Read § 162(a)(2).
Commissioner v. Flowers, 326 U.S. 465 (1946)
MR. JUSTICE MURPHY delivered the opinion of the Court.
This case presents a problem as to the meaning and application of the provision of § [162(a)(2)] of the Internal Revenue Code, [footnote omitted] allowing a deduction for income tax purposes of “traveling expenses (including the entire amount expended for meals and lodging) while away from home in the pursuit of a trade or business.”
The taxpayer, a lawyer, has resided with his family in Jackson, Mississippi, since 1903. There, he has paid taxes, voted, schooled his children, and established social and religious connections. He built a house in Jackson nearly thirty years ago, and at all times has maintained it for himself and his family. He has been connected with several law firms in Jackson, one of which he formed and which has borne his name since 1922.
In 1906, the taxpayer began to represent the predecessor of the Gulf, Mobile & Ohio Railroad, his present employer. He acted as trial counsel for the railroad throughout Mississippi. From 1918 until 1927, he acted as special counsel for the railroad in Mississippi. He was elected general solicitor in 1927, and continued to be elected to that position each year until 1930, when he was elected general counsel. Thereafter, he was annually elected general counsel until September, 1940, when the properties of the predecessor company and another railroad were merged and he was elected vice-president and general counsel of the newly formed Gulf, Mobile & Ohio Railroad.
The main office of the Gulf, Mobile & Ohio Railroad is in Mobile, Alabama, as was also the main office of its predecessor. When offered the position of general solicitor in 1927, the taxpayer was unwilling to accept it if it required him to move from Jackson to Mobile. He had established himself in Jackson both professionally and personally, and was not desirous of moving away. As a result, an arrangement was made between him and the railroad whereby he could accept the position and continue to reside in Jackson on condition that he pay his traveling expenses between Mobile and Jackson and pay his living expenses in both places. This arrangement permitted the taxpayer to determine for himself the amount of time he would spend in each of the two cities, and was in effect during 1939 and 1940, the taxable years in question.
The railroad company provided an office for the taxpayer in Mobile, but not in Jackson. When he worked in Jackson, his law firm provided him with office space, although he no longer participated in the firm’s business or shared in its profits. He used his own office furniture and fixtures at this office. The railroad, however, furnished telephone service and a typewriter and desk for his secretary. It also paid the secretary’s expenses while in Jackson. Most of the legal business of the railroad was centered in or conducted from Jackson, but this business was handled by local counsel for the railroad. The taxpayer’s participation was advisory only, and was no different from his participation in the railroad’s legal business in other areas.
The taxpayer’s principal post of business was at the main office in Mobile. However, during the taxable years of 1939 and 1940, he devoted nearly all of his time to matters relating to the merger of the railroads. Since it was left to him where he would do his work, he spent most of his time in Jackson during this period. In connection with the merger, one of the companies was involved in certain litigation in the federal court in Jackson, and the taxpayer participated in that litigation.
During 1939, he spent 203 days in Jackson and 66 in Mobile, making 33 trips between the two cities. During 1940, he spent 168 days in Jackson and 102 in Mobile, making 40 trips between the two cities. The railroad paid all of his traveling expenses when he went on business trips to points other than Jackson or Mobile. But it paid none of his expenses in traveling between these two points or while he was at either of them.
The taxpayer deducted $900 in his 1939 income tax return and $1,620 in his 1940 return as traveling expenses incurred in making trips from Jackson to Mobile and as expenditures for meals and hotel accommodations while in Mobile. 1 The Commissioner disallowed the deductions, which action was sustained by the Tax Court. But the Fifth Circuit Court of Appeals reversed the Tax Court’s judgment, and we granted certiorari because of a conflict between the decision below and that reached by the Fourth Circuit Court of Appeals in Barnhill v. Commissioner, 148 F.2d 913.
The portion of § [162(a)(2)] authorizing the deduction of “traveling expenses (including the entire amount expended for meals and lodging) while away from home in the pursuit of a trade or business” is one of the specific examples given by Congress in that section of “ordinary and necessary expenses paid or incurred during the taxable year in carrying on any trade or business.” It is to be contrasted with the provision of § [262(a)] of the Internal Revenue Code, disallowing any deductions for “personal, living, or family expenses.” ... In pertinent part, [the applicable regulation] states that “Traveling expenses, as ordinarily understood, include railroad fares and meals and lodging. If the trip is undertaken for other than business purposes, the railroad fares are personal expenses, and the meals and lodging are living expenses. If the trip is solely on business, the reasonable and necessary traveling expenses, including railroad fares, meals, and lodging, are business expenses. ... Only such expenses as are reasonable and necessary in the conduct of the business and directly attributable to it may be deducted. ... Commuters’ fares are not considered as business expenses, and are not deductible.”
Three conditions must thus be satisfied before a traveling expense deduction may be made under § [162(a)(2)]:
(1) The expense must be a reasonable and necessary traveling expense, as that term is generally understood. This includes such items as transportation fares and food and lodging expenses incurred while traveling.
(2) The expense must be incurred “while away from home.”
(3) The expense must be incurred in pursuit of business. This means that there must be a direct connection between the expenditure and the carrying on of the trade or business of the taxpayer or of his employer. Moreover, such an expenditure must be necessary or appropriate to the development and pursuit of the business or trade.
Whether particular expenditures fulfill these three conditions so as to entitle a taxpayer to a deduction is purely a question of fact in most instances. See Commissioner v. Heininger, 320 U. S. 467, 475. And the Tax Court’s inferences and conclusions on such a factual matter, under established principles, should not be disturbed by an appellate court. Commissioner v. Scottish American Co., 323 U. S. 119; Dobson v. Commissioner, 320 U. S. 489.
