Jacobs v. Comm'r of Internal Revenue

Full title: DANIEL S. JACOBS, Petitioner v. COMMISSIONER OF INTERNAL REVENUE…

Court: United States Tax Court

Date published: Oct 10, 2024

No. 7118-19 (U.S.T.C. Oct. 10, 2024)

Opinion

7118-19

10-10-2024

DANIEL S. JACOBS, Petitioner v. COMMISSIONER OF INTERNAL REVENUE, Respondent

Emin Toro Judge

ORDER AND DECISION

Emin Toro Judge

Now before the Court is petitioner Daniel S. Jacobs' Motion for Costs filed on August 26, 2020, as supplemented on January 12, 2024.

We previously issued an opinion in this case denying Mr. Jacobs' Motion. See Jacobs v. Commissioner, T.C. Memo. 2021-51, vacated and remanded, No. 21-71211, 2022 WL 16707186 (9th Cir. Nov. 4, 2022). Mr. Jacobs appealed that decision to the U.S. Court of Appeals for the Ninth Circuit. That court vacated our denial of Mr. Jacobs' Motion and remanded the case with instructions for reconsideration. See Jacobs v. Commissioner, 2022 WL 16707186.

On remand, Mr. Jacobs supplemented his Motion, and we held an evidentiary hearing from April 11 to 12, 2024, to supplement the existing record and provide Mr. Jacobs an opportunity to call witnesses. Following the evidentiary hearing, the parties filed two rounds of post-hearing Briefs. Upon careful review of the record of this case (including the information Mr. Jacobs provided to the Internal Revenue Service (IRS) during the administrative proceedings), and for the reasons discussed below, we will deny Mr. Jacobs' Motion, as supplemented.

Given the contentious nature of the proceedings in this case, the analysis that follows is long and detailed. But, at bottom, the key issues here are relatively simple and straightforward.

Mr. Jacobs maintains that the documentary record he developed during the administrative proceedings before he filed his Petition in our Court was sufficient to show he was entitled to the deductions he claimed on his returns for 2014 and 2015. He therefore argues that the Commissioner should have immediately conceded the case, rather than denying error in his Answer.

The Commissioner retorts that the documentary record before the IRS at the time he filed the Answer failed to justify the deductions Mr. Jacobs had claimed. In the Commissioner's view, Mr. Jacobs' asserted activities were complicated ("multifaceted," as the Commissioner calls them). And, although those activities had generated no income at all for the two years at issue, Mr. Jacobs had claimed deductions for significant expenditures. As to the expenditures themselves, it was not clear that some had in fact been incurred. It was not clear how the expenditures that were incurred related to Mr. Jacobs' stated business activities. It was not clear why those expenditures were ordinary and necessary to the business activities. And it was not clear that those expenditures should not be treated either as entirely nondeductible personal expenses or as only partially deductible expenses of an employee (rather than fully deductible expenses of a business owner).

The Commissioner maintains that Mr. Jacobs did not provide the necessary explanations on these points until after the Answer was filed, when Mr. Jacobs had a six-and-a-half hour conference with the IRS Office of Appeals (IRS Appeals). And it was only after hearing Mr. Jacobs' oral presentation that explained how the various business activities related to one another and why the expenditures were ordinary and necessary to those activities, and then obtaining some additional documents, that the Commissioner was able to conclude that most of the expenditures could be deducted under the law. Before then, the Commissioner neither learned, nor should have learned, that the expenditures were in fact deductible. And after that time, the Commissioner promptly conceded the case.

Having twice combed through the record in this case, having held a two-day evidentiary hearing and multiple other hearings, and having reviewed extensive briefing, the Court is firmly persuaded that the Commissioner's view of the case is correct. The documentary record Mr. Jacobs had developed at the IRS and that existed before the Commissioner filed the Answer simply was not enough to require the Commissioner to throw in the towel. The types of expenses at issue-for example, for travel (including international travel), meals at restaurants, and the use of a home office-are susceptible to abuse. Congress, therefore, imposed demanding substantiation requirements for them. See, e.g., I.R.C. § 274(d). The Commissioner was entitled to put Mr. Jacobs to his proof that the law permitted the deductions he claimed on his returns. See Sparkman v. Commissioner, 509 F.3d 1149, 1159 (9th Cir. 2007) ("[A]n income tax deduction is a matter of legislative grace and . . . the burden of clearly showing the right to the claimed deduction is on the taxpayer." (quoting New Colonial Ice Co. v. Helvering, 292 U.S. 435, 440 (1934))), aff'g T.C. Memo. 2005-136; Meridian Wood Prods. Co. v. United States, 725 F.2d 1183, 1189 (9th Cir. 1984) (addressing the deductibility of travel and entertainment expenses and framing the relevant question as "whether [the taxpayer] met this 'heavy burden to substantiate each element of every deducted item of expense.'" (quoting Berkley Mach. Works & Foundry Co. v. Commissioner, 623 F.2d 898, 906 (4th Cir. 1980), rev'g T.C. Memo. 1977-177)). And a material (indeed, determinative to the IRS) portion of that proof-Mr. Jacobs' oral presentation to IRS Appeals tying the expenditures and the relevant activities-did not come until after the Answer was filed. Mr. Jacobs may believe that the documentation he provided before the Answer was filed was sufficient and should have been accepted without further questions. We do not share that view and cannot fault the Commissioner for not sharing that view either. Based on what the Commissioner learned or should have learned from the IRS proceedings as of the time he filed his Answer, he acted properly.

Moreover, the record refutes Mr. Jacobs' claims (1) that he was treated unfairly by the IRS during the administrative process and during this litigation and (2) that the Commissioner acted in bad faith. It is worth noting at the outset that, in making these claims, Mr. Jacobs repeatedly deploys over-the-top rhetoric. In the words of his Simultaneous Opening Brief, for example, the IRS's conduct has been "unscrupulous" and "consistently outrageous." Pet'r's Opening Br. 84, 43 (emphasis omitted). The Commissioner, he says, has "perpetuated [a] cover-up of Taxpayer Bill of Rights violations" and made "blatant[] misrepresent[ations]" and "patently frivolous" arguments to the Court. Pet'r's Opening Br. 45, 99. As a result, Mr. Jacobs concludes, "[i]f litigation costs are not recoverable in a case like this, the American taxpayer is truly living in a Kafkaesque world." Pet'r's Opening Br. 7.

The record contradicts Mr. Jacobs' hyperbole. To summarize, the record shows that the IRS repeatedly accommodated Mr. Jacobs' requests that his case be handled more solicitously than other cases. And, when IRS personnel did not grant particular requests from Mr. Jacobs, they did so for well-founded reasons (for example, a good-faith disagreement with Mr. Jacobs' views on how certain policies applied or whether he was entitled to the treatment he sought). While the IRS may have made some missteps in the handling of this matter during the many years it has gone on, we see nothing that warrants imposing sanctions on the agency. Nor do we see the examinations here as reflecting systemic problems with the IRS, as Mr. Jacobs' briefing maintains. Administering the tax laws is a challenging task. And the IRS should not be penalized because it insists that taxpayers show that they have turned square corners, especially with respect to expenses that are susceptible to abuse and when the activities they undertake generate no income in the years under review.

In short, the position the Commissioner took in the Answer and until he conceded the case was substantially justified as provided under section 7430(c)(4)(B).¹And the Commissioner has more than carried his burden of showing this was so. Moreover, no valid reason exists for us to impose any sanctions on the Commissioner or his lawyers under section 6673 or otherwise to order the payment of costs to Mr. Jacobs.

1 Unless otherwise indicated, statutory references are to the Internal Revenue Code, Title 26 U.S.C. (I.R.C. or Code), in effect at all relevant times, regulation references are to the Code of Federal Regulations, Title 26 (Treas. Reg.), in effect at all relevant times, and Rule references are to the Tax Court Rules of Practice and Procedure. All monetary amounts are shown in U.S. dollars and are rounded to the nearest dollar.

Background

The following facts are derived from the parties' pleadings and Motion papers, including the Declarations and Exhibits attached thereto, their Stipulation of Facts and Exhibits, as amended twice, and the testimony elicited during the evidentiary hearing held on April 11 and 12, 2024.² They are stated solely for the purpose of ruling on the Motion before us. See Rowen v. Commissioner, 156 T.C. 101, 103 (2021) (reviewed). Mr. Jacobs resided in California when he timely filed his Petition.

2 In his Reply Brief, Mr. Jacobs "objects generally to all IRS proposed findings of fact that rely on citations to documents in the Administrative File without a corresponding citation to a joint trial exhibit." Pet'r's Reply Mem. 1. The objection is misplaced and hereby overruled. The record developed at the evidentiary hearing supplements to the extent necessary the materials in the Administrative File previously submitted in connection with the Motion and the responses thereto. The hearing record does not supplant those materials, and the Commissioner properly relied on them in his post-hearing briefing.

I. Mr. Jacobs' Business Activity and Residency

For most of 2014 and 2015-the tax years at issue here-Mr. Jacobs resided in Washington, DC. He worked full time as a professor at The Kogod School of Business at American University, where he founded a business-based Master of Science program in Sustainability Management. He also taught once a week as an adjunct professor at The George Washington University (GW). Both universities issued Forms W-2, Wage and Tax Statement, for 2014 and 2015 reporting the compensation they paid to Mr. Jacobs as wages.

From May 18 to August 18, 2014, Mr. Jacobs held an uncompensated position as a "Visiting Scholar" at the University of California, Los Angeles (UCLA). While at UCLA, Mr. Jacobs performed research for and worked on drafting a book titled "BP Blowout: Inside the Gulf Oil Disaster" (BP Book). The BP Book was published two years later, in 2016, and was expected to begin generating royalties in 2017. The record does not reflect whether the expectation materialized in 2017 or the amount of royalties Mr. Jacobs has earned from the book to date. In a January 27, 2018, letter to the IRS concerning Mr. Jacobs' 2015 tax year (discussed further below), he said that the book was "expected to begin producing royalties this year [i.e., in 2018]." Second Am. Stipulation of Facts (Stipulation) Ex. 18, at 130-P. Then, in a memorandum sent to the IRS on September 28, 2018, Mr. Jacobs said that he had "already received royalties," attaching a receipt for a royalty advance of $3,000. Stipulation Ex. 41, at 394-P.

In August 2015, Mr. Jacobs left his teaching position at American University. He moved to California permanently in September 2015 and accepted a full-time faculty appointment at a university there. Mr. Jacobs took a part-time "of counsel" position at a law firm in California in 2016.

II. Mr. Jacobs' Federal Income Tax Returns for 2014 and 2015

A. 2014 Return

Mr. Jacobs filed a 2014 Form 1040, U.S. Individual Income Tax Return. On the return, Mr. Jacobs reported wage income of $93,021 on line 7, including the wages he earned from his positions at American University and GW.

Mr. Jacobs also attached Schedule C, Profit or Loss From Business, to his return. On Schedule C, he reported having a "Principal business or profession" as an "Attorney/Professor." Mr. Jacobs reported no income from the business, but claimed a net loss of $34,265. Specifically, the Schedule C net loss reflected various expenses, including "Travel" of $22,391, "Deductible meals and entertainment" of $5,203, "Expenses for business use of your home" of $4,615, "Taxes and licenses" of $478, and "Other expenses" of $1,578.

B. 2015 Return

Mr. Jacobs also filed a 2015 Form 1040. On the return, he reported wage income of $52,028, including the wages he earned from his positions at American University and GW.

Once again, he attached Schedule C to his return. But this Schedule C reported his business as "Attorney/Professor/Author." As on his 2014 Schedule C, Mr. Jacobs reported no income from the business, but claimed a net loss of $28,276. Specifically, the net loss reflected expenses, including "Travel" of $13,454, "Expenses for business use of your home" of $7,981, "Deductible meals and entertainment" of $3,710, "Taxes and licenses" of $355, and "Other expenses" of $2,776.

III. IRS Examinations for Tax Years 2014 and 2015

A. Tax Year 2014

Mr. Jacobs' 2014 income tax return was selected for examination and assigned to the IRS Correspondence Exam office in Memphis, Tennessee. The Memphis Correspondence Exam office first contacted Mr. Jacobs by letter in October 2016. The letter advised him that his Schedule C deductions were under audit and requested documentation to support those deductions.

1. December 2016 Submission

In response, on December 24, 2016, Mr. Jacobs submitted a 28-page fax, including a one-and-a-half page letter explaining the general nature of the business and the expenses reported on the Schedule C, a one-page letter related to his Visiting Scholar position at UCLA, a six-page list of his expenses for 2014, excerpts from credit card statements, and statements of checks and ATM withdrawals for 2014. Nothing in the six-page list of expenses indicates that it was contemporaneous with the expenses themselves.

Mr. Jacobs' letter explained that the expenses were incurred in conjunction with a "fledging business as an attorney-scholar" that he was developing in Washington, DC, and California, as well as internationally. The letter indicated that the business produced limited income from teaching a single course (one night a week) at GW on a "semester-by-semester contract basis." The letter also stated that the "vast majority" of the expenses were incurred from May 18 to August 18, 2014, while he was a Visiting Scholar at UCLA researching and drafting the BP Book.³Mr. Jacobs explained that he intended his attorney-scholar business to eventually supplement the income from his full-time employment at American University.

3 The costs relating to the UCLA Visiting Scholar appointment reflected in the six-page list add up to $21,448, while the total loss reflected on the Schedule C was $34,265, meaning that about 63% of the claimed loss was for expenses incurred during the UCLA Visiting Scholar appointment. The Schedule C Mr. Jacobs filed made no mention of the book writing activity, nor described Mr. Jacobs as a "writer," but only as a "Attorney/Professor." Neither did the materials submitted in December 2016 explain how Mr. Jacobs' activities as a "scholar" differed from his activities as a "professor."

The list that Mr. Jacobs provided with the letter identified various expenses organized under general categories, such as "Office supplies, educational materials," "Conferences, business events, etc.," "Local Transportation," "Book research," and "Professional." Within these categories, the list included generic descriptions of the expenses, amounts, and in some cases dates of the expenses. For example, expenses were described as "D.C. Bar dues," "Court fees," "Phone/internet," "WSJ, FT, Bloomberg subscriptions," "Dry cleaning," "Cambridge dinner," "Naomi Klein book reading event," "Car rentals," "Local Metro," and "Guest speakers, Other Professional (inc. book interviews)" without any more information.

The list also categorized travel expenses under various trip names, such as "LA May-Aug trip (UCLA Visiting Scholar Appointment)," "Paris trip (1/9 Deliver lecture at HEC Business School)," "Palm Springs trip (Attend Academy of Legal Studies in Business Conference[)]," "Phoenix trip (Attend Green Biz Conference) 2/17-19," "Brazil trip (Meet with Polishop CEO and tour Itaipu Dam) (3/6-12)," "NY Trips" "1/17-21 (Meet with FT Reporter)" "9/20-22 (Attend Climate March and meet with FT Reporter)," "Tucson trips," and "Middlebury trip (deliver presentations) (10/16-19)."

Under the category labeled "LA May-Aug trip," for example, the list included generic descriptions of expenses (e.g., "Initial hotel, Riverside," "Initial condo," "NorCal hotels," "Car rental LAX," "Gas," "Bike rental UCLA," "Airfare," "RA Gifts") and amounts of the expenses, but no other information.

Travel expenses for Mr. Jacobs' other trips were largely described in similar levels of generality. But broadly the list did not explain how the trips (or their expenses) were business-related rather than personal expenses, or how the expenses connected specifically to Mr. Jacobs' business as an attorney-scholar rather than his full-time employment as a professor at American University or his part-time employment teaching at GW.

Similar to Mr. Jacobs' list of expenses, the excerpts from the credit card statements and bank statements shed no light on how any expenses were connected to his business. Rather, those statements included the typical information: the dates of charges, the amounts of charges, and generic descriptions of charges, such as restaurant and gas station names, ATM locations, or the names of persons to whom checks appear to have been written.

The IRS examiner assigned to Mr. Jacobs' case reviewed the documentation Mr. Jacobs submitted and determined that it was insufficient to verify his expenses. In February 2017, the Memphis Correspondence Exam office appears to have sent Mr. Jacobs a letter explaining that conclusion. See Stipulation Ex. 45, at 416-P ("On February 1, 2017, Corr Exam sent Letter 525 . . . and Form 886-A . . . (to TP's old address) asserting the information the Taxpayer sent was not sufficient to verify the business expenses as reported."). But the letter is not in the record, and Mr. Jacobs did not receive it because it was mailed to his old address.

2. Rescission of the Initial Notice of Deficiency

On April 3, 2017, the Commissioner issued to Mr. Jacobs a notice of deficiency for the 2014 tax year. The notice disallowed all the deductions Mr. Jacobs had claimed on Schedule C, stating that the IRS "disallowed the amount shown [i.e., the deductions] on [Mr. Jacobs'] return because [it] did not receive an answer to [its] request for supporting information." Like the February 2017 letter, the notice of deficiency was sent to Mr. Jacobs' old address, causing a delay in its delivery to him.⁴

4 The Commissioner properly sends a notice of deficiency if he mails it to the taxpayer's last known address. See United States v. Zolla, 724 F.2d 808, 810 (9th Cir. 1984). A taxpayer's last known address is typically the address that appears on the taxpayer's "most recently filed and properly processed Federal tax return, unless the [IRS] is given clear and concise notification of a different address." Treas. Reg. § 301.6212-2(a). IRS Revenue Procedure 2010-16, 2010-19 I.R.B. 664, describes what constitutes clear and concise written notification of an address change. Not every form a taxpayer submits to the IRS meets those requirements. See Rev. Proc. 2010-16, § 5.01(4), 2010-19 I.R.B. 664. Although Mr. Jacobs' December 2016 fax could be viewed as giving the IRS notice of his change of address and therefore might permit one to conclude that the IRS did not comply with the Code when it sent the April 3, 2017, notice, any error by the IRS was harmless as far as this case is concerned. This is so because the IRS eventually rescinded the April 3, 2017, notice of deficiency and gave Mr. Jacobs additional opportunities to support his deductions, remedying any possible error.

On April 13, 2017, Mr. Jacobs notified the IRS by fax that the April 3, 2017, notice of deficiency was misaddressed. Mr. Jacobs also referenced the 28 pages of supporting information he gave to the IRS on December 24, 2016, and asked that the IRS review it. Mr. Jacobs did not include any new supporting documentation in his fax and requested the IRS "advise [him] of your availability for a conference call at your earliest convenience." Stipulation Ex. 4, at 045-P. Subsequently, and with the help of the Taxpayer Advocate Service (Taxpayer Advocate), the April 3, 2017, notice of deficiency was rescinded, and Mr. Jacobs was able to submit more documentation to the Memphis Correspondence Exam office in support of the deductions.

3. June and July 2017 Submissions

Mr. Jacobs' June 7, 2017, supplementary submission to the Memphis Correspondence Exam office included 24 pages of monthly credit card statements. Most of the documents had been previously provided in Mr. Jacobs' December 2016 submission, but they included new check marks next to expenses Mr. Jacobs claimed were deductible. These were intended to replace highlighting in the prior submission that had not been visible to the Memphis Correspondence Exam office because of the way the materials were submitted (i.e., by fax). The new submission also included several pages of credit card statements that were not part of the December 2016 submission. The new submission did not include any additional explanation of the expenses.

The IRS examiner assigned to Mr. Jacobs' case reviewed the information provided. After reviewing the documentation, on June 13, 2017, the IRS examiner determined:

The documentation [Mr. Jacobs] submitted is not sufficient. The expenses relate to income reported on W-2 and should have been reported on Sch[edule] A not Sch[edule] C. [Taxpayer] was reimbursed for some expenses by NITA. [Taxpayer] needs to submit copy of reimbursement policy or letter indicating what expenses were reimbursed, the amount reimbursed and whether reported on W-2. [Taxpayer] needs to submit lodging receipts, [p]aid receipts, travel itineraries, and other supporting docs for expenses.

Stipulation Ex. 7, at 058-P.

On July 7, 2017, Mr. Jacobs sent another letter to the Memphis Correspondence Exam office complaining about multiple Forms 886-A, Explanation of Items, he had received from the IRS up to that point, which he believed had "purport[ed] to require different actions [on his] part" and went "well beyond the previous level of documentation sought [by the IRS]." Stipulation Ex. 8, at 085-P. In a subsequent letter to the IRS sent on July 10, 2017 (discussed below), Mr. Jacobs described the most recent Form 886-A as asking that he provide "an employer letter," "documentation of business use of home expenses," and "paid receipts, invoices, cancelled checks, and rental contracts to support [his] bank statements." But, rather than providing the requested documents, Mr. Jacobs' July 7 letter merely referenced the documents he had previously provided to the IRS. He alleged that the conduct of the Memphis Correspondence Exam office was "retaliatory"⁵ and stated that he "was at a loss to understand how the country and its taxpayers are served by the vast amount of the government resources being devoted to pursue such a minor mail audit." Stipulation Ex. 8, at 085-P-086-P. Finally, he requested a conference call to discuss what documentation was "truly required" to resolve the audit.

