SCOTUS Reports

Tag: Temporary Employment

  • Michaels v. Commissioner, 53 T.C. 269 (1969): Deductibility of Expenses During Temporary Employment Away From Home

    Michaels v. Commissioner, 53 T. C. 269 (1969)

    Employees can deduct meal and lodging expenses under IRC Section 162(a)(2) if their employment away from home is temporary.

    Summary

    Emil J. Michaels, employed by Boeing, was assigned to Los Angeles for a year, which he believed to be temporary. He moved his family and rented out his Seattle home. The Tax Court held that his meal and lodging expenses in 1964 were deductible under IRC Section 162(a)(2) because he was “away from home” due to the temporary nature of his assignment. However, his additional automobile expenses were disallowed due to lack of substantiation. This case clarifies the conditions under which employees can claim deductions for expenses incurred during temporary work assignments away from their primary residence.

    Facts

    Emil J. Michaels worked for Boeing as a cost analyst in Seattle. In June 1964, Boeing assigned him to Los Angeles for approximately one year to audit suppliers. Michaels moved his family, rented his Seattle home for a year, and brought some furniture to Los Angeles. In March 1965, Boeing made his Los Angeles assignment permanent. During 1964, he received a per diem allowance from Boeing, which he spent on meals and lodging. He also claimed automobile expenses but lacked records to substantiate business use.

    Procedural History

    The Commissioner of Internal Revenue determined a deficiency in Michaels’ 1964 income tax. Michaels contested this in the U. S. Tax Court, arguing for deductions of meal, lodging, and automobile expenses. The court ruled on the deductibility of these expenses based on the temporary nature of his assignment and the substantiation of his claims.

    Issue(s)

    1. Whether Michaels’ expenditures for meals and lodging in Los Angeles in 1964 were deductible under IRC Section 162(a)(2) as being incurred while “away from home. “
    2. Whether Michaels established that his unreimbursed expenditures for the business use of his automobile exceeded the amount allowed by the Commissioner.

    Holding

    1. Yes, because Michaels’ employment in Los Angeles was temporary in 1964, and he maintained a home in Seattle, his meal and lodging expenses were deductible.
    2. No, because Michaels failed to provide sufficient evidence to substantiate his automobile expenses beyond the amount reimbursed by Boeing.

    Court’s Reasoning

    The court applied IRC Section 162(a)(2), which allows deductions for travel expenses while away from home in pursuit of business. The key legal issue was defining “home” and “temporary” employment. The court cited prior cases to establish that “home” generally means the principal place of employment, but an exception exists for temporary assignments. Michaels’ assignment was initially for one year, which the court deemed temporary, especially since he retained his Seattle home and furniture. The court emphasized the importance of the taxpayer’s intent and the temporary nature of the assignment over the mere duplication of living expenses. For the automobile expenses, the court required substantiation, which Michaels failed to provide, thus disallowing the excess claimed over the reimbursement from Boeing.

    Practical Implications

    This decision guides the deductibility of expenses for employees on temporary work assignments away from their primary residence. It emphasizes the importance of the duration and perceived temporariness of the assignment, as well as the maintenance of a home at the original location. Legal practitioners should advise clients to retain evidence of their intent to return home and the temporary nature of their work away from home. Businesses should be aware that employees may claim deductions for temporary assignments, affecting their tax planning. Subsequent cases have built upon this ruling to further define “temporary” and “indefinite” employment for tax purposes.

  • Owens v. Commissioner, T.C. Memo. 1969-289: Defining ‘Tax Home’ and ‘Indefinite’ Employment for Travel Expense Deductions

    Owens v. Commissioner, T.C. Memo. 1969-289 (1969)

    For the purpose of deducting travel expenses while ‘away from home’ under Section 162(a)(2) of the Internal Revenue Code, a taxpayer’s ‘home’ is their principal place of business or employment, and assignments of indefinite duration at a different location do not qualify as ‘away from home’.

