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[DO NOT PUBLISH]
IN THE UNITED STATES COURT OF APPEALS
FOR THE ELEVENTH CIRCUIT
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No. 19-12653
Non-Argument Calendar
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Agency No. 021096-15
MICHAEL E. BROWN,
MIRIAM MERCADO-BROWN,
Petitioners - Appellants,
versus
COMMISSIONER OF INTERNAL REVENUE,
Respondent - Appellee.
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Petition for Review of a Decision of the
U.S. Tax Court
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(March 30, 2020)
Before WILSON, ANDERSON and MARCUS, Circuit Judges.
PER CURIAM:
Petitioners-Appellants Michael E. Brown and Miriam Mercado-Brown
(together, the “Browns”) appeal from the decision of the United States Tax Court,
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which held that taxpayer Brown’s travel expenses in 2012 and 2013 were not
deductible under the Internal Revenue Code (“IRC”), leading to deficiencies in the
Browns’ federal income tax for those years of $3,669 and $17,905, respectively, and
that they were liable for negligence penalties for those years of $734 and $3,581,
respectively. On appeal, the petitioners argue that the Tax Court erred in declining
to consider uncontroverted factual evidence presented at trial, which established that
Brown’s travel expenses were deductible because his “tax home” was Atlanta,
Georgia, rather than Pennsauken, New Jersey. After thorough review, we affirm.
This case turns on Brown’s work with American Furniture Rental, Inc.
(“AFR”), which is based in Pennsauken, and whether, while he was working for
AFR, Brown’s “tax home” was Pennsauken or Atlanta. Brown, who has been a
certified public accountant for about 30 years, operates what he characterizes as a
“concierge CFO” business called “Project Next,” in which he contracts with
companies to manage their finances and to lead and mentor their finance personnel.
In September 2012, Brown signed a consulting agreement with AFR, agreeing to
provide services beginning in October 2012 for a term of three years, which could
be extended. AFR agreed to pay Brown $150,000 for the first year, $175,000 for
the second year, and $200,000 for the third year.
Under their contract, AFR required Brown to work Monday through Thursday
each week. In the beginning of Brown’s engagement, AFR required him to spend
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those workweeks at its headquarters in Pennsauken. However, the evidence
concerning the second half of 2013 is conflicted -- while Brown testified that during
that period, he negotiated with AFR to work two weeks in Atlanta and two weeks in
Pennsauken in order to offset travel costs, in other testimony he said he “was in a
hotel room for 17 months every week” from October 2012 to February 2014.
Around this same time, Brown worked for two other companies: Park Mobile
(April 2011 to April 2012) and Pango (2012 to 2014). But Brown did not indicate
where he worked for Park Mobile or how much time he spent on that work; as for
Pango’s work, Brown said he did it either in Atlanta, at AFR’s offices in Pennsauken,
or in a hotel room, but he did not provide the amount of time he spent on that work
either. Brown also testified that he did administrative work for Project Next, his
concierge CFO business, in Atlanta and marketed his business “from anywhere,”
including Atlanta, since he typically marketed his business online, but again, he did
not detail how much time he spent on these administrative and marketing tasks.
In Brown’s 2012 tax returns, he deducted $10,065 in expenses based on his
travel between Atlanta and Pennsauken; in his 2013 returns, he deducted $52,617 in
expenses based on this travel. The IRS disallowed the travel expense deductions for
both years, resulting in income tax deficiencies of $3,669 for 2012 and $17,905 for
2013, and imposed a negligence penalty of $733 for 2012 and $3,581 for 2013.
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The Browns then petitioned the Tax Court for review of the IRS’s decision.
They argued that the IRS erred in disallowing Brown’s travel expense deductions
because his travel from his tax home in Atlanta to AFR in Pennsauken was for
business purposes and, therefore, deductible. The Tax Court disagreed. The court
found that Brown’s tax home became Pennsauken when he began working for AFR.
In support of its finding, the court noted that Brown’s engagement with AFR was
indefinite and that, in light of the three-year term of the consulting agreement, Brown
could not have expected the engagement to be temporary. The court refused to credit
Brown’s testimony, in the absence of any travel records and receipts, that he began
to work alternate two-week periods in Pennsauken and Atlanta in mid-2013, and
observed that Brown’s testimony about his work for other companies was vague. As
for Brown’s claim that his tax home had to be Atlanta because he had no principal
place of business from 1998 through 2013, the Tax Court found no authority for
expanding the scope of inquiry beyond the years at issue. Thus, the court concluded
that Brown’s trips from his tax home in Pennsauken to Atlanta were not for business
purposes and, accordingly, the associated expenses were not deductible. The court
also affirmed the IRS’s imposition of penalties for both years, since Brown relied
only on the absence of deficiencies as a defense. This timely appeal followed.
