T.C. Memo. 2011-103



                UNITED STATES TAX COURT



   THOMAS H. AND JANICE J. SCROGGINS, Petitioners v.
      COMMISSIONER OF INTERNAL REVENUE, Respondent



Docket No. 13023-09.               Filed May 18, 2011.



     R issued a notice of deficiency determining
deficiencies in Ps’ Federal income tax and accuracy-related
penalties pursuant to sec. 6662(a), I.R.C., for Ps’ 2004,
2005, and 2006 tax years. The tax deficiencies relate
primarily to a dispute as to petitioner husband’s tax
residence.

     Held: Ps are liable for a portion of each deficiency
to the extent decided herein.

     Held, further: Ps are liable for the applicable
accuracy-related penalties.



Louis Samuel, for petitioners.

Eugene Kim, for respondent.
                                - 2 -

              MEMORANDUM FINDINGS OF FACT AND OPINION


     WHERRY, Judge:    This case is before the Court on a petition

for redetermination of petitioners’ liabilities for income tax

and accuracy-related penalties for 2004, 2005, and 2006 as

determined by respondent.   After a concession by respondent,1 the

issues left for decision are:

     (1) Whether petitioner husband’s tax home is in Georgia or

California;

     (2) whether petitioners are entitled to deductions claimed

on Schedule C, Profit or Loss from Business, for lease expenses

of $7,583, $6,986, and $7,787 for the 2004, 2005, and 2006 tax

years, respectively;

     (3) whether petitioners are entitled to Schedule C

deductions for car and truck expenses of $4,580, $6,137, and

$7,985 for the 2004, 2005, and 2006 tax years, respectively;

     (4) whether petitioners are entitled to Schedule C

deductions for travel expenses of $3,220, $62,120, and $62,040

for the 2004, 2005, and 2006 tax years, respectively;

     (5) whether petitioners are entitled to Schedule C

deductions for meals and entertainment expenses of $4,110 and

$9,570 for the 2005 and 2006 tax years, respectively;



     1
      Responded conceded that petitioners did not receive any
unreported Schedule C “Gross Receipts or Sales” during the 2004,
2005, and 2006 taxable years.
                                 - 3 -

     (6) whether petitioners are entitled to deductions claimed

on Schedule A, Itemized Deductions, of $37,290 for the 2004 tax

year;2 and

     (7) whether petitioners are liable for section 6662(a)

accuracy-related penalties for the 2004, 2005, and 2006 tax

years.3

                        FINDINGS OF FACT

     Some of the facts have been stipulated, and the stipulation

of settled issues, the stipulated facts, and the accompanying

exhibits are hereby incorporated by this reference.   At the time

petitioners filed their petition, petitioner husband (Mr.

Scroggins) resided in California and petitioner wife (Ms.

Scroggins) resided in Georgia.    Petitioners did not testify at

trial, and the only evidence submitted in this case consists of

the stipulated facts and exhibits.




     2
      Petitioners did not contest respondent’s $38,586 adjustment
of Schedule A deductions except for the $37,290 portion thereof
relating to petitioner husband’s tax home. Therefore, we deem
those adjustments unconnected with petitioner husband’s tax home
conceded. See Levin v. Commissioner, 

, 722-723 (1986)
(citing Rule 142(a) for the proposition that because “petitioners
have made no argument with respect to * * * deductions claimed
* * * [, they] are deemed to have conceded their
nondeductibility”), affd. 

 (7th Cir. 1987).
     3
      All section references are to the Internal Revenue Code of
1986 (Code), as amended and in effect for the tax years at issue,
and all Rule references are to the Tax Court Rules of Practice
and Procedure.
                                 - 4 -

     Petitioners filed joint Forms 1040, U.S. Individual Income

Tax Return, for the 2004, 2005, and 2006 tax years, listing Mr.

