Ford v. Commissioner

TaNNENWald, /.,

dissenting: In my view, the majority has stretched the record beyond reasonable limits, particularly in light of the fact that the petitioner has the burden of proof. Their decision rests on a foundation that is highly questionable in several respects.

Although petitioner was engaged in various teaching activities during the years 1963 through 1966, he was also pursuing a continuous course of postgraduate study immediately following the completion of a bachelor of arts program in 1962. Thus in 1963, he completed the units of educational courses required for a regular teaching certificate and in 1964 embarked upon a full-time day program of study leading to a Ph. D. in anthropology. His teaching activities during this period were substitute, part-time assignments and an evening class in remedial English. The record is devoid of any evidence indicating how much time he devoted to these activities as compared with his studies. On the basis of the foregoing, it seems reasonable to conclude that, at least until December 31, 1966, petitioner was working to study, not studying to work. See Arthur M. Jungreis, 55 T.C. 581, 593 (1970). In any event, petitioner has not proved otherwise.

In 1967, petitioner stopped studying and became a full-time teacher. However, a bare 8 months later, he went to Oslo, Norway, apparently to complete his Ph. D. program in anthropology.1 I think that it is open to question whether petitioner’s brief venture into full-time teaching was enough to change his life style from that of a student to that of -a teacher for the purposes of this case.2 In this respect, this case is clearly distinguishable from Furner v. Commissioner, 393 F. 2d 292 (C.A. 7, 1968), reversing 47 T.C. 165 (1966). Nevertheless, for the purposes of analysis, I will accept the majority’s conclusion that such a change took place.

Obviously, a person may be sufficiently established in a trade or business to permit the deduction of certain items of expenses (for example, teaching materials required by a teacher). But it does not follow that such a person should be entitled to deduct every expense that somehow can be connected with that trade or business. The requirement of section 162(a) that the expense be “ordinary and necessary” demands that the issue of deductibility be resolved in terms of the degree of relationship between the item and the trade or business.

The “necessary” requirement of section 162(a) has been construed to mean “appropriate and helpful.” See Welch, v. Helvering, 290 U.S. 111, 113 (1933); Cosimo A. Carlucci, 37 T.C. 695, 699 (1962). Although the question is, in my opinion, not entirely free from doubt, the broad scope of respondent’s regulations, insofar as improvement of skills is concerned, dictate that I should accept the finding of the majority that the nexus herein is sufficient to satisfy this requirement.

But section 162(a) also requires that the expense be “ordinary” and, to me, the focus of this case should be on that word. The Supreme Court has stressed the accepted rule of the “popular or perceived import” of a statute’s words and has further emphasized that “Ordinary has the connotation of normal, usual, or customary” and that each case “turns on its special facts.” See Deputy v. DuPont, 308 U.S. 488, 493, 495-496 (1940). See also Old Colony R. Co. v. Commissioner, 284 U.S. 552, 561 (1932). And in Cosimo A. Carlucci, supra, we recognized that a deduction for education should be allowed “if it is customary for other established members of the taxpayer’s trade or business to undertake such education.” See 37 T.C. at 700. This concept is further reflected in our decision in David J. Prinmth, 54 T.C. 374 (1970), where we held that employment agency fees paid by a corporate financial executive to obtain a similar position with a new employer were deductible. Applying this concept, I find it impossible to conclude that any of petitioner’s expenses herein should be allowed as deductions.

In our society, it is customary for professional people to pursue educational programs to keep abreast of current developments which improve professional skills. Expenses of such continuing education should, under normal circumstances, be considered “ordinary.” On the other hand, our society recognizes that the expenses of preparing oneself for his life’s business are personal. Such expenses should not be considered “ordinary” expenses of the business in which he ultimately is engaged. In this case, the critical question is in which category the expenditures involved fall. In my opinion, the petitioner was merely pursuing, albeit with an interruption, the securing of his doctoral degree, as part of an ongoing program designed to establish him as a teacher and, for the purposes of section 162(a), his expenditures should not be considered as “ordinary” expenses of an established teacher.

