DocketNumber： Docket No. 6370-10
Judges： CHIECHI
Filed Date： 3/22/2012
Status： Non-Precedential
Modified Date： 4/18/2021
An order denying petitioners' motion and decision for petitioners will be entered.
CHIECHI,
The record establishes and/or the parties do not dispute the following.
At all relevant times, petitioners resided in Centerville, Ohio (Centerville).
During at least 2005 and 2006, the years at issue, petitioner Miriam Trzeciak (Ms. Trzeciak) owned, managed, and rented 14 single-family residences (rental properties). During those years, 13 of those rental properties were in or in the vicinity of Columbus, Ohio (Columbus). As part of her management responsibilities, Ms. Trzeciak, inter alia, performed administrative and bookkeeping tasks with respect to the rental properties, showed the rental properties to prospective tenants, handled tenant *86 complaints, and dealt with contractors regarding repairs (Ms. Trzeciak's real estate activities). In order to carry out certain of those responsibilities, Ms. Trzeciak periodically traveled to the rental properties from petitioners' home in Centerville (petitioners' residence).
Petitioners timely filed Form 1040, U.S. Individual Income Tax Return (return), for each of their taxable years 2005 (2005 return) and 2006 (2006 return). Barnaby G. Reagan (Mr. Reagan), a certified public accountant, prepared those returns. Petitioners attached to each of their 2005 return and 2006 return Schedule E, Supplemental Income and Loss (Schedule E).
In Schedule E that petitioners attached to their 2005 return (2005 Schedule E), petitioners reported a total rental real estate loss of $126,376 attributable to Ms. Trzeciak's real estate activities. Petitioners attached to their 2005 Schedule E statements entitled "OTHER EXPENSES" regarding Ms. Trzeciak's respective rental properties with respect to which petitioners claimed that loss. Each of those statements included a claimed expense of $819 for an item referred to as "COMMON OVERHEAD".
In Schedule E that petitioners attached to their 2006 return (2006 *87 Schedule E), petitioners reported a total rental real estate loss of $151,884 attributable to Ms. Trzeciak's real estate activities. Petitioners attached to their 2006 Schedule E statements entitled "OTHER EXPENSES" regarding Ms. Trzeciak's respective rental properties with respect to which petitioners claimed that loss. Each of those statements included a claimed expense of $517 for an item referred to as "COMMON OVERHEAD".
Around April 7, 2008, respondent assigned a revenue agent (respondent's revenue agent) to examine each of petitioners' 2005 return and 2006 return (respondent's examination). Petitioners retained Mr. Reagan to represent them in connection with respondent's examination.
During the course of respondent's examination, petitioners presented certain documents to respondent's revenue agent which established (1) that Ms. Trzeciak spent 915.6 hours and 806.8 hours during 2005 and 2006, respectively, with respect to Ms. Trzeciak's real estate activities and (2) that Ms. Trzeciak spent 217 hours and 77 hours of those total hours during 2005 and 2006, respectively, traveling between petitioners' residence and her rental properties.
