Roger G. Maki & Lilane J. Gervais v. Commissioner ( 2018 )

T.C. Summary Opinion 2018-30UNITED STATES TAX COURT
ROGER G. MAKI AND LILANE J. GERVAIS, Petitioners v.
COMMISSIONER OF INTERNAL REVENUE, Respondent
Docket No. 8430-17S. Filed June 6, 2018.
Roger G. Maki and Lilane J. Gervais, pro sese.
Connor J. Moran, for respondent.
SUMMARY OPINION
GERBER, Judge: This case was heard pursuant to the provisions of section
7463 of the Internal Revenue Code in effect when the petition was filed.1
1
Unless otherwise indicated, all section references are to the Internal
Revenue Code in effect at all relevant times, and all Rule references are to the Tax
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Pursuant to section 7463(b), the decision to be entered is not reviewable by any
other court, and this opinion shall not be treated as precedent for any other case.
Respondent determined a $16,622 income tax deficiency and a $3,324.40
accuracy-related penalty2 with respect to petitioners’ 2014 tax year. The issue
remaining for our consideration is whether petitioners are entitled to deduct away
from home expenses in connection with their timberland activity and, if they are,
the amount they are entitled to deduct.
Background
Petitioners resided in Washington State at the time their petition was filed.
During 2014 petitioners resided in Des Moines, King County, Washington. Roger
Maki (petitioner) inherited approximately 110 acres of Washington State land
from his mother. Some of the land was in Thurston County and some in Lewis
County. The land, which was remote from petitioners’ home, was divided into
1
(...continued)
Court Rules of Practice and Procedure.
2
At trial, respondent offered into evidence some type of computer transcript
to show that a supervisor was involved in the examination process. Petitioners
objected and the document was not admitted, resulting in our ultimate finding that
respondent did not meet his burden of production to show that the sec. 6662
penalty was supervisor approved as required by our holding in Graev v.
Commissioner, 149 T.C. __ (Dec. 20, 2017), supplementing and overruling in part
147 T.C. 460 (2016). Accordingly, the determination of a penalty will not be
sustained in this case.
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four separate parcels, all within a 35-mile radius. On one parcel was a residence,
and all the parcels were valuable because of timber situated on them.
Petitioners’ sources of income during 2014 were Social Security, interest,
dividends, capital gains, and pensions, all of which were received at their home in
Des Moines. Although otherwise retired, petitioner was maintaining and
developing the 110 acres of timberland to sell timber in order to maintain and
improve his standard of living. In that pursuit he periodically spent approximately
three days at a time planting, protecting, and maintaining trees on the timberland.
He occupied the residence on the timberland while he pursued the care and
maintenance of the trees.
During 2014 petitioner spent 167 days and nights at the timberland and slept
in the residence situated thereon. The only public utility available there was
electricity. Petitioners did not want petitioner to be away from his home as often
as he was but found it necessary because: (1) when the property was not occupied,
timber was illegally harvested, presenting a loss of the most valuable assets on the
property and (2) petitioner’s timber activity was a relatively small operation and
did not warrant hiring others to plant, protect, and maintain the trees.
When it came time to prepare and file their 2014 Federal income tax return,
petitioners sought the assistance of the Internal Revenue Service (IRS), and they
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were sent the 2014 version of IRS Publication 463, Travel, Entertainment, Gift
and Car Expenses. That publication, in part, covers travel expenses incurred while
temporarily traveling away from home. In attempting to follow the guidance,
petitioner used per diem amounts allowed for travel on page 9 of the publication.
Basing his computations on 167 days away from his home in the Seattle area and
using the highest per diem rate on page 9 of the publication, petitioner arrived at
away from home expenses totaling $56,960 for the 2014 tax year. Respondent
disallowed the total amount claimed, and petitioners contend that respondent is in
error.
Petitioner reported his timber raising activity as a business on a Schedule C,
Profit or Loss From Business, included with the 2014 income tax return. No
income was reported and total expenses of $70,157 were deducted, of which
respondent disallowed $56,960. The remaining expenses of $13,197 for travel,
insurance, taxes, licenses, and related expenses were not disallowed. In other
words, respondent did not question whether petitioners were engaged in the
business of growing and caring for timber.
