Harvey v. Comm'r of Internal Revenue, Docket No. 67596.

• Decision Date: 30 September 1959
• Docket Number: Docket No. 67596.
• Citation: 32 T.C. 1368
• Parties: JOHN J. HARVEY AND IRMA P. HARVEY, PETITIONERS, v. COMMISSIONER OF INTERNAL REVENUE, RESPONDENT.
• Court: U.S. Tax Court

32 T.C. 1368

JOHN J. HARVEY AND IRMA P. HARVEY, PETITIONERS,

v.COMMISSIONER OF INTERNAL REVENUE, RESPONDENT.

Docket No. 67596.

Tax Court of the United States.

Filed September 30, 1959.

A. Calder Mackay, Esq., and Charles J. Higson, Esq., for the petitioners.

Eugene F. Reardon, Esq., Leo K. L'Brien, Esq., and R. E. Maiden, Jr., Esq., for the respondent.

Petitioner was employed at the Santa Monica plant of Douglas Aircraft Company. He was assigned to perform services for Douglas at the Edwards Air Force Base in December 1952. He worked continuously until the end of January 1954. Douglas paid him, in addition to his regular salary, $7 per day while he was at Edwards Base to cover additional expenses, which amounted to $2,315 in 1953. Held: (1) Petitioner has failed to establish that expenses in the above amount satisfy all of the conditions contained in section 23(a)(1)(A), 1939 Code. (2) Petitioner's headquarters and principal post of duty shifted in December 1952 from Santa Monica to Edwards Base. (3) The above sum constituted additional compensation in 1953 for petitioner's services, and expenses in the same amount were nondeductible personal expenses. (4) Petitioner is not entitled to subtract the above amount from his gross income for 1953 under section 22(n)(2).

The respondent determined a deficiency in income tax for 1953 in the amount of $558.72. The petitioner received $2,315, at the rate of $7 per day, in addition to his regular compensation, from his employer, Douglas Aircraft Company, while he worked continuously at Edwards Air Force Base during the taxable year. The question is whether this sum is additional compensation for services and, therefore, income, or reimbursement for ‘traveling expenses while away from home’ within the provisions of sections 23(a)(1)(A) and 22(n)(2) of the 1939 Code.

FINDINGS OF FACT.

Petitioners filed a joint return with the district director of internal revenue for the sixth district of California. John J. Harvey is referred to herein as the petitioner. His family consists of his wife and a daughter, who, in 1953, was 15 years old.

Douglas Aircraft Company is a manufacturer of aircraft and other airborne articles. It produces aircraft and air materials for various divisions of the Department of Defense of the United States under contracts with the Government, as well as for private, commercial concerns. It carries on its manufacturing operations in California at three plants. They are located in Santa Monica, El Segundo, and Long Beach. Santa Monica and El Segundo are within the metropolitan area of Los Angeles. Santa Monica is 8 miles from El Segundo, and El Segundo is 18 miles from Long Beach. Douglas Aircraft also has a manufacturing plant in Tulsa, Oklahoma.

The overall operations of Douglas Aircraft are carried on in several divisions such as research, designing, manufacturing, and testing. The headquarters of the Testing Division is at the Santa Monica plant. It has jurisdiction over various kinds of testing, including flight testing, of prototypes of aircraft in preparation for their manufacture.

Petitioner is by trade a radio technician. He was first employed by Douglas Aircraft in October 1940, and he has been employed by it continuously since then up to the present time. He worked at the El Segundo plant from October 1940 until November 1952 when he was transferred, at his own request, to the Santa Monica plant where he worked in the Testing Division. At the time of the transfer he worked in the engineering laboratory at El Segundo. When petitioner was assigned to the Testing Division he was told that one of the conditions of employment in that division was agreement to accept assignments away from the Santa Monica plant, and he agreed to that condition.

The United States Air Force for many years has maintained a base in the Mojave Desert in California, 117 miles from Santa Monica and 124 miles from El Segundo, which is known as the Edwards Air force Base. The towns which are closest to Edwards Base are Lancaster, 31 miles away, and Palmdale, 41 miles distant. the population of Lancaster in 1953 was 10,500.

Edwards Base is located on the edge of a dry-lake area 12 miles long and 4 miles wide. The location always has provided a superior location for experimental and high-speed flight tests because of the condition of the terrain, the climate, and its remoteness from populated areas.

