Ashby H. Canter and Florence G. Canter v. The United States

354 F.2d 352, 173 Ct. Cl. 723, 16 A.F.T.R.2d (RIA) 6051, 1965 U.S. Ct. Cl. LEXIS 5

• Court: United States Court of Claims
• Decided: December 17, 1965
• Docket: 24-62
• Status: Published

Opinions

COLLINS, Judge.

During 1960, Florence G. Canter, one of the joint petitioners, was a full-time student of nursing at the University of Maryland. In their 1960 Federal income tax return, petitioners treated as a deduction expenses related to Mrs. Canter’s education. (Hereafter, the term “plaintiff” will refer to Florence G. Canter.) The deduction was disallowed by the Internal Revenue Service, and the present suit followed.

Section 162 of the Internal Revenue Code of 1954 states, in part, that: “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 * * The section and the regulations ¹ interpreting it provide the basis for plaintiff’s claim. One of defendant’s assertions is that plaintiff cannot possibly be entitled to a deduction under section 162 for the reason that, as of 1960, she was not “carrying on any trade or business.”

The pertinent facts are set forth, infra, in the findings of fact and need not be restated in this opinion. Based upon the record in this case, it is our conclusion that the expenses of plaintiff’s education in 1960 are not deductible. The crucial facts are that (1) on August 26, 1958, after having been on leave of absence since February 1,1958, plaintiff resigned from her position with the U. S. Public Health Service and (2) during the year 1960, plaintiff had no employment.

We cannot accept the argument of plaintiff that, during the year in question, she was “on a temporary leave of absence.”² It does appear that plaintiff’s resignation was attributable to the fact that, under the existing conditions, the Public Health Service could not extend her leave of absence beyond 9 months. However, the fact remains that, having been given a choice between retaining her job and continuing as a full-time student, plaintiff elected the latter course.

On August 26, 1958, plaintiff’s employment with the Public Health Service was terminated by her resignation. No longer did she have the right to return to her position there. Furthermore, plaintiff has failed to prove the existence of any informal understanding between her and the Public Health Service regarding future employment. The year in issue began some 16 months after plaintiff had resigned. Perhaps, in 1960, plaintiff did hope that, after completing her university training, she would be able to obtain a new position at the Public Health Service.³ However, this desire on plaintiff’s part is not a sufficient link with the Public Health Service. On the basis of the record before us, we hold that, by 1960, plaintiff was not “on temporary leave of absence” either in form or in substance. By 1960, plaintiff’s status was simply that of a former employee of the Public Health Service. Under these circumstances, there is no reasonable basis for stating that plaintiff’s relationship, in 1960, with the Public Health Service constituted “carrying on a business.”

Two other arguments of plaintiff must also be rejected. According to plaintiff, she was actively engaged in the practice of her profession during the year in question. The record does indicate that plaintiff did some nursing at a state hospital and at a psychiatric institute. However, these activities do not satisfy the requirements of section 162. The nursing which plaintiff performed was part of her academic program; it did not result in income to her nor was it related to employment.⁴ Secondly, the fact that plaintiff continued to be a nurse cannot be determinative. Cf. Henry G. Owen, 23 T.C. 377, 380 (1954). The latter case indicates that the mere existence of professional status is not a sufficient basis for finding that the taxpayer is “carrying on a business.” Owen did not involve educational expense, but, as defendant contends, the general principle of that case is relevant to the present one.

None of the cases cited by plaintiff dealt with factual circumstances like hers. The taxpayer in Cosimo A. Carlucci, 37 T.C. 695 (1962), acq., 1962-2 Cum.Bull. 4, was employed during the period in question; his classes were held at night. In John S. Watson, 31 T.C. 1014 (1959), nonacq., 1963-2 Cum.Bull. 6, the taxpayer was actively engaged in the practice of medicine. Thus, in each of these cases, it was clear that the taxpayer was carrying on a business during the years in which the expenses were incurred. A case which comes closer to the one at bar is Peggy A. King, 21 CCH Tax Ct.Mem. 495, P-H Mem. T.C. ][62,093 (1962). Miss King was a teacher in the Fort Worth public school system. During part of the pertinent year, she was a full-time graduate student at Stanford University. She was permitted to deduct educational expenditures including those incurred at Stanford. However, during the months in question, Miss King was either under contract with the Fort Worth school system or on leave of absence. This is a material distinction between her situation and that (in 1960) of Mrs. Canter. The cases cited by plaintiff are fully in accord with the proposition that, before a person can qualify for a deduction under section 162, he must either be engaged in remunerative activity or have a definite connection, such as leave of absence, with a position. See Rev.Rul. 60-97.⁵ As indicated above, by 1960, the ties between Mrs. Canter and her former job had been completely severed.