In this instance, the Tax Court, without detailed elaboration, concluded that “The situation presented in this proceeding is, in principle, no different from that in which a taxpayer’s place of employment is in one city and, for reasons satisfactory to himself, he resides in another.” It accordingly disallowed the deductions on the ground that they represent living and personal expenses, rather than traveling expenses incurred while away from home in the pursuit of business. The court below accepted the Tax Court’s findings of fact, but reversed its judgment on the basis that it had improperly construed the word “home” as used in the second condition precedent to a traveling expense deduction under § [162(a)(2)] The Tax Court, it was said, erroneously construed the word to mean the post, station, or place of business where the taxpayer was employed – in this instance, Mobile – and thus erred in concluding that the expenditures in issue were not incurred “while away from home.” The Court below felt that the word was to be given no such “unusual” or “extraordinary” meaning in this statute, that it simply meant “that place where one in fact resides” or “the principal place of abode of one who has the intention to live there permanently.” Since the taxpayer here admittedly had his home, as thus defined, in Jackson, and since the expenses were incurred while he was away from Jackson, the deduction was permissible.
The meaning of the word “home” in § [162(a)(2)] with reference to a taxpayer residing in one city and working in another has engendered much difficulty and litigation. 4 Mertens, Law of Federal Income Taxation (1942) § 25.82. The Tax Court [footnote omitted] and the administrative rulings 2 have consistently defined it as the equivalent of the taxpayer’s place of business. SeeBarnhill v. Commissioner, supra. On the other hand, the decision below and Wallace v. Commissioner, 144 F.2d 407, have flatly rejected that view, and have confined the term to the taxpayer’s actual residence. [citation omitted].
We deem it unnecessary here to enter into or to decide this conflict. The Tax Court’s opinion, as we read it, was grounded neither solely nor primarily upon that agency’s conception of the word “home.” Its discussion was directed mainly toward the relation of the expenditures to the railroad’s business, a relationship required by the third condition of the deduction. Thus, even if the Tax Court’s definition of the word “home” was implicit in its decision, and even if that definition was erroneous, its judgment must be sustained here if it properly concluded that the necessary relationship between the expenditures and the railroad’s business was lacking. Failure to satisfy any one of the three conditions destroys the traveling expense deduction.
Turning our attention to the third condition, this case is disposed of quickly. ...
The facts demonstrate clearly that the expenses were not incurred in the pursuit of the business of the taxpayer’s employer, the railroad. Jackson was his regular home. Had his post of duty been in that city, the cost of maintaining his home there and of commuting or driving to work concededly would be nondeductible living and personal expenses lacking the necessary direct relation to the prosecution of the business. The character of such expenses is unaltered by the circumstance that the taxpayer’s post of duty was in Mobile, thereby increasing the costs of transportation, food, and lodging. Whether he maintained one abode or two, whether he traveled three blocks or three hundred miles to work, the nature of these expenditures remained the same.
The added costs in issue, moreover, were as unnecessary and inappropriate to the development of the railroad’s business as were his personal and living costs in Jackson. They were incurred solely as the result of the taxpayer’s desire to maintain a home in Jackson while working in Mobile, a factor irrelevant to the maintenance and prosecution of the railroad’s legal business. The railroad did not require him to travel on business from Jackson to Mobile, or to maintain living quarters in both cities. Nor did it compel him, save in one instance, to perform tasks for it in Jackson. It simply asked him to be at his principal post in Mobile as business demanded and as his personal convenience was served, allowing him to divide his business time between Mobile and Jackson as he saw fit. Except for the federal court litigation, all of the taxpayer’s work in Jackson would normally have been performed in the headquarters at Mobile. The fact that he traveled frequently between the two cities and incurred extra living expenses in Mobile, while doing much of his work in Jackson, was occasioned solely by his personal propensities. The railroad gained nothing from this arrangement except the personal satisfaction of the taxpayer.
Travel expenses in pursuit of business within the meaning of § [162(a)(2)] could arise only when the railroad’s business forced the taxpayer to travel and to live temporarily at some place other than Mobile, thereby advancing the interests of the railroad. Business trips are to be identified in relation to business demands and the traveler’s business headquarters. The exigencies of business, rather than the personal conveniences and necessities of the traveler, must be the motivating factors. Such was not the case here.
It follows that the court below erred in reversing the judgment of the Tax Court.
MR. JUSTICE JACKSON took no part in the consideration or decision of this case.
MR. JUSTICE RUTLEDGE, dissenting.
I think the judgment of the Court of Appeals should be affirmed. When Congress used the word “home” in §  of the Code, I do not believe it meant “business headquarters.” And, in my opinion, this case presents no other question.
Congress allowed the deduction for “traveling expenses (including the entire amount expended for meals and lodging) while away from home in the pursuit of a trade or business.” [A Treasury Regulation] also provides: “Commuters’ fares are not considered as business expenses and are not deductible.” By this decision, the latter regulation is allowed, in effect, to swallow up the deduction for many situations where the regulation has no fit application.
… It seems questionable whether ... the Tax Court has not confused the taxpayer’s principal place of employment with his employer’s. For, on the facts, Jackson, rather than Mobile, would seem more appropriately to be found his business headquarters. ...
[The majority treats taxpayer as a commuter. The word “commuter”] has limitations unless it also is made a tool for rewriting the Act. The ordinary, usual connotation, [citation omitted], does not include irregular, although frequent journeys of 350 miles, requiring Pullman accommodations and some twelve to fifteen hours, one way.
Congress gave the deduction for traveling away from home on business. The commuter’s case, rightly confined, does not fall in this class. One who lives in an adjacent suburb or City and by usual modes of commutation can work within a distance permitting the daily journey and return, with time for the day’s work and a period at home, clearly can be excluded from the deduction on the basis of the section’s terms equally with its obvious purpose. ... If the line may be extended somewhat to cover doubtful cases, it need not be lengthened to infinity or to cover cases as far removed from the prevailing connotation of commuter as this one. Including it pushes “commuting” too far, even for these times of rapid transit. 3
Administrative construction should have some bounds. It exceeds what are legitimate when it reconstructs the statute to nullify or contradict the plain meaning of nontechnical terms not artfully employed. ...
By construing “home” as “business headquarters;” by reading “temporarily” as “very temporarily” into § ; by bringing down “ordinary and necessary” from its first sentence into its second; 4 by finding “inequity” where Congress has said none exists; by construing “commuter” to cover long distance, irregular travel, and by conjuring from the “statutory setting” a meaning at odds with the plain wording of the clause, the Government makes over understandable ordinary English into highly technical tax jargon. ...