We review the Tax Court’s factual findings for clear error, and its legal
conclusions de novo. Bone v. Comm’r,
324 F.3d 1289, 1293 (11th Cir. 2003).
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Whether certain travel expenses are deductible under the IRC “is purely a question
of fact in most instances.” Comm’r v. Flowers,
326 U.S. 465, 470 (1946); see also
Michel v. Comm’r,
629 F.2d 1071, 1073 (5th Cir. 1980).1 We also review for clear
error whether a taxpayer acted with reasonable cause and in good faith when making
a tax underpayment. Gustashaw v. Comm’r,
696 F.3d 1124, 1134 (11th Cir. 2012).
The Internal Revenue Code allows a deduction for travel expenses incurred
“while away from home in the pursuit of a trade or business.”
26 U.S.C. § 162(a)(2).
A taxpayer only may deduct travel expenses directly attributable to the conduct of
the taxpayer’s business.
26 C.F.R. § 1.162-2(a). According to the Supreme Court, a
deduction under
26 U.S.C. § 162(a)(2) is only warranted if: (1) the expense is
reasonable and necessary; (2) the expense is incurred while away from home; and
(3) the expense is incurred in pursuit of business. Flowers,
326 U.S. at 470. The
taxpayer bears the burden of proving the entitlement to a deduction. United States
v. Gen. Dynamics Corp.,
481 U.S. 239, 245 (1987).
Under our case law, “[a] taxpayer’s home, for purposes of section 162(a)(2),
means the vicinity of his principal place of employment and not where his personal
residence is located, if such residence is located in a different place from his principal
place of employment.” Michel,
629 F.2d at 1073; see also Jones v. Comm’r, 444
1
In Bonner v. City of Prichard,
661 F.2d 1206, 1209 (11th Cir.1981) (en banc), we adopted as
binding precedent all Fifth Circuit decisions issued before October 1, 1981.
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F.2d 508, 509-10 (5th Cir. 1971); Curtis v. Comm’r,
449 F.2d 225, 227 (5th Cir.
1971); Masline v. Comm’r,
30 T.C.M. (CCH) 850 (1971), aff’d,
462 F.2d 1328 (5th
Cir. 1972). A taxpayer is “away from home” if the taxpayer is required to travel
away from his principal place of business for temporary work. Michel,
629 F.2d at
1073; see Peurifoy v. Comm’r,
358 U.S. 59, 60-61 (1958); Groover v. Comm’r,
714
F.2d 1103, 1104-05 (11th Cir. 1983). “A taxpayer who accepts permanent or
indefinite employment in a location different from that of his residence . . . is
considered to have moved his tax home to the new location, and is therefore no
longer considered away from home.” Michel,
629 F.2d at 1073.
On the record before us, the Tax Court did not clearly err in finding that
Pennsauken was Brown’s principal place of business from October 2012 through
December 2013. For starters, Brown does not challenge on appeal the Tax Court’s
finding that his engagement with AFR was indefinite and not temporary; as the
record reflects, Brown’s consulting agreement with AFR had a term of three years,
with the possibility of an extension. Further, we cannot say that the Tax Court
clearly erred in finding that Brown spent more time working in Pennsauken than
Atlanta or anywhere else. Brown admits that he “worked mostly from Pennsauken”
at the beginning of his work for AFR, but says that he negotiated, in mid-2013, to
begin working alternate two-week periods in Pennsauken and Atlanta. However,
Brown also testified that he “was in a hotel room for 17 months every week” upon
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starting work with AFR (i.e., from October 2012 through February 2014). In
addition, he gave an earlier statement to the IRS examining agent that, as of August
2014, he was still traveling between Pennsauken and Atlanta “every week.” While
Brown says that his use of the phrase “every week” was mere slip of the tongue,
nothing in the record supports this interpretation. As the Tax Court observed, Brown
could have, but did not, support his contrary testimony with travel records, which
warranted an inference against him on this issue. See Mammoth Oil Co. v. United
States,
275 U.S. 13, 52 (1927) (where a party fails to produce evidence that is
uniquely in its possession, the natural conclusion is that the evidence would be
unfavorable to the party). On this record, the Tax Court did not clearly err in finding
that Brown worked four days every week in Pennsauken through December 2013.
See Anderson v. City of Bessemer City, N.C.,
470 U.S. 564, 575 (1985) (observing
that a factfinder may reasonably refuse to credit internally inconsistent testimony).