    Summary

    The taxpayer, Owens, resided with his family in Oskaloosa, Iowa. He worked for the Iowa State Highway Commission and was assigned to a highway construction project in Des Moines, approximately 60 miles from Oskaloosa. Owens rented rooms in Des Moines during the work week and returned to Oskaloosa on weekends. He sought to deduct meal, lodging, and automobile expenses as ‘traveling expenses while away from home’. The Tax Court disallowed these deductions, holding that Des Moines was Owens’s ‘tax home’ because it was his principal place of employment and his assignment there was indefinite, not temporary. The court emphasized that ‘home’ for tax purposes means the principal place of business, not necessarily the taxpayer’s personal residence.

    Facts

    Owens and his wife resided in Oskaloosa, Iowa since 1941.

    Owens began working for the Iowa State Highway Commission in 1959 and was informed that he could be transferred anywhere in Iowa as a condition of employment.

    In April 1960, Owens was assigned to the Des Moines construction office for the Des Moines Freeway Project.

    His supervisor considered the Des Moines assignment permanent.

    Owens became aware that his inspection tasks on the Freeway Project would continue for several years, at least into 1966.

    From 1963, Owens rented rooms in Des Moines during the week, returning to his family in Oskaloosa on weekends.

    For 1964 and 1965, Owens claimed deductions for meals and lodging in Des Moines and car expenses for weekend travel to Oskaloosa.

    The IRS disallowed these deductions.

    Procedural History

    The Commissioner of Internal Revenue determined deficiencies in Owens’s income tax for 1964 and 1965 due to disallowed deductions for travel expenses.

    Owens petitioned the Tax Court for a redetermination of these deficiencies.

    Issue(s)

    1. Whether Des Moines was Owens’s ‘home’ for the purposes of Section 162(a)(2) of the Internal Revenue Code, which allows deductions for ‘traveling expenses…while away from home in the pursuit of a trade or business’.

    2. Whether Owens’s employment in Des Moines was ‘temporary’ or ‘indefinite’.

    Holding

    1. No, Des Moines was Owens’s ‘tax home’ because it was his principal place of employment.

    2. Owens’s employment in Des Moines was ‘indefinite’ because it was expected to last for a substantial and indeterminate period.

    Court’s Reasoning

    The court stated that for tax purposes, ‘home’ generally refers to the taxpayer’s principal place of business, employment, or post of duty, citing Floyd Garlock, 34 T.C. 611, 614 (1960) and Ronald D. Kroll, 49 T.C. 557 (1968).

    The court referenced Commissioner v. Stidger, 386 U.S. 287 (1967), where the Supreme Court held that a military taxpayer’s ‘tax home’ is their permanent duty station, reinforcing the concept that ‘home’ is tied to the place of employment.

    The court found that Des Moines and Marquisville were Owens’s principal places of employment during the years in question, as he performed all his duties there.

    The court distinguished between ‘temporary’ and ‘indefinite’ employment. It cited Peurifoy v. Commissioner, 358 U.S. 59, 60 (1958) and Ronald D. Kroll, 49 T.C. 557, 562, noting that deductions are allowed for temporary work away from a principal place of employment, but not for indefinite assignments.

    The court reasoned that Owens’s assignment in Des Moines, while potentially subject to transfer, was in fact indefinite because he expected to remain there for several years to complete his tasks on the Freeway Project. His situation was compared to Floyd Garlock and Beatrice H. Albert, 13 T.C. 129 (1949), where similar deductions were disallowed for taxpayers working at locations considered their indefinite principal place of employment, despite maintaining residences elsewhere.

    The court rejected Owens’s argument that the possibility of transfer made his assignment temporary, stating that routine possibility of transfer does not make indefinite employment temporary.

    Practical Implications

    Owens v. Commissioner provides a clear illustration of the ‘tax home’ doctrine in the context of travel expense deductions. It reinforces that for tax purposes, ‘home’ is primarily defined by the location of one’s principal place of business or employment, not personal residence.

