                            T.C. Memo. 2017-195



                        UNITED STATES TAX COURT



         JOHN S. BARRETT AND MARIA T. BARRETT, Petitioners v.
           COMMISSIONER OF INTERNAL REVENUE, Respondent

                    JOHN S. BARRETT, Petitioner v.
           COMMISSIONER OF INTERNAL REVENUE, Respondent



      Docket Nos. 11307-16, 11322-16.           Filed October 2, 2017.



      Thomas Edmund Crowe, for petitioners.

      Michael W. Lloyd, for respondent.



            MEMORANDUM FINDINGS OF FACT AND OPINION


      COHEN, Judge: Respondent determined deficiencies, additions to tax, and

penalties as follows:
                                        -2-

[*2] John S. Barrett and Maria T. Barrett, Docket No. 11307-16

                                                 Penalty            Addition to tax
          Year            Deficiency           sec. 6662(a)         sec. 6651(a)(1)

          2011              $7,839              $1,567.80                -0-
          2012              11,825               2,365.00              $950.25
          2013                4,151                -0-                   -0-

John S. Barrett, Docket No. 11322-16

                                                 Additions to tax

                                     Sec.              Sec.              Sec.
     Year        Deficiency       6651(a)(1)        6651(a)(2)           6654
                                                    1
     2014         $18,952         $3,871.58             $860.35        $305.50

      1
       This amount reflects the addition to tax under I.R.C. sec. 6651(a)(2) only
through the date of the notice of deficiency. The addition to tax will continue to
accrue from the due date of the return at a rate of 0.5% per month, or fraction
thereof, of nonpayment, not to exceed 25%.

      After concessions, the issues for decision are: (1) whether John S. Barrett

(petitioner) was “away from home” when performing video production services in

Washington, D.C. (DC); (2) whether petitioners have substantiated deductions in

excess of those previously allowed; and (3) whether petitioners are liable for the

determined additions to tax and penalties. All section references are to the
                                         -3-

[*3] Internal Revenue Code in effect for the years in issue, and all Rule references

are to the Tax Court Rules of Practice and Procedure.

                               FINDINGS OF FACT

      Although the parties executed two stipulations, those stipulations served

only to introduce copies of exhibits and did not contain any agreed narrative of

undisputed facts. See Rule 91(a). Because the hearsay contents of the exhibits

(tax returns, bank records, card statements, and receipts) are disputed, our findings

cannot incorporate the stipulations wholesale.

      Petitioners resided in Las Vegas, Nevada, at all material times. They

purchased rental properties in the area of Las Vegas as investments toward

retirement. Petitioner arranged for and supervised repairs on the rental properties.

Petitioners reported losses from the rental activities of $14,176, $8,233, and

$3,434 during 2011, 2012, and 2013, respectively. In a joint return for 2014

submitted after the notice of deficiency was sent to petitioner for that year,

petitioners reported net income of $18,784 for the four properties.

      Petitioners received various other items of income during the years in issue,

including wages earned by Maria T. Barrett (petitioner’s spouse), who was

employed as a cocktail waitress in Las Vegas. Their primary source of income for

many years through early 2016, and the subject of the current dispute, was
                                        -4-

[*4] petitioner’s business as a video producer for the American Israel Public

Affairs Committee (AIPAC).

      Petitioner has been in the video production business since the mid-1980s

and began working with AIPAC in 1995. He occasionally performed services for

other persons but did not receive any income for such services during the years in

issue. Video production includes writing scripts and reviewing footage, much of

which petitioner did out of an office in his Las Vegas home. Interviews relating to

the videos were conducted in various locations around the world.

      Before 2007 petitioner produced videos for AIPAC using studio facilities in

Las Vegas. In 2007 AIPAC built a new building in DC. Petitioner advised

AIPAC to include a recording studio with editing facilities and a library for videos

and audios in order to save money. AIPAC agreed, and petitioner helped design

and build the studio. Thereafter AIPAC required petitioner to travel to DC to use

the editing facilities and the library at AIPAC’s building to perform

postproduction activities. Petitioner continued to write scripts and perform

preproduction services in his Las Vegas home. The average duration of

petitioner’s stays in DC was two weeks. Initially he stayed at hotels, but from

2007 through June 2013 he rented a condominium apartment because he and

AIPAC agreed that an apartment would be more cost efficient than hotel
                                       -5-

[*5] stays. AIPAC reimbursed petitioner for some meals and expenses when he

was in DC.

