David Wilbert v. CIR ( 2009 )

In the
United States Court of Appeals
For the Seventh Circuit
No. 08-2169
D AVID A. W ILBERT,
Petitioner-Appellant,
v.
C OMMISSIONER OF INTERNAL R EVENUE,
Respondent-Appellee.
Appeal from the United States Tax Court.
No. 29172-05—Diane L. Kroupa, Judge.
A RGUED D ECEMBER 10, 2008—D ECIDED JANUARY 21, 2009
Before P OSNER, K ANNE, and R OVNER, Circuit Judges.
P OSNER, Circuit Judge. The question presented by this
appeal is whether an employee who uses “bumping” rights
to avoid or postpone losing his job can deduct the
living expenses that he incurs when he finds himself
working far from home as a result of exercising those
rights. The Tax Court ruled against the taxpayer, T.C.
Memo 2007-152, 2007 WL 1713379, assessing a deficiency
of $4,380 in his income tax payments for 2003, and he
2 No. 08-2169
appeals. This is one of a number of largely identical cases
in the Tax Court, see, e.g., Wasik v. Commissioner, T.C.
Memo 2007-148, 2007 WL 1702689; Stephens v. Commis-
sioner, T.C. Summary Op. 2007-94, 2007 WL 1702612;
Stockwell v. Commissioner, T.C. Memo 2007-149, 2007 WL
1702608, all brought by mechanics formerly employed
by Northwest Airlines, like Wilbert, and all resolved
against the taxpayer. But this seems the first case to be
appealed.
Hired by Northwest in 1996, Wilbert worked for the
airline at the Minneapolis airport for some years. He
lived with his wife in Hudson, Wisconsin, across the
Mississippi River from Minneapolis. Hudson is a suburb
of Minneapolis, roughly 25 miles from the airport.
Facing financial pressures and a decline in airline
traffic in the wake of the terrorist attacks of September 11,
2001, Northwest laid off many employees, including, in
April 2003, Wilbert. But Northwest’s mechanics each
had a right to bump a more junior mechanic employed
by the airline, that is, to take his job. Wilbert was able
to bump a mechanic who worked for the airline in
Chicago, but he worked there for only a few days before
being bumped by a more senior mechanic. A few days
later he was able to bump a mechanic in Anchorage,
Alaska, and he worked there for three weeks before
being himself bumped. He was soon able to bump a
mechanic who worked in New York, at LaGuardia
Airport, but he worked there for only a week before he
was bumped again. At this point, he had exhausted his
bumping rights. But for reasons that the parties have not
No. 08-2169 3
explained, three weeks later the airline hired him back,
outside the bumping system, to fill an interim position
(maximum nine months) in Anchorage. He occupied that
position for several months before being laid off again,
this time for good. At no point in his hegira did he have
realistic prospects of resuming work for Northwest
in Minneapolis. He now lives in a Chicago suburb and
works for Federal Express at O’Hare Airport. He sells
real estate on the side (self-employed), as he did when
he lived in Minneapolis, but his income from his real
estate business there was only $2,000 in 2003, the relevant
tax year, and he did not actually receive the money (a
commission) until the following year.
He did not sell or rent his home in Hudson, where
his wife continued to live, while working intermittently
in 2003. Because he was working too far from home to be
able to live there, he incurred living expenses (amounting
to almost $20,000) that he would not have incurred had
he remained working in Minneapolis, and those are the
expenses he deducted from the taxable income shown
on his 2003 return.
The Internal Revenue Code allows the deduction, as
part of “the ordinary and necessary expenses . . . incurred
during the taxable year in carrying on any trade or busi-
ness,” of “traveling expenses . . . while [the taxpayer is]
away from home in the pursuit of a trade or business.” 26
U.S.C. § 162(a)(2) (emphasis added). There is an excep-
tion for “personal, living, or family expenses.” § 262(a).
The phrase we have italicized is critical. It is by an inter-
pretation of that phrase that commuting expenses are
4 No. 08-2169
disallowed because of “a natural reluctance . . . to
lighten the tax burden of people who have the good
fortune to interweave work with consumption. To allow a
deduction for commuting would confer a windfall on
people who live in the suburbs and commute to work in
the cities.” Moss v. Commissioner, 758 F.2d 211, 212 (7th
Cir. 1985). The length of the commute is thus irrelevant.
