Respondent determined a deficiency in the amount of $986.44 in petitioners’ Federal income taxes for 1976. After various concessions by respondent,1 the sole issue for decision is whether petitioners are entitled, under sections 162(a) and 280A,2 to a deduction of $840 as the cost of maintaining an office in their home.
FINDINGS OF FACT
At the time the petition was filed, petitioners John W. Green (petitioner) and Regina R. Z. Green, husband and wife, were legal residents of Kailua, Hawaii. They timely filed a joint Federal income tax return for 1976 with the Internal Revenue Service.
During 1976, petitioner John W. Green was an employee of Dillingham Land Corp. (Dillingham), a real estate development firm in Hawaii. He worked as an account executive for the property management division, and was responsible for the administrative and physical management of seven condominiums. Each of these buildings had a resident manager of whom petitioner was the immediate supervisor; petitioner in turn was responsible to the board of directors of each building. From the seven buildings, petitioner dealt with approximately 49 people on a weekly, if not daily, basis.
Dillingham provided petitioner with an office in which he spent approximately 20 percent of his 8-hour workday. There, he attended to paperwork, and had a secretary who did typing, mailings, and took telephone messages. The remaining 80 percent of petitioner’s workday was spent outside the office, in the "field,” at jobsites, and at meetings with contractors and, occasionally, with board members.
Because he could not be reached during much of the day and because many of his callers could not themselves make telephone calls during the day, petitioner was required (as a condition of his employment) to receive a substantial number of telephone calls from Dillingham clients at his home after his regular working hours, averaging 2% hours a night, 5 nights a week. The calls came from condominium board members, resident managers, and others who wished to consult with him. Many of these individuals could not call him from their regular places of employment during office hours; others were themselves out in the field or engaged in construction or other nonoffice work during the day. Also, he would sometimes return calls from his home, responding to messages received during the day by his secretary.
To assist in servicing the Dillingham clients who called in the evenings, petitioner converted one bedroom of his three bedroom house into an office. In this home office, petitioner kept a telephone, which he used "strictly for incoming calls from board members, resident managers, et cetera, * * * that couldn’t get * * * [him] during the day”; he also maintained some files to which he might need to refer during a telephone conversation, such as files of financial statements and upcoming meeting agendas. He did no routine paperwork in his home office.
In the notice of deficiency, respondent disallowed the claimed deduction.
OPINION
Section 280A3 denies certain deductions, otherwise permissible under section 162,4 with respect to the use of a dwelling unit which is the taxpayer’s residence. Ordinary and necessary business expenses incurred in the use of a dwelling unit are allowable, however, if a taxpayer shows that the item is allocable to a portion of the dwelling unit which is "exclusively” used on a "regular basis” as either (A) the taxpayer’s "principal place of business” for any of his trades or businesses, (B) a place of business "used by patients, clients, or customers in meeting or dealing with the taxpayer in the normal course of his trade or business,” or (C) is a separate structure; in the case of an employee, the exclusive use must also be for "the convenience of his employer.” These criteria were enacted as part of the Tax Reform Act of 1976 to provide definitive rules to govern the allowability of deductions with respect to the use of a portion of a personal residence for business purposes; the rules were intended to replace the subjective section 162(a) "appropriate and helpful” standard employed in such cases as Newi v. Commissioner, T.C. Memo. 1969-131, affd. 432 F.2d 998 (2d Cir. 1970); Bodzin v. Commissioner, 60 T.C. 820 (1973), revd. 509 F.2d 679 (4th Cir. 1975); and later in Sharon v. Commissioner, 66 T.C. 515 (1976), affd. per curiam 591 F.2d 1273 (9th Cir. 1978). See S. Rept. 94-938, 1976-3 C.B. (Vol. 3) 182-188.
