Harvey v. Commissioner

OPINION.

Harron, Judge:

During tbe taxable year 1953, the petitioner’s employer paid him $2,315, at tbe rate of $7 per day, in addition to bis regular salary. Tbe question is whether this sum is additional compensation for services and, therefore, income under section 22(a) of tbe 1939 Code, or reimbursement for “traveling expenses while away from home” within the provisions of sections 23(a) (1) (A) 1 and 22(n)

(2) .2 Petitioner seeks to subtract from gross income tbe amount of $2,315, but such subtraction from gross income is allowable only if the amount would be deductible as traveling expenses under section 23(a) (1) (A). Both parties rely upon the principles stated in Commissioner v. Flowers, 326 U.S. 465.

It was stated in the Flowers case that three conditions must be satisfied before a traveling expense deduction may be allowed under section 23(a) (1) (A), and that “[f]ailure to satisfy any one of the three conditions destroys the traveling expense deduction.” The three conditions noted by the Supreme Court are as follows:

(1) The expense must be a reasonable and necessary traveling expense, as that term is generally understood. This includes such items as transportation fares and food and lodging expenses incurred while traveling.
(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. Moreover, such an expenditure must be necessary or appropriate to the development and pursuit of the business or trade.

It was also said in the Flowers case that “[w]hether particular expenditures fulfill these three conditions so as to entitle a taxpayer to a deduction is purely a question of fact in most instances”; that in order to be deductible the “travel expenses” must be required by “¿Ae exigencies of business”/ and that “[b]usiness trips are to be identified in relation to business demands and the traveler’s business headquarters.” See, also, Peurifoy v. Commissioner, 358 U.S. 59.

The respondent’s determination has been made on a broad basis in that he has held that $2,315 is income under section 22(a) and that it is not “away from home” expenses under sections 23(a) (1) (A) and 22 (n) (2). The petitioner has the burden of proving that the determination is incorrect. The issue to be decided presents a question of fact.

By a stipulation,3 the parties have eliminated questions relating to the nature and amounts of the particular items of expense which aggregated $2,315. The record does not disclose the types and amounts of the individual expenses. It is assumed, however, that expenses for meals and lodging at tbe base and in Lancaster are included. If there are included in the total amount petitioner’s expenses of going to and from his work at the base in making daily trips between Lancaster and the base and the cost of taking trips to visit his family in Santa Monica over weekends, the record does not show anything about such expenses.

Respondent contends that beginning on December 15, 1952, petitioner acquired a new headquarters, or post of duty, principal and regular place of employment, which was at Edwards Base; that Edwards Base was petitioner’s headquarters and post of duty until around the end of January 1954; that the so-called per diem paid by Douglas Aircraft during the entire period was additional pay to compensate for additional personal expenses which were entailed by petitioner’s having to work at Edwards Base; that the base was not a transitory and temporary location of operations of Douglas Aircraft; that the procedure of Douglas in assigning petitioner to Edwards Base by means of a so-called travel order, which was renewed periodically, was nothing more than an administrative procedure of Douglas under, its general policy of issuing travel orders to every employee who was assigned to work at Edwards; and that the fact that Douglas issued travel order forms to petitioner and paid him the stipend of $7 per day as “travel expenses” is not determinative of the question to be decided.

The petitioner contends that Santa Monica was his headquarters and post of duty and principal place of employment; that Douglas Aircraft determined that petitioner’s assignment to Edwards was a temporary one with respect to the acceptance of which petitioner had no discretion; that the employer’s issuance to petitioner of an initial 90-day travel order, subject to extensions for 90 days, is evidence of the temporary nature of petitioner’s assignment to the base; that Douglas Aircraft’s determination that petitioner’s assignment to the base was temporary and that he was in travel status during the entire time that he was there was reasonable, was in accord with sound business practice, and was also in accord with policies of the Air Force; that the exigencies of Douglas Aircraft’s business required the “travel”; and that it cannot be held that Edwards Base was petitioner’s headquarters and post of duty during 1953 because he was not permanently assigned to the base.

Petitioner adopts the view that a proper construction of the word “home” in the statute is the taxpayer’s “place of business, employment, or the post or station at which he is employed, in the prosecution, conduct, and carrying on of a trade or business,” as was stated in Mort L. Bixler, 5 B.T.A. 1181, 1184, and also followed in Barnhill v. Commissioner, 148 F. 2d 913. Respondent also adopts that view.

