Willard Michael Christine & Patricia Ethel Borgia, Petitioners

T .C . Memo . 2010-14 4 UNITED STATES TAX COUR T WILLARD MICHAEL CHRISTINE AND PATRICIA ETHEL BORGIA, Petitioners V . COMMISSIONER OF INTERNAL REVENUE, Responden t Docket No . 15410-08 .

Filed June 30, 2010 .

R determined a deficiency in income tax for Ps' 2005 taxable year on account of disallowed business expense deductions .

Held : Although Ps established that H's author activities, were an existing trade or business engaged in for profit, they failed to substantiate most of their claimed deductions, and those expenses are therefore nondeductible .

Held : Ps are not liable for a penalty under sec .

6673(a) (1), I .R .C .

Willard Michael Christine, pro se .

Amy Long and Miles Friedman , for respondent .

SERVED JUN 3 0 2010

MEMORANDUM FINDINGS OF FACT AND OPINION

WHERRY, Judge :_ This case-is before the Court on a -timely petition for redetermination of a`$3,994 income tax deficiency that respondent determined for petitioners' 2005 tax year . The issues for. decision are : (1) Whether petitioners are entitled to deduct unreimbursed employee business expenses of $9,876 for th e 2005 tax year ; (2) whether petitioners are entitled to deduct home office expenses of $11 ; 235 for ; the 2005tax year ; and (3 ) whether the Court should impose a penalty on petitioner s unde r sectionrr6673 (a) (1) .

FINDINGS OF FACT

Some of the facts have been stipulated by the parties . The stipulations,, with accompanying exhibits, are incorporated-herei n by this .reference . At the time the petition was filed, .

petitioners resided in California .

During 2005 Willard Christine was employed by the Los .,, Angeles Times (L .A . Times) as a horse racing reporter . ran 200 5 the L .A . Times reimbursed Mr . . Christine for approximatel y $32,473 .15 of employee expenses .

'Unless otherwise indicated, all section references are to the~Internal Revenue Code (Code) of 1986, as in effect for th e year in issue ., and all Rule references are to the Tax Court Rule s of Practice and Procedure .

ZThis .determination is based on records of the L .A .-Time s kept in the ordinary course of-business-for the 2005 tax year, (continued .

Petitioners filed a joint Form 1Q⁴⁰, U .S . Individual Income f Tax Return, for the 2005 tax year . Or Schedule A, Itemized Deductions, petitioners claimed $9,876 for unreimbursed employee business expenses and $11,235 for home office . expenses less $2,709 (2 percent of adjusted gross income) . During examinatio n of their 2005 joint Federal income tax return, petitioners mailed respondent more than 700 pages of copied receipts, calendar pages, and account statements . The March 28, 2008, notice of deficiency disallowed petitioners',$18,402 of claimed miscellaneous deductions .

A trial was held on June 16, 2009, in Los Angeles, California . On January 8, 2010, respondent filed a motion to impose a penalty under section 6673 . On February 12, 2010, at the Court's direction, petitioners filed a response t o respondent's motion .

I .

Burden of Proo f As a general rule, the Commissioner's determination of a deficiency is presumed correct, and the taxpayer bears the burde n of proving that the determination is improper . See Rule 142(a) ; Welch v . Helverin , 290 U .S . 111, 115 (1933) . However, pursuant 2( .

. .continued) including an expense report for Mr . Christine, consisting of approximately 80 pages of itemized and reimbursed expenses for the 2005 and 2006 tax years and "the Tribune Company American Express Travel & Entertainment Cardholder Agreement Form" .

to section 7491 (a) (1) , the ;burden of proof on factual , :issue s affect .the taxpayer's tax 'liability : may be,shifted to the .

Commissioner where,,the "taxpayer introduces credible evidence .

, with respect oto : *°* * such issue . The burden will, -shift-onlyi -I f the taxpayer has, inter alia, :complied with, substantiation requirements : pursuant to the Code,-and "cooperated with reasonabl e requests by the Secretary for,witnesses,'information,xdocuments' ; meetings, and interviews Sec .-7491 ( .a) (2) . Petitioners did` no t argue that the burden should shift, : and they failed' 'to lcompl y with the substantiation and cooperation requirements .

Accordingly,,the !burden of . = proof remains on petitioners . ., II .

Unreimbursed EmploveeExpense s General-Rule s Deductions are a matter of legislative grace,=and<th e taxpayer bears the burden of proving that he is entitled to- .,an y claimed deductions .

INDOPCO, Inc . v .` Commissioner , 503 U .S .

84 (1992) . Taxpayers must maintain records relating to_.thei r income and . expenses and mu'st,prove their-entitlement to al l claimed deductions, credits, .. and expenses in controversy .- ,Se e sec . 6001 ; Rule 142(a) ; INDOPCO, Inc . v Commissioner ,' supra -at .

84 ;- Welch v . Helyerind , supra :at .115 .

,Pursuant to section 162(a), a taxpayer is entitled to deduct, , all of the ordinary and necessary unreimbursed busine's' s paid or incurred during the taxable year'i(cid:127)n carrying on .

or business .

Lucas v . Co mm issioner , 79 T .C . 1, 6 (1982) .

However , an employee cannot deduct . such expenses to the extent that the employee is entitled to reimbursement from his or her employer for expenditures related to his or .her status as an employee .

