Boyd v. Comm'r of Internal Revenue

• Decision Date: 27 April 2004
• Docket Number: 13233–01,13230–01,13234–01,13232–01,13237–01,13231–01,13235–01,13236–01,Nos. 13229–02,13238–01.,s. 13229–02
• Citation: 122 T.C. 305,122 T.C. No. 18
• Parties: Charles A. BOYD and Darby A. Harvey, f.k.a. Darby A. Boyd, et al.,1 Petitioners v. COMMISSIONER OF INTERNAL REVENUE, Respondent
• Court: U.S. Tax Court

122 T.C. 305

122 T.C. No. 18

Charles A. BOYD and Darby A. Harvey, f.k.a. Darby A. Boyd, et al.,1 Petitioners

v.COMMISSIONER OF INTERNAL REVENUE, Respondent

Nos. 13229–02

13230–01

13231–01

13232–01

13233–01

13234–01

13235–01

13236–01

13237–01

13238–01.

United States Tax Court.

April 27, 2004.

Ps are shareholders in C, a trucking company formed pursuant to sec. 1361, I.R.C. C compensates its drivers at a rate of 25 to 32 cents per mile.C also provides a per diem allowance of 9 cents per mile.Ps deducted 80 percent of the per diem allowance paid to the drivers.

At trial, Ps presented evidence as to the estimated, nonmeal travel expenses incurred by C's drivers.C's drivers testified as to the average amount of their per diem allowance that they spent on items such as lodging, truck parking, showers, laundry, and Federal Express charges.

Held: Despite the presentation of evidence at trial as to the estimated, nonmeal travel expenses incurred by C's drivers, Ps have failed to establish a basis for deducting 80 percent of the per diem allowance paid to the drivers.Beech Trucking Co. v. Commissioner,118 T.C. 428, 2002 WL 1035452(2002), followed.

Held,further, Pursuant to Rev. Proc. 94–77, 1994–2 C.B. 825, Rev. Proc. 96–28, 1996–1 C.B. 686, andRev. Proc. 96–64, 1996–2 C.B. 427, Ps may only deduct 50 percent of the per diem allowance paid to the drivers.

Held,further,sec. 4.02(5) of Rev. Proc. 94–77, 1994–2 C.B. 825, Rev. Proc. 96–28, 1996–1 C.B. 686, andRev. Proc. 96–64, 1996–2 C.B. 427, is not invalid.

Held,further, Ps have not substantiated the actual travel expenses incurred by the drivers pursuant to sec. 274(d), I.R .C.

Held,further, the portion of the per diem allowance that Ps estimate is allocated to nonmeal travel expenses may not be deducted in full.J. Betsy Meacham and Roger D. Rowe, for petitioners.

Caroline R. Krivacka, for respondent.

VASQUEZ, J.

Respondent disallowed deductions of $836,729 ² for the taxable year ending December 31, 1995; $828,067 for the taxable year ending December 31, 1996; $198,462 for the taxable year ending March 31, 1997; and $1,048,686 for the taxable year ending December 31, 1997, claimed by Continental Express, Inc.(Continental or the corporation), an S corporation in which petitioners are shareholders.At issue is the amount that petitioners may deduct with respect to per diem allowances Continental provided to its drivers, and, particularly, whether the 50–percent limitation of section 274(n) applies to the total amount of the per diem payments.

FINDINGS OF FACT

The stipulation of facts, supplemental stipulation of facts, and attached exhibits are incorporated herein by this reference.

Continental Express, Inc.

Continental is an S corporation within the meaning of section 1361(a)(1).At the time they filed their petitions, all petitioners resided in Arkansas, except Edward and Bonnie Harvey, who resided in Florida, and Deborah Harvey, who resided in Tennessee.Petitioners' yearend ownership percentages as of December 31, 1995, December 31, 1996, and March 31, 1997 were:

+---------------------------------------+
                ¦Shareholder       ¦Ownership Percentage¦
                +------------------+--------------------¦
                ¦                  ¦                    ¦
                +------------------+--------------------¦
                ¦Ralph E. Bradbury ¦5.00                ¦
                +------------------+--------------------¦
                ¦Warren D. Garrison¦1.25                ¦
                +------------------+--------------------¦
                ¦Bonnie P. Harvey  ¦5.00                ¦
                +------------------+--------------------¦
                ¦Edward M. Harvey  ¦86.25               ¦
                +------------------+--------------------¦
                ¦Diane M. Miller   ¦1.25                ¦
                +------------------+--------------------¦
                ¦James E. Willbanks¦1.25                ¦
                +---------------------------------------+
                

Petitioners' yearend ownership percentages as of December 31, 1997, were:

+---------------------------------------------------------+
                ¦Shareholder                         ¦Ownership Percentage¦
                +------------------------------------+--------------------¦
                ¦                                    ¦                    ¦
                +------------------------------------+--------------------¦
                ¦Darby A. Harvey f.k.a. Darby A. Boyd¦.98                 ¦
                +------------------------------------+--------------------¦
                ¦(Darby Harvey Irrevocable and       ¦                    ¦
                +------------------------------------+--------------------¦
                ¦Intervivos Trust)                   ¦                    ¦
                +------------------------------------+--------------------¦
                ¦Ralph E. Bradbury                   ¦5.00                ¦
                +------------------------------------+--------------------¦
                ¦                                    ¦                    ¦
                +------------------------------------+--------------------¦
                ¦Mark H. Guffin                      ¦.98                 ¦
                +------------------------------------+--------------------¦
                ¦(Mark Guffin Irrevocable            ¦                    ¦
                +------------------------------------+--------------------¦
                ¦and Intervivos Trust)               ¦                    ¦
                +------------------------------------+--------------------¦
                ¦Charles E. Harvey                   ¦.98                 ¦
                +------------------------------------+--------------------¦
                ¦(Charles Harvey Irrevocable         ¦                    ¦
                +------------------------------------+--------------------¦
                ¦and Intervivos Trust)               ¦                    ¦
                +------------------------------------+--------------------¦
                ¦Deborah G. Harvey                   ¦.98                 ¦
                +------------------------------------+--------------------¦
                ¦(Deborah Harvey Irrevocable         ¦                    ¦
                +------------------------------------+--------------------¦
                ¦and Intervivos Trust)               ¦                    ¦
                +------------------------------------+--------------------¦
                ¦Bonnie P. Harvey                    ¦2.55                ¦
                +------------------------------------+--------------------¦
                ¦Edward M. Harvey                    ¦86.9125             ¦
                +------------------------------------+--------------------¦
                ¦Diane M. Miller                     ¦.6375               ¦
                +------------------------------------+--------------------¦
                ¦Jill G. Pryor                       ¦.98                 ¦
                +------------------------------------+--------------------¦
                ¦(Jill Guffin Harvey Irrevocable     ¦                    ¦
                +------------------------------------+--------------------¦
                ¦and Intervivos Trust)               ¦                    ¦
                +---------------------------------------------------------+
                

Continental is engaged in the long-haul, irregular route trucking business.Continental hauls nonbulk dry goods in trailers from coast to coast in the 48 continental United States.The average length of a haul was 1,750 to 1,850 miles.Continental did not have a dedicated route, and drivers often made triangular runs.That is, drivers often picked up goods in New Jersey and the northeast and delivered the goods to California and the west coast.Then they picked up goods on the west coast and delivered them to points such as Arkansas, Texas, or the Midwest.Eventually, they delivered goods to New Jersey and the east coast, and headed west again.

Continental's Drivers

Continental employed between 277 and 324 drivers during the years in issue.Drivers were away from home for a minimum of 21 consecutive days per trip and were on the road for an average total of 25 to 28 days per month.Some drivers were away for 2 to 3 months at a time before returning home.Drivers accrued 1 day off for every 7 days of driving.

Drivers averaged approximately 322 to 382 miles per day.U.S. Department of Transportation regulations prohibited drivers from traveling more than 550 miles per day.Additionally, the Department of Transportation regulations required drivers to be off duty for 8 hours for every 8 hours on duty.The regulations limited drivers to a maximum of 70 hours on duty per week.

With an exception for layovers, Continental drivers earned compensation only when the wheels on the truck were turning.Continental paid its drivers on a per mile arrangement ranging from 25 to 32 cents per mile, depending on experience.Drivers also received a per diem allowance paid through an accountable plan.The per diem, paid to drivers in addition to compensation, was intended to reimburse drivers for travel expenses.The per diem was 9 cents per mile for single drivers.³Continental's management believed drivers typically received a per diem allowance in the low $30 range for 1 day of driving.

Continental's per diem allowance plan was similar to the majority of per diem allowance plans used by other companies in the trucking industry.

Continental's Trucks

Continental drivers operated International tractors.Each tractor had a cab with a sleeper berth behind the driver's and passenger's seats.The engine in a Continental tractor was located beneath the driver's and passenger's seats.The size of the cab, including the sleeper berth, was 96 inches across by 110 inches deep by 60 inches high.

The sleeper berth had no powered air vents.Ventilation, heating, and air conditioning were available only through vents in the dash of the cab and powered by the engine.The berth had no running water, no toilet, and very little storage.One driver described the sleeper berth as a “rolling jail cell”.

The sleeper berth contained a twin size mattress covered in plastic, but no box spring.Newer models of Continental's tractors contained larger sleeper berths, allowing for a 60–inch mattress.

The sleeper berth was designed to provide a driver with room to rest while transporting a load of freight.Drivers' sleep was less restful in the sleeper berth than in a motel.The sleeper berth vibrated and was not quiet because the truck engine remained on while drivers slept so that they had ventilation.Additionally, drivers worried about burglary of their cargo while they slept in the sleeper berth.

Drivers slept...