5 Specifically, in his July 7, 2017, letter, Mr. Jacobs had complained that the Exam supervisor was biased. Mr. Jacobs had also complained about what he felt was a "perpetually moving and enlarging target of documentation" requested by the IRS to conclude the audit and what he claimed was a refusal by the Memphis examiner "to extend the deadline currently set for all additional documentation." Stipulation Ex. 8, at 086-P. The record does not support the conclusion that any Memphis Correspondence Exam employees retaliated against Mr. Jacobs.

4. Request for IRS Appeals Review

On July 10, 2017, before any conference call had taken place, Mr. Jacobs sent another letter to the Memphis Correspondence Exam office requesting an appeal of his case. In August 2017, acting on Mr. Jacobs' request, the Memphis Correspondence Exam office forwarded the case to IRS Appeals in Memphis, Tennessee.

5. Treasury Inspector General Complaint

In January 2018, Mr. Jacobs filed a formal request with the U.S. Treasury Inspector General for Tax Administration (TIGTA) for an investigation into alleged misconduct by examiners in the Memphis Correspondence Exam office. The request (TIGTA Complaint) alleged that the Memphis Correspondence Exam office had made unnecessary and "increasingly burdensome" requests for documentation, had threatened to issue an unwarranted deficiency notice, had summarily rejected Mr. Jacobs' claimed deductions despite the documentation he had provided, and had "stonewalled" for five months Mr. Jacobs' request for a managerial conference call. Stipulation Ex. 22, at 205-P & 209-P. TIGTA opened an active investigation into the Memphis Correspondence Exam office and tracked the status of Mr. Jacobs' case by initiating correspondence with upper-level management of that office.

Although the record supports a conclusion that a TIGTA special agent looked into Mr. Jacobs requests, there is no indication that any wrongdoing was found on the part of the IRS. In fact, in response to a discovery request from Mr. Jacobs, the Commissioner's counsel contacted TIGTA and was told that no reports from the investigation existed. Moreover, in view of the Court's own review of the record, Mr. Jacobs' claims that examiners in the Memphis Correspondence Exam office engaged in "harassment and retaliation" against him are unsupported.

B. Tax Year 2015

In September 2017, Mr. Jacobs' 2015 income tax return was selected for examination and assigned to the IRS Correspondence Exam office in Brookhaven, New York.⁶ An examiner contacted Mr. Jacobs by letter on December 11, 2017. The letter advised Mr. Jacobs that his Schedule C deductions were under examination and requested documentation to support those deductions. The letter requested the following:

6 Although the letter Mr. Jacobs received came from the IRS's Holtsville, NY, office, the record supports the conclusion that examiners from the Brookhaven office were assigned to the case. Therefore, the Order will refer to Brookhaven.

Please provide copies of the records you maintained to substantiate the expenses you have claimed under "other expenses" on your Schedule C for the tax year listed above [i.e., for 2015]. The records should include such items as copies of receipts, cancelled checks, invoices, logs, and like documents.

Stipulation Ex. 15, at 112-P. The letter also requested that Mr. Jacobs provide documentation to support the deductions he claimed for travel, meals, and entertainment, including

Copies of receipts for the expenses claimed for travel, meals and entertainment on your return.

Copies of your logs or diaries maintained showing the dates of travel and business purpose.

Id., at 114-P. Further, the letter requested that Mr. Jacobs complete a questionnaire concerning his travel, meals, and entertainment expenses. The questionnaire asked for the dates of the trips, the locations, the number of days away from home, the purposes of the trips, whether anyone accompanied Mr. Jacobs on the trips, the cost of lodging and meals, and the transportation that was used for the trips. The letter set a 30-day deadline for a response.

1. Request for Extension and January 2018 Submission

On December 22, 2017, Mr. Jacobs sent a response noting that he had not been able to reach the IRS by phone and was "therefore writing to request a thirty (30) day extension for my reply." Stipulation Ex. 16, at 119-P. The response also observed "unless you instruct otherwise, I will assume that you will accept notated credit card and bank statements in lieu of receipts." Id.

Mr. Jacobs followed up on January 27, 2018, with another one-and-a-half-page letter and various supporting documents (45 pages in total). The letter made similar points to the one submitted for the 2014 audit. It stated that the expenses were incurred in conjunction with a "fledging business as an attorney-scholar-author following [Mr. Jacobs'] retirement from federal service." Stipulation Ex. 18, at 130-P. The letter further stated that in 2015 Mr. Jacobs was focused on developing the business in California and, because he was employed as a professor in Washington, DC, the business required frequent west coast travel. According to the letter, "[t]he vast majority of [Mr. Jacobs'] expenses were incurred in association with research and writing related to the drafting of [the BP Book]."⁷ Id. The letter also explained that he was "attempting to generate revenue through the establishment of a legal practice in California." Id., at 133-P. Other than noting that Mr. Jacobs' research assistant was in California, the letter did not explain why he needed to travel to the west coast to research and write the BP Book. Nor did the letter explain the type of legal practice Mr. Jacobs hoped to establish, the nature of his networking activities, or how those activities supported his attorney-scholar-author business. Moreover, the letter did not explain how each expense was unrelated to his employment at American University or his search for new employment as a professor at a California university.

7 As best we can tell, the costs relating to the book reflected in the nine-page list add up to $11,848, while the total loss reflected on the Schedule C was $28,276, meaning that about 42% of the claimed loss was for expenses incurred in writing the book.

The letter expressed Mr. Jacobs' "understanding that [the] audit was initiated because [his] Schedule C reflected expenses, but no income, from [his] business endeavors," and noted "I can assure you that the deductions were entirely appropriate; my business plan is to recoup them in subsequent years." Id., at 130-P. But the letter did not provide any further insight into how this would be achieved or enclose a written business plan.

The letter closed by characterizing the information it was providing as "extensive" and observing: "Given that my income in 2015 was limited to five digits, I assume the IRS has more substantial audits to pursue." Id., at 133-P. The letter also stated: "In the event that you require further information, please have a manager contact me within thirty (30) days of the date of this letter setting forth in detail whatever issues you believe need to be further addressed, and providing a direct dial contact number for a conference call." Id.

The supporting documentation accompanying the letter included a nine-page list of expenses, credit card and bank statements with check marks on them, and an excerpt from the BP Book. Similar to the list of expenses for 2014 that Mr. Jacobs provided the IRS in December 2016, the list organized expenses under general categories, such as "Professional Expenses," "Entertainment," "Local," and "Travel."

Under the first three categories, the list included general descriptions of the expenses, amounts, and in only a couple of cases the dates of expenses. As in Mr. Jacobs' December 2016 submission, the descriptions were vague and it was not self-evident how the expenses were connected to his attorney-scholar-author business. For example, the descriptions included items like "DC Bar event," "Microsoft Personal," "RA Gifts," "Laptop (and drive)," "Net Impact Conf. fees," "Service fees," "WSJ + BBW," "Landline phone/internet," "CMA fee," "RA Meals," "Guest speaker meals," "Networking meals," "Earth Day Brunch," and "RT Screening of 'Spare Parts'." For Mr. Jacobs' "Travel" expenses, the list provided a general description of the trip, trip locations, date ranges, and costs of various items.

But many of the business purposes provided were nonspecific (e.g., "SD/LA/OR/SF trip: Book source interview/networking, 1/1-4," "Miami trip: Business development, 1/29-31," "LA/Palm Springs trip: Conference attendance (PSWALB)/book Interview/networking/court appearance 2/12-18," "NYC trip: Book meeting, networking 2/23-25," "NorCal trip, Conference attendance (ABA/networking), 3/23-28," "Norcal Trip 4/9-15 Presentations/networking," "Paris trip (via Germany) Attend UN climate change conference, 7/8-10," "NorCal trip 3 Networking, 8/3-5," and "Seattle trip, Conference attendance (Net Impact), 11/4-8"), and the list did not provide clarity about how the expenses related to the trips were ordinary and necessary to Mr. Jacobs' business rather than personal expenses or why they were unrelated to his other employment. As one minor example, under "Trip 11," which was described as the "Paris trip (via Germany) Attend UN climate change conference," one of the listed expenses was for "War Crimes tribunal visit fee $5." No explanation was provided for how this expense related to the writing of the book or the types of business activities Mr. Jacobs was pursuing.

The credit card statements Mr. Jacobs provided also did not explain how the expenses were connected to his business. The credit card statements provided the amounts of the charges, dates on which the charges were incurred, and generic descriptors of where the charges were incurred. Next to many of the charges were check marks, but it was not apparent how the charges next to the check marks were business-related rather than personal expenses. For example, the check marks appeared next to charges incurred at Washington, DC, based establishments, like "The Laughing Man, DC," "COSI - #46 VA," "Circa at Dupont, DC," "Zaytinya, Mezze An, DC," "DC Coast Restaurant," "Founding Farmers DC," "Blackfinn American Saloon, DC," "Watergate Valero, DC," and "EKO.," among others. The credit card statements did not explain the charges or demonstrate that the charges were the same as the amounts Mr. Jacobs included in his list of expenses. They did not explain who Mr. Jacobs met at the various establishments, what the purposes of the meetings were, or how the meetings related to Mr. Jacobs' business.

On February 5, 2018, the IRS notified Mr. Jacobs that his 2015 tax return and any information he gave the IRS had been reviewed and that it proposed disallowing his Schedule C deductions. A Form 886-A attached to the letter stated that the "Other Expenses" and "Meals and Entertainment" expenses were disallowed because he "did not establish that the business expense . . . was paid or incurred during the taxable year and that the expense was ordinary and necessary to [his] business." Stipulation Ex. 19, at 185-P. Regarding the travel expenses claimed on his Schedule C, the Form 886-A stated that his expenses were disallowed because he did not establish that all requirements for the deductions were met (i.e., the amount of the expense, the time and place of the travel, the business purpose of the travel, and the time the expense was paid or incurred).

2. February 2018 Submission

On February 23, 2018, Mr. Jacobs sent a follow-up letter to IRS Correspondence Exam office. The letter stated:

The 866-A [sic] form attached to your February 5, 2018, 525 letter appears to contain only form language and makes no reference to my letter of January 27, 2018, or to any of the information contained in the four exhibits totaling some 31 pages of documentation attached thereto. I have therefore concluded that the Service did not even read any of the voluminous material I submitted in response to the initial correspondence audit letter.

Stipulation Ex. 21, at 193-P.

The letter further asked that the IRS "carefully review the information previously supplied and close the audit as previously requested." Id. Mr. Jacobs did not supply any other supporting documentation with his February 23, 2018, letter. On the basis of the Court's review of the record, we find the conclusions expressed in Mr. Jacobs' letter to be inaccurate. The Form 886-A identified shortcomings in the documentation Mr. Jacobs had provided and asked him to address those shortcomings with more information.

3. April 2018 Request for Additional Information

On April 23, 2018, the Brookhaven Correspondence Exam office sent Mr. Jacobs a letter along with a Form 4549, Income Tax Examination Changes, and a Form 886-A requesting additional information from Mr. Jacobs, including documentation explaining his "profession as an attorney and author," individual logs to substantiate his expenses, explanations of why the expenses were "ordinary and necessary" to his business, and a copy of his attorney license. Resp't's Mar. 2, 2022, Redacted Resp. to Mot. for Costs Ex. DDDDD, at 14. More specifically, the letter included the following requests:

1. Please provide the following concerning your profession as an attorney and author business:

It is presumed that to be a professional such as an author you are in the business to make a profit. Did your writings make a profit in at least three of the last five years, including the current year? If the book you authored

doesn't prove to be a for-profit endeavor, losses from your writing may not be used to offset other income for tax purposes. Can you provide proof that your professions as an attorney and author is a profited [sic] business or more of a personal endeavor?

2. Please provide individual logs for your Exhibit A items:

a) Professional Expenses Log for each item giving an explanation how these expenses are ordinary and necessary to perform the job.

(b) Entertainment Log listing the clients you met with and an explanation how these expenses are ordinary and necessary to perform the job and with. [sic]

(c) Local Log for each item giving an explanation how these expenses are ordinary and necessary to perform the job.

(d) Individual Trip Logs for Trip 1 through Trip 17: list your clients that you met with for book networking, conference attendance, court appearance etc[.] and explanation how these expenses are ordinary and necessary to perform the job.

3. Copy of Attorney License

Id.

4. April and May 2018 Responses

On April 27, 2018, Mr. Jacobs responded to the April 23 letter. He did not provide the information requested. Mr. Jacobs wrote:

I requested in my January 27, 2018, letter that if additional information was sought, that a managerial conference call be scheduled pursuant to Pub. 3498-A. I am reiterating that request, particularly because the additional information being sought is overbroad and burdensome, not only exceeding the level required by Schedule C-7 (provided with the initial audit notice), but also that required by IRS regulations (e.g., expenses under $75).⁸ I also object to the extent that the level of detail requested invades the attorney-client privilege.

Given that the taxpayer's income in 2015 was limited to five digits and the professional nature of his expenses [has] already been documented and clarified, I assume the IRS has more substantial audits to pursue.

That said, in light of the May 8 deadline set in your April 23 letter, kindly set a managerial conference call prior to that date to discuss what additional information is truly needed.

Stipulation Ex. 27, at 300-P.

8 As we discuss below, this claim is mistaken. See Discussion Part I.B.1.b.iv.

In other words, the IRS kept asking Mr. Jacobs for the type of information it needed to conduct its audit, and Mr. Jacobs kept insisting that what he had provided should be enough and that provision of additional information would be conditioned on a managerial call.

On May 3, 2018, Mr. Jacobs had a conference call with the Brookhaven Correspondence Exam office Acting Department Manager Michael Birsner. That same day, Mr. Jacobs sent an email to Mr. Birsner following up on their conference call. In the email, Mr. Jacobs referenced a copy of an email he was attaching concerning a $2,200 lodging expense. Mr. Jacobs also promised to provide corroboration of lodging expenses costing more than $600 and "entertainment expenses not already cross-matched between the credit card summary and [his] log when it exceeds $75 and per diem was also claimed." Stipulation Ex. 38, at 375-P.

On May 8, 2018, Mr. Jacobs sent a short letter, six exhibits, and a list of entertainment expenses to the Brookhaven examiner to corroborate his 2015 expenses. In the letter, Mr. Jacobs stated that the information was "being submitted in lieu of the information previously requested by the examiner in [] April 23, 2018, letter [by agreement with Mr. Birsner]." Stipulation Ex. 29, at 305-P. The exhibits included an acknowledgment page from Mr. Jacobs' BP Book, a copy of Mr. Jacobs' book contract, a copy of an email from Mr. Jacobs' American University email address arranging a meeting in Oregon concerning the BP oil spill, copies of two cancelled checks that Mr. Jacobs alleged were related to lodging in Los Angeles, a copy of an email discussing certain housing matters (e.g., a cleaning crew, repairs to a screen door and blinds, and a $2,200 rent payment), and a copy of an email from October 2016 detailing a conversation he had to join a law firm as "of counsel." Of note, the BP Book excerpt stated that he "began and finished [the] book in California, [his] new home." Stipulation Ex. 29, at 308-P. The list of entertainment expenses consisted of information about just six meals he had with certain individuals, including individuals named in the acknowledgment page of his BP Book. The list provided the dates and amounts of the expenses, a name or description of the persons he met with, and a general description of the purposes of the expenses (e.g., "interview former NOAA Director," "networking," "networking and book advice," and "en route to CA Bar Conf.").

5. Request for IRS Appeals Review

On July 23, 2018, the Brookhaven Correspondence Exam office issued Mr. Jacobs a letter stating as follows: "After considering the information you sent us, we did not change our original proposed change(s) to your return(s)." Stipulation Ex. 31, at 326-P. A Form 886-A and a Form 4549 accompanied the letter. The Form 886-A explained that the IRS was "not allowing [Mr. Jacobs'] Schedule C Travel, Meals and Entertainment and Other Expenses" and that he had been requested to "separate [his] expenses, since some of the expenses were for [his] W-2 employer" and provide "log books for each audit issue[] with purpose [and] explanation of how they were ordinary and necessary to perform the job." Id., at 328-P. The Form 886-A also invited him to submit additional documentation to refute the determination.

On July 30, 2018, Mr. Jacobs signed a Form 12203, Request for Appeals Review, to request formally that the 2015 examination be forwarded to IRS Appeals. Mr. Jacobs indicated that he disagreed with the Brookhaven Correspondence Exam office's determination because the office had deprived him of due process by issuing "automated form denials" of his expense deductions without considering the documentation he provided and had "mischaracteriz[ed]" his expenses as Form W-2 employee expenses. Stipulation Ex. 32, at 340-P. The Brookhaven Correspondence Exam office subsequently transferred the case to IRS Appeals.

IV. Review by IRS Appeals

A. Initial Consideration of 2014 Tax Year by IRS Appeals

As already noted, consideration of Mr. Jacobs' case for 2014 initially was forwarded to the IRS Appeals office in Memphis, Tennessee. The case was assigned to Appeals Officer Teresa McFerren. Upon receiving the case on September 5, 2017, Appeals Officer McFerren made several attempts to schedule a conference with Mr. Jacobs, but her attempts were unsuccessful. According to the Case Activity Record of Appeals Officer McFerren, after she and Mr. Jacobs exchanged several voicemails, an individual from the Taxpayer Advocate notified her that Mr. Jacobs refused to speak with her. Appeals Officer McFerren's note in the Case Activity Record states:

p/c from [Taxpayer Advocate] spec. - she spoke w/[Mr. Jacobs]-he refuses to call me & they are trying to mediate the case w/Appeals. [Appeals Officer] explained that to discuss case with her without [Mr. Jacobs] present is ex-parte' communication. [Mr. Jacobs] has not responded to any of my phone calls. But continue to talk with [Taxpayer Advocate]. [Appeals Officer] will proceed with the case.

Stipulation Ex. 64, at 488-P.

In November 2017, the case was transferred to the IRS Appeals office in Los Angeles, California, at Mr. Jacobs' request. There, the case was assigned to Appeals Officer Melissa Young.

On February 14, 2018, Appeals Officer Young sent a letter to Mr. Jacobs. The letter notified Mr. Jacobs that Appeals Officer Young was assigned to his appeal and that an Appeals conference was scheduled for May 30, 2018. The letter requested that Mr. Jacobs submit any "new material" to IRS Appeals by "no later than March 16, 2018." Stipulation Ex. 20, at 190-P. The letter also notified him that "[i]f any new documentation . . . [was] submitted, which was not previously considered by the examiner" that "the case may be returned to the examining function [i.e., Memphis Correspondence Exam office] for consideration of such information." Id.

B. Mr. Jacobs' March 16, 2018, Fax to IRS Appeals

On March 16, 2018, Mr. Jacobs faxed Appeals Officer Young a letter together with a memorandum in support of his appeal, a copy of his TIGTA Complaint, and 55 items of additional documentation (80 pages in total) in support of the deductions he claimed for 2014. The various documents included in the fax are discussed below.

1. Letter Included in the Fax

In an apparent response to Appeals Officer Young's request that Mr. Jacobs send new material by March 16, 2018, Mr. Jacobs' letter stated that he "reserve[d] the right to present any additional information that becomes available prior to the conference date, including, but not limited to, relevant records being withheld by Memphis Exams that are responsive to [his] Freedom of Information Act request dated October 2, 2017." Stipulation Ex. 22, at 197-P. He also responded to Appeals Officer Young's statement that new information may be returned to the examiner for review. Specifically, Mr. Jacobs stated in the letter that he "understand[s] from [IRS] Publication 4227 that if [Appeals] deem[s] that [he has] presented significant new information on a major issue" that Appeals "may elect to refer the case back to the examiner." Id. However, he "object[ed] to the case being returned to Memphis Exams for any reason whatsoever." Id.