Petitioner objects to respondent’s position that whether the situs of a taxpayer’s work constitutes his post of duty and regular place of employment may be determined on the basis of whether at the time the work is undertaken at such location the employment there was to be for an indefinite and indeterminate period. Petitioner argues that the determination of whether a particular, place of employment constitutes a post of duty depends upon whether the assignment to such locus of employment was permanent; that if an employee is not permanently assigned to a situs of work, then the assignment must be held to have been temporary; and that if an assignment to a work location is temporary, even though it is indefinite and indeterminate, then such work location is not the employee’s headquarters and post of duty, and while he works under a “temporary” assignment he is “away” from his post of duty located elsewhere. Petitioner argues, further, that when an assignment of an employee to a particular situs of work is made because of the exigencies of the employer’s business, the expenses incurred by the employee while there are deductible as “traveling expenses while away from home” within the requirements of the statute.

The contentions of each party and the entire record have been very carefully considered, and particular attention has been given to all of the standards which the Supreme Court has delineated in the Flowers and Peurifoy cases as the proper standards to be applied in determining whether expenses are deductible under section 23(a) (1) (A). It is recognized that in this case the petitioner is a regular employee of a corporation who, in 1952, had been an employee for over 12 years and is still an employee of the corporation, that there are differences in the facts and situations in both the Flowers and Peurifoy cases as compared to the facts here, and that here the employer paid an amount to the employee which is said to be reimbursement for expenses whereas in the cited cases no payments were made by the respective employers to cover alleged “traveling expenses.”

Our conclusion is that the petitioner has failed to establish that the expenses in question satisfy the three conditions contained in section 23(a) (1) (A). We turn now to discussion of the evidence and the reasons for our conclusion.

A preliminary matter should be noted. It is axiomatic that each case stands on its own particular facts. Before us in this case is John J. Harvey, only. In the record there is material dealing with and explaining, in general, policies of Douglas Aircraft relating to the organization of its operations on the basis of projects, and dealing with the issuance of so-called travel orders and the hazards which may occur during the course of its operations. Although the entire record has been considered, we have attempted to distinguish and give due weight to that which is relevant to the taxpayer before us.

The petitioner would have us believe that all of the work carried on by Douglas Aircraft at Edwards Base is of a transient nature, and that it cannot be said that the base could be a headquarters or post of duty of any employee of Douglas. The evidence does not support such generalizations. The record shows that ordinarily the testing operations to be carried on at the base and the time which it is expected will be required are planned in advance; that some testing work there has required 1 or 2 years, or longer; and that some employees have worked at the base for 1 or 2 years, or more. Douglas has carried on regularly certain work, chiefly flight testing, at the base since 1947 until the present time under contracts with the Government which require its doing certain work at the base. Certain facilities and hangars there have been used by Douglas to which it has made additions at its own expense, and over the years the facilities used by Douglas have increased. Eventually, in 1955 (according to the Douglas Travel Manual), Douglas classified Edwards Base as one of its “permanent” locations for carrying on some of its operations. In 1952 and 1953, Douglas kept a few maintenance employees there continuously, foremen and toolkeepers, and other employees (the number of which is not shown) were located there for 2 or 3 years, or longer. It appears that Douglas had a substantial number of Government contracts during the period involved here which required a regular course of operations at the base. With respect to the organization of work on a project basis and the assignment of several types of workers to a project so that parts of the entire project job were performed at a plant in the Los Angeles area and other parts of the entire project were worked on at Edwards Base, it is our opinion, based upon the entire record, that the work under a project which was done at Edwards in some instances was so substantial and continuous that it was a distinct subdivision of the project work and was apart from other phases of the work which had to be done at one of the plants owned by Douglas. Our conclusion is, therefore, that during the years 1952-1954, at least, it was possible and practicable for Edwards Base to be a headquarters or post of duty of some employees of Douglas, and that it cannot be said that the only places where any employee could have a post of duty was at a plant owned by Douglas. There is testimony that before 1953 Douglas considered the possibility of establishing a new center for flight testing away from Edwards Base. It did not do so and that testimony is, in general, immaterial and irrelevant.

