DocketNumber: No. 18573-98
Citation Numbers: 117 T.C. 7, 82 T.C.M. 4130, 2001 U.S. Tax Ct. LEXIS 33, 117 T.C. No. 2
Judges: Laro,\"Ruwe, Robert P.\",\"Thornton, Michael B.\",\"Chiechi, Carolyn P.\",\"Swift, Stephen J.\"
Filed Date: 7/13/2001
Status: Precedential
Modified Date: 1/13/2023
COHEN and COLVIN, JJ., agree with this dissenting opinion.
U, an international airline, paid its pilots and flight
attendants (collectively, employees) per diem allowances. U paid
the allowances to all employees; i.e., those who departed from
and returned to their home bases on the same day and those who
departed from and returned to their home bases on different
days. U neither required nor received substantiation from the
employees as to their uses of the allowances.
HELD: U may deduct the per diem allowances as personal
service compensation under
*8 LARO, JUDGE: Respondent determined deficiencies of $ 1,478,718, $ 61,867,523, $ 1,751,161, and $ 45,981,293 in petitioner's 1983, 1984, 1986, and 1987 Federal income taxes, respectively. 1 Following concessions, we*34 must decide whether petitioner may deduct the per diem allowances paid to its flight attendants and pilots (collectively, employees) for day trips and overnight trips (as defined below). We hold it may deduct the per diem allowances as personal service compensation under
FINDINGS OF FACT
Most facts were stipulated. The parties' stipulation of facts and the exhibits submitted therewith are incorporated herein by this reference. The stipulated facts are found accordingly. Petitioner is a consolidated group of corporations that files a consolidated*35 Federal income tax return on the basis of the calendar year. Its principal office was in Elk Grove Township, Illinois, when its petition was filed. United Air Lines, Inc. (United), is an airline that provides passenger and cargo service worldwide. United was petitioner's subsidiary during 1985, 1986, and 1987.
During the subject years, United employed approximately 12,000 flight attendants and 6,150 pilots. Each of the employees was assigned to a series of flights (pairings) that typically originated and terminated at the home base of one or more of the employees assigned to the pairing. Most of the pairings required that the employees spend one or more nights away from their home bases (overnight trips). The other pairings brought the employees back to their home bases on the day of departure (day trips).
United paid the employees compensation and benefits pursuant to collective bargaining agreements (union contracts) *9 which it had entered into with the employees' respective unions. Under the union contracts, United paid the employees regular compensation plus a per diem allowance. United paid each flight attendant a per diem allowance equal to $ 1.50 times the number of hours that*36 he or she was on duty or on flight assignment. United initially paid the same per diem allowance to each pilot but increased the pilots' per diem rate from $ 1.50 per hour to $ 1.55 per hour effective April 1, 1986. Neither United nor petitioner required that the employees substantiate their use of the per diem allowances, and neither United nor petitioner has any written substantiation as to the employees' actual use of the per diem allowances.
United's computerized system allowed it to record accurately the employees' duty assignments. United used these records to calculate each employee's per diem allowance. United included its payment of an employee's per diem allowance in his or her salary check and listed the amount of the per diem allowance included in the check on the corresponding check stub. United issued to each employee a monthly report of the per diem allowances which it had paid to him or her.
On its 1985, 1986, and 1987 Federal income tax returns, petitioner claimed under
United did not withhold Federal income tax on its payment of the per diem allowances, and it neither withheld nor paid Federal Insurance Contribution Act (FICA) tax with respect to the per diem allowances. United did not report the per diem *10 allowances as wages or nonwage compensation on the employees' Forms W-2, Wage and Tax Statement.
OPINION
We must decide whether petitioner may deduct the per diem allowances paid to the employees. Petitioner argues it may deduct the per diem allowances as personal service compensation because they arose out of an employer/employee relationship. Respondent argues that petitioner may not deduct the per*38 diem allowances as personal service compensation because it lacked the requisite compensatory intent at the time of payment. We agree with petitioner.
Our inquiry begins with the relevant text.
