Sandra, age 58 and single, spent five years as a yoga instructor in Seattle, Washington. She owned

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•Sandra, age 58 and single, spent five years as a yoga instructor
in Seattle, Washington. She owned a yoga studio there, which received $90,000 in both 2018 and 2019 while having business expenses of $30,000 each year. On June 1, 2018, Sandra got an offer to provide yoga instruction for ten months at Tesla’s headquarters in California. She accepted the offer to work there as an independent contractor and began work on July 1, 2018.

•In 2019, Tesla offered to provide a new second five-month contract for her yoga services following completion of the first contract. Sandra accepted and worked in California through September 2019. In 2019, Sandra deducted $18,000 for these travel expenses ($2,000 every month for nine months).

•On September 1, 2019, Sandra inherited a chain of five noodle shops in Oregon, and she continued their operations through the end of the year. Although the noodle shops were not making money, she had the noodle shops continue to operate in order to realize future profits from the sale of their choice leases which was finalized in early January 2020. Sandra would visit the noodle shops in Oregon every month, spending a total of $3,600 on travel expenses ($900 every month for four months).

•Sandra decided to retire from working in November 2019. Before becoming a yoga instructor, she had worked for SpaceX, a private company owned by Elon Musk (who was the founder of Tesla, a company that became public in 2010). SpaceX permitted Sandra to take a lump-sum distribution from her pension plan in December 2019. Sandra agreed, and so the pension distribution was $44,000 on December 13, 2019. That date was also Sandra’s birthday when she turned 59 years old. Sandra properly reported the pension distribution as income but did not report or pay any penalty.

•In 2020, the IRS audited Sandra’s 2019 tax return and disallowed all of Sandra’s travel expenses. The IRS also added a penalty on Sandra for the early distribution from her pension.

Write three sophisticated tax issues for Sandra, given the IRS’s actions in the last paragraph of the problem. Each issue must include relevant critical facts and precisely where in the code each issue arises. Include IRC sections, regulation, and court cases as primary sources.