*83 "Consistent with this regulation, this 2013 Tax Ct. Memo LEXIS 75">*81 Court has held that a U.S. taxpayer is allowed the foreign earned income exclusion only with respect to wages earned while in or over foreign countries and not for wages earned in international airspace or in or over the United States." LeTourneau v. Commissioner, T.C. Memo. 2012-45; Rogers v. Commissioner, T.C. Memo. 2009-111; see also United States v. Cabaccang, 332 F.3d 622">332 F.3d 622, 332 F.3d 622">626 (9th Cir. 2003) ("Unlike, for example, a foreign nation—which is unquestionably a 'place outside' the United States—international airspace is neither a point of origin nor a destination of a drug shipment; it is merely something through which an aircraft must pass on its way from one location to another."); Clark v. Commissioner, T.C. Memo 2008-71 ("[I]nternational waters are not a 'foreign country' for purposes of section 911, and income * * * earned while traveling in international waters is not 'foreign earned income' excludable from gross income.").

Although petitioners excluded 100% of petitioner's 2007 United wages as foreign earned income, they stipulated that only a percentage of petitioner's flight time occurred within or over foreign countries. Therefore, only a percentage of petitioner's United 2013 Tax Ct. Memo LEXIS 75">*82 wages qualifies for the section 911(a) exclusion. See LeTourneau v. Commissioner, T.C. Memo 2012-45; Rogers v. Commissioner, T.C. Memo. 2009-111*84 ; see also Cabaccang, 332 F.3d 622">332 F.3d at 626; Clark v. Commissioner, T.C. Memo. 2008-71.

Petitioners argue that wages allocable to petitioner's nonflight time, such as vacation and training pay, are 100% foreign earned income. Respondent contends that all of petitioner's 2007 United wages should be allocated in proportion to her flight time because her earnings were inextricably based on her flight time services. Section 911(d)(2) provides that "[t]he term 'earned income' means wages, salaries, or professional fees, and other amounts received as compensation for personal services actually rendered". See alsosec. 1.911-3(b)(1), Income Tax Regs. In general, we look to the place where the services are performed and not the place the compensation was paid or the location of the taxpayer at the time of payment to determine whether compensation is treated as income from sources within a foreign country. See Kollmar v. Commissioner, 4 T.C. 727">4 T.C. 727, 4 T.C. 727">731 (1945); see also Zimmerman v. Commissioner, 36 T.C. 235">36 T.C. 235, 36 T.C. 235">237 (1961); sec. 1.911-3(a), Income Tax Regs. United 2013 Tax Ct. Memo LEXIS 75">*83 required petitioner to perform preboarding and postarrival services on every flight she worked and did not specifically compensate her for those services. Hence, those services are inextricably linked to each of her completed international flights regardless of whether she performed preboarding and postarrival services within the United States or within a foreign *85 country. In addition, the 2005-2010 Agreement establishes that petitioner accrued nonflight time, such as sick and vacation hours, based on the period of her flight attendant service. Although petitioner may have spent sick leave or vacation leave within a foreign country, the basis for her receipt of compensation in connection therewith was her international flight attendant services, only a percentage of which were performed in (or over) foreign countries. The 2005-2010 Agreement also establishes that United compensated petitioner for additional categories, such as required training and meetings and the performance incentive program. We conclude that petitioner's stipulated flight time percentages apply to any of her wages that are allocable to nonflight time that was based on international flight attendant services she 2013 Tax Ct. Memo LEXIS 75">*84 performed for United. There is no rational basis for allocating these forms of compensation 100% to foreign earned income. See Kollmar v. Commissioner, 4 T.C. 727">4 T.C. 731; LeTourneau v. Commissioner, T.C. Memo. 2012-45; Rogers v. Commissioner, T.C. Memo 2009-111; see also Zimmerman v. Commissioner, 36 T.C. 235">36 T.C. 237.

The Commissioner has the burden of producing evidence that the section 6662(a) penalty applies. Seesec. 7491(c). However, once the Commissioner has met the burden of production, the burden of proof remains with the taxpayer, *86 including the burden of proving that the penalties are inappropriate because of reasonable cause or substantial authority. SeeRule 142(a); Higbee v. Commissioner, 116 T.C. 438">116 T.C. 438, 116 T.C. 438">446-447 (2001).

