MEMORANDUM FINDINGS OF FACT AND OPINION
DAWSON, Chief Judge: This case was assigned to and heard by Special Trial Judge Randolph F. Caldwell, Jr., pursuant to Rules 180 and 182, Tax Court Rules of Practice and Procedure. The parties have filed no exceptions of law or fact to Special Trial Judge Caldwell's report. The Court agrees with and adopts his opinion which is set forth below.
OPINION OF THE SPECIAL TRIAL JUDGE
CALDWELL, Special Trial Judge: This case was one of a group of 37 which were consolidated for trial, but not for opinion. At the trial, evidence was received which bears upon every case in the group. This evidence relates to certain contractual arrangements between the husband-petitioners' employers (Lockheed Air Service Company and Dynalectron Corporation) and the United States Air Force, as well as the employment arrangments between field team members (such as the husband-petitioners) and such employers.
Respondent determined deficiencies in petitioners' Federal income taxes for the years 1967, 1968, and 1969 in the respective amounts of $378.76, $623.51, and $831.31.
The only issue for decision is whether all or any amounts of per diem payments received by petitioner Donald Mayfield (hereinafter, "petitioner") from Lockheed Air Service Company (hereinafter, "Lockheed") should be included in his gross income for the years in which they were received under section 61(a)(1) of the Internal Revenue Code of 19542; and, if so, whether petitioner is entitled to deduct any or all of said amounts as away-from-home traveling expenses under section 162(a)(2). Respondent's partial disallowance of petitioners' claimed medical expense deductions were based solely on the determined increases in petitioners' adjusted gross income consequent on the inclusion of the per diem payments in gross income. The propriety of such partial disallowances thus depends on the per/diem travel expense issue.
FINDINGS OF FACT
Petitioners, who were husband and wife until their divorce in 1970, filed their 1967, 1968, and 1969 returns with the Internal Revenue Service Center at Chamblee, Georgia. The record does not establish what their residences were at the time the petition in this case was filed.
During each of the years, petitioner was employed as a member of several different field teams by Lockheed. That company, as well as Dynalectron Corporation (hereinafter, "Dynalectron"), had a contract with the United States Air Force during the taxable years involved, to provide field team services for the maintenance and modification of weapons systems (i.e., aircraft) and/or support equipment.
These contracts were called "basic contracts" and the Air Force entered into such a contract with each of three different contractors. The contracts were for three years maximum duration, and those involved here were for the three fiscal years, July 1, 1967-June 30, 1968; July 1, 1968-June 30, 1969; July 1, 1969-June 30, 1970. The contract was firm for the first of the three years; but the Air Force had the unilateral right to extend the contract for the second and third years of the three-year period. The contracts were so extended by the Air Force insofar as both Lickheed and Dynalectron were concerned. (The record herein does not identify the third contractor who had the basic contract.)
The basic contract did not, of itself, award any work to be performed thereunder. It did specify the wage rates which would be paid for services rendered by employees of the contractor, if the contractor got work to be performed under the contract. The contract also contained the following provisions relating to the payment of per diem:
(ii) Per Diem, not to exceed the applicable amounts set out below, when actually paid by the Contractor and approved by the Administrative Contracting Officer, shall be reimbursed to the Contractor, without regard to the duration of the assignment; provided, however, that no per diem shall be authorized or paid to any employee whose actual residence is within 50 miles of the work station to which the employee is assigned, nor shall any per diem be paid to any employee who actually resides at and commutes from his actual residence during the period of his employment, regardless of the distance between said residence and his assigned work station: (See (ii)(e) below).
(a) In the CONUS (No quarters and messing facilities furnished by the Government) -- $11.00-Per day per man for Engineer and Leadman and $9.00-Per day per man for the remainder.
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(e) For the purpose of this contract the term "actual residence" is defined as the fixed or permanent domicile of an employee. The employee shall certify to the location of his fixed or permanent domicile and this location, if accepted by the Contractor, shall be deemed, for the purpose of this contract, to be the employee's domicile in so far as per diem authorization against this contract is concerned. However, this does not relieve the Contractor of his responsibility to ascertain that the certification is valid.
The opportunity for the contractor to perform under the basic contract arose from the issuance by the Air Force of a work order thereunder. Issuance of a work order was entirely within the discretion of the Air Force, and it alone had the discretion to select which one of the three holders of a basic contract that was to perform the work order. Performance under a work order might be at any place in the United States or at any place overseas where the Air Force maintained a base. Under the terms of the basic contract, work orders could only be issued during a given year of a basic contract. However, completion of a work order actually issued during such year might be effected after the end of the year.
