SCOTUS Reports

Tag: Job Search Expenses

  • Kenfield v. Commissioner, 54 T.C. 1197 (1970): Deductibility of Job Search Expenses as Business Expenses

    Kenfield v. Commissioner, 54 T. C. 1197 (1970)

    Fees paid to a career consultant for job search services are deductible as ordinary and necessary business expenses if they are directly related to the taxpayer’s trade or business.

    Summary

    Kenneth Kenfield, an engineer, paid Frederick Chusid & Co. to assist in finding a new job. After accepting an offer from American Steel Foundries, his current employer, General Electric, countered with a promotion and salary increase, leading Kenfield to stay. The Tax Court held that the fees paid to Chusid were deductible as business expenses under IRC Sec. 162(a), reasoning that the new job offer directly led to his promotion at General Electric. This case establishes that job search expenses can be deductible if they are connected to one’s trade or business.

    Facts

    Kenneth Kenfield, employed as a design engineer at General Electric, sought a new job due to dissatisfaction with his career prospects. He engaged Frederick Chusid & Co. to help him find a new position. After paying Chusid $1,781. 75, Kenfield received and accepted an offer from American Steel Foundries. However, two days before leaving General Electric, they offered him a promotion and a salary increase, which he accepted, deciding to stay. The IRS disallowed his deduction of the Chusid fees, claiming they were personal expenses.

    Procedural History

    Kenfield filed a petition with the U. S. Tax Court after the IRS disallowed his deduction for fees paid to Chusid. The Tax Court, in its decision dated June 3, 1970, ruled in favor of Kenfield, allowing the deduction.

    Issue(s)

    1. Whether fees paid to a career consultant for job search services are deductible under IRC Sec. 162(a) as ordinary and necessary business expenses?

    Holding

    1. Yes, because the fees paid to Chusid were directly related to Kenfield’s trade or business as an engineer, as they led to a new job offer which in turn resulted in a promotion and salary increase at his current employer.

    Court’s Reasoning

    The Tax Court found that Kenfield was engaged in the trade or business of being an engineer, and his payments to Chusid were proximately related to continuing that trade or business. The court relied on its recent decisions in Primuth and Motto, where similar job search expenses were deemed deductible. The court emphasized that Kenfield’s new job offer from American Steel Foundries directly influenced General Electric’s decision to offer a promotion and salary increase, thus making the expenses deductible under IRC Sec. 162(a). The court rejected the IRS’s argument that the expenses were personal, noting that the promotion at General Electric was a direct consequence of the job search efforts facilitated by Chusid.

    Practical Implications

    This decision expands the scope of deductible business expenses to include job search costs when they lead to a direct benefit in one’s current employment. Practitioners should advise clients to document how job search expenses relate to their current or prospective trade or business. This ruling may encourage employers to counter-offer when employees seek new opportunities, knowing that the employee’s job search costs might be deductible. Subsequent cases like Morris v. Commissioner have affirmed this principle, further solidifying the deductibility of such expenses when connected to one’s trade or business.

  • Poirier v. Commissioner, 54 T.C. 1215 (1970): Deductibility of Job Search Expenses for Continuing in Same Trade or Business

    Poirier v. Commissioner, 54 T. C. 1215 (1970)

    Job search expenses are deductible under IRC § 162(a) as ordinary and necessary expenses when incurred to continue in the same trade or business, even if the new job is not ultimately accepted.

    Summary

    In Poirier v. Commissioner, the Tax Court ruled that job search expenses paid to a placement agency are deductible as ordinary and necessary business expenses under IRC § 162(a). The petitioner, an engineer, paid fees to Chusid to secure new employment but ultimately stayed with his old employer after receiving a promotion. The court held that these expenses were deductible because they were incurred to maintain his trade or business as an engineer, following precedent set in Primuth and Motto.

    Facts

    The petitioner, an engineer employed by General Electric, paid Chusid $1,781. 75 for job search services. With Chusid’s help, he received and accepted a job offer from another employer. However, just before starting the new job, General Electric offered him a promotion and matched the new employer’s salary, leading him to remain with his original employer.

    Procedural History

    The case was brought before the U. S. Tax Court to determine the deductibility of the job search fees under IRC § 162(a). The court reviewed similar cases, Primuth and Motto, and applied their rulings to the facts at hand.

    Issue(s)

    1. Whether payments to Chusid for job search services are deductible under IRC § 162(a) as ordinary and necessary expenses incurred in the petitioner’s trade or business.

    Holding

    1. Yes, because the expenses were incurred to continue in the same trade or business of being an engineer, following the court’s precedents in Primuth and Motto.

    Court’s Reasoning

    The court found that the petitioner was in the trade or business of being an engineer, similar to the taxpayers in Primuth and Motto. The court emphasized that the job search expenses were directly related to maintaining this trade or business. The court quoted Primuth, stating, “Once we have made our decision that the petitioner was carrying on a trade or business of being a corporate executive, the problem presented here virtually dissolves for it is difficult to think of a purer business expense than one incurred to permit such an individual to continue to carry on that very trade or business—albeit with a different corporate employer. ” The court rejected the Commissioner’s argument that the case was distinguishable because the new job was not ultimately accepted, noting that the promotion at General Electric was a direct result of the job offer obtained through Chusid’s services.

    Practical Implications

    This decision clarifies that job search expenses are deductible under IRC § 162(a) when incurred to continue in the same trade or business, even if the new job is not taken. Practitioners should advise clients to document such expenses carefully, as they may be deductible. The ruling has implications for how taxpayers approach job searches and the documentation of related expenses. Subsequent cases, such as Morris v. Commissioner, have affirmed this principle. Businesses and taxpayers should be aware of this ruling when considering job transitions and tax planning strategies.