Michaels v. Commissioner , 53 T.C. 269 ( 1969 )

Emil J. Michaels and Delores E. Michaels, Petitioners v. Commissioner of Internal Revenue, Respondent

Michaels v. Commissioner

Docket No. 290-68

United States Tax Court

53 T.C. 269; 1969 U.S. Tax Ct. LEXIS 21;

November 18, 1969, Filed

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Decision will be entered under Rule 50.

Petitioner was employed by the Boeing Co. in Seattle, Wash. In June 1964 Boeing assigned petitioner to Los Angeles for what it told him would be a 1-year period. Petitioner moved his wife and three children to the Los Angeles area. In addition, he rented out his house in Seattle for a year and brought a portion of his furniture with him to the Los Angeles area. In March 1965 Boeing made Los Angeles petitioner's permanent station of employment. Held:

1. While he was in the Los Angeles area in 1964, petitioner was in temporary status and therefore "away from home"; accordingly, he was entitled to deduct meal and lodging expenses during that period under sec. 162(a)(2), I.R.C. 1954.

2. Automobile expenses claimed by petitioner in excess of amounts allowed by the Commissioner were not substantiated and are not deductible as ordinary and necessary business expenses.

Emil J. Michaels, pro se.

Michael Pargament, for the respondent.

Raum, Judge.

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RAUM

The Commissioner determined a deficiency of $ 582.33 in petitioners' income tax for 1964. Two questions are presented: (1) Whether certain expenditures made by petitioner, Emil J. Michaels, for meals and lodging during that year were made while he was "away from home" so as to be deductible as "traveling expenses * * * while away from home" within section 162(a)(2), I.R.C. 1954; and (2) whether petitioner established that his unreimbursed expenditures for the business use of his automobile exceeded the amount allowed as a deduction by the Commissioner.

FINDINGS OF FACT

The parties have stipulated certain facts, which, together with the attached exhibits, are incorporated herein by this reference.

Petitioners Emil J. and Delores E. Michaels, husband and wife, resided in Seattle, Wash., and Long Beach, Calif., in 1964. They have since separated and at the time of the trial herein they were living apart. At the time the petition in this case was filed, Emil resided in Los Angeles County, Calif., and Delores resided in Orange County, Calif. Petitioners filed a joint Federal income tax return for the year 1964 with the district director of internal revenue in Los Angeles, Calif. Delores E. Michaels is a party to this proceeding solely by virtue of the joint return filed for 1964, and the term "petitioner" will hereinafter refer exclusively to Emil J. Michaels.

As of the time of the trial herein, petitioner had been employed by the Boeing Co. (Boeing) since 1950. From 1959 until 1964 he was employed as a cost analyst in Seattle, Wash., and during that time he owned a house in Seattle in which he and his family resided. As a cost analyst, petitioner was required to travel to various locations throughout the United States to audit and analyze the records of Boeing's suppliers. Ordinarily, petitioner's wife and children remained in their Seattle home while he was away. Until June 1964, the longest period for which petitioner was required to be away from home was approximately 5 weeks.

Boeing had a great number of suppliers in the Los Angeles area. In order to eliminate many trips back and forth between Los Angeles and Seattle, Boeing asked petitioner in 1964 to go to Los Angeles for a longer period of time than he had previously been away from Seattle. He was told that he would be assigned to Los Angeles for approximately 1 year.

Petitioner rented out his home in Seattle for 1 year, and in June 1964 he, his wife, and three children traveled to Los Angeles by automobile. He rented a trailer for $ 125, removed a portion of the furniture from the house in Seattle (including a refrigerator, a kitchen table and chairs, most of the kitchen utensils, a davenport, chairs for the living room, two children's beds, and a chest of drawers), and brought it with them in the trailer to Los Angeles. The trip to Los Angeles took 4 days. During that time petitioner spent $ 50 per day for food and lodging for himself and his family.

During their first 25 days in the Los Angeles area, petitioner and his family stayed in a motel in Long Beach. They then rented an unfurnished house in Long Beach. They furnished the house with the furniture they had brought with them and with two beds which they purchased.

Until sometime in March 1965 Boeing treated petitioner's presence in the Los Angeles area as temporary only and regarded Seattle as his permanent station. In March 1965, Boeing informed petitioner that it wished to establish a permanent office for cost analysis in the Los Angeles area, and petitioner returned to Seattle to discuss the plan. He was awarded a promotion and told to return to Los Angeles on a permanent basis to hire and train employees to staff an office there. Shortly thereafter, petitioner purchased a house in the Los Angeles area, and Boeing had the rest of his furniture in Seattle shipped there. Petitioner sold his house in Seattle in January 1968.

In 1964 petitioner received $ 2,065.75 from Boeing to cover per diem living expenses in Long Beach. He spent no less than this amount for meals and lodging during that time.

