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) she was invited by the Government or a recognized educational institution within the United States; (3) she was invited for a period not expected to exceed 2 years; (4) the purpose of the invitation was for her to teach or engage in research at the recognized 2010 Tax Ct. Summary LEXIS 186">*201 educational institution; and (5) she did in fact come to the United States primarily to carry out the purpose of the invitation. All of the requirements of article 21 must be satisfied in order for petitioner 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 her expectation as the invitee is the only expectation that matters. 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 the language of the treaty liberally. See N.W. Life Assurance Co. of Can. v. Commissioner,107 T.C. 363">107 T.C. 363, 107 T.C. 363">378 (1996). 2010 Tax Ct. Summary LEXIS 186">*202 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 788 F.2d 1406">Santos v. Commissioner, supra.

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">290 U.S. 111, 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); INDOPCO, Inc. v. Commissioner,503 U.S. 79">503 U.S. 79, 503 U.S. 79">84 (1992); New Colonial Ice Co. v. Helvering,292 U.S. 435">292 U.S. 435, 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. Petitioner moved for a burden shift under section 7491(a), contending that she produced credible evidence and met the other requirements of the section. Respondent objected, contending that "petitioner has failed to introduce credible evidence to support her assertion that her stay in the United 2010 Tax Ct. Summary LEXIS 186">*203 States was expected to last 2 years or less." We need not, and we explicitly do not, decide which party bears the burden of proof because as discussed above, applying 788 F.2d 1406">Santos v. Commissioner, supra, we will decide this case on an objective consideration of all the relevant facts and circumstances.

We begin our analysis with a discussion of the evidence that relates to petitioner's expectation. Petitioner's reliance on the 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. Moreover, petitioner resided in her first apartment for a year and 1 month. Her family moved to Baltimore in August 2006, at or about the time she signed her second apartment lease, which was for 1 year. Thus petitioner's two leases covered a period of more than 2 years.

Likewise, BCPS required all of its first-year teachers to sign what amounts to a standard 1-year 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. Amity had informed 2010 Tax Ct. Summary LEXIS 186">*204 petitioner that so long as her performance was satisfactory, BCPS would retain her. Petitioner testified that she expected to receive a satisfactory evaluation from BCPS. We believe that petitioner could reasonably expect that BCPS would employ her for the second and third years and perhaps beyond. In fact, petitioner did receive a satisfactory evaluation at the end of the 2005-2006 school year, and petitioner's family moved to Baltimore to reside with her.

More persuasive are petitioner's own words in her answers on the three IRS questionnaires. Her answers indicate that her initial expectation was to remain in the United States for the entire length of the J-1 visa and the entire length of the 3-year exchange teacher program. In response to this evidence against her, petitioner testified that she did not have any help filling out the forms and that no one explained the forms to her. Although this may be true, petitioner's testimony does little to support her argument because she has a master's degree in educational administration, she speaks fluent English, and the questions on the forms are straightforward, not requiring any technical knowledge.

Furthermore, petitioner introduced 2010 Tax Ct. Summary LEXIS 186">*205 no evidence that she expressed to any of the parties involved that she expected to return to the Philippines within her first 2 years in the United States. Similarly, petitioner did not testify at trial that she expected to return home within the first 2 years. Instead, she stated that she determined her expectation regarding the length of her stay on a "year-to-year" evaluation of her situation.

It is important to note that one goal of the exchange teacher program was for the exchange teacher to share her experiences in the United States with Filipino students when the teacher returned to the Philippines at the conclusion of the exchange program. When questioned about this goal, petitioner testified that she wanted to share what she learned in the United States with Filipino students "if I had a chance to". Petitioner's testimony bolsters the argument that she expected to be in the United States for as long as she could legally stay in the country and that she had no expectation of returning to the Philippines within 2 years.

We also find it highly significant that despite the fact that petitioner stated that she enjoyed teaching in the Philippines more than in the United States, she 2010 Tax Ct. Summary LEXIS 186">*206 remained in Baltimore teaching at Diggs-Johnson and as of the date of trial continued to work for BCPS. Petitioner's actions indicate a strong commitment to staying in the United States. The fact that petitioner did not renew her leave of absence in the Philippines, while not a decisive factor, also weighs against her argument.