Orvis v . Commissioner , 788~F . 2d 1406 , 1408, (9th Cir .

1986), affg . T .C . Memo . 1984-533 ; Lucas v . Commissioner , supra at 7 . Along with other miscellaneous-itemized deductions , unreimbursed employee . expenses are-subject to the two percent of adjusted gross income limitation under section 67(a) .

The taxpayer bears the burden . of . proving that claimed expenses were ordinary-and necessary as required by section.162 .

In certain circumstances, the taxpayer must meet specifi c substantiation requirements in addition to section 162 . See sec .

274 . To be "ordinary" the transaction which gives rise to the expense must be of a-common or frequent occurrence in the type o f business involved .

Deputy v . du Pont , 308 U .S . 488, 495 (1940) To be "necessary" an expense . must be appropriate and helpful" t o the taxpayer's .business .

Welch v . Helvering , supra at .113 .

Additionally, the expenditure must be "directly connected with or pertaining to the taxpayer's trade or business" . Sec .

1 .162- l(a), Income Tax Regs' .

A claimed expense (other than those subjected to heightened scrutiny under section 274) may be~deductible-even where the taxpayer is unable to fully substantiate it . There must, however, be sufficient evidence in the, record to provide arbasis t upon which an estimate may be made and to,permit us to .conclude(cid:127) that a deductible expense, rather than a nondeductible personal expense, was incurred in at least the amount . allowed .

William s v . United States , 245 F .2d 559, 560 (5thCir .- 1957) ;' Cohan .v .

Commissioner , 39 F .2d 540, 543-5441(2d Cir . 1930) ; . Vani .cek_v .

Commissioner -, 85 T .--C . 731, .742-743 (1985)- . But see Sanford V-.

.

Commissioner , 50 . T .C . 823, . 827-828 .:,(1968), affd . per curiam 412 F .2d 201 (2d Cir . 1969) ; ,sec .-l .274-5T(a), Temporary Income-Tax .

Regs . , 50 Fed . . Reg . . . 46014 (Nov .

6, = .1985) .

In these instances, the Court is permitted to make as close an approximation of the allowable expense as . it can, bearing heavily against the-taxpayer whose inexactitude is of his or her own making . _ Cohan v . .

Commissioner ,1 supra at 543-544 . _ .Section 274(d) applies to : (1) Any traveling expense, including meals and lodging away from home ; (2) entertainment , amusement, and . recreational expenses . ; or (3) the use of "listed property,', as defined in section 280F(d)(4), including personal computers . To deduct' such-expenses, the taxpayer mus t substantiate by adequate records or sufficient evidence to corroborate the taxpayer's own testimony : (1) The amount of the_ expenditure or use ; (2) the time .and place. of the travel, entertainment, amusement, recreation, . or use ; (3) its,business :.

purpose ; and in the case of entertainment :, (4) the business .

relationship to the taxpayer of each expenditure or use . Sec .

.

2 7"4 (d.)

.

To satisfy the adequate records requirement of section 274, a taxpayer must maintain records and documentary evidence that in combination are sufficient to establish each . element of an expenditure or use . Sec . 1 .274-5T(c)(1) and (2), Temporar y Income Tax Regs ., 50 Fed . Reg .46016,'46017 (Nov . 6, 1985) .

Although a contemporaneous log is not'':required, corroborative' I` - evidence to -support a taxpayer's reconlstruction "of the elements *,of the expenditure or .use must . have -a high degree o f probative value to elevate such statement" to. the level o f credibility of a contemporaneous record . Sec . 1 .274-5T(c)(I), .

Temporary Income Tax Regs .,. supra .

Petitioners presented to respondent-hundreds of pages o f receipts, bills, and account statemen t s to substantiat e unreimbursed employee expenses for 200 5 . Much of the informatio n presented is illegible and unorganized . However, the claimed expenses can be separated into two groups : . (1) Those relating to .Mr . . Christine's employment- as an L .A . 'Times reporter ; and (2 ) those relating to author activities M Christine undertook i n 2005 .

The materials submitted to substantiate the claime d unreimbursed employee expenses . relating to Mr . Christine' s employment at the L .A . .Times appear to` fall into'the following r categories : Travel expenses, entertainment expenses, ; mileage expenses, and other miscellaenous expenses .

' B .

L .A . Times Unreimbursed Employee Expense s 1 .

Travel Expense s Strict substantiation requirements,of section .27 .4,(d)-apply to travel expenses . Petitioners,presented various„ydocumentation relating t;o :air travel, accommodations,,car rentals, . and meals ; .and transportation expenses for L . A . Times business -related` .

travel in ,.2005 . However, petitioners were also reimbursed . by, the .

L .A . Times over $30,000 for-employee expenses for the 2005 tax , year, most of which'were travel related . Upon careful, examination of. the record, it is unclear to the Court which, , expenses petitioners are claiming as deductions and which expenses they are acknowledging were reimbursed by the .L ., Times .

For example, petitioners . included in the materials the y submitted to substantiate unreimbursed employee expenses for 200 5 a,receipt"from the Algonquin Hotel dated October 31,, .2005, for ..

total amount billed of,$3,331 . This receipt relates t accommodation and telephone charges for the period October 21 to, October 3 1 , 2005 .