Notes and Questions:
1. Reg. § 1.162-2 is now the regulation covering “traveling expenses” whose provisions have not materially changed those quoted by the Court in Flowers.
Reimbursement of Non-deductible Expenditures
Taxpayer paid his expenses and tried to deduct them. What result if taxpayer’s employer had paid for taxpayer’s train tickets, hotels, and meals while in Mobile? Would (should) that have solved taxpayer’s problems – or made them worse? See discussion of Brandl v. Commissioner, infra.
2. Can commuting expenses ever meet the third requirement of deductibility, i.e., “a direct connection between the expenditure and the carrying on of the trade or business of the taxpayer or of his employer?”
3. Does Justice Rutledge have a point? After all, the Court later construed the word “gift” in its ordinary sense in Duberstein.
4. Upon application of the Court’s standards, why will taxpayer’s home usually be the “post, station, or place of business where the taxpayer [is] employed?”
5. Robert Rosenspan was a jewelry salesman who worked on a commission basis and paid his own traveling expenses without reimbursement. In 1964 he was the employee of two New York City jewelry manufacturers. For 300 days during the year he traveled by automobile through an extensive sales territory in the Middle West. He stayed at hotels and motels and ate at restaurants. Five times during the year he returned to New York and spent several days at his employers’ offices. There he performed a variety of services essential to his work, i.e., cleaned up his sample case, checked orders, discussed customers’ credit problems, recommended changes in stock, attended annual staff meetings, and the like. He used his brother’s Brooklyn home as a personal residential address. He kept some clothing and other belongings there. He voted, and filed his income tax returns from that address. On his trips to New York City, “out of a desire not to abuse his welcome at his brother’s home, he stayed more often” at an inn near the John F. Kennedy Airport.
- What tax issue(s) do these facts raise? How should they be resolved?
- SeeRosenspan v. United States, 438 F.2d 905 (2d Cir.), cert. denied, 404 U.S. 864 (1971).
5a. Folkman, an airline pilot, was stationed in San Francisco International Airport as an employee of Pan American World Airways. He flew infrequently as a pilot with Pan American because of his low seniority. His principal work was that of navigator. This work gave him little opportunity to keep up basic flying skills. To maintain his proficiency as a jet pilot, and to earn extra income, Folkman enlisted in a military reserve program. The closest Air National Guard unit that had openings for pilots of jet aircraft was in Reno, Nevada, about 250 miles from San Francisco. As a condition of membership, the Nevada Air National Guard required all pilots to reside in the Reno area. Folkman and his family moved from their home near the San Francisco airport, to Reno. Folkman divided his time between flying with Pan American from his San Francisco base and flying for the Nevada Air National Guard. During an average month Folkman spent 10 to 13 days performing services for Pan American and four to seven days fulfilling his military reserve flying obligations. Whether or not he was scheduled to fly for the National Guard on a given day, Folkman routinely returned to Reno immediately after his Pan American flights. Folkman spent more time in Reno than in San Francisco, but derived approximately 85% of his earnings from his Pan American employment.
- What tax issue(s) do these facts raise? How do you think they should be resolved and why?
- SeeFolkman v. United States, 615 F.2d 493 (9th Cir. 1980).
Reimbursement or Other Expense Allowance Arrangement
An employee may deduct his/her trade or business expenses. However, the employee may only claim that deduction if s/he itemizes deductions, and trade or business deductions of an employee are subject to the 2% floor for “miscellaneous deductions.” See § 67. The effect of this treatment is to reduce, if not deny, an employee’s trade or business expense deduction. Employee must include any employer reimbursement in his/her gross income.
However, § 62(a)(2)(A) permits taxpayer to reduce his/her agi by trade or business expenditures (i.e., deduct “above-the-line”) if his/her employer (or the employer’s agent or a third party) has a “reimbursement or other expense allowance arrangement.” See also Reg. § 1.62-2. The net effect of such employer reimbursement of employee trade or business expenses is a wash. The arrangement must require substantiation of deductible expenditures so that such arrangements do not become a means by which employees can receive compensation without paying income tax on it.
How is a “reimbursement or other expense allowance arrangement” advantageous to both employer and employee?
5b. Taxpayer Brandl was employed by Strong Electric Co. as a traveling technical representative of the marketing department. His duties consisted of visiting, assisting and selling to Strong dealers throughout the United States. Taxpayer did a great deal of traveling. Strong’s headquarters are in Toledo, Ohio. Taxpayer neither owned nor rented an apartment or house in Toledo. When Taxpayer was in Toledo he either stayed at a motel or with his brother and sister-in-law. When Taxpayer stayed with his brother he paid no rent but did help pay for groceries and household items, and worked around the house doing maintenance and remodeling. Generally he was away from Toledo visiting customers from four to six weeks at a time, but on occasion up to three months. When Taxpayer traveled he stayed in hotels. When Taxpayer was at Strong headquarters in Toledo he took care of paper work, wrote letters to customers he had visited, and helped with general office work of the marketing department. During the tax year, Taxpayer spent a total of three months in Toledo. Taxpayer received personal mail at his brother’s home in Toledo, and he had an Ohio driver’s license. For the tax year in question, Strong paid Taxpayer $8,288.68 for his travel expenses. Taxpayer did not include that amount in income. Taxpayer did not claim a deduction for traveling expenses while away from home.
- Must Taxpayer Brandl include the $8288.68 in his taxable income?
- If so, may he deduct that amount as a “travel expense” under § 162(a)(2)?
- SeeBrandl v. Commissioner, T.C. Memo 1974-160 (1974).
5c. Taxpayers were employees at the Nevada Test Site, a nuclear testing facility. Las Vegas, Nevada, the closest habitable community to the Test Site, is 65 miles south of the Camp Mercury control point, located at the southernmost boundary of the Test Site, and 130 miles from the northernmost boundary of the Test Site. Because of the potential dangers arising out of the activities conducted at the Test Site, the government chose this location precisely because of its remoteness from populated areas. All of the taxpayers assigned to the Test Site received, in addition to their regular wages, a per diem allowance for each day they reported for work at the Test Site. The amount of the allowance varied. Employees reporting to Camp Mercury received $5 per day; those reporting to any forward area received $7.50 per day. Employees received these allowances without regard to the actual costs incurred by them for transportation, meals, or lodging. A private contractor maintained meal and lodging facilities onsite. Employees were responsible for procuring transportation, meals, and occasionally overnight lodging when they had to work overtime.