Respondent's revenue agent prepared a workpaper *88 dated August 12, 2008 (revenue agent's August 12, 2008 workpaper), in which he set forth the "final determination of the RA [revenue agent]/government's position". That final determination was: "The loss from the rental activities is limited per The taxpayer [Ms. Trzeciak] does not employ anyone to handle the management of the properties, and handles bookkeeping, advertising * * *, paying bills, collecting and depositing rent, scheduling major maintenance, and performing minor maintenance, and tenant relations, mostly performed from her [petitioners'] residence. No mention was made of a space [in petitioners' residence] that was used regularly and exclusively for the taxpayer's rental activities. The taxpayer also checked her vacant properties for damage and soundness about once a month. In 2006, the taxpayer spent 77 hours making the trip from Dayton [Centerville], *89 While in Columbus, the taxpayer would show properties to prospective tenants, visit vacant properties to ensure the properties were secure, and visit rented properties if the tenant had concerns. In 2005, much of the travel time is in relation to searching for other properties and purchasing the properties. * * * * In * * * * [Ms. Trzeciak's] [t]ravel time is analogous to personal commute. It is well established the expenses for commuting from home to work are personal and not deductible under
On August 18, 2008, Mr. Reagan sent respondent's revenue agent a letter on behalf of petitioners (petitioners' August 18, 2008 letter) with respect to the revenue agent's August 12, 2008 workpaper. That letter stated: I am responding to your stated position that the travel time spent by the taxpayer [Ms. Trzeciak] does not constitute hours that count toward meeting the 750 hour test under My reading of the three U.S. Tax Court cases you cite as support for your position does not convince me of their merit. The following is a summary of each case: Travel away from *92 home is an integral element of owning and managing one's rental real estate. In seeking authority for this issue, let's start with the tax return forms. Schedule E of form 1040 recognizes this necessary deduction with a separate line for "Auto and Travel". Because the deduction is specifically allowable, then it follows that the time associated with travel should count toward the 750 hour test. The Schedule E instructions for this line item say: "You can deduct ordinary and necessary auto and travel expenses related to your rental activities, including 50% of meal expenses incurred while traveling away from home." The key element here is " * * * * * * * If the issue of commuting was relevant to management of rental real estate, there would be some mention of it in the IRS guidance. Absence of this implies that travel for rental property management is unique.
* * * *
The concept of "commuting" does not apply to managing rental real estate or being a Real Estate Professional. This point was made in my letter dated August 18, 2008. The IRS guidance on travel for rental properties recognizes that real estate is by nature not able to be properly managed by staying at home. Travel expenses are allowed as soon as a taxpayer leaves their home, and the time must follow the allowable deduction. It is not a "commute", such as travel by an employee to a job. The choice of an employee or business owner to live a certain distance from their place of work is a personal decision. The purchase and management of rental real estate is not done because of proximity to the home. It is done because the property is in a suitable location for current rental income and future resale. Because the rental real estate location is based *95 upon a business decision, and not a personal one, travel to and from the properties is inherently deductible as a business expense, and the time is not a "commute".
* * * *
The case of
By letter dated November 11, 2008, respondent's Appeals Office acknowledged receipt of petitioners' protest.
On July 31, 2009, an officer with respondent's Appeals Office who was assigned petitioners' case (respondent's Appeals officer) made the following pertinent *96 entries in his so-called Case Activity Record Print: Prepare for 9:00 conference. Researched commuting and rental real estate for case memo and to provide to taxpayer if I can prove that he is wrong (or perhaps rethink my analysis if the rep is right). Brief conference. The rep [Mr. Reagan] is completely unwilling to even think the [sic] he has any hazards on this case. He believes that he has a strong position that the tax home is in her home and that all travel to Columbus is deductible and qualifies as passive loss hours. He believes that the agent's cases, which are the only thing we have, are worthless cases because they did not involve rental real estate. The rep believes that real estate businesses are different for purposes of applying the commuting rules. I asked for authority of this position on this because it was a foreign concept to me. He didn't give me anything except for the instructions to schedule E. We are at an impasse since this question is the question around which everything revolves. We agreed to disagree.
On August 11, 2009, respondent's Appeals officer made the following entry in his Case Activity Record Print: Research on tax home. Nothing specifically on point. *97 Since the taxpayer-wife's [Ms. Trzeciak's] only trade or business is in Columbus and since that is where the income is earned where she spends the majority of her time, Columbus would be her tax home for tax purposes.