When the Air Force had determined to issue a work order and had notified a contractor of its selection to perform that order, representatives of the Air Force and of the contractor would get together at a "pre-dock" meeting where the time for completion of the contract and the make-up of the contractor's projected field team complement would be worked out. Determination of the time of performance entailed fixing an input-output schedule -- the schedule which showed the number of units coming into the contractor for its maintenance and modification services per day or week or month, and the number of units to be completed by the contractor per day or week or month.
After the projected field team complement had been worked out, the contractor would then proceed to ge the team together. In assembling the team, the contractor would utilize two sources of manpower: (1) existing employees which it transferred from jobs under other work orders; and (2) new employees which it recruited.
Whenever a contractor hired a new employee for field team work, that employee was advised that he was subject to being sent anywhere that the contractor might be called upon to perform a work order, and that if the employee was unwilling to travel where thus directed to go, his only alternative was to resign. The employee was also advised that the contractor only had a basic contract for a year and that it had no way of knowing whether or when it would receive work orders under that contract. It was also made clear to the employee that, while the contractor would endeavor to continue to utilize the services of the employee after completion of the work order in connection with which he was hired, it could not guarantee any such further employment; and if none were available, the employee would be laid off. Neither Lockheed nor Dynalectron maintained any pool or central area where an employee who had completed an assignment could be sent pending the contractor getting another work order on which such employee could be used.
Both Lockheed and Dynalectron were involved in the performance of work orders at Key Field in Meridian, Mississippi, during the years involved. 3Lockheed had first come to Meridian in 1965 and it remained there until June 30, 1969, at which time (although it did not lose its status as holder of one of the three basic contracts) it was supplanted by Dynalectron. During the fiscal year ended June 30, 1969, Lockheed received two work orders to be performed at Meridian; and during the succeeding fiscal year, Dynalectron likewise received two work orders. While in most instances, the contractor's field teams were sent to the location where the aircraft were located, in the case of the work orders performed at Meridian, the aircraft were brought by the Air Force to that work site from other locations.
During the performance of a work order, the Air Force always had an on-site representative, monitoring the performance of the contractor. One of the areas of concern was to determine whether the field team was over strength or under strength, as well as the quality of work of the field team members. Instances occurred when the composition of the field team was changed as the result of the recommendation of the Air Force's on-site representative. For this reason, as well as for the reason that the composition of the field team varied according to the nearness in point of time to the beginning or the end of the performance under the work order, the projected field team complement as worked out at the pre-dock meeting might vary as much as 10 to 20 percent during the performance of the contract.
When an employee was hired, or rehired, by a contractor, he was required to certify to the contractor his "permanent or domicile" address (in the case of Lockheed) or his "fixed or permanent domicile" (in the case of Dynalectron). If the address so certified was further than 50 miles from the job site where the employee was to work and if the employee did not drive back and forth to work, irrespective of the address which he had furnished, he was paid the per diem mentioned and described above. The per diem payments made by the contractors were included in their invoices to the Air Force, solely for the purpose of being reimbursed. There was no element of profit to the contractors in the per diem for which they sought reimbursement.
Per diem paid to the field team employees who qualified therefor was at the rate of $11 per day for a leadman and an engineer, and $9 per day for the other members of the field teams. Per diem was paid for seven days per week, although the regular work week for field team members was a 5-day, 40-hour week. Field team members also received per diem during their initial travel to a work site, for days of travel when transferred to different work sites, and for a maximum of three days for return to their homes, in the event they were laid off. They did not receive per diem during vacation periods; but they did receive per diem for three days up to a maximum of six days if they were sick.
Neither Lockheed nor Dynalectron withheld Federal income tax from the per diem payments made to their employees.
The following is a list of the field-team assignments which petitioner had during the years 1967, 1968, and 1969:
Dec. 14, 1966-Feb. 16, 1968 - Meridian, Miss.
Feb. 21, 1968-April 19, 1968 - Kincheloe, Mich.
Apr. 23, 1968-June 1, 1968 - Limestone, Me.
June 10, 1968-Sept. 20, 1968 - Minot, N. Dakota
Sept. 24, 1968-Sept. 20, 1969 - Meridian, Miss.
