Coombs v. Commissioner, 67 T. C. 426 (1976)
Daily allowances for remote work locations are taxable income, and commuting expenses between home and work are not deductible.
Summary
In Coombs v. Commissioner, the U. S. Tax Court ruled on whether daily allowances paid to employees at the remote Nevada Test Site were taxable income and whether commuting expenses between Las Vegas and the test site were deductible. The court found that the allowances, provided to both federal and private contractor employees, were taxable under section 61(a) of the Internal Revenue Code and not excludable under section 119. Additionally, the court determined that the long-distance commuting expenses were nondeductible personal expenses under section 262, despite the remote location and lack of nearby housing, as they did not qualify as business expenses under section 162(a)(2).
Facts
Employees at the Nevada Test Site, located 65 to 135 miles north of Las Vegas, received daily allowances in addition to their regular salaries. Federal employees received $5 per day at Camp Mercury and $7. 50 at forward areas, while private contractors received similar amounts plus additional travel pay based on union agreements. Employees typically commuted daily from Las Vegas, with some traveling up to 200 miles round trip. The allowances were reported as income on W-2 forms, and employees sought to deduct their commuting expenses and the allowances as business expenses.
Procedural History
The Commissioner of Internal Revenue disallowed the deductions claimed by the petitioners for their commuting expenses and the daily allowances. The petitioners then brought their case to the U. S. Tax Court, where the cases were consolidated due to common issues of law and fact.
Issue(s)
1. Whether the daily allowances paid to employees at the Nevada Test Site are includable in gross income under section 61(a) or excludable under section 119 of the Internal Revenue Code?
2. Whether the expenses incurred by employees in commuting between their homes in the Las Vegas area and the Nevada Test Site are deductible as business expenses under section 162?
Holding
1. Yes, because the allowances were compensatory and not specifically for reimbursement of meals and lodging, making them includable in gross income under section 61(a) and not excludable under section 119.
2. No, because the commuting expenses were personal and not incurred away from the taxpayer’s “tax home” or in pursuit of a trade or business, thus nondeductible under section 262 and not qualifying under section 162(a)(2).
Court’s Reasoning
The court applied the broad definition of gross income under section 61(a), finding that the allowances were gains to the employees and thus taxable unless excluded by another section. The court rejected the application of section 119, which excludes the value of meals or lodging furnished for the convenience of the employer, because the allowances were not specifically for meals or lodging and were not required for the employees’ duties. The court also held that the commuting expenses were personal under section 262, as they were not incurred “while away from home” or “in the pursuit of a trade or business” under section 162(a)(2). The court emphasized that the location of the test site did not change the nature of the expenses from personal to business.
Practical Implications
This decision clarifies that daily allowances provided to employees for remote work locations are taxable income, impacting how such payments are treated by employers and employees. It also reinforces that commuting expenses, regardless of distance, are not deductible, affecting employees in similar situations across industries. Employers should clearly classify allowances as income, and employees must understand that commuting costs are personal expenses. Subsequent cases and IRS guidance have followed this ruling, and it remains a key precedent for tax treatment of allowances and commuting expenses.