Johnson v. CommissionerJohnson v. Commissioner
Lead Opinion
Rеspondent determined deficiencies of $945 and $1,022 in petitioners’ 1994 and 1996 Federal income taxes, respectively. The deficiencies stem from respondent’s disallowance of $3,784 and $3,654 that Marin I. Johnson (petitioner) claimed for the respective years as miscellaneous itemized deductions for travel expenses connected to his employment as a merchant seaman. Petitioner ascertained the amounts of those deductions by using the full Federal per diem rates for meal and incidental expenses (M&IE rates) referenced in Rev. Proc. 96-28, 1996-
FINDINGS OF FACT
Most facts were stipulated. The parties’ stipulations of fact and the exhibits submitted therewith are incorporated herein by this reference. The stipulations of fact are found accordingly. Petitioners resided in Freeland, Washington (Free-land), when we filed their petition. Freeland is a community on Whidbey Island, Washington, located in the Puget Sound approximately 70 miles east of Port Angeles, Washington, and approximately 75 miles north of Tacomа, Washington.
Petitioners are husband and wife. They and their daughter resided during the subject years in a house (personal residence) that petitioners owned in Freeland. During 1994, petitioner paid $12,640 of mortgage interest and $4,412 of real estate taxes on the personal residence. He paid $11,002 of mortgage interest and $4,799 of real estate taxes on the personal residence during 1996.
Petitioners’ primary source of income is petitioner’s wages from Crowley American Transport, Inc. (Crowley), the primary office of which is in Jacksonville, Florida, and from the American Maritime Officers Vacation Plan.
During 1994, petitioner worked from April 22 to July 10 and from September 7 to December 8, for a total of 173 days. During 1996, petitioner worked from January 1 to February 3 and from June 26 to December 13, for a total of 205 days. Petitioner’s duties included captaining the sailing of the Falcon from one city to another and performing any assignment required by his employer while the Falcon was docked at port.
Petitioner sailed the Falcon to and from the cities set forth in the schedule below.
Date 1994 Status Location
Apr. 22 Joined Gulfport, Miss., U.S.A.
Apr. 22 Departed Gulfport, Miss., U.S.A.
Apr. 22 Arrived Bayonne, N.J., U.S.A.
Apr. 27 Departed Bayonne, N.J., U.S.A.
May 6 Arrived Rotterdam, The Neth.
May 9 Departed Rotterdam, The Neth.
May 19 Arrived Bayonne, N.J., U.S.A.
May 21 Departed Bayonne, N.J., U.S.A.
May 23 Arrived Jacksonville, Fla., U.S.A.
May 24 Departed Jacksonville, Fla., U.S.A.
June 5 Arrived Hommelvik, Nor.
June 7 Departed Hommelvik, Nor.
June 10 Arrived Rotterdam, The Neth.
June 11 Departed Rotterdam, The Neth.
June 19 Arrived Bayonne, N.J., U.S.A.
June 20 Departed Bayonne, N.J., U.S.A.
June 29 Arrived Rotterdam, The Neth.
June 29 Departed Rotterdam, The Neth.
June 30 Arrived Bremerhaven, F.R.G.
July 1 Departed Bremerhaven, F.R.G.
July 10 Arrived
July 10 Left
Sept. 7 Joined Beaumont, Tex., U.S.A.
Date 1994 Status Location
Sept. 9 Arrived Gulfport, Miss., U.S.A.
Sept. 12 Departed Gulfport, Miss., U.S.A.
Sept. 14 Arrived Guantanamo, Cuba
Sept. 17 Departed Guantanamo, Cuba
Sept. 20 Arrived Bayonne, N.J., U.S.A.
Sept. 21 Departed Bayonne, N.J., U.S.A.
Sept. 25 Arrived Port-au-prince, Haiti
Sept. 26 Departed Port-au-prince, Haiti
Oct. 7 Arrived Bremerhaven, F.R.G.
Oct. 9 Departed Bremerhaven, F.R.G.
Oct. 18 Arrived Port Said, Egypt
Oct. 19 Oct. 27 Departed Arrived Port Said, Egypt Shubai
Oct. 29 Departed Shubai
Oct. 30 Arrived Dammam, Saudi Arabia
Oct. 30 Departed Dammam, Saudi Arabia
Oct. 30 Arrived Bahr.