Respondent's Appeals officer prepared a document entitled "Appeals Transmittal and Case Memo" dated December 9, 2009. That memo stated in pertinent part: The taxpayers believe that taxpayer-wife is a real estate professional for the following reasons: • Taxpayer participates in the activity in a regular, continuous and substantial basis. • Travel from Dayton [Centerville] to Columbus: • There is no authority, statutory or otherwise, that specifically states that travel time doesn't count toward the 750 hour test. • The travel is an • All travel time is directly related to the management of the properties. • There is no "particular" reason not to consider the travel time as work. • Travel hours must count as hours worked because the expenses associated with the travel are deductible under • The concept of "commuting" does not apply to managing rental real estate or being a real estate professional. • The purchase *98 and management of rental real estate is unrelated to proximity to home. * * * * I recommend that we fully sustain the [revenue] agent's position. The entire case comes down to the question of whether * * * [Ms. Tzreciak's] travel from Dayton [Centerville] to Columbus qualifies as hours worked. If such hours do not qualify, the hours worked are less than the 750 hours necessary for the taxpayer to be a real estate professional. * * * I agree with the [revenue] agent's determination that travel between Dayton [Centerville] and Columbus is not work associated with the activity that qualifies for the 750 hours. It is clearly time spent traveling from home to a work site, i.e., commuting. The [revenue] agent's determination is well supported by the case law cited by the agent and by case law that I found in my research. * * * * * * * The taxpayers' representative was not even willing to discuss the
Respondent's Appeals officer also proposed the imposition of the accuracy-related *99 penalty under Yes. The [revenue] agent proposes the assertion of the accuracy penalty for both 2005 and 2006 because: • There is a substantial understatement. • There was no disclosure on the return regarding the hours that were spent or that a substantial portion of the hours were questionable. • There are no exceptions to the application of the penalty. (The [revenue] agent is apparently unaware of the reasonable cause provisions of the penalty). I believe that the government could have considerable hazards should the case be litigated. The representative/preparer [Mr. Reagan] definitely seems to have strong ideas regarding the qualification of personal commuting and acquisition activities as participation. While I believe these ideas are not supportable, the fact remains that the taxpayer may be able to establish reliance on a tax professional. On the other hand, the presence of so many questionable hours, and the materiality of the loss deductions, *100 seems to give the government a reasonable chance of prevailing. Even though I would recommend a significant concession in the event of an agreed case, I believe that the penalty is strong enough that it should be included in the statutory notice.
On December 9, 2009, respondent issued to petitioners a notice of deficiency with respect to their taxable years 2005 and 2006 (notice). In that notice, respondent determined, inter alia, to disallow under [T]he losses of $126,376.00 on 2005 and $151,844.00 on 2006 claimed in connection with your rental activities are a passive activity. * * * You have not established that you met the requirements of
Respondent also determined in the notice that petitioners are liable for each of their taxable years 2005 and 2006 for the accuracy-related penalty under
After petitioners received the notice, they retained as their attorneys the Nardone Law Group, LLC (petitioners' attorneys). *102 and Declaration of Representative, authorizing Mr. Nardone and Ms. Puerto to represent petitioners with respect to their taxable years 2005 and 2006.
On March 9, 2010, petitioners' attorneys mailed to the Court the petition that they had prepared on behalf of petitioners, in which they contested the determinations in the notice. The Court received and filed that petition on March 15, 2010.
On March 10, 2010, petitioners' attorneys had a telephonic discussion with respondent's Appeals officer (March 10, 2010 discussion). On March 13, 2010, Mr. Nardone sent by facsimile to respondent's Appeals officer a memorandum (March 13, 2010 memorandum) in which he memorialized the March 10, 2010 discussion. That memorandum requested "an additional meeting and appeals conference on their [petitioners'] 2007 and 2008 tax periods." *103 basis of their case, are as follows:
a. In 2005 and 2006: (i) the Petitioners owned real estate properties (the "Properties") and conducted rental operations on the Properties; (ii) Miriam Trzeciak ("Mrs. Trzeciak") was not employed and did not work as an independent contractor in 2005 or 2006; (iii) Mrs. Trzeciak materially participated in the rental operations of the Properties—as that phrase is used in
* * * *
e. In 2005 and 2006, (i) there was not a substantial understatement of income tax on the Petitioners' 2005 and 2006 Returns; (ii) there was no valuation misstatement on the Petitioners' 2005 and 2006 Returns; (iii) the Petitioners were not negligent and did not disregard the rules or regulations; and (iv) to the extent the Court would find that a deficiency or liability exists, the Petitioners had reasonable cause for such deficiency or liability, including but not limited to the fact that the Petitioners made good faith efforts and took reasonable care in preparing the Petitioners' 2005 and 2006 Returns; and properly relied on the Petitioners' tax professional's advice after providing such professionals with all the necessary facts.
