Lead Opinion
OPINION
The petitioner seeks to deduct a fee of $3,016.43
Section 162 (a) of the Code reads in part as follows:
SBC. 162. TRADE OR BUSINESS EXPENSES
(a) In General. — There shall be allowed as a deduction all the ordinary and necessary expenses paid or incurred during the taxable year in carrying on any trade or business, * * *
We hold initially that the аbove-noted expenditure of $3,016.43 was incurred by the petitioner in carrying on his trade or business of being a corporate executive.
Over the years we have held on more than one occasion
The recent decision in Mitchell v. United States,
The fact that the petitioner was employed at the time the fee was paid, which resulted in his securing new employment, is of no moment. We held in Harold Haft,
A comparable result was reached in Furner v. Commissioner,
The obvious principle to be evolved from the Furrier and Haft cases is that it is possible for an employee to retain, at least temporarily, his status of carrying on his own trade or business independent of receiving any compensation from a particular employer. This being so, it certainly cаnnot be held against the petitioner that, while actively and gainfully carrying on his trade or business of being a corporate executive, he incurred an expense with a view to receiving his paychecks from a different employer than the one for whom he was working at the time of payment.
Admittedly all the foregoing cases involved an expense which was incurred with respect, and related to, the employee’s current or former employment and do not involve the payment of an employment fee. However, this does not serve to distinguish the principle at issue in
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. There can be no question that the fee paid in 1966 resulted directly in petitioner’s securing new employment in 1967. There can be no doubt concerning its proximity.
Furthermore, the expense had no personal overtones, led to no position requiring greater or different qualifications than the one given up, and did not result in the acquisition of any asset as that term has been used in our income tax laws. It was expended for the narrowest and most limited purpose. It was an expense which must be deemed ordinary and necessary from every realistic point of view in today’s marketplace where corporate executives change employers with a noticeable degree of frequency. We have said before, and we say again, that the business expenses which an employee can incur in his own business are rare indeed.
Our holding with respect to the precise issue presented herein was foreshadowed by our comments in Eugene A. Carter,
However, we -think this language was not intended to- permit the deduction of a fee where the employment agency merely seeks to locate a position for the taxpayer, as here, but was intended to allow a deduction only where the agency actually obtains a position for the taxpayer. In the latter circumstances, it may be reasоned, the expense (frequently paid from the wages earned from the new employment) relates to and is incurred in connection with the taxpayer’s business of carrying on the new employment. [Footnote omitted. Emphasis supplied.]
Revenue Ruling 60-158, page 140, this BuEetin, which holds that expenses incurred in seeking employment, including fees paid to an employment agency, are not deductible for Federal income tax purposes, is revoked. This ruling Would have been effective for taxable years beginning after December 31, 1959.
The Internal Revenue Service will continue to allow deductions for fees paid to employment -agencies for securing employment.
It was this ruling to which we had reference in the Garter case.
Eespondent seeks to avoid the еffect of the plain language contained in the last sentence of his own Eev. Eul. 60-223 on two grounds. First, he contends that Ohusid was not an employment agency noting in support thereof that it was not so registered under Illinois law. Whether Ohusid can be classified within the technical definition, whatever that might be, of an employment agency is irrelevant. What is relevant is the fact that Ohusid did all any third party can do to seсure employment for the petitioner, and -its efforts proved successful.
Secondly, respondent contends that his revenue ruling is not applicable because it only covers the situation where the payment of the fee is contingent upon the securing of a position -and not the situation where, as is true here, the fee is payable in all events. In the case where the payment of a fee does in fact result in the securing of a job this seems to us to be a distinction without a difference. In both cases the purpose of the payment, and the results thereof, are identical. Furthermore, we noted in our Findings of Fact that a representative of Chusid practically guaranteed the petitioner, on the occasion of their first interview, that they would secure a job for him.
Admittеdly this decision was not reached without some conceptual difficulties. It might be argued that the payment of an employment fee is capital in nature and hence not currently deductible. Presumably, under this view the fee would be deductible when the related employment is terminated. However, the difficulty with this view is to conjure up a capital asset which had been purchased. Certainly, the exрense was not related to the purchase or sale of a capital asset. Further, we do not find the instant situation analogous to the capital expense incurred by an individual in the course of changing his field of endeavor.
