Soterios and Catharine Hantzis v. Commissioner of Internal Revenue

638 F.2d 248
CourtCourt of Appeals for the First Circuit
DecidedJanuary 28, 1981
Docket80-1140
StatusPublished
Cited by35 cases

This text of 638 F.2d 248 (Soterios and Catharine Hantzis v. Commissioner of Internal Revenue) is published on Counsel Stack Legal Research, covering Court of Appeals for the First Circuit primary law. Counsel Stack provides free access to over 12 million legal documents including statutes, case law, regulations, and constitutions.

Bluebook
Soterios and Catharine Hantzis v. Commissioner of Internal Revenue, 638 F.2d 248 (1st Cir. 1981).

Opinions

LEVIN H. CAMPBELL, Circuit Judge.

The Commissioner of Internal Revenue (Commissioner) appeals a decision of the United States Tax Court that allowed a deduction under 26 U.S.C. § 162(a)(2) (1976) for expenses incurred by a law student in the course of her summer employment. The facts in the case are straightforward and undisputed.

[249]*249In the fall of 1973 Catharine Hantzis (taxpayer), formerly a candidate for an advanced degree in philosophy at the University of California at Berkeley, entered Harvard Law School in Cambridge, Massachusetts, as a full-time student. During her second year of law school she sought unsuccessfully to obtain employment for the summer of 1975 with a Boston law firm. She did, however, find a job as a legal assistant with a law firm in New York City, where she worked for ten weeks beginning in June 1975. Her husband, then a member of the faculty of Northeastern University with a teaching schedule for that summer, remained in Boston and lived at the couple’s home there. At the time of the Tax Court’s decision in this case, Mr. and Mrs. Hantzis still resided in Boston.

On their joint income tax return for 1975, Mr. and Mrs. Hantzis reported the earnings from taxpayer’s summer employment ($3,750) and deducted the cost of transportation between Boston and New York, the cost of a small apartment rented by Mrs. Hantzis in New York and the cost of her meals in New York ($3,204). The deductions were taken under 26 U.S.C. § 162(a)(2) (1976), which provides:

“§ 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, including—
(2) traveling expenses (including amounts expended for meals and lodging other than amounts which are lavish or extravagant under the circumstances) while away from home in the pursuit of a trade or business .... ”

The Commissioner disallowed the deduction on the ground that taxpayer’s home for purposes of section 162(a)(2) was her place of employment and the cost of traveling to and living in New York was therefore not “incurred ... while away from home.” The Commissioner also argued that the expenses were not incurred “in the pursuit of a trade or business.” Both positions were rejected by the Tax Court, which found that Boston was Mrs. Hantzis’ home because her employment in New York was only temporary and that her expenses in New York were “necessitated” by her employment there. The court thus held the expenses to be deductible under section 162(a)(2).1

In asking this court to reverse the Tax Court’s allowance of the deduction, the Commissioner has contended that the expenses were not incurred “in the pursuit of a trade or business.” We do not accept this argument; nonetheless, we sustain the Commissioner and deny the deduction, on the basis that the expenses were not incurred “while away from home.”

I.

Section 262 of the Code, 26 U.S.C. § 262 (1976), declares that “except as otherwise provided in this chapter, no deductions shall be allowed for personal, living, or family expenses.” Section 162 provides less of an exception to this rule than it creates a separate category of deductible business expenses. This category manifests a fundamental principle of taxation: that a person’s taxable income should not include the cost of producing that income. See Note, The Additional Expense Test: A Proposal to Help Solve the Dilemma of Mixed Business and Personal Expenses, 1974 Duke L.J. 636, 636. “[Ojne of the specific examples given by Congress” of a deductible cost of producing income is travel expenses in section 162(a)(2). Commissioner v. Flowers, 326 U.S. 465, 469, 66 S.Ct. 250, 252, 90 L.Ed. 203 (1946). See Rev.Rul. 60-16,1960-1 C.B. 58, 60.

The test by which “personal” travel expenses subject to tax under section 262 are distinguished from those costs of travel necessarily incurred to generate income is em[250]*250bodied in the requirement that, to be deductible under section 162(a)(2), an expense must be “incurred ... in the pursuit of a trade or business.” In Flowers the Supreme Court read this phrase to mean that “[t]he exigencies of business rather than the personal conveniences and necessities of the traveler must be the motivating factors." 326 U.S. at 474, 66 S.Ct. at 254.2 Of course, not every travel expense resulting from business exigencies rather than personal choice is deductible; an expense must also be “ordinary and necessary” and incurred “while away from home.” 26 U.S.C. § 162(a)(2) (1976); Flowe rs, 326 U.S. at 470, 66 S.Ct. at 252. But the latter limitations draw also upon the basic concept that only expenses necessitated by business, as opposed to personal, demands may be excluded from the calculation of taxable income.

With these fundamentals in mind, we proceed to ask whether the cost of taxpayer’s transportation to and from New York, and of her meals and lodging while in New York, was incurred “while away from home in the pursuit of a trade or business.”

II.

The Commissioner has directed his argument at the meaning of “in pursuit of a trade or business.” He interprets this phrase as requiring that a deductible traveling expense be incurred under the demands of a trade or business which predates the expense, /. e., an “already existing” trade or business. Under this theory, section 162(a)(2) would invalidate the deduction taken by the taxpayer because she was a full-time student before commencing her summer work at a New York law firm in 1975 and so was not continuing in a trade or business when she incurred the expenses of traveling to New York and living there while her job lasted.3 The Commissioner’s proposed interpretation erects at the threshold of deductibility under section 162(a)(2) the requirement that a taxpayer be engaged in a trade or business before incurring a travel expense. Only if that requirement is satisfied would an inquiry into the deductibility of an expense proceed to ask whether the expense was a result of business exigencies, incurred while away from home, and reasonable and necessary.

Such a reading of the statute is semantically possible and would perhaps expedite the disposition of certain cases.4 Nevertheless, we reject it as unsupported by case law and inappropriate to the policies behind section 162(a)(2).

The two cases relied on by the Commissioner do not appear to us to establish that traveling expenses are deductible only if incurred in connection with a preexisting trade or business. The seminal interpretation of section 162(a)(2), Flowers v. Commissioner, supra, 326 U.S. 465, 66 S.Ct. 250, 90 L.Ed. 203, is as equivocal upon that point as the statutory language it construes. Commissioner v. Janss,

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Bluebook (online)
638 F.2d 248, Counsel Stack Legal Research, https://law.counselstack.com/opinion/soterios-and-catharine-hantzis-v-commissioner-of-internal-revenue-ca1-1981.