As for Brown’s claim that he did other work in other locations during this
period, it is too vague. He said he did administrative work for Project Next, his
concierge CFO business, in Atlanta; his online marketing work “anywhere”; and his
work for Pango either in Atlanta, at AFR in Pennsauken, or in a hotel room. But he
offered no evidence as to the amount of time he spent on these activities, making it
unclear whether he spent more time on them than he did on his work for AFR (i.e.,
four days per week) in Pennsauken. Further, Brown did not claim a home office
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expense deduction for the business use of his Atlanta home for either 2012 or 2013,
reasoning that he did not do so because the benefit would have been insignificant,
but this explanation only bolsters the notion that he did not primarily work from
Atlanta. What’s more, between October 2012 and December 2013, AFR was
Brown’s sole source of business income. 2 Accordingly, Brown’s claim that he did
non-AFR work from Atlanta during this period is unsupported by the record and
irrelevant, since we are unable to compare the amount of time he spent in each place.
The Tax Court also correctly rejected the argument that, because Brown had
worked for various clients in various locations since 1998, he should be deemed to
have no regular place of business and therefore his permanent residence in Atlanta
should be considered his tax home. The Tax Court has recognized that, if a taxpayer
has no regular principal place of business during the period in question, the
taxpayer’s permanent residence is deemed to be his tax home. See Zbylut v.
Comm’r,
95 T.C.M. (CCH) 1172 (2008) (merchant sailor’s permanent residence in
the United States was tax home because he spent tax year aboard cargo ship docking
at various ports); Johnson v. Comm’r,
115 T.C. 210, 212-14, 223 (2000) (same). As
2
Brown reported income from AFR for $37,500 in 2012 and $184,759 in 2013. While he
reported income from Park Mobile for 2012, his engagement with Park Mobile ended in April
2012, before he began working for AFR (and began incurring travel expenses between
Pennsauken and Atlanta) in October 2012. He reported no income from Pango during this time
and did not even submit into evidence the Form 1099 from Pango he claimed he had received.
We are unpersuaded by Brown’s suggestion that he, a CPA of about 30 years, simply neglected
to report his income from Pango.
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for whether, as Brown argues, the court should consider a taxpayer’s travels outside
the period under examination, the Tax Court solely has done so to evaluate the
taxpayer’s reasonable expectation concerning the duration of the employment at
issue for the period under examination, or for background purposes. See, e.g.,
Michel,
629 F.2d at 1074-75. However, Brown offers no authority, nor any
persuasive reason for taking into account his travels and employment in years other
than the years at issue in order to determine whether he had a principal place of
business for the year in question. In short, the Tax Court did not clearly err in finding
that Pennsauken was Brown’s principal place of business between October 2012 and
December 2013.
Nor, moreover, did the Tax Court clearly err in finding that there was no
business purpose to Brown’s trips from his tax home in Pennsauken to his residence
in Atlanta. While the IRC generally prohibits deductions for “personal, living, or
family expenses,”
26 U.S.C. § 262(a), there is an exception for the deduction of
otherwise nondeductible personal living expenses if they are incurred “while away
from home in the pursuit of a trade or business.”
Id. § 162(a)(2). Notably, “[t]he
exigencies of business rather than the personal conveniences and necessities of the
traveler must be the motivating factors.” Flowers,
326 U.S. at 474. A taxpayer may
not deduct travel expenses necessitated by his decision to maintain a residence
distant from his employment, where that decision is irrelevant to his employer or
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business. See
id. at 473-74; Groover,
714 F.2d at 1104. Here, Brown could be
“anywhere” when doing his administrative work for Project Next, and he gave no
reason for having to be in Atlanta to do his work for Pango or for any other aspect
of his business. Rather, Brown’s trips to Atlanta and decision to maintain a home in
Atlanta appear to have been motivated by a personal desire to spend time with his
family that did not benefit either AFR or his other business, especially since his
contract with AFR required him to be in Pennsauken four days per week. Therefore,
the Tax Court did not clearly err in finding that Brown’s travel expenses were not
incurred “in the pursuit of a trade or business” and were nondeductible personal
expenses. See
26 U.S.C. §§ 162(a)(2), 262(a); Flowers,
326 U.S. at 470, 473-74.
Finally, the Tax Court did not err in upholding the IRS’s twenty-percent
penalties against the Browns under
26 U.S.C. § 6662. This provision defines
“negligence” as any failure to make a reasonable attempt to comply with the IRC
and to exercise ordinary and reasonable care in the preparation of a tax return.
26
U.S.C. § 6662(c);
26 C.F.R. § 1.6662-3(b)(1). As we’ve noted, Brown’s background
was as a CPA and finance professional, and his sole defense against the penalties, in
the Tax Court and on appeal, is that he does not owe the tax deficiencies. He has
waived any other argument about the penalties, including the existence of reasonable
cause. See Access Now, Inc. v. Sw. Airlines Co.,
385 F.3d 1324, 1330 (11th Cir.
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2004). Thus, because the Browns are liable for the deficiencies, they are liable for
the penalties as well.
AFFIRMED.
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