If Wilbert had had a permanent job in Anchorage but
decided to retain his home in Minneapolis and return there
on weekends and during the week live in a truck stop
in Wasilla, Alaska, he could not have deducted from his
taxable income the expense of traveling to and fro
between Minnesota and Alaska or his room and board in
Wasilla. (We ignore for the moment the possibility that
Mrs. Wilbert had a job in Minneapolis, and if so its rele-
vance.)
Similarly, he could not have deducted his traveling
expenses if he had had no home separate from the places
he traveled to—if he had been, in the language of the cases,
an “itinerant” worker, for then he would never have been
“away from home” on his travels. E.g., Fisher v. Commis-
sioner, 230 F.2d 79 (7th Cir. 1956); Henderson v. Commis-
sioner, 143 F.3d 497 (9th Cir. 1998); Deamer v. Commissioner,
752 F.2d 337 (8th Cir. 1985) (per curiam). He would have
been like someone whose only residence is a recreational
vehicle, or a truck driver who lives in the cab of his truck,
or the taxpayer in the Fisher case—“an itinerant profes-
sional musician, [who] traveled from city to city perform-
ing, solo, in various hotel dining rooms and cocktail
lounges. These engagements varied in duration from
three to four weeks, or as long as seven or eight months.
No. 08-2169 5
His wife and child traveled and lived with taxpayer
wherever he was situated.” 230 F.2d at 80.
With our hypothetical Wilbert the long-distance com-
muter, compare a lawyer whose home and office are
both in Minneapolis but who has an international
practice and as a result spends more time on the road
than he does at home. Nevertheless he can deduct his
traveling expenses. His work requires him to maintain a
home within normal commuting distance of Minneapolis
because that is where his office is, but his work also
requires him to travel, and the expenses he incurs in
traveling are necessary to his work and he cannot offset
them by relocating his residence to the places to which
he travels because he has to maintain a home near his
office. And likewise if, as in Andrews v. Commissioner, 931
F.2d 132 (1st Cir. 1991), the taxpayer has to make
such frequent trips to a particular site that it is more
economical for him to rent or buy a second residence, at
that site, than to live there in a hotel.
Wilbert’s case falls in between our two hypothetical
cases. Unlike the lawyer, he did not have to live near
Minneapolis after the initial layoff because he had no
work there (ignoring for the moment his real estate busi-
ness). But unlike the imaginary Wilbert who has a perma-
nent job in Alaska and so could readily relocate his
home there, the real Wilbert had jobs of indefinite, unpre-
dictable duration in Alaska (and Chicago, and New York).
It would hardly have been realistic to expect him to pull
up stakes and move to Anchorage and then to Chicago
and then to New York and then back to Anchorage.
6 No. 08-2169
Remember that his first stint after the initial layoff
lasted only days, his second only weeks, and the third
only one week. His situation was unlike that of the em-
ployee of a New York firm who, if he chooses to live in
Scarsdale rather than on Fifth Avenue, is forbidden to
deduct from his taxable income the commuting expense
that he incurs by virtue of his choice; it is a personal
choice—suburban over urban living—rather than
anything necessitated by his job.
The Tax Court, with some judicial support, has tried to
resolve cases such as this by asking whether the tax-
payer’s work away from home is “temporary” or “indefi-
nite,” and allowing the deduction of traveling expenses
only if it is the former. E.g., Peurifoy v. Commissioner, 358
U.S. 59 (1958) (per curiam); Kasun v. United States, 671
F.2d 1059 (7th Cir. 1982); Michael D. Rose & John C.
Chommie, Federal Income Taxation § 3.10, pp. 117-20 (3d ed.
1988). The Internal Revenue Code does not explicitly
adopt the distinction, but does provide (with an immate-
rial exception) that “the taxpayer shall not be treated as
being temporarily away from home during any period
of employment if such period exceeds 1 year.” 26 U.S.C.
§ 162(a).
