T.C. Summary Opinion 2001-118



                     UNITED STATES TAX COURT



                  JOHN J. ZANATH, Petitioner v.
          COMMISSIONER OF INTERNAL REVENUE, Respondent



     Docket No. 15294-99S.             Filed July 31, 2001.



     John J. Zanath, pro se.

     Julia L. Wahl, for respondent.



     DINAN, 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.   The decision to be

entered is not reviewable by any other court, and this opinion

should not be cited as authority.   Unless otherwise indicated,

subsequent section references are to the Internal Revenue Code in

effect for the year in issue.
                               - 2 -

     For the taxable year 1996, respondent determined a

deficiency in petitioner’s Federal income tax of $3,371, an

addition to tax under section 6654(a) of $181.49, and additions

to tax under section 6651(a)(1) and (2) of $758.47 and $370.81.

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

entitled to deduct a net operating loss (NOL) carryover of

$7,367.70; (2) whether petitioner is entitled to a deduction for

employee business expenses of $19,105.30; (3) whether petitioner

is liable for the addition to tax under section 6654(a); and (4)

whether petitioner is liable for the additions to tax under

section 6651(a)(1) and (2).

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

The stipulations of fact and the attached exhibits are

incorporated herein by this reference.   Petitioner resided in

Aliquippa, Pennsylvania, on the date the petition was filed in

this case.

     During the year in issue, petitioner was hired as a computer

systems contract engineer with Tech-Power, Inc., located in

Minneapolis, Minnesota.   Tech-Power arranged for petitioner to

provide engineering services to United Defense Limited

Partnership, also in Minneapolis, from December 11, 1995 through

April 16, 1996.   Petitioner was responsible for developing

computer based training materials for United Defense.    Tech-Power

issued a Form W-2, Wage and Tax Statement, to petitioner for 1996
                                      - 3 -

indicating he earned wages of $24,800.           No Federal income tax was

withheld from petitioner’s pay in accordance with the Form W-4,

Employee’s Withholding Allowance Certificate, completed by

petitioner indicating that he was “exempt”.            Neither Tech-Power

nor United Defense required petitioner to attend educational

courses or purchase supplies or equipment as a condition of his

employment.   Petitioner received unemployment compensation from

the State of Colorado in 1996, which was mailed to him at an

address in Illinois.     Also during 1996, petitioner stored

personal belongings at a storage facility in Iowa.

     Petitioner did not file a Federal income tax return for

taxable year 1995.     For taxable year 1996, he did not file a

return prior to the time respondent issued him a statutory notice

of deficiency for that year.          Although only what appears to be

the cover page of the notice of deficiency is in the record,

respondent explains the deficiency in his trial memorandum as

resulting from wage income of $24,800 and unemployment

compensation of $4,223.1      On October 12, 2000, after filing the


     1
      Although we do not have before us the basis of respondent’s
determinations in the notice of deficiency, both parties agree as
to what issues are before the Court. Furthermore, it is evident
that respondent’s calculation of petitioner’s tax liability was
determined as follows:
          Wages                               $24,800.00
          Unemployment compensation             4,223.00
          Standard deduction                   (4,000.00)
          Personal exemption                   (2,550.00)
          Taxable income                       22,473.00
          Tax (from 1996 tax table)             3,371.00

                                                             (continued...)
                                      - 4 -

original petition in this case, petitioner filed a Federal income

tax return for taxable year 1996.          He reported the following

income and claimed the following deductions:
          Wages                                $24,800.00
          Unemployment compensation              4,223.00
          NOL carryover                         (7,367.70)
          Itemized deductions                  (19,105.30)
          Personal exemption                    (2,550.00)
          Taxable income                           -0-

The itemized deductions consist solely of an employee business

expense deduction comprised of the following, listed as

characterized by petitioner:
          Education                             $7,472.56
          Domestic                                 639.61
          Rent                                   4,890.23
          Phone (lowball est.-2 checks only)       141.40
          Utilities (power)                         94.36
          Postal                                   113.15*
          Xerox, printing                           37.39*
          Computer related (professional)          470.00*
          Stationery/office supplies               716.11
          Books, etc. (business related)           302.58*
          Misc. fees                                23.64*
          Misc. major (ministorage)                195.07*
          AT&T MC phone bills                      130.46
          Misc. mileage (3 MN-IA round trips
             + MN-PA return, 3,618 @ .31)        1,121.58*
          Auto mileage (2,340 @ .31)               725.40*
          Travel-related (tolls, parking,
             truck for moving)                     344.45*
          Bus. lodging                             212.42*
          Food (91 days @ 34/day;
             19 days @ 38/day)                   3,816.00*
          Less 50 percent of food               (1,908.00)
          Less 2 percent of adjusted gross
             income                               (433.11)
                                                19,105.30
             *
               Respondent does not challenge petitioner’s substantiation of these
          amounts.




