115 T.C. No. 16
UNITED STATES TAX COURT
MARIN I. AND ANITA J. JOHNSON, Petitioners v. COMMISSIONER OF INTERNAL REVENUE, Respondent
Docket No. 5114-98. Filed September 15, 2000.
P is a merchant seaman who captains a vessel that sails worldwide carrying equipment of the U.S. military. The vessel sails infrequently in the general vicinity of P’s residence, which also is not near the office of P’s employer. P’s employer furnishes him with lodging and meals without charge while he works on the vessel, but P pays for his other (incidental) travel expenses. P reported his incidental travel expenses as miscellaneous itemized deductions for 1994 and 1996, ascertaining the amounts of those deductions by using the full Federal per diem rates for meal and incidental expense (M&IE rates). The M&IE rates are referenced in Rev. Proc. 96-28, 1996-1 C.B. 686, and its progenitors, which provide that an employee, in lieu of substantiating his or her actual travel expenses, may use the M&IE rates to compute the cost of meal and incidental expenses paid while working away from home. See, e.g., id. sec. 4.03, 1996-1 C.B. at 688. P has no receipts for his incidental travel expenses. - 2 -
Held: P’s tax home is the situs of his residence. Held, further, P’s testimony, by itself, supports a finding that P paid incidental travel expenses while employed away from his tax home. Held, further, P’s use of the M&IE rates is limited to the portions thereof that are attributable to incidental expense.
Steven R. Stolar and Kristina S. Keller, for petitioners.
Ric D. Hulshoff, for respondent.
LARO, Judge: Respondent 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
amount of those deductions by using the full Federal per diem
rates for meal and incidental expense (M&IE rates) referenced in
Rev. Proc. 96-28, 1996-1 C.B. 686, and its progenitors. See,
e.g., id. sec. 4.03, 1996-1 C.B. at 688. Petitioner’s actual
expenses consisted solely of incidental expenses; while he was at
work, his employer furnished him with lodging and meals at no
charge.
We must decide whether petitioner may deduct the claimed
amounts. We hold he may not. We hold that petitioner’s use of - 3 -
the M&IE rates is limited to the incidental expense portions of
those rates and that his deductions must be determined
accordingly. Unless otherwise indicated, section references are
to the Internal Revenue Code, and Rule references are to the Tax
Court Rules of Practice and Procedure.
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
(Freeland), 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 Tacoma, Washington.1
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.
1 We have taken judicial notice of this fact. - 4 -
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.2 Crowley employs
petitioner as the captain of its vessel the M/V American Falcon
(Falcon). Crowley primarily charters the Falcon to the U.S.
military to transport military vehicles and other military
equipment worldwide. Petitioner’s work requires that he work
continuously on or around the Falcon for long periods of time and
that he then vacation for approximately 2 months. Petitioner and
his crew generally fly to and from the situs of the Falcon at the
beginning and end of their work schedule.
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.
2 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. - 5 -
Petitioner sailed the Falcon to and from the cities set
forth in the schedule below.3 The Falcon was generally at sea
between each departure and immediately following arrival date set
forth in the schedule, and the Falcon was generally at port on
and between each arrival and immediately following departure
date.
Date Status Location
Apr. 22 Joined Gulfport, Miss., U.S.A. Apr. 22 Departed Gulfport, Miss., U.S.A. Apr. 26 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.
3 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. - 6 -
July 1 Departed Bremerhaven, F.R.G. 1 July 10 Arrived 1 July 10 Left
Sept. 7 Joined Beaumont, Tex., U.S.A. Sept. 7 Departed Beaumont, Tex., U.S.A. 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 Departed Port Said, Egypt Oct. 27 Arrived 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, Turk. Nov. 14 Departed Tekirdag, Turk. 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.
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, Isr. Jan. 17 Departed Ashdod, Isr. Jan. 21 Arrived Gibraltar, Gib. Jan. 23 Departed Gibraltar, Gib. - 7 -
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, Turk. July 2 Departed Iskendren, Turk. July 3 Arrived Port Said, Egypt July 5 Departed Port Said Egypt July 6 Arrived Aqaba Port, Jordan 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 PortSaid, 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. - 8 -
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. Dec. 13 Left Port Angeles, Wash., U.S.A. 1 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.