Nov. 1 Departed Bahr.
Nov. 2 Arrived Dubai, U.A.E.
Nov. 3 Departed Dubai, U.A.E.
Nov. 9 Arrived Port Suez, Egypt
Nov. 10 Departed Port Suez, Egypt
Nov. 14 Arrived Tekirdag, Turkey
Nov. 14 Departed Tekirdag, Turkey
Nov. 19 Arrived Rota, Spain
Nov. 20 Departed Rota, Spain
Dec. 2 Arrived Port-au-prince, Haiti
Dec. 4 Departed Port-au-prince, Haiti
Dec. 8 Arrived Beaumont, Tex., U.S.A.
Dec. 8 Left Beaumont, Tex., U.S.A.
1996
Jan. 1 Joined Dubai, U.A.E.
Jan. 7 Departed Dubai, U.A.E.
Jan. 14 Arrived Port Suez, Egypt
Jan. 15 Departed Port Suez, Egypt
Jan. 16 Arrived Ashdod, Israel
Jan. 17 Departed Ashdod, Israel
Jan. 21 Arrived Gibraltar, Gib.
Jan. 23 Departed Gibraltar, Gib.
Feb. 2 Arrived Wilmington, N.C., U.S.A.
Feb. 3 Left Wilmington, N.C., U.S.A.
June 26 Joined Aqaba Port, Jordan
June 28 Departed Aqaba Port, Jordan
June 28 Arrived Port Suez, Egypt
June 29 Departed Port Suez, Egypt
June 30 Arrived Iskendren, Turkey
July 2 Departed Iskendren, Turkey
July 3 Arrived Port Said, Egypt
July 5 Departed Port Said, Egypt
Date 1994 Status Location
July 8 Departed Aqaba Port, Jordan
July 13 Arrived Raysut, Oman
July 14 Departed Raysut, Oman
July 18 Arrived Port Suez, Egypt
July 19 Departed Port Suez, Egypt
July 28 Arrived Bremerhaven, F.R.G.
July 30 Departed Bremerhaven, F.R.G.
Aug. 2 Arrived Muuga, Est.
Aug. 3 Departed Muuga, Est.
Aug. 3 Arrived Riga, Russ.
Aug. 4 Departed Riga, Russ.
Aug. 5 Arrived Klaipeda, Russ.
Aug. 5 Departed Klaipeda, Russ.
Aug. 8 Arrived Antwerp, Belg.
Aug. 9 Departed Antwerp, Belg.
Aug. 17 Arrived Port Said, Egypt
Aug. 18 Departed Port Said, Egypt
Sept. 5 Arrived Pusan, S. Korea
Sept. 11 Departed Pusan, S. Korea
Sept. 12 Arrived Pohang, S. Korea
Sept. 13 Departed Pohang, S. Korea
Sept. 15 Arrived Naha, Japan
Sept. 16 Departed Naha, Japan
Sept. 18 Arrived Pusan, S. Korea
Sept. 21 Departed Pusan, S. Korea
Sept. 23 Arrived Okinawa, Japan
Sept. 28 Departed Okinawa, Japan
Oct. 12 Arrived Concord, Cal., U.S.A.
Oct. 15 Departed Concord, Cal., U.S.A.
Oct. 16 Arrived Oakland, Cal., U.S.A.
Oct. 19 Departed Oakland, Cal., U.S.A.
Oct. 20 Arrived Port Angeles, Wash., U.S.A.
Oct. 20 Departed Port Angeles, Wash., U.S.A.
Oct. 21 Arrived Tacoma, Wash., U.S.A.
Oct. 23 Departed Tacoma, Wash., U.S.A.
Oct. 26 Arrived Port Hueneme, Cal., U.S.A.
Oct. 27 Departed Port Hueneme, Cal., U.S.A.
Nov. 1 Arrived Pearl Harbor, Haw., U.S.A.
Nov. 2 Departed Pearl Harbor, Haw., U.S.A.