The parties agree that the per diem allowances, if paid for services, would not make any of the employees' total compensation unreasonable. Thus, we limit our focus to the second requirement. Under that requirement, a deduction under
We conclude that United paid the per diem allowances to the employees for services rendered. We reach that conclusion from the certainty that United would not have paid the per diem allowances to the employees but for: (1) The bona fide employer/employee relationship and (2) the need to pay those allowances in order to secure the employees' services. *11 The presence of such a bona fide employment relationship and such a need to pay per diem allowances in order to secure personal services is enough under the facts at hand to persuade us that United paid the per diem allowances to the employees for their services. Accord
Respondent places undue emphasis on the fact that the union contracts do not specifically characterize the per diem allowances as personal service compensation. Such a characterization by the parties to the contracts is not dispositive as to the characterization of the per diem allowances for Federal income tax purposes. See
We conclude by noting that the parties are currently litigating in the United States Court of Federal Claims the issue of whether the very same per diem allowances are wages for employment tax purposes. See United Air Lines, Inc. v. United States, No. 97- 173T (Fed. Cl., filed Mar. 18, 1997). Interestingly, the Government is arguing that those allowances are wages for employment tax purposes. Wages for employment tax purposes are "all remuneration for employment, including the cash value of all remuneration (including *12 benefits) paid in any medium other than cash". Sec. 3121(a). Section 3401 defines wages in similar terms.
We hold that United may deduct the per diem allowances under
Decision will be entered*42 under Rule 155.
* * * * * * *
Reviewed by the Court.
WELLS, CHABOT, GERBER, RUWE, HALPERN, FOLEY, VASQUEZ, and GALE,
JJ., agree with this majority opinion.
WHALEN, J., concurs.
* * * * * * *
CONCURRENCE OF JUDGE RUWE
RUWE, J., CONCURRING: I agree with the result in this case. However, I believe it is appropriate to elaborate on why the per diem allowances for day trips and overnight trips are both deductible as compensation under
United paid its employees per diem allowances at a rate of $ 1.50 per hour ($ 1.55 for pilots for certain portions of the years in issue) for the number of hours on duty or on flight assignment. United appears to have arrived at this number by estimating the expenses that would be incurred by an employee for one day, $ 36 ($ 37.20 for pilots for certain portions of the years in issue), and then dividing this number by 24 hours. The expert report relied upon by petitioner attributes most of the per diem allowance to meal expenses. See infra pp. 21. The employees were not required to substantiate their use of the per diem allowances,*43 and neither United nor petitioner has any written substantiation as to the employees' actual use of the per diem allowances.
1. DAY TRIPS
The per diem allowance for day trips was to cover meal expenses that the employees might incur during day trips. 1 Meal expenditures for nonovernight day trips are personal expenses of the employees, rather than business travel *13 expenses.
*45 Respondent argues that United did not have the requisite compensatory intent at the time it paid the allowances. However, *14 the relevant statute 4 and regulations 5 do not require an "intent to compensate" as a prerequisite to deductibility under
*47 The Court of Federal Claims and the Court of Appeals for the Federal Circuit have considered similar per diem allowances, albeit in the context of the employment tax regime.
*48 The evidence that American's per diem rates were driven by
competitiveness with other airlines is not helpful to plaintiff,
as it is equally consistent with a different motivation than
compensating for employees' actual expected travel expenses, to
wit, keeping up with its competitors' wage and benefit packages.
* * * [
The day trip allowances were compensation in the form of fringe benefits. 9 Section 61(a)(1) provides that gross income includes "Compensation for services, INCLUDING fees, commissions, FRINGE BENEFITS, and similar items". (Emphasis added.) As applicable for the years 1985 through 1988,
*49 The regulations applicable to the years in issue recognize that employer-provided meals or meal allowances are taxable fringe benefits unless specifically excluded from income *16 under section 132. 10
Thus, except as otherwise provided*50 in this section, the
provision of any cash fringe benefit (or any fringe benefit
provided to an employee through the use of a charge or credit
card) is not excludable as a de minimis fringe. For example, the
provision of cash to an employee for personal entertainment is
not excludable as a de minimis fringe.
Temporary Income Tax Regs., supra.]
The allowance of a deduction for day trip allowances would not undercut the strict substantiation requirements of
*17 *52 2. OVERNIGHT TRIPS
The holding that the per diem allowances for overnight trips are deductible as compensation under
Section 61(a)(1) provides that compensation for services, including fringe benefits, is included in gross income. Section 62(a), which allows an employee a deduction for expenses incurred in his employment in computing adjusted gross income, provides, in pertinent part:
the term "adjusted gross income" means * * * gross income minus
the following deductions:
* * * * * * *
(2) Certain trade and business deductions of
employees. --
(A) Reimbursed expenses of employees. -- The
deductions allowed by part VI (section 161 and
following) which consist of expenses paid or incurred
by the taxpayer, in connection with the performance*53 by
him of services as an employee, under a reimbursement
or other expense allowance arrangement with his
employer.
