Drucker v. Commissioner

Whitaker, Judge:

Respondent determined a deficiency of $321 in petitioner’s Federal income tax for 1976 and $265 for 1977. After concessions by the parties, the sole issue remaining for our decision is whether petitioner is entitled to a home office deduction under section 280A, I.R.C. 1954.

FINDINGS OF FACT

Some of the facts have been stipulated and are so found. The stipulation of facts and exhibits attached thereto are incorporated herein by this reference.

Ernest Drucker (petitioner) resided in New York, N.Y., at the time he filed his petition herein. His Federal income tax returns for 1976 and 1977 were filed with the Brookhaven Service Center at Holtsville, N.Y.

During taxable years 1976 and 1977, petitioner was a concert violinist employed by the Metropolitan Opera Association, Inc. (hereinafter the Met), at Lincoln Center, New York, N.Y. As of 1976, petitioner had been a concert violinist for 47 years and had been with the Met for 30 of those 47 years.

Petitioner, as a member of the Metropolitan Opera Orchestra,¹ was covered by the terms of union contracts between Local 802, American Federation of Musicians (of which petitioner was a member), and the Met. During 1976 and 1977, petitioner received compensation from the Met in the amounts of $21,537.95 and $20,827.87, respectively. He was compensated by the Met for the following periods:

(a) 3 continuous pre-season rehearsal weeks;

(b) the regular New York season with a duration of no less than 27 weeks;

(c) 49 tour days (in 1976) and 48 tour days (in 1977);

(d) 2 weeks of performances in the New York City parks;

(e) 5 weeks’ vacation; and

(f) 5 weeks’ supplemental unemployment benefits.

During the preseason rehearsal period, the musicians would rehearse twice a day. The first rehearsal would begin at 10:30 a.m. and end at 1:15 p.m.; the second would begin at 2 p.m. and end at 4:45 p.m. This rehearsal schedule continued for 3 weeks, 5 days a week.

During the New York season, petitioner was required to play at five operatic performances per week. The running time for each performance could vary from 1 hour 36 minutes to 4 hours 55 minutes. Almost all performances during the New York season began at 8 p.m. and, depending upon the opera, ended about 11 p.m. Saturday performances began at about 2 p.m. There was no contractual requirement that the musicians arrive prior to the start of the performance. However, most did so in order to "warm up” or "tune up.” Performances consumed 15 to 16 hours per week. All New York City performances were at Lincoln Center.

In addition to performing, during the New York season, the orchestra musicians were required to rehearse together as a unit at Lincoln Center. As a member of the string section, petitioner was required to participate in these rehearsals for approximately 10 or 11 hours per week. The orchestra rehearsals were either at a rehearsal room "in C level” or "in the pit,” where performances took place. Thus, during the New York season, a member of the string section would spend approximately 26 hours per week at the Metropolitan Opera House at Lincoln Center playing and rehearsing. In addition, the 3 weeks of preseason rehearsals, also at Lincoln Center, consumed about 27 hours 30 minutes per week.

The Met was on tour 49 days in 1976 and 48 days in 1977. While on tour, the musicians generally did not rehearse together as a unit. The orchestra performed at night only, and during the day, the musicians were free to spend their time as they wished.

Immediately following 2 weeks of performances in the parks, the musicians received a 5-week paid vacation. During this period, the musicians were not obligated in any way to the Met and were totally free to do as they wished, including accepting independent employment, without any effect on their compensation. This contrasted with the supplemental unemployment benefits period during which time, if a musician worked independently, the supplemental unemployment benefits to be received as compensation would be reduced. During the summers of 1976 and 1977, petitioner performed for a period of 49 days each summer for the Chautauqua Institution located in Chautauqua, N.Y. For his services as a concert violinist, petitioner received compensation from Chautauqua of $3,564.75 in 1976 and $3,547.13 in 1977. The record does not disclose any other facts as to the nature of the relationship between petitioner and the Chautauqua Institution.