The policy and practice of Douglas in issuing so-called travel orders, limited to 3 months (or 90 days), to all employees assigned to work at Edwards Base, and its practice of paying a so-called per diem of $7 to every employee who worked there (except those hired from the locality) are general matters which require some comment. Although the record lacks testimony of representatives of the Air Force in its contracting and auditing departments, there is testimony of an officer of Douglas Aircraft which clearly shows that the policy and practice of Douglas in issuing the so-called travel orders was discussed with the appropriate officers of the Air Force so that the expense to Douglas of paying $7 per day to employees assigned to Edwards, in addition to their regular wages, would be recognized by the Air Force and Navy as the kind of expense for which the Government would make reimbursement to Douglas. In order that such per diem expense of Douglas could be included in its reimbursable expenses, it was necessary that there would be compliance with regulations relating to the reimbursement of travel expenses in the Armed Services Procurement Regulations. The record does not show, however, what those regulations are. The petitioner has explained only partially the relationship, if any, of the policy of Douglas in limiting all travel orders to 90 days, subject to extensions for 90-day periods, to ASPR. For example, we are not told whether the Air Force regulations limited its classification of what constitutes reimbursable travel expense to “travel” authorized for a period not to exceed 90 days. Since the Air Force and the Navy have reimbursed Douglas for all the per diem expenses of employees working at Edwards, “booked as such,” and since (according to the Travel Manual of Douglas) special arrangements had been established for extensions of the 90-day travel orders in cases of “extended assignments” to Edwards Base, an inference which we think reasonably can be drawn is that the use of travel orders limited to 90 days served certain administrative purposes and objectives of Douglas Aircraft other than a procedure to cover only business trips of employees as that term is ordinarily understood. It is our view, therefore, that in the case of the taxpayer before us it is not necessarily determinative of the issue to be decided that he was under so-called travel orders and was classified by Douglas as being in travel status during the 18% months he worked at Edwards Base. In some other case having different facts, the fact that a travel order was issued might be given more weight.

With respect to the general policy of paying $7 per day to every employee who worked at Edwards (other than those hired locally) there is testimony of an assistant foreman of field operations in the Testing Division at the Santa Monica plant to the effect that in 1952 and 1953, employees of Douglas would not have been inclined to accept work at Edwards Base without receiving $7 per day in addition to regular wages, and that Douglas adopted the general policy of paying the additional amount per day in order to compensate employees working at Edwards for the additional expenses entailed by working there, particularly if an employee’s family continued to reside in the Los Angeles area while he was employed at the base. The same witness testified that the Testing Division made up in advance schedules covering the testing operations to be done on a project at Edwards and that in some instances it was anticipated at the time an employee was assigned to do work at Edwards that he would be required to work there for more than 90 days under normal operations, excluding emergencies, but in every instance the travel order was issued for only 90 days.

The record shows that Douglas paid employees working at Edwards Base the additional stipend of $7 per day during the entire periods they were there, whether for a month or for more than a year, even if the employees established a family residence in the vicinity of the base to which their families moved, and that although Douglas knew of instances where employees moved their families to, a town near the base, that fact did not cause termination of the payment of $7 per day in addition to regular wages. Petitioner continued to receive that payment after his family moved to Lancaster. Whether or not his employer knew that he moved his family to Lancaster, its policy was to continue paying the so-called per diem.

It is frequently the rule in considering tax questions that terminology, labels, form, and accounting procedures are not determinative of the question. That rule applies here in connection with the issuance of a so-called travel order to petitioner and the designation of “travel expense” reimbursement given to the amount per day which he received. Upon the entire record the procedure followed by Douglas and its designations are not determinative in this case.

The basis of petitioner’s claim that the sum he received, $2,315, constitutes traveling expenses under section 23(a)(1)(A) is that during the entire time he was at Edwards Base he was in travel status away from a principal post of duty at Santa Monica. The chief question is whether his headquarters and principal post of duty shifted to Edwards Base when he received a new work assignment.

During the period petitioner worked at the base, he did not do any work at any time at the Santa Monica plant. He did not take any business trips away from the base. All of his duties were carried out there. Prior to going to the base, petitioner worked at the Santa Monica plant for not more than 30 days, the work he did during that interval did not relate to the X-3 airplane testing project, and the work which he did at the base represented a new work assignment. Petitioner did not accompany the X-3 plane to the base; it was there when he arrived. Petitioner had worked previously at the El Segundo plant for 12 years. Compared to the work he did there, the work he did at the base was new.

When petitioner was assigned to the base in 1952 he was not told that the assignment away from the Santa Monica plant was either strictly temporary or that it would be for a period which would end within a foreseeable length of time, or at the end of 3 months. In fact, the petitioner received a year-round assignment in which his new work was not tied to any work which he had been doing at either the El Segundo or the Santa Monica plant. His supervisor was noncommittal when making the assignment. He gave no assurance about the foreseeable termination thereof but merely indicated that petitioner was to work at the base for as long as he was needed there. Under all of the facts and circumstances we are unable to. find and conclude that petitioner’s job at Edwards Base was so temporary that the rule of the Flowers case does not apply. We are unable to find that during the period involved petitioner had his headquarters and principal post of duty at the Santa Monica plant. The facts, in our opinion, support a finding that petitioner’s headquarters and principal post of duty shifted to Edwards Base, his new place of employment.