Section 6662(a) and (b)(1) imposes a 20% accuracy-related penalty on any underpayment of Federal income tax attributable to a taxpayer's negligence or disregard of rules or regulations. Section 6662(c) defines negligence as including any failure to make a reasonable attempt to comply with the provisions of the Internal Revenue Code and defines disregard as any careless, reckless, or intentional disregard. The accuracy-related penalty under section 6662(a)2013 Tax Ct. Memo LEXIS 75">*85 is not imposed with respect to any portion of the underpayment as to which the taxpayer acted with reasonable cause and in good faith. Sec. 6664(c)(1); Higbee v. Commissioner, 116 T.C. 438">116 T.C. 448. 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. Seesec. 1.6664-4(b)(1), Income Tax Regs. "Generally, the most important factor is the extent of the taxpayer's effort to assess * * * [his or her] proper tax liability." Id. "Circumstances that may indicate reasonable cause and good faith include an honest misunderstanding of fact or law that is reasonable in light of all of the *87 [relevant] facts and circumstances, including the experience, knowledge, and education of the taxpayer." Id. Disregard of rules or regulations is careless if the taxpayer does not exercise reasonable diligence to determine the correctness of a return position that is contrary to the rule or regulation. Sec. 1.6662-3(b)(2), Income Tax Regs.

Respondent has met the burden of production by showing that only a portion of petitioner's United wages qualified as foreign earned income excludable 2013 Tax Ct. Memo LEXIS 75">*86 under section 911(a) and that petitioners excluded 100% of those wages on their return.

We conclude that petitioners failed to prove that they acted with reasonable cause and in good faith in excluding 100% of petitioner's 2007 United wages as foreign earned income pursuant to section 911(a), and we sustain the section 6662(a) penalty. Although at the time petitioners filed the 2007 Federal income tax return, the Court's opinion in petitioners' prior case, Rogers v. Commissioner, T.C. Memo 2009-111, had not yet been filed, petitioners were well aware that a percentage of petitioner's United wages was taxable. United had notified petitioner as early as 2002 that a portion of her pay was taxable. Petitioner acknowledges that "Petitioners filed their 2005 and 2006 tax returns according to *88 the IRS' new interpretation and calculation format for fear of further audits, [and] Petitioners read the tax regulations and believe the IRS' interpretation and calculation format were not following the whole statue [sic]". Her United pay statements allocated her 2007 wages between U.S. taxable income and Hong Kong taxable income. Before the date on which petitioners filed their 2007 Federal income 2013 Tax Ct. Memo LEXIS 75">*87 tax return that petitioner prepared, United had provided her a duty time apportionment setting forth her estimated flight times, apportioning the minutes of those flight times as to minutes within or over the United States, international waters, and foreign countries and providing the percentages.

Petitioners were well aware that certain of their prior Federal income tax returns had excluded 100% of petitioner's United wages as foreign earned income and these returns were the subject of an Internal Revenue Service (IRS) audit and a subsequent notice of deficiency that was in issue in Rogers v. Commissioner, T.C. Memo 2009-111. Petitioners were further well aware that certain of petitioner's 2007 flights had flown over U.S. airspace, and landed in and departed from U.S. cities (San Francisco and Chicago). However, petitioners argue that at the time petitioner prepared the 2007 Federal income tax return she had been unable to obtain her actual flight times, she read the law to require her to use *89 actual facts in preparing the return, and she believed that the IRS would not accept estimations. Nonetheless, petitioners chose to ignore that petitioner's flights landing in and departing 2013 Tax Ct. Memo LEXIS 75">*88 from U.S. cities and her flight times established that 100% of her United income did not qualify as foreign earned income. Petitioners simply substituted their judgment for that of the IRS and United in excluding all of petitioner's United income from taxation. They did not prove that they sought competent professional advice, and they did not have reasonable cause for excluding all of her income from taxation.

In reaching our conclusions, we have considered all arguments made by the parties and, to the extent not mentioned above, we conclude they are moot, irrelevant, or without merit.

To reflect differences between the statutory notice allowances and the stipulation of the excludable percentages of petitioner's income,

Decision will be entered under Rule 155.