We have four designated orders this week covering a wide array of substantive and procedural issues. Highlights include a review of allowable expenses for over-the-road truckers; the continuing (and perhaps now ended?) saga of Bhramba v. Commissioner in our Designated Orders; and a couple of permutations on our old friend, section 6751(b).
Docket No. 15601-17L, Horner v. C.I.R. (Order Here)
This order from Judge Armen grants Respondent’s motion for summary judgment. It’s fairly unremarkable—a nonresponsive Petitioner often loses on a motion for summary judgment in a CDP case. Here, however, the summary judgment motion followed a supplemental CDP hearing, which Respondent’s counsel requested to determine the merits of the underlying liability. Apparently, Counsel couldn’t find in its records that the Petitioner had received the Notice; so the underlying liability could be at issue.
One is left to wonder why Respondent’s counsel did that. Introducing the Notice of Deficiency into evidence creates a presumption that the taxpayer received the notice (so long as Respondent mailed it via certified mail). See Conn v. Commissioner, T.C. Memo. 2008-186.The taxpayer may, of course, rebut that presumption. But that’s hard to do when one doesn’t meaningfully participate in the administrative or judicial proceedings, as it seems Petitioner failed to do.
Alas, Petitioner also failed to meaningfully participate in the supplemental CDP hearing, making allegations that tended towards tax protesting. According to the settlement officer and Judge Armen, the underlying liability was originally assessed pursuant to a substitute-for-return, which in turn was based on three Forms 1099-MISC. To hammer the point home that Petitioner was, in fact, in the moving business, Judge Armen quoted extensively from Petitioner’s website that advertised his business.
Docket No. 5849-09, Davidson v. C.I.R. (Order Here)
Judge Leyden resolves this discovery dispute in a fair manner—at least, for the time being. Respondent sent Petitioner a request for admissions, to which Petitioner responded. Apparently, Respondent thought that the responses were inappropriate, and so filed a motion under Rule 90(e) to review the sufficiency of the answers and/or objections. Petitioner objected to the motion, noting that he is incarcerated until December 2019. As such, it’s difficult for him to accurately answer the questions that Respondent poses.
Judge Leyden agrees with Petitioner and orders instead that Petitioner serve an amended response on Respondent on January 22, 2020—30 days after his released from incarceration. This seems like a fair resolution—though we’ll need to set our Designated Order alarms to check in this January.
Docket No. 6174-18S, Gillespie v. C.I.R. (Order Here)
Judge Leyden provides another Designated Order through this bench opinion, which involves travel expenses deducted as unreimbursed employee expenses under section 162 and the accuracy penalty under section 6662(a).
This over-the-road trucker deducted $40,897 as unreimbursed employee expenses—including $16,001 of meals and entertainment expenses, calculated at 80% of the national per diem rate (transportation workers may deduct 80% of these costs, rather than the normal 50% of meal and entertainment costs for other taxpayers), and $24,896 for other travel expenses. These latter expenses included hotel costs and rental car expenses. He primarily slept in his truck, but would rent a hotel when his truck had to undergo a repair overnight. During these times, he’d also rent a car to “see the sights” in whatever locale he happened to stop. Petitioner essentially lived in his truck year-round, though he rented a room near Salt Lake City for 26 days in the tax year. His employer didn’t reimburse their employees for any expenses, including hotels, meals, or other travel expenses.
Judge Leyden denies the deduction for all claimed expenses because Petitioner was never “away from home” such that he would qualify to claim any travel expenses—whether lodging, meals, or otherwise. See, e.g., Barone v. Commissioner, 85 T.C. 462, 465 (1985).The Tax Court has long held that to claim travel expenses, taxpayers must be “away from home” when they incur those expenses. And if a taxpayer doesn’t have a “home”, then as a logical consequence, they can never be “away from home.”
But where is a taxpayer’s “home”? It’s primarily a taxpayer’s principal place of business. Howard v. Commissioner, T.C. Memo. 2015-38. If the taxpayer doesn’t have a principal place of business, it’s their permanent place of residence—a useful fallback for the vast majority of taxpayers. Barone,85 T.C. at 465.
But to use this fallback, taxpayers must incur substantial continuing living expenses. James v. United States, 308 F.2d 204, 207-08 (9th Cir. 1962); Sapson v. Commissioner, 49 T.C. 636, 640 (1968). Petitioner’s 26 days in Salt Lake City were apparently not substantial and continuous enough to place his principal place of residence at the rented room. So on these issues, he’s out of luck.
For taxpayers who are truly transient, the Tax Court has long held that these taxpayers are never “away from home” and therefore cannot deduct any travel expenses whatsoever. And for taxpayers like Petitioner here, failure to establish a permanent place of residence (or principal place of business) translates to thousands of dollars in additional tax. The deficiency in this case is over $7,000; this doesn’t take any additional state tax into account. In some cases, it may be possible to incur housing costs that are substantially less than any additional tax amount caused by failure to establish a permanent place of residence.
It’s also important to note that this is a largely moot point for employee truck drivers during tax years 2018 to 2025, as miscellaneous itemized deductions, such as the deduction for unreimbursed employee expenses, are unavailable to claim because of the 2017 tax law. Still, the implications here drastically affect self-employed over-the-road truck drivers, who may continue to deduct their operating expenses.
Petitioner also lost on his other claimed deductions: (1) for cell phone expenses for failure to their prove business use and to prove that his employer didn’t reimburse him; (2) truck repair expenses for failure to prove that his employer didn’t reimburse him; and (3) rental car expenses because they were personal expenses.
What about the accuracy penalty in this case? Judge Leyden quickly disposes of this issue—and this time in Petitioner’s favor. Fatal in this case were the timing issues with managerial approval of penalties under section 6751(b) that arose in Clay v. Commissioner, 152 T.C. No. 13 (2019). Samantha Galvin blogged about Clay last month.
To recap the issue, Respondent did introduce evidence of managerial approval, dated November 6, 2017. So what’s the problem? The statute requires that a manager approve in writing the initial determination of any asserted penalty. And Respondent also introduced evidence of a 30-day letter asserting the penalty, which was issued on October 2, 2017. No evidence of managerial approval prior thereto. So Judge Leyden quickly notes that Respondent failed to meet his burden of production, and finds no penalty for Petitioner.
Docket No. 1395-16L, Bhambra v. C.I.R. (Order Here)
Bhambra is now a familiar name in the Designated Orders series, though this may be his last appearance. I previously covered this case in a post from July 2018, where Judge Halpern granted Petitioner’s motion to remand the case to consider the underlying liability—here, a civil fraud penalty under section 6663. Bill Schmidt covered the case in a post from February 2019, carrying the apt subtitle, “How Not to Deal with Tax Fraud”. As one might expect from the title, the Tax Court entered a decision upholding the civil fraud penalty in March of this year.
Apparently Petitioner has read up on section 6751(b)’s recent legal development, and so he filed a motion to vacate the Tax Court’s decision, because—allegedly—the Tax Court didn’t require Respondent to comply with the supervisory approval requirements of section 6751(b). Respondent objected to the motion on the basis of timeliness, not on the merits. Petitioner, it seems, postmarked the motion one day after the 30-day deadline applicable to motions to vacate under Tax Court Rule 162. So, the Court denied the motion on that basis (and because Petitioner filed no motion for leave to file the motion to vacate out of time). Judge Halpern also noted that Respondent included a penalty approval form that demonstrates managerial approval regarding the penalties in question. This seems to leave the door open for Petitioner to file a motion for leave; are there perhaps Clay problems lurking here as well? I wouldn’t foreclose the prospect of further activity in this docket.