Richard R. Sibla v. Commissioner of Internal Revenue, Robert E. Cooper v. Commissioner of Internal Revenue

taxpayers which the TANG, Before KENNEDY and Circuit even though away were at times from CURTIS,* Judges, Judge. District department the station fire dur- ing period. the mess CURTIS, Judge: District appellant deducted his Sibla appeals We have two before us from deci- total payments year. appellant The upon nearly sions of tax court identical deducted the amounts had situations, fact the difference between expense organized into the them appeal. no relevance on this years appellants 1972 and 1973. claim Both single opinion A appropri- therefore seems necessary deduction disposition ate for both. appeals attempt by These involve an (26 Internal Revenue Code of .1954 U.S.C. respective deduct their 162(a)). In both cases § incomes share of of manda- disallowed the deduction as a non-deducti- tory organized mess at firehouse where personal expense. ble they were stationed. tax court decided overruled, a divided court. in favor of the taxpayers and the Commis- consisting majority of seven appealed. sioner has 162(a). A con- deduction largely undisputed. The relevant curring opinion by Judge Simpson, facts are written * California, Curtis, Judge, Central District States District Honorable Jesse W. United by designation. sitting pense’ expense’ depends although allowing the chose to from ‘business (26 primarily upon of section 119 the facts and circumstanc- do so under the particular of each case. Robert J. 119) have disallowed it es Cf. U.S.C. and would (Drennen, 65 T.C. 162(a). concurring opin- J., concurring dissenting), revd. signed by judges, ion was five other (3d 1976). example, F.2d 686 Cir. For judges dissented. 54, provides 1975-2 C.B. Rev.Rul. part as follows: APPEAL ON ISSUE particular expense may ‘The fact that a appeal therefore is The issue on under certain circumstances be a nonde- holding “whether the tax court erred in personal expense pre- ductible does not taxpayer’s expenses that share of the expense clude the deduction of such an organized mess at the firehouse was deduct ordinary necessary business ex- 162(a) ible under section or section 119 of ” pense under other circumstances.’ the Internal Revenue Code of 1954.” We indicated, As the tax court has that expenses hold that such are both deductible be a 162(a) excludable under can, some circumstances when circum- section 119. directives, by company regulations, scribed conditions, per- lose its character as a BUSINESS EXPENSE DEDUCTION expense sonal and take on the color of a UNDER 162 expense. Recognizing business the “un- 162(a) provides a Section deduction for all petitioner’s employment, usual nature of the “ordinary necessary expenses paid involuntary expense nature of the in- or carrying any incurred ... curred, petitioner’s ability physi- ” limited business, trade or . . . mess, cally participate in the and his em- Section 262 of the Internal Revenue Code ployer’s compensate lack of intent provides: “Except ex- otherwise enacting otherwise benefit pressly provided chapter, in this no deduc- ” said, requirement, the court tion personal, living, shall be allowed for record, “upon consideration of the entire family expenses.” . we find that the amounts in issue constitute business rather than argues that an personal expenses.” expense “personal” is rather than “busi personal ness” if it is in character and determination, reaching such a be taxpayer incurred whether or not the we consider the tax court has exercised engaged in activity. expense An degree special expertise which Con groceries for meals or generally is con gress provide has intended to in that tribu sidered a personal expense. nondeductible nal, and that this court should not overrule taxpayer Here the would have incurred a body, ques unless some unmistakable expense similar whether or not he ate at tion of law mandates such a decision. As work. Consequently, the Commissioner said in Commissioner v. contends the fact in Heininger, 320 U.S. 64 S.Ct. expense curred the while at work does not (1943): 88 L.Ed. 171 change personal character of the ex directly re- expenditure “Whether an penditure. lated to a business and whether In allowing Judge Fay necessary pure are doubtless speaking majority initially observed Ex- questions of fact most instances. that: cept where a of law is unmistak- “[M]any expenditures possess per- both ably involved a decision of the Board of issues, sonal and Appeals having business attributes. In these Tax on these tak- placement situations presumption support- of that often thin en into account the distinguishes ‘personal ruling line which ex- ing the Commissioner’s [footnote omitted], should not reversed ness rather than expense. appellate federal courts omit clearly distinguishable case is Stiner [footnote principle Careful adherence to this its facts. ted]. will result in orderly a more and uniform Commissioner,-T.C.- In Pevsner v. system of tax deductions in a field neces (1979), reported (Sept. in 48 U.S.L.W. sarily complexi beset innumerable 18, 1979), the tax court deduction ties.” 320 U.S. at S.Ct. at 254. for the cost of clothes finding