During 1964 petitioner used two automobiles for business as well as for personal purposes, and he received $ 894.26 from Boeing as reimbursement for his automobile expenses. However, he kept no records which would establish the amount of business use.

In their joint Federal income tax return for 1964, petitioners did not include any part of the $ 2,065.75 per diem allowance in gross income. On an attached schedule, they listed $ 2,332.03 in automobile expenses incurred with respect to two cars. The expenses included depreciation, gas, oil and grease, repairs and maintenance, and insurance. From the $ 2,232.03 was subtracted the $ 894.26 reimbursement received from Boeing. Petitioners deducted the difference, $ 1,437.77, as "Employee business expense."

In his notice of deficiency, the Commissioner, in addition to other adjustments not here in issue added the $ 2,065.75 per diem allowance to petitioner's income and disallowed $ 1,070.20 of the $ 1,437.77 claimed as automobile expenses. In addition, the Commissioner allowed an unclaimed deduction of $ 250 for moving expenses.

The parties have agreed that if petitioner was "away from home" within the meaning of section 162(a)(2), I.R.C. 1954, while in Long Beach in 1964, the $ 2,065.75 received from Boeing will be offset by allowable deductions of the same amount, and no deduction for moving expenses will be allowable. If petitioner was not "away from home," the $ 2,065.75 will not be deductible, but $ 325 will be deductible as moving expenses.

OPINION

We turn first to the question of the deductibility of petitioner's expenditures for meals and lodging in the Los Angeles area in 1964.

Section 162(a)(2), I.R.C. 1954, allows a deduction for traveling expenses incurred "while away from home in the pursuit of a trade or business":

SEC. 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; * * *

In Commissioner v. Flowers, 326 U.S. 465">326 U.S. 465, 470, the Supreme Court declared:

Three conditions must * * * be satisfied before a traveling expense deduction may be made * * *:

(1) The expense must be a reasonable and necessary traveling expense * * *

(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. * * *

The parties have stipulated that petitioner's expenditures were "reasonable and necessary" to the extent of $ 2,065.75. Moreover, it is not disputed that the petitioner's expenses were "incurred in pursuit of business."

The Commissioner contends that petitioner was not "away from home." Because petitioner was assigned to the Los Angeles area for a "substantially long" or "indefinite" period, the Commissioner argues, Seattle was no longer his "home" after June 1964. Therefore, his argument concludes, petitioner's meal and lodging expenses are not deductible under section 162(a)(2) and are simply nondeductible personal expenses. We disagree.

We have consistently held that "home" in section 162(a)(2) means the taxpayer's principal place of employment. See, e.g., Rendell Owens, 50 T.C. 577">50 T.C. 577, 580; Ronald D. Kroll, 49 T.C. 557">49 T.C. 557, 561-562; Floyd Garlock, 34 T.C. 611">34 T.C. 611, 614; Mort L. Bixler, 5 B.T.A. 1181">5 B.T.A. 1181, 1184; cf. Commissioner v. Stidger, 386 U.S. 287">386 U.S. 287, 290-296. However, we have also recognized an exception to this rule: that the taxpayer's principal place of work is not his "home" for the purpose of section 162(a)(2) when his employment there is only "temporary," as distinguished from "indefinite" or "indeterminate." Compare Floyd Garlock, 34 T.C. 611">34 T.C. 611; James M. Eaves, 33 T.C. 938">33 T.C. 938; Kermit L. Claunch, 29 T.C. 1047">29 T.C. 1047, affirmed 264 F. 2d 309 (C.A. 5); with Alois Joseph Weidekamp, 29 T.C. 16">29 T.C. 16, acq. 2 C.B. 8">1958-2 C.B. 8; Harold R. Johnson, 17 T.C. 1261">17 T.C. 1261, acq. 1 C.B. 2">1952-1 C.B. 2; E. G. Leach, 12 TC. 20, acq. 1 C.B. 3">1949-1 C.B. 3. See also Peurifoy v. Commissioner, 358 U.S. 59">358 U.S. 59, 60.

When petitioner was assigned to the Los Angeles area, he was told that his assignment was for only 1 year. Furthermore, at the time he was assigned, Boeing did not have a permanent office for cost analysis in Los Angeles. Not until March 1965, when petitioner was recalled to Seattle, did petitioner have reason to know that his employment in Los Angeles was other than temporary. Moreover, petitioner's decision not to sell his house in Seattle and to leave some of his furniture there suggests to us that he believed that his stay in Los Angeles would be brief and that he would be returning to Seattle. A period of 1 year seems to us both sufficiently lengthy to explain petitioner's decision to bring his family to the Los Angeles area and sufficiently brief to justify his decision to retain his house in Seattle.

In Laurence P. Dowd, 37 T.C. 399">37 T.C. 399, 409-410, we allowed a deduction for meal and lodging expenses under somewhat similar circumstances. There, a taxpayer, who lived in a house in Seattle, received a so-called Fulbright grant to lecture for 10 months at a university in Japan. He rented out his house in Seattle and moved to Japan with his family. While in Japan, the taxpayer's grant was extended to include the following academic year. We held that his employment in Japan was temporary and allowed the deduction. We find Dowd controlling here.