However, pursuant to the regulations, if an employee is paid under a reimbursement or expense allowance agreement and makes an "adequate accounting" to the employer, then the employee is not required to report the allowance in income.
For the years in issue,
Respondent argues that
In analyzing the expenses which the revenue rulings are designed to cover, a logical disconnect surfaces. *56 Under a plain reading of the two rulings, combined with our decision in
*57 The evidence in the record indicates that the per diem allowances for overnight trips (excluding meals) were for tips for waiters, baggage handlers and drivers, transportation between hotels and restaurants, telephone calls, personal laundry, newspapers, and shoeshines. 16 Petitioner relied on an expert report which it claims shows that the amount of the allowances was a reasonably accurate estimate of actual travel costs incurred by the employees. Petitioner presented evidence that, of the maximum $ 36 allowance ($ 37.20 for pilots for certain portions of the years in issue) for overnight trips, between $ 4 and $ 7 was for incidental expenses. Thus, the reasonableness of the amount of the per diem allowance for overnight trips was based mostly on amounts attributable to the costs of meals. The problem in the instant case is that
*58 On the basis of these facts, how could United's payment of $ 36, or $ 37.20, be reasonable when
American argues that even if it cannot meet the
substantiation requirements of
covered meals and incidental expenses allowance *20 of $ 36 per day
fall in the middle range of the $ 14 meals-only safe harbor of
Rul. 80-62
diem allowance should be deemed substantiated for
purposes. We agree with the Government*59 that American's reasoning
is flawed because it ignores the fact that the deemed
substantiated limit under
which accounts for a greater portion of an employee's daily
expenses. Further, under American's logic, $ 22 of this amount
would include incidental expenses, and the burden is upon
American to prove that such an amount would meet the "ordinary
and necessary" requirement of
The facts at hand present a challenging question because petitioner does not fit within either of the revenue rulings. Respondent recognizes the potential discontinuity of coverage between the two rulings and suggests that the resolution should be that there is no revenue ruling explicitly in force which covers the instant case. In my opinion, the inapplicability of
The issue thus becomes whether petitioner is entitled to deduct the per diem allowances as compensation. In this regard, respondent's sole argument is that petitioner is not entitled to a deduction under
*61 *21 Finally, respondent urges this Court to exercise its discretion to hold petitioner to a "duty of consistency" and not allow it to recharacterize the allowances as compensation. In
The "duty of consistency" is based on the theory that the
taxpayer owes the Commissioner the duty to be consistent with
his tax treatment of items and will not be permitted to benefit
from his own prior error or omission. The duty of consistency
doctrine prevents a taxpayer from taking one position one year
and a contrary position in a later year after the limitations
period has run on the first year. [Citations omitted.] 18
*62 In the instant case, the periods of limitation with respect to petitioner's income tax liability for 1986 and 1987 19 and employment tax liability for 1985, 1986, and 1987, are still open. Respondent's concern is that, since the tax years for the individual employees are probably closed, the tax due on the employees' income will not be paid. However, a remedy for that situation is to seek withholding tax from petitioner for the years in issue, a remedy which respondent is currently seeking in the Court of Federal Claims. United Air Lines, Inc. v. United States, No. 97-173T (Fed. Cl., filed Mar. 18, 1997). Petitioner is simply correcting its tax return to account for its initial erroneous treatment of the per diem allowances as "travel" expenses. 20
*63 3. CONCLUSION
The per diem allowances are not deductible by petitioner as travel expenses. However, these allowances were required *22 under the terms of the employment contract that petitioner negotiated with the union. Petitioner had to pay the allowances in order to receive the services of its employees. The amount of the per diem allowance paid to each individual employee was determined based on the number of hours he or she worked while on duty or on flight assignment and was directly tied to the quantity of services rendered. The per diem payments were paid for services actually rendered by the employees and are deductible under
WELLS, CHABOT, GERBER, GALE, and MARVEL, JJ., agree with this concurring opinion.