The tax court’s the taxpayer’s that were useful workplace. expenses qualify “ordinary as an pur- necessary expense” finding is a high chase designer fashion clothes for her fact which is supported by well the evidence which, job although general suitable for before us record and should be ac- wear, appeal did not to the taxpayer cepted. wear, general preferring she simple lifes- tyle to which such clothes were not suitable. judges

Those who dissented from this express that, view the fear “If a deduction support of its contention that the cost 162(a) is allowed under per- section for this of meals is a not deducti- expenditure, sonal may we be launched 162(a), ble under section the Commissioner down a slippery slope, and it be diffi- States, cites James v. United 308 F.2d 204 cult to find a rational drawing basis for (9th 1962) Cir. LaForge v. Commission- line in other involving personal cases ex- er, (2d 1970). 434 F.2d 370 Cir. Both cases penditures.” Although recognize we are so dissimilar on the facts with which we concern, court’s we do not consider the task are confronted per- here that neither are justify so difficult as to abdicating what we 23(a)(1)(A) suasive. James involved section believe is the duty try court’s to to find the of the Internal Revenue Code of 1939 and congressional intent in these complex stat- concerned a claim which was under the utes. The tax through laws are shot “away with from home” subsection similar to instances in which 162(a)(2), courts are called to sole issue wheth- make delicate factual assessments and in- er the “had a home in the City of ” terpretive decisions in areas where rational Reno . . . 308 F.2d at 205. In La- distinctions are difficult to establish. Forge, And the principle issue was “whether the we think doing the task of so here is no taxpayer adequately failed to greater than that often encountered substantiate certain entertainment deduc- working courts in this field of the law. tions and whether the Tax correctly computed portion country of his club The Commissioner cites Stiner v. United dues which were deductible as an entertain- States, (10th 1975), 524 F.2d 640 Cir. where facility expense.” ment 434 F.2d at 371. the court refused to allow a deduction for the cost of a uniform clothing where the The Commissioner also relies was suitable for ordinary wear. In a very decisions, tax court memorandum John M. opinion, brief the Stiner court based its Murphey, 75,317 ¶ P-H Tax Ct. Mem. affirmance of the directed Moscini, verdict of the Gregory J. P-H Tax Ct. district court on the fact that 77,245 (1977). ¶ “no evidence Mem. Both of these cases produced at trial which in our easily distinguished can from the facts established question the items before us. In Murphey, taxpayer, [shoes, boots, furs, gloves, fireman, was free to eat his own food and cosmetics] were unusual unique adaptable and not mandatory pro- did not into a general to the usage as ordinary clothing.” gram, and it is not clear whether the court 524 F.2d at 641. contrary, On the discussing tax was “deductions” under section court below found the taxpayer’s situation or the exclusion of “meals furnished here to be both “unusual” “unique,” employer for his convenience” under record, and considering the entire found policeman section 119. Moscini deals with a the amounts in issue constituted busi- who was purchase any that, “There no but if can be employment for his as a condition kind, they furnished in taxpay- the meals were that the and there was no evidence During qualify would for the exclusion. purchase a meal was ever er is not duty, his tour of police eat because of his did not per fire to leave the station Murphey distinguish both duties. facts purposes allowed to leave sonal and Moscini. —not elsewhere; he must remain available eat emergency calls. respond at all times to MEAL UNDER § EXCLUSION satisfy require circumstances Such allow such concurring concerning meals furnished for ments income gross payment to be excluded employer. 1.119— convenience of the Sec. This allows an under section 119. 1(a)(2)(ii)(a), Regs.” Tax Income employee to the value of meals exclude concludes, substance-; “In court lodging employer for furnished him difference this situation and no between employer. In sum- the convenience of in which di- typical situation marizing regulations section 1.119— preparation rects the meals.” 1(a)(3), Regulations, the court Income Tax agree, especially light of other pointed employees out not taxable appearing similarities record. condi- charged on amounts for meals if four tions exist: The meals are furnished Admittedly, sketchy, the record is employer, (2) charge there is a actually provided that meals are paid irrespective be of meals which must cook, in that the the the sense he selects the the employee whether chooses to eat menus, supervises purchase gro- the meals, of he irrespective and how much ceries, and and serves meals. The cooks the eats, (3) the the meals are furnished for appointed by cook is the or the Fire Chief employer, (4) the convenience of the and station,1 at highest ranking pre- officer the charge equals value meals. the of the by authority sumably some direction or From