T.C. Summary Opinion 2002-148
UNITED STATES TAX COURT
JOHN MICHAEL KERNAN, Petitioner v.
COMMISSIONER OF INTERNAL REVENUE, Respondent
Docket No. 5655-01S. Filed November 20, 2002.
John Michael Kernan, pro se.
Alvin A. Ohm, for respondent.
COUVILLION, Special Trial Judge: This case was heard
pursuant to section 7463 in effect when the petition was filed.1
The decision to be entered is not reviewable by any other court,
and this opinion should not be cited as authority.
Respondent determined a deficiency of $14,364 in
petitioner's Federal income tax for 1996.
1
Unless otherwise indicated, section references
hereafter are to the Internal Revenue Code in effect for the year
at issue.
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The sole issue for decision is whether petitioner is
entitled to deductions under section 162(a)(2) for expenses while
away from home for the year 1996.
Some of the facts were stipulated. Those facts and the
accompanying exhibits are so found and are incorporated herein by
reference. Petitioner's legal residence at the time the petition
was filed was Dallas, Texas.
Petitioner is a certified public accountant in the State of
Texas. For the year at issue, petitioner was a consultant
specializing in the implementation of computer systems and, in
particular, a software application known as "Oracle Financials".
He conducted this work as a self-employed trade or business
activity that he reported on his Federal income tax return for
1996 on Schedule C, Profit or Loss From Business.
From the time of his graduation from Texas A & M University
at College Station, Texas, in 1990, petitioner lived at Austin,
Texas. He was employed for approximately 2 years by a nationally
recognized accounting firm and thereafter was employed by the
Texas Workers' Compensation Insurance Fund (the Fund) at Austin,
Texas. Sometime during March 1996, petitioner's superior or
supervisor at the Fund obtained employment with Josten's, Inc.
(Josten's) at Memphis, Tennessee. Through the efforts or
assistance of his former supervisor, petitioner was interviewed
at Josten's for the specific purpose of teaching Josten's project
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managers in the use of the Oracle software system referred to
above. Petitioner terminated his employment with the Fund, and,
sometime in March 1996, he entered into a contract with Josten's
for a period of 6 months commencing on April 1, 1996. Petitioner
began work on or about the scheduled commencement date. By
mutual agreement with Josten's, petitioner worked approximately 1
month beyond the expiration date of the contract, until November
1996. All the work petitioner performed under this contract was
at the business facilities of Josten's at Memphis, Tennessee. He
was not required to travel away from Josten's facilities, and he,
in fact, did not incur any traveling or other expenses in
connection with his contract except those that are at issue in
this proceeding. Moreover, Josten's did not impose on petitioner
any restriction or requirement as to where petitioner was to live
during the contract.
While living in Austin, Texas, petitioner owned a half
interest in a home that he shared with another individual. His
interest in this home was fully paid for, and petitioner retained
that interest while he was engaged on the contract with Josten's
at Memphis, Tennessee. Petitioner did not incur any expenses
relating to the Austin home while he was engaged on the Josten's
contract. Petitioner moved out of the Austin, Texas, home on or
about March 28, 1996, and took up residence with a young lady who
lived at Knoxville, Tennessee, whom petitioner had met in
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December 1995. One of the reasons petitioner became interested
in the contract with Josten's at Memphis was that it would lessen
the distance between Austin, Texas, and Knoxville, Tennessee.
His expectation was that the relationship with the young lady,
whom petitioner referred to as his "girlfriend", would become
permanent. As petitioner described it at trial:
I had started dating a girl in Knoxville in December of '95,
and * * * wanted to try and make more of the distance
between Knoxville and Austin, and so * * * when this
opportunity * * * came up, * * * I was talking with her
regarding it. * * * basically, the understanding was that *
* * I'll accept it if we want to give this a shot. You
know, basically, I'll live with her and move into Knoxville,
make the commute, and then hopefully find * * * work * * *
in Knoxville.
Petitioner moved in with his girlfriend at Knoxville, Tennessee,
on March 28, 1996, and began his contract with Josten's at
Memphis, Tennessee, on April 1, 1996. He commuted on weekends to
Knoxville. During the week, petitioner rented an apartment in
Memphis. The arrangement between petitioner and his girlfriend
was that petitioner paid the rent on the apartment they shared in
Knoxville, and his girlfriend paid the utilities and telephone
expenses. Petitioner was not a party to the rental contract on
the apartment, nor was there any written agreement between
petitioner and his girlfriend with respect to their living
arrangement.
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Initially, petitioner commuted between Memphis and Knoxville
either by automobile or by commercial airline. Both methods
proved to be time consuming and costly. Petitioner made a
cost/benefit analysis from which he concluded it would be more
economical to purchase an airplane to make the weekly commute
between Knoxville and Memphis. Accordingly, petitioner, in early
October 1996, purchased a Cessna model 192 airplane and, after
paying for flying lessons, thereafter used the plane to commute
between Memphis and Knoxville.