2. Memorandum Included in the Fax

Mr. Jacobs' memorandum began by complaining about the audit performed by the Memphis Correspondence Exam office. He stated that the Memphis Correspondence Exam office "conclude[d] the audit [of his 2014 return] without even the semblance of a full and fair examination" and that "[i]ts actions violated the Taxpayer Bill of Rights, and deprived [him] of his administrative remedies and due process of law." Stipulation Ex. 22, at 198-P. He then attempted to limit the scope of the appeal, stating that "[t]here are only two narrow procedural questions on this appeal: (1) Did [he] document his business expenses as initially requested by the IRS? and (2) Did [he] properly claim his business expenses on Schedule C rather than Schedule A?" Id.

Next, Mr. Jacobs "contend[ed] that the decision of Memphis Exams should be reversed on grounds of misconduct" and for the reasons he had specified in his TIGTA Complaint. Id. As in his prior submissions, Mr. Jacobs described his attorney-scholar business, stating that the "[t]he central and critical part of his multifaceted business plan was the publication of [the BP Book]," which "was to be [his] entrée ('calling card') to legal, consulting, and speaking engagements." Id., at 199-P. He noted that the "vast majority" of his expenses "related primarily" to the BP Book, and that the "majority were incurred primarily during the time [he] was a visiting scholar at UCLA." Id. He also noted that "[a] limited number of deductions relate[d] primarily to the development of [his] legal practice following his December 2013 admission to the California Bar" and "a very limited number relate[d] to his work as a part-time contract instructor at [GW]." Id. With respect to his position at GW, Mr. Jacobs also stated that his work there was "the source of income to the business that year." Id.

The memorandum further stated that Mr. Jacobs' "scholarly work on the book and as a part-time contract instructor for GW often overlapped, as did his efforts to build a legal practice." Id. As an example, Mr. Jacobs recounted that at a "GW[] social function in 2014," he made a "connection with a Brookings Institution senior fellow that ultimately led to [Brookings'] publication of his book" and that "guest speakers [at GW] whom [Mr. Jacobs] entertained were in a position to promote his book (e.g., a journalist, NGO senior official) . . . and/or his law practice (e.g., lawyers)." Id. But, despite a short statement claiming he was a contractor at GW rather than an employee, Mr. Jacobs did not explain in the memorandum why he reported his earnings from GW as wages rather than as business income on his Schedule C.

Mr. Jacobs further complained in the memorandum that the Memphis Correspondence Exam office should have closed his audit in 2017 after he provided monthly credit card statements using check marks instead of highlighting. But Mr. Jacobs did not explain how his submissions to that point had responded to what he called the "more onerous and burdensome documents requests" he received from the IRS (i.e., the Forms 886-A discussed above). Id., at 200-P.

Finally, he argued that the Schedule C business he described "was separate and apart from his full-time employment as a professor at American University." Id., at 201-P. As in his earlier submissions, though, Mr. Jacobs did not provide information about his responsibilities at American University, including any documentation supporting that his BP Book was not related to his employment there. And many of the exhibits Mr. Jacobs included in the fax indicated that his Schedule C activities were connected at least in part to his position at American University.

3. Exhibits Included in the Fax

Mr. Jacobs' fax included, among other things, the Acknowledgements section from his BP Book, a contract with the Brookings Institution signed in 2016 concerning the publication of his BP Book, a document labeled "E-Trak 2017-94350/OAR 3212688" describing the issuance of the April 2017 notice of deficiency that was eventually rescinded, and both individual emails and excerpts of email chains from 2014 that Mr. Jacobs believed corroborated his business activities and expenses.

One of the excerpts from the email chains relates to Mr. Jacobs' trip to Paris. The subject line reads "Subject: Re: Happy holidays!" indicating it was a response to a message sent by Mr. Jacobs. But the original message is not in the record, as Mr. Jacobs did not include it in his submission. The sender of the message

Hi Dan!

So great to hear from you as I was actually thinking of a way to get you to speak at HEC. I took upon the role of VP HEC Energy Club, and as you can guess the club organizes many event [sic] on campus related to energy. Therefore, I was thinking this could be a great way to have you speak about the BP case, and perhaps provide more insights about the legal aspects, as we have many students interested in law.

Stipulation Ex. 22, at 222-P. The sender also stated that there was "no budget to cover speaker and other fees" and that Mr. Jacobs' visit would be "on a voluntary basis." Id. The email was sent to Mr. Jacobs' American University email address.

Another email sent to Mr. Jacobs' American University email address by Leryn Gorlitsky on January 3, 2014, included research related to the BP oil spill.⁹ Other emails from Gorlitsky were also included in the fax and discussed items such as meetings, a talk in Houston that took place in January 2014, research related to the BP oil spill (e.g., "updating the BP deck"), and other non-descript assignments (e.g., preparing "new slides"). These emails offer no insights into whether Mr. Jacobs' expenses were ordinary and necessary to his Schedule C business. Further, they do not say whether Gorlitsky had any connection to American University beyond working for Mr. Jacobs.¹⁰

9 The Acknowledgment section from Mr. Jacobs' BP Book states that Leryn Gorlitsky was Mr. Jacobs' "long-term professional research assistant." Stipulation Ex. 22, at 214-P.

10 The fax also included a document labeled "Leryn's Projects" dated "8/1/14.". Stipulation Ex. 22, at 255-P. This document resembles a to-do list and includes, among other things, an item referencing slide deck revisions in connection with a talk Mr. Jacobs was to give at American University (his employer).

In yet another email chain from Mr. Jacobs' American University email address, Mr. Jacobs discussed a conference registration fee for the Green Biz Forum, which Mr. Jacobs claimed as a deductible expense in his December 2016 fax. The email did not provide any information about the subject matter of the conference or how it related to Mr. Jacobs' Schedule C business. Rather, in one of the emails in the chain, Mr. Jacobs says: "I have word back on funding at my end and from the Dean at ASU. As I feared, I have no funds to pay even a discounted rate." Stipulation Ex. 22, at 231-P. The emails provided no insight about who Mr. Jacobs received "word back" from and whether that person was affiliated with American University or otherwise.

Other emails included in the fax addressed topics like housing accommodations in California, but provided no further information about the trips Mr. Jacobs took there. The emails also concerned scheduling meetings with various individuals, but generally did not explain the precise purpose of the meetings. And it was not apparent from these emails how the meetings, or any expenses related to them, were ordinary and necessary to Mr. Jacobs' Schedule C business or whether the overall purposes of the trips to the areas where the meetings took place were business-related or personal. Furthermore, almost all the emails were from Mr. Jacobs' American University email address, rather than a separate account. And Mr. Jacobs did not explain in his fax why he was sending these emails from his employee email account.

In addition to emails, Mr. Jacobs' fax included copies of cancelled checks for housing accommodations and a conference registration fee, copies of invoices and receipts for parking, a hotel stay, and roundtrip flights to Brazil, and flight confirmation emails. The fax also included a program from the Pacific Southwest Academy of Legal Studies in Business 2014 Annual Conference in Palm Springs, for which he listed expenses in his December 2016 fax. Although the program listed Mr. Jacobs as a conference participant, it was not clear from the program that his attendance there had something to do with his Schedule C business, and at the time he was a professor at The Kogod School of Business at American University and had founded a business-based Master of Science program in Sustainability Management there.

Mr. Jacobs' fax also included an itinerary for the trip to Brazil that he listed in his December 2016 fax. We pause briefly to provide some details here because, with respect to international travel, precision is particularly important. See I.R.C. § 274(c); Treas. Reg. § 1.274-4 (providing detailed rules concerning international travel). The statute imposes special rules for international trips that are longer than one week and with respect to which the nonbusiness portion of the travel equals or exceeds 25 percent of the total time of the travel. See Discussion Part I.B.1.b.i below.

As already noted, Mr. Jacobs' December 2016 fax included the following description for the Brazil trip: "Brazil trip (Meet with Polishop CEO and tour Itaipu Dam) (3/6-12)." Stipulation Ex. 2, at 011-P. That is, the December 2016 fax suggested the Brazil trip did not exceed a week (the period between March 6 and March 12 is seven days).

The itinerary included in the March 2018 fax, however, described a 10-day trip lasting from March 6-15, 2014, with stops in Sao Paulo, Foz do Iguaçu (referred to as "Iguazu"), and Rio de Janeiro. Stipulation Ex. 22, at 232-P. Thus, the itinerary included in the March 2018 fax showed a trip that may have been three days longer than initially reflected in the December 2016 fax.

The actual booking confirmation for the roundtrip flights, also included in the March 2018 fax, indicated that the trip may have been even longer than the itinerary suggested. The receipt showed that Mr. Jacobs' return flight left Brazil at 10:05 PM on Sunday, March 16, and arrived in the Washington, DC area at 6:40 AM on Monday, March 17-an additional two days of travel. Id., at 233-P.

The itinerary did not provide any details about the purposes of the various stops. Later in the fax, Mr. Jacobs provided an undated note he received from a vice president at Polishop which said: "Thanks for coming to meet with me in Sao Paulo from 8-10 to [sic] march 2014. I appreciate the opportunity to consult with you, and particularly your willingness to attend the meeting with the legal staff at my offices." Stipulation Ex. 22, at 234-P. Mr. Jacobs's fax did not describe specifically what Polishop was, what Mr. Jacobs was doing at Polishop, how his Polishop meetings connected to his Schedule C business, or how the rest of the trip related to his Schedule C business. Mr. Jacobs also provided a document that appeared to be the first page of a PowerPoint slide concerning the Itaipu dam, which included a handwritten note stating "Slide deck for Itaipu meeting, 3/11/14 (thumb drive available)." Id., at 235-P.

Mr. Jacobs' fax also included a Statement of Objective for the UCLA Visiting Scholar position. In that document, Mr. Jacobs stated: "Drawing on nearly two decades of experience as a U.S. Department of Justice Department environmental enforcement attorney, I have been researching the 2010 BP Oil Gulf Disaster since becoming a full-time academic in the same year." Stipulation Ex. 22, at 238-P.

C. IRS Review of Mr. Jacobs' March 16, 2018, Fax

On March 20, 2018, Appeals Officer Young informed Mr. Jacobs over the phone and then by letter that the new information provided in his March 16 fax would be returned to the Memphis Correspondence Exam office (i.e., the initial examining function) for review and that, in keeping with IRS Appeals' policy, he would need to sign a Form 872, Consent to Extend the Time to Assess Tax, to extend the period of limitations for the 2014 tax year to "allow sufficient time for [the Memphis Exam] to review the new information." Stipulation Ex. 23, at 277-P.

On April 20, 2018, Mr. Jacobs contacted Area Appeals Manager Patrick McGuire by letter, expressing concerns with Appeals Officer Young's letter and requesting that the review of his 2014 return be reassigned to a different IRS Appeals officer or, in the alternative, that his new supporting materials be reviewed by an examiner in Los Angeles, California, rather than Memphis, Tennessee. Mr. Jacobs attached to his letter the memorandum he sent in his March 16 fax and a copy of his TIGTA Complaint. Mr. Jacobs emailed Mr. McGuire on April 27, 2018, because he had not yet received a response from him.

In May 2018, Appeals Team Manager Keith Matsuda spoke by phone with Mr. Jacobs to explain IRS Appeals' procedures for reviewing Mr. Jacobs' new documentation. During the call, it was decided that the case would remain with IRS Appeals in Los Angeles, but Mr. Matsuda also explained that Mr. Jacobs' request to reassign the review of his 2014 return to a different Appeals Officer would be denied. Mr. Jacobs signed a Form 872 to extend the period of limitations shortly thereafter.

While the case remained in IRS Appeals' jurisdiction, the documentation Mr. Jacobs provided in his March 16 fax was assigned for review to an examiner in Woodland Hills, California (instead of the Memphis Service Center). Mr. Jacobs attempted to schedule a meeting with the examiner, but the request was denied.

On July 23, 2018, Appeals Officer Young informed Mr. Jacobs by letter that the examiner had reviewed his new documentation. The letter included the examiner's handwritten notes. The examiner's notes stated that Mr. Jacobs' deductions were denied because they appeared to be related to personal expenses. The examiner's notes also included the following statement: "[Taxpayer] claims travel expenses to travel from Washington DC to Los Angeles to go to UCLA as a visiting scholar to which [taxpayer] was to receive zero compensation-This means the scholar is being paid by another university (W-2 income). However this could be allowed on [Schedule] A." Stipulation Ex. 30, at 321-P. Finally, the examiner's notes included a reference to section 263A, which generally requires capitalization of certain direct and indirect costs related to tangible personal property produced by the taxpayer, including books. In apparent reference to section 263A, the notes read, "[i]n reviewing expense for [meals and entertainment taxpayer] had a total of $58 however as [taxpayer] does not ha[ve] any [i]ncome even that amount must be carried over until he does." Stipulation Ex. 30, at 324-P.

D. IRS Appeals Efforts to Schedule a Conference for 2014

In Appeals Officer Young's July 23 letter to Mr. Jacobs, she proposed an in-person Appeals conference for September 12, 2018, and invited him to submit a written response to the examiner's findings. She advised that both the examiner's findings and Mr. Jacobs' response would be considered in settling the case. After receiving the letter, Mr. Jacobs notified Appeals Officer Young that he could not attend the September Appeals conference as scheduled because he would be out of town. Appeals Officer Young then notified Mr. Jacobs that she would be available for an Appeals conference during the week of October 15, 2018. Once again, Mr. Jacobs told her that the week would not work for him, but that he might be available at the end of the week of October 22. Accordingly, Appeals Officer Young notified Mr. Jacobs that she scheduled a conference for October 25 at her office, but Mr. Jacobs also turned down this date and asked that a conference combine his 2014 tax year and the 2015 tax year (which we discuss below). On August 24, 2018, Appeals Officer Young scheduled an in-person conference with Mr. Jacobs for November 14, 2018.

E. Consolidation of Appeals for 2014 and 2015

While Appeals Officer Young was attempting to schedule an in-person conference with Mr. Jacobs for the 2014 tax year, the case for the 2015 tax year was forwarded to IRS Appeals and assigned to Appeals Officer Young so that she could review the 2014 and 2015 tax years together. On September 28, 2018, Mr. Jacobs faxed a memorandum to Appeals Officer Young in support of his appeal for both years along with seven exhibits. The memorandum explained the procedural background of the case and set out Mr. Jacobs' procedural concerns with the audits for 2014 and 2015, stating, for example, that Mr. Jacobs believed that "the exam units blatantly violated the Taxpayer Bill of Rights and Due Process" and that they "simply issued form letter after form letter without conducting even the semblance of a professional audit." Stipulation Ex. 41, at 387-P.

The memorandum also set out Mr. Jacobs' substantive concerns for each tax year. For the 2014 tax year, Mr. Jacobs asserted that expenses related to his Visiting Scholar position had been "amply documented" by the supporting documentation previously provided. He also reiterated that his "attorney-scholar business was a single, separate, and distinct enterprise from his full-time employment [at American University]." Stipulation Ex. 41, at 389-P. He maintained that the UCLA appointment related to the attorney-scholar business rather than the full-time position at American University because he used the appointment to conduct research for and work on the BP Book. He also stated that his employment at American University "required no research and writing, no summer duties, and certainly no legal practice." Id.

For the 2015 tax year, Mr. Jacobs asserted that his expenses were separately explained and documented in the information he provided to examiners in January and May 2018. He also maintained that he wrote the BP Book as part of a business- and not as part of a hobby-because the book was published by a "prestigious" publisher and had begun generating royalties in 2018. Similarly, he claimed that his work as an attorney could not have been a hobby because he took the California bar and eventually (in 2016 and 2018) entered into two contingency fee contracts to provide paid legal services in California. He maintained that the BP Book helped secure these contracts. The record does not reflect what, if anything, Mr. Jacobs was paid under these contracts or when any payments were made.

Mr. Jacobs' memorandum also attached seven additional exhibits, including email correspondence with IRS Appeals and the Brookhaven Correspondence Exam office concerning procedural aspects of his cases, a picture of Mr. Jacobs holding the BP Book, email correspondence between Mr. Jacobs and a third party discussing lodging in Los Angeles, a 2018 receipt of a royalty advance paid to Mr. Jacobs for $3,000, and an engagement letter pertaining to legal services he provided in 2018.

On October 9, 2018, Appeals Officer Young sent Mr. Jacobs a letter acknowledging the receipt of his documentation, confirming the in-person conference previously scheduled for November 14, 2018, and asking that any new documentation Mr. Jacobs would like to have considered at the conference be submitted beforehand.

On November 5, 2018, Mr. Jacobs sent a letter to Shelley M. Foster, Director, Examination Appeals, referencing Appeals Officer Young's October 2018 letter to him and requesting his case be assigned to a different Appeals Officer. Mr. Jacobs did not provide any additional information in this letter in support of his claimed deductions. His letter also raised various complaints about both Appeals Officer Young and Appeals Team Manager Keith Matsuda.¹¹

11 A memorandum prepared by IRS Appeals Area 8 Technical Advisor Linda Shanks concluded that Mr. Jacobs' allegations concerning Mr. Matsuda and Appeals Officer Young were "not substantiated by the record" and that "[t]here is no evidence of any misconduct or improper actions." Stipulation 46a, at 424-P.

On November 9, 2018, Ms. Foster responded to Mr. Jacobs' November 5 letter granting his request for a new appeals officer and notifying him that Appeals Officer David Guerrero was assigned to his case. Ms. Foster's response also notified Mr. Jacobs that the November 14, 2018, conference was cancelled and would be rescheduled.

F. Request for Taxpayer Advocate Participation in Appeals Conference

While Appeals was considering Mr. Jacobs' case and Appeals Officer Young still had responsibility for the case, Mr. Jacobs requested that a representative from the Taxpayer Advocate be permitted to attend his Appeals conference. The Office of the Taxpayer Advocate is an office within the IRS headed by the National Taxpayer Advocate. I.R.C. § 7803(c). One of the functions of the Taxpayer Advocate is "assist[ing] taxpayers in resolving problems with the [IRS]." I.R.C. § 7803(c)(2)(A)(i). A taxpayer seeking such assistance may file an application with the Taxpayer Advocate for a "Taxpayer Assistance Order." See I.R.C. § 7811(a). The Taxpayer Advocate may issue such an order if the National Taxpayer Advocate determines that the taxpayer "is suffering or about to suffer a significant hardship as a result of the manner in which the internal revenue laws are being administered." I.R.C. § 7811(a)(1)(A).

Appeals Officer Young's supervisor, Mr. Matsuda, denied Mr. Jacobs' request to have a representative from the Taxpayer Advocate at the Appeals conference and notified an individual from the Taxpayer Advocate of this decision. In her October 2018 letter to Mr. Jacobs, Appeals Officer Young notified Mr. Jacobs of this decision.

On November 7, 2018 (that is, after Mr. Jacobs' November 5 letter to Ms. Foster, but before Ms. Foster's November 9 letter to Mr. Jacobs), the Taxpayer Advocate issued a Taxpayer Assistance Order to IRS Appeals under section 7811(b) asking that IRS Appeals (1) permit an individual from the local office of the Taxpayer Advocate to attend the conference scheduled for November 14, 2018, with Appeals Officer Young, (2) refrain from holding a hearing on the examination of Mr. Jacobs' 2014 and 2015 returns until after a decision is delivered to the local office of the Taxpayer Advocate, and (3) provide a copy of any proposed determination to the local office of the Taxpayer Advocate before its issuance.

Shortly after receiving the Taxpayer Assistance Order, Patrick McGuire responded to the Taxpayer Advocate notifying the Taxpayer Advocate that a representative from the Taxpayer Advocate would not be permitted to attend the Appeals conference. This decision was escalated to the National Taxpayer Advocate Nina Olson and the Chief of Appeals Donna Hansberry. As far as we can tell from the record, this procedural dispute between two different parts of the IRS was never resolved. What we do know is that no Taxpayer Advocate participated in Mr. Jacobs' meetings with IRS Appeals.

V. Requests for Extensions of the Limitations Period and Issuance of the Notices of Deficiency

As already noted, on November 9, 2018, Ms. Foster approved Mr. Jacobs' request to have the case reassigned from Appeals Officer Young to Appeals Officer Guerrero. Later that month, Appeals Officer Guerrero received Mr. Jacobs' case and reviewed the administrative file. On December 12, 2018, he sent Mr. Jacobs a letter requesting additional extensions of the periods of limitations on assessment for the 2014 and 2015 tax years, to give IRS Appeals adequate time to consider his case before the periods were set to expire on April 30 and August 31, 2019, respectively.¹²The letter proposed extending the limitations periods to December 31, 2019, for both years.

12 Mr. Jacobs and the IRS had previously executed Forms 872, Consent to Extend the Time to Assess Tax, authorizing the IRS to extend the period of limitations on assessment for 2014 and 2015 to April 30, 2019, and August 31, 2019, respectively.

