returned them to Badilla

for processing.

     Before leaving the Philippines to teach for BCPS, petitioner

obtained a 2-year leave of absence from Cebu Normal effective

June 7, 2005, through June 30, 2007.
                                - 7 -

     Petitioner entered the United States on July 29, 2005.       This

was the first time he had visited the United States.      After

arriving in Baltimore, he signed a standard State-issued

Provisional Contract for Conditional or Resident Teacher

Certificate Holders (BCPS employment contract), effective

beginning August 22, 2005.    The BCPS employment contract was for

1 year, terminating automatically at the end of the 2005-2006

school year.    BCPS assigned petitioner to teach special education

at Ridgely Middle School (Ridgely).

     Under the exchange teacher program, petitioner’s family

could not join him in the United States until he received a

satisfactory evaluation from BCPS.      Therefore, the earliest

petitioner’s family could join him was at the end of the 2005-

2006 school year.

     On August 26, 2005, petitioner signed a 1-year lease with

Belvedere Towers effective September 1, 2005, through August 31,

2006.    Upon receiving a satisfactory evaluation, petitioner

brought his family to the United States in the summer of 2006 to

live with him.    Petitioner then signed a second 1-year lease2

with Southern Management Corp. effective September 14, 2006.

     BCPS offered a “Regular Contract” to petitioner effective

August 22, 2006, granting him continued employment from year to



     2
      The lease states that it is a 1-year lease but also states
Sept. 14, 2006, through Sept. 30, 2007, as the term of the lease.
                                - 8 -

year so long as he met certain conditions.   Petitioner’s

signature on the regular contract was not dated.   A regular

contract is another standard State-issued contract under which

the teacher received tenure after 2 years if the teacher met all

the requirements of the State, including satisfactory

performance.   Working in the United States provided petitioner

with a salary that was considerably greater than the salary he

earned in the Philippines, which as described supra page 3 was

$250 a month or $3,000 annually.   Petitioner’s starting annual

salary at BCPS was $63,326.   With respect to Federal income tax

withholding, petitioner did not provide BCPS with Form 8233,

Exemption From Withholding on Compensation for Independent (and

Certain Dependent) Personal Services of a Nonresident Alien

Individual.    Consequently, BCPS withheld Federal income tax from

petitioner’s salary during 2005 and 2006.

     Petitioner engaged a certain U.S. enrolled agent, Fred R.

Pacheco, to prepare his 2005 and 2006 Federal income tax returns.

He filed Form 1040NR, U.S. Nonresident Alien Income Tax Return,

for each of the 2 years.   Petitioner did not report his salary

from BCPS on either return.

     Petitioner claimed itemized deductions of $2,093 and $18,180

for 2005 and 2006, respectively on his Federal income tax

returns.   The 2005 itemized deductions consisted solely of State

income tax withheld.   The 2006 itemized deductions consisted of
                               - 9 -

$4,570 in State income tax withheld, $155 in charitable

contributions, $13,405 in unreimbursed employee business

expenses, and $50 in tax preparation fees.   As a result of the

income exclusion, income tax withholding, and itemized

deductions, petitioner requested refunds of $5,452 and $11,505

for 2005 and 2006, respectively.

     On February 1, 2008, petitioner signed a resignation form

from BCPS effective June 2008, writing that the reason was

“expiration of 3-year contract w/ BCPS”.   Petitioner then

accepted an offer to teach in the Prince George’s County,

Maryland, Public School System (PGCS).   PGCS sponsored

petitioner’s H-1B visa valid October 8, 2008, through July 31,

2011.   As of the date of trial, he was teaching in PGCS for the

2009-2010 school year.

     The Internal Revenue Service (IRS) selected petitioner’s

2005 and 2006 Federal income tax returns for examination.     The

examining agent sent three questionnaires to petitioner:     Form

8784, Questionnaire - Temporary Living Expenses; Form 9210, Alien

Status Questionnaire; and Form 9250, Questionnaire - Tax Treaty

Benefits.   Petitioner completed the forms, dated his signature

October 6, 2008, and returned them to the IRS.

     The Court received into evidence copies of the three

questionnaires that petitioner had completed.    On Form 8784

petitioner wrote that he left his permanent residence on July 29,
                                - 10 -

2005, and that he planned stay at temporary lodging for 3 years.