that court while the reasons that employer. money from the is collected purchase super- employer did not and by by one the There is “delegated chief.” “[t]he preparation vise the of meals in this the no evidence that the cook receives extra work, charge case and did not withhold from the for his certain almost compensation paid the the he of in petitioner, that would be relieved other duties activities, facility pre- exchangé culinary the the for furnished for his from paring required employ- argued the may the which it well be that he is employer. to participate compensated by ees in the meals as a condi- the And the furnished, employment.” tion for plan, whereby their The concur- the meals are has ring pointed court by management.2 further out: been established the duty, delegated delegated appearing 1. Witness E. Radke A That’s Robert as expert Captain as fol- the or the Officer to the individu- witness for testified Chief al man. lows: rotating And basis? is that done Q Department the Fire Do —do authorities Q A stations it’s because no- some rotated participate any way in the of the— in collection cook; body wants in it’s a to be some stations purchasing the mess collection for or the voluntary part the of member for a act on one of the food? period prefers of he to cook. time because Yes, A that in a sense each mess or each Commissioner, Report- No. presided by station is over senior officer some II, p. Transcript, er’s Vol. grade of some and at his —it responsibility to make sure is done on that this 2. Witness further testified: Radke day. each “. the of Fire Board Commissioners- basically self-organized But adopting the mess is by Q took affirmative action self-policed among actual sense that the other Resolution which states No. prep- purchasing integra- things produce collection and food and the the in an effort have, they aration of the food is done the members in tion that wanted messes, going integrated that ev- that— were to have facts, argu- employer in Relying upon strong these kind” but would disallow ment have been made the meals could the deductions “cash advances for food.” were in fact “furnished in kind” throughout It seems clear The tax court employer. found otherwise in the cases the Court discusses ruling, and we are of course bound concept of “cash allowances” assumes an nor we critical the tax court so which com- allowance over finding, for ample sup- the evidence is is, plete he eat may dominion. That port it. We simply refer to these facts to wants, at all little as much he or not if show the faint line of difference between wishes, spend any he unused concepts. We think it too slender portion any way he do desires. We reed hang liability. which to tax believe that the Court intended to rule that places heavy reliance an allowance otherwise excludable should Kowalski, 434 U.S. be excludability simply denied because it S.Ct. 54 L.Ed.2d was in cash. We think the true hold- Supreme Court held that “cash ing Kowalski can best be demonstrated meal allowances” were not un- excludable following example. Let us assume der police section 110. In state given scrip that the were troopers employed the state of New Jer- purpose paying If their meals. sey gross pay had included in their a cash any were scrip eating redeemable at estab- meal Although troopers allowance. be ex- vicinity lishment to remain call in their elsewhere, changed for cash at a bank or assigned patrol during areas midshift little doubt in the Kowalski factual break, they were not to eat lunch setting but have Court would and, indeed, at any particular many location However, reached the same result. if the ate they required at home. Nor were scrip precise issued amount spend the meal on food. tax allowance assessment; the meal redeemable rejected court but the court mess; at had to surrendered of appeals reversed. The not, whether the fireman ate or such an held that cash' meal payments allowance scrip in view in allowance our whether 119, were not excludable under section since do cash would be deductible and we not they are funds over which the has to contrary. read Kowalski the complete they and are dominion not meals light of In the all the circumstances in by employer.” “furnished the case, very in a this the meals in distinguishable Kowalski is of course by real sense were “furnished in kind the upon troopers the facts. The state employer” upon property” by the “business place wanted, eat any they they had means of a device and established conceived complete dominion over their cash allow- by employer the This its convenience. ances spend they pleased. and could it as so, permitted the should be In the fighters case before us the fire were to gross exclude from their income under required to eat their meals the employ- on of the section the value of premises, er’s and were to notwithstanding meals the fact that these them whether ate them or not. simple cash been used as a method of language the opinion in Kowalski implementing plan. the presents problem. however more difficult 119, In interpreting taxpayers may section the Court would hold therefore that allow by deductions for meals “furnished elect either to deduct the mess fees under