Petitioners wrote on the receipt "Biz B reeders Cup" . However , the,_L . A . Times , expense report for Mr .#Christin e for 2005 indicates that .$3..,331 .was "paid to" Mr . Christine i n relation' to "lodging"-for the Breeders Cup that ended on October 31, 2005 . Additionally, in the entry, for "Breeders Cup" , the L .A . Times expense report for Mr . Christine indicates that a further $3,209 .08 was reimbursed to petitioners in relation to "airfare", "mileage", ."meals" ;_"car rental", "telephone", "other", "entertainment", "gifts", "parking/tolls", "taxi/bus/limo", and"tips" . Yet the, materials . petitioners submitted include receipt's related to Breeders Cup travel fo r tolls, meals, parking, car rental, entertainment, mileage, an d taxicabs . Petitioners have not shown that any of the travel , expenses they submittedin relation toy Breeders Cup travel were not included in the expenses previously reimbursed by the L .A .

Times' .

The L .A . Times reimbursed Mr . Christine for similar trave l expenses relating to 10 other races in 2005, including the Belmont Stakes, Del-Mar, Hollywood Park, the Florida Derby and the Preakness . Yet -petitioners included .in the materials the y submitted to substantiate unreimbursed employee expenses for 2005 receipts and statements relating to the same categories of expenses for these races as were reimbursed by the L .A . Times .

Mr . Christine testified during trial that he-understands he cannot claim,a deduction for expenses that-were previously reimbursed by his employer, 'but from the record the Court cannot discern which expenses petitioners are . claiming as,unreimbursed ..

On the basis of the materials admitted into evidence, petitioners 1 0 are attempting to claim' travel expenses 'for 2005 that' the 'L .A .

Times has previously reimbursed .

Mr .- .Christine testified at trial that he did not :recall the dollar amount -of°-the ` expenses .that the-(cid:127)L' .A . Times reimbursed him for in 2005 and .that, he did not subtract this reimbursed amount ' from the total amount of his employee business expenses .

Nevertheless, hewas surprisingly . ableto'determine,th e difference ; between, the amount that he had claimed on his ,retur n and the amount-that the L .A . Times'had reimbursed him .

Employee expenses are not deductible .if .an employee is ;: :

entitled to' reimbursement from his or,her employer for " expenditures related to his or her status as an employee' .

Lucas v . Commissioner ,-79 T .C . .1 at 7 . Petitioners have failed to ; carry their burden of proving -that any of the separately claimed travel expenses were not reimbursable by,theL .A . Times or did .

:

not constitute personal expens'es . _The Court cannot determin e from the material presented which travel expenses wer e reimbursed . Because petitioners have-not shown that the claime d expenses were indeed,unreimbursed .and unreimbursable, we must .

deny . all the travel expenses .

2 .

Entertainment Expense s .Section .274(d) requires the taxpayer-to substantiate the, amount, time, place, and--business purpose of each entertainmen t expense, "by adequate records or by sufficient evidence corroborating the taxpayer's own statement" .

Campbell v . .

Commissioner , 164 F ..3d 1140, 1143 (8th Cir . 1999), affg . in part- and-remanding T .C . Memo . 1997-502 . Peltitioners submitted pages of receipts, bank statements,, and credit card bills but did not provide a business purpose for any1of the claimed expenses . o n some of the submitted materials petitioners wrote the name of a particular race and in some instances,t a person's name as well .

.Presumably the expense relates to the ;named race, but the Court cannot determine from'the information provided . why petitioners included various names next to each-exipense or in what way suc h person relates to the claimed expense . Petitioners did,no t testify as to a business purpose at -triial, nor have they provided- any additional information for°any of the claimed entertainmen t expenses .

Petitioners were reimbursed by the L .A . Times for numerou s "meals" and "entertainment" expenses for 2005 . Petitioners have provided no evidence that the claimed entertainment expenses were not previously reimbursed or reimbursalble .- Petitioners did not carry their burden of properly substantiating any of the claimed unreimbursed entertainment expenses-relating to Mr . Christine's L .A . Times employment . . -Accordingly, .~petitioners are not entitled to a deduction for. any entertainment expenses .

Mileage Expense s The strict substantiation requirements of section 274(d .)

also apply. to away-from-home business mileage expenses . ., Smith v .

Commissioner ,80 T .C .' 1165, 1172 . (1983) The amount .-of the business travel may be substantiated by . the use of ar, .contemporaneous log .or by any reasonable means establishing the" number of miles , traveled,the date, the place ; and the busines s purpose of such . miles .

Id .

Additionally,' the amount for , away-from-home business mileage .can be determined*on-the basis of a mileage allowance . The Commissioner has established .mileage .

allowances„deemed to-substantiate the amount of the expense incurred operating a vehicle . . The standard mileage rates for .

2005 are .set forth in Rev . Proc . 2004-64, 2004-2 C .B . 998, andw= Announcement 2005-71, 2005-2 C .B . 714 .

Mr . . Christine does not own an automobile, and the mileag e expenses claimed in 2005 are related to rental car usage .

M Christine testified ..that he used the standard mileage rate for miles that:. he drove a rental car which he considered busines s miles , that were not .reimbursed .

The standard mileage rate fo r employees who claim deductions forthe,cost-of operating ., automobiles for business purposes applies only to personall y owned or leased automobiles . ' Kravette v . Commissioner , T .C .