Scroggins’ occupation as “Medical Consultant” and Ms. Scroggins’

occupation as “Civil Service”.    Petitioners, on the Forms 1040,

both indicate their home is in Warner Robins, Georgia.

Petitioners filed California nonresident income tax returns for

the 2004, 2005, and 2006 tax years and Georgia individual income

tax returns for the 2004, 2005, and 2006 tax years.

     According to Mr. Scroggins’ bank records, Mr. Scroggins

banked at Robins Federal Credit Union of Warner Robins, Georgia,

throughout 2004 and used automatic teller machines (ATMs) in

Florida from January through March 2004.    Those records show that

Mr. Scroggins used ATMs in California exclusively for the rest of

2004.   Mr. Scroggins’ whereabouts are further explained by his

2004 Forms W-2, Wage and Tax Statement.    In 2004 Mr. Scroggins

received Forms W-2 from Huntington Beach Hospital in Huntington

Beach, California, Crestview Hospital Corporation in Crestview,

Florida, and Valley Presbyterian Hospital in Van Nuys,

California.

     Mr. Scroggins’ 2005 ATM banking activities demonstrate that

he was primarily in California.    Not once did Mr. Scroggins use

an ATM in Georgia.   For the 2005 tax year Mr. Scroggins received

a Form 1099-MISC, Miscellaneous Income, from Valley Presbyterian

Hospital in Van Nuys, California.    Mr. Scroggins’ ATM banking
                                - 5 -

activities reflect that he was primarily in California in 2006;

however, from February 12 through 14, 2006, two transactions

occurred in Georgia.   Mr. Scroggins received Forms 1099-MISC in

2006 from Novia Solutions LNC in Poway, California, and Valley

Presbyterian Hospital in Van Nuys, California.

     Mr. Scroggins leased an apartment from Arroyo Villa

Apartments in Thousand Oaks, California, from June 4, 2004,

through January 31, 2008, in rental periods of 6 months.

     Ms. Scroggins’ bank records show that she was primarily in

Georgia throughout 2004, 2005, and 2006.

     On March 10, 2009, respondent issued petitioners a statutory

notice of deficiency determining income tax deficiencies of

$12,657, $33,300, and $34,725 and section 6662(a) accuracy-

related penalties of $2,531, $6,660, and $6,945 for the 2004,

2005, and 2006 tax years, respectively.    Petitioners timely filed

a petition with this Court on May 29, 2009.    A trial was held in

Los Angeles, California, on June 14, 2010.

                               OPINION

I.   Burden of Proof

     The Commissioner’s determination of a deficiency is presumed

correct, and the taxpayer bears the burden of proving that the

determination is improper.    See Rule 142(a); Welch v. Helvering,

, 115 (1933).    However, pursuant to section

7491(a)(1), the burden of proof as to a factual issue that
                                - 6 -

affects the taxpayer’s tax liability may be shifted to the

Commissioner.   This occurs where the “taxpayer introduces

credible evidence with respect to * * * such issue”, and the

taxpayer has, inter alia, complied with substantiation

requirements pursuant to the Code and “maintained all records

required under this title and has cooperated with reasonable

requests by the Secretary for witnesses, information, documents,

meetings, and interviews”.    Sec. 7491(a).   Petitioners did not

argue that the burden should shift, and they failed to maintain

required records or comply with the substantiation and

cooperation requirements.    Accordingly, the burden of proof

remains on petitioners.

II.   Expense Deductions

      A.   General Rules

      Deductions are a matter of legislative grace, and the

taxpayer must maintain adequate records to substantiate the

amounts of their income and entitlement to any deductions or

credits claimed.   Sec. 6001 (the taxpayer “shall keep such

records”); INDOPCO, Inc. v. Commissioner, 

, 84 (1992);

sec. 1.6001-1(a), Income Tax Regs.

