Frankel v. Commissioner , 82 T.C. 318 ( 1984 )

Dawson, Chief Judge,

dissenting: Based upon both the doctrine of judicial restraint and the merits of this case, I respectfully dissent.

We have previously acknowledged that adherence to the doctrine of stare decisis is important because of the need for continuity in the law and for satisfaction of taxpayers’ reasonable expectations. Sylvan v. Commissioner, 65 T.C. 548, 555 (1975), citing Helvering v. Haddock, 309 U.S. 106, 119 (1940). See Alex v. Commissioner, 70 T.C. 322 (1978), affd. 628 F.2d 1222 (9th Cir. 1980). While I do not suggest that we are unable to overrule our holding in Green v. Commissioner, 78 T.C. 428 (1982), revd. 707 F.2d 404 (9th Cir. 1983),¹ I disagree with the majority’s quick willingness to do so.

The facts of Green are similar to those in this case, except that petitioners may be even more favorably situated than the taxpayers were in Green.² However, the majority waste no time in premising their present opinion on the same arguments we rejected in Green in 1982. After today’s opinion, will taxpayers preparing 1983 returns take a position consistent with Green in the hope that the next time we consider this issue, and the judicial winds fill our interpretive sails with sufficient "higher wisdom,”³ we will once again reverse course? If such be the case, I choose to steer a more consistent course. I think it does harm to the integrity of our decisional process in cases such as this to so quickly reverse ourselves, as the majority have done. The Ninth Circuit’s opinion in Green is based upon nothing more than what we fully and recently considered.⁴ To justify changing our holding now strikes me as requiring stronger reasons.

Notwithstanding the above, I agree with our rationale in Green, and I would hold for petitioners on this issue. Mr. Frankel clearly "meets” four of the six criteria listed by the majority as necessary for qualification under section 280A(c)(l)(B). The only remaining question is whether the home office is used by the Times’ clients or customers in meeting or dealing with Mr. Frankel.⁵

The majority follow the Ninth Circuit’s opinion in Green in holding that the petitioners do not meet the statutory requirement. Yet the majority seem to think that the Court of Appeals’ review of the legislative history to section 280A is inexact. The Ninth Circuit summarizes its view as follows:

We conclude that Congress intended section 280A(cXlXB) to apply to offices actually visited by taxpayer clients. It is far more likely that a taxpayer who expects regular client visits will sustain expenses in making the home suitable for business use. Green, on the other hand, has never asserted that he sustained major expense in setting aside a room for phone calls. Allowing a deduction here would ignore Congress’s goal of tying deductions to expenses. [707 F.2d at 407; emphasis supplied.]

The majority admit, however, that Mr. Frankel’s expenses were significant and then state that "If 'substantial expense’ were all that were involved in the case before us, the petitioners would be safely home, because without doubt, the [use] by petitioners * * * entailed substantial expense.”⁶ Nevertheless, the majority do not thereafter enlighten us as to what the Ninth Circuit meant by the above quote.

Congress enacted section 280A for two reasons: (1) To prohibit business deductions for personal, living, and family expenses where, there are little or no incremental costs associated with the business of the home; and (2) to provide objective standards for determining the allowability of a deduction for the business use of the home. See Green v. Commissioner, 78 T.C. at 431, 434-435.

Congress’ first objective was satisfied by the "exclusive use” and "regular basis” tests. Hence, no deduction is allowed for costs associated with that portion of a dwelling unit used for personal as well as business purposes,⁷ such as the costs incurred by a lawyer entertaining clients in his living room.

The three requirements of subsection 280A(c)(l)(A), (B), and (C) were directed at Congress’ goal of providing objective standards to replace our prior subjective "appropriate and helpful” standard under section 162(a). See Green v. Commissioner, 78 T.C. at 431. Merely incurring substantial expenses (and thus meeting Congress’ first objective) is not sufficient, by itself, , to qualify for a home office deduction. One must also meet the objective standards, which are not necessarily aimed at substantiality. Therefore, I do not agree with the Ninth Circuit’s interpretation of the legislative history.