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 - 9 -
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-percent 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; both amounts were
related to his employment by Crowley, and the latter amount took
into account the 50-percent limitation of section 274(n) for
meals and entertainment. Petitioner reported $10,239 of - 10 -
miscellaneous itemized deductions for 1996, claiming on that
return that he was entitled to deduct $7,811 of that amount after
taking into account the 2-percent floor of section 67.
Petitioner has no receipts to support the claimed deduction of
$3,654. 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 $3,654 deduction related solely to the
incidental expenses which petitioner paid during 1996 while
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 - 11 -
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 rates. We
begin our analysis with the relevant statutory provisions. An
individual may deduct all ordinary and necessary expenses paid or
incurred during the taxable year in carrying on a trade or
business. See sec. 162(a). Services performed by an employee
constitute a trade or business for this purpose, see O'Malley v.
Commissioner, 91 T.C. 352, 363-364 (1988), and ordinary and
necessary expenses generally include amounts which an employee
pays while traveling away from home in connection with his or her
employment, see sec. 162(a)(2). Section 162 does not, however,
allow a taxpayer to deduct travel expenses attributable to
personal, living, or family expenses. See sec. 262. Nor does
section 162 allow a taxpayer to deduct travel expenses absent
either compliance with the substantiation requirements of section - 12 -
274(d) or the fulfillment of criteria set forth by the
Commissioner as to expenditures less than a stated amount (de
minimis expenses). See sec. 274(d); see also sec. 1.274-5T(j),
Temporary Income Tax Regs., 50 Fed. Reg. 46032 (Nov. 6, 1985)
(authorizes the Commissioner to provide rules under which
taxpayers may deduct a set amount in lieu of substantiation for
meals while traveling away from home).
The Commissioner first set forth the criteria for de minimis
expenditures in Rev. Proc. 89-67, 1989-2 C.B. 795. There, the
Commissioner provided 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.4 Id. secs. 1, 3, 1989-2 C.B. at 795, 796. The
4 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 areas 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. (continued...) - 13 -
Commissioner provided that “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.” Id. sec. 3.02(4), 1989-2 C.B.
at 797. The Commissioner provided that “The term ‘incidental
expenses’ does not include taxicab fares or the costs of
telegrams or telephone calls.” Id.
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. 90-60, 1990-2 C.B. 651,
which provided rules on the subject matter of the predecessor
revenue procedure as well as rules addressing the situation where
an employee not subject to a travel allowance incurred traveling
expenses while employed away from home. See id. sec. 1, 1990-2
C.B. at 651. Section 1 of Rev. Proc. 90-60, supra, provided
generally that an employee, in lieu of substantiating his or her
actual expenses, could “use [the applicable M&IE rate or rates]
in computing the deductible costs of business meal and incidental
expenses paid or incurred while traveling away from home.” The
other relevant provisions of Rev. Proc. 90-60, 1990-2 C.B. at
652-653, 655, provided specifically:
4 (...continued) 301-7.3 (1994 & 1996). - 14 -
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 rates 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, - 15 -
that rate shall apply to all travel within such locality beginning 30 days after its publication.
(3) Locality of travel. 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 expenses 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 - 16 -
(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, 1992-1 C.B. 679 (supersedes Rev. Proc. 90-60,
supra, for meal and incidental expenses paid by an employee for
travel while away from home after February 28, 1992); Rev. Proc.
93-21, 1993-1 C.B. 529 (supersedes Rev. Proc. 92-17, supra, for
meal and incidental expenses paid by an employee for travel while
away from home after March 11, 1993); Rev. Proc. 93-50, 1993-2
C.B. 586 (supersedes Rev. Proc. 93-21, supra, for meal and
incidental expenses paid by an employee for travel while away
from home after December 31, 1993); Rev. Proc. 94-77, 1994-2 C.B.
