1991 Tax Ct. Memo LEXIS 219">*223 business travel expenses under section 162 with respect to Mrs. Washburn's pro rata share (one-half) of the mileage for their weekly trips from their Vermont residence to New York City. Petitioners also claimed a deduction for the $ 1,625 in bus fare for Mrs. Washburn's return trips from New York City to Vermont. As indicated, Mr. Washburn did not report as income the $ 10,525 in legal fees billed to Mr. Crescenzi, but Mr. Washburn did claim a bad debt deduction for that amount on petitioners' 1984 tax return.
Respondent denied the above deductions and determined that petitioners had $ 10,362 in unexplained bank deposits that represented additional gross income to petitioners.
Only $ 1,362 of the $ 10,362 in bank deposits that was charged to petitioners as income remains in dispute. With regard to the bad debt deduction, respondent has conceded that the $ 10,525 claimed by petitioners as a bad debt deduction was a valid debt arising from a debtor-creditor relationship created in the course of a trade or business, and that it became worthless in 1984. Respondent, however, denies petitioners' entitlement to a bad debt deduction with respect thereto because Mr. Washburn had no ">*224 tax basis in the debt.
OPINION
Bad Debt Deduction
Section 166 provides that a deduction will be allowed for debts that become wholly worthless within the year. Worthless debts, however, that relate to unpaid fees or similar unpaid income items will be allowed as deductions only if they have been included in income during the year for which the deduction is sought or for an earlier year. Sec. 1.166-1(e), Income Tax Regs.; Davis v. Commissioner, 88 T.C. 122">88 T.C. 122, 88 T.C. 122">142 (1987), affd. 866 F.2d 852">866 F.2d 852 (6th Cir. 1989); Gertz v. Commissioner, 64 T.C. 598">64 T.C. 598, 64 T.C. 598">600 (1975).
Because Mr. Washburn never included the $ 10,525 in unpaid legal fees in his income, he is not entitled to a bad debt deduction with respect thereto.
Travel Expenses
Section 162(a)(2) provides that a deduction will be allowed for the ordinary and necessary expenses of a trade or business, including travel expenses incurred while away from home in pursuit of a trade or business. Expenses of commuting from one's home to one's primary place of business are not considered business expenses and are not deductible. Sec. 1.162-2(e), Income Tax Regs.
Under Commissioner v. Flowers, 326 U.S. 465">326 U.S. 465, 326 U.S. 465">470, 90 L. Ed. 203">90 L. Ed. 203, 66 S. Ct. 250">66 S. Ct. 250 (1946),">*225 travel expenses must meet three requirements to be deductible. They must be reasonable and necessary, they must be incurred while away from home, and the expenses must be directly related to the carrying on of a trade or business.
Petitioners contend, in essence, that they were forced by economic hardship rather than personal preference to live in Vermont. They contend, therefore, that Mrs. Washburn's travel to and from New York City was necessary for the carrying on of her trade or business. Respondent contends that financial hardship is a personal matter, rather than a business consideration, and that it will not transform what is otherwise a personal commuting expense into a deductible travel expense.
In analyzing claimed travel expenses, this Court has traditionally used a "tax home" analysis where the location of a taxpayer's residence is not clear or does not coincide with his or her principal place of business. Horton v. Commissioner, 86 T.C. 589">86 T.C. 589 (1986); Leamy v. Commissioner, 85 T.C. 798">85 T.C. 798 (1985); Barone v. Commissioner, 85 T.C. 462">85 T.C. 462 (1985), affd. without published opinion 807 F.2d 177">807 F.2d 177 (9th Cir. 1986);">*226 Kroll v. Commissioner, 49 T.C. 557">49 T.C. 557 (1968); Stidger v. Commissioner, 40 T.C. 896">40 T.C. 896 (1963), revd. 355 F.2d 294">355 F.2d 294 (9th Cir. 1965), revd. 386 U.S. 287">386 U.S. 287, 18 L. Ed. 2d 53">18 L. Ed. 2d 53, 87 S. Ct. 1065">87 S. Ct. 1065 (1967); Green v. Commissioner, 12 T.C. 656">12 T.C. 656 (1949). The United States Court of Appeals for the Second Circuit (to which an appeal in this case lies) has, however, declined to use the tax home analysis and has instead focused on whether the expenses have a direct connection to the taxpayer's trade or business. Six v. United States, 450 F.2d 66">450 F.2d 66, 450 F.2d 66">69 (2d Cir. 1971); Rosenspan v. United States, 438 F.2d 905">438 F.2d 905, 438 F.2d 905">911-912 (2d Cir. 1971). See also Stemkowski v. Commissioner, 690 F.2d 40">690 F.2d 40, 690 F.2d 40">48-49 (2d Cir. 1982), affg. in part and revg. and remanding in part 76 T.C. 252">76 T.C. 252 (1981).