Nov. 11 Arrived Guam
Nov. 15 Departed Guam
Nov. 18 Arrived Naha, Japan
Nov. 19 Departed Naha, Japan
Nov. 21 Arrived Pusan, S. Korea
Nov. 23 Departed Pusan, S. Korea
Nov. 24 Arrived Naha, Japan
Nov. 28 Departed Naha, Japan
Nov. 30 Arrived Yokohama, Japan
Dec. 2 Departed Yokohoma, Japan
Dec. 13 Arrived Port Angeles, Wash., U.S.A.
Date 1994 Status Location
While petitioner was at work, Crowley provided him. with lodging and meals at no charge. Petitioner had to and did pay his other expenses, and the Falcon had a small store on board from which crew members were allowed to purchase items such as hygiene products, foul weather gear, and bottled water. Petitioner neither was entitled to nor received reimbursement for any of his expenses. While he was at work, petitioner purchased incidental travel items such as hygiene products and bottled water, and he paid for laundry, dry cleaning, and grooming services and the cost of transportation from the Falcon to the location of the service providers. Petitioner also was required to and did purchase clothing and other necessities to adapt to the climates for which he was required to sail without prior notice.
On his 1994 Federal income tax return, as amended, petitioner claimed a miscellaneous itemized deduction of $3,784 for meals and entertainment related to his employment by Crowley; the claimed amount took into account the 50-per-cent limitation for meals and entertainment provided by section 274(n). Petitioner reported $5,712 of miscellaneous itemized deductions for 1994, claiming that he was entitled to deduct $3,377 of that amount after taking into account the 2-percent floor of section 67. Petitioner has no receipts to support the claimed $3,784 deduction. Petitioner used the per diem substantiation method of the applicable revenue procedures and ascertained the amount of that deduction by using the full M&IE rate for each city to which he traveled.. The $3,784 deduction related solely to the incidental expenses which petitioner paid during 1994 while working on the Falcon.
On his 1996 Federal income tax return, petitioner claimed a miscellaneous itemized deduction of $4,912 for business expenses other than meals and entertainment and a $3,654 miscellaneous itemized deduction for meals and entertainment;
Respondent determined that petitioner was not entitled to deduct the $3,784 and $3,654 amounts claimed for 1994 and 1996, respectively.
OPINION
We must decide whether petitioner may deduct the cost of the incidental travel items which he purchased during the subject years while working away from his personal residence. Petitioner argues he may. Petitioner asserts that he incurred the costs while working away from home on business. Petitioner asserts that the applicable revenue procedures mentioned herein dispense with the need to substantiate the amounts of those costs in order to deduct them. Respondent argues that petitioner may not deduct those costs. Respondent asserts primarily that petitioner had no tax home. Respondent asserts secondly that petitioner did not prove that he actually incurred the claimed expenses; respondent asserts that petitioner’s testimony standing alone is insufficient proof for this purpose. Respondent asserts thirdly that petitioner may not use the subject revenue procedures to ascertain the amounts of his deductions because, respondent asserts, those revenue procedures do not apply when only incidental expenses are incurred.
We agree with petitioner that he is entitled to the claimed deductions but disagree with him as to the amounts of those deductions. We hold that petitioner’s deductions are limited to the incidental expense portions of the applicable M&IE
The Commissioner first set forth the criteria for de minimis expenditures in Rev. Proc. 89-67, 1989-
Rev. Proc. 89-67, supra, was silent as to the situation where an employee without a travel allowance incurred traveling expenses while employed away from home. The Commissioner first addressed that subject in Rev. Proc. 90-GO, 1990-
SEC. 3. DEFINITIONS
.02 FEDERAL PER DIEM RATE.
(1) General rule. The Federal per diem rate is equal to the sum of the Federal lodging expense rate and the Federal meal and incidental expense (M&IE) rate for the locality of travel. The Federal per diem rate, the Federal lodging expense rate, and the Federal M&IE rate for a locality in the continental United States (“CONUS”) are set forth in Appendix A of 41 C.F.R., Chapter 301. See 41 C.F.R. Part 301-7 (1990) for specific rules regarding these Federal rates. The Federal per diem rаtes for nonforeign localities outside the continental United States (“OCONUS”) (including Alaska, Hawaii, Puerto Rico, the Northern Mariana Islands, and the possessions of the United States) are established by the Secretary of Defense and listed in Civilian Personnel Per Diem Bulletins published periodically in the Federal Register. See, e.g., Civilian Personnel Per Diem Bulletin Number 153, 55 Fed. Reg. 50,864 (December 11, 1990). The Federal per diem rates for foreign OCONUS localities are established by the Secretary of State and published, together with the rates for nonforeign OCONUS localities, in the Per Diem Supplement to the Standardized Regulations (Government Civilians, Foreign Areas). See, e.g., Maximum Travel Per Diem Allowances for Foreign Areas, PD Supplement 319, issued December 1, 1990.