825 (supersedes Rev. Proc. 93-50, supra, for meal and incidental
expenses paid by an employee for travel while away from home
after December 31, 1994); Rev. Proc. 96-28, 1996-1 C.B. 686
(supersedes Rev. Proc. 94-77, supra, for meal and incidental - 17 -
after March 31, 1996). Each of these revenue procedures
clarified that the use of the M&IE rates was not mandatory and
that a taxpayer could deduct actual allowable expenses if he or
she had adequate records or other supporting documentation. See,
e.g., Rev. Proc. 96-28, sec. 1, 1996-1 C.B. at 686; Rev. Proc.
94-77, sec. 1, 1994-2 C.B. at 825.
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. Respondent 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 to his
personal residence. Respondent relies primarily on Henderson v.
Commissioner, 143 F.3d 497 (9th Cir. 1998), affg. T.C. Memo.
1995-559, and Rev. Rul. 73-529, 1973-2 C.B. 37.
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 - 18 -
principal place of employment. See Daly v. Commissioner, 72 T.C.
190 (1979); Kroll v. Commissioner, 49 T.C. 557, 561-562 (1968);
cf. Commissioner v. Flowers, 326 U.S. 812 (1946). If an
individual does not have a principal place of employment, we
generally deem the situs of the individual’s permanent residence
to be his or her tax home. See Rambo v. Commissioner, 69 T.C.
920 (1978); Dean v. Commissioner, 54 T.C. 663 (1970); Leach v.
Commissioner, 12 T.C. 20 (1949). We consider a person who has
neither a permanent residence nor a principal place of employment
to be an itinerant without a tax home. See Wirth v.
Commissioner, 61 T.C. 855, 859 (1974); Hicks v. Commissioner, 47
T.C. 71 (1966).
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.5
Unlike the taxpayer in Henderson v. Commissioner, supra, who
5 In Leach v. Commissioner, 12 T.C. 20 (1949), we held that the taxpayer’s tax home was the situs of his personal residence, and we let him deduct the costs which he paid to lodge near some of his work sites. The taxpayer had no principal place of employment and resided in his personal residence with his wife and child. He worked away from that residence for 49 weeks of the year and could not move his wife and child to the area of any of his work sites mainly because he was at each of the sites for a short and indefinite period. - 19 -
lived with his parents practically without charge in the situs
that he argued was his tax home, petitioner was primarily
responsible for maintaining financially his personal residence,
he had an ownership interest in his personal residence, and he
contributed to his household there in a valuable and
indispensable way. Petitioner also spent a substantial part of
each year at his personal residence. Whereas the taxpayer in
Henderson v. Commissioner, supra, worked for his employer away
from his claimed tax home approximately 85 percent of the year,
petitioner was required by his employer to be away from his
personal residence only 47.4 percent of 1994 and only 56.4
percent of 1996.
Petitioner also had a legitimate reason for maintaining his
personal residence in Freeland while traveling 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 - 20 -
maintain a residence in a city in which he or she actually
works.6 See id.
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
6 As a 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 fact 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). - 21 -
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 such as section 119
(meals and lodging furnished for the convenience of the
employer). We do not believe that a finding of a tax home for
purposes of section 162(a) turns on whether an employee may
exclude the value of employer-provided lodging and meals from his
or her gross income. An employee who could not exclude the value
of those items from gross income would incur an expense as to
those items, to the extent that his or her personal income tax
was attributable thereto, and that expense would mean that the
employee was paying twice for overlapping lodging and/or meals.
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, 143 F.3d 497 (9th Cir. 1998), petitioner would not
have avoided a duplication of living expenses during his vacation
had he established his home at other than his personal residence.