As a professional musician, petitioner was required to practice numerous hours in order to maintain, refine, and perfect his skill. Petitioner practices the opera in current production as well as the one in preparation. He begins his individual practice with scales and warmup exercises. He spends considerable time on difficult technical passages, practicing those passages of the opera over and over. Rehearsals at the Met involved the entire 93-piece orchestra, differing from a performance principally due to the absence of an audience. Petitioner’s parts have to be perfected prior to a rehearsal or performance, since every error can be detected by his colleagues and his conductor. An error can distract other members of the orchestra, and has the potential to disrupt the entire orchestra.

The Metropolitan Opera House at Lincoln Center does not have private studios for practice on an individual basis by the 93 members of the orchestra. Neither did the Met otherwise provide petitioner with a facility for private practice. Orchestra employees were expected to practice individually, off the premises. Practice was necessary as a practical matter in order for petitioner to carry out his obligations to the Met. Such off-premises practice, while a practical necessity for the orchestra employees, was not requested by the employer and was not a requirement or condition of employment.² The musicians (including petitioner) were not required to report to the Met on their practice at home. By contrast, missing a rehearsal or a performance was investigated and usually would result in a loss of pay, unless there was a legitimate reason for the absence.

During 1976 and 1977, petitioner, a widower, lived alone in a five-room apartment in New York City. One room was set aside for exclusive use as a studio. The room or studio was furnished with stereo components, record equipment, a piano, hundreds of books, records and tapes, musical scores, music stands, a desk, and three violins. Petitioner used the studio for approximately 30 hours per week while in New York City, and his work there included practice of his musical skills, review of musical scores, and rehearsal of his numerous operatic numbers. The room was used exclusively for such purposes; it was not used for social or personal purposes.

Petitioner deducted $461 on both his 1976 and 1977 returns for expenses attributable to a home office (his studio). He now contends that instead of the $461 studio deduction claimed on his 1976 return, he is entitled to deduct $745, computed as follows:

Studio—

Five rooms 20% of apartment

Rent .$3,560 $712

Electricity . 165 33

3,725 ~745

Similarly, petitioner now contends that instead of the $461 studio deduction claimed on his 1977 return, he is entitled to deduct $748.40, computed as follows:

Studio—

Five rooms 20% of apartment

Rent .$3,560 $712.00

Electricity . 182 36.40

3,742 748.40

OPINION

Section 280A limits the deductions for expenses in the home for taxable years beginning after December 31, 1975.³ Section 280A(a) provides generally that "no deduction * * * shall be allowed with respect to the use of a dwelling unit which is used by the taxpayer during the taxable year as a residence.”⁴ Section 280A(c)(l), as recently amended, sets forth an exception to this general disallowance⁵ by providing that:

(1) Certain business use. — Subsection (a) shall not apply to any item to the extent such item is allocable to a portion of the dwelling unit which is exclusively used on a regular basis—

(A) [as] the principal place of business for any trade or business of the taxpayer/⁶]

(B) as a place of business which is used by patients, clients, or customers in meeting or dealing with the taxpayer in the normal course of his trade or business, or

(C) in the case of a separate structure which is not attached to the dwelling unit, in connection with the taxpayer’s trade or business.

In the case of an employee, the preceding sentence shall apply only if the exclusive use referred, to in the preceding sentence is for the convenience of his employer.

However, for a use described in section 280A(c)(l) a limitation on the deductions is set forth in section 280A(c)(5) which provides that:

deductions allowed under this chapter for the taxable year by reason of being attributed to such use shall not exceed the excess of—

(A) the gross income derived from such use for the taxable year, over

(B) the deductions allocable to such use which are allowable under this chapter for the taxable year whether or not such unit (or portion thereof) was so used.

