SCOTUS Reports

Tag: Section 217

  • Fogg v. Commissioner, 89 T.C. 310 (1987): Deductibility of Military-Related Expenses

    Fogg v. Commissioner, 89 T. C. 310 (1987)

    Military officers can deduct moving expenses for personal effects like sailboats and entertainment costs related to official duties if they are ordinary and necessary.

    Summary

    John R. Fogg and Patricia L. Massey Fogg, a Marine Corps officer and his wife, sought to deduct various expenses related to his military service. They claimed deductions for moving their sailboat, entertainment costs associated with a change-of-command ceremony, and other miscellaneous expenses. The court allowed the deduction for the sailboat as a personal effect and the entertainment expenses as necessary for Fogg’s role as a commanding officer, but denied miscellaneous expenses like club dues and calling cards due to insufficient proof of their business necessity.

    Facts

    John R. Fogg, a Lieutenant Colonel in the U. S. Marine Corps, claimed deductions on his 1982 and 1983 tax returns for moving expenses related to relocating a 36-foot sailboat from Florida to South Carolina, entertainment costs for a change-of-command ceremony, and other miscellaneous expenses. The sailboat was used recreationally and as temporary housing during the move. The change-of-command ceremony and related receptions were customary for Marine Corps officers, though not mandated by specific orders. The miscellaneous expenses included dues to the Blue Angels Association, the Officers’ Club, and contributions to a Squadron Officers Fund.

    Procedural History

    The Commissioner of Internal Revenue determined deficiencies in Fogg’s taxes for 1982 and 1983. Fogg and his wife petitioned the U. S. Tax Court, which assigned the case to a Special Trial Judge. The court reviewed the case based on a stipulation of facts and subsequently adopted the opinion of the Special Trial Judge.

    Issue(s)

    1. Whether the expenses incurred in moving a sailboat qualify as moving expenses under section 217 of the Internal Revenue Code?
    2. Whether entertainment expenses incurred in connection with a change-of-command ceremony are deductible under section 162 of the Internal Revenue Code?
    3. Whether miscellaneous expenses such as dues, stationery, and calling cards are deductible under section 162 of the Internal Revenue Code?

    Holding

    1. Yes, because the sailboat was considered a personal effect intimately associated with the taxpayers’ lifestyle, thus qualifying as a deductible moving expense under section 217.
    2. Yes, because the entertainment expenses were ordinary and necessary for the performance of Fogg’s duties as a commanding officer, thus deductible under section 162.
    3. No, because the taxpayers failed to establish that the miscellaneous expenses were directly related to Fogg’s business as a military officer.

    Court’s Reasoning

    The court found that the sailboat was a personal effect under section 217, as it was intimately associated with the Foggs’ lifestyle, distinguishing it from the yacht in Aksomitas v. Commissioner, which had little association with the taxpayer. For the entertainment expenses, the court applied the test from United States v. Gilmore, focusing on the origin and character of the expenses, concluding that they were directly related to Fogg’s business as a military officer and necessary for his duties. The court rejected the Commissioner’s argument that the expenses needed to be reimbursed by the employer to be deductible, noting that Marine Corps customs and traditions required such expenditures. Regarding the miscellaneous expenses, the court found that the taxpayers did not provide sufficient evidence to establish a direct business connection, thus disallowing these deductions.

    Practical Implications

    This decision clarifies that military personnel can deduct moving expenses for personal effects like boats if they are intimately associated with their lifestyle. It also establishes that entertainment expenses related to official military ceremonies can be deductible if they are required by custom and tradition and directly related to the officer’s duties. However, it underscores the need for taxpayers to provide clear evidence of the business purpose of miscellaneous expenses. Future cases involving military personnel may reference this ruling when assessing the deductibility of similar expenses. Legal practitioners advising military clients should be aware of these nuances when preparing tax returns and defending deductions in audits or court.

  • Chamberlin v. Commissioner, 78 T.C. 1136 (1982): Deductibility of Moving Expenses for Military Personnel Upon Retirement

    Chamberlin v. Commissioner, 78 T. C. 1136 (1982)

    Military personnel can deduct moving expenses for moves pursuant to military orders incident to retirement, but only for the move to the location where they are still on active duty.

    Summary

    In Chamberlin v. Commissioner, Alton Chamberlin, a retiring Air Force officer, moved from Hawaii to California and then to New Mexico. The issue was whether he could deduct his moving expenses under section 217 of the Internal Revenue Code. The Tax Court held that Chamberlin could deduct expenses for the move from Hawaii to California, where he was on active duty, but not for the subsequent move to New Mexico, where he did not commence work. The decision clarified that the commencement-of-work requirement applies to retiring military personnel, but they are exempt from time and distance limitations under section 217(g).