     1
      (...continued)
The tax from this calculation exactly matches the amount of the
deficiency determined by respondent. Petitioner admits receiving
the amount of income determined by respondent; the remainder of
respondent’s deficiency determination is essentially
computational.
                                - 5 -

     The first issue for decision is whether petitioner is

entitled to deduct an NOL carryover of $7,367.70.    Generally, NOL

carryovers are allowed as deductions under section 172(a).

     A taxpayer generally must keep records sufficient to

establish the amounts of the items reported on his Federal income

tax return.   Sec. 6001; sec. 1.6001-1(a), (e), Income Tax Regs.

However, in the event that a taxpayer establishes that a

deductible expense has been paid but is unable to substantiate

the precise amount, we generally may estimate the amount of the

deductible expense bearing heavily against the taxpayer whose

inexactitude in substantiating the amount of the expense is of

his own making.    Cohan v. Commissioner, 

, 543-544 (2d

Cir. 1930).   We cannot estimate a deductible expense, however,

unless the taxpayer presents evidence sufficient to provide some

basis upon which an estimate may be made.    Vanicek v.

Commissioner, 

, 743 (1985).

     Section 274(d) supersedes the Cohan doctrine.    Sanford v.

Commissioner, 

, 827 (1968), affd. 

(2d

Cir. 1969).   Section 274(d) provides that, unless the taxpayer

complies with certain strict substantiation rules, no deduction

is allowable (1) for traveling expenses, (2) for entertainment

expenses, (3) for expenses for gifts, or (4) with respect to

listed property.   Listed property includes passenger automobiles

and other property used as a means of transportation.     Sec.
                               - 6 -

280F(d)(4).   To meet the strict substantiation requirements, the

taxpayer must substantiate the amount, time, place, and business

purpose of the expenses.   Sec. 274(d); sec. 1.274-5T, Temporary

Income Tax Regs., 50 Fed. Reg. 46006 (Nov. 6, 1985).

     Petitioner presented no substantiation of the NOL, which he

argued was carried forward from a prior year.    Pursuant to

section 172(b), a taxpayer can carry an NOL back 2 years and any

remaining loss forward 20 years, unless an election is made to

waive the carryback.   Although petitioner did provide copies of

tax returns from prior years, these returns merely contain

assertions made by petitioner and do not substantiate either that

an NOL was sustained or that any amount was available to carry

forward.   Petitioner made statements at trial indicating he

concedes this issue.   With or without such a concession, we hold

that petitioner is not entitled to a deduction for an NOL

carryover.

     The second issue for decision is whether petitioner is

entitled to a deduction for employee business expenses of

$19,105.30.   As a general rule, ordinary and necessary business

expenses are deductible in the year paid, while personal, family,

and living expenses are not deductible.   Secs. 162(a), 262(a).

Deductible business expenses may be paid by a taxpayer who is in

the trade or business of being an employee.     Primuth v.

Commissioner, 

, 377-378 (1970).    An ordinary expense
                               - 7 -

is one that relates to a transaction “of common or frequent

occurrence in the type of business involved”, Deputy v. du Pont,

, 495 (1940), and a necessary expense is one that is

“appropriate and helpful” for “the development of the

petitioner’s business,” Welch v. Helvering, 

, 113

(1933).

     Respondent has conceded that petitioner incurred a portion

of the deducted expenses, but argues that they are not ordinary

and necessary business expenses.   To substantiate the remaining

expenses, petitioner presented checks and check duplicates in

amounts totaling $4,481.42 for payments for rent, utilities, and

office supplies.   In addition, he provided credit card statements

on which he made notations indicating the types of certain

expenses, such as gas, lodging, or phone calls.   However,

assuming arguendo that we would accept these documents as

adequate substantiation, we find that these expenses (and those

expenses for which respondent has not challenged substantiation)

are not ordinary and necessary business expenses.   Petitioner’s

vague and uncertain testimony provided no connection between the

expenses and petitioner’s employment, and it is evident that many

if not all of the expenses are of an inherently personal nature,

nondeductible under section 262(a).

     Petitioner argues that his employment in Minnesota was

temporary, and that many of the expenses he incurred and claimed
                               - 8 -

as deductions were incurred while traveling away from his tax

home.   He asserts that his “lifetime homestead” is at his

parents’ residence in Aliquippa.   Section 162(a) allows as a

deduction “traveling expenses * * * while away from home in the

pursuit of a trade or business”.   An individual’s tax home under

this provision generally is the individual’s principal place of

business, not the location of his personal residence.    Mitchell

v. Commissioner, 

, 581 (1980).   An exception exists

under which an individual’s tax home is his personal residence if

his principal place of business is temporary rather than

indefinite.   Peurifoy v. Commissioner, 

, 60 (1958).

However, as this Court has previously stated:

     An obvious precondition to petitioner’s being “away from
     home” is that he have a home to be away from. In the
     context of section 162(a)(2), petitioner must show that he
     incurred substantial living expenses at a permanent
     residence. This requirement is in accord with the purpose
     underlying section 162(a)(2), to mitigate the burden falling
     upon a taxpayer who, because of the exigencies of his or her
     trade or business, must maintain two places of abode and
     thereby incur additional and duplicate living expenses.