(2) Outside CONUS. For OCONUS travel away from home, if a separately identified Federal lodging expense rate or Federal M&IE rate does not exist for the OCONUS locality of travel, 60 percent of the applicable Federal per diem rate for that locality of travel is treated as equivalent to the Federal lodging expense rate for that locality and 40 percent of the applicable Federal per diem rate for that locality of travel is treated as equivalent to the Federal M&IE rate for that locality. If a separately identified Federal lodging expense rate or Federal M&IE rate is adopted for an OCONUS locality of travel for which no such separately identified rate previously existed, that rate shall apply to all travel within such locality beginning 30 days after its publication.
(3) Locality of travеl. The term “locality of travel” means the locality where an employee traveling away from home in connection with the performance of services as an employee of the employer stops for sleep or rest.
(4) Incidental expenses. The term “incidental expenses” includes, but is not limited to, expenses for laundry, cleaning and pressing of clothing, and fees and tips for services, such as for waiters and baggage handlers. The term “incidental expenses” does not include taxicab fares or the costs of telegrams or telephone calls.
SEC. 4. PER DIEM SUBSTANTIATION METHOD
.03 OPTIONAL METHOD FOR MEALS ONLY DEDUCTION. In lieu of using actual expenses, employees and self-employed individuals, in computing the amount allowable as a deduction for ordinary and necessary meal and incidental expensеs paid or incurred for travel away from home, may use an amount computed at the Federal M&IE rate for the locality of travel for each calendar day (or part thereof * * *) the employee or self-employed individual is away from home. Such amount will be deemed substantiated for purposes of paragraphs (b)(2) (travel away from home) and (c) of section 1.274 — 5T of the temporary regulations, provided the employee or self-employed individual substantiates the elements of time, place, and business purpose of the travel expenses in accordance with those regulations.
SEC. 6. LIMITATIONS AND SPECIAL RULES
.01 In general. The Federal per diem rate, the Federal lodging expense rate, and the Federal M&IE rate described in section 3.02 for the locality of travel will be applied in the same manner as applied under the Federal Travel Regulations, 41 C.F.R. Part 301-7 (1990), except as provided in sections 6.02 through 6.04.
.02 Federal per diem or lodging expense rate. A receipt for lodging expenses is not required in order to apply the Federal per diem rate or the Federal lodging expense rate for the locality of travel.
.03 Federal per diem or M&IE rate. A payor is not required to reduce the Federal per diem rate or the Federal M&IE rate for the locality of travel for meals provided in kind, provided the payor has a reasonable belief that meal and incidental expenses were or will be incurred by the employee. * * *
The Commissioner restated the rules of Rev. Proc. 90-60, supra, almost verbatim in subsequent revenue procedures, each of which superseded the prior revenue procedure on the subject. See Rev. Proc. 92-17, 1992-
Respondent argues primarily that these revenue procedures have no applicability to this case because, respondent asserts, petitioner’s employment on the Falcon was not away from home. Respondent characterizes petitioner as an itinerant, meaning that he had no tax home. Respondеnt asserts that a taxpayer may have a tax home only if he or she incurs duplicative living expenses. Respondent asserts that petitioner is without a tax home because he did not incur duplicative living expenses since his employer furnished him with meals and lodging without charge. Respondent asserts that petitioner’s claimed incidental expenses were not duplicative of any expense that he actually incurred as
We disagree with respondent’s assertion that petitioner had no tax home. This Court’s jurisprudence holds that an individual’s tax home is generally the location of his or her principal place of employment. See Daly v. Commissioner,
Petitioner had no principal place of employment. He did, however, have a permanent residence; to wit, his personal residence. We believe that petitioner’s tax home was the situs of his personal residence in Freeland, where he resided with his wife and their daughter. See Leach v. Commissioner, supra.