Petitioners did not allege in the petition that Ms. Trzeciak maintained an area or an office in petitioners' residence where she did work relating to her real *105 estate activities, let alone an area or an office in that residence that qualified as her "principal place of business" under
On June 24, 2010, Mr. Nardone sent respondent's counsel a letter on behalf of petitioners (petitioners' June 24, 2010 letter), in which he asserted: "
On September 14, 2010, the Court served on the parties (1) a notice setting case for trial at the Court's trial session in Columbus that was to begin on February 14, 2011, and (2) the Court's standing pretrial order.
On December 17, 2010, Ms. Puerto sent an email to respondent's counsel, in which she set forth petitioners' position with respect to the determinations in the notice. In that email, Ms. *107 Puerto stated: "The main issue is whether Mrs. Trzeciak's time spent traveling from her home office to the rental properties and back counts for purposes of satisfying the requirements under
On January 3, 2011, Ms. Puerto, at the request of respondent's counsel, sent another email to respondent's counsel (January 3, 2011 email), in which she maintained that "The Home Office qualifies as * * * [Ms. Trzeciak's] principal place of business for the 2005 and 2006 tax years" for Ms. Trzeciak's real estate activities. In that email, Ms. Puerto discussed the facts and the law that petitioners' attorneys believed established (1) that during the years at issue Ms. Trzeciak maintained a "Home Office" in petitioners' residence and (2) that that so-called home office qualified as the The term principal place of business includes a place of business used by the taxpayer to perform administrative or management activities related to the taxpayer's trade or business if there is no other fixed location of the taxpayers' trade or business where substantial administrative or management activities are undertaken. See
On January 15, 2011, petitioners' attorneys had a telephonic discussion with respondent's counsel during which they described Ms. Trzeciak's so-called home office as a "fully functional workplace". Respondent's counsel asked petitioners' attorneys to provide him with substantiation establishing that Ms. Trzeciak's so-called home office qualified as her
On January 20, 2011, Ms. Puerto sent an email to respondent's counsel (January 20, 2011 email), in which she provided the substantiation that he had requested.
On the same day on which respondent's counsel received the January 20, 2011 email, he prepared a so-called counsel settlement memorandum (settlement memorandum). The settlement memorandum indicated that "petitioner [Ms. Trzeciak] maintained a fully functional *109 office within her home [petitioners' residence] for the sole purpose of managing the [rental] properties." The settlement memorandum also stated: Because the petitioner's [Ms. Trzeciak's] maintenance of an office [in petitioners' residence] was not previously developed, this case was initially viewed by our office as involving the issue of whether the petitioner's trips between Dayton [Centerville] and Columbus were a form of commuting. * * * * * * the fact that the petitioner maintained a legitimate business office in Dayton [Centerville] had not been clearly advanced much less established at the time of our earlier analysis. Once it became clear that this was the case, and that the travel time was not "commuting" but was travel between business locations, we concluded based on established authority that the travel hours could be included for the purposes of determining the petitioner's "material participation" in the activity.
The parties did not file pretrial memoranda on January 31, 2011, because the Court's standing pretrial order did not require them to do so if they had reached a basis of settlement, which they had. On February 11, 2011, the parties filed a stipulation of settlement *110 (stipulation of settlement) .
1. The petitioners are not liable for any deficiencies in income tax, and are not due any overpayments of income tax, for taxable years 2005 and 2006.