- Should Taxpayers be permitted to exclude their per diem allowances? SeeCommissioner v. Kowalski, 434 U.S. 77 (1977), supra.
- Should Taxpayers be permitted to deduct the cost of their travel?
- Should Taxpayers be permitted to deduct the cost of their meals?
- Should Taxpayers be permitted to deduct the cost of their lodging?
- SeeCoombs v. Commissioner, 608 F.2d 1269 (9th Cir. 1979).
United States v. Correll, 389 U.S. 299 (1967)
MR. JUSTICE STEWART delivered the opinion of the Court.
The Commissioner of Internal Revenue has long maintained that a taxpayer traveling on business may deduct the cost of his meals only if his trip requires him to stop for sleep or rest. The question presented here is the validity of that rule.
The respondent in this case was a traveling salesman for a wholesale grocery company in Tennessee. [footnote omitted] He customarily left home early in the morning, ate breakfast and lunch on the road, and returned home in time for dinner. In his income tax returns for 1960 and 1961, he deducted the cost of his morning and noon meals as “traveling expenses” incurred in the pursuit of his business “while away from home” under [I.R.C.] § 162(a)(2) ... 5 Because the respondent’s daily trips required neither sleep nor rest, 6 the Commissioner disallowed the deductions, ruling that the cost of the respondent’s meals was a “personal, living” expense under § 262 [footnote omitted], rather than a travel expense under § 162(a)(2). The respondent paid the tax, sued for a refund in the District Court, and there received a favorable jury verdict. 7 The Court of Appeals for the Sixth Circuit affirmed, holding that the Commissioner’s sleep or rest rule is not “a valid regulation under the present statute.” In order to resolve a conflict among the circuits on this recurring question of federal income tax administration, [footnote omitted] we granted certiorari.
Under § 162(a)(2), taxpayers “traveling ... away from home in the pursuit of trade or business” may deduct the total amount “expended for meals and lodging.” 8 As a result, even the taxpayer who incurs substantial hotel and restaurant expenses because of the special demands of business travel receives something of a windfall, for at least part of what he spends on meals represents a personal living expense that other taxpayers must bear without receiving any deduction at all. 9 Not surprisingly, therefore, Congress did not extend the special benefits of § 162(a)(2) to every conceivable situation involving business travel. It made the total cost of meals and lodging deductible only if incurred in the course of travel that takes the taxpayer “away from home.” The problem before us involves the meaning of that limiting phrase.
In resolving that problem, the Commissioner has avoided the wasteful litigation and continuing uncertainty that would inevitably accompany any purely case-by-case approach to the question of whether a particular taxpayer was “away from home” on a particular day. [footnote omitted] Rather than requiring “every meal-purchasing taxpayer to take pot luck in the courts,” [footnote omitted] the Commissioner has consistently construed travel “away from home” to exclude all trips requiring neither sleep nor rest, regardless of how many cities a given trip may have touched, [footnote omitted] how many miles it may have covered, 10 or how many hours it may have consumed. [footnote omitted] By so interpreting the statutory phrase, the Commissioner has achieved not only ease and certainty of application, but also substantial fairness, for the sleep or rest rule places all one-day travelers on a similar tax footing, rather than discriminating against intracity travelers and commuters, who, of course, cannot deduct the cost of the meals they eat on the road. SeeCommissioner v. Flowers, 326 U.S. 465.
Any rule in this area must make some rather arbitrary distinctions [footnote omitted], but at least the sleep or rest rule avoids the obvious inequity of permitting the New Yorker who makes a quick trip to Washington and back, missing neither his breakfast nor his dinner at home, to deduct the cost of his lunch merely because he covers more miles than the salesman who travels locally and must finance all his meals without the help of the Federal Treasury. [footnote omitted] And the Commissioner’s rule surely makes more sense than one which would allow the respondent in this case to deduct the cost of his breakfast and lunch simply because he spends a greater percentage of his time at the wheel than the commuter who eats breakfast on his way to work and lunch a block from his office.
The Court of Appeals nonetheless found in the “plain language of the statute” an insuperable obstacle to the Commissioner’s construction. We disagree. The language of the statute – “meals and lodging ... away from home” – is obviously not self-defining. [footnote omitted] And to the extent that the words chosen by Congress cut in either direction, they tend to support, rather than defeat, the Commissioner’s position, for the statute speaks of “meals and lodging” as a unit, suggesting – at least arguably – that Congress contemplated a deduction for the cost of meals only where the travel in question involves lodging as well. [footnote omitted] Ordinarily, at least, only the taxpayer who finds it necessary to stop for sleep or rest incurs significantly higher living expenses as a direct result of his business travel, 11 and Congress might well have thought that only taxpayers in that category should be permitted to deduct their living expenses while on the road. 12 ...
Alternatives to the Commissioner’s sleep or rest rule are, of course, available. [footnote omitted] Improvements might be imagined. [footnote omitted] But we do not sit as a committee of revision to perfect the administration of the tax laws. Congress has delegated to the Commissioner, not to the courts, the task of prescribing “all needful rules and regulations for the enforcement” of the Internal Revenue Code. 26 U.S.C. § 7805(a). In this area of limitless factual variations, “it is the province of Congress and the Commissioner, not the courts, to make the appropriate adjustments.” Commissioner v. Stidger, 386 U.S. 287, 296. The role of the judiciary in cases of this sort begins and ends with assuring that the Commissioner’s regulations fall within his authority to implement the congressional mandate in some reasonable manner. Because the rule challenged here has not been shown deficient on that score, the Court of Appeals should have sustained its validity. The judgment is therefore
MR. JUSTICE MARSHALL took no part in the consideration or decision of this case.
MR. JUSTICE DOUGLAS, with whom MR. JUSTICE BLACK and MR. JUSTICE FORTAS concur, dissenting.