Memo . 1987-124 ; Kozlowski v . Commissioner , T .C . Memo . 1977-81 ; Rev . Proc . 2004-64, sec . 4, 2004-2 C .B . at 900 . Consequently , 13 - petitioners may no.t .use the standard-mileage rate for computing expenses .of(cid:127)travel in rental cars . Because petitioners did not provide alternative evidence to substantiate . the mileag e expenses, e .g ., a contemporaneous log of business travel , petitioners are not entitled to a deduction for vehicle expenses .

4 .

Laptop Expenses ' Petitioners submitted approximately seven different expenses, labeled "lap-top It appears from the record that most of these .

expenses are .for the purchase of computer software and/o r computer accessories . Expenses relating to the personal use of computers are subject to the strict substantiation .requirement s of section'274 . Hence, to deduct such expenses, the taxpayer .must substantiate the amount of the expenditure,-its busines s purpose, and the business relationship to the taxpayer of each expenditure or use . . Sec . 274(d) .

Petitioners` have not presented to the Court any information relating to claimed laptop expenses, other than receipts .

Accordingly,'petit-ioners have not met the substantiation ' requirements' with regards to the laptop expenses and they are disallowed under section 274(d) .

5 ."

Miscellaneous Expense s Petitioners claimed miscellaneous L .A . Times unreimbursed employee expenses relating to dry cleaning , trade publications, and mailing expenses .

As previously stated, section 162(a) - 14 , authorizes a deduction for ."all the ordinary and necessar y expenses . paid or incurred during the . .taxable year in carrying on ..

any trade or business" . A trade or business . expense is ordinary for purposes of section . 162 . ; if . it is normal or customary within'a particular trade, business, .,or industry and is necessary if,it ;'is- appropriate and helpful for the development .of the business .

Commissioner v . Heinin er , 320 .U .S . 467, 471 (1943)=; Deputy v . du Pont , 3 .08 U .S . . at 495 . ,In contrast, "personal,' living, .or .family expenses" are generally . nondeductible . . . See sec . 262(a) .

Petitioners have provided no evidence that dry' cleaning is - a normal .or-customary expense in the business, of sports writing ; nor have : they= shown that- dry cleaning ; Mr .- Christine's clothes, which were suitable for, ordinary. everyday wear, was appropriate,.

or helpful, for the pursuit of his business ., On the basis of th e record, Mr . Christine's dry cleaning is properly classified as a personal expense and hence is not a deductible business expense' under section 162 . . See Coppin v . Commissioner , :T .C . Memo . 200 9 221 ; Boltinghouse v . Commissioner , T .C . Memo .-2007-4324 ; Johnso n v . Commissioner ,, .T .C . Memo . '1982-2 ; Tilney V . Commissioner , Memorandum Opinion of this Court dated Feb . :9, 1953 .

Petitioners submitted expenses relating to . various trade publications, including an expense for a subscription o,the .L .A .

Times . Taxpayers'are entitled to deduct all .ordinaryan d necessary unreimbursed and unreimbursable business expenses-paid, , - 1 5 or .incurred during the taxable year in carrying on a .trade or business .

See sec . 162(a) ; .- Lucas v . CI{ommissioner , 79 T .C . at 6 .

Mr . Christine testified that thelL .A . Times would provide him with a free paper if he drove-into its offices . Responden t claims that because Mr . Christine was eligible . for a free paper via his status as an employee of : the .h .A . .Times, he is not able to claim his subscription as an unreimbursed employee expense .

The L .A . Times offices are approximately 20 miles from petitioners' home . . An employee cannot! deduct expenses . to the extent that the employee is . entitled to reimbursement .from his employer for expenditures related to his 'employment .

Lucas v .

Commissioner ,, supra at = 7 . -However , it is'not reasonable to expect Mr . Christine to drive 20 miles each way to obtain a free newspaper . Accordingly, the subscription to the L .A . Times is allowable as an unreimbursed employee expense under section 162 .

On the basis of the record, petitioners are entitled to unreimbursed employee ex p enses for trade publications in th e following amounts for 2005 : $252 for the L .A .-Time s subscription, $10 for the "CHRB Annual Report", $35 .54 for th e "Daily Racing Form", $155 .28 for the N ewYork Times, $38 for th e "Daily Racing Form's Simulcast Weekly" $70 for-"Derby .Books", and $50 .81 for the "Daily=Racing Form" r for a .total of $611 .63 o f allowable deductions .

16 - Petitioners also submitted various mailing expenses labeled .- "bi z " for the 2005 tax year . Mr .Christine testified that :the' mailing expenses were business related to the L .A . ;Times .

Respondent' claims that-because the L .A . Times would have paid for.

Mr . Christine's mailing expenses had he driven to : their offices, he is not able to claim his mailing' expenses as an-unreimbursed employee expense- As previously noted, the :L .A Times` .offices .are approximately . 20 miles from petitioners' home ., Accordingly, it .

is not reasonable to expect Mr . Christine to drive 20 miles each way for :the purposes-of mailing . On the basis of the record, the- Court-finds that . petitioners are".entitled to a .total of $1 .56 .9 8 for unreimbursed mailing expenses in .2005 .