It was said in the Flowers case that “[bjusiness trips are to be identified in relation to business demands and the traveler’s headquarters(Emphasis added.) It is true that the requirements of the business of Douglas Aircraft were the occasion for its assigning petitioner to do work at Edwards but that fact alone is not determinative. Neither is it determinative of the question that the headquarters of the Testing Division is at the Santa Monica plant, that petitioner’s employer classified petitioner’s assignment to the base as “temporary,” and that if an accident to or defects in the X-3 plane had caused a return of the plane to the Santa Monica plant, petitioner’s work at the base might have ended and he then would have been transferred back to Santa Monica.

In Kermit L. Claunch, 29 T.C. 1047, 1052, affd. 264 F. 2d 309, Claunch contended that because his union had the power to call him off his job at Rome, Georgia (where he worked for 2 years), and send him to another place, his post of duty was not Rome. We rejected the argument and held that the place where Claunch worked was his post of duty, and noted that even though such eventuality might have happened, it did not. We make the same observation here. The fact is that the testing of the X-3 plane continued and petitioner worked at the base for over a year. See, also, Beatrice H. Albert, 13 T.C. 129. The argument is immaterial.

In Henry C. Warren, 13 T.C. 205, a United States Navy Yard classified Warren’s position at the Charleston Navy Yard as “temporary” although he worked there continuously from August 24, 1943, until September 21, 1945, and his duties there did not require him to leave Charleston at any time. We held that Charleston was his post of duty during the taxable year 1944 and denied a deduction for his expenses there under section 23 (a) (1) (A). In John D. Johnson, 8 T.C. 303, we held that Johnson’s post of duty shifted from his employer’s main office in Cleveland to its office in New York City. He had worked in the Cleveland office for 24 years and was transferred to New York City to take the place of the sales manager who had been given a leave of absence to enter the service in the Navy. It was understood that when the absent sales manager came back, Johnson would return to the Cleveland office but it was not known when that would be. It was held that Johnson’s expenses for meals and lodging in New York City during an entire year were not traveling expenses.

In Darrell Spear Courtney, 32 T.C. 334, the facts closely resemble the facts here. Courtney was employed by North American Aviation, Inc., which has its main plant near Los Angeles at Downey. It was required under a Government contract to do testing work at Edwards Base. Courtney had worked at the Downey plant since October 1951. He was assigned to do work at Edwards in July 1952 which involved making records of the tests. He was not told how long he would be employed at the base. He worked there until March 1954. North American classified Courtney’s assignment to the base, as well as the entire testing project, as temporary. We did not regard the employer’s classification of the assignment as determinative and held that Courtney’s headquarters and principal post of duty shifted from the Downey plant to Edwards Base.

This case is not distinguishable from the Courtney case. The facts here are substantially the same. In some respects they are even less favorable to the taxpayer. Also, although North American did not use so-called travel orders in assigning its employees to Edwards Base, it paid employees who were transferred from the Downey plant a “per diem” during the entire time they worked at the base. As noted above, we are unable to attach a great deal of significance to the fact that Douglas Aircraft issued 90-day travel orders to all of its employees who worked at the base, and such factor does not serve to distinguish this case from Courtney’s. Courtney’s so-called per diem receipts in 1953 aggregated $2,443 and were based upon an allowance of $7 per day after an increase from a lower amount. Petitioner’s allowances during 1953 totaled $2,315. Courtney moved his family to Lancaster about 6 months after he began work at Edwards, as did petitioner. The exigencies of the employer’s business in both cases required the transfers of the respective employees to Edwards. We are unable to find facts here which would support the conclusion that tire Santa Monica plant continued to be the post of duty of Harvey, just as we were unable to find under substantially the same type of facts that the Downey plant continued to be the post of duty of Courtney.

Much of what was said in the Courtney case and the cases there cited apply here. See York v. Commissioner, 160 F. 2d 385; Ney v. United States, 171 F. 2d 449, certiorari denied 336 U.S. 967; Ford v. Commissioner, 227 F. 2d 297; and Michael J. Carroll, 20 T.C. 382. But in addition, it must be held that, without any question, the part of the expenses for meals and lodging out of $2,315 which applies to the period following the move of petitioner’s family to Lancaster is not business travel expense but is nondeductible personal expense. Gunnar Van Rosen, 17 T.C. 834. “The Congress undoubtedly intended that the taxpayer’s personal expenditures in maintaining his usual place of abode should not be deducted * * Chester D. Griesemer, 10 B.T.A. 386, 389. After petitioner moved into his own house at Lancaster and gave up the one in Santa Monica, he was not burdened, because of his employment at the base, with a duplication of both the household expenses of his place of abode and “outside” expenses. Although there is little or no record of legislative history to explain the intent of Congress in enacting sections 23(a) (1) (A) and 24(a) (1), it appears that the purpose of allowing deduction for living expenses “while away from home” to the extent that they are ordinary and necessary expenses of business travel, was to equalize the burden between the taxpayer whose employment requires business travel and the taxpayer whose employment does not. James v. United States, 176 F. Supp. 270.