In this case, it appears that, in 1967, which is the only year before us, petitioner merely took courses in Norwegian in order to “do my homework before I got involved in the university situation.” Whatever may be the circumstances in other cases with regard to the need for preparatory courses in foreign languages, I do not think it can be considered “normal, usual or customary” for a teacher with so little experience to travel to a foreign country and spend 4 months learning the language in order to take a mere 8 months-of courses purportedly related to his trade or business. Even if I were to resolve this question in petitioner’s favor and look only to the subsequent courses which he took, I would conclude that it was not “normal, usual or customary” for any teacher, in practice for such a short period of time, to embark upon a full-time course of study in a foreign country. In so stating, I do not mean to suggest that the foreign country aspect is necessarily determinative against a deduction. I can conceive of situations where study abroad would clearly satisfy the “ordinary” requirement of section 162(a). But such aspect is but one element to be taken into account and, since travel has an inherently personal aura, I think it is incumbent upon a taxpayer to give some reasonable explanation why the education in question needs to be undertaken so far from home base. Petitioner herein has furnished no such explanation and common Imowledge cannot supply it on the basis of the record before us.

The majority relies heavily on the case of Furner v. Commissioner, supra, as support for the proposition that a taxpayer may still be in the business of teaching despite a 1 year’s absence from any income-producing activity. That may well be so, but Fwrner does not stand for the proposition that, once in a trade or business, any expenses subsequently incurred for education which improves or maintains one’s teaching skills are ipso facto deductible. In Fumer, the taxpayer was a full-time teacher for 3 years before taking graduate courses for 1 year in history, the subject she had taught during that time. The Court of Appeals found that, under the circumstances, it was “not unusual, and is becoming more usual, for teachers to enroll in full-time graduate study for an academic year in order to keep up with expanding Imowledge and improve their understanding of the subjects they teach.” Furner v. Commissioner, 393 F. 2d at 294. That same conclusion does not hold in the instant case.

I think that at most petitioner’s Norwegian sojourn might be said to represent an abandonment of his teaching status coupled with an intention to resume tlie practice of his profession at a later date. On this basis, his expenses are not deductible. Canter v. United States, 354 F. 2d 352 (Ct. Cl. 1965); Henry G. Owen, 23 T.C. 377 (1954). See Nathaniel A. Denman, 48 T.C. 439, 445 (1967); T. F. Driscoll, 4 B.T.A. 1008 (1926).

We should not overlook the fact that we are dealing with a broad statute, providing for the deduction of ordinary and necessary business expenses, and not a specific provision reflecting legislative policy in the area of educational expenses. This is particularly the case in light of the specific provision denying a deduction for personal expenses. Sec. 262.

Educational expenses are not deductible if they are in fact personal expenses. Kespondent’s regulations recognize that the delineation of deductible educational expenditures in section 1.162-5, Income Tax Regs., is still subject to the “ordinary and necessary” language contained in section 162 and, unless that umbrella statutory test is met, the expenditures will be considered personal and nondeductible. See sec. 1.262-1 (b) (9), Income Tax Regs. Compare Bingler v. Johnson, 394 U.S. 741, 749 (1969), quoting with approval Elmer L. Reese, Jr., 45 T.C. 407, 413 (1966), affirmed per curiam 373 F. 2d 742 (C.A. 4, 1967). Perhaps respondent’s regulations are not as clear as they might be in delineating the overall precondition that must first be met in order for section 162(a) to apply. Moreover, it is arguable that respondent’s regulations exhibit a favoritism toward the teaching profession which borders on discrimination. But neither an acceptance, of such discrimination nor the possible inadequacy of respondent’s regulations can justify our refusal to follow the mandate of section 162(a) that the facts of a given case must show that the expense was “ordinary” to be deductible. In my opinion, petitioner herein fails to satisfy that test.

DeeNNEN, Raum, and SimpsoN, JJ., agree with this dissent.

The word “apparently” is -used advisedly. All the record reveals is that petitioner went to Oslo and that he studied Norwegian and, later, other courses which were part of his Ph. D. program. Petitioner did not explain in any way why he went to Norway. On this basis alone, the portion of petitioner’s deduction attributable to his actual traveling expenses could be disallowed on grounds of failure of proof. See sec. 1.162-5 (e) (1), Income Tax Regs., which retains the primary-purpose test with regard to expenses of travel away from home to obtain education.

In Albert C. Ruehmann III, T.C. Memo. 1971 — 157, we considered a lawyer who took graduate study immediately after graduating from law school to be engaged in a trade or business. However, the ultimate decision turned on a concession by the respondent that, if we found the taxpayer to have been engaged in a trade or business to any degree, the educational expenses were properly deductible. Compare Barry Reiaine, T.C. Memo. 1970-310.