Petitioner received neither meals nor lodging from his employer
while he was on vacation. Thus, were petitioner to have lived in
other than his personal residence during that time, he would have - 22 -
had to pay for those living quarters and his meals there as well
as the cost of his personal residence and the meals which his
family consumed at the personal residence. According to
respondent, an employee such as petitioner can never have a tax
home because he continually travels to different cities during
his employment. We disagree that such continual travel, in and
of itself, serves to disqualify a taxpayer from having a tax home
for purposes of section 162(a). Regardless of where a taxpayer
performs most of his or her work, the fact that he or she
maintains financially a fixed personal residence generally means
that he or she has a tax home someplace. See James v. United
States, 308 F.2d 204 (9th Cir. 1962) (a taxpayer's permanent
residence is his or her tax home if the taxpayer has no principal
place of employment, is currently working away from that
residence, and incurs substantial continuing living expenses at
the residence); see also Leach v. Commissioner, 12 T.C. 20
(1949). Because petitioner incurred throughout the subject years
substantial living expenses in maintaining his personal
residence, his personal residence was his tax home for purposes
of section 162(a). Cf. Ireland v. Commissioner, T.C. Memo. 1979-
386.
Respondent’s reliance on Rev. Rul. 73-529, 1973-2 C.B. 37,
is misplaced. In addition to the fact that revenue rulings are
not binding on this Court, see Sklar, Greenstein & Scheer, P.C. - 23 -
v. Commissioner, 113 T.C. 135, 142 (1999); see also Christensen
v. Harris County, 526 U.S. , , 120 S. Ct. 1655, 1662-1663
(2000) (the interpretation that an agency reaches without formal
notice and comment rulemaking is entitled to “respect” only when
it has the “power to persuade”), that ruling is unpersuasive as
applied to the facts herein. The ruling applies ostensibly to
outside salesmen, providing examples which distinguish (1)
outside salesmen who are considered to be itinerants because they
do not have a home or regular place of employment from (2)
outside salesmen who may be regarded as having a home to be away
from. Petitioner is neither an outside salesman nor an
itinerant. He is a professional seaman who accepted employment
away from his personal residence, most likely because he could
earn his living at his trade more profitably than if he attempted
to do so in the area of his personal residence. He accepted that
employment with the understanding that he would travel at
designated times to where the Falcon was docked and captain the
Falcon for a fixed time. Our finding that petitioner has a tax
home regardless of this revenue ruling is further solidified by
noting that respondent does not contest petitioner’s right to
deduct as travel expenses the other reported travel expenses
which he incurred with respect to his employment.
Nor do we agree with respondent that petitioner has not
established that he paid incidental expenses during his - 24 -
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, 1996-1 C.B. 686, and its progenitors, one of
the primary purposes of those revenue procedures is to allow
taxpayers to deduct a set amount of travel expenses incurred away
from home in lieu of maintaining written records to substantiate
the actual amount. See also sec. 1.274-5T(j), Temporary Income
Tax Regs., 50 Fed. Reg. 46032 (Nov. 6, 1985) (“the Commissioner
may establish a method under which a taxpayer may elect to use a
specified amount or amounts for meals while traveling in lieu of
substantiating the actual cost of meals”). We note, however,
that petitioner has introduced into evidence records which meet
the time, place, and business purpose requirements of sec. 1.274-
5T(b)(2), Temporary Income Tax Regs., 50 Fed. Reg. 46014 (Nov. 6,
1985), as to his incidental expenses. Those records show
clearly: (1) The dates of petitioner’s departure for and return
from each city that he visited while away from home (the time
requirement), (2) the cities or points of travel (the place
requirement), and (3) the business nexus between his employment - 25 -
and his travel (the business purpose requirement). See id.; see
also 41 C.F.R. sec. 301-7.2(a)(2) (1994 & 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, 1996-1 C.B. at 686. We also note that 41 C.F.R. sec. 301-
7.12(a)(2) (1994 & 1996) sets forth explicit rules which reduce
the M&IE rates when the Government furnishes meals to an employee
without charge and clarifies that “The total amount of deductions
made on partial days shall not cause the employee to receive less
than the amount allocated for incidental expenses.”