In addition, we cannot ignore the financial incentive of remaining in the United States for as long as possible. Petitioner incurred more than $8,000 in expenses to participate in the exchange teacher program and to relocate to the United States. We also cannot ignore the fact that petitioner inquired into the process for bringing her family to the United States before she started teaching and then spent a substantial amount of money to move her family to Baltimore in 2006. The money petitioner spent to move herself and her entire family to Baltimore is not an insignificant sum in comparison to her earnings in the Philippines. Moreover, her earnings immediately grew seventeenfold from $2,148 to $37,157 when she moved from the Philippines to the United States. Further, her earnings of $58,262 in 2007, which was her third year at BCPS were, 57 percent greater than 2010 Tax Ct. Summary LEXIS 186">*207 her first-year salary.

From the perspective of BCPS, the school system certainly would not have invested so much time, money, and effort in recruiting teachers from the Philippines if it did not expect that the teachers would remain at least for the length of the 3-year exchange teacher program. Mr. Duque likewise testified that BCPS wanted to retain the teachers it hired for as long as possible. Corroborating this testimony is the evidence from the addendum showing that BCPS retained an extremely high percentage, 95.5 percent, of the Filipino teachers it hired through the exchange program. Additionally, Ms. Hermann testified that BCPS, similar to the other school systems that hired foreign teachers through the exchange 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 exchange teacher program and that most of participants decided to remain in the United States beyond the 3 years. The testimony of these witnesses is plausible, reliable, and persuasive.

In conclusion, after an objective examination of all of the relevant 2010 Tax Ct. Summary LEXIS 186">*208 facts and circumstances, we find that petitioner and BCPS expected petitioner to stay in the United States for at least 3 years, which is longer 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 she was in the United States, is not exempt from Federal income tax under article 21.

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 purposes. Primuth v. Commissioner,54 T.C. 374">54 T.C. 374, 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. 111">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">308 U.S. 488, 308 U.S. 488">495 (1940). In order to deduct a business expense, a taxpayer must not have received reimbursement and must not have had the right to obtain reimbursement 2010 Tax Ct. Summary LEXIS 186">*209 from his employer. Orvis v. Commissioner,788 F.2d 1406">788 F.2d 1406, 788 F.2d 1406">1408 (9th Cir. 1986), affg. T.C. Memo. 1984-533; Leamy v. Commissioner,85 T.C. 798">85 T.C. 798, 85 T.C. 798">810 (1985).

Included in the disallowed unreimbursed employee expenses is $6,221 for job search costs and $200 for school supplies. Petitioner's $6,221 for job search costs is a combination of expenses she paid in 2005 and 2006. She paid $5,200 for her J-1 visa and $382 for classes and fees in the Philippines as a prerequisite to teach for BCPS in 2005. Petitioner substantiated these amounts and is entitled to a deduction for those amounts in 2005.

Petitioner paid $750 for the exchange program fee and $50 for fingerprinting in 2006. The exchange program fee was $3,000. BCPS paid $1,500 of the fee during petitioner's first year of the program. Petitioner was responsible for the two subsequent annual payments of $750, one made in the second year of the program and one in the third. Petitioner had to pay the fee to continue her participation in the exchange program. Petitioner did not substantiate her $750 payment in 2006, but we are satisfied that petitioner paid a fee of $750 in 2006 to maintain her standing 2010 Tax Ct. Summary LEXIS 186">*210 in the program. Petitioner did substantiate the $50 fee she paid for fingerprinting. Therefore, petitioner is entitled to a deduction in those amounts for 2006.

Petitioner deducted $200 for school supplies. She provided receipts for $106 worth of school supplies purchased in 2005. Petitioner provided no receipts for any amounts spent for school supplies in 2006. The proper year for the deduction for school supplies is 2005. We are satisfied that petitioner spent $106 for school supplies in 2005 and was not reimbursed by BCPS. Therefore, petitioner is entitled to a deduction of $106 for school supplies for 2005. See sec. 62(a)(2)(D) (certain expenses of elementary and secondary school teachers are deductible to determine adjusted gross income).