'Petitioners also submitted two'expenses relating to unreimbursed membership fees .for 2005, one-for the National,Turf Writers Association and another .for the Los Angeles Press Club :

Membership.. in these organizations~can,be considered an ordinary , business expense related to the profession of sports writing in Los Angeles : Accordingly, . petitioners are entitled .to a :

deduction for-unreimbursed membership fees in the following .

amounts .for 2005 : $40for,membership in the . National Turf ' h Writers Association and $80 for membership in .the Los . Angele s Press Club .

C .

Author Expense s Whether Mr . Christine's author expenses are deductibl e depends upon whether they are hobby expenses, startup expenses , or ordinary and necessary expenses .of .,Mr . Christine's already active trade or business .

1 .'

Section 183 "Hobby" Losse s Section 183, which applies to activities engaged in by individuals, generally limits, the deductions .for an "activity not engaged in for profit " to the amount c~ f gross income receive d .from the activity . Sec . 183(a) and (b) . Section 183(c) defines an "activity not engaged .in for profit" as "any activity other, than one with respect to which deductions are allowable for the taxable year under section 162 or under paragraph (1) or (2) of section 212 ." Pursuant to the jurisprudence of the Court of Appeals for the Ninth Circuit, the court to which an appeal of, this case would lie absent a stipulation to the contrary, an activity is engaged in for profit .if=the taxpayer's "predominant, primary or principal objective" in engaging in the activity wa s for profit .

Wolf v . Commissioner , 4 F .3d 709, 713 (9th Cir .

1993)(cid:127), aff .g .

.T .C . Memo ., 1991-212k In this context ; the ter m "profit" denotes economic profit, independent of tax. savings .

Id . ; Antonides v . Commissioner , 91 T .C . 686, 693-694 (1988), affd . 893 F .2d 656 (4th Cir . 1990) . Whether the requisite profi t objective exists must be resolved on the basis of all surrounding - 18 , facts and circumstances . Golanty v . Commissioner , .72-T. . C . 41 .1 , 426 (1979), affd . without published opinion 647 F .2d 170 .(9th Cir . 1981) ; sec .'1 .183,2(b), Income Tax Regs . A taxpayer' s profit objective need-not be reasonable , but it must be,bon a fide .

Golanty v . Commissioner , supra at 426 .

Section 1 .183-2(b), Income .Taxr(cid:127)Regs ., sets forth a ' nonexclusive . list . of nine factors to consider in ascertainin g taxpayer's' .objective*in engaging in-an activity . These factors .

are :

: (-1) „The manner in . which, the taxpayer carries on the activity, ; (2) the expertise of the taxpayer .or his advisers ; (3) the time and effort spent by the taxpayer . in carrying on th e activity ; . (4 )" the expectation that assets-used in the activit y may appreciate. in'value ; (5) - the success of the taxpayer in carrying onother similar or dissimilar'activities ; . ( 6) the taxpayer's history of income or losses with respect to-thee , activity ; (7) the amount of occasional profits, if any ; r(8) : the .

financial 'status of the taxpayer ; and (9),elements,of .personal .

pleasure or recreation . None of these factors is-controlling .-,in, and of itself,- .and a decision as to a taxpayer',s intent is not, governed by a numerical preponderance of the factors . .- Golanty v .

Commissioner , supra at.426 ; Allen v . Commissioner ,

72 T . .C . 28, .34 .

(1979) ; sec . 1 .183-2( b),~Income Tax Regs .

Taking into account the above factors and'considering th e record-as a whole, the Court concludes that during 200.5. Mr . .

19 - Christine hada bona fide intention to derive a profit from hi s author activities . In addition to Mr .k Christine's testimony on this issue, which the Court found to be credible . and . forthright, the evidence in the record shows an in and effort by Mr .

Christine to engage in and continue in the writing field with the purpose of producing supplemental income and a livelihood .

We first look to the manner in which Mr . Christine carried on the activities . Mr . Christine managed some aspects of this activities in a businesslike fashion . While Mr . Christine did not keep a separate checking account or a well-organized set of books, he did attempt to keep an accounting, albeit difficult to decipher, of the expenses he incurred~to research his books, including bills, receipts, and schedules for-his expenses . In sum, although Mr . Christine could and should have been more organized in keeping track of his expenditures, his : efforts to make a financial success of his writing activity show a profit objective . We conclude this factor isf neutral .

With regard to the second factor, Mr . Christine is a write r by trade and has been actively engagedd, in the writing busines s for approximately 60 years . -He wrot e a book in 1972 that earne d him approximately $10,000 in royalties , as well as some sport s anthology books in later years . Mr . Christine also engaged a n " agent " of sorts to assist him in publishing his second book .

conclude there is,,no question that Mr . Christine has the requisite expertise-to satisfy this factor .

.

The , third . factor focuses on the time 'and effort expended b y the taxpayer in carrying on the activity , There is little doub t that, during the .years tat issue,' . .Mr .. . Christine spent numerous ' hours per,wee,k on his writing'activity . Respondent emphasizes .

that Mr .-Christine worked full time 'for the : L .A . Times , during, 2005 and for theprevious .22 years,-,suggesting'that in some :

manner'Mr . . Christine's . book-writing could not rise to the level of a trade or business because he also had a full-time-jo b We=disagree with respondent . Mr . Christine's employment, at the L .A . Times-does not preclude . . the,,possibility_that his writing , activity constituted a' separate trade or business . We have .- recognized that a taxpayer may engage in more, than one trade :or business at'any, one time . See-; Gestrich v . :Commissioner , 74 T .C, .