2. The petitioners are not liable for penalties under the provisions of
On February 11, 2011, petitioners filed petitioners' motion. Respondent filed a response to petitioners' motion (respondent's response), and petitioners filed a reply to respondent's response (petitioners' reply). (We shall refer collectively to petitioners' motion and petitioners' reply as petitioners' filings.) Petitioners attached as exhibits to petitioners' reply, inter alia, (1) an affidavit of Mr. Reagan (Mr. Reagan's affidavit) and (2) an affidavit of Ms. Trzeciak (Ms. Trzeciak's affidavit).
Mr. *111 Reagan's affidavit stated in pertinent part: 6. During the examination, Petitioner Miriam Trzeciak ("Miriam") provided the revenue agent a detailed log of the work relating to the rental properties that Miriam performed during the 2005 and 2006 tax years. 7. I [Mr. Reagan] informed the revenue agent that—as reflected in Miriam's 2005 and 2006 logs—Miriam spent a substantial amount of hours performing administrative duties for the rental properties out of an office located in her home. Further, I informed the revenue agent that Petitioners incurred certain expenses in operating this office out of their home, and Petitioners reported and deducted these expenses on their Returns. 8. Petitioners provided the revenue agent a copy of Petitioners' 2005 and 2006 rental property expense report * * * ("Expense Spreadsheets"). The first column of the Expense Spreadsheets lists the common overhead expenses for Petitioners' rental properties during the 2005 and 2006 tax years. 9. During the examination, the revenue agent briefly asked me what was included under the common overhead expenses listed on the Expense Spreadsheets. I informed the revenue agent that the common overhead expenses included—among *112 other things—the expenses relating to Petitioners' home office that were incurred during the 2005 and 2006 tax years. I directed the revenue agent to the areas on Petitioners' Returns where Petitioners reported and deducted their home office expenses. The revenue agent did not ask me any further questions regarding the common overhead expenses or home office expenses, or any details regarding Petitioners' home office. 10. The revenue agent spent very little time on and did not question the expenses that Petitioners' reported on their Returns. The revenue agent's main focus during the examination was in finding out how many hours Miriam spent performing work relating to the rental properties. 11. Petitioners provided the revenue agent all of the information that Respondent requested. Respondent never asked for any information regarding Petitioners' home office or related expenses. 12. Petitioners disagreed with the revenue agent's position that Miriam's travel to and from her residence and the rental properties should not count towards Petitioners satisfying the hourly requirements under * * * * 14. During the initial appeals conference, *113 I argued, on behalf of Petitioners, that Miriam's travel to and from the rental properties and Petitioners' residence should count towards Petitioners' satisfying the hourly requirements of 15. I informed Appeals that Miriam performed all of the administrative functions relating to the rental properties from Petitioners' home office and Petitioners reported the expenses relating to their home office on Petitioners' Returns. Like the revenue agent, the appeals officer focused on the commuting argument and never challenged or questioned the home office expenses.
Ms. Trzeciak's affidavit stated in pertinent part:
3. During the 2005 and 2006 tax years, I [Ms. Trzeciak] had an office in my home that was designated for my rental property business. In that office, I performed all of the management and administrative matters for the rental properties.
4. During the IRS's examination of Petitioners' Form 1040 U.S. Individual Tax Return for tax years 2005 and 2006 (the "2005 and 2006 Returns"), the revenue agent interviewed me regarding my activities in connection with my rental properties. * * * I told the revenue *114 agent that I was the only person that managed the rental properties, and I performed most of the management and administrative work at my home office.
5. The revenue agent never asked me during the interview whether my home office was used regularly and exclusively for the rental property business or any other questions about the home office.
6. During the interview, the revenue agent's questions were focused primarily on the reasons, dates, and length of the travel from my home office to the rental properties. The revenue agent did not inquire about my home office.
7. During the 2005 and 2006 tax years, I kept a journal of all of the work that I performed for my rental properties. I had various entries regarding the management and administrative work that I performed at my home office. I went over one month's worth of journal entries with the revenue agent that included entries for work performed at the home office.