Sept. 22, 1969-Oct. 7, 1969 - Montgomery, Ala.
Oct. 10, 1969-May 27, 1970 - Orlando, Fla.
Petitioner was not advised when he was sent on any of the foregoing assignments of how long the duration of his assignment would be.
Petitioner was paid per diem by Lockheed in the amount of $2,455 in 1967 while he was at Meridian, and in the amount of $324 while he was stationed in that city in early 1968. He did not include any per diem in gross income on his returns for 1967 and 1968. In his statutory notice of deficiency for those years, respondent determined that per diem of $2,184 and $3,094 was includible in petitioner's gross income for 1967 and 1968, respectively.
OPINION
It must first be determined whether the per diem payments received by petitioner from Lockheed in 1967, 1968, and 1969 are includible in his gross income for those years. Respondent has conceded in his brief that the per diem payments received by petitioner in respect of his assignments to Kincheloe, Michigan, Limestone, Maine, Minot, North Dakota, the September 1968 to September 1969, Montgomery, Alabama, and Orlando, Florida, are not taxable. Thus only the per diem payments in respect of the Meridian assignment that extended from December 1966 to February 1968 are in issue, and as to them respondent's sole argument is that petitioner's said assignment to Key Field in Meridian was indefinite, rather than temporary.
It is believed that per diem payments in respect of such assignment when received by petitioner constituted gross income. In very broad language, section 61(a)(1) provides that "gross income means all income from whatever source derived." The Supreme Court has construed this "broad phraseology" to evince a Congressional intention "to tax all gains except those specifically exempted." Commissioner v. Glenshaw Glass Co., 348 U.S. 426, 430. The per diem payments were "undeniable accessions to wealth, clearly realized and over which the [petitioner had] complete dominion," ( Commissioner v. Glenshaw Glass Co.,supra, p. 431); and the Code contains no provision exempting per diem payments from taxation. Manifestly, then the respondent was correct in including in petitioner's income for 1967 and 1968, the per diem payments which he received from Lockheed in those years in respect of his Meridian assignment. Leo C. Cockrell,38 T.C. 470, 477-478, affd. (8th Cir.) 321 F.2d 504; Darrell Spear Courtney,32 T.C. 334, 341. 4
There is some uncertainty in the record as to the precise amount of per diem payments which petitioner received in respect of his Meridian assignment. The amounts determined from the evidence in this case have been set out in the last paragraph of the Findings of Fact: $2,455 in 1967 and $324 in 1968.
The question remains whether petitioner is entitled to deduct under section 162(a)(2) an amount equal to any part or all of the per diem payments included in his income, as expenses of travel while away from home in pursuit of his trade or business as an employee of Lockheed, Leo C. Cockrell,supra, p. 479. In the Cockrell case, it was pointed out that the Supreme Court, in Commissioner v. Flowers,326 U.S. 465, rehearing denied 326 U.S. 812, had laid down three requirements that a taxpayer must meet to be entitled to deduct away-from-home expenses: The expenses must be (1) reasonable and necessary traveling expenses, (2) incurred by the taxpayer while away from home, and (3) incurred in pursuit of business. In the present case, the parties differ only on the point of whether petitioner was away from home; and, as mentioned above, their difference is narrowed to the question of whether petitioner's assignment to Meridian was indefinite, as opposed to temporary.
Respondent argues that this one disputed 14-month assignment was indefinite. It is not believed that that position is meritorious. Bearing in mind the contractual arrangements between Lockheed and the Air Force and the employment arrangements between petitioner and Lockheed -- both as described in the Findings of Fact -- it is believed that petitioner's assignment should be characterized as only temporary. It is not believed that, in those circumstances, he was required to abandon his established home at Lake City, Florida, and move it to Meridian. His subsequent peripatetic employment history with Lockheed would seem to prove the wisdom of not making any such move. Respondent urges, correctly, that an assignment temporary in its inception may with the passage of time be changed into an indefinite one. However, it is not believe that the point in time for such a transformation had been reached at the end of 1967, or at any time during the six-week period in 1968 prior to petitioner's transfer from Meridian to Kincheloe, Michigan. Petitioner should beentitled to a deduction for $2,455 for 1967 and $324 for 1968, the amounts of per diem which he received in those years in respect of his Meridian assignment. In light of respondent's concessions mentioned above, a decision of no deficiency should be entered for petitioners for each of the three years here involved.
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In accordance with the foregoing,
Decision will be entered for petitioners.