Consideration had been given to petitioner’s contention that the expenses in question come within section 23(a) (1) (A) even though it is concluded that his work at Edwards Base was for an “indefinite” rather than a “temporary” period of time, and to the further argument that the base could not have been his principal post of duty because he did not receive a “permanent” assignment there. Petitioner’s contentions, if approved, would, in our opinion, enlarge the scope of the relevant provisions of the statute beyond the intent of the Congress. The provisions of section 23(a) (1) (A), allowing a deduction from income upon certain conditions, as a matter of legislative grace, are to be contrasted with the provisions of section 24(a) (1) which disallow any deduction for “personal, living, or family expenses.” Commissioner v. Flowers, supra; Gunnar Van Rosen, supra; and Darrell Spear Courtney, supra. “Exemptions from taxation are not to be enlarged by implication if doubts are nicely balanced.” Trotter v. Tennessee, 290 U.S. 354.

It is well established that within the statutory framework of sections 22(a), 23(a)(1)(A), and 24(a)(1), expenses incurred by an employee for meals and lodging at his principal post of duty are not deductible, and that in order for such expenses to be deductible as an expense of business travel they must be incurred while the taxpayer is temporarily living and working away from his headquarters, post of duty, and “home.” Commissioner v. Flowers, supra. The now-prevailing view is that the expenses of meals and lodging at the place of the taxpayer’s employment are not an ordinary and necessary business travel expense “within the meaning of section 23(a) (1) (A) if the employment is of substantial or indefinite duration.” Commissioner v. Peurifoy, 254 F. 2d 483, 487, affd. 358 U.S. 59; Andrews v. Commissioner, 179 F. 2d 502, 504; Beatrice H. Albert, supra; James R. Whitaker, 24 T.C. 750, 753; Arnold P. Bark, 6 T.C. 851; Henry C. Warren, supra; Michael J. Carroll, supra at 384; and Kermit L. Claunch, supra at 1052. It is also the generally accepted interpretation of “temporary” employment that its termination can be foreseen within a fixed or reasonably short period of time. We find no sound reason here for departing from the above views. See, also, Carragan v. Commissioner, 197 F. 2d 246, 249, where, in applying the same principles in a somewhat different way, it was said: “We see no merit to petitioner’s argument that his job was so temporary — i.e., ‘for the duration’ — that the Flowers rule is inapplicable.”

It is held that petitioner’s employment at Edwards Base was “indefinite” in duration rather than “temporary” since it could not be foreseen that termination would occur within a fixed or reasonably short period; that the base was his headquarters and principal post of duty during the taxable year 1953; that expenses in the amount of $2,315 were not business travel expenses “while away from home” within the provisions of section 23(a) (1) (A); that the above amount may not be subtracted from gross income under section 22 (n) (2); that the amount in question constituted additional compensation for petitioner’s services; and that the expenses involved were nondeductible personal and living expenses and not business expenses.

Reviewed by the Court.

Decision will be entered for the respondent.

SBC. 23. DEDUCTIONS PROM GROSS INCOME.

In computing net income there shall be allowed as deductions:

(a) Expenses.—

(1) Tbadb ob business expenses.—
(A) In General. — All the ordinary and necessary expenses paid or incurred during the taxable year in carrying on any trade or business, including a reasonable allowance for salaries or other compensation for personal services actually rendered; traveling expenses (including the entire amount expended for meals and lodging) while away from home in the pursuit of a trade or business; * * *

SEC. 22. (n) Definition of “Adjusted Gross Income". — As used in this chapter the term “adjusted gross income” means the gross income minus—

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(2) Expenses of travel and lodging in connection with employment. — The deductions allowed by section 23 which consist of expenses of travel, meals, and lodging while away from home, paid or incurred by the taxpayer in connection with the performance by him of services as an employee;

The parties have stipulated as follows:

“If it is determined that petitioner husband was away from home while employed at Edwards Air Eorce Base, California, during the year 1953, then his away-from home expenses, (including the amount expended for meals and lodging) under Section 22 (n) (2) of the Internal Revenue Code of 1939, at this location amounted to $7 per day or a total of $2,315.00.”