Petitioner contends that he has met the requisite tests by showing that his home office was regularly and exclusively used either as his principal place of business or as a place for meeting or dealing with clients in his normal course of business, and that the use was for his employer’s convenience. Respondent argues that petitioner has failed to meet the "exclusive use” test, the "principal place of business” test, and the "regular use by clients * * * in meeting or dealing” with the taxpayer test. Respondent does not contest the reasonableness of the $840 office expense allocation. In effect, he has conceded that, if we find for petitioners, the $840 is deductible in full.
Both parties agree, at least implicitly, that the $840 expense was an ordinary and necessary business expense under section 162, and we concur in that view. We also find that petitioner used his home office exclusively and on a regular basis for meeting or dealing with clients and that this use was for the convenience of his employer. Accordingly, we hold that petitioners are entitled to the disputed deduction.
To establish exclusive use for business purposes, petitioner testified that the bedroom was "converted” into an office and that the telephone in the room was used "strictly” for business purposes. Respondent did not produce any evidence showing personal use, nor did his cross-examination undermine petitioner’s credibility on this issue. There is no evidence of record to suggest that the room was used for any purpose other than to handle petitioner’s business telephone calls. Petitioner also established the regularity of this use, as he testified that he used the room approximately 2% hours, 5 nights a week. We find that petitioner has sustained his burden of proof by showing the exclusive and regular use of the home office. Welch v. Helvering, 290 U.S. 111 (1933); Rule 142(a).
Petitioner must show, in addition, that he meets one of the three specific use tests set forth at section 280A(c)(l)(A), (B), or (C), summarized above. Petitioner argues that he has met both (A), the principal place of business test, and (B), the meeting or dealing with clients test; respondent argues that petitioner fails both tests.5 We do not think he has met the principal place of business test, but we conclude that petitioner has complied with the section 280A(c)(l)(B) test.
Petitioner urges that, because he spent approximately equal amounts of time in his Dillingham and home offices, both offices should qualify as his principal places of business. There can be, however, but one principal place of business for each business. See Jackson v. Commissioner, 76 T.C. 696, 700 (1981); Baie v. Commissioner, 74 T.C. 105, 109 (1980);6 Curphey v. Commissioner, 73 T.C. 766, 776 (1980), on appeal (9th Cir., Nov. 24, 1980). Moreover, the number of hours of use alone does not necessarily determine whether an office qualifies as the taxpayer’s principal place of business. The test is whether the office is the "focal” point of the taxpayer’s particular trade or business. Jackson v. Commissioner, supra at 700; Baie v. Commissioner, supra at 109; see Curphey v. Commissioner, supra at 776. We think that the Dillingham office meets that test. That office was provided by Dillingham, and Dillingham employed a secretary who worked there under petitioner’s supervision and who-took telephone messages for him when he was working in the field. In that office, petitioner did all the requisite paperwork connected with his employment. His home office was used mainly to receive and make telephone calls which were important to his business but which, as a practical matter, could not be handled in the office provided by Dillingham. Even though he spent about the same amount of time in both of his offices, we think the Dillingham office was the focal point of his employment and thus petitioner fails to meet the principal-place-of-business test prescribed by section 280A(c)(1)(A).
Respondent contends that petitioner also fails to qualify under section 280A(c)(l)(B) because the clients’ use in meeting or dealing with petitioner was "incidental or occasional” rather than "regular” as required by section 280A(c)(1). Jackson v. Commissioner, supra at 700.7 It is true that petitioner testified that only three or four times in 1976 did clients personally come to his house, but we do not think that testimony is dispositive. The clients contacted petitioner by telephone on Dillingham business on a nearly nightly basis. Petitioner maintains that such contact constitutes "meeting or dealing” with him in a practical business sense within the meaning of section 280A(c)(l)(B).