Petitioner answered that he did not change his original intention

about the length of his stay.    Petitioner also answered that he

was not on a leave of absence from his employer.    On Form 9210

petitioner wrote that July 29, 2005, was his date of initial

arrival, that at that time he expected to remain in the United

States for 3 years, and that this expectation had not changed.

On Form 9250, petitioner stated that he was still living in the

United States, and that he intended to remain “N/A”.

     In the notice of deficiency dated April 2, 2009, the IRS

adjusted petitioner’s income to include the earnings from BCPS

for 2005 and 2006 that petitioner had excluded under article 21.

The notice also disallowed $13,405 of the $18,180 itemized

deductions that he claimed for 2006.     The disallowed deductions

were labeled job search costs and consisted of $3,066 for rent,

$1,724 for transportation, $1,040 for airfare, $6,133 for “agency

fee (recruiter)”, and $1,442 for “2005 State Refund not

Received”.   Petitioner filed his petition contesting all of

respondent’s adjustments.

     Respondent moved under Rule 121 for partial summary judgment

contending that no issue of material fact existed as to whether

petitioner’s income for the years at issue qualified for

exemption under article 21.   Petitioner objected to the granting

of the motion.   Both parties fully briefed the issue of income
                                 - 11 -

exemption under article 21.     The Court set the motion for hearing

at trial.   When the case was called for trial, the Court heard

the motion.   The parties relied on the respective positions they

had set forth in their briefs.     The Court has denied respondent’s

motion for partial summary judgment.

     Shortly before trial, petitioner filed a motion to exclude

the testimony of Dr. Peccia on the grounds of hearsay, lack of

personal knowledge, and relevance.        Respondent objected to the

motion.   The Court heard arguments on the motion at trial and

took the motion under advisement.     The Court has denied

petitioner’s motion.   The case was then tried and the Court heard

testimony from petitioner, Dr. Peccia, and Ms. Hermann.

                               Discussion

I.   Income Under Article 21

      Petitioner was a nonresident alien for the years at issue

because of his J-1 visa status and his participation in the

exchange teacher program.   See sec. 7701(b).       In particular,

section 7701(b)(1)(B) provides that a nonresident alien is a

person who is not a citizen or resident of the United States

within the meaning of section 7701(b)(1)(A).3       Generally, a

nonresident alien individual engaged in trade or business within



      3
      As a teacher, petitioner is considered an exempt individual
and, therefore, not treated as present for purposes of the
substantial presence test. See sec. 7701(b)(1)(A)(ii),
(3)(D)(i), (5)(A)(ii).
                                - 12 -

the United States is taxed on the taxable income effectively

connected with that trade or business.     Sec. 871(b).   The phrase

“trade or business within the United States” generally includes

the performance of personal services within the United States at

any time within the taxable year.    Sec. 864(b).   Compensation

paid to a nonresident alien in exchange for the performance of

services in the United States constitutes income that is

effectively connected with the conduct of trade or business in

the United States.   Sec. 1.864-4(c)(6)(ii), Income Tax Regs.

Consequently, petitioner’s wages would ordinarily be included in

gross income under the Code.    Section 894(a), however, provides

that the provisions of the Code will be applied to any taxpayer

with due regard to any treaty obligations of the United States

that apply to the taxpayer.    Therefore, the treatment of

petitioner’s wages might be altered by applicable treaty

provisions.   See id.

     The United States is a party to an income tax convention

with the Republic of the Philippines.      The convention provides an

exemption from U.S. income taxation on income earned by Filipino

teachers teaching in the United States if the requirements of the

convention are satisfied.   Article 21 states:

                              Article 21
                               TEACHERS

          (1) Where a resident of one of the Contracting
     States is invited by the Government of the other
     Contracting State, a political subdivision or local
                               - 13 -

     authority thereof, or by a university or other
     recognized educational institution in that other
     Contracting State to come to that other Contracting
     State for a period not expected to exceed 2 years for
     the purpose of teaching or engaging in research, or
     both, at a university or other recognized educational
     institution and such resident comes to that other
     Contracting State primarily for such purpose, his
     income from personal services for teaching or research
     at such university or educational institution shall be
     exempt from tax by that other Contracting State for a
     period not exceeding 2 years from the date of his
     arrival in that other Contracting State.