Respondent contends that petitioner has failed to show that he has satisfied one of the three prongs of section 208A(c)(l). In addition, respondent contends that petitioner has failed to show that he "satisfied the requirments of section 280A(c)(5).” Petitioner contends that his studio was his principal place of business thereby satisfying section 280A(c)(l)(A), the first prong of section 280A(c)(l), and that he is not limited by section 280A(c)(5) since the gross income derived from the business use of his principal place of business far exceeds the deductions attributable thereto.

The parties are in disagreement as to the findings of fact which can be made on this record as to the employer’s request that petitionér use a studio off the premises of the employer. Petitioner contends that he has demonstrated that use of the apartment was for the convenience of the Met, but without citation of authority. Respondent has not briefed this issue, but we are not convinced that the issue has been conceded. However, since we hold in this case for the reasons set forth herein, that petitioner’s principal place of business is not in the "studio” in petitioner’s apartment, we need not decide whether the "convenience of the employer” requirement or that of section 280A(c)(5) is met.

Congress enacted section 280A to provide "definitive rules relating to deductions for expenses attributable to the business use of homes.” S. Rept. 94-1236 (Conf.) (1976), 1976-3 C.B. (Vol. 3) 807, 839. Also see H. Rept. 94-658 (1976), 1976-3 C.B. (Vol. 2) 695, 852; S. Rept. 94-938 (1976), 1976-3 C.B. (Vol. 3) 49, 185; Staff of the Joint Comm, on Taxation, 94th Cong., 2d Sess., General Explanation of the Tax Reform Act of 1976, 1976-3 C.B. (Vol. 2) 1, 151. Prior to the enactment of section 280A, we employed an "appropriate and helpful” standard in determining whether a home office deduction was proper.⁷ Congress, in specifically rejecting that standard, opted for a less "subjective determination” and intended to set out clear rules in order to alleviate administrative burdens which it believed were inherent in such a standard. H. Rept. 94-658, supra, 1976-3 C.B. (Vol. 2) at 852; S. Rept. 94-938, supra, 1976-3 C.B. (Vol. 3) at 185; Joint Comm. Explanation, supra, 1976-3 C.B. (Vol. 2) at 151. Congressional dissatisfaction with the "appropriate and helpful” standard, however, was not limited to the perceived inherent administrative problems; Congress also felt that such a standard would result in treating nondeductible personal living expenses as ordinary and necessary business expenses.⁸ H. Rept. 94-658, supra, 1976-3 C.B. (Vol. 2) at 852; S. Rept. 94-938, supra, 1976-3 C.B. (Vol. 3) at 185; Joint Comm. Explanation, supra, 1976-3 C.B. (Vol. 2) at 151.

With this legislative history as background, we proceed to analyze the contentions of the parties. We do not need to consider section 280A(c)(l)(B) or section 280A(c)(l)(C) since petitioner makes no contention as to those sections.

The legislative history unfortunately offers little guidance as to the scope of "principal place of business” as that term is employed in section 280A. Baie v. Commissioner, 74 T.C. 105 (1980). It is clear, however, that a taxpayer can have only one principal place of business for each business in which he is engaged. Green v. Commissioner, 78 T.C. 428, 433 (1982); Curphey v. Commissioner, 73 T.C. 766 (1980). As we said in Baie v. Commissioner, supra at 109, "We therefore take it that what Congress had in mind was the focal point of a taxpayer’s activities.” See also Green v. Commissioner, supra at 433; Jackson v. Commissioner, 76 T.C. 696, 700 (1981).

While the number of hours worked at the various places at which business is transacted is a factor to be considered, it is not controlling. Green v. Commissioner, supra at 433. See also Jackson v. Commissioner, supra. As a necessary ingredient, we must examine the nature of the taxpayer’s trade or business, the various activities of which it is constituted, and the locations where those activities are carried out.