The problem with the Tax Court’s distinction is that
work can be, and usually is, both temporary and indefinite,
as in our lawyer example. A lawsuit he is trying in
London might settle on the second day, or last a month;
his sojourn away from his office will therefore be both
temporary and indefinite. Indeed all work is indefinite
and much “permanent” work is really temporary. An
No. 08-2169 7
academic lawyer might accept a five-year appointment
as an assistant professor with every expectation of ob-
taining tenure at the end of that period at that or another
law school; yet one would not describe him as a “tempo-
rary” employee even if he left after six months and
thus was not barred from claiming temporary status by
the one-year rule. Our imaginary Wilbert who has a
permanent job in Anchorage but is reluctant to move
there from Minneapolis might argue (at least until he
had worked a year, the statutory cutoff for “temporary”
work) that no job is “permanent”—he might be fired, or
he might harbor realistic hopes of getting a better job
back in Minneapolis. That possibility would not permit
him to deduct the expense of commuting from
Minnesota to Alaska.
So “temporary versus indefinite” does not work well as
a test of deductibility and neither does “personal choice
versus reasonable response to the employment situation,”
tempting as the latter formula is because of its realism.
If no reasonable person would relocate to his new place
of work because of uncertainty about the duration of
the new job, his choice to stay where he is, unlike a
choice to commute from a suburb to the city in which
one’s office is located rather than live in the city, is not
an optional personal choice like deciding to stay at a
Four Seasons or a Ritz Carlton, but a choice forced by
circumstances. Wilbert when first notified that he was
being laid off could foresee a series of temporary jobs all
across the country and not even limited, as we know, to
the lower 48 states, and the costs of moving his home to
the location of each temporary job would have been
8 No. 08-2169
prohibitive. It would have meant moving four times in
one year on a mechanic’s salary to cities hundreds or (in
the case of Anchorage versus Minneapolis, Chicago, or
New York) thousands of miles apart.
The problem with a test that focuses on the reasonable-
ness of the taxpayer’s decision not to move is that it
is bound to prove nebulous in application. For it just
asks the taxpayer to give a good reason for not moving
his home when he gets a job in a different place, and if
he gave a good reason then his traveling expenses
would be deductible as the product of a reasonable balanc-
ing of personal and business considerations. In the oft-
cited case of Hantzis v. Commissioner, 638 F.2d 248 (1st
Cir. 1981), the question was whether a law student who
lived in Boston with her husband during the school year
could deduct her traveling expenses when she took a
summer job in New York. Given the temporary nature
of the job, it made perfectly good sense for her to retain
her home in Boston and just camp out, as it were, in
New York. What persuaded the court to reject the deduc-
tion was that she had no business reason to retain the
house in Boston. Id. at 255. Stated differently, she had no
business reason to be living in two places at once, id. at 256,
unlike the lawyer in our example. And so the expenses
she incurred living in New York could not be thought
“ordinary and necessary expenses . . . incurred . . . in
carrying on any trade or business.”
If this seems rather a mechanical reading of the statute,
it has the support not only of the influential precedent
of Hantzis but also of the even more influential precedent
No. 08-2169 9
of Commissioner v. Flowers, 326 U.S. 465, 474 (1946), where
the Supreme Court said that “the exigencies of business
rather than the personal conveniences and necessities
of the traveler must be the motivating factors” in the
decision to travel. The “business exigencies” rule, though
harsh, is supported by compelling considerations of
administrability. To apply a test of reasonableness the
Internal Revenue Service would first have to decide
whether the taxpayer should have moved to his new
place of work. This might require answering such ques-
tions as whether the schools in the area of his new job
were far worse than those his children currently attend,
whether his elderly parents live near his existing home
and require his attention, and whether his children
have psychological problems that make it difficult for
them to find new friends. Were it decided that it was
reasonable for the taxpayer to stay put, it would then
become necessary to determine whether the expenses he
incurred in traveling to and from his various places of
work for home visits had been reasonable—whether in
other words such commutes, in point of frequency, were
“ordinary and necessary” business expenses. The Internal
Revenue Service would have to establish norms of rea-
sonable home visits that presumably would vary with
such things as distance and how many of the taxpayer’s
children were living at home and how old they were.