      Section 162(a) authorizes a deduction for “all the ordinary

and necessary expenses paid or incurred during the taxable year

in carrying on any trade or business”.    A trade or business

expense is ordinary for purposes of section 162 if it is normal
                                - 7 -

or customary within a particular trade, business, or industry,

and is necessary if it is appropriate and helpful for the

development of the business.    Commissioner v. Heininger, 

, 471 (1943); Deputy v. du Pont, 

, 495 (1940).       In

contrast, “personal, living, or family expenses” are generally

nondeductible.   Sec. 262(a).

     In certain circumstances, the taxpayer must meet specific

substantiation requirements to be allowed a deduction under

section 162.   See, e.g., sec. 274(d).   The heightened

substantiation requirements of section 274(d) apply to:    (1) Any

traveling expense, including meals and lodging away from home;

(2) any item with respect to an activity in the nature of

entertainment, amusement, or recreation; (3) any expense for

gifts; or (4) the use of “listed property”, as defined in section

280F(d)(4), including any passenger automobiles.

     In order to deduct such expenses, the taxpayer must

“substantiate by adequate records or by sufficient evidence

corroborating the taxpayer’s own statement”:    (1) The amount of

the expense or other item; (2) the time and place of the travel,

entertainment, amusement, recreation, or use of the property; (3)

the business purpose of the expense or other item; and (4) the

business relationship to the taxpayer of the persons entertained

or receiving the described gift.   Sec. 274(d).
                               - 8 -

     To satisfy the adequate records requirement of section 274,

a taxpayer must maintain records and documentary evidence that in

combination are sufficient to establish each element of an

expenditure or use.   Sec. 1.274-5T(c)(1) and (2), Temporary

Income Tax Regs., 50 Fed. Reg. 46016-46017 (Nov. 6, 1985).

Although a contemporaneous log is not required, corroborative

evidence created at or near the time of the expenditure to

support a taxpayer’s reconstruction “of the elements * * * of the

expenditure or use must have a high degree of probative value to

elevate such statement” to the level of credibility of a

contemporaneous record.   Sec. 1.274-5T(c)(1), Temporary Income

Tax Regs., supra.

     B.   Mr. Scroggins’ Tax Home

     Most of the issues in this case stem from respondent’s

determination that Mr. Scroggins’ tax home was in California for

the years at issue.   In order to deduct travel expenses,

petitioners must show that Mr. Scroggins’ expenses are ordinary

and necessary, that he was away from home on business when he

incurred the expense, and that the expense was incurred in

pursuit of a trade or business.   See sec. 162(a)(2); Commissioner

v. Flowers, 

, 470 (1946).   Claiming that Mr.

Scroggins’ tax home was in Georgia, during the extended period he

worked in California, petitioners deducted almost all of the

living expenses he incurred for the 3 years at issue.
                                 - 9 -

     The expenses in dispute were not incurred while Mr.

Scroggins was away from his tax home.      All three conditions

discussed above must be satisfied for a taxpayer to be entitled

to the deduction.     Commissioner v. Flowers, supra at 470.

Commuting expenses “are not considered as business expenses and

are not deductible”.     Id.

     This Court has interpreted a taxpayer’s “home” under section

162 to mean his principal place of employment and not where his

personal residence is located.     Mitchell v. Commissioner, 

, 581 (1980); Daly v. Commissioner, 

, 195 (1979),

affd. 

 (4th Cir. 1981).      However, we have also

recognized an exception to this general rule in situations where

the taxpayer is away from his home on a temporary rather than

indefinite or permanent basis.     Peurifoy v. Commissioner, 

, 60 (1958).    Petitioners assert that Mr. Scroggins falls

within this exception.

     When a taxpayer seeks employment away from his personal

residence, the Court of Appeals for the Ninth Circuit, to which

this case is appealable, in Neal v. Commissioner, 

(9th Cir. 1982), affg. T.C. Memo. 1981-407, explicitly adopted

the following reasoning from Kasun v. United States, 

, 1061 (7th Cir. 1982):

     While it is assumed that a person will live near the
     place of employment, it is not reasonable to expect
     people to move to a distant location when a job is
     foreseeably of limited duration. If, on the other
                                - 10 -

     hand, the prospect is that the work will continue for
     an indefinite or substantially long period of time, the
     travel expenses are not deductible.