Petitioner also had a legitimate reason for maintaining his personal residence in Freeland while trаveling throughout the world with and for his employer. First, petitioner’s family did not travel with him while he worked; thus, petitioner was required to maintain a family residence somewhere. We refuse to second guess petitioner’s decision to maintain his family residence in Freeland, instead of moving his family to the location of his Florida employer or to one of the many cities to which he traveled. Cf. Leach v. Commissioner, supra. To have a tax home for purposes of section 162(a), a taxpayer need not maintain a residence in a city in which he or she actually works.
Second, unlike the taxpayer in Henderson v. Commissioner, supra, petitioner would have incurred a substantial out-of-pocket duplication of lodging and meal expenses while he worked but for the fact that his employer furnished him with those items at no charge. Had petitioner’s employer not done so, petitioner would have incurred the duplicative out-of-pocket expenses which respondent argues are necessary for a finding of a tax home. Contrary to respondent’s assertion, we do not believe that a finding of a tax home for purposes of section 162(a) turns on whether an employer provides lodging and meals to an employee without charge as part of the employee’s compensation package. See Henderson v. Commissioner, supra at 499 (“A taxpayer may [as opposed to will] have no tax home * * * if he continuously travels and thus does not duplicate substantial, continuous living expenses for a permanent home maintained for some business reason.” (Emphasis added.)). The value of lodging and meals that an employer furnishes to an employee is an item of income that must be included in the employee’s gross income but for the application of an exclusionary provision
Petitioner’s work schedule also was generally fixed as to the number of days that he was required to work and allowed to vacation. Thus, unlike the taxpayer in Henderson v. Commissioner,
Nor do we agree with respondent that petitioner has not established that he paid incidental expenses during his employment. Petitioner testified credibly that he paid those expenses, and respondent’s counsel never challenged that testimony, opting to rest his case without cross-examining petitioner or without introducing any evidence to attempt to impeach that testimony. We disagree with respondent’s assertion that petitioner must introduce into evidence actual receipts of his incidental expenditures in order to deduct them. As we read Rev. Proc. 96-28, 1996-
Nor do we agree with respondent that a taxpayer is precluded from deducting travel expenses under section 162(a)(2) if he or she does not pay for lodging or meal costs for his or her travel. The mere fact that a taxpayer is furnished with meals and lodging without charge while employed away from home does not necessarily mean that he or she will not incur other ordinary and necessary travel expenses. In fact, the Commissioner has recognized as much in the subject revenue procedures wherein he states that “the amount of ordinary and necessary business expenses of an employee for lodging, meal, and/or incidental expenses incurred while traveling away from home will be deemed substantiated * * * when * * * [the employer] provides a per diem allowance” to the employee equal to the applicable M&IE rate. E.g., Rev. Proc. 96-28, 1996-
We turn to the applicable revenue procedures. Respondent foсuses on the fact that those revenue procedures provide that an employee without a travel allowance may use the revenue procedures to compute a deduction for “meals and incidental expenses”. Respondent concludes from the quoted language that the revenue procedures apply only when both
We are mindful that the relevant provision of the revenue procedures is headed “Optional method for meals only deduction.” E.g., Rev. Proc. 96-28, sec. 4.03, 1996-
Given our conclusion that petitioner may use the revenue procedures to ascertain the amount of his deductible incidental expenses, petitioner asks the Court to allow him to use the full M&IE rates to ascertain those deductions. We decline to do so. We do not read the revenue procedures to allow a taxpayer to use the full M&IE rates when he or she incurs only incidental expenses. The M&IE rates represent the amount that the Government pays daily to its traveling employees to compensate them for four items of traveling expense; namely, breakfast, lunch, dinner, and incidental expenses. See 41 C.F.R. sec. 301-7.2(a)(2) (1994 & 1996). Specific amounts are apportioned under the travel regulations to each of these four items, depending on the point of travel.