Respondent filed a reply to petitioners' reply (respondent's reply). Thereafter, the Court had a telephonic conference (Court's telephonic conference) with respective counsel for the parties (collectively, counsel). During that conference, the Court advised counsel that the *115 Court read Mr. Reagan's affidavit to be in conflict in at least one material respect with certain of the documents (petitioners' documents) that petitioners had attached to certain of petitioners' filings regarding what petitioners had argued during the administrative proceedings before the Internal Revenue Service (administrative proceedings). As a result, the Court informed counsel that the Court was unwilling to rely on that affidavit to establish certain alleged facts therein. During the Court's telephonic conference, the Court asked counsel whether they believed it appropriate for the Court to hold an evidentiary hearing in order to resolve the conflict that the Court believed existed in at least one material respect between Mr. Reagan's affidavit and certain of petitioners' documents and directed counsel to file respective supplements to their respective replies in which they set forth their respective views as to the relevancy and/or materiality of that apparent conflict in deciding whether to grant petitioners'motion.
Respondent filed a supplement to respondent's reply. In that supplement, respondent stated: "The respondent submits that whether or not petitioners' POA [Mr. Reagan] *116 mentioned petitioners' home office during the examination of their 2005 and 2006 returns is neither material nor relevant for the Court's present consid-erations." *117
Petitioners filed a supplement to petitioners' reply (petitioners' supplement). (We shall sometimes refer collectively to petitioners' motion, petitioners' reply, and petitioners' supplement as petitioners' complete filings.) In that supplement, petitioners stated: While Mr. Reagan's statements in his affidavit are relevant to this case, by supporting the fact that Petitioner communicated to Respondent early on in the examination phase that the Petitioners had a home office, the determination of whether these statements actually occurred is not material. There is sufficient evidence on the record and objectively not in disagreement showing that Respondent has not met its burden of proving that its position was substantially justified.
In none of the respective filings that the parties made with respect to petitioners' motion did *118 they ask for a hearing (evidentiary or nonevidentiary) with respect to that motion. We conclude that a hearing is not necessary.
We explain initially why we recharacterized the motion that petitioners filed entitled "MOTION FOR AWARD OF REASONABLE LITIGATION AND ADMINISTRATIVE COSTS". The costs that petitioners are claiming, which are shown in certain of petitioners' complete filings, are expenses or costs relating to the preparation of the petition, the filing of the petition, and certain activities that petitioners' attorneys conducted thereafter. *119
The term "prevailing party" generally means any party who (1) has substantially prevailed with respect to (a) the amount in controversy,
Respondent argues that respondent's position in this proceeding (respondent's litigating position) was substantially justified,
The position of the United States is substantially justified if it "is one that is 'justified to a degree that could satisfy a reasonable person' or that has a 'reasonable basis both in law and fact.'"
A significant factor in determining whether the Commissioner's position is substantially justified as of a given date is whether, on or before that date, the taxpayer has presented all relevant information under the taxpayer's control and relevant legal arguments supporting the taxpayer's position.
The Commissioner's concession of an issue is not conclusive as to whether *123 the Commissioner's position with respect to that issue was substantially justified.
In order to determine whether the "position" of the United States is substantially justified, courts "must identify the point at which the United States is first considered to have taken a position, and then decide whether the position taken from that point forward was or was not substantially justified."
For purposes of a court proceeding, the "position of the United States" means "the position taken by the United States in a judicial proceeding to which subsection (a) applies".
The Court has held that "the Government's litigating position is formed only after the Government's attorney becomes involved in the case", i.e., after the initiation of litigation.
We now consider whether respondent's litigating position was substantially justified with respect to the
Rental real estate activity is generally treated as a per se passive activity regardless of whether the taxpayer *125 materially participates in that activity.
