Adelson v. United States

• Decision Date: 20 May 1963
• Docket Number: Civ. No. 62-740.
• Citation: 221 F. Supp. 31
• Parties: Ben H. ADELSON and Nancy R. Adelson, Plaintiffs, v. UNITED STATES of America, Defendant.
• Court: U.S. District Court — Southern District of California

221 F. Supp. 31

Ben H. ADELSON and Nancy R. Adelson, Plaintiffs, v. UNITED STATES of America, Defendant.

Civ. No. 62-740.

United States District Court S. D. California, Central Division.

May 20, 1963.

Mosk & Rudman, Edward Mosk, John D. Schuyler, Hollywood, Cal., for plaintiffs.

Francis C. Whelan, U. S. Atty. for Southern Dist. of Cal., Walter S. Weiss, Herbert D. Sturman, Asst. U. S. Attys., Los Angeles, Cal., for defendant.

STEPHENS, District Judge.

At all times material to this action, plaintiff Ben H. Adelson was a duly certified and licensed teacher at the secondary education level in the Los Angeles City School System. He taught English language and literature courses, various reading courses and journalism. During the spring term of 1958, plaintiff was on sabbatical leave from his employer pursuant to the rules and regulations of the California State Board of Education and the local school district (as will be more particularly described below) and during this time and the ensuing summer he traveled in Europe.

Plaintiffs Ben H. Adelson and his wife, Nancy R. Adelson, timely filed a joint income tax return for the calendar year of 1958 reporting therein a deduction for the expenses incurred by plaintiff Ben H. Adelson while traveling on sabbatical leave. Since the claimed deduction involves only this travel expense, reference herein to plaintiff, the taxpayer or Adelson is reference to Ben H. Adelson.

Plaintiff's employer withheld from his salary $1,228.22 during the calendar year of 1958 and paid this sum to the Commissioner of Internal Revenue on account of plaintiff's income tax. Plaintiffs requested a refund of $558.86; $538.59 of this amount is attributable to the additional tax liability resulting from disallowance of plaintiffs' deduction for travel expenses. Plaintiffs filed a timely claim for refund which was disallowed on June 3, 1960.

It is the government's position that expenses incurred in European travel during a sabbatical leave do not qualify as a deduction pursuant to Title 26 U.S.C. § 162(a)(2), which reads:

"(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 the entire amount expended for meals and lodging) while away from home in the pursuit of a trade or business; * * *."

The term "necessary" as used in the statute does not mean indispensable. It has been stated that an expense does not have to be absolutely essential to qualify as a necessary expense and it may under some circumstances be proper if appropriate to the development and pursuit of the taxpayer's trade or business. Commissioner of Internal Revenue v. Pacific Mills, 207 F.2d 177 (1st Cir., 1953); Commissioner of Internal Revenue v. Flowers, 326 U.S. 465, 66 S.Ct. 250, 90 L.Ed. 203 (1946). Also, an "ordinary expense" may be one that happens but once in a taxpayer's lifetime, but the transaction giving rise to it must be of common or frequent occurrence in the type of business in which the expense was incurred. Deputy v. DuPont, 308 U.S. 488, 60 S.Ct. 363, 84 L.Ed. 416 (Del.1940).

Plaintiffs' position is that they are entitled to deduct the travel expenses as ordinary and necessary business expenses. They invite attention to the fact that such leave is authorized by California law and local school board regulations.

Section 13457 of the California Education Code provides:

"Leaves of absence for study and travel. The governing board of any school district may grant any employee of the district employed in a position requiring certification qualifications, a leave of absence for not to exceed one year for the purpose of permitting study or travel by the employee which will benefit the schools and pupils of the district."

This provision has been a part of the Education Code of California since 1931.