In this case, petitioner was an employee of the Met. We have held time and again that an employee is in the trade or business of being an employee, here being a concert musician for the Met. Primuth v. Commissioner, 54 T.C. 374 (1970). In the pursuit of this trade or business, petitioner is not in a separate trade or business of being a professional musician as might be the case under other facts.⁹ Thus, we must look at petitioner’s activities both from his viewpoint and also from that of his employer, at least with respect to that part of the Met’s business which utilized the services of petitioner.

These activities may be divided into three separate categories: practice, rehearsal, and performance. Practice in this context refers to individual practice off the premises of the Met (in petitioner’s case, at his apartment or in his hotel room when on tour). Rehearsals were of the entire orchestra at Lincoln Center, and performances were either there, on the road, or in the New York City parks. While we recognize that petitioner, when not on tour, may have worked a few more hours during the week at his apartment than at Lincoln Center, we, nevertheless, conclude that the focal point of his activities was at Lincoln Center. His practice was admittedly essential to maintain his technical expertise and to learn or review the particular music to be played. However, his job required that he attend the rehearsals at Lincoln Center and, of course, the performances. A day of missed practice would not be known to the employer. But a missed rehearsal or performance normally would result in his pay being docked.

Without the performances, the Met would not exist. For an organization such as the Met and its musicians, by far the most important business location is the place where public performances are held, Lincoln Center during most of the orchestra’s playing year. It is only at the performances that the Met and its musicians are judged by the public. The sole reason for the existence of this orchestra is to perform as a group for the public, and these performances consumed a significant amount of petitioner’s workweek. With some artists, physical presence of the individual is not required for public showing. For example, the public will rarely watch the painter painting in his studio. The completed product may be displayed in a museum or gallery. That is not the case with this orchestra.

The joint rehearsals at Lincoln Center were another important activity. They were essential to enable the Met to maintain its performance quality. Of even more importance to petitioner, he, himself, was judged at each rehearsal. His retention of his job depended on the quality of his playing at rehearsals as well as at the public performances. These two activities consumed only slightly less of his workweek than his individual practice. Thus, the time factor differential becomes of no importance in this case. From the Met’s standpoint, clearly the intended focal point of petitioner’s activities was Lincoln Center. We conclude that was true also from petitioner’s standpoint.

Petitioner argues, by analogy, that the trial lawyer’s principal place of business is not in the courtroom. We agree. The focal point of the trial lawyer’s business is where he meets the clients, prepares his cases, and administers his law practice, that is, his law office. But the correct analogy would be, we suggest, to the trial lawyer on the staff of a corporate or Government law department.¹⁰ The corporate lawyer will have an office, a library, his support staff, and his clients on the premises of his employer. Regardless of the time spent in the courthouse, the focal point of the activities is on the employer’s premises. And when the lawyer has an office in the home, as many corporate and Government lawyers do, it may be that. maintenance of such home office would be deemed to be "appropriate and helpful” but not necessarily deductible under section 162. See and compare Bodzin v. Commissioner, 509 F.2d 679 (4th Cir. 1975), cert. denied 423 U.S. 825 (1975), revg. 60 T.C. 820 (1973), and Sharon v. Commissioner, 66 T.C. 515 (1976), affd. 591 F.2d 1273 (9th Cir. 1978), with Newi v. Commissioner, 432 F.2d 998 (2d Cir. 1970), affg. a Memorandum Opinion of this Court. However, Congress disavowed that subjective case-by-case analysis in the enactment of section 280A. Similarly, here we consider that petitioner’s use of his apartment was certainly "appropriate and helpful”; in fact, it was necessary from petitioner’s standpoint, but more than that is now required. We have no choice but to apply the very strict standard imposed by Congress in the "office in the home” situation. We conclude that petitioner has failed to demonstrate that the "studio” in his apartment was his principal place of business for his activities as an employee of the Met. On this record, that studio was not used at all in connection with the Chautauqua performances. Therefore, we hold for respondent.

Decision will be entered under Rule 155.

Reviewed by the Court.