Cir . 1982) ; Sherman v . Commissioner,-16 T°. C . 332, 337 (1951) .

The .fourth,factor takes into consideration the expectation that assets'used,in .th'e activity will appreciate in value .

Because . there, are few , if_any., fixed'assets ,involved in writing , this factor is irrelevant .

The fifth factor, the success of the taxpayer in carrying o n other similar or dissimilar activities, is easily met, given Mr .

Christine's engagement asa writer for nearly 60 years . Writin g has been his livelihood and has supported him and his family fo r - .21 - a "lifetime" .

The next two factors, the taxpayer's history of income .or losses with respect to the . activity and the amount of occasiona l profits, are examined in tandem ., Mr . Christine was approached b y Bay Meadows racetrack in 2005 to write'' a book on the . history of the racetrack before it went out of business . There was n o .written contract, but according to Mr . Christine "it . was a handshake deal" . Mr . Christine then went on to-research and, write for approximately the next 4 years . He eventually sold th e book to the Bay Meadows racetrack for 'approximately $35,000, receiving his first,payment of $22,500' in January 2009 .

Additionally, Mr . Christine has made approximately $10,000 i n royalty income ,from his book-writing_a'ctivity in prior years .

Given Mr . Christine's history of income and loss from book writing, the Court finds that these factors are met and strongl y support petitioners' position .

Respondent asserts that with regalyd to the next factor, the financial status of the taxpayer, petitioners' profit objective is suspect because Mr . Christine's . writing activity resulted in a loss that generated .. tax benefits in 200 .5 . Petitioners did not realize'any income . from the book-writing activity until 2009 and were . able to use book-writing losses in 2005 to shelter their other income . However, we do not believe that petitioners' income was so highas to make tax savings their primary ,'-, . Rather, we find it clear from Mr . Christine' s testimony and from, the objective evidence that he was a writer and a book author who desired financial - success and intended to . :, make a profit from his book-writing activity .

The last factor looks to 'elements of personal pleasure or recreation . Writing has been Mr . Christine's occupation-for nearly 60 years . It is apparent to the .Cou-rt,that Mr .-Christine does not merely engage in writing'activity for pleasure-, but 'rather, it ., is his livelihood .- The fact that Mr'. . Christine may enjoy writing does not change the result that he is in the trade or business of .writing . . See Jackson v . Commissioner , 59 T .C .

312, 317 (1979 ) The Court is-convinced that Mr . Christine engaged in his book-writing activity . during 2005 with a .profit objective .

2 .'

Startup Expenditure s Pursuant to section 195(a), startup expenditures are not generally deductible . However, at the election of the taxpayer, startup expenditures may be treated as deferred expenses an d amortized, over at least-a 60-month period beginningin the month in which the active trade or business begins :' See sec .

195(b)(1), (c) : Section 195(c) provides in part :

3Petitioners reported approximately $85,000 in income fo r 2005 .

(1) Startup expenditures .--The telrm "startup expenditure" means any amount-- - 2 3 (A) paid or incurred in connection with-- (i) investigating the creation or acquisition of an active trade or business, o r (ii.) creating an active trade or business, or .

(iii) any . activity englaged in for profit an d for the production of income~before the day on which the active trade or business begins, in"` anticipation of such activitly becoming an active trade or business, an d (B) which, if paid or incur operation of an existing active t same field as the trade or busine subparagraph (A)), would be allowable as a deduction for the taxable year in which paid or incurred .

red in connection with the rade or business (in'the ss referred to i n The taxpayer must elect to amortilze his or'her startup expenditures . Sec . 195(d) .

{ The critical distinction in this area is between expenses incurred in connection with'an existing trade or business,`which are deductible under section 162(x), and expenses incurred i n establishing a new-business , which are ; not currently deductible .

Respondent contends that book writing as a new trade or business for Mr . Christine . and any expenses associated with such activity .

should be'treated as startup expenses ' and amortized-in accordance with section 195 . As previously determined, Mr . Christine wa s involved in the active trade or busin e ss of writing'with a profi t objective . Given Mr . Christine's earl ier book writing activit y dating back to 1972, the Court does not make'a distinction - 2 4 between his book-writing activity and his other for-profi t journalism activity .

Rather , we consider them as part of th e same active trade or business and consider the expense s deductible, subject to the constraints of,s,ections 1623and 274 .

See Colo .'Sprinas Natl . Bank v . .United States , 505 F .2d 1185 , 1190 (10th Cir . 1 .974) .

Petitioners .,claimed various expenses relating tobook- writing activity for 2005, including travel, entertainment, research, and storage expenses . .

The book-writing travel and entertainment expense s petitioners claimed consist mostly of hotel and meal charges .

.

These expenses are subject to the strict - substantiatio n requirements of section 274(d) .

In some instances for meal exp enses , petitioners have written a name on the receipt . However, petitioners did-not m provide the,, Court with adequate, records or testimony explaining , the amounts of the expenditures, the time and pclace,of th e trave l or entertainment, the business, purpose of such travel'or, entertainment, or the business- relationship .. to petitioners of .',-,.

each expenditure . Accordingly, petitioners have failed to carr y .their burden of proof, and are not' entitled . to a deduction . for ., an y travel or entertainment expenses relating to book-writing activity for 2005 .