Section 13458 of the same code specifies the qualifications for eligibility to take such leave. Section 13459 provides as follows:

"Service and compensation during leaves of absence for travel and study. Every employee granted a leave of absence pursuant to Section 13457 may be required to perform such services during the leave as the governing board of the district, with the approval of the county superintendent of schools, and the employee may agree upon in writing, and the employee shall receive such compensation during the period of the leave as the governing board, with the approval of said county superintendent, and the employee may agree upon in writing, which compensation shall be not less than the difference between the salary of the employee on leave and the salary of a substitute employee in the position which the employee held prior to the granting of the leave. However, in lieu of such difference, the board may pay one-half of the salary of the employee on leave or any additional amount up to and including the full salary of the employee on leave."

Section 13460 provides for manner of payment of compensation during such leave and that the traveler must return to his school district and complete two more years of service before his right to compensation during leave is finally established.

The Los Angeles City School District implemented these statutory provisions by the publication of Personnel Division Memorandums in the nature of regulations which refer to the authorized leave as "sabbatical" and provide in Memorandum A 12 in pertinent part as follows:

"1. Definition. A sabbatical travel leave is one during which an employee engages in planned educational travel for at least 60% of the leave period. Travel is considered educational if it results in a significant contribution to professional growth by exposing the participant to new peoples, cultures, environments, experiences, and events.

"2. Requirements

* * * * * *

"b. Sabbatical travel must be undertaken and completed during the leave period.

* * * * * *

"7. Final Report. Form 1138 (Statement of Travel Completed) and the sabbatical report must be filed with the In-Service Training Department in person or by registered mail when the leave is completed. The sabbatical report should be typewritten, be 1500 or more words in length, include a brief description of places visited, and place primary emphasis on the significance of the experiences to the employee as an educator and to the application of the educational growth to his regular assignment.

"8. Completion of Leave. The sabbatical report and all other required forms must be filed within two pay periods following the employee's return to active service. Salary will be withheld for service rendered after the deadline until the documents are filed and approved.

"9. Incomplete Sabbatical Leave —Travel or Combination. Provision is made for partial compensation for incompleted sabbatical leave caused by serious illness or other reason beyond the employee's control, providing that a significant portion of the original travel has been accomplished. Compensation may be allowed on a prorated basis according to portion completed. Compensation shall be determined according to the prescribed table and providing all of the other requirements have been met. (See Personnel Division Memo A 15, LEAVE — Sabbatical, Incomplete.)"

Personnel Division Memorandum A 12 which is entitled, "General Policy on Sabbatical Leave," also contains significant provisions, as follows:

"4. Incomplete Leave. A sabbatical leave which has been granted may be canceled or converted to another type of leave. If such cancellation or conversion is passed by the Board of Education after the beginning date of the sabbatical, the employee loses sabbatical privileges until another seven years have been served and must refund any sabbatical salary received. Under certain circumstances an employee who is unable to complete sabbatical leave requirements may receive compensation on a prorated basis.

* * * * * *

"10. Retirement. A period of sabbatical leave does not affect retirement status if retirement contributions are made for the period of the leave. * * *"

(This section contains further details and reference to Education Code § 14060, which is the basis for crediting compensated leave time toward retirement.)

"11. Salary Points. Travel or formal study undertaken while on sabbatical leave may be submitted for salary points under established point regulations."

The regulations also provide that the planned travel time must be 60% of the sabbatical leave period, exclusive of summer vacation.

Plaintiff applied for such a leave for the second semester of the 1958 school year and filed a sabbatical travel plan consisting of an itinerary which was once amended. It not only included 60% of the leave period, but also substantially all of the summer vacation period. This plan was approved. He was compensated during leave at the rate of 50% of his regular salary.

To support their claim to refund, the plaintiffs heavily rely upon the Commissioner's Regulations, § 1.161-1, § 1.162-2, and especially on § 1.162-5, which provides in part:

"Expenses for education

"(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, or

"(2) Meeting the express requirements of a taxpayer's employer, or the requirements of applicable law or regulations, imposed as a condition to the retention by the taxpayer of his salary, status or employment. * * *"

Alternative theories stem largely from these regulations:

1. The travel was undertaken primarily for maintaining and improving skills which were required by the taxpayer in order that he might teach school. § 1.162-5(a) (1).

This is not to say that the improvement was required by his employer, but only that the skills were...