Discussion
Respondent’s position with respect to the disallowed deductions is that
petitioner was not “away from home” when he worked and stayed at the
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timberland because the timberland residence was his “tax home” or that petitioner
is considered an “itinerant” because he did not have a “tax home”. Petitioners
counter that their tax home is Des Moines and that petitioner was away from home
for 167 days and entitled to deduct the per diem allowance for those days.
Section 162(a)(2) provides for the deduction of ordinary and necessary
business expenses, including travel expenses while away from home in the pursuit
of a trade or business. Those expenses must be incurred while “away from home”
overnight. Commissioner v. Flowers, 326 U.S. 465, 470-472 (1946). Rev. Rul.
93-86, 1993-2 C.B. 71, sets forth the Commissioner’s guidance with respect to this
aspect of section 162(a)(2). In particular, the revenue ruling states that a
taxpayer’s “home” is generally considered to be his or her regular or principal
place of business. If a taxpayer has no regular or principal place of business, then
his or her abode, in a real and substantial sense, is where personal and business
connections are maintained. According to the revenue ruling, if a taxpayer meets
neither of the above categories, then he or she is considered to be an itinerant with
a “tax home” wherever he or she happens to work.
Petitioners contend that petitioner’s home in Des Moines is his “tax home”.
Evidence in the record supports petitioners’ contention including the fact that
petitioner spent more than half of the 2014 tax year at the Des Moines home.
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More importantly, all of the 2014 taxable income petitioner earned was received at
the Des Moines home. Petitioner’s timber is being cultivated for harvest and at
some point will provide a source of relatively significant revenue. Other than the
argument that petitioner spent a lot of time at the timberland properties,
respondent has not provided a persuasive argument in support of a holding that the
Des Moines home was not petitioner’s “tax home” during 2014. We accordingly
hold that Des Moines was petitioners’ tax home during 2014.
As respondent has not questioned whether petitioner was in the timber
business during 2014, we proceed to decide the amount, if any, of per diem
allowance that petitioners are entitled to deduct for 2014. A self-employed
individual can deduct meal and incidental expenses computed at the Federal rate
established for the locality in which meal expenses were incurred while away from
home. See Rev. Proc. 2011-47, sec. 1, 2011-43 I.R.B. 520. The Federal published
rate is deemed substantiated for purposes of section 1.274-5T(b)(2)(i) and (c),
Temporary Income Tax Regs., 50 Fed. Reg. 46014-46015 (Nov. 6, 1985). Self-
employed individuals may not use this method to substantiate lodging expenses.
See Rev. Proc. 2011-47, sec. 1.
Petitioners used the per diem rates shown on page 9 of Publication 463. We
find it peculiar that petitioners used rates designated for “Luxury Water Travel”,
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such as a cruise. Those rates are based on the highest Federal per diem rates,
which include lodging, meals, and incidentals. In particular, the rates petitioners
used ranged from $262 to $374 per day, resulting in the $56,960 or an average of
approximately $341 per day ($56,960 divided by 167 days). We note that
petitioners did not provide any evidence of the lodging expenses actually incurred
in the timber activity during 2014.
Although petitioners used the rates from page 9, page 6 of Publication 463
explains that $46 per day is the Federal per diem rate (for meals) that applies to
many smaller localities in the United States. Specifically for 2014, Thurston
County had a $61 per diem rate and Lewis County was without a specified rate
and therefore had a $46 per diem rate. Although the record supports our finding
of 167 days away from home in 2014, the exact number of days in each of the
counties in which the four parcels are located is not available. On the basis of
petitioner’s testimony, however, it is reasonable to reach the conclusion that his
time was split equally among the four parcels and hence in the two above-named
counties. Accordingly, we find that petitioner spent 83.5 days in each county.
The per diem would thus total $5,093.50 for time spent in Thurston County and
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$3,841 for time spent in Lewis County. We hold that petitioners are entitled to
deduct $8,934.50 as away from home expenses on their Schedule C for 2014.3
To reflect the foregoing,
Decision will be entered
under Rule 155.
3
All other adjustments on petitioners’ notice of deficiency for 2014 were
computational and would follow the allowance decided herein.