The statutory words “while away from home,” § 162(a)(2), may not, in my view, be shrunken to “overnight” by administrative construction or regulations. “Overnight” injects a time element in testing deductibility, while the statute speaks only in terms of geography. As stated by the Court of Appeals:
In an era of supersonic travel, the time factor is hardly relevant to the question of whether or not travel and meal expenses are related to the taxpayer’s business, and cannot be the basis of a valid regulation under the present statute.Correll v. United States, 369 F.2d 87, 89-90.
I would affirm the judgment below.
Notes and Questions:
1. Is this an appropriate area for a bright line rule that may unfairly “catch” some taxpayers?
2. Read the instruction that the federal district court gave to the jury (in a footnote). Does it seem that the standard resembles the standard that the Court later adopted for § 119?
3. Under § 162(a)(2), how strong must the nexus be between the meals and a business purpose? See the Court’s last footnote. Does your answer make the approach of the commissioner seem more reasonable?
4. Did the majority’s statement of the Commissioner’s rule require an “overnight” stay – as Justice Douglas claimed in his dissent?
6. F.M. Williams was a railroad conductor with more than forty years of service with the Atlanta and West Point Railroad and the Western Railway of Alabama. Every other day Williams got up shortly after five in the morning, left his house in Montgomery, Alabama, in time to arrive at the railroad station about 6:45 a.m., attended to duties at the station, left Montgomery on the Crescent at 7:40 a.m., arrived in Atlanta, Georgia, at 12:15 p.m., took six hours off, returned to duty in time to leave Atlanta at 6:15 p.m. on the Piedmont, pulled in to Montgomery at 10:15 p.m., left the Piedmont, and reached home about midnight. It is a long, hard day. The railroad never ordered Williams to rent a room in Atlanta, nor required him to sleep during the layover period. For years, however, because he felt he needed sleep and rest in Atlanta before his return run, Williams rented a reasonably priced room in the Gordon Hotel, a small hotel near the railroad station. At the hotel he had lunch and dinner, rested and slept, bathed and freshened up before boarding the Piedmont. He had the same room for eight years. His superiors knew that he could always be reached in Atlanta at the Gordon Hotel; taxpayer was subject to call at all times. In 1955 Captain Williams incurred expenses of $796 for meals, lodging, and tips at the Gordon Hotel during his layover in Atlanta.
- Should Williams be permitted to deduct the expenses that he incurred at the Gordon Hotel?
- What issues (sub-issues) do these facts raise?
- SeeWilliams v. Patterson, 286 F.2d 333 (5th Cir. 1961).
4a. Taxpayer B was a ferryboat captain. He worked in the Puget Sound area of Washington State. During the summer months, he typically worked 18-hour days for seven consecutive days. Then he would have seven consecutive days off. His schedule was the same in the winter, except that he would typically captain a ship from Seattle to Victoria. The return voyage would be six hours later. During the six-hour layover, he would take a nap on a cot provided by his employer. He would also purchase one or two meals.
- Should taxpayer B be permitted to deduct the cost of his meals?
- SeeBissonnette v. Commissioner, 127 T.C. 124 (2006).
Hantzis v. Commissioner, 638 F.2d 248 (1st Cir.), cert. denied, 452 U.S. 962 (1981)
LEVIN H. CAMPBELL, Circuit Judge.
The Commissioner of Internal Revenue (Commissioner) appeals a decision of the United States Tax Court that allowed a deduction under § 162(a)(2) (1976) for expenses incurred by a law student in the course of her summer employment. ...
In the fall of 1973 Catharine Hantzis (taxpayer), formerly a candidate for an advanced degree in philosophy at the University of California at Berkeley, entered Harvard Law School in Cambridge, Massachusetts, as a full-time student. During her second year of law school she sought unsuccessfully to obtain employment for the summer of 1975 with a Boston law firm. She did, however, find a job as a legal assistant with a law firm in New York City, where she worked for ten weeks beginning in June 1975. Her husband, then a member of the faculty of Northeastern University with a teaching schedule for that summer, remained in Boston and lived at the couple’s home there. At the time of the Tax Court’s decision in this case, Mr. and Mrs. Hantzis still resided in Boston.
On their joint income tax return for 1975, Mr. and Mrs. Hantzis reported the earnings from taxpayer’s summer employment ($3,750) and deducted the cost of transportation between Boston and New York, the cost of a small apartment rented by Mrs. Hantzis in New York and the cost of her meals in New York ($3,204). The deductions were taken under § 162(a)(2), which provides:
“ § 162. Trade or business expenses
(a) In general. There shall be allowed as a deduction all the ordinary and necessary expenses paid or incurred during the taxable year in carrying on any trade or business, including
(2) traveling expenses (including amounts expended for meals and lodging other than amounts which are lavish or extravagant under the circumstances) while away from home in the pursuit of a trade or business ....”
The Commissioner disallowed the deduction on the ground that taxpayer’s home for purposes of § 162(a)(2) was her place of employment and the cost of traveling to and living in New York was therefore not “incurred ... while away from home.” The Commissioner also argued that the expenses were not incurred “in the pursuit of a trade or business.” Both positions were rejected by the Tax Court, which found that Boston was Mrs. Hantzis’ home because her employment in New York was only temporary and that her expenses in New York were “necessitated” by her employment there. The court thus held the expenses to be deductible under § 162(a)(2). [footnote omitted]
In asking this court to reverse the Tax Court’s allowance of the deduction, the Commissioner has contended that the expenses were not incurred “in the pursuit of a trade or business.” We do not accept this argument; nonetheless, we sustain the Commissioner and deny the deduction, on the basis that the expenses were not incurred “while away from home.”
Section 262 of the Code, declares that “except as otherwise provided in this chapter, no deductions shall be allowed for personal, living, or family expenses.” Section 162 provides less of an exception to this rule than it creates a separate category of deductible business expenses. This category manifests a fundamental principle of taxation: that a person’s taxable income should not include the cost of producing that income. [citation omitted]; Commissioner v. Flowers, 326 U.S. 465, 469 (1946); [citation omitted].