* * * * * * * CONCURRANCE OF JUDGE THORNTON
THORNTON, J. CONCURRING: *64 The majority concludes that the per diem payments are deductible on the ground that the payments are compensatory in nature. The majority does not address to what extent, if any, this case implicates statutory rules (i.e.,
*65 The majority rightly concludes that the per diem payments were compensatory in nature. The facts also support an affirmative conclusion that these payments were not travel expenses. The pilots and flight attendants could use the per diem payments as they pleased, just as they could use their *23 base salaries as they pleased. The per diem payments were not contingent on the employees' incurring or accounting for any travel expenses. Indeed, the per diem payments were in addition to amounts United provided its employees for practically all travel expenses except meals and incidentals.
Rather than provide its employees meals and incidentals, United agreed, as part of a negotiated union contract, to pay them small hourly wage enhancements for all hours they*66 were on duty or on flight assignment. The union contract refers to the wage enhancements as per diem payments. The nomenclature does not affect the reality, however, that the bargain struck was for additional compensation, not for meals, incidentals, or other travel expenses.
The fact that the per diem payments were computed by reference to time spent on duty or aboard the aircraft does not suggest that the per diem payments are travel expenses. Rather, it suggests the contrary. Hours on duty or on board an aircraft would appear to encompass substantially all the pilots' and flight attendants' hours on the job. Moreover, from United's perspective, hours its employees spend in flight do not represent travel away from its place of business (i.e., the aircraft), any more than aviation fuel represents a cost of travel. After all, United's business is air transportation.
Consider the hypothetical case of a flight crew that goes on duty and boards one of United's aircraft only to sit on the tarmac for some hours (for any of the myriad reasons especially familiar to a traveling Court) without ever taking flight. Presumably, the pilots and flight attendants on this aircraft would be entitled*67 to per diem payments based on the number of hours they were on duty, without having gone anywhere. Some of them might return home, if home were nearby; others might go to hotels. They might lay over variously for short times or long times, subsisting lavishly or meanly. But each of them would receive the predetermined per diem payment, based on the number of hours spent sitting on the tarmac. In this hypothetical case, it seems clear that the per diem payments are too indirectly related to any employee travel to be considered travel expenses. It would *24 make no material difference to the analysis if the employees' hours on duty were airborne.
WELLS, CHABOT, GERBER, BEGHE, and MARVEL, JJ., agree with this concurring opinion.
* * * * * * *
CONCURRENCE IN PART AND DISSENT IN PART OF JUDGE CHIECHI
CHIECHI, J., CONCURRING IN PART AND DISSENTING IN PART: I concur in the majority's holding that the per diem allowances for day trips that United paid to its employees are deductible under
* * * * * * *
DISSENT OF JUDGE SWIFT
SWIFT, J., DISSENTING: This case involves claimed ordinary deductions in the range of $ 100 million and extensive arguments by the parties. If it works (which I don't believe it does), the majority opinion is remarkable in its brevity.
RECHARACTERIZATION OF PER DIEM ALLOWANCES AS EMPLOYEE COMPENSATION
The majority opinion suggests that respondent's characterization herein for corporate income tax purposes of United's per diem allowances is inconsistent with respondent's characterization of the per diem allowances in the pending employment tax litigation. See majority op. p. 8. I disagree.
As I understand respondent's positions, in both the income tax and the employment tax contexts, respondent is treating the per diem allowances as travel expenses. Respondent simply takes the position, as a matter of law, that the income tax and the employment tax regimes are not necessarily in pari materia and that under those different tax regimes the day-trip per diem allowances and the excess*69 of the overnight per diem allowances (i.e., the portion of the per diem allowances not substantiated) are nondeductible to United for corporate income tax purposes (because of United's failure to satisfy the substantiation requirements of
The more significant concern with regard to "inconsistent" characterizations in this case should be with United's efforts to recharacterize entirely the per diem allowances that UNITED, ITS EMPLOYEES, AND THE LABOR UNIONS, FOR ALL OTHER PURPOSES, TREATED AS EMPLOYEE TRAVEL EXPENSES. 1 UNITED NOW, years later, and SOLELY FOR FEDERAL INCOME TAX PURPOSES, attempts to inconsistently*70 treat such travel expenses as employee compensation, outside the scope of the substantiation requirements of
An extensive body of case law limits a taxpayer's ability to change the treatment of reported items of income and deductions. See, e.g.,
From the record herein, it appears that United and other airlines, not respondent, initially sought what some might regard as an additional inconsistency in the treatment of the per diem allowances. Respondent's audit of the per diem allowances within the airline industry began as employment tax audits of travel expenses. In the context of those*71 employment tax audits (and while still contesting any employment tax adjustments and likely only as a protective measure against the possibility that the employment tax adjustments might be sustained), United and other airlines raised the issue via claims for refund as to the deductibility, for corporate income tax purposes, of the unsubstantiated and excess per diem allowances relating to the overnight trips and of the full per diem allowances relating to the day trips.