25 - Research expenses . attributable to purchasing books or other intangible property are ordinary and necessary in the context of book writing . Accordingly, from the record, petitioners are allowed a deduction in their 2005 taxable year of $428 .83 for research expenses related to book writing .

Mr . Christine testified as to offsite storage expenses for 2005 of approximately $90 per month . However, the storage expenses .were not documented anywhere .jin the written material s i petitioner,s .submitted . Accordingly, the Court will not allow a deduction for storage expenses .

III . Home Office Expense s Section 280A generally prohibits the deduction of the cost s of a taxpayer's residence . Section 28,0A(c)(1), however, permit s a deduction for the allocable portion of a residence that i s regularly . and exclusively used as a taxpayer's principal place of business or as`a place of business which is used by customers i n the normal course of the taxpayer's trade or business .

deciding whether'a residence is-the--principal place of .business, it must be compared to all of the other places where business is transacted . See Commissioner v . Soliman , 506 U .,S . . 168,- 17 4 (1993) . A deduction is allowed only when the residence is the most important or significant place for the business . The tw o 'This amount was calculated on the basis of research-related receipts petitioners submitted . .

primary considerations are the relative importance of the activities, performed at each business location and the time .spent-..

at each place . See id ._ at 175 . . The relative importance of yT business activities engaged'in at the office in,the home "may be substantially outweighed by business activities engaged . . in at :- another location ." See Strohmaier v . Commissioner , 113 T .C . 106 , 112 (1999 ) In the case of a taxpayer who . is an employee, the home-1 office must be for theconvenience .of the employer ; it cannot just be a place in which the employee .choos.es to do-some of. his work . Sec . 280A(c) (1) (flush language) ; Frankel v . Commissioner , .

It must be .used .exclusively for the employer's work and not for .personal use . Sec . .28 0A (c') (1) ; Cadwallader v . Commissioner -, 919 F . .2d 1273, 1275 (7th`Cir . `1990), affg . T:-C . . Memo . 1989-356 .- If:'the conditions in section .280A are satisfied, then "even if the home . office is not a separate structure there is a reasonable probability that . the taxpayer's house is actually larger than . it would be if,he did not .

imperatively require a home office ."

Cadwallader v .

~ Commissioner , supra at .1'275% :Further, the "added, expense of the office is .incurred solely to produce income ; it yields no, or at least very little, personal utility ."

Id .

A taxpayer .may have, .'

only one principal place of business for each business in which .

he is engaged . See Curphey v . Commissioner , 73 T .C . 766, 776 (1980) . To determine the principal place of business within the meaning of section 280A(c)(1)( .A) the Court must ascertain -the "focal point" of a taxpayer's business activities .

Jackson v . .

Commissioner , 36 T .C . 696, .700 (1981) ; Baie v . Commissioner , 74 T .C . 105, 109 (1980) .

When Mr . Christine first began his employment with the L .A .

Times, they provided, him with a desk and chair ; but a few year s later he came into-the office to find ;his chair- was missing . Mr .

Christine explained . that there are approximately 60 sports journalists working for the .L .A' . Times and if "as many'as half of us had ever shown up on the same day we would have been working from one another's laps" . The fact tIat the employer provide s inadequate office facilities is-not dspositive of whether a home office is for the convenience .of . .the employer . See Dudley v .

Commissioner , T . .C .-Memo-. 1987_-607, o f d . without publishe d opinion .. 860 F .2d 1078 (6th Cir . 1988) .

However, . it is . unclea r from the record whether Mr . Christine was able to conduct his - book-writing activity at the L .A . Tim s . Therefore, the Cour t must look to whether Mr . Christine's home office is his principa l place of~business and vital to-his,profession as a writer .

Mr . Christine testified-that-out of the six rooms in his home, he used one of the bedrooms and the garage exclusively for e his writing, with the latter being used for storage . Petitioner s calculated their home .office expenses1by computing one-third of 28 - the . .totalrent, insurance, and utilities and adding to that figure all of the'television expenses, because they, subscribed` to two horse-racing channel's .

Mr . Christine testified that : he wrote stories for the L .A, .` Times from his home, press boxes, hotel rooms or-on location, but he did not testify as .to the specific amountrof time he spent writing in each location as compared to'writing in his home' .'

Additionally, during-2005 Mr . Christine was engaged in the business of writing nonfiction and historical fiction` .

anthologies, as .well as sports writing for the L . .A . Times .

.

However, the record does not show how much time Mr . Christine spent on each respective activity .

, .We question the accuracy of petitioners',calculations in computing their home office deduction ., . They included in their estimate one-third of all their home expenses but provided-no .

evidence to the Court that this is an accurate reflection of the costs of maintaining their home office . Second, petitioners did not explain to the$Courtwhy .a home office was vital . to Mr . :

Christine's . profession as a--writer or that it was the "focal point" of his business . From the-record,,it .is apparent Mr .

.

Christine spent a significant amount .of his time traveling an d writing stories from, locations other than his home . 'The'Court .

cannot conclude that petitioners' residence was the most important or significant place for,Mr . Christine's business ; ; 29 - given that the record contains little to no information regarding how much time Mr . Christine spent writing in his home versu s other locations .

