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Petitioner’s claimed $5,094 deduction for home office
expenses was based on his belief that his book writing project
was a separate activity from his occupation as a university
professor. We are unable to find that petitioner was negligent
or disregarded rules or regulations in claiming this deduction.
Therefore, while that part of the underpayment of tax
attributable to the $5,094 claimed deduction for home office
expenses is not subject to the section 6662(a) penalty under
section 6662(b)(1), it is part of the substantial understatement
of income tax subject to the section 6662(a) penalty under
section 6662(b)(2). The applicability of section 6662(b)(2) to
the underpayment attributable to the home office expenses
deduction will depend on the magnitude of the understatement of
tax as calculated under Rule 155.
Petitioner claimed deductions for business travel and
transportation, and for meals and entertainment expense for which
he apparently maintained no contemporaneous records. At trial,
petitioner submitted records in support of these deductions that
were patently unreliable. Petitioner further claimed deductions
for the trading cost of securities in the absence of any
statutory authority for such treatment. He also claimed a
deduction for a vehicle under section 179 even though he had no
income from the claimed business activity in which the vehicle
allegedly was used. These deductions were claimed in the absence
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