We find little to guide us in determining whether a telephone call constitutes a "meeting or dealing” by a client or customer. Respondent does not cite any authority to support his contention that such meetings or dealings are limited to physical encounters, nor do we discover any. No doubt the typical situation the drafters of section 280A(c)(l)(B) had in mind was the doctor, the dentist, or the lawyer who maintains a home office, in addition to his principal office, where he meets with patients or clients. The meeting-or-dealing provision for allowance, however, is not limited to professional persons, and, by imposing a "convenience of his employer” requirement, Congress specifically recognized that an employee may qualify. We note that the proposed regulations for section 280A do not state that such meetings must be in person.8 Nor does the legislative history set forth an "in person” requirement.9
The legislative history makes plain that Congress was concerned with taxpayers using home offices for their own convenience, and obtaining business deductions for the incremental or negligible expenses attributable to those offices; essentially, Congress concluded that taxpayers were deducting personal expenses. S. Rept. 94-938, 1976-3 C.B. (Vol. 3) 182-186.10 Congress chose to attack this perceived abuse, however, with language that specifically permits a deduction for a place of business used by clients in meeting or dealing with the taxpayer in the normal course of his business. Even if the term "meeting” were restricted to physical encounters, the addition of the word "dealing,” used disjunctively, connotes a less immediate contact such as by a telephone call.
We think that petitioner falls within this statutory exception. Petitioner’s normal course of business included his answering clients’ questions and providing information to them on a regular basis, averaging more than 2 hours each evening, and generally being available to the clients when they needed him. Due to his, and sometime their, work schedules, this contact was assured only in the evenings.11 As a condition of his employment, Dillingham required him to agree to take the telephone calls at his home. The extent to which he was able to satisfy his callers — the resident managers and members of the boards of directors of seven condominiums, a total of 49 persons — measured his effectiveness as an employee-account executive and, in turn, Dillingham’s effectiveness in condominium management. Indeed, respondent does not argue that petitioner fails to meet the third test of section 280A, i.e., that the exclusive use of the home office was for the "convenience of his employer.”
Summarizing, we emphasize that, in holding that petitioner meets the "dealing” test of section 280A(c)(l)(B), we are not suggesting that telephone contacts will satisfy the statutory requirement in all situations. Indeed, in most situations, the opposite conclusion will probably be indicated. In the instant case, however, we find (1) that petitioner was required by his employer to take telephone calls from clients in the evenings; (2) that the calls were not incidental or occasional but rather were regular and continuous, consuming an average in excess of 2 hours, 5 evenings each week; (3) that petitioner set aside a room as an office which he used as a place of business exclusively for taking the calls and keeping files and information needed for handling them; (4) that the calls were initiated by his clients or customers who, due to his or their work schedules, could not reach him during the day; (5) that handling the calls at his home was essential to the effective discharge of his duties as an employee and to his employer’s condominium management business; and (6) that respondent does not argue that petitioner fails to meet the "convenience of his employer” requirement.12 Based on these findings, we hold that petitioner is entitled to the home office deduction claimed on his return.
Decision will be entered under Rule 155.
Reviewed by the Court.
Respondent concedes that petitioners properly deducted automobile expenses of $2,817.22; medical expenses of $807 ($258 more than claimed on the return); telephone and entertainment expenses totaling $1,377.60, and miscellaneous itemized deductions totaling $1,947.69.
A11 section references are to the Internal Revenue Code of 1954. as in effect during the tax year in issue, unless otherwise noted. Unless otherwise indicated, any reference to "Rules” shall be deemed to refer to the Tax Court Rules of Practice and Procedure.
Sec. 280A, as amended, provides in part:
(a) General Rule. — Except as otherwise provided in this section, in the case of a taxpayer who is an individual * * * no deduction otherwise allowable under this chapter shall be allowed with respect to the use of a dwelling unit which is used by the taxpayer during the taxable year as a residence.
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(c) Exceptions for Certain Business or Rental Use; Limitation on Deductions for Such Use.—
(1) Certain business use. — Subsection (a) shall not apply to any item to the extent such item is allocable to a portion of the dwelling unit which is exclusively used on a regular basis—
(A) [as] the principal place of business for any trade or business of the taxpayer,
(B) as a place of business which is used by patients, clients, or customers in meeting or dealing with the taxpayer in the normal course of his trade or business,
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In the case of an employee, the preceding sentence shall apply only if the exclusive use referred to in the preceding sentence is for the convenience of his employer.