      Petitioner did not maintain separate credit cards for business and personal

expenses, and petitioner’s spouse used the same credit card account for her

purchases not related to petitioner’s business. During 2014 petitioner incurred

expenses for travel to DC in relation to his work for AIPAC, including the

following items shown on his credit card receipts paid in 2014.

       Items on 2014 credit card receipts           Month         Amount incurred

       U.S. Airways round trip tickets to DC        January           $502.30
                                                    February           626.00
                                                    July               678.00
                                                    August             552.20
       Washington Plaza Hotel                       January            244.50
       Fairfield Inn, DC                            July             2,049.60
                                                    August           2,459.52
       Taxis charged                                January             10.44
        Total                                                        7,122.56

One round trip ticket for travel between Las Vegas and DC in 2014 represented

petitioner’s trip home to Las Vegas for the weekend in the middle of his work in

DC. Other items shown in the credit card records, e.g., payments to Hotels.com or
                                        -6-

[*6] miscellaneous hotel bills, could not be identified as for a hotel in DC or could

not be allocated between deductible and nondeductible meals expenses.

       Petitioner reported his income from AIPAC on Schedules C, Profit or Loss

From Business. His gross receipts from AIPAC were $132,810 for 2011,

$121,328 for 2012, $75,695 for 2013, and $63,182 for 2014. On Schedules C

attached to joint returns they filed for 2011, 2012, and 2013, petitioners reported

travel, meals, and entertainment expenses of $55,383, $49,882, and $26,363,

respectively. On an untimely return submitted for 2014, petitioners reported

travel, meals, and entertainment expenses of $24,502.

       In the notice of deficiency for 2011, 2012, and 2013 deductions for travel,

meals, and entertainment expenses totaling $26,576, $23,969, and $12,284,

respectively, were allowed. Sales taxes claimed as itemized deductions were

disallowed to the extent of $7,503 for 2011, $5,392 for 2012, and $4,402 for 2013.

Other minor and computational adjustments were made, but petitioners have

addressed only the travel, meals, and entertainment expenses through evidence or

in their posttrial brief.

       Petitioners’ 2011 return was filed in September 2013. Petitioners’ 2012 tax

return was filed in April 2015. Their 2014 return was not submitted until April
                                         -7-

[*7] 2016, after the Internal Revenue Service had prepared a substitute for return

under section 6020(b) and sent petitioner the notice of deficiency for that year.

                                      OPINION

      The primary dispute identified by the parties is whether petitioner was

“away from home in pursuit of a trade or business” when he performed services

for AIPAC in DC. See sec. 162(a)(2). Petitioners contend that petitioner’s “tax

home” during the years in issue was in Las Vegas, where they maintained a

residence and managed rental properties and where petitioner performed some of

the services related to his video production business. Respondent argues that

petitioner’s tax home was in DC because his work for AIPAC over a period of 21

years was “permanent” rather than temporary and produced the bulk of petitioners’

total income for the years in issue. If we agree with petitioners that petitioner’s

tax home was in Las Vegas, we must decide whether his travel, meals, and

entertainment expenses have been substantiated under section 274(d) in amounts

greater than allowed for 2011, 2012, and 2013 and in any amounts for 2014.

      Petitioners bear the burden of proving entitlement to the deductions

claimed. See Rule 142(a); New Colonial Ice Co. v. Helvering, 292 U.S. 435, 440

(1934); Rockwell v. Commissioner, 512 F.2d 882, 886 (9th Cir. 1975), aff’g T.C.
                                         -8-

[*8] Memo. 1972-133. They have not satisfied the requirements of section

7491(a) to shift the burden of proof.

      Deciding whether transportation and travel expenses are deductible requires

the determination of a taxpayer’s tax home. See sec. 162(a). The word “home”

for purposes of section 162(a)(2) generally refers to the area of a taxpayer’s

principal (if there is more than one regular) place of employment and not where

his personal residence is located. Henderson v.Commissioner, 143 F.3d 497, 499

(9th Cir. 1998), aff’g T.C. Memo. 1995-559; Mitchell v. Commissioner, 74 T.C.