A further objection can be made on the basis that the expenditure is
Our holding herein makes it unnecessary for us to consider the applicability of section 212 (1) which authorizes the deduction of expenses paid “for the production * * * of income.” The literal language of the statute would surely seem to apply and the fee was certainly “expended in the pursuit of income,” to use the language of H. Rept. No. 2333,77th Cong., 2d Sess., p. 46, which accompanied the progenitor of section 212 (1). See also Caruso v. United States,
Eeviewed by the Court.
Decision will be entered for the petitioner.
Notes
In Ralph C. Holmes,
“It may well be that deductible ‘ordinary and necessary expenses in carrying on a trade or business’ would be few and far between for a taxpayer engaged in carrying on a business as executive officer of a corporation. The most of such deductions that we can think of would be those allowable only to the corporation. * * *”
Concurrence Opinion
concurring: I am in full agreement with the result reached by my colleagues in the majority and with much of the reasoning in Judge Sterrett’s careful and lucid analysis and his apparent rejection of the subtle distinctions which seem to be developing in this area. To me, the drawing of distinctions based upon the difference between “seeking” and “securing” employment, upon whether the fee of the employment agency is contingent or payable in any event, or upon whether the agency’s efforts are successful or unsuccessful simply adds unnecessary confusion and complexity to a tax law which already defies understanding even by sophisticated taxpayers. I would similarly reject any attempt to import a capitalization of expenditure concept into a situation such as is involved herein. That concept has
Certainly, in the ordinary affairs of life, common understanding would clearly encompass the fee paid to the employment agency herein as “ordinary and necessary expenses in carrying on any trade or business” (sec. 162) within the “usual, ordinary and everyday meaning of the term.” See Old Colony R. Co. v. Commissioner,
In cases of the instant type, I would adоpt the simple test of comparing the position which the taxpayer occupied before and after the change. Perhaps the categorization of corporate executive will not always be applicable, but, in this case, petitioner was at all times a financial corporate executive. By any reasonable standard of application, he ought to prevail.
I am not concerned that such a test will open up a Pandora’s box of unjustified deductions. The courts are not wanting in capability of separating the wheat from the chaff and, at the same time, exhibiting sufficient flexibility not to proliferate taxpayers’ difficulties unnecessarily. Such a task is simply a normal attribute of judicial life.
Concurrence Opinion
concurring: Although I agree with the conclusion of the majority in this case, I do not wish to be understood as approving our decision in Eugene A. Carter,
In our society, it is common practice for an employee to move from one position to another in the same trade or business for a variety of reasons. If an individual wishes to change his position in his trade or business, it is surely appropriate for him to secure the assistance of an employment agency in finding a new position. Hence, any fee that he pays to the agency meets the test of bеing an ordinary and necessary expense of his trade or business. Cosimo A. Carlucci,
The position of the respondent is not altogether clear. On the оne hand, his regulations under section 212 provide that expenses incurred in seeking employment are not deductible. Sec. 1.212-1 (f), Income Tax Regs. On the other hand, he has long held by ruling that fees paid to secure employment are deductible. O.D. 579,
Whatever the respondent’s intended position may be, there is, in my opinion, no sufficient legal basis for treating the expenses of securing employment differently from those of seeking employment. The arguments sometimes given for denying a deduction for the expenses of seeking an employment include the contention that the employee is not engaged in the new trade or business at the time he incurred the expenses, the contention that such expenses are personal or capital in nature, and the contention that to allow such expenses as a deduction would lead to numerous administrative problems. Yet, these same arguments apply with equal force to the expenses of securing a new position. To allow deductions for securing employment and
Concurrence Opinion
concurring: I agree with, the conclusion reached by the majority, but I would decide the case on a narrower ground.
Exercising the authority conferred by section 7805(a) to prescribe “all needful rules .and regulations,” the Commissioner issued Rev. Rul. 60-228, 1960-
Dissenting Opinion
dissenting: I respectfully dissent. Of course, as the mаjority points out, the taxpayer was in the business of being a salaried corporate employee. But I would confine that concept much more narrowly than does the majority. I would say the taxpayer was in the business of being an employee of Foimdry when the claimed deductible expenses were incurred. The expenses, however, were not related to his employment by Foimdry but wеre paid to obtain a new job with another employer. To me this is the same as incurring expenses in locating or finding a new business. Such expenses are not deductible as business expenses because they were not connected with taxpayer’s existing employment. See the regulations under section 212 which provide in part as follows:
(f) Among expenditures not allowable, as deductions undеr section 212 are the following: * * * expenses such as those paid or incurred in seeking employment or in placing oneself in a position to begin rendering personal services for compensation, * * *
And see McDonald v. Commissioner,