    Facts

    Alton E. Chamberlin, an Air Force officer, was stationed in Hawaii in 1976 when he decided to retire. Unsure of his post-retirement residence, he requested and received orders to transfer to Travis Air Force Base in California for processing. He moved to California, stayed for one week on active duty, and then moved to Roswell, New Mexico, upon retirement. Chamberlin incurred unreimbursed moving expenses of $1,576. 50 from Hawaii to California and $1,662. 55 from California to New Mexico. He claimed a deduction for these expenses on his 1976 tax return, which the Commissioner disallowed in full.

    Procedural History

    The Commissioner of Internal Revenue determined a deficiency in Chamberlin’s 1976 federal income tax and disallowed his moving expense deduction. Chamberlin petitioned the United States Tax Court for a redetermination of the deficiency. The Tax Court heard the case and issued its decision on June 23, 1982.

    Issue(s)

    1. Whether Chamberlin can deduct moving expenses under section 217 for the move from Hawaii to California and the subsequent move from California to New Mexico.
    2. Whether the commencement-of-work requirement of section 217(a) applies to retiring military personnel.

    Holding

    1. Yes, because Chamberlin was on active duty at Travis Air Force Base in California, he can deduct the moving expenses from Hawaii to California. No, because Chamberlin did not commence work in New Mexico, he cannot deduct the moving expenses from California to New Mexico.
    2. Yes, because section 217(g) does not exempt retiring military personnel from the commencement-of-work requirement of section 217(a).

    Court’s Reasoning

    The court applied section 217(a), which allows a deduction for moving expenses incurred in connection with the commencement of work at a new principal place of work. The court found that section 217(g) exempts military personnel from the time and distance limitations under section 217(c) but not from the commencement-of-work requirement. Chamberlin was still on active duty and paid for his services in California, thus satisfying the commencement-of-work requirement for the move from Hawaii to California. The court rejected the argument that the moves should be treated as one continuous move, as California was Chamberlin’s new principal place of work. The court noted that section 217(i), which could have applied to Chamberlin’s situation, was not effective until after 1977 and did not apply to moves from within the United States. The court also distinguished this case from Nico v. Commissioner, where the taxpayers had commenced work at both locations.

    Practical Implications

    This decision clarifies that military personnel can deduct moving expenses for moves made pursuant to military orders incident to retirement, but only for the move to the location where they remain on active duty. Attorneys advising military clients should ensure that clients document their active duty status at the new location to support a deduction. The decision also highlights the importance of distinguishing between multiple moves and ensuring that the commencement-of-work requirement is met at each location. Subsequent cases have cited Chamberlin for its interpretation of section 217(g) and the treatment of multiple moves by military personnel. Practitioners should be aware that changes in tax law, such as section 217(i), may affect the deductibility of moving expenses for retirees in the future.

  • Wassenaar v. Commissioner, 72 T.C. 1195 (1979): Deductibility of Pre-Employment Educational Expenses

    Wassenaar v. Commissioner, 72 T. C. 1195 (1979)

    Educational expenses incurred before entering a trade or business are not deductible as business expenses under Section 162(a) or for tax preparation under Section 212(3) of the Internal Revenue Code.

    Summary

    Paul Wassenaar sought to deduct expenses for a master’s degree in taxation from New York University, arguing they were business expenses under Section 162(a) or related to tax preparation under Section 212(3). The Tax Court ruled against him, holding that since Wassenaar had not yet begun practicing law when he incurred these expenses, they were not deductible under Section 162(a). Furthermore, the expenses were deemed too substantial to be considered ordinary and necessary for tax preparation under Section 212(3). Additionally, Wassenaar’s moving expenses from New York to Detroit were not deductible because New York was not his principal residence.

    Facts

    Paul Wassenaar graduated from law school in 1972 and immediately enrolled in a master’s program in taxation at New York University, completing it in May 1973. He was admitted to the Michigan bar in May 1973 and began working as an attorney in Detroit shortly thereafter. Wassenaar incurred $2,781 in educational expenses at NYU and sought to deduct them on his 1973 tax return. He also claimed a moving expense deduction for his move from New York to Detroit to start his job.