After Mr. Jacobs expressed concern over agreeing to the extensions, Area Appeals Manager McGuire (to whom Mr. Jacobs had written previously) sent a letter on December 19, 2018, advising Mr. Jacobs that extensions were necessary to allow IRS Appeals sufficient time to review his case. On the same day, Appeals Officer Guerrero discussed the extensions with Mr. Jacobs by phone, and Mr. Jacobs indicated he would not agree to extend the limitations periods. During the phone call, Mr. Jacobs and Appeals Officer Guerrero scheduled an Appeals conference for January 10, 2019. That conference did not take place because of a government shutdown.

On January 30, 2019, after the government shutdown was over, Appeals Acting Team Manager Joseph Haynes, Appeals Officer Guerrero's supervisor, called Mr. Jacobs and left a voice message advising that IRS Appeals would be closing the case and issuing a statutory notice of deficiency for each year at issue because Mr. Jacobs had not agreed to extend the period of limitations on assessment. On the same day, Mr. Jacobs faxed an executed form that proposed to extend the limitations period for the 2014 tax year to June 5, 2019 (an extension of 35 days), a period significantly shorter than the extension period that had been proposed by IRS Appeals. Mr. Jacobs did not agree to extend the limitations period for the 2015 tax year.

Without an agreement on the requested extensions, IRS Appeals decided to issue the Notices of Deficiency that gave rise to this case in our Court. Before issuing the Notices of Deficiency, Appeals Officer Guerrero reviewed the contents of the administrative file. He also prepared an Appeals Case Memo concluding that Mr. Jacobs' deductions should be disallowed. Generally, Appeals Officer Guerrero determined that Mr. Jacobs had not satisfied his burden to show that his expenses were ordinary and necessary to his business or that certain substantiation requirements found in section 274(d) were met. He also concluded that Mr. Jacobs was not entitled to deductions for the business use of his home in 2014 under section 280A(c)(5) because he had reported zero income from the business on Schedule C.

On January 31, 2019, to protect the period of limitations on assessment and pursuant to IRS Appeals' policy, Appeals Officer Guerrero issued the Notices of Deficiency for both 2014 and 2015. The Notices of Deficiency included Appeals Team Manager Keith Matsuda's name in the signature line, but the Notices were signed by Appeals Team Manager Joseph Haynes, who was Appeals Officer Guerrero's acting manager when the Notices were issued.

The Notices determined that Mr. Jacobs owed additional tax of $9,461 and $5,201 and accuracy-related penalties under section 6662(a) of $1,892 and $1,040 for 2014 and 2015, respectively. The Forms 886-A attached to the Notices of Deficiency stated that Mr. Jacobs had not established that he "incurred, or if incurred, paid the amounts [reported on his Schedule Cs] during the taxable year[s] to which they correspond for ordinary and necessary business purposes and that any amounts qualify as schedule C1 expenses under the provisions of the Internal Revenue Code." Stipulation Ex. 60, at 461-P; id. Ex. 61, at 468-P.

VI. Initial Proceedings in Our Court and Eventual In-Person IRS Appeals Conference

A. Petition and Answer

Mr. Jacobs filed a timely Petition in our Court seeking redetermination of the deficiencies the Commissioner determined for the 2014 and 2015 tax years. In paragraph 9 of the Petition, Mr. Jacobs alleged that the Notices of Deficiency were based on the following errors:

A. Respondent erred in disallowing the amount of $33,787.00 that Petitioner claimed on Schedule C in business expenses for tax year 2014.

B. Respondent erred in disallowing the amount of $19,940.00 that Petitioner claimed on Schedule C in business expenses for tax year 2015.

Pet. 3 (cleaned up). The Petition made no specific allegations about any of the expenses reported on Mr. Jacobs' Schedules C for 2014 and 2015. Nor did the Petition make any specific allegations that Mr. Jacobs had provided sufficient documentation in support of those expenses up to that point. Rather, in the Petition, Mr. Jacobs specifically alleged that (1) the period of limitations on assessment had expired, (2) the Notices of Deficiency were issued by someone not authorized to act on behalf of the IRS (i.e., Keith Matsuda), (3) the Notices of Deficiency did not contain sufficient information, (4) IRS personnel engaged in misconduct during the administrative proceedings, and (5) he was deprived of due process during those proceedings.

Upon receipt of the Petition, IRS Chief Counsel Associate Area Counsel Michael Park assigned the case to Senior Attorney Laura Mullin. In preparing the Answer to the Petition, Ms. Mullin reviewed the contents of the administrative file. The file included, among other things, the documentation (memoranda and exhibits) Mr. Jacobs had submitted to IRS examiners and IRS Appeals in support of his deductions, his complaints to the IRS, his TIGTA Complaint, and the Taxpayer Advocate Operations Assistance Requests prepared during the administrative stages of his cases. Based on Ms. Mullin's review of the administrative file, she concluded that it was not appropriate to make any concessions in the Answer. Specifically, Ms. Mullin credibly testified at the evidentiary hearing that she "did not see full substantiation that merited a concession" and "the business purpose of the expenses was not clearly established, in part, because Petitioner's Schedule C business was somewhat multifaceted." Hr'g Tr. 385:18-21. She further credibly testified she concluded that Mr. Jacobs' "documents alone, without further explanation, did not express clearly the business purpose of the expenses." Hr'g Tr. 388:22-24.

On June 26, 2019, the Commissioner filed his Answer, requesting that the determinations be upheld. In response to the allegation made in paragraph 9 of the Petition, the Commissioner pleaded as follows: "Denies respondent erred as alleged." The Commissioner also generally denied the remaining allegations Mr. Jacobs made concerning the validity of the Notices of Deficiency, IRS employee misconduct, and due process. Before the Answer was filed, Mr. Park reviewed it and determined that the Answer properly responded to all the statements and allegations in the Petition.

B. Post-Answer Consideration by IRS Appeals

1. Mr. Jacobs' Appeals Conference

Promptly after the Answer was filed, Ms. Mullin sent the case back to IRS Appeals to provide Mr. Jacobs a face-to-face conference. The case was once again assigned to Appeals Officer Guerrero.

On August 20, 2019, Mr. Jacobs and Appeals Officer Guerrero met in person for the conference. At the conference, the parties reviewed all of the expenses disallowed by Exam. Appeals Officer Guerrero credibly testified that he and Mr. Jacobs went "line by line" through the expenses and that Mr. Jacobs provided "helpful" oral explanations that gave "context to the expenses." Hr'g Tr. 207:19-22. The parties also reviewed the documentation Mr. Jacobs had provided to substantiate each of his claimed expenses.

Appeals Officer Guerrero's notes from the conference include a number of questions that he and Mr. Jacobs discussed pertaining to Mr. Jacobs' business activities. Specifically, the questions addressed the business purpose of Mr. Jacobs' UCLA appointment, the reasons for his business trips (particularly those outside the United States), whether some of his expenses were "employee business expenses," whether his Schedule C was "all about the book" or also related to consulting, and the reasons for his frequent west coast travel during 2014 when he resided in Washington, DC. Mr. Jacobs provided Appeals Officer Guerrero with substantial new information with respect to those questions as well as the business purpose of his individual expenses.

Following the Appeals conference, Mr. Jacobs sent a letter to Appeals Officer Guerrero dated August 30, 2019. In this letter, Mr. Jacobs provided additional information concerning certain expenses that were discussed during the Appeals conference. Mr. Jacobs argued that an expense that was labeled as a security deposit should be deductible as rent, even though it was later returned to him by a court order. Next, Mr. Jacobs provided a copy of a check for $444 for a "lodging" expense he paid in 2015 as well as a copy of an email sent to Mr. Jacobs that discussed picking him up at the airport. Mr. Jacobs provided some documentation concerning a court appearance in which he was the plaintiff. Finally, he provided a new Form 8829, Expenses for Business Use of Your Home, for 2014.

2. Post-Conference Appeals Case Memo

On January 6, 2020, after considering Mr. Jacobs' explanations during the IRS Appeals conference as well as the documentation on record, Appeals Officer Guerrero sent Mr. Jacobs an Appeals Case Memo, proposing a settlement with respect to the issues in the case.¹³ The proposal allowed a significant portion of the deductions that Mr. Jacobs had claimed for both years, but not all of them. [p. 701] Specifically, the Appeals Case Memo proposed disallowing travel expenses of $4,197 and $1,923 for 2014 and 2015, respectively; meals and entertainment expenses of $534 and $845 for 2014 and 2015, respectively; other expenses of $247 for 2014; and expenses from the business use of Mr. Jacobs' home of $4,615 for 2014. The Appeals Case Memo also proposed allowing a deduction of $275 for other expenses that Mr. Jacobs had not included on his 2015 Schedule C.

13 Between the conference with IRS Appeals and Mr. Guerrero's sending of the settlement offer, on December 10, 2019, Mr. Jacobs sent a letter to Shelley M. Foster, Director, Examination Appeals, in which he raised complaints about the fairness and length of the Appeals conference and requested an "investigation" into alleged misconduct by Appeals Officer Guerrero.

Appeals Officer Guerrero explained his rationale for disallowing certain expenses in an Appeals Case Memo (Memo). The Memo stated generally that "[s]ome expenses claimed lacked sufficient documentation to establish[] that the expenses were incurred, and other expenses lacked sufficient documentation to determine that [they] were incurred for a business purpose." Stipulation Ex. 86, at 705-P. Specifically, the Memo explained that among the expenses for which a deduction was disallowed were (1) a portion of the expenses Mr. Jacobs claimed for his Los Angeles housing in 2014, which Mr. Jacobs had indicated was a security deposit that he eventually recovered in a court proceeding; (2) a portion of the expenses for a rental car that was used for both business and personal reasons; (3) various travel and meal expenses for which Mr. Jacobs had not shown an adequate business purpose; (4) Mr. Jacobs' bar and union dues, which Appeals Officer Guerrero concluded were not ordinary and necessary to his Schedule C business; (5) local transportation costs; and (6) expenses for the business use of Mr. Jacobs' home because Mr. Jacobs had derived no income from his business in 2014.

Other than the expenses discussed above, the Appeals Case Memo generally concluded that Mr. Jacobs could claim deductions for his expenses. In relevant part, the Memo stated that Mr. Jacobs was not required to capitalize expenses related to his book under section 263A. It further explained that "[b]ecause of the strict substantiation requirement under [section] 274(d) for travel expenses and meals and entertainment expenses it was necessary [for Appeals Officer Guerrero] to review all of the documents and even receipts for small amounts of payments to establish the business purpose, date and location of the expense." Stipulation Ex. 86, at 705-P. During our April 11 and 12 hearing, Appeals Officer Guerrero underscored the importance of the Appeals conference to his decision to allow many of Mr. Jacobs' expenses. He credibly testified at the hearing that Mr. Jacobs' oral explanations allowed him "to make a different determination" than he did in the Notices of Deficiency with respect those expenses. Hr'g Tr. 143:25-144:2.

3. Resolution of the Case

On February 5, 2020, Mr. Jacobs responded by fax to confirm receiving receipt of the proposal and to explain that he would determine "next steps" after a colleague who had been assisting him with the case had reviewed the proposal and prepared a "comprehensive report regarding the remaining contested items." Stipulation Ex. 88, at 734-P. On March 16, 2020, Appeal Officer Guerrero attempted to contact Mr. Jacobs to discuss the settlement proposal. After receiving no response, on May 12, 2020, Mr. Jacobs was notified by letter that Appeals Officer Guerrero had attempted to contact him and had not received a response. The letter further stated that the case would be transferred back to IRS Chief Counsel for trial preparation if Mr. Jacobs did not respond.

On June 8, 2020, Appeals Officer Guerrero advised the Commissioner's counsel that he was returning the case for trial preparation because he had not received a response from Mr. Jacobs on the settlement proposal. On June 18, 2020, the Court held a status conference with the parties. During that conference, the Commissioner's counsel, Ms. Mullins, reported that the Commissioner was conceding the case in full and had sent Mr. Jacobs a letter to that effect. Ms. Mullins credibly explained at the hearing that she "made the judgment call [to concede the case in full, rather than just in part as Appeals Officer Guerrero had recommended] based on the hazards of litigation." Hr'g Tr. 391:6-8. The parties filed a stipulation of settled issues reflecting the concession on July 23, 2020.

C. Mr. Jacobs' Discovery Request

Following the filing of the Answer and while IRS Appeals was considering the case, on August 8, 2019, Mr. Jacobs sent the Commissioner discovery requests. Among them was the following interrogatory:

14. If, upon review of all of the documentation Petitioner has to date submitted to substantiate his business expenses, Respondent contends that Petitioner has failed to sufficiently document any of them, identify each such expense and the additional documentation you deem warranted.

Pet'r's Dec. 16, 2019, Mot. to Compel Disc. Ex. A, at 3. On November 19, 2019, the Commissioner's counsel responded to Mr. Jacobs discovery requests. In response to the above interrogatory, the Commissioner's counsel stated:

14. Respondent's counsel is waiting for the report of the Appeals officer pertaining to the substantiation provided by petitioner to Appeals. To respondent's counsel's present knowledge, petitioner has not yet fully substantiated any of the disallowed expenses on the Notices as incurred and paid for an active trade or business, but the Appeals Officer did

advise that partial substantiation has been provided for most categories of expenses.

Id. Ex. L, at 6.

VII. Mr. Jacobs' Motion for Costs

On August 26, 2020, Mr. Jacobs filed his initial Motion for Costs pursuant to section 7430 and Rule 231, requesting an award of $31,604 in litigation costs, including expert witness fees and attorney's fees. The Commissioner responded, arguing that Mr. Jacobs is not entitled to an award of litigation costs because the Commissioner's position in the proceedings before our Court was "substantially justified" under section 7430(c)(4)(B). Mr. Jacobs filed a Reply to the Commissioner's Response. On May 5, 2021, after holding a hearing on the Motion, we issued a Memorandum Opinion, Jacobs v. Commissioner, T.C. Memo. 2021-51, denying Mr. Jacobs' request for litigation costs. A decision was entered in this case the same day.

VIII. Ninth Circuit Vacatur and Proceedings on Remand

A. Ninth Circuit Vacatur

Mr. Jacobs appealed our decision to deny his request for litigation costs to the U.S. Court of Appeals for the Ninth Circuit. On November 4, 2022, the Ninth Circuit issued an opinion vacating our denial of Mr. Jacobs' Motion for Costs and remanding with instructions for reconsideration of his Motion. Jacobs v. Commissioner, 2022 WL 16707186. The Ninth Circuit's opinion questioned whether, in our prior decision, we "appreciate[d] that evaluating the reasonableness of the [Commissioner's] litigation position, as reflected in the answer, requires some review of the administrative proceedings." Jacobs v. Commissioner, 2022 WL 16707186, at *2. Specifically, the opinion agrees with our prior opinion that the "nature of the government's actions during the administrative proceedings is not directly relevant to litigation costs," and that "whether the [Commissioner] should have issued an initial notice of deficiency or should have held an in-person meeting during the administrative proceedings does not control the inquiry as to the reasonableness of the answer the [Commissioner] filed in the Tax Court." Id. But the Ninth Circuit opinion points out that "the 'reasonableness' of the [Commissioner's] answer here depends on what the [Commissioner] learned, or should have learned, from the preceding administrative proceedings." Id. The opinion then questions whether we considered "the information provided to the [Commissioner] during the administrative proceedings" and whether that information "made it unreasonable for the [Commissioner] to file an answer denying the allegations in [the] petition." Id. The Ninth Circuit therefore remanded the case to us solely to consider whether, "in light of the information the [Commissioner] received in the administrative proceedings, the [Commissioner's] litigation position was unreasonable." Id. (emphasis added). Following the issuance of the opinion, Mr. Jacobs filed a motion with the Ninth Circuit requesting over half-a-million dollars in attorney fees in connection with the case. The Ninth Circuit denied Mr. Jacobs' motion without prejudice to its renewal in our Court should we conclude that the Commissioner's position was not substantially justified.

B. Proceedings on Remand

After several rounds of status reports, the case was scheduled for an evidentiary hearing to take place during the Court's January 31, 2024, Special Session in Los Angeles, California. On January 12, 2024, Mr. Jacobs filed a Supplemental Motion for Litigation Costs.

On January 29, 2024, two days before the evidentiary hearing was set to begin, the Commissioner's counsel informally notified Court personnel that the lead counsel for the Commissioner had become ill and could not attend the evidentiary hearing and requested a continuance. Without objection from Mr. Jacobs' counsel, the Court struck the case from the Court's January 31, 2024, Los Angeles, California, Special Session. The case was later rescheduled for an evidentiary hearing during the Court's April 11, 2024, Los Angeles, California, Special Session.

C. Discovery Dispute

On November 21, 2023, Mr. Jacobs filed a Motion to Compel Discovery to which the Commissioner filed an objection. In relevant part, Mr. Jacobs sought the production of IRS Appeals Case Activity Record entries made after January 31, 2019.¹⁴ On December 13, 2023, the Court held a hearing to discuss the Motion to Compel. Following that hearing, the Court issued an order granting the Motion to Compel in part and denying it in part and directed the Commissioner to respond to Mr. Jacobs' discovery requests on or before December 29, 2023. In the Order, the Court directed the Commissioner "to produce any responsive documents not already in petitioner's possession, including, if they exist . . . the Case Activity [Record] subsequent to January 31, 2019."

14 Case Activity Records are used to track the actions taken and contacts made by an Appeals Officer during the life of a case. According to the Internal Revenue Manual, an Appeals employee can use a Case Activity Record to "[r]ecord various action and sub-action codes for case activities[,] . . . [d]ocument required actions[,] . . . [r]ecord information on decisions or actions taken on [a] case[,] . . . [r]ecord case activities[,] . . . [r]ecord time spent on a specific case[,] . . . [and] [e]stablish follow-up actions for [a] case." Internal Revenue Manual (IRM) 8.1.3.3.7 (Dec. 16, 2011).

When preparing the response to the request for the Case Activity Record, the Commissioner's counsel was told by Appeals Officer Guerrero that the Case Activity Record was on a database called the Appeals Centralized Database System (ACDS) that she could access. On December 28, 2023, the Commissioner's counsel proceeded to produce the materials she found in the database that were responsive to Mr. Jacobs' discovery requests. On February 26, 2024, nearly two months after responding to the discovery request, the Commissioner's counsel learned for the first time during a virtual meeting with Appeals Officer Guerrero that the version of the ACDS database counsel had access to (and from which she had obtained the materials she produced) was different from the version the Appeals Officer used. She immediately asked the Appeals Officer to prepare an electronic document showing what had been requested in discovery. She then notified Mr. Jacobs' counsel three days later of the mistake and turned the newly discovered materials over to him.

D. Evidentiary Hearing, Briefing, and Updated Fees Request

On April 11 and 12, 2024, we held an evidentiary hearing. Mr. Jacobs and his counsel appeared and were heard, as were Commissioner's counsel. We also heard testimony from four witnesses called by Mr. Jacobs. Following the evidentiary hearing, the parties filed simultaneous opening and answering Briefs.

Mr. Jacobs' Reply Brief includes an updated cost package requesting fees of more than $1.6 million. In addition to providing information about the more than half-a-million in fees Mr. Jacobs requested from the Ninth Circuit, the package provides information about nearly $1.1 million in attorneys' fees for litigation in this Court. Of the total amount requested for litigation in both courts, more than $1.1 million relates to Mr. Jacobs' own work.¹⁵

15 In view of our conclusion that the position the Commissioner took in the Answer and until he conceded the case was substantially justified, we do not address the Commissioner's argument that Mr. Jacobs is not entitled to recover litigation costs for his personal time handling his own case.

The package includes a Declaration that Mr. Jacobs attached to his motion for fees filed in the Ninth Circuit. The Declaration explains that Mr. Jacobs' obligation to pay Seyfarth Shaw is contingent upon his recovering fees from the government. A Declaration included in the package from counsel from Seyfarth Shaw makes the same point, as does a Declaration from a law professor who performed work on the case.¹⁶

16 In view of our conclusion that the position the Commissioner took in the Answer and until he conceded the case was substantially justified, we make no finding concerning the reasonableness of the fees reflected in the updated cost package, including whether they should be capped at the statutory rate set out in section 7430(c)(1).

Discussion

I. Litigation Costs Under Section 7430

We begin with Mr. Jacobs' argument that he is entitled to litigation costs under section 7430.

