                  T.C. Summary Opinion 2005-14



                     UNITED STATES TAX COURT



                  AGNES T. BOSCO, Petitioner v.
          COMMISSIONER OF INTERNAL REVENUE, Respondent



     Docket No. 15492-03S.              Filed February 15, 2005.


     Agnes T. Bosco, pro se.

     Wendy S. Harris, for respondent.



     COUVILLION, Special Trial Judge: This case was heard

pursuant to section 7463 in effect when the petition was filed.1

The decision to be entered is not reviewable by any other court,

and this opinion should not be cited as authority.



     1
          Unless otherwise indicated, subsequent 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.
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     Respondent determined a deficiency of $3,705.60 in

petitioner’s Federal income tax for 2001 and the section 6662(a)

penalty in the amount of $741.12.   At trial, petitioner conceded

respondent’s determination of a section 72(t) additional tax of

$282 for an early distribution from her qualified retirement

plans.   The issues for decision are:   (1) Whether petitioner is

entitled to a claimed deduction of $12,449 for moving expenses

under section 217, and (2) whether petitioner is liable for the

section 6662(a) penalty.

     Some of the facts were stipulated.    Those facts, with the

exhibits annexed thereto, are so found and are made part hereof.

Petitioner’s legal residence at the time the petition was filed

was Reno, Nevada.

     During part of 2001, petitioner was employed by Authentic

Fitness.   Authentic Fitness manufactured clothing under the

Speedo trade name and was headquartered in California.    Authentic

Fitness’s main warehouse was at Reno, Nevada.    Petitioner worked

at the Reno warehouse in the international shipping department.

     Petitioner had been employed by Authentic Fitness for

slightly over 2 years when, in 2001, the company decided to move

its warehouse operation to California.    Petitioner and eight

other employees transferred to the new location at Irwindale,

California, located just outside of Los Angeles.    In connection

with the move, Authentic Fitness agreed to pay the employees’
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moving expenses and pay for their temporary stay at an Embassy

Suites hotel.       Authentic Fitness arranged for petitioner’s move

and paid the expenses directly to the service providers.

Petitioner stayed at an Embassy Suites hotel and worked in

Irwindale for 3 months.       Then the company filed for bankruptcy.

Petitioner’s employment terminated, and she received severance

pay.    Petitioner then moved back to Reno, Nevada, at her own

expense.       As a result of the bankruptcy, Warnaco became the

surviving owner of the Authentic Fitness assets and business.

       In connection with petitioner’s move and in accordance with

the policies of her employer, the following amounts were paid on

petitioner’s behalf directly to the service providers.       The

amounts paid by Authentic Fitness were:


         For moving personal belongings              $ 3,759.87
         For lodging                                   8,241.24
         For meals                                     1,705.54
         For maintenance of former residence             339.99
            Total amount paid to third parties       $14,046.64


Authentic Fitness attributed the entire amount it paid to third

parties as income to petitioner.       In addition, Authentic Fitness

paid directly to petitioner $7,464.34 for what was identified as

“Total Tax Liability Gross-Up”, intended to compensate or

reimburse petitioner for any Federal and State income taxes that

might be due on this additional income.       Thus, the $14,046.64

paid to third-party providers and the $7,464.34 paid directly to
                                - 4 -

petitioner for anticipated State and Federal income taxes totaled

$21,510.98.

     Warnaco, the surviving corporation, issued to petitioner,

for the year 2001, a Form W-2, Wage and Tax Statement, in the

amount of $46,519.83.   The amount was itemized on a separate

schedule and included the wages paid to petitioner, including

overtime, severance pay, and a bonus.    Additionally, the

$46,519.83 included $17,751.11 for moving expenses.    On the

itemized schedule, Warnaco explained that the $17,751.11

consisted of $14,046.64 paid to third-party providers, less the

$3,759.87 paid for the transportation of petitioner’s personal

belongings to Irwindale, California, and the $7,464.34 paid to

petitioner as a “Total Tax Liability Gross-Up”.    Thus, the

$3,759.87 paid by Authentic Fitness was not included as income on

the schedule provided to petitioner, nor was that amount included

as income on her Form W-2.

     A taxpayer may claim a deduction for moving expenses paid or

incurred in connection with beginning work at a new principal

place of work.   Sec. 217(a).   Moving expenses include reasonable

expenses incurred in moving household goods and traveling

(including lodging) from the former residence to the new

residence.    The cost of meals incurred while traveling may not be

deducted as moving expenses.    Sec. 217(b).   Petitioner bears the
                                - 5 -

burden of proof in substantiating all moving expense deductions.

Sec. 7491(a); Rule 142(a).

     On her Federal income tax return, petitioner reported

$46,520 as wage income.    As noted earlier, petitioner claimed a

deduction of $12,449 for moving expenses, all of which was

disallowed in the notice of deficiency.   Petitioner testified

that the $12,449 she claimed consisted of $4,100 for

transportation of her household goods and $8,349 for traveling

and lodging expenses associated with the move.

     Under section 217, a taxpayer may claim deductions only for

moving expenses reimbursed by the employer to the extent such

expenses are included in gross income.    Butka v. Commissioner, 91

T.C. 110, 120-121 (1988), affd. without published opinion 886

F.2d 442 (D.C. Cir. 1989).   As noted above, the $3,759.87 paid by

Authentic Fitness directly to the moving company was not included

as income on the Form W-2.   Consequently, petitioner is not

entitled to a moving expense deduction for that item.   Section

132(a)(6) provides that “gross income shall not include any

fringe benefit which qualifies as a * * * qualified moving

expenses reimbursement”.   According to petitioner’s Form W-2, the

cost to move petitioner’s household items, which would be a

qualified moving expense, was not included in the calculation of

her gross income.   In addition, petitioner presented no evidence

substantiating any expenses, qualified or otherwise, that would
                                 - 6 -

make up the $4,100 portion of the $12,449 claimed on her return

as a moving expense deduction.    Therefore, respondent is

sustained on that portion of the adjustment in the notice of

deficiency.