    Procedural History

    The Commissioner of Internal Revenue disallowed Wassenaar’s deductions, leading to a deficiency notice. Wassenaar petitioned the United States Tax Court, which upheld the Commissioner’s determination, ruling that the educational and moving expenses were not deductible.

    Issue(s)

    1. Whether Wassenaar’s educational expenses for his master’s degree in taxation are deductible as ordinary and necessary business expenses under Section 162(a)?
    2. Whether such educational expenses are deductible under Section 212(3) as expenses incurred in connection with the determination of tax liability?
    3. Whether Wassenaar’s moving expenses from New York to Detroit are deductible under Section 217 as a moving expense?

    Holding

    1. No, because Wassenaar had not yet entered the practice of law when he incurred these expenses, and they were part of his education leading to qualification in a new trade or business.
    2. No, because the expenses were not reasonable in amount or closely related to tax preparation, and they were classified as special courses or training under the regulations.
    3. No, because Wassenaar conceded that New York was not his principal residence before the move, which is required for a moving expense deduction under Section 217.

    Court’s Reasoning

    The Tax Court applied Section 162(a) and Section 212(3) of the Internal Revenue Code, along with their respective regulations, to determine the deductibility of Wassenaar’s expenses. For Section 162(a), the court emphasized that the taxpayer must be engaged in a trade or business at the time the educational expenses are incurred. Wassenaar’s expenses at NYU were part of his education to qualify as a lawyer, a profession he had not yet entered. The court cited cases like Baker v. Commissioner and Jungreis v. Commissioner to support this reasoning. Under Section 212(3), the court found that the expenses were not reasonable or closely related to tax preparation and were classified as non-deductible special courses under the regulations. The court also noted that Wassenaar’s moving expenses did not qualify under Section 217 because New York was not his principal residence, as required by the regulations.

    Practical Implications

    This decision clarifies that educational expenses incurred before entering a profession are not deductible as business expenses under Section 162(a). It also sets a precedent that such expenses cannot be claimed under Section 212(3) if they are not reasonable in amount or closely related to tax preparation. Legal professionals and students should be aware that expenses for education leading to qualification in a new profession are generally non-deductible. Additionally, the case reinforces the requirement that moving expenses must relate to a principal residence to be deductible under Section 217. This ruling has been cited in subsequent cases involving similar issues, such as Diaz v. Commissioner, to guide the analysis of educational expense deductions.

  • Hartung v. Commissioner, 55 T.C. 1 (1970): Deductibility of Moving Expenses When Subsequent Income is Tax-Exempt

    Hartung v. Commissioner, 55 T. C. 1 (1970)

    Moving expenses are personal family expenses and remain deductible under Section 217 even if the subsequent income earned is tax-exempt under Section 911.

    Summary

    Jon Hartung moved from the U. S. to Australia in 1964, incurring $1,677 in unreimbursed moving expenses. He claimed these expenses as a deduction on his 1964 tax return. The Commissioner disallowed the deduction, arguing the expenses were allocable to tax-exempt income earned in Australia. The U. S. Tax Court ruled in favor of Hartung, holding that moving expenses are personal and not allocable to income, thus remaining deductible under Section 217 despite the tax-exempt status of subsequent income under Section 911.

    Facts

    Jon Hartung, a chemical engineer, resided in the U. S. until October 23, 1964. He then terminated his employment and prepared to move to Australia. Hartung and his wife entered Australia on December 1, 1964, as immigrants. He secured employment there on January 25, 1965, and worked until March 1, 1966. All his Australian income was exempt from U. S. taxation under Section 911. Hartung incurred $1,677 in unreimbursed moving expenses and claimed this as a deduction on his 1964 U. S. tax return. The Commissioner disallowed the deduction, asserting it was allocable to tax-exempt income.

    Procedural History

    Hartung filed a petition with the U. S. Tax Court challenging the Commissioner’s disallowance of his moving expense deduction. The case was heard by the Tax Court, which rendered a decision in favor of Hartung.

    Issue(s)

    1. Whether moving expenses, deductible under Section 217, must be disallowed because they are allocable to income exempt from taxation under Section 911.

    Holding

    1. No, because moving expenses are personal family expenses and thus not allocable to or chargeable against tax-exempt income earned subsequent to the move.