578, 581 (1980). When taxpayers have multiple jobs in different locations during

the year, are married, and incur duplicate living expenses, identifying the location

of the tax home requires review of multiple factors, including: (1) whether

employment is permanent, temporary, or indefinite; (2) whether there is a business

justification for incurring duplicate living expenses; (3) whether the spouses have

separate tax homes; and (4) whether the taxpayers actually have multiple tax

homes during one year because their principal places of business have changed.

See Allen v. Commissioner, T.C. Memo. 2009-102, slip op. at 8.

      In considering whether employment is permanent, temporary, or indefinite,

the general rule is that if the location of the taxpayer’s regular place of business

changes, so does the taxpayer’s tax home--from the old location to the new
                                         -9-

[*9] location. Kroll v. Commissioner, 49 T.C. 557, 562-563 (1968). There is an

exception to this rule if the employment is, or is reasonably expected to be,

temporary. Peurifoy v. Commissioner, 358 U.S. 59, 60 (1958). However, this

exception does not apply if the employment away from home is indefinite. Kroll

v. Commissioner, 49 T.C. at 562. Unless termination within a short period is

foreseeable, employment that merely lacks permanence is considered indefinite.

See Neal v. Commissioner, 681 F.2d 1157, 1158 (9th Cir. 1982) (following Kasun

v. United States, 671 F.2d 1059, 1061 (7th Cir. 1982)), aff’g per curiam T.C.

Memo. 1981-407. A taxpayer will not be treated as being temporarily away from

home during any period of employment exceeding one year. Sec. 162(a).

Although petitioner’s work with AIPAC was long term, his travel to DC was

sporadic and for short periods totaling less than half a year.

      The second factor for identifying the tax home is that the taxpayers must

have some business justification beyond merely personal reasons for maintaining

an alleged tax home remote from a place of employment. See Henderson v.

Commissioner, 143 F.3d at 500; Tucker v. Commissioner, 55 T.C. 783, 787-788

(1971). Petitioner performed some business services and had rental activities to

justify maintaining a home in Las Vegas.
                                        - 10 -

[*10] Third, when married couples maintain multiple places of abode, review is

required to determine whether they have separate tax homes. Spouses that both

work and file a joint tax return may have separate tax homes. See Hammond v.

Commissioner, 20 T.C. 285, 287-288 (1953), aff’d, 213 F.2d 43 (5th Cir. 1954);

Chwalow v. Commissioner, T.C. Memo. 1971-185, aff’d, 470 F.2d 475, 478 (3d

Cir. 1972). In this case we do not have to conclude that petitioners had separate

tax homes because there are no travel deductions in issue relating to the

employment of petitioner’s spouse.

      Last, when taxpayers have employment or business in multiple locations

during one year, the principal place of business is generally used to determine the

tax home. See Stright v. Commissioner, T.C. Memo. 1993-576. When a taxpayer

accepts employment either permanently or for an indefinite time away from the

place of his usual abode, the taxpayer’s tax home will shift to the location of the

taxpayer’s new principal place of business. See Coombs v. Commissioner, 608

F.2d 1269, 1276 (9th Cir. 1979), aff’g in part, rev’g in part 67 T.C. 426 (1976).

Determining the principal place of business includes review of the location where

the taxpayer spends more of his time, engages in greater business activity, and

derives a greater proportion of his income. Markey v. Commissioner, 490 F.2d

1249, 1255 (6th Cir. 1974), rev’g T.C. Memo. 1972-154. The Court of Appeals
                                       - 11 -

[*11] for the Ninth Circuit has applied the Markey test to determine the tax home

when a taxpayer both earns a substantial income and stays overnight in each of

two locations. See Folkman v. United States, 615 F.2d 493 (9th Cir. 1980)

(applying the Markey test and concluding that the taxpayer’s tax home was the

location where he spent more working time and derived most of his income); see

also Stright v. Commissioner, T.C. Memo. 1993-576.