In the instant income tax controversy and in the majority opinion, it is simply not appropriate to comment negatively *26 on respondent's position in the pending employment tax litigation with United.
As stated, the inconsistencies that we should be focusing on and addressing herein are the many factual inconsistencies between United's treatment of the per diem allowances as travel expenses for all purposes other than belatedly for its corporate Federal income tax purposes.
On its face, the majority opinion is inadequate to support a finding that the per diem allowances constituted employee compensation "for services rendered", as opposed to travel expenses. In its summary "Findings of Fact", see majority op. pp. 2-5 and*72 also the Headnote, the majority opinion repeatedly describes the amounts in controversy as "per diem" related to employee "trips". Surely, "per diem" related to employee "trips" constitutes travel expenses. The majority's avoidance of the word "travel", when mentioning the per diem allowances, does not conceal the character of the per diem allowances as travel expenses.
No mention is made in the majority's Findings of Fact that the per diem allowances represent a payment "for services". In fact, in the majority's brief Findings of Fact, nothing is found, or even mentioned, as to the "purpose" or "intent" for which the per diem allowances were paid (other than "for" employee "trips"). 2 Nothing about this opinion "speaks loudly", see majority op. p. 7, except perhaps its ultimate conclusion under which millions of dollars of United's travel expenses become fully deductible in spite of United's failure to satisfy the substantiation requirements of
*73 In
Section 31.3121(a)-1(h): Amounts paid specifically --
either as advances or reimbursements -- for traveling or other
bona fide ordinary and necessary expenses incurred or reasonably
expected to be incurred in the business of the employer ARE NOT
WAGES. Traveling and other reimbursed expenses must be
identified either by making a separate payment or by
specifically indicating the separate amounts where both wages
*74 and expense allowances are combined in a single payment.
[Emphasis added.]
Section 31.3401(a)-1(b)(2): Traveling and other expenses.
Amounts paid specifically -- either as advances or
reimbursements -- for traveling or other bona fide ordinary and
necessary expenses incurred or reasonably expected to be
incurred in the business of the employer ARE NOT WAGES and are
not subject to withholding. Traveling and other reimbursed
expenses must be identified either by making a separate payment
or by specifically indicating the separate amounts where both
wages and expense allowances are combined in a single payment.
[Emphasis added.]
United's attempt to recharacterize as deductible compensation the day-trip per diem travel allowances and the excess portion (over $ 14) of the overnight per diem travel allowances should be rejected.
THE SUBSTANTIATION REQUIREMENTS OF
I do not understand the casual manner by which the majority opinion bypasses the substantiation requirements of
It appears to me that the substantiation requirements for travel expenses under*75
*28 Further, the first two sentences of
A closer look at the relevant statutory language is helpful. There are important differences*76 in the language and operation of
(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. [Emphasis added.]
credit shall be allowed --
(1) under
(including meals and lodging while away from home),
* * * * * * *
unless the taxpayer substantiates by adequate records or by
sufficient evidence * * * [Emphasis added.]
Note that in
*29 Various tax treatises and court*78 opinions explicitly or implicitly recognize that the substantiation requirements of
Also, under
Congress obviously knew how to provide a recharacterization option and an election out of the
*30 $ 44 OR $ 14 PER DIEM LIMITATION ON OVERNIGHT PER DIEM ALLOWANCES
With regard to the
However,
It appears to me that the above language constitutes a blanket disqualification of the $ 44 Ruling where there are no lodging expenses relating to overnight travel to be paid out of per diem travel allowances.*81 As I read the language of the $ 14 Ruling, in the context of overnight travel, the maximum allowable amount that may be deducted under any provision of
In the present case, because there were no lodging expenses to be paid by United's employees out of the overnight per diem travel allowances the employees received,
UNION NEGOTIATIONS
United and the*82 labor unions specifically bargained for and characterized the per diem allowances in the union contracts as travel expenses. United did not pay employment taxes on the per diem allowances, and the employees did not report the per diem allowances in income.
