T.C. Memo. 2008-111
UNITED STATES TAX COURT
MIKE KURTZ, Petitioner v.
COMMISSIONER OF INTERNAL REVENUE, Respondent
Docket No. 3130-06. Filed April 22, 2008.
Gregory L. White, for petitioner.
Lisa M. Oshiro, for respondent.
MEMORANDUM OPINION
COHEN, Judge: Respondent determined deficiencies of $10,823
and $16,899 in petitioner’s Federal income taxes for 2001 and
2002, respectively.
After concessions by the parties, the sole issue remaining
for decision is whether petitioner is entitled to deductions of
the full Federal per diem rates for meals and incidental expenses
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(M&IE) or whether those deductions are limited to 50 percent of
the applicable M&IE rates for the years in issue.
Unless otherwise indicated, all section references are to
the Internal Revenue Code in effect for the years in issue, and
all Rule references are to the Tax Court Rules of Practice and
Procedure.
Background
This case was submitted fully stipulated under Rule 122.
The relevant stipulated facts are incorporated as our findings by
this reference. Petitioner resided in Florida at the time he
filed his petition. However, the parties agree that petitioner’s
tax home for the years in issue was Dutch Harbor, Alaska.
During the years in issue, petitioner worked as an engineer
on commercial fishing vessels operated off the coast of Alaska.
In 2001 petitioner worked as an independent contractor on the
Storm Petrel, a fishing vessel owned by a subsidiary of Icicle
Seafoods, Inc. (Icicle). In 2002 he worked as an independent
contractor on the Poseidon, a fishing vessel owned by Poseidon
Fisheries, L.L.C. (Poseidon Fisheries).
In 2001 and 2002 the Storm Petrel and the Poseidon both
engaged in regular patterns of commercial fishing activity. The
vessels would harvest fish in the Bering Sea, off the coast of
Alaska. They would then transport the fish to a fish processor.
These fishing trips normally lasted 4 or 5 days, but occasionally
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lasted more than 1 week. While he was working aboard the Storm
Petrel or the Poseidon during the years in issue, the companies
petitioner worked for purchased, prepared, and served meals to
petitioner and other crew members.
In 2001 petitioner worked a total of 231 days aboard the
Storm Petrel. The Storm Petrel’s home port in 2001 was Dutch
Harbor, Alaska. During 2001 petitioner received compensation
from Icicle equal to 5 percent of the catch from the Storm
Petrel. Icicle deducted $25 per day from petitioner’s
compensation for food expenses. In 2002 he worked a total of 145
days aboard the Poseidon. The Poseidon’s home port in 2002 was
also Dutch Harbor, Alaska. During 2002 Poseidon Fisheries also
deducted $25 per day from petitioner’s compensation for food
expenses. Poseidon also calculated petitioner’s compensation in
2002 with reference to the Poseidon’s catch. Petitioner was not
reimbursed for meals or incidental expenses incurred while
working on either the Storm Petrel or the Poseidon during the
years in issue.
On Schedule C, Profit or Loss From Business, of his 2001
return, petitioner deducted $8,763 for supplies and $31,205 for
other expenses as follows:
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Type of expense Amount deducted
Provisions $22,705
Cannery expense 8,500
On Schedule C of his 2002 return, petitioner again deducted
$8,763 for supplies and $44,070 for other expenses as follows:
Type of expense Amount deducted
Provisions $27,550
Cannery expense 8,500
Telephone 1,840
License 180
Repairs 6,000
It is unclear from the record how petitioner calculated any of
these expenses or what amount he deducted on his returns for the
years in issue for meals and incidental expenses.
Discussion
Section 162(a)(2) permits taxpayers to deduct all ordinary
and necessary business expenses paid or incurred during the
taxable year and specifically includes traveling expenses
(including amounts expended for meals and lodging other than
amounts that are lavish or extravagant under the circumstances)
while away from home in the pursuit of a trade or business. The
parties agree that petitioner may calculate his deductions for
meals and incidental expenses using the Federal M&IE rates
applicable to Dutch Harbor, Alaska, for the days he was working
on the Storm Petrel or the Poseidon during the years in issue.
However, respondent argues that petitioner’s allowable deduction
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for meals is limited to 50 percent of the portion of the per diem
rate allocated to meal expenses.
Although ordinary and necessary business expenses are
generally deductible under section 162, section 274(n)(1)(A)
provides that the amount allowable as a deduction for any meal
expense is limited to 50 percent of the amount of the expense
that would otherwise be allowable. Section 274(n)(2)(E) provides
an exception to the 50-percent limitation on the deductibility of
meal expenses when the expense is for meals required by any
Federal law to be provided to crew members of a commercial
vessel.