      Respondent relies heavily on the assumption that AIPAC’s payments to

petitioner were solely for work performed during his trips to DC, while petitioner

testified that much of his work was performed in his home office in petitioners’

Las Vegas residence. Petitioner testified that 75% of his time was spent outside of

DC, interviewing on location and writing scripts and reviewing footage in Las

Vegas. The record does not explain how his services were billed to AIPAC; thus

we cannot determine whether, for example, he billed only for the time spent in DC

or billed also for time spent in Las Vegas or elsewhere. But his testimony is

uncontradicted and not improbable or unreasonable. Respondent’s assumption is

not supported by any evidence. We cannot conclude that petitioner’s income from

AIPAC is attributable solely or primarily to work in DC.
                                        - 12 -

[*12] In Kroll v. Commissioner, 49 T.C. at 562, the Court explained:

             The purpose of the “away from home” provision is to mitigate
      the burden of the taxpayer who, because of the exigencies of his trade
      or business, must maintain two places of abode and thereby incur
      additional and duplicate living expenses. Leo M. Verner, supra;
      James v. United States, 308 F.2d 204 (C.A. 9, 1962). The “tax home”
      doctrine is directed toward accomplishing this purpose. In effect, it
      asks the question whether in a particular case it is reasonable to
      expect the taxpayer to maintain a residence near his trade or business
      and thereby incur only one set of living expenses, which are of course
      nondeductible under section 262. * * *

On balance, because petitioner performed substantial services for AIPAC in Las

Vegas, traveled to DC only to complete the production process, was required to be

in DC only a few weeks at a time, and had other income-producing activities in the

Las Vegas area, we accept petitioners’ position that Las Vegas was petitioner’s tax

home. Answering that question, however, does not affect the result for 2011,

2012, or 2013, because petitioners have failed to substantiate any deductible

expenses not previously allowed.

      Because petitioners had not filed a return for 2014 at the time of the

examination, the notice of deficiency sent to petitioner for that year did not allow

any expenses relating to his video production business. Petitioners’ late-filed

return reported various expenses, but the summary offered at trial to support them

included tickets to Las Vegas shows at various hotels, such as the Mirage, the
                                        - 13 -

[*13] Bellagio, and the Luxor, and travel to Mexico, where petitioners had

relatives. This gap in the evidence was pointed out by the Court during the trial,

but petitioner did not even attempt to fill it. Petitioner’s testimony did not include

identification of the persons entertained or the business conducted or persons

visited in Mexico, and the credit card receipts in the record include airline tickets

to Mexico for petitioner’s spouse and another unidentified person. We are not

persuaded that petitioner’s returns or summaries of expenses are reliable evidence

of deductibility.

      To be deductible as business expenses, amounts spent for travel (including

meals and lodging while away from home) and entertainment are subject to the

heightened substantiation requirements of section 274(d). Petitioners have

woefully failed to meet that standard. As to other business expenses that might be

subject to estimates, they have not provided the Court with sufficient evidence for

a reasonable approximation to be made. See Vanicek v. Commissioner, 85 T.C.

731, 742-743 (1985). Although they produced copies of bank statements and

credit card receipts, there is no testimony or other admissible evidence describing

the time, place, or business purpose of expenditures. As to 2011, 2012, and 2013,

there is no explanation in the record of which of the expense deductions claimed

were allowed and which were disallowed according to the notice as not “verified”.
                                         - 14 -

[*14] The summaries offered suggest that petitioner was deducting a flat per diem

rate in addition to actual expenses. The summary of deductions claimed for 2014

raises a strong suspicion that some of them are not allowable. Moreover, exhibits

that petitioners offered included summaries of invoices for services and expenses,

and it is not possible to determine from the records produced what expenses were

reimbursed.

      With respect to the costs of the condominium apartment, petitioner asserts

that he rented the apartment “at the request of AIPAC because the cost was far

lower”, but it is unclear why AIPAC would have made that request if petitioner

was not being reimbursed for his housing costs in DC. While his reported gross

receipts may have included reimbursements, it is not possible on the record to

track reimbursements to expenditures.

      For 2011, 2012, and 2013 petitioners were allowed a percentage of their

claimed business expense deductions and the applicable standard deduction. For

2014 respondent has conceded that petitioners are entitled to joint return rates and

the applicable standard deduction. Petitioners have not proven or even addressed

itemized deductions, dependency exemptions claimed, or computational

adjustments. They have conceded an unreported income item for 2012.

Petitioners’ position is that their returns were correct as filed. Such a position,
                                        - 15 -

[*15] even if presented in uncontradicted testimony, is not sufficient to satisfy

petitioners’ burden of proving their entitlement to deductions. See Geiger v.