1 The Metropolitan Opera Orchestra consisted of 93 regular musicians during the taxable years at issue.

2 Petitioner introduced into evidence a self-serving document signed by Abraham Marcus, orchestra manager, dated Feb. 27, 1979, and addressed "To Whom It May Concern” which concludes with the following sentence: "Accordingly, for our convenience we request that he practice in a studio other than our premises, whatever hours he deems necessary to reach the high level of performance which his position demands.” Mr. Marcus, in response to a question on redirect examination as to whether practice outside the Met’s premises was for the convenience of the employer stated:

A. That requires a twofold answer. Surely it is for the convenience of the Met, because if the musician plays poorly in a rehearsal or performance, it is a discredit to the Met. Also, he has to practice for himself, to make sure that he can play.

Petitioner has requested that we find that his employer "requested” him to use a studio off the Met’s premises. Respondent contends that such a finding is not supported by the record. We agree with respondent on this point.

3 Sec. 601, Tax Reform Act of 1976, Pub. L. 94-455,90 Stat. 1520,1569-1572.

4 Sec. 280A(b) provides that "subsection (a) shall not apply to any deduction allowable to the taxpayer without regard to its connection with his trade or business (or with his income-producing activity).”

5 Other exceptions to the general disallowance provision of sec. 280A(a) are set forth in sec. 280A(c)(2), (3), and (4).

6 As we recently said in Green v. Commissioner, 78 T.C. 428, 431 n. 3 (1982),"Sec. 280A was amended by Pub. L. 97-119, as signed into law Dec. 29, 1981. Prior to amendment, subsec. (c)(1)(A) read '(A) as the taxpayer’s principal place of business.’ This amendment applies retroactively to tax years beginning after Dec. 31,1975, except that, for tax years after Dec. 31,1975, and before Jan. 1,1980, the amendment applies 'only to taxable years for which, on the date of the enactment of this Act, the making of a refund, or the assessment of a deficiency, was not barred by law or any rule of law.’ Sec. 113(e).”

7 Bodzin v. Commissioner, 60 T.C. 820 (1973), revd. 509 F.2d 679 (4th Cir. 1975), cert. denied 423 U.S. 825 (1975); but see Sharon v. Commissioner, 66 T.C. 515 (1976), affd. per curiam 591 F.2d 1273 (9th Cir. 1978), cert. denied 442 U.S. 941 (1979), in which we overruled Bodzin. See also H. Rept. 94-658 (1976), 1976-3 C.B. (Vol. 2) 695, 849-850; S. Rept. 94-938 (1976), 1976-3 C.B. (Vol. 3) 49, 183; Staff of the Joint Comm, on Taxation, 94th Cong., 2d Sess., General Explanation of the Tax Reform Act of 1976,1976-3 C.B. (Vol. 2) 1,149, where Bodzin as well as other decisions of this Court are cited.

8 "In many cases the applicaiton of the appropriate and helpful test would appear to result in treating personal living, and family expenses which are directly attributable to the home (and therefore not deductible) as ordinary and necessary business expenses, even though those expenses did not result in additional or incremental costs incurred as a result of the business use of the home. Thus, expenses otherwise considered nondeductible personal, living, and family expenses might be converted into deductible business expenses simply because, under the facts of the particular case, it was appropriate and helpful to perform such portion of the taxpayer’s business in his personal residence. * * * [H. Rept. 94-658, supra, 1976-3 C.B. (Vol. 2) at 852; S. Rept. 94-938, supra, 1976-3 C.B. (Vol. 3) at 185.]”

9 We cannot determine from this record whether or not petitioner’s performance for Chautauqua Institution was as an employee. That is, however, irrelevant to the determination of whether or not petitioner’s "studio” in his apartment was his principal place of business, since, in any event, he did not use his apartment when practicing for the Chautauqua performances.

10 See, e.g., Bodzin v. Commissioner, supra.