Petitioner asserts that he qualifies for the exception under
section 274(n)(2)(E) and may deduct the full M&IE per diem rates
applicable to Dutch Harbor, Alaska, for the days he was working
in 2001 and 2002. He argues that 18 U.S.C. section 2191 (2000),
a criminal statute prohibiting cruel treatment of seamen, is a
Federal law that requires food or beverages to be provided to all
crew members on U.S. vessels. Therefore, petitioner contends
that he qualifies for the exception under section 274(n)(2)(E)
and may deduct the full M&IE per diem rates for the days he was
working aboard the Storm Petrel and the Poseidon during the years
in issue.
Title 18 U.S.C. section 2191 provides as follows:
Whoever, being the master or officer of a vessel of the
United States, on the high seas, or on any other waters
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within the admiralty and maritime jurisdiction of the
United States, flogs, beats, wounds, or without
justifiable cause, imprisons any of the crew of such
vessel, or withholds from them suitable food and
nourishment, or inflicts upon them any corporal or
other cruel and unusual punishment, shall be fined
under this title or imprisoned not more than five
years, or both. [Emphasis added.]
Petitioner interprets the prohibition against withholding food
from crew members, an express form of cruel and unusual
punishment under the statute, as a Federal law establishing an
affirmative duty of the master, officer, and owner of a vessel to
provide food or beverages to crew members on any U.S. vessel,
including fishing vessels like the Storm Petrel and the Poseidon.
The scope and purpose of 18 U.S.C. section 2191 is to
protect seamen from cruel and unusual punishment such as
flogging, beating, unjust imprisonment, and other forms of severe
physical mistreatment. In this context, the criminal prohibition
against withholding food and nourishment from a sailor cannot be
interpreted as the imposition of an affirmative duty to provide
food or beverages to all seamen. See H. Conf. Rept. 100-1104
(Vol. II), at 134-135 (1988), 1988-3 C.B. 473, 624-625 (“The
percentage reduction rule does not apply to an otherwise
allowable deduction for expenses of food or beverages that (1)
are required by Federal law (46 U.S.C. sec. 10303) to be provided
to crew members of a commercial vessel, or (2) are provided to
crew members of a commercial vessel operating on the Great Lakes,
the St. Lawrence Seaway, or the U.S. inland waterways that is of
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a kind that would be required by Federal law to provide food or
beverages to crew members if operated at sea. (Thus, for
example, the provision for full deductibility would not apply
with respect to fishing boats or foreign vessels operating on the
inland waterways.)” (Emphasis added.)).
Moreover, there is a separate statutory provision that
imposes an affirmative duty to provide adequate nourishment to
seamen, but it specifically excludes fishing vessels from its
application. Title 46 U.S.C. section 10303 (2000) provides in
relevant part:
(a) A seaman shall be served at least 3 meals a day
that total at least 3,100 calories, including adequate
water and adequate protein, vitamins, and minerals in
accordance with the United States Recommended Daily
Allowances.
* * * * * *
(c) This section does not apply to a fishing or whaling
vessel or a yacht.
Petitioner argues further that maritime common law requires
that food or beverages be provided to the crew of fishing
vessels. Petitioner generally claims that maritime law requires
all vessels to be “seaworthy”, and that “seaworthiness” includes
an obligation that adequate food be furnished to crew members.
However, 46 U.S.C. section 10901 (2000), which addresses
proceedings on unseaworthiness, specifically states that it is
not applicable to fishing or whaling vessels or yachts. Thus,
regardless of whether the “seaworthiness” doctrine includes an
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obligation to provide food to crew members, such doctrine is not
applicable to fishing vessels like the Storm Petrel and the
Poseidon. Furthermore, Federal law specifically tailored to
fishing voyages is codified in 46 U.S.C. sections 10601 through
10603 (2000) and does not contain any requirement that seamen
employed on fishing vessels be provided with food or beverages.
Petitioner has not shown that he qualifies for any exception
to the 50-percent limitation on deductions for food or beverage
expenses under section 274(n)(1)(A). Thus, petitioner’s
deductions for meal expenses in the years in issue are limited to
50 percent of the applicable per diem rates. In reaching our
holding, we have considered all arguments made, and, to the
extent not mentioned, we conclude that they are irrelevant, moot,
or without merit.
To reflect the foregoing and the stipulation as to other
adjustments,
Decision will be entered
under Rule 155.