     To qualify for the exemption under article 21, a taxpayer

must meet the following requirements:   (1) The taxpayer was a

resident of the Philippines before coming to the United States;

(2) he was invited by the Government or a recognized educational

institution within the United States; (3) he was invited for a

period not expected to exceed 2 years; (4) the purpose of the

invitation was for him to teach or engage in research at the

recognized educational institution; and (5) he did in fact come

to the United States primarily to carry out the purpose of the

invitation.   The taxpayer must meet all of the requirements to

qualify for the income exemption.

     The only requirement in dispute is whether petitioner’s

invitation to teach in the United States was “for a period not

expected to exceed 2 years”.   The text of article 21 does not

specifically state whose expectation controls the length of the

invitation to teach for a period not to exceed 2 years.

Petitioner argues that his expectation as the invitee is the only
                                - 14 -

expectation that matters.     Petitioner testified that “I expected

to stay here for the minimum of one year because that’s the

contract that I signed with BCPS, Ms. Ryer [sic], and the most

would be two years because I was informed during [the] interview

that BCPS would provide [a] two-year probationary period to the

teachers”.    Respondent counters that either the expectation of

the invitor, BCPS, should be decisive, or the Court should weigh

the expectations of all the parties associated with the exchange

teacher program.    In the light of this ambiguity in the text of

article 21, we will consider all the relevant facts and

circumstances, including the expectations of all the parties.

See Santos v. Commissioner, 135 T.C. __, __ (2010) (slip op. at

17).    We will construe article 21 liberally.   See N.W. Life

Assurance Co. of Can. v. Commissioner, 107 T.C. 363, 378 (1996).

Then we will make an objective determination of whether

petitioner was invited to the United States “for a period not

expected to exceed 2 years”.    See Santos v. Commissioner, supra.

       A.   Burden of Proof

       Generally, the Commissioner’s determination of a deficiency

is presumed correct, and the taxpayer bears the burden of proving

that the deficiency is incorrect.    Rule 142(a); Welch v.

Helvering, 290 U.S. 111, 115 (1933).     Furthermore, any deductions

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

the burden of proving his entitlement to them.    Rule 142(a);
                              - 15 -

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

Colonial Ice Co. v. Helvering, 292 U.S. 435, 440 (1934).

     Under section 7491(a) the burden may shift to the

Commissioner regarding factual matters affecting a taxpayer’s

liability for tax if the taxpayer produces credible evidence and

meets other requirements of the section.   In his pretrial

memorandum, petitioner mentioned that he would move for a burden

shift under section 7491(a), contending that he had produced

credible evidence and met the other requirements of the section.

At trial, petitioner did not make an oral or written motion for a

burden shift.

     We need not, and we explicitly do not, decide which party

bears the burden of proof because as discussed above, applying

Santos v. Commissioner, supra, we will decide this case on an

objective consideration of all the relevant facts and

circumstances.

     B.   Analysis

     We begin our analysis with a discussion of the evidence that

relates to petitioner’s expectation.   Petitioner’s reliance on

the two 1-year apartment leases and the 1-year BCPS employment

contract is unconvincing.   One-year apartment leases are

commonplace and do little to indicate a tenant’s long-term

expectation to remain in an area.   Likewise, BCPS required all of

its first-year teachers to sign the standard State-issued 1-year
                              - 16 -

employment contract.   The fact that the contract did not

guarantee employment beyond the first year does not mean that

petitioner expected to stay in the United States for only 1 year.

     Likewise, petitioner’s reliance on the 2-year probationary

period is misplaced.   Petitioner knew that so long as his

performance was satisfactory, BCPS would retain him.   Petitioner

had a great deal of teaching experience in the Philippines, and

when questioned about his job performance, petitioner answered:

“I tried my best.   I always put my best into what I am doing.”

We believe it likely that petitioner had sufficient confidence in

his teaching skills to assume that his performance would be

“satisfactory” and therefore he could expect that BCPS would

employ him for the second and third years of the exchange teacher

program.   Furthermore, the exchange teacher program was a 3-year

program.

     Petitioner also testified that in his mind, the information

in his 3-year J-1 visa application that Amity prepared and he

signed simply established an upper time limit and did not imply a

commitment to stay in the United States for 3 years.   While it is

true that this document did not obligate him to remain in the

United States for 3 years, we find it particularly hard to

believe that petitioner did not expect to remain in the United

States for the duration of the exchange teacher program.

