The Tax Court has upheld an Internal Revenue Service decision to disallow the travel expenses of two married professors, but did not find them liable for an accuracy-related penalty.

Professors Marilyn Noz and Gerald Maguire, Jr., a married couple, maintained separate residences in Stockholm, Sweden, where Maguire lived and worked, and in New York, where Noz lived and worked. They claimed travel expenses for round-trip air travel between the two cities on their 2006 return, in addition to a number of other unreimbursed employee expenses.

The IRS disallowed the total amount of the $29,200 claimed as a deduction, and imposed an accuracy-related penalty of $1,662.

In T.C. Memo 2012-272, the Tax Court, noting that they did not seek professional tax advice or tax preparation services, agreed that the expenses should be disallowed, but found Noz and Maguire not liable for the accuracy-related penalty.

A taxpayer may claim a deduction for travel expenses if such expenses are reasonable, necessary and directly attributable to the taxpayer's business. The court found that the travel between Sweden and New York was motivated by both business and personal concerns, but that the primary motive for the travel was personal. The fact that they were husband and wife suggested a personal motive, and while abroad they did not work solely on their research collaboration; they did not offer evidence as to how they allocated their time between their research collaboration and other work activities, and in fact offered no details concerning the nature of their research collaboration.

"It is difficult for us to conclude that the work requiring foreign travel predominated over the work that did not require foreign travel," the court stated.

However, under Code Section 6664(c)(1), no accuracy-related penalty is imposed on any portion with respect to which the taxpayer had reasonable cause and acted in good faith. The court reasoned that in preparing their returns, the taxpayers specifically consulted IRS Publications 17 and 529. They at least partially complied with record-keeping requirements and they made a good-faith effort to act in accordance with applicable tax law. Therefore the court found that they acted with reasonable cause and in good faith in preparing their 2006 joint return, and were not liable for the accuracy-related penalty.

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