The test by which “personal” travel expenses subject to tax under § 262 are distinguished from those costs of travel necessarily incurred to generate income is embodied in the requirement that, to be deductible under § 162(a)(2), an expense must be “incurred ... in the pursuit of a trade or business.” In Flowers the Supreme Court read this phrase to mean that “(t)he exigencies of business rather than the personal conveniences and necessities of the traveler must be the motivating factors.” 326 U.S. at 474. 13 Of course, not every travel expense resulting from business exigencies rather than personal choice is deductible; an expense must also be “ordinary and necessary” and incurred “while away from home.” § 162(a)(2); Flowers, 326 U.S. at 470. But the latter limitations draw also upon the basic concept that only expenses necessitated by business, as opposed to personal, demands may be excluded from the calculation of taxable income.
With these fundamentals in mind, we proceed to ask whether the cost of taxpayer’s transportation to and from New York, and of her meals and lodging while in New York, was incurred “while away from home in the pursuit of a trade or business.”
The Commissioner has directed his argument at the meaning of “in pursuit of a trade or business.” He interprets this phrase as requiring that a deductible traveling expense be incurred under the demands of a trade or business which predates the expense, i.e., an “already existing” trade or business. [The court rejected the commissioner’s contention.]
In other contexts the phrase “in the pursuit of a trade or business” may permit the interpretation urged upon us by the Commissioner, 14 but to require under § 162(a)(2) that a travel expense be incurred in connection with a preexisting trade or business is neither necessary nor appropriate to effectuating the purpose behind the use of that phrase in the provision. Accordingly, we turn to the question whether, in the absence of the Commissioner’s proposed threshold limit on deductibility, the expenses at issue here satisfy the requirements of § 162(a)(2) as interpreted in Flowers v. Commissioner.
As already noted, Flowers construed § 162(a)(2) to mean that a traveling expense is deductible only if it is (1) reasonable and necessary, (2) incurred while away from home, and (3) necessitated by the exigencies of business. Because the Commissioner does not suggest that Mrs. Hantzis’ expenses were unreasonable or unnecessary, we may pass directly to the remaining requirements. Of these, we find dispositive the requirement that an expense be incurred while away from home. As we think Mrs. Hantzis’ expenses were not so incurred, we hold the deduction to be improper.
The meaning of the term “home” in the travel expense provision is far from clear. When Congress enacted the travel expense deduction now codified as § 162(a)(2), it apparently was unsure whether, to be deductible, an expense must be incurred away from a person’s residence or away from his principal place of business. [citation omitted] This ambiguity persists and courts, sometimes within a single circuit, have divided over the issue. CompareSix v. United States, 450 F.2d 66 (2d Cir. 1971) (home held to be residence) and Rosenspan v. United States, 438 F.2d 905 (2d Cir.), cert. denied, 404 U.S. 864 (1971) and Burns v. Gray, 287 F.2d 698 (6th Cir. 1961) and Wallace v. Commissioner, 144 F.2d 407 (9th Cir. 1944) with Markey v. Commissioner, 490 F.2d 1249 (6th Cir. 1974) (home held to be principal place of business) and Curtis v. Commissioner, 449 F.2d 225 (5th Cir. 1971) and Wills v. Commissioner, 411 F.2d 537 (9th Cir. 1969). 15 It has been suggested that these conflicting definitions are due to the enormous factual variety in the cases. [citations omitted]. We find this observation instructive, for if the cases that discuss the meaning of the term “home” in § 162(a)(2) are interpreted on the basis of their unique facts as well as the fundamental purposes of the travel expense provision, and not simply pinioned to one of two competing definitions of home, much of the seeming confusion and contradiction on this issue disappears and a functional definition of the term emerges.
We begin by recognizing that the location of a person’s home for purposes of § 162(a)(2) becomes problematic only when the person lives one place and works another. Where a taxpayer resides and works at a single location, he is always home, however defined; and where a taxpayer is constantly on the move due to his work, he is never “away” from home. (In the latter situation, it may be said either that he has no residence to be away from, or else that his residence is always at his place of employment. See Rev. Rul. 60-16.) However, in the present case, the need to determine “home” is plainly before us, since the taxpayer resided in Boston and worked, albeit briefly, in New York.
We think the critical step in defining “home” in these situations is to recognize that the “while away from home” requirement has to be construed in light of the further requirement that the expense be the result of business exigencies. The traveling expense deduction obviously is not intended to exclude from taxation every expense incurred by a taxpayer who, in the course of business, maintains two homes. Section 162(a)(2) seeks rather “to mitigate the burden of the taxpayer who, because of the exigencies of his trade or business, must maintain two places of abode and thereby incur additional and duplicate living expenses.” [citations omitted]. Consciously or unconsciously, courts have effectuated this policy in part through their interpretation of the term “home” in § 162(a)(2). Whether it is held in a particular decision that a taxpayer’s home is his residence or his principal place of business, the ultimate allowance or disallowance of a deduction is a function of the court’s assessment of the reason for a taxpayer’s maintenance of two homes. If the reason is perceived to be personal, the taxpayer’s home will generally be held to be his place of employment rather than his residence and the deduction will be denied. [citations omitted]. If the reason is felt to be business exigencies, the person’s home will usually be held to be his residence and the deduction will be allowed. See, e.g., Frederick v. United States, 603 F.2d 1292 (8th Cir. 1979); [citations omitted]. We understand the concern of the concurrence that such an operational interpretation of the term “home” is somewhat technical and perhaps untidy, in that it will not always afford bright line answers, but we doubt the ability of either the Commissioner or the courts to invent an unyielding formula that will make sense in all cases. The line between personal and business expenses winds through infinite factual permutations; effectuation of the travel expense provision requires that any principle of decision be flexible and sensitive to statutory policy.
