Taxpayers William and Janice Jimbo resided in Southern California. The Jimbos prepared and filed timely (without the assistance of a paid preparer) a joint Form 1040, U.S. Individual Income Tax Return, for the 2011 taxable year (joint return). On the joint return the Taxpayers reported wages of $124,756 ($33,438 of wages paid to Mr. Jimbo from his employment with Sacramento Methodist as a teacher and $91,318 of wages paid to Mrs. Jimbo from her employment with Red Cross Nursing Services, Inc., as a registered nurse). Taxpayers attached to the joint return a Schedule A, a Schedule C, and a Schedule E. Taxpayers claimed $50,474 of itemized deductions on their Schedule A, a $7,597 deduction for a net loss for a construction building contractor consulting business operated by Mr. Jimbo on their Schedule C, and a $24,473 deduction for a rental real estate loss for certain property on their Schedule E. As relevant here, on their Schedule A Taxpayers claimed a deduction of $7,950 for charitable gifts by cash or check and a deduction of $8,964 for unreimbursed employee business expenses. The details of the Taxpayers unreimbursed employee business expenses were shown on a Form 2106, Employee Business Expenses, also attached to the joint return, and those expenses consisted of $6,997 for vehicle expenses and $1,967 for meals and entertainment of Mrs. Jimbo in connection with her job as a nurse. On their Schedule C the Jimbos reported gross receipts of $1,180 and total expenses of $8,777. The expenses consisted of $1,240 for car and truck expenses; $1,381 for insurance; $814 for office expense; $1,680 for rent or lease of vehicles, machinery, and equipment; $1,744 for repairs and maintenance; $275 for supplies; $845 for travel; and $798 for utilities.

On their Schedule E Taxpayers reported $42,700 of rental income and $66,296 of total expenses for rental property in Las Vistas, California, and no rental income and $877 of total expenses for vacant lots in San Luis Obispo, California. Despite reporting that their adjusted gross income exceeded $100,000

(they reported adjusted gross income of $114,802), petitioners did not limit their Schedule E rental real estate loss deduction under section 469(i) and did not attach a Form 8582, Passive Activity Loss Limitations, to the joint return.

Following an examination of the joint return, the IRS determined that the Schedule A charitable cash contribution deduction and the Schedule E rental real estate loss deduction should be partially disallowed and that the entire Schedule A deduction for unreimbursed employee expenses and the entire Schedule C net loss deduction should be disallowed. The IRS also determined that a section 6662(a) accuracy-related penalty should be imposed. The notice of deficiency mailed to the Taxpayers on April 17, 2014, reflects those determinations.

According to the notice, The Jimbos did not establish that the remaining

charitablecash contributions of $4,290] were (a) contributions, and (b) paid. Regarding the Schedule A and Schedule C deductions disallowed in their entirety, petitioners

did not establish that the business expense was paid or incurred during the taxable year and that the expense was ordinary and necessary to petitioners respective businesses. IRS disallowed $12,182 of the Schedule E rental real estate loss deduction because the activity giving rise to the deduction was passive and thus subject to the passive activity loss limitation rules of section

469(i). And IRS determined the accuracy-related penalty because petitioners resulting underpayment of tax was attributable to (1) negligence or disregard of rules or regulations, (2) any substantial understatement of income tax, or (3) any substantial valuation overstatement.

The parties stipulated that petitioners substantiated cash contributions in the following amounts to the following charitable organizations: (1) $485 to Los Angeles Mission; (2) $500 to Johnson C. Smith University; and (3) $2,675 to Eternal Promise Baptist Church.

Subsequently, in his amended answer, the IRS agent corrected the computation of the allowable deduction for Schedule E passive activity losses, reducing the amount to $5,774. He also asserted that petitioners are liable for self-employment tax in the increased amount of $145, not $32 as determined in the notice of deficiency and that they are not entitled to the child and dependent care credit of

$6 also determined in the notice of deficiency. The parties stipulate that

Taxpayers modified adjusted gross income for the 2011 taxable year was $138,452, not $114,802, which in turn results in the reduced amount of the allowable deduction for Schedule E passive activity losses. The parties also stipulate that petitioners did not report any amounts for child and dependent care on the joint return and that they are not entitled to a child and dependent care credit for the 2011 taxable year. In computing Mr. Jimbos self-employment tax, the notice of deficiency indicates that both petitioners Social Security wages and tips from Forms W-2, Wage and Tax Statement, were erroneously taken into account. The IRS agents amended answer reflects the removal of Mrs. Jimbos Form W-2 Social Security wages and tips, which results in the increased amount of self-employment tax.

4In their petition, in addition to disputing the determinations for the 2011 taxable year, The Jimbos disputed determinations for the 2012 taxable year. On July 11, 2014, the Tax Court granted the Jimbos motion to dismiss this case for lack of jurisdiction insofar as it relates to the 2012 taxable year on the ground that no statutory notice of deficiency, as authorized by sec. 6212 and required by sec. 6213(a) to form the basis for a petition to this Court, had been sent to petitioners with respect to the 2012 taxable year, nor had the IRS made any other determination with respect to petitioners 2012 taxable year that would confer jurisdiction on this Court.

Issue(s): Is the IRS correct in each of its determinations? Who has the burden of proof?