We note that taxpayers such as petitioner need not limit their deductions to the incidental expense portion of the M&IE rates. Specifically, taxpayers, to the extent that the amounts set forth in the revenue procedures fail to reflect the actual cost of their incidental expenditures, are entitled to a deduction for their actual expenses. In such a situation, however, taxpayers must be prepared to meet all the substantiation requirements, including, especially, written documentation as to the amounts of those costs. But see sec. I.274-5T(c)(2), Temporary Income Tax Regs., 50 Fed. Reg. 46017 (Nov. 6, 1985) (written documentation generally not required for any expenditure less than $25); Notice 95-50, 1995-
We have considered all arguments in this case. Those arguments not discussed herein are without merit or irrelevant. To reflect the foregoing,
Decision will be entered under Rule 155.
Notes
We have taken judicial notice of this fact.
On the basis of the record, we infer that Crowley pays wages to petitioner while he works for Crowley and that the American Maritime Officers Vacation Plan pays wages to petitioner while he is on vacation.
The word “Departed” connotes that the Falcon left the corresponding city on the corresponding date. The word “Arrived” connotes that the Falcon arrived in the corresponding city on the corresponding date. The word “Joined” connotes that petitioner resumed working on the Falcon on the corresponding date and in the corresponding city following his vacation. The word “Left” connotes that petitioner ceased working on the Falcon on the corresponding date and in the corresponding city to begin his vacation.
The record does not indicate the port in which the Falcon arrived on July 10, 1994, nor the city from which petitioner left on that date to begin his vacation.
Government employees are generally entitled to a per diem allowance for official travel away from their official stations, as payment for lodging, meals, and related incidental expenses. See 41 C.F.R. secs. 301-1.2, 301-7.1 (1994 & 1996). The per diem allowance, which includes a maximum amount for lodging expenses and a fixed amount for M&IE, varies depending on the area of travel. See 41 C.F.R. sec. 301-7.3 (1994 & 1996). The Administrator of General Services sets the per diem allowance for travel to areas in the continental United States (CONUS rates). The Department of Defense sets the per diem allowance for travel to nonforeign arеas outside the continental United States. The Department of State sets the per diem allowance for travel to foreign areas. See id. The list of the amounts of these per diem allowances, including the breakdown of the portions attributable to lodging and M&IE, is referenced in 41 C.F.R. sec. 301-7.3 (1994 & 1996).
In Leach v. Commissioner,
As а point of fact, however, petitioner did work near his personal residence on a few occasions. Respondent points to the parties’ stipulation that petitioner’s “employer did not require petitioner Marin Johnson to perform services as a ship master in the Freeland, Washington area during 1994 or 1996” and concludes that all of petitioner’s work was far from his personal residence. We do not read this stipulation as broadly as respondent. To be sure, petitioner worked near his personal residence from Oct. 20 through 23, 1996, and on Dec. 13, 1996. Respondent also places undue weight on the fact that Crowley did not require that petitioner vacation at his personal residence, thus leaving petitioner free to vacation elsewhere. The fаct that Crowley did not mandate that petitioner stay at his personal residence during his vacation carries no weight as to whether he had a tax home for purposes of sec. 162(a).
Respondent makes no reference to this provision or to the fact that the revenue procedures apply the M&IE rates in accordance with the rules of those regulations.
None of these exceptions are applicable herein; e.g., Rev. Proc. 90-60, sec. 6.03, 1990-
The definition of the term “incidental expenses” under the travel regulations is slightly broader than the definition of the same term under the applicable revenue procedures. Compare 41 C.F.R. sec. 301-7.1(c)(3) (1994 & 1996), with Rev. Proc. 90-60, sec. 3.02(4), 1990-
(3) Incidental expenses covered by per diem, (i) Fees and tips to porters, baggage carriers, bellhops, hotel maids, stewards, and stewardesses and others on vessels, and hotel servants in foreign countries.
(ii) Laundry and cleaning and pressing of clothing.
(iii) Transportation between places of lodging or business and places where meals are taken
Petitioner argues that his deductions at these rates should not be subject to the 50-percent reduction for meals and entertainment. We agree. The Rule 155 computation should reflect a deduction of the total amounts of the M&IE rates which are attributable to incidental expenses.
The record does not allow us to apply either of these provisions. In particular, we note that petitioner has not specified the dollar amounts which he actually paid for any of his incidental expenses.