There are, however, several cases, not urged upon us by the Commissioner which emphasize that section 162(a)(2) is designed "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." Ronald D. Kroll, 49 T.C. 557">49 T.C. 557, 562; see also Harvey v. Commissioner, 283 F.2d 491">283 F. 2d 491-495 (C.A. 9). As a result the opinion in one case has reasoned:

there is no duplication unless the taxpayer maintains an abode at which he incurs living expenses in addition to those which he incurs while traveling. And when duplication does exist, it constitutes a valid reason for attributing living expenses to business necessity only to the extent of the duplication. It follows that the Section 23(a)(1)(A) deduction of total expenditures for meals and lodging should be held to apply (so far as duplication is the justification) only when the taxpayer has a "home," the maintenance of which involves substantial continuing expenses which will be duplicated by the expenditures which the taxpayer must make when required to travel elsewhere for business purposes.

The second justification for treating the cost of meals and lodging on business trips as business expense is the assumption that food and shelter cost more while traveling. This justification also supports a reading of the Section as requiring maintenance of a substantial permanent abode at which taxpayer could live at a lesser expense if not required to travel. If a taxpayer has no such home, and obtains his food and shelter at public restaurants and lodgings even if not traveling, the increase in the cost of these items attributable to travel is at least substantially less. n7

For these reasons it has generally been held that the taxpayer cannot be "away from home" * * * unless he has a "home" * * *. And we think the better reasoned authority holds that a taxpayer has a "home" for this purpose only when it appears that he has incurred substantial continuing living expenses at a permanent place of residence. n9 [Footnotes omitted.]

James v. United States, 308 F.2d 204">308 F. 2d 204, 207-208 (C.A. 9); see also Leo M. Verner, 39 T.C. 749">39 T.C. 749; United States v. Mathews, 332 F. 2d 91 (C.A. 9).

James, Verner, and Mathews disallowed deductions for meal and lodging expenses where a taxpayer and his family moved to an abode in the vicinity of a new station of employment. In each case there was no determination that the taxpayer's new station was temporary rather than indefinite. Moreover, in none of them did the taxpayer continue to own or rent a dwelling in the locality which he claimed as his "home." As a result, the court in each case concluded, he had no "home" to be away from, and thus he did not incur the expense of maintaining two places of abode. However, in both Dowd and the case now before us, the taxpayer continued to own a house which he rented out during his absence.

In the context of this case, we find this distinction significant. The lease on the house in Seattle was for only 1 year. The petitioner left a portion of his own furniture in the house. As far as the taxpayer knew in 1964, he and his family would be returning to Seattle sometime in mid-1965. In this setting we regard retention of the house in Seattle as persuasive evidence of the taxpayer's intention to return to it in 1965. We find that he did have a "home" to which to return. Cf. Josette J. F. Verrier Friedman, 37 T.C. 539">37 T.C. 539, 558.

Nor do we find here that petitioner was able to avoid completely duplication of his living expenses. While it is true that he had rented his Seattle house, the return in evidence shows that the rent received was $ 875 as against $ 1,945.05 in expenses related thereto. Although the Commissioner disallowed $ 117.06 of the claimed $ 1,070.05 rental loss, there nevertheless remained a substantial loss of $ 952.99, which certainly suggests an added cost to petitioner's California living expenses. Moreover, while the absence of duplicated living expenses is an important factor to be considered, we think it should not be determinative of the question of deductibility, cf. Irving M. Sapson, 49 T.C. 636">49 T.C. 636, 644; Curtis Leon Ralston, 27 T.C.M. (CCH) 1312">27 T.C.M. 1312, 1314, particularly where, as here, absence of added expenses is overshadowed by the temporary nature of petitioner's initial assignment in Los Angeles, by the retention of his house in Seattle, and by the limited period for which the house was rented.

Next, we reach the issue of the deductibility of petitioner's unreimbursed automobile expenditures in excess of the amount allowed by the Commissioner. The Commissioner has allowed petitioner to deduct automobile expenses to the extent of $ 894.26, the amount of the reimbursement from Boeing. In addition, he has allowed petitioner to deduct $ 367.57 as unreimbursed expenses.

Petitioner has the burden of proving to what extent his automobile expenses were incurred for business and personal purposes. Cf. Reginald G. Hearn, 36 T.C. 672">36 T.C. 672, affirmed 309 F. 2d 431 (C.A. 9); Anderson v. United States, 368 F. 2d 225 (C.A. 5). He has failed to produce evidence to justify allocating his automobile expenses between business and personal use on a basis different from that used by the Commissioner. Accordingly, we sustain the Commissioner's disallowance of $ 1,070.20 of the claimed automobile expenses.

Decision will be entered under Rule 50.