638 F.2d 248 (1st Cir. 1981), 80-1140, Hantzis v. C. I. R.

Docket Nº:80-1140.
Citation:638 F.2d 248
Party Name:Soterios and Catharine HANTZIS, Petitioners, Appellees, v. COMMISSIONER OF INTERNAL REVENUE, Respondent, Appellant.
Case Date:January 07, 1981
Court:United States Courts of Appeals, Court of Appeals for the First Circuit

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638 F.2d 248 (1st Cir. 1981)

Soterios and Catharine HANTZIS, Petitioners, Appellees,



No. 80-1140.

United States Court of Appeals, First Circuit

January 7, 1981

Argued Sept. 5, 1980.

As Amended Jan. 28, 1981.

James A. Riedy, Atty., Tax Div., Dept. of Justice, Washington, D. C., with whom M. Carr Ferguson, Asst. Atty. Gen., Gilbert E. Andrews and Jonathan S. Cohen, Attys., Tax Div., Dept. of Justice, Washington, D. C., were on brief, for respondent, appellant.

Catharine W. Hantzis, pro se with whom Soterios C. Hantzis was on brief, pro se.

Before CAMPBELL and BOWNES, Circuit Judges, and KEETON, [*] District Judge.

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.

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In 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."


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. "(O)ne 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 embodied

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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); Flowers, 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."


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, i. 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, 260 F.2d 99 (8th Cir. 1958), a case with facts somewhat akin to the present, did not articulate any such

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theory. In Janss, a college student from Des Moines, Iowa, worked in Alaska during the summer between his freshman and sophomore years of school and sought to deduct from his taxable income the cost of transportation to and from Alaska as well as the cost of meals and lodging while there. Despite testimony from the personnel manager of the construction company for which Janss worked indicating that workers were available in Alaska and that Janss had been employed there largely as a personal favor, the Tax Court allowed the deduction. The Eighth Circuit reversed. It held, under Flowers, that Janss' travel to Alaska was not motivated by the exigencies of the employer's business. 260 F.2d at 104. The Eighth Circuit placed no emphasis on the fact that Janss had no previously existing trade or business. 5

Nor would the Commissioner's theory mesh with the policy behind section 162(a) (2). As discussed, the travel expense deduction is intended to exclude from taxable income a necessary cost of producing that income. Yet the recency of entry into a trade or business does not indicate that travel expenses are not a cost of producing income. To be sure, the costs incurred by a taxpayer who leaves his usual residence to begin a trade or business at another location may not be truly travel expenses, i. e., expenses incurred while "away from home," see infra, but practically, they are as much incurred "in the pursuit of a trade or business" when the occupation is new as when it is old.

An example drawn from the Commissioner's argument illustrates the point. The Commissioner notes that "if a construction worker, who normally works in Boston for Corp. A, travels to New York to work for Corp. B for six months, he is traveling ... in the pursuit of his own trade as a construction worker." Accordingly, the requirement that travel expenses be a result of business exigencies is satisfied. Had a construction worker just entering the labor market followed the same course his expenses under the Commissioner's reasoning would not satisfy the business exigencies requirement. 6 Yet in each case, the taxpayer's travel expenses would be costs of earning an income and not merely incidents of...

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