    The case highlights the critical distinction between ‘temporary’ and ‘indefinite’ employment assignments. Taxpayers accepting work in a new location must assess the expected duration of the assignment. If the assignment is expected to last for a substantial or indeterminate period, the new work location is likely to be considered their ‘tax home’, and expenses for travel, meals, and lodging there will not be deductible as ‘away from home’.

    Legal practitioners should advise clients whose work requires them to relocate to consider the expected duration of the assignment and the location of their principal place of business when evaluating the deductibility of travel expenses. This case, along with Garlock and Albert, sets a precedent against deducting living expenses in locations of indefinite work assignments, even if the taxpayer maintains a family residence elsewhere.

    Subsequent cases and IRS guidance continue to apply the principles established in Owens, emphasizing the objective determination of the principal place of business and the indefinite vs. temporary nature of employment to determine ‘tax home’ for travel expense deductions.

  • Batzell v. Commissioner, 30 T.C. 648 (1958): Defining “Regularly Carried On” in the Context of Business Income

    30 T.C. 648 (1958)

    The phrase “regularly carried on,” as used in the context of business income, does not exclude income from a temporary, albeit high-paying, employment; “regularly” implies consistency in the activity, not permanence.

    Summary

    The case involves a lawyer and economic advisor, Elmer E. Batzell, who accepted a temporary, high-salaried position with the Petroleum Administration for Defense. The issue was whether the salary Batzell received from this government employment constituted income from a trade or business “regularly carried on” by him, which would affect his net operating loss deduction. The Tax Court held that Batzell’s government employment did constitute a business “regularly carried on,” rejecting the argument that temporary employment automatically means the business is not “regular.” The court emphasized that “regularly” means steady or uniform in course, not necessarily permanent. The court found no evidence to suggest that the temporary nature of the employment negated the regularity of the business activity.

    Facts

    Elmer E. Batzell was a lawyer and economic advisor specializing in the oil industry. During WWII, he was an attorney for the Petroleum Administration for War. Following the outbreak of the Korean War, Batzell was offered and accepted a high-salaried position with the newly formed Petroleum Administration for Defense, with the understanding the employment would be for one year. He terminated his consulting work and a partnership to take the salaried position. Batzell resumed the practice of law after his government employment ended. The Commissioner determined a deficiency in Batzell’s income tax, leading to the litigation to determine whether the salary was from a business “regularly carried on” under the 1939 Internal Revenue Code, which affected Batzell’s net operating loss carryback.

    Procedural History

    The Commissioner of Internal Revenue determined a deficiency in Batzell’s income tax for 1951. Batzell challenged this determination in the United States Tax Court. The Tax Court heard the case and issued its opinion, deciding in favor of the Commissioner. The court agreed that the salary Batzell received from the Petroleum Administration for Defense was income derived from a business regularly carried on.

    Issue(s)

    Whether the salary received by Batzell from the Petroleum Administration for Defense constituted income from a trade or business “regularly carried on” by him, per I.R.C. § 122(d)(5) of the 1939 Internal Revenue Code.

    Holding

    Yes, because the Tax Court held that Batzell’s employment by the Federal Government constituted a trade or business “regularly carried on” by him within the meaning of section 122 (d) (5) of the Internal Revenue Code of 1939.

    Court’s Reasoning

    The court addressed whether the salary was derived from a business “regularly carried on” as required by I.R.C. § 122 (d)(5). The court rejected the argument that the temporary nature of the government position necessarily meant the activity was not “regular.” The court found no special or peculiar meaning attached to the word “regularly.” The court turned to the dictionary to define “regularly” as “steady or uniform in course, practice, etc.; not characterized by variation from the normal or usual.” The court emphasized that the term did not imply permanence. There was nothing in the code, its legislative history, or the dictionary to indicate that the one-year employment did not constitute a regularly carried on business.