Where the tax consequences differ for the characterization of expenses as either travel or compensation, the characterization of the expenses by the parties should be adhered to. The majority opinion simply negates the bargaining positions of United, on the one hand, and of the labor unions and the employees, on the other, to pay and to receive travel expenses, not compensation income.
In his concurring opinion, Judge Thornton is correct to ask what was bargained for between United, its employees, and the unions. The answer, however, is explicitly provided in the stipulated facts -- per diem travel allowances, not compensation. Paragraph 13 of the stipulation of facts states the following:
Because pilots and flight attendants continuously traveled for
United, requiring specific documentation for meals and
incidental expenses would have been administratively burdensome.
THE PER DIEM ARRANGEMENT*83 WAS THUS DESIGNED TO REIMBURSE the
employees FOR MEALS AND incidental TRAVEL EXPENSES, without
requiring them to retain and submit receipts for each individual
expenditure. [Emphasis added.]
The fact that for the administrative convenience of United and the employees the per diem allowances were computed on an hourly basis does not convert the allowances into something other than travel expenses.
JUDICIALLY CREATED LOOPHOLE
The majority opinion appears to create a broad loophole for corporations and would circumvent Congress' intent with regard to the substantiation requirements of
The opinion appears to allow expenses that would be disallowed under
The majority opinion erroneously relies on
Lastly, by recharacterizing the travel expenses as deductible compensation for 1987 and later years, the portion of the previously treated travel expenses that represented meal and entertainment expenses become freed from the various percentage limitations applicable thereto and become fully deductible. See
For the reasons stated, I dissent.
COHEN and COLVIN, JJ., agree with this dissenting*85 opinion.
1. Respondent has determined no deficiency for 1985 because the limitations period was closed when the underlying notice of deficiency was issued. We discuss 1985 because petitioner's deduction of the per diem allowances for that year affects petitioner's tax liability for the subject years.↩
2. Section references are to the Internal Revenue Code in effect for the subject years. Rule references are to the Tax Court Rules of Practice and Procedure.↩
3. Moreover, as the Supreme Court noted in upholding our decision in that case, the meal allowance given to Kowalski by way of the cash payments was of a "presumptively compensatory nature".
1. In his dissenting opinion, see infra p. 38 note 3, Judge Swift states that the day trip per diem allowances included amounts for incidental travel expenses. The facts provide no basis upon which to apportion any amount of the day trip per diem allowances to incidental travel expenses, and it is very unlikely that the type of incidental expenses that were contemplated in structuring the per diem allowances were incurred on day trips. See infra p. 21.
The record reveals that in addition to providing its pilots and flight attendants per diem payments, United also provided them -- either directly or through reimbursement -- lodging, ground transportation between airports and hotels, and uniform laundering.
3. Although not in effect for the years in issue, sec. 1.62- 2(j), Example (2), Income Tax Regs., confirms this as the proper treatment. In his dissenting opinion, see infra p. 38 note 3, Judge Swift erroneously cites sec. 262 and
4.
5. "The test of deductibility in the case of compensation payments is whether they are reasonable and are in fact payments purely for services."
6. In
The existence of a compensatory purpose can often be inferred if
the amount of the compensation is determined to be reasonable
under the first prong. For these reasons, courts generally
concentrate on the first prong -- whether the amount of the
purported compensation is reasonable. Courts have generally not
delved into whether a compensatory purpose exists under the
second prong except in those rare cases where the Commissioner
has come forward with evidence that purported compensation
payments, although reasonable in amount, were in fact disguised
dividends. By and large, the inquiry under
turned on whether the amounts of the purported compensation
payments were reasonable.
* * * * * * *
In the rare case where there is evidence that an otherwise
reasonable compensation payment contains a disguised dividend,
the inquiry may expand into compensatory intent apart from
reasonableness. * * * [
omitted.]↩
7. In
Even though we have found that the meal allowance was not
intended as additional compensation, it was obviously
compensatory to a trooper to the extent it paid for food which
he otherwise would have had to pay for from some other source.
* * * [
8. "It would be naive to ignore that the 'meal expense' concession was tantamount to wage concessions in the context of a labor negotiation."
9. The Court of Federal Claims and the Court of Appeals for the Federal Circuit considered similar per diem allowances within the framework of fringe benefits.