To summarize, we hold that plaintiff is not entitled to deduct the expenses in issue. If we had been called upon to determine the deductibility of the educational expenses incurred while plaintiff was On leave of absence, then, in all likelihood, it could have been said that the primary purpose of such expenditures was to “[maintain or improve] skills required by the taxpayer in * * * [her] employment or other trade or business.” However, by 1960, plaintiff’s situation had been altered considerably. Although plaintiff continued in 1960 to improve her nursing skills, the necessary link between plaintiff and employment at the Public Health Service (or elsewhere) was absent. Therefore, we would not be justified in granting to plaintiff the deduction described in section 162 and the applicable regulations.

In reaching this conclusion, we are fully aware of the fact that plaintiff ultimately returned to Federal employment.⁶ Undoubtedly, the Government benefited from her undergraduate and graduate training, for it rehired a better prepared and more capable employee. Nonetheless, these factors do not afford the basis for recovery by plaintiff. A decision favorable to plaintiff would represent not construction of section 162, but legislation on our part. There is much to be said in favor of providing for the deduction of expenses such as those incurred by plaintiff. This would be consistent with recent legislation to encourage advanced study and training, particularly in the fields of medicine, including nursing, and science.⁷ However, the decision to create such a deduction must be made by Congress, not by a court. As sympathetic as we may be towards plaintiff for her commendable course of action, we cannot change existing law and regulations.

The petition is dismissed.

1 . Treas.Reg. § 1.162-5, which deals with expenses for education, was promulgated in 1958. Relevant parts of the regulation are as follows:

“(a) Expenditures made by a taxpayer for his education are deductible if they are for education (including research activities) undertaken primarily for the purpose of:

“(1) Maintaining or improving skills required by the taxpayer in his employment or other trade or business * * *

He # >j« # >k

“Whether or not education is of the type referred to in subparagraph (1) of this paragraph shall be determined upon the basis of all the facts of each case. * * *

“(b) Expenditures made by a taxpayer for his education are not deductible if they are for education undertaken primarily for the purpose of obtaining a new position or substantial advancement in position or primarily for the purpose of fulfilling the general educational aspirations or other personal purposes of the taxpayer. * * *

* * # * #

“(d) If a taxpayer travels away from home primarily to obtain education the expenses of which are deductible under this section, his expenditures for travel, meals, and lodging while away from home are deductible. * * * ”

2 . The significance of being on temporary leave of absence is dealt with in Rev.Rul. 60-97, 1960-1 Cum.Bull. 69, 70. Portions of this ruling are quoted in footnote 5, infra.

3 . See footnote 6, infra.

4 . In McDonald v. Commissioner, 323 U.S. 57, 60, 65 S.Ct 96, 89 L.Ed. 68 (1944), the majority stressed the principle that, in order to qualify for the business deduction, the expense must relate to the existing, as opposed to tire future, occupation of the taxpayer. The Supreme Court held that certain campaign expenses were not deductible under Int.Rev. Code of 1939, § 23(a) (1) (A), ch. 619, § 121, 56 Stat 798, 819 (1942).

The requirement of relation to an existing position is implicit in the regulations pertaining to educational expenses. See footnotes 1 and 5. Cf. Sandt v. Commissioner, 303 F.2d 111, 3 A.L.R.3d 825 (3d Cir. 1962) ; Namrow v. Commissioner, 288 E.2d 648 (4th Cir.), cert, denied, 368 U.S. 914, 82 S.Ct. 192, 7 L.Ed. 2d 132 (1961).

5 . Rev.Rul. 60-97, 1960-1 Cum.Bull. 69, which pertains to expenses for education, provides, in part, as follows:

“A taxpayer who is not currently employed or is not otherwise actively engaged in a trade or business is not entitled to a deduction for the expenses of any education undertaken during such period of unemployment or inactivity. Therefore, if a taxpayer who lias ceased to engage in employment or other business subsequently undertakes education or training preparatory to resuming engagement in such employment or other business, the cost of such education is not deductible. A taxpayer will not be considered to have ceased to engage in his employment or other business during an off-duty season, when he is on vacation, or when he is on temporary leave of absence. * * * ”

6 . In May 1963, almost 5 years after her resignation, Mrs. Canter again began working for the U.S. Public Health Service. However, it should be noted that approximately 9 months elapsed between her return to the Public Health Service and the receipt, in August 1962, of her master’s degree. After completing her education, plaintiff worked for Montgomery County, Maryland. It was not until February 1963 that she requested reemployment at the Public Health Service.

7 . See, for example, §§ 821, 822, of the Nurse Training Act of 1964, 78 Stat. 913, 42 U.S.C. §§ 297, 297a. Also, see the Heart Disease, Cancer, and Stroke Amendments of 1965, 79 Stat. 926, 42 U.S.C. §§ 299-299Í, and the Health Professions Educational Assistance Amendments of 1965, 79 Stat. 1052 (codified in scattered sections of 42 U.S.C.).