A. Applicable Legal Framework

Section 7430(a) provides for an award of "reasonable litigation costs incurred in connection with [a] court proceeding" to the "prevailing party" in such "court proceeding which is brought by or against the United States in connection with the determination, collection, or refund of any tax, interest, or penalty."¹⁷ The Court may award such costs when a taxpayer demonstrates that (1) he is the "prevailing party," (2) all available administrative remedies with the IRS are exhausted, (3) he has not unreasonably protracted the proceeding, and (4) the claimed costs are "reasonable." See I.R.C. § 7430(a) and (b)(1), (3); Morrison v. Commissioner, 565 F.3d 658, 661 (9th Cir. 2009), rev'g on other grounds T.C. Memo. 2006-103; Alterman Tr. v. Commissioner, 146 T.C. 226, 227 (2016).¹⁸ The decision to award fees is within the sound discretion of the Court. See Morrison v. Commissioner, 565 F.3d at 661 n.3 ("A decision by the Tax Court denying an award of attorneys' fees is reviewed for abuse of discretion." (citing Huffman v. Commissioner, 978 F.2d 1139, 1143 (9th Cir. 1992), aff'g in part, rev'g in part T.C. Memo. 1991-144)).

17 Section 7430(a) also provides for an award of "reasonable administrative costs" incurred in connection with an IRS administrative proceeding. Because Mr. Jacobs has not requested such an award, we will not discuss the matter further.

18 The Commissioner concedes that Mr. Jacobs exhausted all available administrative remedies with the IRS and did not unreasonably protract the proceedings.

As relevant here, to be the "prevailing party," a taxpayer must "substantially prevail[]" with respect to the amount in controversy or "the most significant issue or set of issues presented." I.R.C. § 7430(c)(4)(A). The taxpayer will not be treated as the prevailing party, however, if the Commissioner establishes that "the position of the United States in the proceeding was substantially justified." I.R.C. § 7430(c)(4)(B)(i) (emphasis added); see also Jacobs v. Commissioner, 2022 WL 16707186, at *1.

The Commissioner has the burden of establishing that his position was substantially justified. See Pac. Fisheries Inc. v. United States, 484 F.3d 1103, 1107 (9th Cir. 2007); see also Jacobs v. Commissioner, 2022 WL 16707186, at *1 ("[T]he burden is 'squarely on the United States, not on the taxpayer, to demonstrate that the government's position was substantially justified.'" (quoting Pac. Fisheries, Inc., 484 F.3d at 1107)).

The "position of the United States" in a judicial proceeding is generally that set forth in the Commissioner's answer. See I.R.C. § 7430(c)(7)(A); Huffman v. Commissioner, 978 F.2d at 1148; see also Jacobs v. Commissioner, 2022 WL 16707186, at *2 ("[Mr.] Jacobs' request for litigation costs pursuant to § 7430 depends in large part on the reasonableness of the [Commissioner's] answer in the Tax Court").

A position is "substantially justified" if it is "justified to a degree that could satisfy a reasonable person" or has a "reasonable basis both in law and fact." Swanson v. Commissioner, 106 T.C. 76, 86 (1996) (quoting Pierce v. Underwood, 487 U.S. 552, 565 (1988)); see also Huffman v. Commissioner, 978 F.2d at 1147. The determination of reasonableness is based on all the facts of the case and the available legal precedents. Maggie Mgmt. Co. v. Commissioner, 108 T.C. 430, 443 (1997). A position has a reasonable basis in fact if there is such relevant evidence as a reasonable mind might accept as adequate to support a conclusion. Underwood, 487 U.S. at 565. A position has a reasonable basis in law if legal precedent substantially supports the Commissioner's position given the facts available to him. Maggie Mgmt. Co., 108 T.C. at 443.

"As the Supreme Court has observed, substantially justified means 'more than merely undeserving of sanctions for frivolousness.'" United States v. Yochum (In re Yochum), 89 F.3d 661, 671 (9th Cir. 1996) (quoting Underwood, 487 U.S. at 566). But, the Commissioner's position may be substantially justified even if it turns out to be incorrect as long as "a reasonable person could think it correct." Maggie Mgmt. Co., 108 T.C. at 443 (quoting Underwood, 487 at 565 n.2). And the fact that the Commissioner loses or eventually concedes a case "does not by itself establish that the position taken is unreasonable," but is "a factor that may be considered." Id. (citations omitted).

The Ninth Circuit's remand to our Court provides that determining whether the Commissioner's position in an answer to a petition is substantially justified "requires some review of the administrative proceedings," "not to determine the propriety of the proceedings, but as informing the reasonableness of the [Commissioner's] answer in the Tax Court." Jacobs v. Commissioner, 2022 WL 16707186, at *2. We must, therefore, consider whether "in light of the information the [Commissioner] had received in the administrative proceedings, the [Commissioner's] litigation position was unreasonable." Id. In doing so, we must take into account what "the [Commissioner] learned, or should have learned, from the preceding administrative proceedings." Id.

B. The Commissioner's Litigation Positions at Answer

1. Position on Schedule C Deductions

The primary issue in this case was whether Mr. Jacobs was entitled to deductions he claimed on Schedules C for 2014 and 2015. The Commissioner, in his Answer, denied that Mr. Jacobs was entitled to the deductions. The Commissioner argues now that this position was substantially justified because Mr. Jacobs had not provided certain information that was required to prove his deductions, including information explaining "how [his] incurred expenses were ordinary and necessary and tied to his described business activities," "whether those expenses were incurred and paid," and "how those expenses related to his described Schedule C activities as opposed to his W-2 employment." Resp't's Opening Br. 59, 61-62. After carefully reviewing the information the IRS received before the Commissioner filed the Answer, we agree with the Commissioner that his position regarding the Schedule C deductions was substantially justified.

a. Legal Requirements for Business Deductions

To deduct an expense under section 162, a taxpayer must establish that the amount was an ordinary and necessary expense paid or incurred in carrying on a trade or business. I.R.C. § 162(a); see also INDOPCO, Inc. v. Commissioner, 503 U.S. 79, 84 (1992). "An ordinary and necessary expense is one that is appropriate and helpful to the taxpayer's business and that results from an activity which is a common and accepted practice." Amdahl Corp. v. Commissioner, 108 T.C. 507, 523 (1997) (citing Boser v. Commissioner, 77 T.C. 1124, 1132 (1981)); Blossom Day Care Ctrs., Inc. v. Commissioner, T.C. Memo. 2021-87, at *36. "Business expenses deductible from gross income include the ordinary and necessary expenditures directly connected with or pertaining to the taxpayer's trade or business . . . ." Treas. Reg. § 1.162-1(a) (emphasis added).

"The taxpayer must show that a reported business expense was incurred primarily for business rather than personal reasons and that there was a proximate relationship between the expense and the business." Rogers v. Commissioner, T.C. Memo. 2014-141, at *18 (citing Walliser v. Commissioner, 72 T.C. 433, 437 (1979)). Whether a payment qualifies for a deduction under section 162(a) is a factual issue that must be decided on the basis of all relevant facts and circumstances. See Commissioner v. Heininger, 320 U.S. 467, 475 (1943) ("Whether an expenditure is directly related to a business and whether it is ordinary and necessary are doubtless pure questions of fact in most instances."); Blossom Day Care Ctrs., Inc., T.C. Memo. 2021-87, at *37. No deduction is generally allowed for personal, living, or family expenses. I.R.C. § 262(a).

For a deduction "[t]o be properly reported on Schedule C [as opposed to Schedule A], a taxpayer's expense must come from a trade or business of his own, other than that of being an employee." Weber v. Commissioner, 103 T.C. 378, 386 (1994), aff'd, 60 F.3d 1104 (4th Cir. 1995). The taxpayer has the burden of proving his entitlement to the deductions he claims and must keep sufficient records to substantiate them. See Sparkman v. Commissioner, 509 F.3d at 1159 ("[T]he burden of clearly showing the right to the claimed deduction is on the taxpayer." (quoting New Colonial Ice Co. v. Helvering, 292 U.S. at 440)).

For certain types of expenses, including travel, entertainment, and gift expenses, the taxpayer has a heavy burden for proving deductibility under section 274(d). See Meridian Wood Prods. Co., 725 F.2d at 1189 ("The issue . . . is whether [the taxpayer] met this 'heavy burden to substantiate each element of every deducted item of expense.'" (quoting Berkley Mach. Works & Foundry Co. v. Commissioner, 623 F.2d at 906)). The Code requires the taxpayer to show

by adequate records or by sufficient evidence corroborating the taxpayer's own statement (A) the amount of such expense or other item, (B) the time and place of the travel, entertainment, amusement, recreation, or use of the facility or property, or the date and description of the gift, (C) the business purpose of the expense or other item, and (D) the business relationship to the taxpayer of persons entertained, using the facility or property, or receiving the gift.

I.R.C. § 274(d). "The requirement of substantiation allows the Government to double-check the amount and the true business character of the deduction, instead of being forced to rely on the taxpayer's own unsupported, self-serving testimony." Berkley Mach. Works & Foundry Co. v. Commissioner, 623 F.2d at 906 (cleaned up) (quoting S. Rep. No. 1881, 87th Cong., 2d Sess. 37 (1962)).

Deductions subject to the substantiation requirements of section 274(d) are disallowed in full unless the taxpayer establishes each element of the requirements. See Sanford v. Commissioner, 50 T.C. 823, 826-29 (1968), aff'd per curiam, 412 F.2d 201 (2d Cir. 1969); Fleming v. Commissioner, T.C. Memo. 2010-60; see also Temp. Treas. Reg. § 1.274-5T(a); cf. Berkley Mach. Works & Foundry Co. v. Commissioner, 623 F.2d at 906.

The Treasury Regulations expand on the two ways a taxpayer can satisfy the substantiation requirements of section 274(d): (1) by adequate records or (2) by sufficient evidence that corroborates his own statements. See I.R.C. § 274(d) (flush language); Temp. Treas. Reg. § 1.274-5T(c)(1). For purposes of this analysis, written evidence generally has considerably more probative value than oral evidence. See Temp. Treas. Reg. § 1.274-5T(c)(1). While a contemporaneous log is not required, "the probative value of written evidence is greater the closer in time it relates to the expenditure or use." Id.; see also Larson v. Commissioner, T.C. Memo. 2008-187, 2008 WL 2986387, at * 4. Taken alone, a taxpayer's unsupported testimony is insufficient to substantiate his entitlement to the deduction. See Temp. Treas. Reg. § 1.274-5T(a)(4).

To meet the "adequate records" test under section 274(d) and the relevant regulations, the taxpayer must maintain an account book, diary, log, statement of expense, trip sheets, or similar records, as well as, in certain cases, documentary evidence such as receipts or bills. See Temp. Treas. Reg. § 1.274-5T(c)(2)(i). In combination, these items must be sufficient to establish each element of an expenditure or use-specifically, the amount, time, and business use or purpose. See id.; Temp. Treas. Reg. § 1.274-5T(b)(6). To qualify as an adequate record, an account book, diary, log, or similar record must be prepared and maintained in such manner that each entry is made at or near the time of the expenditure or use. See Temp. Treas. Reg. § 1.274-5T(c)(2)(ii); see also Temp. Treas. Reg. § 1.274-5T(c)(2)(ii)(A). In order to establish business use, the record must contain sufficient information as to each element of every business use, but the level of detail required may vary depending on the facts and circumstances. See Temp. Treas. Reg. § 1.274-5T(c)(2)(ii)(C).

In the absence of adequate records to establish each element of an expense under section 274(d), a taxpayer may alternatively establish an element "(A) [b]y his own statement, whether written or oral, containing specific information in detail as to such element; and (B) [b]y other corroborative evidence sufficient to establish such element." Temp. Treas. Reg. § 1.274-5T(c)(3)(i). If the element the taxpayer seeks to establish is "the cost or amount, time, place, or date of an expenditure or use, the corroborative evidence shall be direct evidence, such as a statement in writing or the oral testimony of persons entertained or other witnesses setting forth detailed information about such element, or the documentary evidence described in paragraph (c)(2) of this section," which includes an account book, diary, log, statement of expense, trip sheets, or similar records. Temp. Treas. Reg. § 1.274-5T(c)(3)(i) (flush language). By contrast, circumstantial evidence may be sufficient to establish the business purpose of an expenditure. Id.

In the context of proving deductions by adequate records, Treasury Regulation § 1.274-5(c)(2)(iii)(A) states generally that "documentary evidence, such as receipts, paid bills, or similar evidence sufficient to support an expenditure" is required for "[a]ny expenditure for lodging while traveling away from home" and "[a]ny other expenditure of $75 or more." However, when a taxpayer cannot prove his deductions by "adequate records," and must rely on his own statements supported by corroborative evidence, Treasury Regulation § 1.274-5(c)(2)(iii)(A) does not apply. Compare Boris I. Bittker et al., Federal Income Taxation of Individuals, § 13:21 ("To substantiate an item by adequate records, a taxpayer must maintain (1) an account book, diary, statement of expense, or similar record in which each element of the expenditure is recorded 'at or near the time of the expenditure' and (2) documentary evidence . . . for away-from-home lodging expenditures and any other expenditures of $75 or more." (Emphasis added.) (quoting Treas. Reg. § 1.274-5(c)(2)(iii))), with id. § 13:22 ("In lieu of adequate records, taxpayers may rely on their own statements, written or oral, if corroborated by other evidence 'sufficient to establish each element.'" (Emphasis added.) (quoting Temp. Treas. Reg. § 1.274-5T(c)(3))).

b. The Information Provided to the IRS

Up to the time of the Answer, Mr. Jacobs gave the IRS various letters explaining the nature of his business and deductions, lists vaguely describing his expenses, credit card and bank statements showing amounts paid out in 2014 and 2015, and certain other documents corroborating his activities, such as an appointment letter from UCLA, excerpts from his book, and emails scheduling meetings or pertaining to lodging or conferences. We find that the information was generally disjointed and failed to "clearly show[]" how Mr. Jacobs' expenses connected to his Schedule C business. See Sparkman v. Commissioner, 509 F.3d at 1159. Nor did that information clearly show how the expenses were ordinary and necessary to the business or why they should not be considered incurred for personal purposes or in connection with Mr. Jacobs' employment at American University or GW or his search for a new position as a professor in California. In short, the information he provided did not satisfy the legal requirements for business deductions set forth in the Code and caselaw.

i. Connection of Expenses to the Business

To begin, the information Mr. Jacobs provided to the IRS failed to show how many of the expenses were connected to the business he described in his Schedule Cs and letters. The Schedule Cs described the business as "Attorney/Professor" for 2014 and "Attorney/Professor/Author" for 2015. During the audits of Mr. Jacobs' returns, he elaborated somewhat on the activities of his Schedule C business. For example, despite saying nothing of being an "Author" in his 2014 tax return, Mr. Jacobs explained in his December 2016 fax to the IRS that the "vast majority" of his expenses were incurred at UCLA while researching his book. He further explained that his business included his efforts to establish a legal practice in California.

But the information Mr. Jacobs supplied the IRS during the administrative proceedings, such as the list of expenses, his credit card and bank statements, his letters and memorandum, and the emails from his American University account, failed to explain whether many of the expenses had anything to do with his business. For example, Mr. Jacobs' list of expenses included only few-word descriptions of events he said he attended, fees he paid, transportation costs, subscriptions, and meals. But there was no explanation of how those expenses were related to his business as an "Attorney/Professor" or to the book he was writing. Many of Mr. Jacobs' expenses, without further explanation, had no readily discernible business purpose, such as the expenses for dry cleaning, dinners, a book reading, local transit costs, an expense labeled "Microsoft Personal," and many restaurant expenses shown on Mr. Jacobs' credit card statements. These expenses, plus those for bar dues, court fees, phone and internet charges, car rentals, networking meals, and subscriptions to the Wall Street Journal and Bloomberg could just as easily be personal expenses. And we agree with the Commissioner that a reasonable person could conclude from the information Mr. Jacobs provided that he had not "clearly show[ed]" that he could deduct those expenses. Sparkman v. Commissioner, 509 F.3d at 1159.

Next, Mr. Jacobs had not provided sufficient information during the administrative proceedings about how his trips (and the related expenses) connected to his business as an "Attorney/Professor" or "Attorney/Professor/Author." For example, in the list of expenses Mr. Jacobs faxed to the IRS in December 2016, he identified trips to Palm Springs and Phoenix alongside descriptors that read "Attend Academy of Legal Studies in Business Conference" and "Attend Green Biz Conference," respectively. Yet, it was not clear from those descriptions or anything else Mr. Jacobs provided how those trips were related to the business he described as writing a book and establishing a legal practice in California. And, as we have noted, Mr. Jacobs was a professor at The Kogod School of Business at American University and had founded a business-based Master of Science program in Sustainability Management there.

Similarly, Mr. Jacobs listed a trip to Brazil with a description of "Meet with Polishop CEO and tour Itaipu Dam" without any additional information about how those activities connected to the business he described in his materials. And the itinerary Mr. Jacobs provided in his March 16, 2018, fax concerning the trip to Brazil gave no other details about the connection of the trip to his Schedule C business. As with many of Mr. Jacobs' other trips, in view of the limited information provided, one could reasonably wonder how the trip connected to the fledgling business he described.

Many of the other trips Mr. Jacobs identified in his papers suffered from the same problem-they lacked a clear connection to his business. For example, Mr. Jacobs identified trips to Paris, New York, Middlebury, Seattle, and Miami; however, those trips were accompanied by only generic descriptions, like "Deliver lecture at HEC Business School," "Attend Climate March and meet with FT Reporter," "deliver presentations," "Conference attendance (Net Impact)," and "Business development," respectively. None of those descriptions clearly relate to writing a book or establishing a legal practice in California, as Mr. Jacobs described his business. And most of the trips Mr. Jacobs listed in his faxes to the IRS were accompanied by similarly vague descriptions, like "Networking," "Book meeting," or "Attend UN climate change conference" with no indication of how the expenses connected to those trips related to the business. Given the nature of these expenses, and dearth of information within the documents Mr. Jacobs gave the IRS to corroborate their business purpose, we find that a reasonable person could conclude that Mr. Jacobs' generic descriptors fell well short of section 274(d)'s substantiation requirements. See Meridian Wood Prods. Co., 725 F.2d at 1189 ("To constitute an adequate record a written statement of the business purpose is generally required, although the degree of substantiation may vary depending on the surrounding facts and circumstance. Where the requirements for adequate records cannot be met, and the taxpayer relies on his or her own detailed statement, sufficient corroborating evidence must be offered." (Citations omitted.)).

Given the information Mr. Jacobs provided to the IRS, one could also reasonably question whether Mr. Jacobs' several-month trip to Los Angeles in 2014 that coincided with the Visiting Scholar appointment at UCLA was primarily a business trip or a personal trip. In connection with this trip, Mr. Jacobs claimed deductions for his lodging expenses, car rentals and affiliated costs, airfare, certain meals, and even an expense labeled "RA Gifts." However, Mr. Jacobs' information failed to describe his responsibilities during the appointment (other than writing a book) or the hours he spent actually working while in Los Angeles. See Carter v. Commissioner, 645 F.2d 784, 786 (9th Cir. 1981) ("Section 162 applies when a taxpayer's basic or dominant motive is to realize a profit or taxable income from the activity."), aff'g T.C. Memo. 1978-202.¹⁹ For example, a taxpayer would not be entitled to deductions for many of these expenses if the taxpayer spent only one hour a day working and the remainder on vacation. In short, the information he had supplied to the IRS by the time the Commissioner filed the Answer generally would not have met his burden of proof for business deductions-a conclusion that the record of this case clearly supports.

19 Based on the information Mr. Jacobs provided to the IRS, one could reasonably question whether his UCLA appointment was secondary to personal reasons for going to Los Angeles, like establishing a new life there. The information Mr. Jacobs provided to the IRS shows that during 2015 he moved to Los Angeles full-time, and he eventually characterized Los Angeles in his BP Book as his "new home." Stipulation Ex. 29, at 308-P. After moving there, the information he provided shows that he accepted a position at a university and as "of counsel" at a law firm. Much of the "networking" his documents described could easily have been for finding new employment, rather than for establishing the independent business Mr. Jacobs' documents to the IRS described. And, if he were seeking new employment in academia, one might reasonably question how many of those expenses, which were often vaguely described, were ordinary and necessary to that purpose. See Haft v. Commissioner, 40 T.C. 2, 6 (1963) (explaining that taxpayers may deduct expenses while looking for another job during "reasonable period of transition" if those expenses are "proximately related to his business").