Although it might have been inadequate, the L .A . Times, did .

provide Mr . Christine with an office . Additionally, on the basis of the record, the Court cannot conduct an accurate comparison of the time Mr . Christine spent writing at his home relative to the time he spent working elsewhere or determine that a home office was vital to his profession . Accordingly, the Court finds tha t petitioners failed to meet the requirements .of section 280A(c)(1)(A) and are not entitled to a deduction for the expenses of maintaining a home offi .ce .

IV .

Section 6673 Penalt y Section 6673(a)(1) authorizes they Tax Court to impose a penalty not in excess of $25,00.0 on a taxpayer for proceedings instituted primarily for delay or in which the taxpayer' s position is frivolous or groundless .

"A position maintained b y the taxpayer is `frivolous' . where it i s `contrary to establishe d law and unsupported by a reasoned, col orable argument for .change in the law ."' Williams v . Commissioner , 114 T .C . 136, 144 (2000 ) (quoting Coleman v . Commissioner , 791 F .2d 68 , 71 (7th Cir .

1986)) .

Courts generally impose section 6 673(a)(1) penalties i n cases in which the taxpayer's lack of good faith was evident .

- 3 0 See May °.v. Commissioner , 752 F .2d 1301,-1307 (8th Cir . 1985) .

For example ., in a'number of cases the Court has imposed a section 6673 penalty against taxpayers who have filed successive petitions raising the same arguments, (cid:127)even though'the arguments had been rejected in,the prior suits and 'the taxpayers informed- :- that the arguments were- frivolous . 5 In other, cases, the 'Cour t has assessed a section 6673 penalty after finding that the taxpayer had knowledge that . .the claim'was frivolous and had 4:, asserted it'merely to-delay payment of taxes, whether actual, knowledge⁶ or constructive knowledge that the claim, was frivolous . ' 5See Lukovsky v . Commissioner , 734 F .2d 1320 (8th(cid:127)Cir . 1984) (two prior suits) ; Coulter v . Commissioner , 82 T .C .'° 580 (1984) (o.ne,prior .suit)' ; Grimes v . Commissioner , 82 . T .C . 235 (1984) (one prior suit) ; Sydnes v . Commissioner , 74 T .C . 864 (1980), affd . 647 F .2d,813 (8th Cir . . 1981 ) ..(two prior,suits ) .

:

6See, e .g ., Beard v . Commissioner , 82 T .C . 766 (1984) (taxpayer admitted he had studied -cases, statutes, and regulations pertaining to Federal income taxes and that he knew, the theory on which he based his claim had been rejected-as' frivolous), affd . 793 F .2d 139 (6th Cir .-1986) ; Wilkinson v . Commissioner , 71 T .C . 633 (1979) (Commissioner sent copies of opinions 'which .had rejected taxpayer's contentions as frivolous and taxpayer admitted to having read them) ; -Vickers v Commissioner , T .C . Memo . 1983-429 (Commissioner advised . taxpayers in deficiency notice that their claim had no legal basis) ; Stamper y . Commissioner , T .C Memo . 1983-248 (taxpayer had been advised in three previous years that his claim was frivolous and Commissioner advised him in deficiency notice that his position had been repeatedly rejected as frivolous and cited, .in .the .` notice, those cases to taxpayer) .

7See, e .g ., Abrams v . Commissioner , 82 T .C . 403 (1984) ;, Manley v . Commissioner , T .C .- Memo . 1983-558 (counsel ha d (continued .

.

- 3 1 On January 8, 2010, respondent moved the Court to penaliz e petitioners under section 667 .3(a)(1) .

Respondent contends tha t petitioners have maintained proceedings in this case primarily for delay and that their position is frivolous or groundless .

Respondent cites petitioners' unreasonable failure to pursue available administrative remedies as grounds for a section 6673(a) penalty . -Respondent also points to petitioners' refusal to respond to requests to provide information relating to reimbursement policies of Mr . Christine's employer . During a conference with the Internal Revenue Service on May 20, 2009, Mr .

Christine admitted that he was making the Government "jump through hoops" .

Petitioners should have been more, organized with-regard t o substantiation for their claimed expenses, but the Court does no t agree with respondent that petitioners ' conduct warrants a penalty under section 6673(a) .(1) . Section 6673(a)(1) is reserve d for extreme cases , as mentioned above .

We find that petitioner s took their position .in good faith and with reasonable cause an d hence, their claims cannot be classified as frivolous or primarily for the cause of delay . Therefore, we shall exercise great restraint and shall not at this time impose a penalty under section 6673(a)(1) . Petitioners'are warned, however, that w e '( .

. .continued) previously represented another taxpaye which argument had been rejected as fri r raising same claim in ivolous) .

3 2 shall not-be so inclined should they again advance before . th e Court arguments, such as those advanced in,this .case , and-no t provide sufficient evidence to sustain them .

% V .

Conclusio n The Court has considered all of petitioners', contentions,, arguments, requests andstatements .. To the extent not discussed ..

herein , ° we `conclude that they are merit less , moot, o'r irrelevant . .

To reflect the foregoing and concessions byboth-parties, , An appropriate orde r will be issued, and decision

82. T .C . 318, 323, 326(1984)_ .