Bolstering this conclusion are petitioner’s own actions and
                                - 17 -

words.   He brought his family to the United States as soon as the

program rules allowed, and he wrote on his resignation form dated

June 13, 2008, that the reason he was resigning was the

“expiration of 3-contract w/ BCPS”, which coincides with the

length of the 3-year exchange teacher program.

     Petitioner’s own words in his answers on the three IRS

questionnaires also weigh against him.      His answers show clearly

that his initial expectation was to remain in the United States

for the entire length of the 3-year exhange teacher program.

Furthermore, petitioner introduced no evidence that he expressed

to any of the parties involved that he expected to remain in the

United States for 2 years or less.       Similarly, petitioner did not

testify that he expected to remain in the United States for 2

years or less.   Thus, petitioner’s actions indicate a strong

commitment to staying in the United States for 3 years despite

the difficulties.

     The fact that petitioner obtained a leave of absence is

simply not a decisive factor.    Petitioner’s request for a leave

of absence was a good backup strategy in the event he decided to

return to the Philippines, but it does not indicate that he

expected to stay in the United States for 2 years or less.

     In addition, we cannot ignore the financial incentive of

remaining in the United States for as long as possible.

Petitioner and his family incurred significant expenses for him
                              - 18 -

to participate in the exchange teacher program.    These

expenditures are not insignificant in comparison to his earnings

in the Philippines.   Moreover, his earnings immediately grew more

than 21-fold from $3,000 to $63,326 when he moved from the

Philippines to the United States.   Although petitioner testified

his cost of living was lower in the Philippines, the increase in

salary is too large to ignore.

     From the perspective of BCPS, the school system absolutely

expected that the Filipino teachers would remain for the length

of the 3-year exchange teacher program.    Dr. Peccia testified

that his department expected the Filipino teachers to remain

within the school system for exactly the length of the visa, 3

years.   He stated “we had no expectations beyond 3 years and no

expectations of less than 3 years.”    Dr. Peccia explained that

“it wouldn’t have been worth the investment” including “the cost

of the [airline] ticket[s], the cost of all the time people were

away”.   He added that BCPS helped the Filipino teachers with

finding housing and with obtaining Social Security cards to ease

their physical and psychological transition so that the teachers

could focus on teaching.   Dr. Peccia noted that only 1 or 2 of

the 20 Filipino teachers did not complete the 3-year term.    In

other words, 90 to 95 percent of the teachers remained in the

United States for the full 3 years.
                              - 19 -

      Corroborating this evidence is the testimony of Ms. Hermann,

who stated that BCPS, similar to the other school systems that

hired foreign teachers through the exchange teacher program,

expected the teachers to stay for the entire 3-year program.     She

added that it had been Amity’s experience that only a small

percentage of Filipino teachers returned to the Philippines

before completing the 3-year teacher exchange program, and most

participants decided to remain in the United States beyond the 3

years.   As of the date of trial, petitioner remained in the

United States teaching in Maryland.    The testimony of these two

witnesses is plausible, reliable, and persuasive.

      In conclusion, after an objective examination of all of the

relevant facts and circumstances, we find that petitioner and

BCPS expected petitioner to stay in the United States for at

least 3 years, which is greater than the “not expected to exceed

2 years” requirement of article 21.    Therefore, petitioner’s

income for June 2005 to June 2007, the first 2 years he was in

the United States, is not exempt from Federal income tax under

article 21.

II.   2006 Disallowed Unreimbursed Employee Expenses--$13,405

      Section 162(a) allows a deduction for ordinary and necessary

business expenses paid or incurred during the taxable year in

carrying on any trade or business.     The performance of services

as an employee is considered a trade or business for section 162
                                  - 20 -

purposes.       Primuth v. Commissioner, 54 T.C. 374, 377 (1970).     For

an expense to be necessary, it must be “appropriate and helpful”

to the taxpayer’s business.       Welch v. Helvering, 290 U.S. at 113-

114.    An expense will be considered ordinary if it is a common or

frequent occurrence in the type of business in which the taxpayer

is involved.       Deputy v. du Pont, 308 U.S. 488, 495 (1940).