A reasonable person could draw a similar conclusion about the purposes of many of Mr. Jacobs' other trips. Take, for instance, Mr. Jacobs' trip to Brazil in 2014 (discussed above). According to the documents Mr. Jacobs gave the IRS in his March 16, 2018, fax, he spent approximately 11 days in Brazil with stops in Sao Paulo, Iguazu, and Rio de Janeiro. The business purpose he appears to have provided for the trip was meeting with individuals at Polishop (which appears to be a Brazilian company, although the materials Mr. Jacobs gave to the IRS do not explain this) and touring the Itaipu dam. A letter from Polishop that Mr. Jacobs faxed to the IRS stated that he met with Polishop for 3 days (March 8-10, although this too is not perfectly clear given the text of the letter). And while one document Mr. Jacobs submitted indicated that he may have had a meeting associated with the Itaipu dam tour on March 11, 2014, it is not clear from the record whether that appointment was only a one-day affair or if it continued on March 12, 2014. Even if we were to assume, for the sake of argument, that the Brazil trip was ordinary and necessary to Mr. Jacobs' Schedule C business, to determine the proper share of the expenses that Mr. Jacobs could deduct, he needed to show the IRS how many days were business days and how many were personal days. See I.R.C. § 274(c); Treas. Reg. § 1.274-4(b)(3), (c), (d)(2), and (f).²⁰ If his personal days constituted 25% or more of the total travel days, then he would have needed to apportion his expenses between the business and personal days. It is not clear from the information Mr. Jacobs gave to the IRS during the administrative proceedings how much of the Brazil trip was personal and whether he properly apportioned his expenses between the days. For example, a review of the documents Mr. Jacobs gave to the IRS shows that he did not apportion the cost of his airfare to and from Brazil.²¹ On this basis alone, a reasonable person could question whether Mr. Jacobs' expenses were business expenses rather than personal expenses.

20 See also Habeeb v. Commissioner, T.C. Memo. 1976-259, 1976 WL 3443 ("[S]ection 274(c) of the Code provides for disallowance of certain travel expense even though such expense would otherwise be allowable as a deduction under section 162. The restrictive rules under section 274(c) apply to foreign travel exceeding one week if the portion of time attributable to nonbusiness pursuits exceeds 25 percent of the total travel time. Section 274(c)(2)."), aff'd, 559 F.2d 435 (5th Cir. 1977).

21 The list of expenses in Mr. Jacobs's December 2016 fax shows a $2,037 expense for airfare, Stipulation Ex. 2, at 011-P, and the receipt for the flight to Brazil in Mr. Jacobs' March 16, 2018, fax shows a total roundtrip price of $2,037, Stipulation Ex. 22, at 233-P.

In short, as discussed above, Mr. Jacobs was required to show how the expenses he claimed connected to his business. Mr. Jacobs had not sufficiently done that by the time the Commissioner filed his Answer in this case. Therefore, the Commissioner's position that Mr. Jacobs was not entitled to deduct his expenses was reasonable.

ii. Mr. Jacobs' Multifaceted Activities

As the Commissioner points out, the information Mr. Jacobs had given the IRS by the time the Commissioner filed the Answer lacked clarity connecting his expenses to his "multifaceted" business activities. Based on our review of that information, we agree. The information Mr. Jacobs provided the IRS described various distinct activities as one business, including writing a book, building a legal practice, teaching a course at GW, and generally being a "scholar." But many of the expenses Mr. Jacobs' documents showed did not clearly fit into any one of those activities, like many of his trips and meal expenses. And the others were described at a high degree of generality, making it reasonable that one might question their business connection. Buttressed by the fact that the Schedules C for 2014 and 2015 reported no income from the business, and that Mr. Jacobs had W-2 employment at scholarly institutions, the Commissioner's position at the time of the Answer was entirely reasonable given the information Mr. Jacobs had provided to that point.

iii. Business or Employee Expenses

In addition, one could reasonably question from the information Mr. Jacobs provided to the IRS whether his expenses were employee expenses rather than Schedule C business expenses.

To begin, Mr. Jacobs reported no income from the business on his Schedules C for two years in a row. That alone might reasonably raise questions about the nature of the business Mr. Jacobs described in his papers to the IRS. Moreover, Mr. Jacobs claimed during the administrative proceedings that the earnings he received from GW were business income, despite those earnings being reported to him on Forms W-2 and Mr. Jacobs reporting those earnings on line 7 of his tax returns as "Wages, salaries, tips, etc." (usually reserved for employee income). Given these conflicting accounts, we find it entirely reasonable that the IRS might be, at a minimum, left with questions about whether Mr. Jacobs' expenses were employee expenses or business expenses. And if they were employee expenses, he would have needed to report them on Schedule A rather than Schedule C. See Weber, 103 T.C. at 394 (holding that employee expenses were "allowable as miscellaneous itemized deductions on Schedule A, subject to the 2-percent floor" under section 67).²² Several IRS employees who reviewed Mr. Jacobs' records noted this point, as we have discussed above. Besides general assertions that his business was separate from his employment, Mr. Jacobs provided nothing to assuage the IRS's concerns (such as a letter from his employer, which the IRS requested from Mr. Jacobs).²³

22 Mr. Jacobs had also told the IRS that his teaching position at GW was contract labor and he claimed expenses (e.g., faculty union dues) in connection with that activity. But Mr. Jacobs' income from GW was reported on Form W-2, and he did not report that income on his Schedule C as "Gross receipts or sales." Nor is it apparent from the information he gave the IRS that he qualified as an independent contractor rather than an employee. See Weber, 103 T.C. at 387 (describing the factors courts consider to determine an employment relationship).

23 In a footnote in his opening brief, Mr. Jacobs contends that his case required no "extensive investigation" because the "UCLA expenses were clearly deductible under Cass v. Commissioner, 86 T.C. 1275, 1281-84 (1986) (upholding deductions of visiting scholar at Cal Tech)." Pet'r's Opening Br. 63 n.19. But Cass does not help Mr. Jacobs. Cass involved an economics professor from the University of Pennsylvania (Penn) who took a one-year leave of absence from Penn to accept an appointment as a distinguished scholar at the California Institute of Technology (Cal Tech). As a distinguished scholar, he received from Cal Tech "a stipend equivalent in amount to the salary and fringe benefits he would have received from Penn had he not left." Cass, 86 T.C. at 1276. Here, Mr. Jacobs received no compensation from UCLA. Moreover, there was no dispute in Cass that Mr. Cass was in the trade or business of being an economics professor. The only argument the Commissioner made was that Mr. Cass could not claim deductions for food expenses while away from his home because he had "moved his entire family from Pennsylvania to California and set up housekeeping identical to that which he would have maintained at home." Cass, 86 T.C. at 1282. The Commissioner had no reason to dispute whether such expenses were deductible as expenses incurred in the trade or business of being an employee rather than as expenses incurred in a separate trade or business. That is because, for the year at issue in Cass, the statute provided for an above-the-line deduction of "expenses of travel, meals, and lodging while away from home, paid or incurred by the taxpayer in connection with the performance by him of services as an employee." I.R.C. § 62(a)(2)(B) (1982) (amended by Tax Reform Act of 1986, Pub. L. No. 99-514, tit. I, § 132(b)(1), 100 Stat. 2085, 2115); see also Staff of J. Comm. on Tax'n, 99th Cong., General Explanation of the Tax Reform Act of 1986, JCS-10-87, at 76-77 (J. Comm. Print 1987) (providing a summary of prior law). And the statute did not limit deductions for employee expenses by way of section 67 (i.e., the 2-percent floor), which was not added to the Code until passage of the Tax Reform Act of 1986 § 132(a), 100 Stat. at 2113. By the years at issue here, both of those rules had changed, so it mattered how Mr. Jacobs' activities at UCLA were classified.

Next, employment at universities often entails research, writing, and attending conferences. (The phrase "publish or perish" comes to mind in this context.) And while Mr. Jacobs told IRS Appeals in September 2018 that his position at American University did not involve research or writing, other documents he provided to the IRS indicated otherwise. For example, to corroborate his business activities and expenses, Mr. Jacobs faxed to the IRS copies of emails from his American University account that concerned his book research, trips, meetings, and housing accommodations in California. In his fax, he provided no explanation about why he was conducting these activities through his American University email account rather than a separate business or personal account. In addition, Mr. Jacobs' Statement of Objective for the UCLA Visiting Scholar position linked Mr. Jacobs' research on the BP oil spill with his academic work. He stated, "I have been researching the 2010 BP Oil Gulf Disaster since becoming a full-time academic in the same year." Stipulation Ex. 22, at 238-P (emphasis added). And we find it reasonable that the IRS would continue to question whether Mr. Jacobs' expenses were related to his employment in light of these materials.²⁴

24 Another document, labeled "Leryn's Projects," listed slide deck revisions in connection with a talk Mr. Jacobs was to give at American University. Leryn was Mr. Jacobs' professional research assistant who lived in California and helped him with his book. This underscores the interconnected nature of Mr. Jacobs' employment at American University with his other activities.

Moreover, as discussed above, in one of the documents Mr. Jacobs faxed to the IRS on March 16, 2018, he stated he founded a Master of Science program in Sustainability Management at American University's Kogod School of Business. Many of the trips for which Mr. Jacobs incurred expenses appeared related to business and sustainability topics (e.g., attending the Academy of Legal Studies in Business Conference, Green Biz conference, and Net Impact conference; delivering lectures at the HEC business school; and the trip to Brazil). Yet, he maintained, without providing any corroborating evidence, that his expenses were unrelated to his employment. Although the IRS eventually conceded the point by settling the case, it was entirely reasonable at the time of the Answer to conclude that his expenses might be related to his employment rather than a separate business. And that is all that matters here.

The specific character of Mr. Jacobs' business would also have had a bearing on whether expenses related to the BP Book were deductible at all in 2014 and 2015. This is because under section 263A the costs of producing a book generally must be capitalized. I.R.C. § 263A(a)(1) ("In the case of any property to which this section applies [except for property which is inventory in the hands of the taxpayer] any costs described in paragraph (2) . . . shall be capitalized."); I.R.C. § 263A(a)(2) (providing that the costs that must be capitalized include "the direct costs of such property" and "such property's proper share of those indirect costs (including taxes) part or all of which are allocable to such property"); I.R.C. § 263A(b)(1) (providing that section 263A applies to "[r]eal or tangible personal property produced by the taxpayer"). A book is considered "tangible personal property" for these purposes. I.R.C. § 263A(b) (flush language) ("For purposes of paragraph (1), the term 'tangible personal property' shall include a film, sound recording, video tape, book, or similar property."); Treas. Reg. § 1.263A-2(a)(2)(ii)(A)(1) ("The costs of producing and developing books . . . required to be capitalized under this section include costs incurred by an author in researching, preparing, and writing the book.").

The statute provides an exception from the capitalization requirement in connection with "any qualified creative expense." I.R.C. § 263A(h)(1). The term "qualified creative expense" means any expense "which is paid or incurred by an individual in the trade or business of such individual (other than as an employee) of being a writer, photographer, or artist" and "which, without regard to this section, would be allowable as a deduction for the taxable year." I.R.C. § 263A(h)(2). As the text of the statute makes clear, the exception applies only if the expense is incurred in connection with a non-employee trade or business. See also Treas. Reg. § 1.263A-2(a)(2)(ii)(A)(1) (describing the exception as applying to "certain free-lance authors" (emphasis added)). So, if the writing of the BP Book was part of Mr. Jacobs' employment, the costs associated with it would not have been immediately deductible. It was therefore important for the IRS to know what Mr. Jacobs' duties at American University included. But Mr. Jacobs declined to provide a letter from his employer during the administrative proceedings, as the IRS had requested.

Moreover, the exception applies only to an individual "in the trade or business . . . of being a writer, photographer, or artist." I.R.C. § 263A(h)(2)(A). For 2014, Mr. Jacobs' return showed his trade or business as "Attorney/Professor." And, while attorneys and professors write, they would not ordinarily be viewed as being in the trade or business of being a writer. The statute defines the term "writer" as "any individual if the personal efforts of such individual create (or may reasonably be expected to create) a literary manuscript, musical composition (including any accompanying words), or dance score." I.R.C. § 263A(h)(3)(A). Put another way, books written by lawyers and professors may be helpful to their business of being lawyers and professors, but the book writing itself may well not be an independent trade or business. Mr. Jacobs himself appears to have insisted to the IRS that the book was a means to end, not the end itself. See Stipulation Ex. 22, at 199-P (stating that the BP Book "was to be [his] entrée ('calling card') to legal, consulting, and speaking engagements"). And he also insisted that his business activity was an integrated whole. See Stipulation Ex. 41, at 389-P (asserting that Mr. Jacobs' "attorney-scholar business was a single, separate, and distinct enterprise from his full-time employment [at American University]."). It is difficult to fault the IRS for asking for proof that the relevant expenses related to the business, proof that would be key to determining whether the exception under section 263A(h)(1) in fact applied to Mr. Jacobs.²⁵

25 Underscoring the importance of this point, the Appeals Case Memo prepared after the post-Answer Appeals conference discusses section 263A and concluded that Mr. Jacobs was not required to capitalize his expenses. That conclusion was not a certainty before the Appeals conference took place. And at least one examiner at the IRS appears to have questioned (reasonably) whether Mr. Jacobs' expenses were deductible in light of section 263A.

iv. Remaining Unhelpful Documents

The remaining information Mr. Jacobs gave the IRS shed no additional light on how his expenses were ordinary and necessary to his business. For example, Mr. Jacobs provided receipts and cancelled checks, showing that expenses were paid. But those materials did not explain how the expenses were ordinary and necessary to his Schedule C business.

Next, Mr. Jacobs provided a copy of his book contract with Brookings, but, in addition to having been executed in 2016 (two years after the first tax year at issue), that contract does not necessarily demonstrate that Mr. Jacobs was in the trade or business of being a writer, that his book was separate from his W-2 employment, or how the expenses that he claimed were related to his book were ordinary and necessary business expenses.

Mr. Jacobs also provided information concerning his legal practice, but the information did not show that he provided any legal services in 2014 or 2015 (the first actual engagement for a contingent fee case appears to have come in 2016) or how any expenditures related to networking from 2014 or 2015 were connected to a legal practice.

Finally on this point, Mr. Jacobs' many communications to the IRS and TIGTA raising concerns about his audits and the Appeals process provided no insights into whether his expenses were deductible on Schedule C. Rather, these communications can be fairly characterized as Mr. Jacobs voicing his displeasure with the IRS, which do not go to the underlying character of his expenses. And just because Mr. Jacobs believed he had provided enough information to close the audit does not mean that he was right.²⁶

26 For example, at various times during the administrative proceedings, in an apparent reference to Treas. Reg. § 1.274-5(c)(2)(iii)(A), Mr. Jacobs complained to the IRS about being asked for proof of his expenses under $75. In a letter to Director of Examination Appeals Shelley M. Foster dated December 10, 2019, he complained that Appeals Officer Guerrero requested substantiation of a "$7 charge for coffee." Stipulation Ex. 84, at 661-P. As discussed above, Treas. Reg. § 1.274-5(c)(2)(iii)(A) applies only where the taxpayer can prove his deductions by adequate records, such as contemporaneous logs, account books, or similar contemporaneous documentation. Mr. Jacobs did not maintain contemporaneous logs or accounts books of his expenses, so Treas. Reg. § 1.274-5(c)(2)(iii)(A) did not apply to him. Therefore, it was perfectly acceptable for Appeals Officer Guerrero to request documentation to support his $7 coffee charge. See Temp. Treas. Reg. § 1.274-5T(c)(3)(i) (If the element the taxpayer seeks to establish is "the cost or amount, time, place, or date of an expenditure or use, the corroborative evidence shall be direct evidence, such as a statement in writing or the oral testimony of persons entertained or other witnesses setting forth detailed information about such element."). Mr. Jacobs' complaints about similar requests from the IRS are also without merit.

2. The Commissioner's Remaining Positions in the Answer

In addition to Mr. Jacobs' claims that disallowing his Schedule C deductions was erroneous, Mr. Jacobs' Petition alleged that (1) the period of limitations on assessment had expired, (2) the Notices of Deficiency were issued by someone not authorized to do so, (3) the Court lacks jurisdiction because the Notices of Deficiency "fail[ed] to adequately demonstrate on their face that a determination [was] made,"²⁷(4) IRS personnel "engaged in such egregious misconduct in his dealings with [him] that [the Commissioner] should be barred from assessing any deficiency," and (5) he was deprived of due process during the administrative proceedings. The Commissioner's Answer generally denied these allegations.

27 Mr. Jacobs does not appear to argue in his post-hearing Briefs that the Commissioner's Answer generally denying his allegations concerning the sufficiency of the Notices of Deficiency were not substantially justified. Therefore, we consider this issue conceded. Cf. Dutton v. Commissioner, 122 T.C. 133, 142 (2004) ("Our practice is not to consider new issues raised for the first time in an answering brief."). Nevertheless, even if Mr. Jacobs were arguing that the Commissioner's Answer was not substantially justified with respect to that issue, the facts here support the conclusion that the Commissioner did make deficiency determinations against him. See Scar v. Commissioner, 814 F.2d 1363, 1367 (9th Cir. 1987) (citing Barnes v. Commissioner, 408 F.2d 65, 68 (7th Cir. 1969), aff'g T.C. Memo. 1967-250)), rev'g 81 T.C. 855 (1983); see also Barnes v. Commissioner, 408 F.2d at 68 ("[T]he Commissioner's notice of deficiency is not invalidated because it contains no particulars or explanations concerning how the alleged deficiencies were determined.").

We need not spend much time responding to Mr. Jacobs' arguments about the merits of the Commissioner's Answer on these points because his allegations in the Petition generally lack merit for either factual or legal reasons. For completeness, however, we will address them in order.

a. Period of Limitations on Assessment

The Commissioner's position concerning Mr. Jacobs' period of limitations on assessment allegations was substantially justified. As Mr. Jacobs' Petition makes clear, he and the IRS executed Forms 872 authorizing the extension of the periods of limitations on assessment for both 2014 and 2015 to April 30, 2019, and August 31, 2019, respectively. That means that both periods remained open when IRS Appeals issued the Notices of Deficiency in January 2019.

Mr. Jacobs does not appear to argue otherwise. But he maintains that the Commissioner's Answer was unreasonable because the Commissioner did not admit (or at least partially admit) certain allegations in the Petition concerning the period of limitations on assessment. We disagree. The Petition alleges that the Forms 872 were "invalid" because Mr. Jacobs was "forced and/or falsely induced" to sign them "as a precondition to having his appeal" heard by the IRS. The record does not support these allegations. Nor do we find the Commissioner's denial of these allegations unreasonable considering what the Commissioner's counsel knew or should have known from the administrative proceedings in this case.

Furthermore, to the extent Mr. Jacobs is arguing that certain factual statements made in the Petition should have been admitted (specifically paragraphs 16 and 17 of the Petition), we agree with the Commissioner that those allegations constituted improper pleading. Specifically, any allegations in the Petition that the IRS sent Mr. Jacobs another Form 872 that he did not sign or that Mr. Jacobs offered a 35-day extension have no bearing on the limitations issue or the merits of this deficiency case. See Rule 36(b) ("[The answer] must include a specific admission or denial of each material allegation in the petition . . . ." (Emphasis added)).

b. Authorization of Issuance of Notices of Deficiency

The Commissioner's responses to the Petition's allegations about the authorization of the individual who signed the Notices of Deficiency were substantially justified. The Petition generally alleged that the Notices of Deficiency issued to Mr. Jacobs were not valid because they were signed by Keith Matsuda, who Mr. Jacobs alleged "was not authorized to act on behalf of the Commissioner in this matter" on the date the Notices were issued. Pet. 5-6. The Commissioner's Answer did not admit or deny the legal assertions made in the Petition and denied any material factual allegations except to admit that Keith Matsuda signed the Notices. Furthermore, the Answer denied the allegation that the Notices were invalid "[b]ecause neither of [them was] issued by an authorized officer of the IRS." Pet. 6.