Respondent's position throughout the administrative proceedings and when respondent filed the answer in the instant proceeding was (1) that Ms. Trzeciak's travel time between petitioners' residence in Centerville and the rental properties in and around Columbus (Ms. Trzeciak's travel time) constituted commuting, (2) that therefore that time may not be included as hours spent in the conduct of Ms. Trzeciak's real estate activities for purposes of meeting the 750-hour requirement for each of petitioners' taxable years 2005 and 2006, and (3) consequently petitioners' claimed respective real estate losses for their taxable years 2005 and 2006 constituted passive losses under As we understand it, petitioners' position at its core is that respondent's litigating position was not substantially justified because (1) petitioners presented information to respondent during the administrative proceedings that Ms. Trzeciak did work relating to her rental properties in petitioners' residence, (2) respondent thus had an obligation during those administrative proceedings, which respondent failed to satisfy, to ask petitioners to provide *127 respondent with documentation or other substantiation establishing that Ms. Trzeciak maintained a work area or an office in petitioners' residence that qualified as Ms. Trzeciak's Before addressing each of petitioners' contentions in support of their position, we shall set forth our evaluation of Mr. Reagan's affidavit on which petitioners rely. In reading that affidavit, we understood Mr. Reagan to be claiming that he argued during the administrative proceedings that Ms. Trzeciak's travel time was between her tax home office *129 and her rental properties. Mr. Reagan did not make any such argument to respondent's representatives during the administrative proceedings, as evidenced, for example, by certain others of petitioners' documents, such as petitioners' August 18, 2008 letter and petitioners' protest. During the Court's telephonic conference with counsel, the Court (1) informed them that we were unwilling to rely on that affidavit to establish certain alleged *128 facts therein and (2) gave them the opportunity to ask the Court to hold an evidentiary hearing, which each of them declined to do. With respect to petitioners' contention that they presented information to respondent during the administrative proceedings that Ms. Trzeciak did work relating to her rental properties in petitioners' residence, we agree that that fact is established by the record. With respect to petitioners' contention that, because petitioners presented information to respondent during the administrative proceedings that Ms. Trzeciak did work relating to her rental properties in petitioners' residence, respondent had an obligation during those proceedings, which respondent failed to satisfy, to ask petitioners to provide respondent with documentation or other substantiation establishing that Ms. Trzeciak maintained a work area or an office in petitioners' residence that qualified as Ms. Trzeciak's The reminder *132 that respondent's revenue agent gave to petitioners and Mr. Reagan in the revenue agent's August 12, 2008 workpaper apparently fell on deaf ears. Petitioners and Mr. Reagan ignored it completely in petitioners' August 18, 2008 letter and in petitioners' protest. Instead, in petitioners' August 18, 2008 letter to respondent's revenue agent, in which petitioners responded to the revenue agent's August 12, 2008 workpaper, Mr. Reagan argued: "If the issue of commuting was relevant to management of rental real estate, there would be some mention of it in the IRS guidance. Absence of this implies that travel for rental property management is unique." Similarly, in petitioners' protest to respondent's Appeals office, in which petitioners protested the proposed determinations of respondent's revenue agent, Mr. Reagan argued: "The concept of 'commuting' does not apply to managing rental real estate or being a Real Estate Professional." *133 *134 On the record before us, we find that during the administrative proceedings respondent did not have the obligation that petitioners would impose on respondent to ask petitioners to provide respondent with documentation or other substantiation establishing that Ms. Trzeciak maintained a work area or an office in petitioners' residence that qualified as Ms. Trzeciak's We find that, in the light of the facts available to respondent at the time the answer was filed and existing legal precedent, respondent's position in this case had a reasonable basis in both fact and law. We further find that respondent has met respondent's burden under Petitioners argue that even if we were to find, which we have, that respondent's litigating position was substantially justified, they should be treated as the "prevailing party" for purposes of Respondent argues that petitioners are not the "prevailing party" for purposes of We find that petitioners are not the "prevailing party" for purposes of We have considered all of the parties' contentions and arguments that are not discussed herein, and we find them to be without merit, irrelevant, and/or moot. To reflect the foregoing,
1. We take judicial notice that Centerville is a suburb of Dayton, Ohio (Dayton).↩
2. For convenience, when discussing petitioners' August 18, 2008 letter and petitioners' protest, we shall sometimes refer to Mr. Reagan's arguments made on behalf of petitioners as Mr. Reagan's arguments.↩
3. Petitioners' motion seeks costs relating to their representation by petitioners' attorneys, not by Mr. Reagan.↩
4. Mr. Nardone evidently made a typographical error in drafting the March 13, 2010 memorandum in identifying the taxable years at issue in the notice as 2007 and 2008. The years at issue in the notice are 2005 and 2006.↩
5. All section references are to the Internal Revenue Code (Code) in effect at all relevant times. All Rule references are to the Tax Court Rules of Practice and Procedure.↩
6.