We must turn then to the Court of Appeals’ other rationale: the "plain” language of the subsection allows a deduction for a home office only when actually visited by the taxpayer’s clients. The majority adopt this statement that subsection 280A(c)(l)(B) requires that "the office be used by clients as a place of business for meeting or dealing with the taxpayer. Ordinarily, one cannot use a room unless one has physical contact with it.”⁸

The majority opinion seems to focus here not on whether the clients were "dealing” with Mr. Frankel, but rather on whether the home office was used by the clients.⁹ In Green we considered the entire phrase "used by patients, clients, or customers in meeting or dealing,” and I see no reason why the majority now should change its meaning. Even focusing solely on the proper interpretation of "use,” as stated in Green, I think the "used by clients” requirement is satisfied when the client initiates the call.¹⁰ There is no requirement of "physical contact” in the statute or legislative history.

The only other case dealing with the issue of whether telephonic communication satisfies the statutory requirements is the Sixth Circuit’s decision in Cousino v. Commissioner, supra. In my judgment, Cousino provides weak support for the majority’s view. We decided that case in a Memorandum Opinion before we fully addressed the issue in Green. The Sixth Circuit summarily affirmed without oral argument. Moreover, the Court of Appeals based its affirmance on the following:

Given these uncontroverted facts, it is apparent that the petitioner is not entitled to a deduction under 26 U.S.C. sec. 280A(c)(l)(A), (B) or (C) because petitioner has not established that he uses the home office for the convenience of the school. [679 F.2d at 604; emphasis supplied.]

Thus, since the taxpayer in Cousino failed to meet the fundamental requirement contained in the flush language of section 280A(c)(l), that Circuit Court’s statements regarding the requirements of subsection 280A(c)(l)(B) were unnecessary and superfluous.¹¹ That being the case, Cousino provides weak support for departing from our opinion in Green. In my view, Mr. Frankel has met the six factors set out on page 437 of our Green opinion. As long as these six factors, which express both the letter and spirit of congressional intent, are present, I think the home office deduction should be allowed. The rationale of the majority opinion herein does not convince me otherwise.

Fay, Sterrett, Goffe, Kórner, and Swift, JJ., agree with this dissent.

1 “The reversal by a Circuit Court of Appeals provides such an opportunity. See, e.g., Rowan v. Commissioner, 22 T.C. 865 (1954).

2 “The Frankels used their home office much more extensively on a regular basis than did the taxpayers in Green.

3 See majority opinion at p. 323.

4 The majority purport to also follow Cousino v. Commissioner, 679 F.2d 604 (6th Cir. 1982), affg. a Memorandum Opinion of this Court, as being consistent with the Ninth Circuit’s decision in Green. I would not give such weight to Cousino. See discussion infra.

5 “The majority appear misled as to what is the main question before us. On page 326 of the majority opinion, it is stated that the question is one of whether the telephonic contacts satisfy the "meeting or dealing” requirement of subsec. 280A(cXlXB). They then separate this issue into whether petitioners have met two requirements whereby "meeting or dealing” is one of these requirements to determine whether the Frankels were "meeting or dealing.” The majority then focus solely on the "use” requirement of subsec. 280A(cXlXB) in reaching their decision. This treatment of the single statutory phrase "used by patients, clients, or customers in meeting or dealing” is, to say the least, confiising.

6 “Majority opinion at p. 328.

7 See s. Rept. 94-938 (1976), 1976-3 C.B. (Vol. 3) 49,186; H. Rept. 94-658, (1976), 1976-3 C.B. (Vol. 2) 695, 853. See also sec. 1.280A-2(c) and (g), Proposed Regs.

8 “Majority opinion at pp. 328-329 (second emphasis supplied).

9 “Majority opinion at pp. 323, 326, 328,329. See note 5 supra. If this case turns solely on whether the calls constitute "dealing,” the majority have resolved the issue:

"In the case before us, clients could just as easily have dealt with Mr. Frankel had Mr. Frankel spoken from his bedside or kitchen table * * *. Such dealing would not justify the home office expense deduction. [Majority opinion at 328; emphasis supplied.]”

Even forgiving the majority’s admission that receiving telephone calls from clients is "dealing,” their argument misses the mark. It is irrelevant how many calls are placed or received outside of the home office. The statute does not require that all of the business be transacted exclusively in the office but rather that all of the transactions in the office be exclusively business related.

10 Green v. Commissioner, 78 T.C. 431, 436 n. 11 (1982). See also the concurring opinion of Judge Sterrett therein.

11 In addition, the Sixth Circuit’s statement that there existed no case law whatsoever for the taxpayer’s position in Cousino is at least curious since our opinion in Green was filed months before the date of the Cousino decision.