     Mr. Scroggins was employed exclusively in California, with

the exception of a short stint in Florida, for all of the years

at issue.4    It was reasonably known to Mr. Scroggins that he

would be employed for a very long time away from Georgia.

Petitioners’ pretrial memorandum admits that the type of work

which Mr. Scroggins engaged in was highly specialized and “[i]t

was not that this type of work was very limited in Warner Robins

and the surrounding areas, it was that this type of work did not

exist in that area and he could only find employment or work in

his specialty in other locations that contained large hospitals

with large operating rooms.”    Therefore we find that it was not

“very likely that * * * [Mr. Scroggins’] stay away from home will

be short” and conclude that Mr. Scroggins’ tax home was in

California.    See Harvey v. Commissioner, 

, 495 (9th

Cir. 1960), revg. and remanding 

 (1959).

     Further, Mr. Scroggins “had no business reason for his tax

home to be in [Georgia].”     Minick v. Commissioner, T.C. Memo.

2010-12.     Mr. Scroggins’ decision to keep his family at their

previously established residence is motivated by personal reasons



     4
      We need not separately determine whether, as may be the
case, Mr. Scroggins was away from home while he was working in
Florida and therefore possibly allowed to deduct those traveling
expenses, because as discussed below, petitioners did not present
any evidence to substantiate any of the expenses incurred.
                               - 11 -

since he “has no business ties to the area of that residence and

* * * the prospects for employment in his chosen profession are

better away from the area than in it.”    Minick v. Commissioner,

supra (citing Tucker v. Commissioner, 

, 786-787

(1971)).

     Although petitioners’ counsel explained that Ms. Scroggins’

employment was nontransferable, requiring her to remain in

Georgia, this contention is not dispositive.   The travel expense

deductions in question were not incurred in her business

activities.    See Minick v. Commissioner, supra.   Where spouses

have careers in different locations, “Each must independently

satisfy the requirement that deductions taken for travel expenses

incurred in the pursuit of a trade or business arise while he or

she is away from home.”    Hantzis v. Commissioner, 

,

254 n.11 (1st Cir. 1981), revg. T.C. Memo. 1979-299.

     Because we have found that Mr. Scroggins’ tax home was in

California for the years at issue, he is not entitled to deduct

any of his personal expenses for lodging or meals while in

California.5   Petitioners are also not entitled to deduct Mr.

Scroggins’ commuting costs in California.   We note that generally


     5
      Petitioners’ counsel places great emphasis on the fact that
the States of California and Georgia accepted their State tax
returns as filed. We remind petitioners’ counsel that this Court
is concerned with the Federal tax laws and not State tax issues.
See, e.g., Linton v. United States, 

, 1220, n.7 (9th
Cir. 2011) (“Of course, though necessarily informed by state law,
federal law is not beholden to the technicalities of state law in
assessing federal tax liability.”).
                                - 12 -

taxpayers may not “deduct the daily cost of commuting to and from

work, as such expense is considered to be personal and

nondeductible.”    Brockman v. Commissioner, T.C. Memo. 2003-3

(citing Commissioner v. Flowers, 326 U.S. at 473-474).

     C.   Schedule C Deductions for Lease Expenses, Car and Truck
          Expenses, Other Travel Expenses, Meals and
          Entertainment

     Even assuming arguendo that Mr. Scroggins’ tax home was in

Georgia, the result would be no different.    Petitioners have

failed to meet their burden of substantiation with respect to all

of the expense deductions.