Taxpayers must maintain records sufficient to substantiate any

deductions they claim.       Sec. 6001; sec. 1.6001-1(a), Income Tax

Regs.       Petitioner’s disallowed deductions were all labeled job

search costs.

       A.    “Agency Fee (Recruiter)”--$6,133, “2005 State Refund
              not Received”--$1,442, and Airfare--$1,040

       Included in the disallowed unreimbursed employee expenses

are an “agency fee (recruiter)” of $6,133, a “State Refund not

Received” of $1,442, and $1,040 for airfare.       Petitioner’s $6,133

for job search costs is a combination of expenses he paid in 2005

and 2006.       He paid $5,200 to Avenida in fees and $1,500 of the

$3,000 exchange teacher program fee in 2005.       The exchange

teacher fee was paid in increments over the 3-year period of the

program.       Petitioner paid $1,500 of the fee during his first year

of the program and made two subsequent annual payments of $750,

one in the second year of the program and one in the third.

Petitioner had to pay the fees to come to the United States and

to continue his participation in the exchange program.
                               - 21 -

Petitioner did not substantiate his $5,200 in J-1 visa fees in

2005, his $1,500 payment in 2005, or his $750 payment in 2006,

but we are satisfied that petitioner paid these fees in 2005 and

2006 to maintain his standing in the program.    Although

petitioner did not deduct any expenses for 2005 and claimed only

$6,133 of expenses for 2006, the record shows that he paid a

total of $6,700 in fees to participate in the teacher exchange

program in 2005.    Therefore, petitioner is entitled to a $6,700

deduction for 2005 and a $750 deduction for 2006.

     Petitioner provided no explanation or evidence to support

the $1,442 deduction he claimed for “2005 State Refund not

Received” for 2006.   Therefore, we sustain respondent’s

disallowance.

     Finally, petitioner failed to provide an explanation or

provide evidence to support the $1,040 deduction he claimed for

airfare for 2006.   On Form 9210 petitioner merely states “update

my job skills” for the reason for departing from the United

States on December 24, 2005.    Without further corroboration,

petitioner’s statement regarding this deduction is too vague for

the Court to allow the deduction without further substantiation.

Therefore, we sustain respondent’s disallowance.

     B.   Personal Living and Transportation Expenses--$4,790

     Respondent also disallowed unreimbursed employee expenses

consisting of $3,066 for rent and $1,724 for transportation
                              - 22 -

between petitioner’s apartment and his teaching job at Ridgely.

As a general rule, personal living expenses are nondeductible.

Sec. 262; secs. 1.162-2(a), 1.262-1(b)(5), Income Tax Regs.

Section 162(a)(2), however, allows a taxpayer to deduct ordinary

and necessary travel expenses, including meals and lodging, paid

or incurred while away from home in pursuit of a trade or

business.   Commissioner v. Flowers, 326 U.S. 465, 470 (1946).

     The reference to “home” in section 162(a)(2) means the

taxpayer’s “tax home”.   Mitchell v. Commissioner, 74 T.C. 578,

581 (1980); Kroll v. Commissioner, 49 T.C. 557, 561-562 (1968).

As a general rule, a taxpayer’s tax home is in the vicinity of

his principal place of employment, not where his personal

residence is, if different from his principal place of

employment.   Mitchell v. Commissioner, supra at 581; Kroll v.

Commissioner, supra at 561-562.   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 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, supra at 562.    For purposes of

section 162(a)(2), the taxpayer is not treated as being
                              - 23 -

temporarily away from home if the period of employment exceeds 1

year.   Sec. 162(a) (flush language).

     Petitioner contends that his employment with BCPS was

temporary because the BCPS employment contract he signed was for

only 1 year and because at most he would be in the United States

for only 2 years because of BCPS’ probationary period for new

teachers.   He contends that his tax home was in the Philippines,

as that was where he resided with his family.   In other words,

according to petitioner, his rent and transportation to and from

work for 2006 are deductible because he expected to stay in the

United States for a minimum of 1 year, the length of the BCPS

employment contract, or a maximum of 2 years, the length of the

probationary period, and thus, his job was temporary.

     Respondent argues that petitioner’s employment at BCPS was

indefinite and that Baltimore County became his tax home when he

moved there to teach beginning August 2005 for BCPS.    For the

following reasons, we agree with respondent.