The Commissioner's responses were generally supported by the documentation in his possession when he filed the Answer. And although the Answer was incorrect in admitting that Mr. Matsuda signed the Notices (he did not, even though his name and title appear in the signature line), that mistake does not matter. The Notices were in fact signed by Appeals Team Manager Joseph Haynes, who had authorization to issue the Notices on the Commissioner's behalf, a proposition no one disputes. See I.R.S. Deleg. Order 4-8 (Rev. 1), Internal Revenue Manual (IRM) 1.2.43.9 (Sept. 4, 2012) (as in effect at the time of the issuance of the Notices); see also Worsham v. Commissioner, T.C. Memo. 2019-132, at *10, aff'd, 816 Fed.Appx. 874 (4th Cir. 2020). This reinforces the Commissioner's primary position in response to Mr. Jacobs' allegations-that the Notices were not invalid. Therefore, the Commissioner's position in the Answer was substantially justified.

c. Alleged Agency Misconduct and Deprivation of Due Process

The Commissioner was also substantially justified in denying Mr. Jacobs' allegations that the IRS engaged in misconduct or deprived him of due process such that it should be barred from assessing deficiencies against him. These positions are of a type generally irrelevant to a deficiency case. See Jacobs v. Commissioner, 2022 WL 16707186, at *2 ("[W]hether the [Commissioner] should have issued an initial notice of deficiency or should have held an in-person meeting during the administrative proceedings does not control the inquiry as to the reasonableness of the answer the [Commissioner] filed in the Tax Court."); Greenberg's Express, Inc. v. Commissioner, 62 T.C. 324, 327-28 (1974); see also Moya v. Commissioner, 152 T.C. 182, 199 (2019) ("Whatever missteps [the Commissioner] may have taken in examining [the taxpayer's] returns, he has not deprived her of the right to challenge his deficiency determinations before this Court. [The taxpayer] has given us no ground to deviate from the principle expressed in Greenberg's Express and invalidate the notice or impose on respondent some sanction for his missteps."); Estate of Brimm v. Commissioner, 70 T.C. 15, 22 n.7 (1978) ("Even in those rare and exceptional circumstances in which the conduct of respondent has been subject to judicial scrutiny, the notice of deficiency has not been declared null and void.").

Moreover, we do not otherwise see any merit to the claims Mr. Jacobs made in the Petition. Just as one example, the requests for information Mr. Jacobs received from the Memphis Correspondence Exam office in 2017, see Background Part III.A.3 above, and from the Brookhaven Correspondence Exam office, see Background Part III.B.3 above, called for the type of information one would expect a taxpayer to produce to "clearly show[] the right to the claimed deduction." Sparkman v. Commissioner, 509 F.3d at 1159 (quoting New Colonial Ice Co. v. Helvering, 292 U.S. at 440).²⁸ Contrary to the allegations in Mr. Jacobs' letters and complaints to the IRS, the requests for information were not retaliatory or harassing. Rather, IRS Exam employees simply were doing their jobs. That Mr. Jacobs considered his case "a minor mail audit," Stipulation Ex. 8, at 086-P, did not change his responsibilities under the law. Nor did it entitle Mr. Jacobs to insist that the IRS did not really need the information IRS employees were asking for. Taxpayers subject to a correspondence examination must prove their deductions just like all other taxpayers.

28 For example, Mr. Jacobs' July 7, 2017, letter to the Memphis Correspondence Exam office stated that Mr. Jacobs was asked to provide an employer letter, documentation about the business use of his home, and paid receipts, invoices, cancelled checks, and rental contracts. That is the type of information one might reasonably expect a taxpayer to provide in an audit of Schedule C deductions. A letter from Mr. Jacobs' employers may have allayed the IRS's concerns that Mr. Jacobs' expenses were related to his employment at American University or GW. And receipts, invoices, and cancelled checks might have demonstrated that Mr. Jacobs paid certain expenses not shown in his credit card or bank statements. They might also have provided insight into where exactly the expenses were incurred and, for example, the numbers of people involved in the activity. See Treas. Reg. § 1.274-5(c)(2)(iii)(B) ("Ordinarily, documentary evidence will be considered adequate to support an expenditure if it includes sufficient information to establish the amount, date, place, and the essential character of the expenditure. For example, a hotel receipt is sufficient to support expenditures for business travel if it contains the following: name, location, date, and separate amounts for charges such as for lodging, meals, and telephone. Similarly, a restaurant receipt is sufficient to support an expenditure for a business meal if it contains the following: name and location of the restaurant, the date and amount of the expenditure, the number of people served, and, if a charge is made for an item other than meals and beverages, an indication that such is the case.").

Accordingly, the Commissioner's Answer was substantially justified.

3. Mr. Jacobs' Additional Arguments

Mr. Jacobs makes various arguments about why he believes the Commissioner's litigation positions in the Answer were not substantially justified. None is persuasive.

a. The Post-Appeals Conference Concession

Mr. Jacobs argues that Appeals Officer Guerrero's conclusions following the Appeals conference made the Commissioner's position in the Answer not substantially justified. In making the argument, Mr. Jacobs quotes the Memo out of context in an attempt to demonstrate that the Appeals Officer thought the information he provided to the IRS was largely sufficient. Specifically, the Memo reads: "The taxpayer's records were in general good and supported more than 80% of the 2014 and 2015 claimed travel and meals and entertainment expenses."²⁹

29 To be precise, the Appeals Case Memo prepared by Appeals Officer Guerrero proposed granting Mr. Jacobs nearly 78% of the deductions he claimed on his 2014 and 2015 Schedules C.

But the document that contains this statement came after the post-Answer Appeals conference in which Mr. Jacobs had provided to the Appeals Officer substantial new information concerning his deductions. The statement cannot fairly be read as a concession that the documents Mr. Jacobs provided during the pre-Answer administrative proceedings alone were sufficient. As we have discussed already, those documents were not sufficient, and Appeals Officer Guerrero's testimony at the hearing was perfectly clear on this score.

In support of his argument, Mr. Jacobs cites the Court's opinion in Morreale v. Commissioner, T.C. Memo. 2021-90. That case is entirely distinguishable. In Morreale, the Court observed that the government had not considered evidence a taxpayer provided to the revenue agent before filing the answer. The ignored evidence was "sufficient to substantiate" a basis determination that was the subject of the notice of deficiency. Furthermore, with respect to a method of accounting issue, the Court concluded that there was not sufficient evidence to support the IRS's determination and that the IRS had not followed published agency guidance in making the determination. By contrast, the positions the Commissioner took in the Answer here-notably those related to the Schedule C deductions central to this case-had a reasonable basis in both fact and law as Mr. Jacobs had not provided adequate support for his deductions by the time the Answer was filed. Accordingly, Mr. Jacobs' arguments lack merit.

b. Adequacy of the Commissioner's Investigation

Mr. Jacobs also makes various arguments about the adequacy of the Commissioner's investigation of the facts before filing the Answer. At bottom, he argues that the Commissioner's counsel did not make a reasonable inquiry into the facts of the case before issuing the Notices of Deficiency. And, so his argument goes, if a reasonable inquiry had been made, the Commissioner's counsel would have concluded that the positions taken in the Answer were not substantially justified. We disagree.

As an initial point, we believe that Ms. Mullin's inquiry into the facts of the case before filing the Answer was a reasonable one. As she credibly testified, once the case was assigned to her, she reviewed the entire administrative file, which at the time included the documents, memorandum, and letters Mr. Jacobs had sent to the IRS in support of his claimed deductions, his various complaints to the IRS, and the Taxpayer Advocate documents. Based on that review, she concluded that Mr. Jacobs had not sufficiently demonstrated his entitlement to the deductions. And, as we already discussed, we too have reviewed all of the information Mr. Jacobs gave the IRS during the administrative proceedings and concluded that it was not adequate. See Jacobs v. Commissioner, 2022 WL 16707186, at *2 ("[T]he 'reasonableness' of the [Commissioner's] answer here depends on what the [Commissioner] learned, or should have learned, from the preceding administrative proceedings.").

Nevertheless, Mr. Jacobs suggests that Ms. Mullin's inquiry into the facts of the case was not reasonable because she "failed to avail [herself] of readily available opportunities to confer with [him] about the substance of the case prior to answering." Pet'r's Opening Br. 57. But our rules do not require that an attorney engage in a discovery-like exploration of the other side's position before responding to the petition. In fact, that would seem to turn ordinary court procedures on their head. See Rule 70(a)(2) ("Discovery may not be commenced, without leave of Court, before the expiration of 30 days after joinder of issue . . . ."). Furthermore, given that the Commissioner's counsel frequently refers a case to IRS Appeals for settlement discussions after responding to the Petition (as in fact happened here), it is perfectly reasonable that Ms. Mullin did not attempt to conduct an interview of Mr. Jacobs to ascertain further information, on top of what was already in her possession, about his entitlement to the Schedule C deductions. See Bertolino v. Commissioner, 930 F.2d 759, 761 (9th Cir. 1991) ("The government was justified in responding negatively to his petition and in then working out a settlement.").

Also, to the extent Mr. Jacobs argues that Ms. Mullin should have "interview[ed] key witnesses [or] establish[ed] whether or not the Administrative File was complete," we fail to see how such actions would have made any difference in this case.³⁰ The information Mr. Jacobs had provided the IRS before the Commissioner's Answer, including any information Ms. Mullin should have known about, was insufficient to demonstrate his entitlement to the deductions he claimed. So, even assuming for the sake of analysis that Mr. Jacobs is right that Ms. Mullin should have taken these actions, there is no reason to believe that the Commissioner's position at the time of the Answer would have changed.

30 We also question whether the administrative file was in fact incomplete, as Mr. Jacobs says it was. Many of the documents Mr. Jacobs asserts were not in the file do not appear to directly relate to his tax liability, such as documents concerning his dispute with IRS Appeals about his ability to have a Taxpayer Advocate attend his Appeals conference. See IRM 3.5.61.1.8(1) (Jan. 1, 2019) (defining "administrative file" as "[a] return and/or other documents such as work papers, schedules, audit reports, etc., that are related to a taxpayer's account regardless of whether the documents are physically with the return or maintained separately"); IRM 8.20.5.3.1.1 (July 1, 2017) ("Depending on the type of case, the administrative file may contain the returns of the taxpayer, consent to extend the statute if needed, examining officer's report, and other documents relating to the taxpayer's liability for the year or years involved, such as protests or petitions, claims for refund or abatement, and other pertinent documents or papers." (Emphasis added.)). And even if the file was incomplete, we do not believe based on the record before us that Ms. Mullin knew or should have known that the file was incomplete at the time she prepared the Answer in this case. That file, which the Commissioner provided in his initial Response to Mr. Jacobs' Motion for Costs (Doc. 27), generally appears to contain the documents one ordinarily finds in such a file.

c. Alleged Red Flags in the Administrative File and Petition

Mr. Jacobs argues that "[m]any red flags, discernible from the Administrative File and the Petition, should have alerted [the Commissioner's] Counsel that Appeals had prematurely issued the notices of deficiency despite robust substantiation of the business expenses at issue." Pet'r's Opening Br. 65. While it is not entirely clear to us what the term "red flags" means in this context, Mr. Jacobs appears to be referring to the allegations of misconduct he made during the administrative proceedings, his complaint that the Taxpayer Advocate was not allowed to participate in the appeal, and the fact that he had not had a conference with IRS Appeals at the time of the Notices of Deficiency. As the Ninth Circuit made clear in its opinion, those matters do "not control the inquiry as to the reasonableness of the answer the [Commissioner] filed in the Tax Court." Jacobs v. Commissioner, 2022 WL 16707186, at *2; see also Bertolino v. Commissioner, 930 F.2d at 761 ("The actions or inactions by the Service prior to the District Counsel's involvement are irrelevant."). Rather, the question before us is whether the Commissioner's litigation position was substantially justified "in light of the information the [Commissioner] had received in the administrative proceedings," Jacobs v. Commissioner, 2022 WL 16707186, at *2.

After a thorough review of the information available to the Commissioner's counsel at the time of the Answer, we see no reason why the "red flags" Mr. Jacobs mentions would have alerted the Commissioner's counsel that the Commissioner's position was incorrect. Those red flags had little to do with the underlying merits of Mr. Jacobs' Schedule C deductions or the accuracy of the Commissioner's litigation position concerning them. They concerned principally procedural matters that ordinarily are of no consequence to a deficiency case. See Karme v. Commissioner, 673 F.2d 1062, 1064 (9th Cir. 1982) (noting that courts will look behind the deficiency notice to determine the Commissioner's motives only in extremely rare cases involving unconstitutional conduct by the Commissioner and citing with approval Greenberg's Express, Inc.); Berg v. Commissioner, 927 F.2d 608 (9th Cir. 1991) ("Although this court has, at times, reviewed the propriety of the Commissioner's motives in issuing a notice of deficiency, see, e.g., Karme v. Commissioner, 673 F.2d at 1063-64, it has also held the Commissioner's motives are immaterial to the duty of the tax court and, therefore, to a review of the tax court's decision. Crowther v. Commissioner, 269 F.2d 292, 293 (9th Cir. 1959)."); Greenberg's Express, Inc., 62 T.C. at 327-28 ("[W]e will not look into respondent's alleged failure to issue a 30-day letter to the petitioners or to afford them a conference before the Appellate Division."); see also Sealy Power, Ltd. v. Commissioner, 46 F.3d 382, 388 (5th Cir. 1995) (holding that a taxpayer's "argument that the FPAA was broadly drafted and that the Commissioner's review was faulty is unavailing"), aff'g in part, rev'g in part on other grounds T.C. Memo. 1992-168; Scar v. Commissioner, 814 F.2d at 1368 ("We agree that courts should avoid oversight of the Commissioner's internal operations and the adequacy of procedures employed.");³¹ Raheja v. Commissioner, 725 F.2d 64, 66 (7th Cir. 1984) ("As a general rule, the Tax Court will not look behind the notice of deficiency to examine the evidence used or the propriety of the Commissioner's motives or of his administrative policy or procedure in making his determinations."), aff'g T.C. Memo. 1981-690. This is not a case calling for a departure from the ordinary rule. See Karme v. Commissioner, 673 F.2d at 1064. Furthermore, we think that a reasonable person could conclude that the Notices of Deficiency were valid even in light of the supposed red flags Mr. Jacobs points to. See I.R.C. § 6212(a). For these reasons, Mr. Jacobs' argument fails.

31 The facts of Scar v. Commissioner are noticeably different from the case before us. In that case, the Ninth Circuit held that it could look behind the notice to determine the validity of a notice of deficiency where "the deficiency [was] not based on a determination of deficiency of tax reported on the taxpayers' return and that it refer[ed] to a tax shelter the Commissioner concedes ha[d] no connection to the taxpayers or their return." Scar v. Commissioner, 814 F.2d at 1368. Unlike Scar, Mr. Jacobs essentially argues that we should consider the Commissioner's procedures in administratively reviewing his case-e.g., his ability to have a Taxpayer Advocate participate in an Appeals conference, the amount of explanation he must be given during audit, and whether he is entitled to an Appeals conference before a notice of deficiency is issued-when determining the validity of the Notices of Deficiency. We do not see how these matters have anything to do with the validity of the Notices where, as here, a determination was made and the Notices were properly mailed to Mr. Jacobs. See I.R.C. § 6212(a) ("If the Secretary determines that there is a deficiency in respect of any tax imposed by subtitles A or B or chapter 41, 42, 43, or 44 he is authorized to send notice of such deficiency to the taxpayer by certified mail or registered mail. Such notice shall include a notice to the taxpayer of the taxpayer's right to contact a local office of the taxpayer advocate and the location and phone number of the appropriate office.").

C. The Commissioner's Post-Appeals Conference Positions

Mr. Jacobs further argues that, even if the Commissioner's position at the time of the Answer was substantially justified, his positions at various stages of the case after the August 2019 Appeals conference were not substantially justified in light of the information Mr. Jacobs provided during that conference. Specifically, Mr. Jacobs argues that the Commissioner's positions were not substantially justified at three different stages: (1) immediately following the conference, (2) in response to one of his discovery requests, and (3) in the Memo prepared by Appeals Officer Guerrero after the conference. Mr. Jacobs' arguments are not supported by the record and are at times frivolous, and we find that the Commissioner's position at each of these three stages was substantially justified.

1. Position Following Appeals Conference

First, the Commissioner's position immediately following the Appeals conference was substantially justified. Following the Appeals conference, the record shows that Appeals Officer Guerrero considered the new information Mr. Jacobs provided during the Appeals conference and conceded that Mr. Jacobs was entitled to nearly 78% of the business expenses claimed on the 2014 and 2015 Schedules C. Appeals Officer Guerrero's decision not to concede all of the expenses was substantially justified for the reasons he described in his Memo. See Background Part VI.B.2 above. We have reviewed the information Mr. Jacobs provided and agree that it was reasonable for Appeals Officer Guerrero to propose disallowing those expenses.

Mr. Jacobs appears to argue that the Commissioner should have known that the original position to disallow all of his deductions was not substantially justified immediately following the Appeals conference because the information the Appeals Officer gathered during that conference "should have been sufficient for the IRS to concede the case at that time." Pet'r's Opening Br. 77. However, as our Court has explained before, "[f]or purposes of section 7430 and the question of whether respondent's position was substantially justified, respondent is given a reasonable period of time to resolve factual issues after receiving all relevant information." Andary-Stern v. Commissioner, T.C. Memo. 2002-212, 2002 WL 1925674, at * 7. And we find it entirely reasonable that, once the conference with IRS Appeals was over, Appeals Officer Guerrero took time to review what was discussed and prepare the formal settlement offer he did, as is customary IRS Appeals procedure.

2. Position in Discovery Responses

Second, Mr. Jacobs claims that the Commissioner's November 2019 response to one of his discovery requests was not substantially justified given the information he had provided to the Appeals Officer during the August 2019 conference with IRS Appeals. In making this argument, Mr. Jacobs selectively quotes the Commissioner's counsel's response as follows: "To respondent's counsel's knowledge, petitioner has not yet fully substantiated any of the disallowed expenses on the Notices as incurred and paid for an active trade or business . . . ." Pet'r's Opening Br. 79. But, as discussed above, see Background Part VI.C, that was not the Commissioner's entire response. The Commissioner's counsel's entire response read as follows:

14. Respondent's counsel is waiting for the report of the Appeals officer pertaining to the substantiation provided by petitioner to Appeals. To respondent's counsel's present knowledge, petitioner has not yet fully substantiated any of the disallowed expenses on the Notices as incurred and paid for an active trade or business, but the Appeals Officer did advise that partial substantiation has been provided for most categories of expenses.

We are troubled by Mr. Jacobs' self-serving mischaracterization of the response. In light of the response the Commissioner actually gave, Mr. Jacobs' argument is frivolous. We find it perfectly reasonable that the Commissioner did not concede the case in his discovery response while the case remained in the jurisdiction of the Appeals Officer for settlement. As the record demonstrates, the Appeals Officer was still considering the case at the time and had not formally offered any settlement to Mr. Jacobs. Furthermore, the Commissioner's response made clear that Commissioner's counsel was waiting for the Appeals Officer's report and that at least partial substantiation had been provided. So, we fail to see how the response was unreasonable given what the Commissioner's counsel knew, or should have known, at the time.

3. Position in Appeals Case Memo

Third, Mr. Jacobs argues that the Commissioner should have conceded "80% of the case" on January 6, 2020, when Appeals Officer Guerrero finalized his Memo. Pet'r's Opening Br. 80. We are confused by Mr. Jacobs' argument.

As the record of this case shows, Appeals Officer Guerrero transmitted the Appeals Case Memo to Mr. Jacobs proposing to settle the issues. Mr. Jacobs then, in writing, confirmed receiving the Appeals Case Memo and indicated that he would determine "next steps" once he and his colleague considered it. But, despite Appeals Officer Guerrero's attempts to get in touch with him, Mr. Jacobs did not respond further, and the case was transferred back to the Commissioner's counsel. Perhaps Mr. Jacobs misunderstands the structure of the IRS, but Appeals Officer Guerrero had settlement jurisdiction over the case when he transmitted the Memo. And one can properly characterize that Memo as the Commissioner's proposed settlement of the case. So, we do not see how the Commissioner's conduct failed to conform to what Mr. Jacobs now argues for.

Furthermore, the Commissioner did not take a position contrary to that of the Memo until the Commissioner's counsel eventually conceded the case in full based on "hazards of litigation." So, once again, we fail to see the point of Mr. Jacobs' argument.

4. Mr. Jacobs' Misplaced Reliance on Lewis v. United States

Finally, citing the Ninth Circuit's opinion in Lewis v. United States, 144 F.3d 1220 (9th Cir. 1998), Mr. Jacobs appears to argue that he was "stonewalled" from the time of the Appeals conference until the time the Commissioner's counsel conceded the case. As our discussion above shows, this was not the case. The record shows IRS personnel diligently working to resolve the case from the time the Answer was filed.