Construing in the manner just described the requirement that an expense be incurred “while away from home,” we do not believe this requirement was satisfied in this case. Mrs. Hantzis’ trade or business did not require that she maintain a home in Boston as well as one in New York. Though she returned to Boston at various times during the period of her employment in New York, her visits were all for personal reasons. It is not contended that she had a business connection in Boston that necessitated her keeping a home there; no professional interest was served by maintenance of the Boston home as would have been the case, for example, if Mrs. Hantzis had been a lawyer based in Boston with a New York client whom she was temporarily serving. The home in Boston was kept up for reasons involving Mr. Hantzis, but those reasons cannot substitute for a showing by Mrs. Hantzis that the exigencies of her trade or business required her to maintain two homes. 16 Mrs. Hantzis’ decision to keep two homes must be seen as a choice dictated by personal, albeit wholly reasonable, considerations and not a business or occupational necessity. We therefore hold that her home for purposes of § 162(a)(2) was New York and that the expenses at issue in this case were not incurred “while away from home.” 17
We are not dissuaded from this conclusion by the temporary nature of Mrs. Hantzis’ employment in New York. Mrs. Hantzis argues that the brevity of her stay in New York excepts her from the business exigencies requirement of § 162(a)(2) under a doctrine supposedly enunciated by the Supreme Court in Peurifoy v. Commissioner, 358 U.S. 59 (1958) (per curiam). 18 The Tax Court here held that Boston was the taxpayer’s home because it would have been unreasonable for her to move her residence to New York for only ten weeks. At first glance these contentions may seem to find support in the court decisions holding that, when a taxpayer works for a limited time away from his usual home, § 162(a)(2) allows a deduction for the expense of maintaining a second home so long as the employment is “temporary” and not “indefinite” or “permanent.” [citations omitted]. This test is an elaboration of the requirements under § 162(a)(2) that an expense be incurred due to business exigencies and while away from home. Thus it has been said,
Where a taxpayer reasonably expects to be employed in a location for a substantial or indefinite period of time, the reasonable inference is that his choice of a residence is a personal decision, unrelated to any business necessity. Thus, it is irrelevant how far he travels to work. The normal expectation, however, is that the taxpayer will choose to live near his place of employment. Consequently, when a taxpayer reasonable (sic) expects to be employed in a location for only a short or temporary period of time and travels a considerable distance to the location from his residence, it is unreasonable to assume that his choice of a residence is dictated by personal convenience. The reasonable inference is that he is temporarily making these travels because of a business necessity.
Frederick, supra, 603 F.2d at 1294-95 (citations omitted).
The temporary employment doctrine does not, however, purport to eliminate any requirement that continued maintenance of a first home have a business justification. We think the rule has no application where the taxpayer has no business connection with his usual place of residence. If no business exigency dictates the location of the taxpayer’s usual residence, then the mere fact of his taking temporary employment elsewhere cannot supply a compelling business reason for continuing to maintain that residence. Only a taxpayer who lives one place, works another and has business ties to both is in the ambiguous situation that the temporary employment doctrine is designed to resolve. In such circumstances, unless his employment away from his usual home is temporary, a court can reasonably assume that the taxpayer has abandoned his business ties to that location and is left with only personal reasons for maintaining a residence there. Where only personal needs require that a travel expense be incurred, however, a taxpayer’s home is defined so as to leave the expense subject to taxation. Seesupra. Thus, a taxpayer who pursues temporary employment away from the location of his usual residence, but has no business connection with that location, is not “away from home” for purposes of § 162(a)(2). [citations omitted].
On this reasoning, the temporary nature of Mrs. Hantzis’ employment in New York does not affect the outcome of her case. She had no business ties to Boston that would bring her within the temporary employment doctrine. By this holding, we do not adopt a rule that “home” in § 162(a)(2) is the equivalent of a taxpayer’s place of business. Nor do we mean to imply that a taxpayer has a “home” for tax purposes only if he is already engaged in a trade or business at a particular location. Though both rules are alluringly determinate, we have already discussed why they offer inadequate expressions of the purposes behind the travel expense deduction. We hold merely that for a taxpayer in Mrs. Hantzis’ circumstances to be “away from home in the pursuit of a trade or business,” she must establish the existence of some sort of business relation both to the location she claims as “home” and to the location of her temporary employment sufficient to support a finding that her duplicative expenses are necessitated by business exigencies. This, we believe, is the meaning of the statement in Flowers that “(b)usiness trips are to be identified in relation to business demands and the traveler’s business headquarters.” 326 U.S. at 474 254 (emphasis added). On the uncontested facts before us, Mrs. Hantzis had no business relation to Boston; we therefore leave to cases in which the issue is squarely presented the task of elaborating what relation to a place is required under § 162(a)(2) for duplicative living expenses to be deductible.
KEETON, District Judge, concurring in the result.
Although I agree with the result reached in the court’s opinion, and with much of its underlying analysis, I write separately because I cannot join in the court’s determination that New York was the taxpayer’s home for purposes of § 162(a)(2). In so holding, the court adopts a definition of “home” that differs from the ordinary meaning of the term and therefore unduly risks causing confusion and misinterpretation of the important principle articulated in this case.
In adopting § 162(a)(2), Congress sought “to mitigate the burden of the taxpayer who, because of the exigencies of his trade or business, must maintain two places of abode and thereby incur additional and duplicate living expenses.” [citations omitted]. In the present case, the taxpayer does not contend that she maintained her residence in Boston for business reasons. Before working in New York, she had attended school near her home in Boston, and she continued to do so after she finished her summer job. In addition, her husband lived and worked in Boston. Thus, on the facts in this case, I am in agreement with the court that the taxpayer’s deductions must be disallowed because she was not required by her trade or business to maintain both places of residence. However rather than resting its conclusion on an interpretation of the language of § 162(a)(2) taken as a whole, which allows a deduction for ordinary and necessary expenses incurred “while away from home in the pursuit of trade or business,” the court reaches the same result by incorporating the concept of business-related residence into the definition of “home,” thereby producing sometimes, but not always, a meaning of “home” quite different from ordinary usage.
... I read the opinion as indicating that in a dual residence case, the Commissioner must determine whether the exigencies of the taxpayer’s trade or business require her to maintain both residences. If so, the Commissioner must decide that the taxpayer’s principal residence is her “home” and must conclude that expenses associated with the secondary residence were incurred “while away from home,” and are deductible. If not, as in the instant case, the Commissioner must find that the taxpayer’s principal place of business is her “home” and must conclude that the expenses in question were not incurred “while away from home.” The conclusory nature of these determinations as to which residence is her “home” reveals the potentially confusing effect of adopting an extraordinary definition of “home.”