     The heightened or strict substantiation requirements of

section 274(d), discussed above, apply to travel expenses and

meals and entertainment expenses.    All of the disallowed expense

deductions seem to be from Mr. Scroggins’ stay in California or

for meals and entertainment.6    To satisfy section 274(d)

petitioners must present sufficient evidence in addition to

testimony to satisfy the three aspects of this requirement:      (1)

The amount, (2) the time and place, and (3) the business purpose

of each expenditure.   See sec. 1.274-5T(b), Temporary Income Tax

Regs., 50 Fed. Reg. 46014-46015 (Nov. 6, 1985).    “Congress has

chosen to impose a rigorous test of deductibility in the area of

travel expenses.    Each of the foregoing elements must be proved

for each separate expenditure.    General vague proof, whether


     6
      Because petitioners did not testify, we simply do not know
what the deductions were for.
                               - 13 -

offered by testimony or documentary evidence, will not suffice.”

Smith v. Commissioner, 

, 1171-1172 (1983).      Evidence

which is vague or significantly incomplete is not credible.

Harris v. Commissioner, T.C. Memo. 2010-248.    Petitioners did not

testify, there are almost no receipts in evidence, and there is

absolutely no explicit explanation of the business purpose of any

of the expenditures.7   In fact petitioners’ opening brief

candidly acknowledges that “husband-petitioner cannot

substantiate his travel expense while away from home on

business.”   General statements regarding his California work and

Georgia home are not sufficient under section 274.

     In his opening brief, petitioners’ counsel contended that

certain listed “away from home expenses while on business are

considered to be both reasonable and accurate”.    These estimates

of the costs of Mr. Scroggins’ stays in motels, utilities, meals,

and mileage were asserted without submitting any additional

evidence to confirm the amount of the expenses.    We are

especially perplexed given this Court’s warning at trial about

section 274 and the regulations there under regarding travel

expenses.    Petitioners have failed to meet their burden of



     7
      While petitioners did include a few monthly statements for
Mr. Scroggins’ American Express bill for 2005 with highlighted
charges to Delta Airlines, we do not know where these trips were
to or whether they were business or personal. Petitioners also
included a letter from Arroyo Villa Apartments listing the dates
and amounts charged during Mr. Scroggins’ tenancy.
                               - 14 -

substantiation with respect to all of the disputed expense

deductions.

       D.   Schedule A Itemized Deductions

       With their 2004 tax return, petitioners included Schedule A

listing total deductions of $54,438, consisting in principal

part, for this year only, of $40,730 under “SEE FORM 2106/2106-

EZ”.    On Form 2106-EZ, Unreimbursed Employee Business Expenses,

petitioners listed $37,290 under “Travel expense while away from

home overnight, including lodging, airplane, car rental, etc.”

Respondent disallowed $38,586 of the Schedule A deductions.     Once

again, because Mr. Scroggins’ tax home was in California for the

years at issue and petitioners did submit sufficient evidence to

substantiate these expenses, they are not entitled to the

disallowed deduction.

III. Section 6662(a) Penalties

       Respondent determined that petitioners are liable for

section 6662(a) accuracy-related penalties for their 2004, 2005,

and 2006 tax years.    Pursuant to section 7491(c), the

Commissioner has the burden of production with respect to a

taxpayer’s liability for a penalty and is, therefore, required to

“come forward with sufficient evidence indicating that it is

appropriate to impose the relevant penalty.”    See Higbee v.

Commissioner, 

, 446 (2001); see also Swain v.

Commissioner, 

, 364-365 (2002).    However, “once the
                                  - 15 -

Commissioner meets his burden of production, the taxpayer must

come forward with evidence sufficient to persuade a Court that

the Commissioner’s determination is incorrect.”        Higbee v.

Commissioner, supra at 447.

       Subsection (a) of section 6662 imposes an accuracy-related

penalty of 20 percent of any underpayment that is attributable to

causes specified in subsection (b).        Respondent asserts two

causes justifying the imposition of the penalty:        A substantial

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

(2).