This case is entirely distinguishable from Lewis. That case involved the Government's decision to litigate (and engage in summary judgment practice over) the issue of whether taxpayers timely filed their tax return when there was clear, uncontroverted evidence that they timely mailed the return in satisfaction of section 7502. As the Ninth Circuit stated in Lewis, "[t]he Service, of course, does not have to take a taxpayer's unsupported word, but when a taxpayer with an unblemished reputation for paying taxes produces circumstantial evidence supporting his word, the government needs more than a skeptical smile to support its doubt of his credibility." 144 F.3d at 1222.

Here, irrespective of Mr. Jacobs' record for paying taxes, Mr. Jacobs' case involved more factually complex issues than the timely filing of a return. And, at least until the time of the August 20, 2019, IRS Appeals conference, Mr. Jacobs had not provided satisfactory evidence in support of his deductions (either direct or circumstantial). The fact that Appeals Officer Guerrero took approximately four-and-a-half months from the time of the IRS Appeals conference to propose a settlement of the issues after Mr. Jacobs gave extensive new information to him at the post-Answer IRS Appeals conference is not stonewalling. See Bertolino v. Commissioner, 930 F.2d at 761 (holding that "[t]he government was justified in responding negatively to [a taxpayer's] petition and in then working out a settlement"). Nor was it stonewalling for the Commissioner not to concede while waiting for Mr. Jacobs' response to the Appeals Officer's proposal.

II. Mr. Jacobs' Bad Faith Arguments

In addition to his claims concerning section 7430, Mr. Jacobs argues that the Court should award him costs under section 6673 and under the inherent powers of the Court for what he labels as "misconduct" by the Commissioner's personnel in this case. Pet'r's Opening Br. 84. Specifically, he argues that he is entitled to costs as a sanction for harm to him as a result of the Taxpayer Advocate's exclusion from his post-Answer Appeals conference in August 2019, the Commissioner's defenses to his Schedule C deductions which he argues were frivolous, and the Commissioner's responses to his informal and formal discovery requests. For the reasons below, we will not award any costs or attorney's fees to Mr. Jacobs.

A. Relevant Legal Principles

As relevant to this case, section 6673(a)(2) provides:

Sec. 6673(a). Tax court proceedings.- . . . .

(2) Counsel's liability for excessive costs.-Whenever it appears to the Tax Court that any attorney or other person admitted to practice before the Tax Court has multiplied the proceedings in any case unreasonably and vexatiously, the Tax Court may require-

(A) that such attorney or other person pay personally the excess costs, expenses, and attorneys' fees reasonably incurred because of such conduct, or

(B) if such attorney is appearing on behalf of the Commissioner of Internal Revenue, that the United States pay such excess costs, expenses, and attorneys' fees in the same manner as such an award by a district court.

Our Court has also observed that we have certain inherent powers "to regulate and supervise [our] proceedings to ensure the integrity of its process." Dixon v. Commissioner, 132 T.C. 55, 102 (2009). This includes a power to impose sanctions for certain acts of bad faith. See Fink v. Gomez, 239 F.3d 989, 992 (9th Cir. 2001); Dixon, 132 T.C. at 104 (awarding reasonable attorneys' fees as a result of a fraud committed on the Court by government attorneys). Imposing sanctions is within the discretion of the Court. See Liti v. Commissioner, 289 F.3d 1103, 1105 (9th Cir. 2002) ("The Tax Court's decision to award sanctions under [I.R.C. § 6673] is [] reviewed for abuse of discretion."); Fink, 239 F.3d at 994 ("[W]hether sanctions should be imposed [is] a determination that rests in the sound discretion of the district court.").

B. Application to this Case

In this case, we decline Mr. Jacobs' invitation to impose sanctions against the Commissioner for at least four reasons.

First, based on our observations of this case, we find that the Commissioner's personnel have not acted in bad faith or unreasonably and vexatiously multiplied the proceedings. For example, Mr. Jacobs calls attention to one instance when the Commissioner's counsel did not turn over a document (specifically part of a Case Activity Record) in response to our discovery order until approximately two months after it was due. In our view, this incident shows the opposite of what Mr. Jacobs contends: the Commissioner's counsel fully adhered to her obligations to this Court.

In responding to the discovery request, the Commissioner's counsel was told by Appeals Officer Guerrero that the Case Activity Record was on a database she could access. She then proceeded to produce the materials from the database.

Nearly two months later, while in a virtual meeting with Appeals Officer Guerrero, counsel learned for the first time that the version of the database to which she had access (and from which she had obtained the materials she produced) and the version the Appeals Officer used were different. She immediately asked the Appeals Officer to prepare an electronic document showing what had been requested in discovery. She then promptly notified Mr. Jacobs' counsel and turned the newly discovered materials over to him. This is exactly what we would expect her to do. Similarly, we observed no instances of bad faith or unreasonably and vexatiously prolonging the proceedings in any of the Commissioner's acts related to discovery. In short, it does not appear to the Tax Court that any sanctions are warranted here.

Second, it bears repeating that we agree that the Commissioner's positions in this case were substantially justified. Therefore, we do not see how the Commissioner's meritorious defenses of those positions could also be frivolous. See Liti v. Commissioner, T.C. Memo. 2003-23, 2003 WL 172614, at *2 (concluding that the Commissioner's position was substantially justified and further concluding that the taxpayers were not entitled to an award of sanctions under section 6673(a)(2)), aff'd, 92 Fed.Appx. 397, 399 (9th Cir. 2003) (holding that "the Tax Court did not abuse its discretion in proclaiming the Commissioner 'substantially justified' and refusing to award sanction fees").

Third, Mr. Jacobs offers no authority supporting the claim that the exclusion of the Taxpayer Advocate from his post-Answer Appeals conference amounts to bad faith or has unreasonably and vexatiously prolonged these proceedings. And this Court is unaware of any.³² Furthermore, even if there were such authority, we do not see how section 6673(a)(2) would be implicated by any conduct of the Commissioner's counsel in this case. The post-Answer Appeals conference was held by IRS Appeals, not Commissioner's counsel. The Commissioner's counsel was not even in the room for that conference. And the Commissioner's counsel conceded the case by the time the parties had an informal conference call with the Court in June 2020. Therefore, Mr. Jacobs' arguments concerning the Taxpayer Advocate do not warrant sanctions.

32 Mr. Jacobs cites to section 7811 as support for his position that a Taxpayer Assistance Order is binding on the Commissioner. Section 7811(b) authorizes the National Taxpayer Advocate to require that the IRS "release property of the taxpayer levied upon" or "cease an action, take any action as permitted by law, or refrain from taking any action" with respect to certain parts of the Code. It is not self-evident from the text of the statute that section 7811 would obligate IRS Appeals to permit a local Taxpayer Advocate to attend an Appeals conference. But we need not decide the scope of the statute here. The regulations under section 7811 expressly provide that "[a] taxpayer's right to administrative or judicial review will not be diminished or expanded in any way as a result of the taxpayer's seeking assistance from [the Taxpayer Advocate]." Treas. Reg. § 301.7811-1(b). In other words, regardless of the effect the Taxpayer Assistance Order had or should have had in proceedings internal to the IRS, its issuance does not "expand in any way" the rights Mr. Jacobs has under section 7430 or section 6673. Cf. Atl. Pac. Mgmt. Grp., LLC v. Commissioner, 152 T.C. 330, 336 (2019) (The statutory taxpayer bill of rights "itself does not confer any new rights on taxpayers; it merely lists 'taxpayer rights as afforded by other provisions of' the Code.'") (citing with approval Facebook, Inc. v. IRS, Case No. 17-cv-06490-LB, 2018 WL 2215743 (N.D. Cal. May 14, 2018)).

Lastly, we find that any conduct by the Commissioner's personnel in this case is a far cry from that of Lakepoint Land II v. Commissioner, T.C. Memo. 2023-111, which Mr. Jacobs cites in support of his argument for sanctions. In Lakepoint Land II,our Court imposed sanctions under section 6673(a)(2) when the Commissioner's counsel failed to alert the Court that a revenue agent submitted a false declaration to the Court when counsel knew or should have known of the falsity, causing the Court to dispose of an issue on summary judgment in the Commissioner's favor. T.C. Memo. 2023-111, at *10-12. No conduct in this case comes anywhere near that of LakePoint Land II. Based on our observations in this case, we find no conduct warranting sanctions-and notably the award of costs-against the Commissioner or his counsel.

For these reasons, we decline to sanction the Commissioner under section 6673, the inherent powers of the Court, or otherwise.

III. Mr. Jacobs' Request to Strike the Commissioner's Opening Brief

In his Reply, Mr. Jacobs contends that "Michael Park has an inherent conflict of interest in this case as an attorney of record and witness. Yet he appeared and advocated at trial and signed the IRS's opening posttrial brief. . . . The brief therefore should be stricken and Park should be disqualified." Pet'r's Reply Mem. 2. As we explain below, the argument has no merit.

Mr. Jacobs relies on our Rule 201(a) and Rule 3.7(a) of the Model Rules of Professional Conduct of the American Bar Association. Rule 201(a) requires that practitioners "carry on their practice in accordance with the letter and spirit of the Model Rules of Professional Conduct of the American Bar Association." Rule 201(a). ABA Model Rule 3.7 in turn provides:

Rule 3.7. Lawyer as Witness.

(a) A lawyer shall not act as advocate at a trial in which the lawyer is likely to be a necessary witness unless:

(1) the testimony relates to an uncontested issue;

(2) the testimony relates to the nature and value of legal services rendered in the case; or

(3) disqualification of the lawyer would work substantial hardship on the client.

(b) A lawyer may act as advocate in a trial in which another lawyer in the lawyer's firm is likely to be called as a witness unless precluded from doing so by Rule 1.7 or Rule 1.9.

To the extent Mr. Jacobs intends to object now to Mr. Park's participation as an advocate at the hearing, he has forfeited the objection by not making it either before or at the hearing. See Fed.R.Evid. 103(a); cf. Clay v. Commissioner, 152 T.C. 223, 236 (2019) ("We may consider an issue raised for the first time in a party's answering brief to be abandoned and conceded."), aff'd, 990 F.3d 1296 (11th Cir. 2021).

But, even if were to reach the merits, we would not agree with Mr. Jacobs' position. We begin by considering what the Ninth Circuit has said concerning motions to disqualify:

The drafters of the ABA Code have cautioned that the ethical rules "[were] not designed to permit a lawyer to call opposing counsel as a witness and thereby disqualify him as counsel." ABA Code, Canon 5, n. 31; accord Kroungold v. Triester, 521 F.2d [763, 766 (3d Cir. 1975)]. The cost and inconvenience to clients and the judicial system from misuse of the rules for tactical purposes is significant. See Brown & Brown, Disqualification of the Testifying Advocate-A Firm Rule? 57 N. C. L. Rev. 595, 619-21 (1979). Because of this potential for abuse, disqualification motions should be subjected to "particularly strict judicial scrutiny." Rice v. Baron, 456 F.Supp. 1361, 1370 (S.D.N.Y.1978); see also Freeman v. Chicago Musical Instrument Co., 689 F.2d 715, 721-22 (7th Cir. 1982).

Optyl Eyewear Fashion Int'l Corp. v. Style Cos., 760 F.2d 1045, 1050 (9th Cir. 1985); see also Coutsoubelis v. Commissioner, T.C. Memo. 1993-457, 1993 WL 381698, at *14 (citing Optyl Eyewear with approval and collecting other authorities).

Turning to the requirements of ABA Model Rule 3.7 itself, we are not persuaded that they have been met or that no exceptions apply. ABA Model Rule 3.7 applies only when a lawyer is "a necessary witness." In view of the nature of the issue now before us and Mr. Park's role in the case, Mr. Park was not such a witness.

For a witness to be necessary, the testimony must be relevant and material, and it must also not be obtainable elsewhere. See, e.g., Sec. Gen. Life Ins. Co. v. Superior Ct. In and For Yuma Cnty., 718 P.2d 985, 988 (Ariz. 1986). Although, in our latitude toward Mr. Jacobs, we permitted him to call Mr. Park to discuss his involvement in the case, that testimony was not material to the issues before us. His testimony merely supplemented what was already in the administrative record and did not materially aid (nor was it expected to materially aid) our inquiry in this case. See, e.g., Coutsoubelis v. Commissioner, 1993 WL 381698, at *14 (affirming prior ruling that one party could call the other party's attorney to testify and the attorney could continue the representation because, in part, the party calling the witness "did not show that [he] was a necessary witness"). Notably, while Mr. Park supervised the attorney who filed the Answer, he did not prepare the Answer himself, nor is there any indication that he had any special knowledge of Mr. Jacobs' interactions with the IRS that other witnesses were not either equally or better equipped to address.

Moreover, even if Mr. Park were considered a necessary witness, his testimony would come within the scope of the second exception, as it "relates to the nature . . . of legal services rendered in the case." ABA Model Rule 3.7(a)(2). As Comment 3 to ABA Model Rule 3.7 explains,

Paragraph (a)(2) recognizes that where the testimony concerns the extent . . . of legal services rendered in the action in which the testimony is offered, permitting the lawyers to testify avoids the need for a second trial with new counsel to resolve the issue. Moreover, in such a situation the judge has firsthand knowledge of the matter in issue; hence there is less dependence on the adversary process to test the credibility of testimony.

In addition, disqualifying Mr. Park "would work substantial hardship on his client," the Commissioner. ABA Model Rule 3.7(a)(3). Comment 2 to Model Rule 3.7 explains that "[t]he tribunal has proper objection [under Rule 3.7] when the trier of fact may be confused or misled by a lawyer serving as both advocate and witness." It further states, "[t]he opposing party has proper objection where the combination of roles may prejudice that party's rights in the litigation." Model Code of Pro. Conduct r. 3.7 cmt. [2]. Comment 4 explains that, in weighing whether disqualification of the lawyer would work substantial hardship on the client, "a balancing is required between the interests of the client and those of the tribunal and the opposing party." Id. r. 3.7 cmt. [4]. Comment 4 then provides three factors for considering whether "the tribunal is likely to be misled or the opposing party is likely to suffer prejudice," including "the nature of the case, the importance and probable tenor of the lawyer's testimony, and the probability that the lawyer's testimony will conflict with that of other witnesses." Id.

Here, although Mr. Park testified at our hearing and served as one of the Commissioner's representatives in the case, his dual roles did not confuse or mislead the Court. In addition, any prejudice Mr. Jacobs alleges³³ was not due to Mr. Park's dual roles at the evidentiary hearing. As the Fifth Circuit has observed,

33 Mr. Jacobs claims that Mr. Park's "bias against Professor Jacobs was apparent from Park's very first email about [the case] in which he personally attacked Professor Jacobs." Pet'r's Reply Mem. 3.

[N]umerous courts and commentators have recognized [that] the only justification for the attorney testimony rule that might be viewed as affecting the rights of the opposing party is that derived from the fear that the jury will either accord such testimony undue weight, or will be unable to distinguish between the attorney's testimony, offered under oath, and his legal argument, offered in rhetorical support of his client's case. [T]he majority of these courts have also recognized [that] this

justification is inapplicable where, as here, the testimony is made to a judge, not a jury.

Crowe v. Smith, 151 F.3d 217, 233-34 (5th Cir. 1998) (citations omitted); see also Dawson v. Orkin Exterminating Co., 736 F.Supp. 1049, 1055 (D. Colo. 1990) ("Here, . . . counsel testified in a hearing before [a judge]. . . . The rule is therefore inapplicable."); In re Whitney-Forbes, 31 B.R. 836, 842 (Bankr. N.D.Ill. 1983) ("That problem does not exist in a bench trial."); People v. Superior Ct. of San Luis Obispo Cnty., 148 Cal.Rptr. 704, 711 (Cal.Ct.App. 1978) (noting that "where the . . . attorney will only be testifying at pretrial hearings where the trier of fact is a judge, not a jury, th[e] danger does not exist"); Greenebaum-Mountain Mortg. Co. v. Pioneer Nat'l Title Ins. Co., 421 F.Supp. 1348, 1354 (D. Colo. 1976) ("Because this case involves a trial to the court, rather than to a jury, we are confident that the finder of fact can make the necessary distinctions.").

Nor did we observe any prejudicial conduct by Mr. Park during the evidentiary hearing. Mr. Park had a limited role as counsel at the evidentiary hearing. The Commissioner's lead counsel in the case at the hearing was Ms. Mitchell. And Mr. Park did not, while on the stand, act as counsel so as to confuse his roles by bringing objections or otherwise. Finally, as we have already noted, Mr. Park's testimony in this case was of marginal importance to the issues in dispute. See, e.g., Coutsoubelis v. Commissioner, 1993 WL 381698, at *14; see also, e.g., Optyl Eyewear Fashion Int'l Corp., 760 F.2d at 1050.

In short, to the extent Mr. Jacobs objects to Mr. Park's participation as an advocate at the hearing, the objection is unfounded.

Mr. Jacobs' objection to the Commissioner's brief on the ground that Mr. Park wrote it is even more unfounded. Nothing in Rule 3.7 addresses briefs signed by an attorney-witness after an evidentiary hearing. ABA Model Rule 3.7(a) (providing that a "lawyer shall not act as advocate at a trial in which the lawyer is likely to be a necessary witness" (emphasis added)). And for good reason. Briefs are exercises in advocacy. No risk of confusion about the role of a lawyer exists in that circumstance. Of course, the advocate has an interest in seeing his side prevail. But, by that reasoning, Mr. Jacobs should not have signed his own briefs because he too has a significant interest in seeing his own position vindicated.

For these reasons, we will not strike the Commissioner's brief.³⁴

34 Mr. Jacobs also suggests that "the Court may also wish to consider issuing to Park an order to [show] cause under Rule 202(e) and referring Park to the California Bar." Pet'r's Reply Mem. 4 n.4. We decline to take his suggestion.

IV. Additional Observations

Mr. Jacobs maintains that both the administrative proceedings and the proceedings before this Court (especially the proceedings on remand) have been characterized by IRS "stonewalling." We have already addressed that argument as it relates to the administrative proceedings. See Discussion Part I.C.4 above. We consider here the argument as it relates to the remand proceedings.

The proceedings on remand were prolonged in large measure because the Court was solicitous of Mr. Jacobs' extensive requests for discovery and because the Court wished to offer Mr. Jacobs every opportunity to demonstrate that the documents he gave the IRS during the administrative proceedings, and before the Answer was filed, provided a basis from which the IRS actually learned, or should have learned, that the expenditures Mr. Jacobs incurred met the statutory criteria for being deductible as business expenses on Schedule C. But, despite the opportunities offered, Mr. Jacobs comes up short.

The primary focus of his post-hearing briefing materials is on what various officials within the IRS allegedly did wrong and how they should have acted differently. What is conspicuously absent from his extensive briefing is a showing of how the materials he submitted during the administrative process tied the expenses to the various business activities, explained how each expense was ordinary and necessary to his business activities, explained why the expenses were not related to his work as an employee, and otherwise satisfied the statutory requirements. Put simply, Mr. Jacobs briefing offers no response to what the Commissioner has said all along-the documentary record Mr. Jacobs developed before the Answer was not enough.

Hyperbole and process-based complaints are no substitutes for tying the facts in the record to the statutory requirements for deductions. The nature of the business might be clear to the person who conducted the business. But that does not excuse that person from explaining the nature of the business in detail to the IRS when the IRS seeks to understand what the taxpayer has done. Nor does it preclude the IRS from seeking robust explanations about why expenses that might well be personal in nature, or tied to work as an employee, were in fact incurred for a business purpose. That is especially true when the expenditures generate no income for multiple years and allowing them as deductions offsets a large portion of the taxpayer's other taxable income.

Thus, Mr. Jacobs' protestations to the contrary notwithstanding, the length of the remand proceedings was not attributable to IRS stonewalling. The Court's patience with Mr. Jacobs' requests for extensive information, its indulgence with his train of argument, and its desire to permit Mr. Jacobs to be fully heard should not be mistaken as fault by the Commissioner or weakness in the Commissioner's position.

V. Conclusion

Upon a thorough review of the record of this case, including the information Mr. Jacobs provided the IRS before it filed its Answer, and for the reasons discussed above, we will deny Mr. Jacobs' Motion for Costs, as supplemented.

We have considered all of the parties' arguments and, to the extent not discussed above, conclude they are irrelevant, moot, or without merit.

Accordingly, it is hereby

ORDERED that petitioner's Motion for Costs (Doc. 21) filed on August 26, 2020, as supplemented on January 12, 2024 (Doc. 84), is denied. It is further

ORDERED AND DECIDED that there is no deficiency in income tax due from petitioner for the taxable years 2014 or 2015; and

That there is no penalty due from petitioner for the taxable years 2014 or 2015 under the provisions of section 6662(a).