Sec. 280A was amended by Pub. L. 97-119, as signed into law Dec. 29, 1981. Prior to amendment, subsec. (cXIXA) read "(A) as the taxpayer’s principal place of business.” This amendment applies retroactively to tax years beginning after Dec. 31,1975, except that, for tax years after Dec. 31, 1975, and before Jan. 1, 1980, the amendment applies "only to taxable years for which, on the date of the enactment of this Act, the making of a refund, or the asst ssment of a deficiency, was not barred by law or any rule of law.” Sec. 113(e).
SEC. 162. TRADE OR BUSINESS EXPENSES.
(a) In General. — There shall be allowed as a deduction all the ordinary and necessary expenses paid or incurred during the taxable year in carrying on any trade or business, ***
Petitioner clearly does not qualify under sec. 280A(cXlXC), which deals with a home office located in a separate structure.
Sec. 280A(cX1XA) as amended makes clear that a taxpayer may have more than one principal place of business if he is engaged in more than one trade or business; the statute thus codifies this Court’s approach. 188 Cong. Rec. S15484, S15487 (daily ed. Dec. 16,1981).
In S. Rept. 94-938,1976-3 C.B. (Vol. 3) 186-187, it is stated:
"In addition to the exclusive use test, the committee’s amendment requires that the portion of the residence used for trade or business purposes must be used by the taxpayer on a regular basis in order for the allocable portion of the expenses to be deductible. Expenses attributable to incidental or occasional trade or business use of an exclusive portion of a dwelling unit would not be deductible even if that portion of the dwelling unit is used for no other purpose.”
Proposed Income Tax Regs. sec. 1.280A-2(c) provides:
(c) Use by patients, clients, or customers in meeting or dealing with the taxpayer in the normal course of business. Section 280A(cXlXB) provides an exception to the general rule of section 280A(a) for any item to the extent the item is allocable to a portion of the dwelling unit which is used exclusively and on a regular basis as a place of business in which patients, clients, or customers meet or deal with the taxpayer in the normal course of the taxpayer’s business. This exception applies only if the use of the dwelling unit by patients, clients, or customers is substantial and integral to the conduct of the taxpayer’s business. Occasional meetings are insufficient to make this exception applicable.
S. Rept. 94-938, supra, 1976-3 C.B. (Vol. 3) at 186, states that a deduction is allowed for a taxpayer who uses—
"a portion of a dwelling unit exclusively and on a regular basis * * * as a place of business which is used for patients, clients, or customers in meeting or dealing with the taxpayer in the normal course of his trade or business * * * ”
S. Rept. 94-938, supra, 1976-3 C.B. (Vol. 3) at 185, states: "In many cases the application of the appropriate and helpful test [which was applied prior to the adoption of sec. 280A] would appear to result in treating personal living, and family expenses which are directly attributable to the home (and therefore not deductible) as ordinary and necessary business expenses, even though those expenses did not result in additional or incremental costs incurred as a result of the business use of the home.” See Baie v. Commissioner, 74 T.C. 105 (1980).
The statute requires that the place of business be "used by * * * clients in meeting or dealing” with the taxpayer. The syntax here may suggest that it must be the clients who initiate the meeting or dealing. In the instant case, the telephone calls were nearly exclusively initiated by the clients; to make such calls, the callers in every real sense "used” both their telephones and petitioner’s telephone and the office space in which he handled the calls. Petitioner would, therefore, qualify under a literal reading of this requirement. Had the statute been intended to limit the meeting or dealing requirement to "in person” contacts, we think the proposed regulations could, and would, have made this plain.
In view of respondent’s failure to argue this point, we express no views as to the standards prescribed by the "convenience of his employer” requirement.