We are sympathetic to Wilbert’s plight and recognize
the artificiality of supposing that, as the government
argues, he made merely a personal choice to “commute”
from Minneapolis to Anchorage, and Chicago, and New
10 No. 08-2169
York, as if Minneapolis were a suburb of those cities. But
the statutory language, the precedents, and the consider-
ations of administrability that we have emphasized
persuade us to reject the test of reasonableness. The
“temporary versus indefinite” test is no better, so we
fall back on the rule of Flowers and Hantzis that unless the
taxpayer has a business rather than a personal reason to
be living in two places he cannot deduct his traveling
expenses if he decides not to move. Indeed, Wilbert’s
situation is really no different from the common case of
the construction worker who works at different sites
throughout the country, never certain how long each stint
will last and reluctant therefore to relocate his home. The
construction worker loses, as must Wilbert. E.g., Yeats v.
Commissioner, 873 F.2d 1159 (8th Cir. 1989).
We might well have a different case if Wilbert had had
a firm, justified expectation of being restored to his job at
the Minneapolis airport within a short time of his initial
layoff. Suppose the airline had said to him, “We must lay
you off, but you will be able to bump a less senior em-
ployee in Anchorage for a few weeks, and we are
confident that by then, given your seniority, you will
be able to return to Minneapolis.” His situation would
then be comparable to that of a Minneapolis lawyer
ordered by his senior partner to spend the next month
trying a case in Anchorage. But that is not this case.
Wilbert has another string to his bow, however, arguing
that he had two businesses, not one, the other being the
sale of real estate, and that because that business was
centered in Minneapolis he had a business reason to live
No. 08-2169 11
near there. This would be a good argument if selling real
estate were his main business. Andrews v. Commissioner,
supra, 931 F.2d at 138; Ziporyn v. Commissioner, T.C. Memo
1997-151, 1997 WL 129359; Sherman v. Commissioner, 16 T.C.
332, 337 (1951); William A. Klein, Joseph Bankman &
Daniel N. Shaviro, Federal Income Taxation 465 (14th ed.
2006); 1 Boris I. Bittker & Lawrence Lokken, Federal Taxa-
tion of Income, Estates and Gifts ¶ 21.1.6, pp. 21-20 to 21-21
(3d ed. 1999). But obviously it is not, or at least was not
in 2003, when his total income (and in an accrual rather
than a cash sense) from selling real estate was only $2,000.
As explained in Andrews, “The guiding policy must be
that the taxpayer is reasonably expected to locate his
‘home,’ for tax purposes, at his ‘major post of duty’ so as
to minimize the amount of business travel away from
home that is required; a decision to do otherwise is moti-
vated not by business necessity but by personal consider-
ations, and should not give rise to greater business travel
deductions.” 931 F.2d at 138. If Wilbert had had to travel
back to Minneapolis from his new tax “homes” from time
to time in order to attend to his real estate business, the
travel expense (if the business was really the reason for
the travel home), and conceivably even some of his
living expenses at his home (his “secondary” home, in a
tax sense, since his primary home for tax purposes
would follow his work), might have been deductible, just
as his expenses for the office equipment that he pur-
chased in his real estate business were. 1 Bittker & Lokken,
supra, ¶ 21.1.6, p. 21-21; see Sherman v. Commissioner, supra.
But he does not argue for such a deduction.
12 No. 08-2169
For completeness we note that if Wilbert’s wife had a
business in Minneapolis, this would make it all the
more reasonable for Wilbert not to move away from
Minneapolis. But it would not permit him to deduct his
traveling expenses, because his decision to live with his
wife (if only on occasional weekends) would (setting
aside any considerations relating to his real estate side-
line) be a personal rather than a business decision. Hantzis
v. Commissioner, supra, 638 F.2d at 254 and n. 11 (“in this
respect, Mr. and Mrs. Hantzis’ situation is analogous to
cases involving spouses with careers in different loca-
tions. Each must independently satisfy the require-
ment that deductions taken for travel expenses incurred in
the pursuit of a trade or business arise while he or she is
away from home”); Chwalow v. Commissioner, 470 F.2d
475, 477-78 (3d Cir. 1972); 1 Bittker & Lokken, supra,
¶ 21.1.8, pp. 21-23 to 21-24; Rose & Chommie, supra,
§ 3.10, pp. 114-15.
The appeal presents some additional issues, but they
are adequately discussed in the Tax Court’s opinion.
A FFIRMED.
1-21-09