Commissioner, 440 F.2d 688 (9th Cir. 197l), aff’g T.C. Memo. 1969-159.

      Similarly, for 2014 petitioner’s testimony was that the untimely return

correctly reflected his business expenses. That testimony is also insufficient and is

questionable for the reasons identified above. However, records were received

without objection that reflect air travel and hotel bills incurred during 2014 for

trips to DC, and there is no reason to believe that petitioner traveled to DC other

than for AIPAC business. Thus he should be allowed to deduct the substantiated

items listed in our findings, the compilation of which required a time-consuming

review of the credit card receipts that should have been performed by petitioners

or by respondent. In view of respondent’s concessions as to joint return rates and

our conclusion as to allowable travel expenses for 2014, a Rule 155 computation

will be necessary for that year.

Additions to Tax and Penalties

      Respondent has the burden of production with respect to penalties and

additions to tax. Sec. 7491(c). Section 6651(a)(1) imposes an addition to tax for

late filing of a return, and section 6651(a)(2) imposes an addition to tax for failure

to timely pay the amount shown as tax on a return. A return prepared by the
                                        - 16 -

[*16] Commissioner under section 6020(b) is treated as a return for purposes of

section 6651(a)(2). Sec. 6651(g)(2). The record includes evidence showing that

petitioners’ returns for 2012 and 2014 were filed very late and that petitioner did

not pay the tax shown on the substitute for return prepared for him for 2014. Thus

the additions to tax determined for 2012 and 2014 under section 6651(a) apply,

absent a showing by petitioners of reasonable cause. See Higbee v.

Commissioner, 116 T.C. 438, 446-447 (2001).

      Petitioner referred vaguely to illness as an excuse for not filing the 2014

return before respondent issued the notice of deficiency for that year. Petitioners

provided no details and did not offer any excuse for the late filing of the 2012

return, so no reasonable cause has been shown in this record. The additions to tax

under section 6651(a) will be sustained.

      Section 6662(a) imposes a 20% accuracy-related penalty on any

underpayment of Federal income tax which is attributable to negligence, disregard

of rules or regulations, or a substantial understatement of income tax. Negligence

includes failure to keep adequate books and records or to substantiate items

properly. Sec. 1.6662-3(b)(1), Income Tax Regs. An understatement of income

tax is substantial if it exceeds the greater of 10% of the tax required to be shown

on the return or $5,000. Sec. 6662(d)(1)(A).
                                       - 17 -

[*17] Petitioners failed to maintain records substantiating their claimed

deductions. It appears that the understatement of income tax for each of 2011,

2012, and 2014 as a result of our holdings exceeds $5,000, which is greater than

10% of the tax required to be shown on petitioners’ returns. Thus, respondent’s

burden of production has been satisfied.

      Once the Commissioner has met the burden of production, the taxpayers

must come forward with persuasive evidence that the penalty is inappropriate

because, for example, they acted with reasonable cause and in good faith. Sec.

6664(c)(1); Higbee v. Commissioner, 116 T.C. at 448-449. The decision as to

whether a taxpayer acted with reasonable cause and in good faith is made on a

case-by-case basis, taking into account all of the pertinent facts and circumstances.

See sec. 1.6664-4(b)(1), Income Tax Regs.

      Petitioners set forth no specific facts to show that the penalties should not

apply. Petitioners did not identify any tax professional on whom they relied with

respect to the failure to report income in 2012 or the deductions disallowed

because of failure to produce records satisfying the applicable substantiation

requirements. The incomplete records produced suggest careless recordkeeping,

failure to comply with section 274(d) and applicable regulations, and questionable
                                       - 18 -

[*18] deductions as business expenses of items appearing to be personal. The

penalties under section 6662 will be sustained.

      Section 6654(a) provides for an addition to tax in the event of an

underpayment of estimated tax. On the record in this case, no exception applies.

See Grosshandler v. Commissioner, 75 T.C. 1, 20-21 (1980). The amount finally

determined for 2014, however, will be determined after recomputation of the

amount in accordance with our allowance of deductions in accordance with this

opinion.

      To reflect the foregoing,


                                                  Decisions will be entered under

                                          Rule 155 in docket No. 11322-16 and for

                                          respondent in docket No. 11307-16.