We turn to the applicable revenue procedures. Respondent
focuses on the fact that those revenue procedures provide that an
employee without a travel allowance may use the revenue - 26 -
procedures to compute a deduction for “meals and incidental
expenses”. Respondent concludes from the quoted language that
the revenue procedures apply only when both meals and incidental
expenses are incurred, or when meals alone are incurred. We
disagree with respondent’s conclusion. We do not see how the
language “meals and incidental expenses” could be construed to
apply when only meals are incurred but not when only incidental
expenses are incurred. We read the revenue procedures to apply
to three distinct situations; i.e., (1) where a traveling
employee pays only for meals, (2) where a traveling employee pays
for both meals and incidental expenses, and (3) where a traveling
employee pays only for incidental expenses.
We are mindful that the relevant provision of the revenue
procedures is headed “Optional method for meals only deduction.”
E.g., sec. 4.03 of Rev. Proc. 96-28, 1996-1 C.B. 686. However,
we do not believe that this heading is dispositive as to the
breadth of the related text. That text, when read in the context
of the related revenue procedure as a whole, clarifies that the
provision was intended to apply to costs for both meals and
incidental expenses. The revenue procedures allow a taxpayer to
compute a deduction for business meals and incidental expenses in
accordance with the rules of the travel regulations set forth in - 27 -
41 C.F.R. chapter 301.7 See, e.g., Rev. Proc. 90-60, sec. 1,
1990-2 C.B. at 651 (an employee may use the revenue procedures to
compute the “deductible costs of business meal and incidental
expenses paid or incurred while traveling away from home”); see
also id. sec. 6.01, 1990-2 C.B. at 655 (“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.”).8 The travel regulations, in turn,
provide a specific mechanism under which the applicable M&IE
rates are reduced whenever the employer provides the traveler
with meals at no charge. See, e.g., 41 C.F.R. sec. 301-
7.12(a)(2) (1994 & 1996). We conclude that an employee is not
precluded by the revenue procedures from using the procedures
when he or she pays only for incidental expenses, just as an
employee is not precluded by the revenue procedures from using
the procedures when he or she pays only for meals.
7 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. 8 None of these exceptions are applicable herein; e.g., Rev. Proc. 90-60, sec. 6.03, 1990-2 C.B. 651, 655, does not apply because petitioner was never responsible for the cost of his meals. Moreover, the fact that 41 C.F.R. sec. 301-7.12(a)(2) (1994 & 1996) provides explicitly that the M&IE rate must be reduced when the Government provides an employee with meals at no charge counters petitioner’s argument that we should not reduce the M&IE rates to take into account his employer-provided meals. - 28 -
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.9 The portion of the M&IE rates that is
attributable to incidental expenses incurred in all of the CONUS
9 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), 1990-2 C.B. at 652. Section 301-7.1(c)(3) of 41 C.F.R. (1994 & 1996) provides:
(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 * * *. - 29 -
locations is $2. See 41 C.F.R. sec. 301-7.12(a)(2)(i) (1994 &
1996). The portion of the M&IE rates that is attributable to
incidental expenses incurred in any other location varies from $1
to $53, depending on the M&IE rate for that location. See 41
C.F.R. ch. 301, app. B (1994 & 1996). We believe that
petitioner’s deductions for his incidental expenses are limited
under the travel regulations, which are incorporated by reference
into the revenue procedures, to the incidental expense portion of
the applicable M&IE rate.10 See 41 C.F.R. sec. 301-7.12(a)(2)
(1994 & 1996), which provides that the M&IE rate must be reduced
“When all or part of the meals are furnished at no cost or at a
nominal cost to the employee by the Federal Government”.
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
10 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 entire amounts of the M&IE rates which are attributable to incidental expenses. - 30 -
documentation as to the amounts of those costs. But see sec.
1.274-5T(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, 1995-2 C.B. 333
(notifies taxpayers that sec. 1.274-5T(c)(2)(iii)(B), Temporary
Income Tax Regs., 50 Fed. Reg. 46019 (Nov. 6, 1985), will be
amended to provide that no receipts are required for expenditures
less than $75 which are incurred after Oct. 1, 1995).11 Accord
41 C.F.R. sec. 301-11.25 (1998) (a traveler must provide “a
receipt for any authorized expense incurred costing over $75, or
a reason acceptable to your agency explaining why you are unable
to provide the necessary receipt”).
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.
11 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.