     The remaining portion of petitioner’s claimed moving expense

deduction was $8,349 for lodging expenses, which was, as noted

before, disallowed by respondent.    The evidence at trial shows

that $8,241.24 of the amount claimed was for 3 months of

temporary lodging at an Embassy Suites hotel.    The Form W-2

issued to petitioner included $8,241.24 for temporary lodging

expenses paid to the Embassy Suites by Authentic Fitness.

Respondent disallowed that amount as a qualified moving expense.

The cost of temporary lodging does not qualify as a moving

expense under section 217(b).    Section 217(b)(1) provides:


          (1) * * * for purposes of this section, the term
     “moving expenses” means only the reasonable expenses–

               (A) of moving household goods and personal effects
          from the former residence to the new residence, and

               (B) of traveling (including lodging) from the
          former residence to the new place of residence.

     Such term shall not include any expenses for meals.
     [Emphasis added.]


Petitioner’s stay at the Embassy Suites did not constitute

lodging while traveling “from the former residence to the new

place of residence.”   Sec. 217(b)(1)(B).   Petitioner resided at
                               - 7 -

the Embassy Suites for 3 months.   The hotel was located in the

same vicinity as petitioner’s new place of work, and, during her

stay, petitioner worked full time for Authentic Fitness at the

new location.   Petitioner’s extended stay at the Embassy Suites

while working at Authentic Fitness’s new location amounted to a

new place of residence.   Therefore, petitioner was not entitled

to deduct the $8,241.24 paid to the Embassy Suites by Authentic

Fitness.

     Authentic Fitness included the $8,241.24 it paid Embassy

Suites as wages on petitioner’s Form W-2, and it also paid her an

additional $7,464.34 identified as “Total Tax Liability Gross-

Ups”.2   Respondent argued that, because petitioner received the

additional payment from Authentic Fitness, she was no longer

entitled to a moving expense deduction.   The Court disagrees.

     Petitioner did not receive a double tax benefit because of

the additional payment from Authentic Fitness, nor did she lose

her entitlement to a deduction merely because Authentic Fitness

decided to term the payment “Total Tax Liability Gross-Up”.    The

payment was the equivalent of a bonus, paid in connection with

her employment, and thus constituted compensation for services

     2
          Petitioner alleged she never received the additional
$7,464.34 labeled “Total Tax Liability Gross-Up” on Authentic
Fitness’ Employee Relocation Expenses Worksheet and included on
her Form W-2. The Form W-2 reflects she did receive the amount,
and the Court accepts that as true. Moreover, petitioner
included the amount on her 2001 Federal income tax return after
receiving the worksheet from Warnaco listing this payment.
                                 - 8 -

rendered.    Petitioner correctly included it as income on her

Federal tax return.    Had the cost of petitioner’s temporary

lodging amounted to a qualified moving expense, her entitlement

to a deduction would not have been eliminated because Authentic

Fitness paid her a bonus described as a “Total Tax Liability

Gross-Up”.    Therefore, the payment to petitioner is income, and

that payment does not affect the character of the other payments

related to petitioner's move.

     Respondent determined a section 6662(a) penalty against

petitioner in the amount of $741.12.     Section 6662(a) provides

for a 20-percent penalty for any underpayment to which the

section applies.    Respondent determined that section 6662(b)

applied to petitioner because petitioner was negligent or

disregarded rules or regulations.

     Negligence is defined as “any failure to make a reasonable

attempt to comply with the provisions of this title.”     Disregard

includes “careless, reckless, or intentional disregard”.     Sec.

6662(c).    Although respondent bears the burden of production

under section 7491(c), petitioner must still show she had

reasonable cause to believe her deduction was correct.     The Court

holds that petitioner was negligent in claiming part of her

moving expenses as deductible.

     Petitioner filed her 2001 Federal income tax return on April

10, 2002.    She received a letter on or about February 10, 2002,

from Warnaco explaining the items on her Form W-2.     The expense
                               - 9 -

worksheet provided by her employer clearly showed that the

$3,759.87 paid by Authentic Fitness, on her behalf, to her moving

company was not included in her wages.   On that basis, and the

basis that Authentic Fitness, not petitioner, paid the moving

company directly, petitioner had no reason to believe she was

entitled to a deduction for that expense.   Petitioner’s actions

with respect to that portion of her deduction amount were

unreasonable under section 6662(c), and her actions are

considered by the Court to be “careless, reckless, or intentional

disregard”.   The section 6662(a) penalty is sustained with

respect to that portion of the deduction.

     Concerning the remainder of her deduction, petitioner did

not act unreasonably.   Although her stay at Embassy Suites was

not deductible as a moving expense, petitioner took reasonable

steps to ensure it was.   Petitioner consulted a tax planner when

preparing her income tax return, and there is no evidence that

she disregarded his advice.3   Petitioner had every reason to
believe a professional tax planner would know what moving

expenses could be deducted under section 217.   Petitioner was not

unreasonable or negligent in relying on the tax planner's expert

advice.   Therefore, the section 6662(a) penalty only applies to

$3,759.87 of the understatement.


     3
          The record does not reflect whether petitioner showed
the tax planner the expense worksheet from Authentic Fitness;
therefore, it is not considered in determining whether petitioner
acted reasonably with respect to sec. 6662(a).
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    Reviewed and adopted as the report of the Small Tax Case

Division.



                                  Decision will be entered

                             under Rule 155.