Petitioner's contract with Josten's was completed in
November 1996, and he had no further contractual or employment
relationship with Josten's. Petitioner then gave up the Memphis
apartment and continued living with his girlfriend at Knoxville.
He did not find employment at Knoxville. In March 1997, the
relationship between petitioner and his girlfriend terminated.
Petitioner moved back to Austin, Texas, and found employment
there.
On his Federal income tax return for 1996, petitioner
reported the income and expenses of the contract activity with
Josten's as a trade or business activity, which respondent does
not dispute. Petitioner reported gross income of $216,616,
expenses of $198,677, and a net profit of $17,939. In the notice
of deficiency, respondent disallowed deductions claimed for
expenses in the amount of $40,023. The disallowed deductions
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consisted essentially of petitioner's meals and other living
expenses in Memphis, including rent on the Memphis apartment and
the expenses related thereto, the cost of the airplane and the
flying lessons, repairs to the plane, insurance, and the
traveling expenses incurred prior to purchase of the plane.2
Respondent's position is that petitioner's tax home during
1996 was Memphis, Tennessee, and, therefore, the expenses at
issue were not incurred away from home within the intent and
meaning of section 162(a)(2). Petitioner's position is that his
business activity at Memphis, Tennessee, was temporary and not
permanent or indefinite, and the expenses he incurred there are
deductible under section 162(a)(2).
This Court has consistently held that a taxpayer's "home"
for purposes of section 162(a)(2) is the vicinity of the
taxpayer's principal place of business or employment and not
where the taxpayer's personal residence or place of abode is
located, if such residence or place of abode is at a place
different from the location of the place of employment. Mitchell
v. Commissioner, 74 T.C. 578, 581 (1980); Kroll v. Commissioner,
49 T.C. 557, 561-562 (1968); Garlock v. Commissioner, 34 T.C.
2
Of the total amount claimed, $18,150 represented the
cost of the plane that petitioner deducted pursuant to sec. 179,
Election To Expense Certain Depreciable Assets. Petitioner, at
trial, conceded a $2,527 adjustment in the notice of deficiency
disallowing a deduction for clothing expenses.
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611, 614 (1960). However, there is an exception to this rule
where the taxpayer accepts employment away from home if such
employment is considered "temporary" as opposed to "indefinite".
Commissioner v. Peurifoy, 254 F.2d 483, 486 (4th Cir. 1957),
affd. per curiam 358 U.S. 59 (1958). Where such employment is
temporary, the taxpayer's "tax home" does not shift to the situs
of the temporary employment. The taxpayer is regarded as "away
from home" while working at the temporary location. The
underlying purpose for this exception (which allows a deduction
for living costs incurred at the temporary job) is that it is
unreasonable to expect the taxpayer to move a residence to a
temporary location. Thus, by allowing a deduction for living
expenses at the temporary employment location, the burden is
mitigated for the taxpayer who incurs duplicate living expenses
which result from maintaining the regular place of abode and the
place of abode at the temporary location. However, if a
taxpayer, for personal reasons, chooses to reside in a different
vicinity from the vicinity of the principal place of employment,
the residence is not recognized as the taxpayer's "tax home".
Commissioner v. Flowers, 326 U.S. 465 (1946); Jones v.
Commissioner, 54 T.C. 734, 740 (1970), affd. 444 F.2d 508 (5th
Cir. 1971).
The Court is satisfied from the record that petitioner's
home during 1996, for tax purposes, was not Austin, Texas.
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Petitioner terminated his employment there and thereafter
incurred no further living expenses at Austin. The record is
clear that petitioner left his employment at Austin to accept the
contract at Memphis, Tennessee, which would be nearer to his
girlfriend at Knoxville, Tennessee. Since petitioner left his
home at Austin, Texas, the site of his employment became his tax
home. The record is clear that petitioner's choice of Knoxville,
Tennessee, as a residence was solely for personal reasons and was
in no way related to the exigencies of his contract with Josten's
at Memphis. The general rule is that a taxpayer's home, under
section 162(a)(2), is his abode at or near the vicinity of his
principal place of employment. Coombs v. Commissioner, 608 F.2d
1269, 1274 (9th Cir. 1979), affg. in part and revg. and remanding
in part 67 T.C. 426 (1976). It is immaterial whether
petitioner's contract at Memphis, Tennessee, was temporary or
indefinite because those distinctions are relevant only when the
taxpayer maintains a well-established home and is away from it.
United States v. Mathews, 332 F.2d 91, 93 (9th Cir. 1964). The
Court holds, therefore, that the expenses at issue were personal
expenses under section 262 that are not deductible under section
162(a)(2). Respondent, therefore, is sustained.
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Reviewed and adopted as the report of the Small Tax Case
Division.
Decision will be entered
for respondent.