Respondent also disallowed unreimbursed employee expenses consisting of $9,150 for rent, $2,500 for meals, $500 for furniture rental or home furnishings, and $1,320 for commuting between her apartment and her teaching job at Diggs-Johnson. 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 2010 Tax Ct. Summary LEXIS 186">*211 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">326 U.S. 465, 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">74 T.C. 578, 74 T.C. 578">581 (1980); Kroll v. Commissioner,49 T.C. 557">49 T.C. 557, 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 located, if different from his principal place of employment. 74 T.C. 578">Mitchell v. Commissioner, supra at 581; 49 T.C. 557">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">358 U.S. 59, 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 due to the exigencies of business. 49 T.C. 557">Kroll v. Commissioner, supra at 562. For purposes of section 162(a)(2), the taxpayer is not treated as being temporarily 2010 Tax Ct. Summary LEXIS 186">*212 away from home if the period of employment exceeds 1 year. Sec. 162(a) (flush language).

Petitioner contends that her employment with BCPS was temporary because the BCPS employment contract she signed was for only 1 year. She contends that her tax home was in the Philippines, as that was where she resided with her family. In other words, according to petitioner, her rent, home furnishings, and commuting expenses for 2006 are deductible because she expected to stay in the United States for no more than a year, the length of the BCPS employment contract, and thus, her job was temporary.

Respondent argues that petitioner's employment at BCPS was indefinite and that Baltimore became her tax home when she moved there to teach beginning August 2005 for BCPS. For the following reasons, we agree with respondent.

Petitioner took a 1-year leave of absence from her teaching job in the Philippines when she moved to Baltimore on June 22, 2005. She began teaching at Diggs-Johnson for BCPS in August 2005. We have already found that petitioner intended to remain in the Baltimore area for at least 3 years to work for BCPS, which is clearly more than 1 year. Although petitioner testified to owning property 2010 Tax Ct. Summary LEXIS 186">*213 in the Philippines, she provided no evidence of duplicate living expenses. Accordingly, Baltimore was petitioner's principal place of employment and thus Baltimore was her tax home. Moreover, petitioner's employment at BCPS was for more than 1 year and, therefore, not temporary. Consequently, petitioner is not entitled to claim a deduction for her rent, meals, home furnishings, or commuting expenses for 2006.

Finally, respondent disallowed an unreimbursed employee expense of $1,368 for "household insurance". The total amount in dispute is actually for health insurance. Generally, health insurance premiums are a medical expense deductible as an itemized deduction to the extent they exceed 7.5 percent of adjusted gross income. Sec. 213(a), (d)(1)(D); Kirsch v. Commissioner,T.C. Memo. 1995-451. Petitioner provided evidence that she paid health insurance premiums of $36 in 2005, $36 in 2006, and $180 in 2007. Petitioner has substantiated these amounts, and she is entitled to a deduction of $36 for 2005 and $36 for 2006 if the requirements of section 213 are met. Although petitioner also substantiated the $180 she paid in 2007, she did not itemize her deductions 2010 Tax Ct. Summary LEXIS 186">*214 that year, claiming instead the standard deduction for a head of household.

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">92 T.C. 1, 92 T.C. 1">12 (1989), affd. 925 F.2d 348">925 F.2d 348, 925 F.2d 348">353 (9th Cir. 1991); Neely v. Commissioner,85 T.C. 934">85 T.C. 934, 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 "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 2010 Tax Ct. Summary LEXIS 186">*215 penalty does not apply where the taxpayer shows that he or she acted in good faith and exercised 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">115 T.C. 43, 115 T.C. 43">99 (2000), affd. 299 F.3d 221">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 2010 Tax Ct. Summary LEXIS 186">*216 burden, the Commissioner must produce sufficient evidence showing that it is appropriate to impose the penalty. Higbee v. Commissioner,116 T.C. 438">116 T.C. 438, 116 T.C. 438">446 (2001). Respondent has satisfied his burden by producing evidence that petitioner reported no income for 2005, 2006, and part of 2007, failed to substantiate claimed deductions, and had a substantial understatement of income tax for 2006.

Nonetheless, petitioner sought the advice of one return preparer for her 2005 and 2006 Forms 1040NR and a different preparer for her 2007 Form 1040. Petitioner stated that her preparer for 2005 and 2006 was an accountant in the Philippines and an enrolled agent in the United States. Respondent did not dispute the competency of either preparer. The preparer of the Forms 1040NR counseled petitioner that her 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 preparer and acted in good faith. Respondent's adjustments for 2007 were minor, and again, petitioner engaged a competent preparer to prepare her 2007 Federal income tax return. Therefore, 2010 Tax Ct. Summary LEXIS 186">*217 we do not sustain respondent's determination that the section 6662 accuracy-related penalty applies for 2005, 2006, or 2007.

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.