    Court’s Reasoning

    The court held that moving expenses, although deductible under Section 217, remain personal family expenses. The court cited the legislative history of Section 217, which indicates that moving expenses are treated similarly to business expenses for the purpose of calculating adjusted gross income but are not actually business expenses. The court also referenced Section 1. 911-1(a)(3) of the Income Tax Regulations, which states that personal expenses are not allocable to exempt income. The majority opinion distinguished this case from Carstairs v. United States, where state income taxes were held allocable to tax-exempt income, noting that moving expenses are not within the scope of business expenses as interpreted in Carstairs. The court rejected the Commissioner’s argument that moving expenses should be treated as allocable to tax-exempt income, emphasizing the personal nature of these expenses. The dissent argued that moving expenses are related to the income earned at the new employment location and should be disallowed under Section 911, but the majority’s interpretation prevailed.

    Practical Implications

    This decision clarifies that moving expenses remain deductible under Section 217 even if the taxpayer’s subsequent income is exempt under Section 911. Practitioners should advise clients that personal expenses, including moving expenses, are not allocable to tax-exempt income, ensuring proper deductions are claimed. This ruling may affect how taxpayers and tax professionals approach the calculation of deductions when dealing with foreign income exclusions. Subsequent cases, such as Peck v. Commissioner, have followed this precedent, reinforcing the principle that personal expenses are not allocable to exempt income. Businesses and individuals planning international moves should consider this ruling when calculating potential tax deductions.

  • Schweighardt v. Commissioner, 54 T.C. 1273 (1970): Deductibility of Moving Expenses for Temporary Employment

    Schweighardt v. Commissioner, 54 T. C. 1273 (1970)

    A taxpayer cannot deduct moving expenses under section 217 for a temporary work assignment if they claim travel expenses under section 162 for the same period.

    Summary

    Robert Schweighardt, a teacher on a Fulbright grant in Korea, sought to deduct both travel expenses under section 162 and moving expenses under section 217 for his temporary work assignment. The Tax Court held that while Schweighardt could deduct his living expenses in Korea as travel expenses because his assignment was temporary, he could not also deduct moving expenses for transporting his family and household goods to and from Korea. The court reasoned that a temporary assignment does not qualify as a “new principal place of work” under section 217, upholding the IRS regulation that disallows such dual deductions.

    Facts

    Robert Schweighardt, a California teacher, received a Fulbright grant to teach in Korea for the 1964-65 academic year. He took a leave of absence from his U. S. job, and his family accompanied him to Korea. Schweighardt was paid in nonconvertible Korean currency. He claimed deductions for both travel expenses while in Korea and moving expenses for transporting his family and household goods to and from Korea.

    Procedural History

    The IRS disallowed Schweighardt’s moving expense deductions, asserting that Korea was not his new principal place of work. Schweighardt petitioned the U. S. Tax Court for a redetermination of the deficiencies. The court upheld the IRS’s disallowance of the moving expense deductions but allowed the travel expense deductions.

    Issue(s)

    1. Whether Schweighardt could deduct moving expenses under section 217 for transporting his family and household goods to and from Korea, where he was temporarily employed as a Fulbright grantee.
    2. If Schweighardt is entitled to moving expense deductions, whether his claimed deductions for travel expenses under section 162 should be disallowed.

    Holding

    1. No, because Korea was not Schweighardt’s new principal place of work under section 217, as his employment there was temporary.
    2. Not applicable, as the court held Schweighardt was not entitled to moving expense deductions.

    Court’s Reasoning

    The court relied on the distinction between temporary and indefinite employment. Schweighardt’s Fulbright grant was for a fixed period, making his work in Korea temporary. The court followed its precedent in Laurence P. Dowd, which allowed travel expense deductions for temporary assignments. However, the court upheld the IRS regulation that a temporary work location cannot be considered a “new principal place of work” under section 217. The regulation is a reasonable interpretation of the statute, which requires a new principal place of work to be permanent or indefinite. Schweighardt’s claim of travel expenses under section 162 for his time in Korea precluded him from also claiming moving expenses under section 217. The court rejected Schweighardt’s argument that the regulation was inequitable for Fulbright grantees paid in nonconvertible currency.

    Practical Implications

    This decision clarifies that taxpayers cannot claim both travel expenses for temporary work under section 162 and moving expenses under section 217 for the same assignment. Attorneys should advise clients on temporary work assignments that they must choose between deducting travel expenses or moving expenses, but not both. This ruling impacts how professionals on temporary international assignments structure their tax planning. It also reinforces the IRS’s authority to interpret tax statutes through regulations, which can significantly affect taxpayers’ ability to claim deductions. Subsequent cases have followed this precedent, solidifying the rule that temporary assignments do not qualify as new principal places of work for moving expense deductions.