Both the United States Air Force and the Navy required in some contracts with Douglas Aircraft that flight tests of new and experimental aircraft would be made at certain military bases, including Edwards Base. Although all of the facilities at Edwards Base are owned by the United States, certain test, hangar, and support facilities located there were and are made available to several aircraft manufacturing concerns such as Douglas Aircraft, Lockheed, Convair, Boeing, North American, Northrop, and McDonald.

Douglas Aircraft has made flight and other tests at Edwards Base from 1947 up to the present time, during which period facilities at Edwards were made available to Douglas. Since 1947, the facilities at Edwards which have been made available to Douglas Aircraft have increased. At various times, Douglas has made additions to such facilities at its own expense.

Prior to 1953 a master plan was drawn by the Air Force, the Navy, and others for the enlargement and modernization of Edwards Base and the construction of a new and longer runway. Such improvements were planned because of the rapid growth of and new developments in the aircraft industry, the development of planes capable of flying at supersonic speeds, and the expected increase in the use of the base by the Air Force, the Navy, and various contractors. The plan was carried out and it was financed by the Government. In 1954, the plan was approved. Douglas Aircraft, Convair, and others participated in conferences about the plan with the Department of Defense. The new facilities were first used by Douglas Aircraft in the early part of 1956.

During 1952, 1953, and before, the aircraft tests made by Douglas at Edwards Base were for the most part connected with its contracts with a military department of the Government. Only in rare instances did Douglas make tests at Edwards Base of aircraft produced for commercial concerns. Of the total experimental aircraft which the Testing Division of Douglas flight tested during 1953, one-fifth was tested at Edwards Base, and such flight tests were made under contracts with both the Air Force and the Navy.

In general, the work to be done by Douglas under the specifications of a contract with an agency of the Government was laid out in accordance with a plan and the time required for each stage of the work was estimated but it was not possible, always, to adhere to such estimates, and they were subject to revisions. Also, the occurrence of accidents, failures, crashes, and unforeseen events, if such happened, would alter the planned work schedules. Usually the duration of a testing operation to be done at Edwards Base by Douglas was estimated in advance. The length of time required for flight testing at Edwards has been either a few months, or as long as 1 year, 1 1/2 years, or 2 years. There were instances when an employee was sent from Santa Monica to Edwards Base that it was expected that the employee would be at Edwards longer than 3 months.

It is customary in the Testing Division to organize the work on the basis of a project, and under this system various classes of employees are assigned to a project so that they become thoroughly familiar with it from the beginning to the end.

In 1953, Douglas kept a few employees, such as foremen and tool keepers, at Edwards Base continuously. These workers were not assigned to any particular project, and they did general work.

During 1953, about 120 employees of the Testing Division were engaged in work at Edwards Base under project assignments.

It was the policy of Douglas Aircraft in 1952, 1953, and around that time to pay all of its employees in its Testing Division who worked at Edwards Base (excepting persons who were hired from a place in the locality of the Base) $7 per day, in addition to their regular salaries, during the entire period such employees worked at the base. The $7 per day allowance was called a ‘per diem’ and was paid under a so-called travel order, form 29-179, and a printed form, form 29-BA, which is called a travel expense form, which is filled out by the employee. Douglas did not withhold any income tax on the allowances of $7 per day.

In general, under contracts with the Air Force and the Navy, the Government reimbursed Douglas for its expenses. In adopting its policy of paying a per diem of $7 per day to its employees during the period they worked at Edwards Base, Douglas had various discussions with the contracting officers and auditors of the Air Force and the Navy about the propriety, under the Armed Services Procurement Regulations, of putting the employees who worked at Edwards on travel status during such assignments, of paying them $7 per day, and of including that expense in the expenses of Douglas for which Douglas was reimbursed by the Government. Regulation 15 of ASPR refers to the reimbursement by the Government of reasonable travel expenses. The Air Force and the Navy accepted the policy of Douglas with respect to the payment of a per diem to its employees working at Edwards Base, and all such per diem expenses have been entered in the books of Douglas as employees' travel expenses, have been included in the charges of Douglas for its expenses, and have been reimbursed as travel expenses by the Air Force and the Navy.

Douglas Aircraft's policies and procedures relating to travel of employees are set forth in the company's Travel Manual and in executive bulletins. Among the policies and procedures which were in effect in 1952 and 1953 was a policy relating to employees working on...