Lichtenberger v. Commissioner, T.C. Memo. 1985-370, affd. without

published opinion 

(7th Cir. 1986).

     Petitioner’s employment was apparently temporary.   However,

we find that he did not have a tax home in Aliquippa within the

context of section 162(a)(2) because he did not incur substantial

living expenses while there.   On the contrary, his presence there

was purely personal in nature, and his parents, not petitioner,
                                 - 9 -

maintained the residence.    See 

that his “rent

arrangements are nominal,” and that he provides help around the

house for his elderly parents.    Any expenses petitioner incurred

while away from Aliquippa in 1996 were not traveling expenses

within the meaning of section 162(a)(2) and are not deductible

thereunder.   See 

that petitioner is not entitled to a deduction in

any amount for employee business expenses.

     The third issue for decision is whether petitioner is liable

for the section 6654(a) addition to tax for failure to make

estimated Federal income tax payments for 1996.      This Court has

jurisdiction to review respondent’s determination of this

addition to tax only if the taxpayer does not file a return for

the taxable year.   Sec. 6665(b)(2); Meyer v. Commissioner, 

, 562 (1991).   In this case, petitioner did not file the

return until after the petition had been filed.      However, the

stipulation clearly states petitioner did file the return on

October 12, 2000, and a copy of the return is attached to the

stipulation as an exhibit.   We therefore lack jurisdiction over

this issue and cannot review respondent’s determination in this

regard.

     The final issue for decision is whether petitioner is liable

for the section 6651(a)(1) and (2) additions to tax for failure

to file a return and pay the tax shown thereon.      Paragraph (1) of
                              - 10 -

section 6651(a) imposes an addition to tax for failure to timely

file a return, and paragraph (2) imposes an addition to tax for

failure to timely pay the amount of tax shown on a return.       If a

taxpayer fails to file a return, the paragraph (2) addition to

tax may be calculated based upon the tax shown on the return

prepared by the Secretary pursuant to section 6020(b).     Sec.

6651(g)(2).

     A taxpayer may avoid the additions to tax under one or both

paragraphs if he establishes that the failure to timely file

and/or pay is due to reasonable cause and not due to willful

neglect.   “Reasonable cause” requires the taxpayer to demonstrate

that he exercised ordinary business care and prudence and was

nonetheless unable to file a return within the prescribed time.

United States v. Boyle, 

, 246 (1985).     “Willful

neglect” means a conscious, intentional failure or reckless

indifference.   

     Petitioner did not file a return for taxable year 1996 until

October 12, 2000.   Petitioner’s explanation for the failure to

file is that he honestly believed he owed no taxes because he

assumed an NOL carryover was available.     However, petitioner did

not file a return in 1995, making this assumption uncertain at

best and unreasonable in any case.     We hold that petitioner is

liable for the addition to tax under section 6651(a)(1).
                              - 11 -

     Petitioner, however, is not liable for the addition to tax

under section 6651(a)(2).   This addition to tax must be based

upon a tax liability shown on a return--a return either filed by

the taxpayer or filed by the Secretary pursuant to section

6020(b).   Sec. 6651(a)(2), (g)(2).    There is nothing in the

record to indicate that the Secretary prepared such a return,2

and the addition to tax cannot be based on petitioner’s filed

return because the return reflects a zero tax liability.

     The addition to tax under section 6651(a)(1) generally is

equal to 5 percent of the amount of tax required to be shown on

the return for each month or portion thereof for which the

delinquency in filing continues, up to a maximum of 25 percent.

The amount of the addition to tax under section 6651(a)(1)

generally is reduced by the amount of the addition to tax under

section 6651(a)(2) with respect to each month in which both are

otherwise applicable.   Sec. 6651(c)(1).    Because petitioner filed

his return over 3 years late, he is liable for the section

6651(a)(1) addition to tax in the maximum amount of 25 percent,

or $842.75.   This amount is greater than the amount determined by

respondent because, due to our holding that petitioner is not




     2
      A notice of deficiency may be issued without a return
having been filed pursuant to sec. 6020(b). Secs. 6211(a),
6212(a); Roat v. Commissioner, 

(9th Cir. 1988),
affg. on this issue an Order of this Court.
                             - 12 -

liable for the section 6651(a)(2) addition to tax, section

6651(c)(1) is no longer applicable.

     Reviewed and adopted as the report of the Small Tax Case

Division.

     To reflect the foregoing,

                                      An order will be entered

                                 dismissing this case for lack of

                                 jurisdiction as to the section

                                 6654(a) addition to tax, and

                                 decision will be entered for

                                 petitioner as to the section

                                 6651(a)(1) addition to tax and for

                                 respondent as to the deficiency and

                                 the increased section 6651(a)(2)

                                 addition to tax.