    Practical Implications

    This case is important in interpreting the phrase “regularly carried on” in relation to business income, particularly in situations involving temporary employment. It clarifies that “regularly” refers to the nature of the activity, not its duration. Taxpayers and practitioners should consider whether the activity is steady and uniform, regardless of how long it lasts. This ruling can guide the classification of income from various sources, including consulting work, government employment, and other activities with a defined or limited time frame. Future cases may cite Batzell in defining “regularly carried on” for the purpose of income classification.

  • Peurifoy v. Commissioner, T.C. Memo. 1958-6: Distinguishing Temporary from Indefinite Employment for Travel Expense Deductions

    Peurifoy v. Commissioner, T.C. Memo. 1958-6

    For purposes of deducting travel expenses while ‘away from home’ under Internal Revenue Code Section 162(a)(2), employment expected to last for a substantial or indefinite period is not considered ‘temporary’, even if the taxpayer maintains a residence elsewhere.

    Summary

    The Tax Court disallowed a boilermaker’s deductions for living expenses in Rome, Georgia, where he worked for nearly two years, finding his employment ‘indefinite’ rather than ‘temporary.’ Peurifoy argued his job was temporary because his union could have reassigned him. The court distinguished this case from prior rulings where employments were clearly temporary and held that employment expected to last for a considerable or indefinite period at a specific location constitutes the taxpayer’s ‘home’ for tax purposes, thus precluding deductions for living expenses at that location.

    Facts

    Petitioner, a boilermaker, worked on several temporary jobs away from home in early 1953. He then accepted employment with Babcock & Wilcox in Rome, Georgia, to install boilers for Georgia Power Company. This was the largest job he had ever undertaken, and he anticipated it would last one to two years. He worked in Rome from April 27, 1953, to April 22, 1955, with two brief strike-related interruptions. He deducted $5 per day for meals and lodging in Rome, which the Commissioner disallowed, arguing Rome was his ‘post of duty’.

    Procedural History

    The Commissioner of Internal Revenue disallowed a portion of Peurifoy’s claimed deductions for ‘Board & Lodging away from home.’ Peurifoy petitioned the Tax Court to contest the deficiency determination.

    Issue(s)

    1. Whether the petitioner’s employment in Rome, Georgia, with Babcock & Wilcox was ‘temporary’ within the meaning of Internal Revenue Code Section 162(a)(2), allowing him to deduct expenses for meals and lodging while ‘away from home’.

    Holding

    1. No, because the petitioner’s employment in Rome was ‘indefinite’ in duration, not ‘temporary’, despite the possibility of union reassignment.

    Court’s Reasoning

    The court distinguished this case from Schurer and Leach, where employments were clearly temporary with taxpayers returning home between short-term jobs. Here, Peurifoy’s Rome job lasted nearly two years and was expected to be of considerable duration. The court emphasized the difference between ‘indefinite’ and ‘temporary’ employment, citing Beatrice H. Albert, which denied deductions for ‘indefinite’ employment, even without permanence. The court stated, “The employment * * * lacked permanence, but, on the other hand, was indefinite in duration rather than obviously temporary, in that it was not the sort of employment in which termination within a short period could be foreseen…” While Peurifoy argued union reassignment made his job temporary, the court noted the union did not reassign him, and he worked in Rome for a substantial period. The court concluded, “Under these facts, we do not think petitioner’s employment at the Rome, Georgia, job in 1953 and 1954 can be characterized as ‘temporary’.”

    Practical Implications

    Peurifoy clarifies the distinction between ‘temporary’ and ‘indefinite’ employment for travel expense deductions. Taxpayers accepting employment at a specific location expected to last a substantial or indefinite period, even if not permanent, will likely be considered to have established their ‘tax home’ there. This case highlights that the anticipated duration of employment at a location, not just the existence of a permanent residence elsewhere or the possibility of job termination, is crucial in determining deductibility of living expenses under Section 162(a)(2). Later cases applying Peurifoy often focus on the expected or actual duration of the employment to determine if it qualifies as ‘temporary’ for tax deduction purposes.