ery going every- Operations by station was to and the Manual of have a was amended comply. leeway one Engineer gave . This to the Chief which no the resolution Engineer, was —was served the Chief he’s individual fireman or his officers as to whether dutybound by city not.” the or not he chose to be in the mess or charter the ordi- Commissioner, city Report- nances of the to act it. v. No. Rules II, regulations promulgated by Transcript, p. er’s Vol. 8. the Board of mess, Fire which Commissioners con- taxpayers’ on the them in- such restriction 162(a) or exclude to section in present was not sumption preferences come only aspect of the common this case: the affirm. We therefore employ- that suited the dining arrangement ap- er was location. firemen its KENNEDY, Judge, dissenting: Circuit suit their own tastes parently free to majori- disagree with respectfully I prepared. food groceries purchased taxpayers’ view the holding. my ty’s points up the omission This freedom critical in common with co-em- expenses for meals hypothetical, is the majority’s which de- ployees are neither the amount of the individ- specify failure to 162 nor fur- under § ductible I.R.C. taxpayer’s participation ual in either by excludable under nished how much choice of food or decision of plurality I.R.C. 119. Inasmuch spend on the meals. of the Tax of seven out fifteen to focus necessity in cases like these these were panel found that Court degree such minutiae determine expenses, I do not believe we are suggests hair-split- control give finding weight. decisive bound ting isolating otherwise artificiality an Alternatively, the Tax Court’s since all clear type of Cooper preceded in Court’s in course taxpayers must incur decision labeling “busi- living and 98 S.Ct. 54 L.Ed.2d 252 U.S. partic- in which the construed section 119 ness” and therefore nontaxable for actually narrowly ular, furnished quite to meals special, to that extent class employer, than meals fur- rather taxpayers. Legislative exceptions such facility provid- in a employees nished beyond not be broadened 119 should I think the Tax employer, ed judicial interpreta- explicit terms on the Court’s decision should reversed tion, as sec- and definitional sections such authority of Kowalski. interpreted light tion 162 should be intention, Congress’ defining gross in- A result to the one reached contrary come, “full its exert measure of depend upon the Tax Court does Clifford, taxing Helvering overly reading power.” literal of the statute. Al- though deductibility 554, 556, U.S. 60 S.Ct. 84 L.Ed. 788 rather than of income sec- exclusion (1940). acknowledging the ar- While 119, presents tion ar- the more substantial guments by Judge stated so well Curtis here, gument the taxpayers under ei- ones, principles I believe set reasonable provision ther underlying principle require forth us to the Tax above reverse consumption the idea that forced should Court, and I dissent the decision not cases be some treated as a transaction that do so. dependent not significant elements of is, personal choice. That if the convenience type

of the dictates certain

consumption likely to be different normally

from that which a

prefer, taxpayer’s restriction

preferences is for an “accession an occasion

to wealth” does over which “have dominion.” Com- complete Cf. Co.,

missioner v. Glass Glenshaw U.S. 99 L.Ed. S.Ct.

(defining gross quoted in terms income

phrases). It from the record

Case Details

Case Name: Richard R. Sibla v. Commissioner of Internal Revenue, Robert E. Cooper v. Commissioner of Internal Revenue

Court Name: Court of Appeals for the Ninth Circuit

Date Published: Jan 7, 1980

Citation: 611 F.2d 1260

Docket Number: 78-1295, 77-3815

Court Abbreviation: 9th Cir.