Clearly, in the Second Circuit, expenses that are incurred because of a taxpayer's personal choice of where to live are not deductible. McCabe v. Commissioner, 688 F.2d 102">688 F.2d 102, 688 F.2d 102">106 (2d Cir. 1982), affg. 76 T.C. 876">76 T.C. 876 (1981); Carragan v. Commissioner, 197 F.2d 246">197 F.2d 246, 197 F.2d 246">249 (2d Cir. 1952),">*227 affg. a Memorandum Opinion of this Court. This authority requires the disallowance of Mrs. Washburn's share of the automobile expenses and the bus expenses she incurred in traveling each week back and forth between New York City and petitioners' residence in Vermont. New York City was Mrs. Washburn's only place of business, and for personal reasons she chose to live in Vermont. The fact that it was less expensive to live in Vermont does not convert her personal commuting expenses into deductible business expenses.
Unreported Income
With regard to the $ 1,362 in unexplained bank deposits still in dispute, the burden is on petitioners. Rule 142(a). Petitioners have not offered any proof as to the origin of the $ 1,362, and we therefore treat the $ 1,362 as income.
Additions to Tax
Additions to tax under section 6653(a)(1) apply where any part of a deficiency is due to negligence or to intentional disregard of rules or regulations. Negligence is defined as the failure to use due care or to do what a reasonable and ordinarily prudent person would have done under the circumstances. Neely v. Commissioner, 85 T.C. 934">85 T.C. 934, 85 T.C. 934">947 (1985). Intentional disregard">*228 of rules or regulations has been found where taxpayers departed from the plain language of the applicable statutes or regulations, absent a showing that such language produces absurd or unfair results or contravenes the intent of Congress. Druker v. Commissioner, 697 F.2d 46">697 F.2d 46, 697 F.2d 46">53 (2d Cir. 1982), affg. in part and revg. in part 77 T.C. 867">77 T.C. 867 (1981). Respondent's determination is presumptively correct and the burden is on petitioners to prove that they were not negligent. Betson v. Commissioner, 802 F.2d 365">802 F.2d 365, 802 F.2d 365">372 (9th Cir. 1986), affg. in part and revg. in part a Memorandum Opinion of this Court; Luman v. Commissioner, 79 T.C. 846">79 T.C. 846, 79 T.C. 846">860-861 (1982).
Petitioners made several mistakes on their 1984 Federal income tax return. They claimed a bad debt deduction that was clearly not allowed by the plain language of applicable regulations. We hold that petitioners are liable for the additions to tax under section 6653(a)(1). We also hold that petitioners are liable for the additional interest under section 6653(a)(2) with respect to the portion of the tax deficiency arising from the disallowance of the bad debt deduction, ">*229 Mrs. Washburn's travel expenses, and the $ 1,362 in unreported income.
Section 6661 imposes an addition to tax if there is a substantial understatement of income tax in a given year. An understatement is defined as the excess of the amount of tax required to be shown on the tax return over the amount of tax actually shown on the return as filed less any rebates. A substantial understatement is one that exceeds the greater of either 10 percent of the tax required to be shown on the return or $ 5,000.
In calculating understatements under section 6661, items for which there is substantial authority or with respect to which all relevant facts were adequately disclosed in the tax return, or in a separate statement attached to the tax return, are not to be considered. Sec. 6661(b)(2)(B).
Petitioners have not shown that they had substantial authority for the three adjustments at issue, nor that they adequately disclosed the relevant facts with respect thereto on their 1984 tax return. Petitioners also are liable for the addition to tax under section 6661.
Decision will be entered under">*230 Rule 155.
Document Info
Docket Number： Docket No. 8580-88
Citation Numbers： 61 T.C.M. 2529, 1991 Tax Ct. Memo LEXIS 219, 1991 T.C. Memo. 195
Judges： SWIFT
Filed Date： 5/1/1991
Precedential Status： Non-Precedential
Modified Date： 11/20/2020
Authorities (8)
Frank C. Davis, Jr. And Frank C. Davis, Jr., of the Estate ... , 866 F.2d 852 ( 1989 )
James O. Druker and Joan S. Druker, Petitioners-Appellants-... , 697 F.2d 46 ( 1982 )
Robert F. Six and Ethel Merman Six, Plaintifffs-Appellants ... , 450 F.2d 66 ( 1971 )
Howe A. Stidger and Betty M. Stidger v. Commissioner of ... , 355 F.2d 294 ( 1965 )
Peter Stemkowski v. Commissioner of Internal Revenue , 690 F.2d 40 ( 1982 )
J.R. Betson, Jr. And Joan Sue Betson v. Commissioner of ... , 802 F.2d 365 ( 1986 )
Robert Rosenspan v. United States , 438 F.2d 905 ( 1971 )
Carragan v. Commissioner of Internal Revenue , 197 F.2d 246 ( 1952 )
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