     Petitioner took a 2-year leave of absence from his teaching

job in the Philippines when he moved to Baltimore County on July

29, 2005.   He began teaching at Ridgely for BCPS in August 2005.

Although petitioner testified to owning property in the

Philippines, he provided no list of duplicate living expenses.

We have already found that petitioner intended to remain in the

Baltimore County area for at least 3 years to work for BCPS,
                                - 24 -

which is clearly more than 1 year or 2 years.     Further, under the

flush language of 162(a), petitioner would no longer be

considered a temporary employee once he started his second year

of teaching for BCPS.    Accordingly, Baltimore County was

petitioner’s principal place of employment and thus Baltimore

County was his tax home.     Consequently, petitioner is not

entitled to claim a deduction for his rent, transportation to and

from work, or airfare for 2006.

III.   Accuracy-Related Penalty

       Taxpayers may be liable for a 20-percent penalty on the

portion of an underpayment of tax attributable to negligence,

disregard of rules or regulations, or a substantial

understatement of income tax.     Sec. 6662(a) and (b)(1) and (2).

       The term “negligence” in section 6662(b)(1) includes any

failure to make a reasonable attempt to comply with the Code, and

the term “disregard” includes any careless, reckless, or

intentional disregard.     Sec. 6662(c).   Negligence has also been

defined as the failure to exercise due care or the failure to do

what a reasonable person would do under the circumstances.     See

Allen v. Commissioner, 92 T.C. 1, 12 (1989), affd. 925 F.2d 348,

353 (9th Cir. 1991); Neely v. Commissioner, 85 T.C. 934, 947

(1985).    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.   An
                                - 25 -

“understatement of income tax” is substantial if it exceeds the

greater of 10 percent of the tax required to be shown on the

return or $5,000.    Sec. 6662(d)(1)(A).

     The section 6662 accuracy-related penalty does not apply

where the taxpayer shows that he acted in good faith and with

reasonable cause.    Sec. 6664(c)(1).    The determination of whether

a taxpayer acted in good faith and with reasonable cause depends

on the facts and circumstances of each case and includes the

knowledge and experience of the taxpayer and the reliance on the

advice of a professional, such as an accountant.     Sec. 1.6664-

4(b)(1), Income Tax Regs.    For a taxpayer to rely reasonably upon

advice of a tax adviser, the taxpayer must, at a minimum, prove

by a preponderance of the evidence that:     (1) The adviser was a

competent professional with sufficient expertise to justify

reliance, (2) the taxpayer provided necessary and accurate

information to the adviser, and (3) the taxpayer actually relied

in good faith on the adviser’s judgment.      Neonatology Associates,

P.A. v. Commissioner, 115 T.C. 43, 99 (2000), affd. 299 F.3d 221

(3d Cir. 2002).     Most important in this determination is the

extent of the taxpayer’s effort to determine the proper tax

liability.   Id.

     The Commissioner has the burden of production under section

7491(c) with respect to the accuracy-related penalty under

section 6662.   To satisfy that burden, the Commissioner must
                              - 26 -

produce sufficient evidence showing that it is appropriate to

impose the penalty.   Higbee v. Commissioner, 116 T.C. 438, 446

(2001).   Respondent has satisfied his burden by producing

evidence that petitioner reported no teaching income for 2005 and

2006, failed to substantiate claimed deductions, and had a

substantial understatement of income tax for 2006.

      Nonetheless, petitioner sought the advice of a return

preparer for his 2005 and 2006 Forms 1040NR.    Petitioner stated

that his preparer was an enrolled agent in the United States.

Respondent did not dispute the competency of the preparer.    The

preparer counseled petitioner that his income was exempt from

taxation in the United States under article 21.    Petitioner,

having no formal training in taxation and being new to the U.S.

tax system, reasonably relied upon the advice of a competent tax

return preparer and acted in good faith.    Therefore, we do not

sustain respondent’s determination that the section 6662

accuracy-related penalty applies for 2005 or 2006.

IV.   Conclusion

      The Court has considered all arguments made in reaching our

decision, and, to the extent not mentioned, we conclude that they

are moot, irrelevant, or without merit.

      To reflect the foregoing,


                                           Decision will be entered

                                    under Rule 155.