       There is a “substantial understatement” of income tax for

any tax year where the amount of the understatement exceeds the

greater of (1) 10 percent of the tax required to be shown on the

return for the tax year or (2) $5,000.        Sec. 6662(d)(1)(A).

“[N]egligence” is “any failure to make a reasonable attempt to

comply with the provisions of this title” (i.e., the Internal

Revenue Code).    Sec. 6662(c).    Under caselaw, “‘Negligence is a

lack of due care or the failure to do what a reasonable and

ordinarily prudent person would do under the circumstances.’”

Freytag v. Commissioner, 

, 887 (1987) (quoting

Marcello v. Commissioner, 

, 506 (5th Cir. 1967),

affg. on this issue 

 (1964) and T.C. Memo. 1964-299),

affd. 

 (5th Cir. 1990), affd. 

 (1991).
                               - 16 -

     There is an exception to the section 6662(a) penalty when a

taxpayer can demonstrate:   (1) Reasonable cause for the

underpayment and (2) that the taxpayer acted in good faith with

respect to the underpayment.   Sec. 6664(c)(1).   Regulations

promulgated under section 6664(c) provide that the determination

of reasonable cause and good faith “is made on a case-by-case

basis, taking into account all pertinent facts and

circumstances”.   Sec. 1.6664-4(b)(1), Income Tax Regs.

     Respondent met his burden of production under both causes,

and petitioners did not testify at trial to address the section

6662(a) penalties.   Petitioners presented no evidence that they

had reasonable cause for any portion of any underpayment.    See

Basile v. Commissioner, T.C. Memo. 2005-51 (“Because petitioners

did not contest the additions to tax or penalties in the

petitions, they are deemed conceded.” (citing Rule 34(b)(4) and

Swain v. Commissioner, supra)).8   Petitioners, while contesting


     8
      At trial petitioners’ attorney stated that “Petitioners do
not prepare their own returns, and neither Mr. or Mrs. Scroggins
has any accounting experience or booking experience or anything
like that, they rely solely on the advice of the preparer”.
While good-faith reliance on professional advice may provide a
basis for a reasonable cause defense, without petitioners’
explanation this Court cannot determine whether: All relevant
facts were provided to the preparer; whether reasonable cause
existed; or whether petitioners reasonably and actually relied,
in good faith, on a preparer. See Freytag v. Commissioner, 

, 888 (1987), affd. 

 (5th Cir. 1990), affd.

 (1991); sec. 1.6664-4(b)(1), Income Tax Regs.
Further, we have “found reliance to be unreasonable where a
taxpayer claimed to have relied upon an independent adviser
because the adviser either did not testify or testified too
                                                   (continued...)
                               - 17 -

the penalties, have never specifically pleaded that there was

reasonable cause for any negligence or substantial understatement

of income tax.    In any event, petitioners have not met the

applicable three-part test of Neonatology Associates, P.A. v.

Commissioner, 

, 99 (2000), affd. 

 (3d Cir.

2002) and, therefore, have not established reasonable cause for

any alleged negligence or substantial understatement of income

tax.

       The Court has considered all of petitioners’ contentions,

arguments, requests, and statements.      To the extent not discussed

herein, we conclude that they are meritless, moot, or irrelevant.

       To reflect the foregoing,


                                        Decision will be entered

                                   under Rule 155.




       8
      (...continued)
vaguely to convince us that the taxpayer was reasonable in
relying on the adviser’s advice”. Swanson v. Commissioner, T.C.
Memo. 2009-31; see also Heller v. Commissioner, T.C. Memo. 2008-
232 (“there [was] no evidence in the record as to the specific
nature of * * * [the professional’s] advice”), affd. 403 Fed.
Appx. 152 (9th Cir. 2010). Petitioners’ failure to introduce
evidence “which, if true, would be favorable to [them], gives
rise to the presumption that if produced it would be
unfavorable”. Wichita Terminal Elevator Co. v. Commissioner, 

, 1165 (1946), affd. 

 (10th Cir. 1947).