7. Because the parties filed a stipulation of settlement, they did not execute a stipulation of facts for trial.↩
8. According to respondent, the record in the instant proceeding does not establish that Mr. Reagan argued to respondent's representatives during the administrative proceedings that a work area or an office in petitioners' residence where Ms. Trzeciak did work relating to her real estate activities qualified as a
9. On Mar. 8, 2010, the day before petitioners' attorneys mailed to the Court the petition that they had prepared on behalf of petitioners, petitioners' attorneys attempted to contact respondent's Appeals officer by telephone and facsimile, and on Mar. 10, 2010, the day after petitioners' attorneys mailed the petition to the Court, petitioners' attorneys had a telephonic discussion with respondent's Appeals officer. In addition, on Mar. 13, 2010, Mr. Nardone sent by facsimile to respondent's Appeals officer a memorandum. The record does not establish how much time petitioners' attorneys spent on those days in attempting to contact or in contacting respondent's Appeals officer.
10. Respondent acknowledges that petitioners have complied with (1)
11. Respondent acknowledges that petitioners have complied with
12. Respondent maintains that petitioners have not established that they complied with
13. Petitioners do not dispute that if Ms. Trzeciak's travel time were not included for purposes of determining whether she met the 750-hour requirement for each of petitioners' taxable years 2005 and 2006, petitioners' claimed respective real estate losses for their taxable years 2005 and 2006 would constitute passive losses under
14. In neither of the two documents that Mr. Reagan submitted on petitioners' behalf to respondent during the administrative proceedings, which are the only such documents that are part of the record (i.e., petitioners' August 18, 2008 letter and petitioners' protest), did Mr. Reagan indicate to respondent's representatives that Ms. Trzeciak maintained a home office or an office in her home, let alone a tax home office. We thus are unwilling to rely on the allegations in paragraphs 7, 9, 11, and 15 of Mr. Reagan's affidavit that he informed respondent's representatives during the administrative proceedings that Ms. Trzeciak had a so-called home office. For the same reasons, we are unwilling to rely on similar allegations in paragraphs 4, 5, 6, and 7 of Ms. Trzeciak's affidavit. Even if Mr. Reagan's affidavit and Ms. Trzeciak's affidavit were correct in stating that they informed respondent's representatives during the administrative proceedings that Ms. Trzeciak maintained a home office or an office in petitioners' residence in which she did work relating to her real estate activities, nothing in the record establishes that petitioners attempted to, or did, show those representatives that any such office qualified as a
15. Petitioners rely on
16. Both respondent's revenue agent and respondent's Appeals officer disagreed with petitioners' contention that the concept of "commuting" in the tax law was not "relevant" and did not apply to a real estate professional or to managing rental property. According to respondent's representatives during the administrative proceedings, Ms. Trzeciak's travel time constituted "commuting" in the tax law. Implicit in that position of respondent's representatives was that any expenses associated with that travel (Ms. Trzeciak's travel expenses) are not deductible under
17. The record does not establish what, if any, litigation costs petitioners' attorneys incurred with respect to the
18. Petitioners rely on