A word used in a statute can mean, among the cognoscenti, whatever authoritative sources define it to mean. Nevertheless, it is a distinct disadvantage of a body of law that it can be understood only by those who are expert in its terminology. Moreover, needless risks of misunderstanding and confusion arise, not only among members of the public but also among professionals who must interpret and apply a statute in their day-to-day work, when a word is given an extraordinary meaning that is contrary to its everyday usage.
The result reached by the court can easily be expressed while also giving “home” its ordinary meaning, and neither Congress nor the Supreme Court has directed that “home” be given an extraordinary meaning in the present context. SeeFlowers, supra, Stidger, supra, and Peurifoy, supra. In Rosenspan v. United States, supra, Judge Friendly, writing for the court, rejected the Commissioner’s proposed definition of home as the taxpayer’s business headquarters, concluding that in § 162(a)(2) “‘home’ means ‘home.’” Id. at 912.
When Congress uses a non-technical word in a tax statute, presumably it wants administrators and courts to read it in the way that ordinary people would understand, and not “to draw on some unexpressed spirit outside the bounds of the normal meaning of words.” Addison v. Holly Hill Fruit Prods., Inc., 322 U.S. 607, 617 (1944).
Id. at 911. [citation omitted].
In analyzing dual residence cases, the court’s opinion advances compelling reasons that the first step must be to determine whether the taxpayer has business as opposed to purely personal reasons for maintaining both residences. This must be done in order to determine whether the expenses of maintaining a second residence were, “necessitated by business, as opposed to personal, demands,” and were in this sense incurred by the taxpayer “while away from home in pursuit of trade or business.” Necessarily implicit in this proposition is a more limited corollary that is sufficient to decide the present case: When the taxpayer has a business relationship to only one location, no traveling expenses the taxpayer incurs are “necessitated by business, as opposed to personal demands,” regardless of how many residences the taxpayer has, where they are located, or which one is “home.”
In the present case, although the taxpayer argues that her employment required her to reside in New York, that contention is insufficient to compel a determination that it was the nature of her trade or business that required her to incur the additional expense of maintaining a second residence, the burden that § 162(a)(2) was intended to mitigate. Her expenses associated with maintaining her New York residence arose from personal interests that led her to maintain two residences rather than a single residence close to her work. 19 While traveling from her principal residence to a second place of residence closer to her business, even though “away from home,” she was not “away from home in pursuit of business.” Thus, the expenses at issue in this case were not incurred by the taxpayer “while away from home in pursuit of trade or business.”
In the contrasting case in which a taxpayer has established that both residences were maintained for business reasons, § 162(a)(2) allows the deduction of expenses associated with travel to, and maintenance of, one of the residences if they are incurred for business reasons and that abode is not the taxpayer’s home. A common sense meaning of “home” works well to achieve the purpose of this provision.
In summary, the court announces a sound principle that, in dual residence cases, deductibility of traveling expenses depends upon a showing that both residences were maintained for business reasons. If that principle is understood to be derived from the language of § 162(a)(2) taken as a whole, “home” retains operative significance for determining which of the business-related residences is the one the expense of which can be treated as deductible. In this context, “home” should be given its ordinary meaning to allow a deduction only for expenses relating to an abode that is not the taxpayer’s principal place of residence. On the undisputed facts in this case, the Tax Court found that Boston was the taxpayer’s “home” in the everyday sense, i.e., her principal place of residence. Were the issue relevant to disposition of the case, I would uphold the Tax Court’s quite reasonable determination on the evidence before it. However, because the taxpayer had no business reason for maintaining both residences, her deduction for expenses associated with maintaining a second residence closer than her principal residence to her place of employment must be disallowed without regard to which of her two residences was her “home” under § 162(a)(2).
Notes and Questions:
1. Obviously, the meaning of “home” is not to be determined by the ordinary use of the term.
2. Does the court’s opinion conflate the second and third requirements of Flowers?
3. On which of the Flowers requirements does Judge Keeton rely to deny taxpayers a deduction?
4. Taxpayer owned and operated a very successful swimming pool construction business in Lynnfield, Massachusetts. He also owned and operated a very successful horse breeding and racing business in Lighthouse Point, Florida. From November through April, he resided in Florida. From May through October, he resided in Massachusetts. Taxpayer owned a home in both Florida and Massachusetts and traveled between them in order to tend to his businesses.
- Does Taxpayer have two tax homes so that he may deduct the travel expenses associated with neither of them?
- What guidance do the opinions in Hantzis offer in answering this question?
- SeeAndrews v. Commissioner, 931 F.2d 132 (1St Cir. 1991) (“major” post of duty; “minor” post of duty).
4a. For the past five years, Taxpayers (Mr. and Mrs. Chwalow) have maintained a residence in Bala Cynwyd, Pennsylvania. Mrs. Chwalow is a teacher in the Philadelphia public school system and specializes in working with deaf children. Dr. Chwalow is a physicist whose specialty is military optics and electrooptics encompassing areas such as night vision, laser range finding, missile guidance, aerial reconnaissance, etc. Dr. Chwalow works for IBM in Washington, D.C., where he rents an apartment. He uses public transportation to get to his job. Mrs. Chwalow continues to live in Bala Cynwyd, Pennsylvania.
- May either Mr. or Mrs. Chwalow deduct meal and lodging expenses as “travel expenses” under § 162(a)(2)?
- SeeChwalow v. Commissioner, 470 F.2d 475 (3rd Cir. 1972).
4b. Taxpayer Dews was a coach on the staff of the Atlanta Braves baseball team. He and his wife lived in Albany, Georgia. In the course of over 20 years in professional baseball, Dews had 37 different assignments, including as a manager of farm teams in the Atlanta organization. During one 4-year period, he was a coach for the Atlanta team. He maintained an apartment in Atlanta.
- May Dews deduct the expenses of traveling between Albany and Atlanta? May he deduct the expenses of living in Atlanta?
- SeeDews v. Commissioner, T.C. Memo. 1987-353, available at 1987 WL 40405.
5. Read the second sentence of the carryout paragraph that ends § 162(a). It refers to § 162(a)(2). Also read § 274(m)(3). Then do the following CALI Lesson: Basic Federal Income Taxation: Deductions: Traveling Expenses.