10. For the years in issue, sec. 132 excluded the following fringe benefits from gross income: (1) No-additional-cost service; (2) qualified employee discount; (3) working condition fringe; and (4) de minimis fringe.↩
11. Logic dictates that in order for meal money to be excluded from gross income as a "de minimis fringe benefit", meal money provided to employees must be a "fringe benefit".↩
12. See
13. Note also that the regulations under
14. The parties agree that the issue of the appropriate ruling to apply is limited to per diem allowances paid before Jan. 1, 1989.
15. Petitioner paid a per diem allowance of $ 1.50 per hour ($ 1.55 per hour for pilots for certain portions of the years in issue) to its employees. The maximum allowance an employee was entitled to for one 24-hour period was $ 36 ($ 37.20 for pilots for certain portions of the years in issue). Subtracting $ 14 from this maximum allowance for 1 day to account for meal expenses leaves $ 22 ($ 23.20 for pilots for certain portions of the years in issue) which would not be attributable to meals.↩
16. Petitioner either directly paid, provided, or reimbursed employees for costs of lodging, ground transportation between airports and hotels, parking, and cleaning uniforms.↩
17. It should be noted that the relevant statutes and regulations have been clarified since the years in issue with respect to the tax treatment of per diem allowances. Under current law, per diem allowances are paid under either an "accountable" plan or a "nonaccountable" plan, and the tax consequences differ depending on which plan the allowances are paid under. For discussions of accountable and nonaccountable plans, see
18. See
(1) The taxpayer made a representation or reported an item for
Federal income tax purposes in one year, (2) the Commissioner
acquiesced in or relied on that representation or report for
that year, and (3) the taxpayer attempts to change that
representation or report in a subsequent year, after the period
of limitations has expired with respect to the year of the
representation or report, and the change is detrimental to the
Commissioner. * * * [Citations omitted.]↩
19. The only issues in dispute in this case are the deductibility of the per diem allowances paid for 1985, 1986, and 1987, and the computational items resulting therefrom. No deficiency was determined for the taxable year 1985 because the period of limitations for that year had expired at the time the notice of deficiency was issued. However, the deductibility of expenses (including per diem allowances) for 1985 directly affects other tax items, such as net operating loss carrybacks and carryovers, for the remaining years in issue.↩
20. Indeed, it appears that petitioner's claim that the allowances are deductible as compensation was predicated on respondent's determination that the allowances were "wages" for employment tax purposes.↩
21. For purposes of this case, respondent has conceded that if the per diem allowances are deductible as compensation, then the percentage limitations of
1. Two possible bases for such a suppressed premise suggest themselves: (1) That treatment as compensation under
1. The parties' stipulation of facts filed with the Court in this case repeatedly acknowledges United's specific treatment of the per diem allowances as travel expenses.↩
2. In analyzing whether an intent to compensate existed, we typically consider, among other factors: Whether there was corporate authorization for the payment of compensation; whether the books and records of the corporation reflected that the payments were treated as payments of compensation; whether the payments were reported to the recipients on Forms W-2, Wage and Tax Statement, as wage compensation; and whether the payments were treated as compensation on the employer's and employees' tax returns as filed. See, e.g.,
3. In his concurring opinion, Judge Ruwe notes that United's per diem allowances covering meal expenses for day trips are not deductible as travel expenses under
4. In
LeFever v. Commissioner , 100 F.3d 778 ( 1996 )
Trucks, Inc. v. United States , 234 F.3d 1340 ( 2000 )
Hughes & Luce, L.L.P. v. Commissioner , 70 F.3d 16 ( 1995 )
Fred W. Amend Co. v. Commissioner of Internal Revenue , 454 F.2d 399 ( 1971 )
Robert J. Kowalski and Nancy A. Kowalski v. Commissioner of ... , 544 F.2d 686 ( 1976 )
owensby-kritikos-inc-petro-marine-engineering-inc-subsidiaries , 819 F.2d 1315 ( 1987 )
American Airlines, Inc. v. United States , 204 F.3d 1103 ( 2000 )
Elliotts, Inc. v. Commissioner of Internal Revenue , 716 F.2d 1241 ( 1983 )
Meridian Wood Products Co., Inc., a Corporation v. United ... , 725 F.2d 1183 ( 1984 )
United States v. Correll , 88 S. Ct. 445 ( 1967 )
Commissioner v. Kowalski , 98 S. Ct. 315 ( 1977 )