In Uncategorized on 07/21/2011 at 10:24

But It Isn’t Where Your Tax Home Is

So learn Captain Jac Baker and Aircrew Cynthia Baker in JAC E. and CYNTHIA L. BAKER, 2011 T.C. Sum. Op. 95, filed 7/19/2011. Although this is another fact-specific “don’t quote me” Section 7463, the decision goes into the general rules for tax home, and is good CPE reading.

Captain Jac was tugmaster of the vessel Malulani and, for the years at issue, “began and ended each voyage in the Honolulu, Hawaii, port. Each tug voyage lasted approximately 3 days. On eight occasions during the years in issue, Mr. Baker either began or ended his voyage in a port other than Honolulu: five of these occasions were in neighboring islands in Hawaii and three were in the continental United States.” 2011 T.C. Sum. Op. 95, at p. 4. Captain Jac recorded his unreimbursed employment expenses in a calendar he kept.

Aircrew Cynthia flew for Delta for the years at issue, as cabin attendant, based out of JFK. She flew one to four times a month during the years in question, mostly to Europe, but kept no records of the destinations. She shared an apartment near JFK with nine other aircrew, but proffered no evidence of what she spent there.

Captain Jac and Aircrew Cynthia were married. They lived in Washington State, apparently because it was the most appealing dry land halfway between JFK and Honolulu. Each deducted their travel expenses from and to their Washington State home, claiming that was their tax home.

No, says Special Trial Judge Dean. Aircrew Cynthia’s tax home is JFK, and Captain Jac’s is Honolulu. Both were permanent employees, whose employment was of indefinite duration. Although each claimed unreimbursed employee expenses, neither filed Form 2106 for the years at issue, although they did reduce the expenses claimed by the 2% AGI “floor”.

Captain Jac and Aircrew Cynthia tried to shift burden of proof via Section 7491, but their recordkeeping doesn’t pass muster.

They based the deductions at issue on Section 162. Special Trial Judge Dean: “Section 162(a)(2) allows a taxpayer to deduct traveling expenses, including amounts expended for meals and lodging, if such expenses are: (1) Ordinary and necessary, (2) incurred while away from home, and (3) incurred in the pursuit of a trade or business. Commissioner v. Flowers, 326 U.S. 465, 470 (1946). ‘The exigencies of business rather than the personal conveniences and necessities of the traveler must be the motivating factors.’ Id. at 477.” 2011 T.C. Sum. Op. 95, at p. 10.

The fact that Captain Jac and Aircrew Cynthia are married doesn’t mean that each can’t have a tax home separate from the other. While they may be together till death do them part,  for tax purposes they can be spread across the world.

Captain Jac’s tugboating endeavors almost always started in Honolulu; only rarely did he ever start anywhere else. He had a permanent place of employment for tax purposes. Aircrew Cynthia likewise was home-ported, out of JFK, and rarely if ever flew from anywhere else.

Temporary employment (what I used to call TDY in an earlier incarnation), of limited duration and a sufficient distance from one’s tax home, might allow the deduction of unreimbursed employee expenses for travel. Not here. They were permanently based elsewhere than Washington State, and their personal preferences decided where they made their permanent residence.

However, Captain Jac and Aircrew Cynthia get a bye. They used the same CPA for all the years at issue, and for years before (I somehow doubt they will use him or her for subsequent years). Special Trial Judge Dean concluded: “…considering the totality of the facts and circumstances, we are satisfied that petitioners, who used the same C.P.A. for the years in issue that they had used for several prior years, acted in good faith and come within the reasonable cause exception of section 6664(c)(1). Accordingly, we hold that petitioners are not liable for the section 6662(a) accuracy-related penalties for the years in issue.” 2011 T.C. Sum Op. 95, at pp. 21-22.



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