Hieb v. Hieb, 960323

Decision Date08 September 1997
Docket NumberNo. 960323,960323
Citation568 N.W.2d 598
PartiesClinton HIEB, Plaintiff and Appellant, v. Tammy HIEB, Defendant, and State of North Dakota, through the Regional Child Support Enforcement Unit, Appellee. Civil
CourtNorth Dakota Supreme Court

Sonna M. Anderson (argued), of Anderson & Anderson, Bismarck, for plaintiff and appellant.

Daniel E. Bertsch (argued), Special Assistant Attorney General, Fargo, for appellee.

MARING, Justice.

¶1 Clinton Hieb appeals from the amended judgment entered August 19, 1996, setting child support at $690 per month for his three minor children. We reverse and remand for the district court to determine child support in accordance with our decision.

¶2 Clinton and Tammy Hieb were divorced in 1985. Three children were born of the marriage, all of whom were minors living with Tammy at the time of this action. At the time of the parties' divorce in 1985, Clinton was ordered to pay a total of $300 per month in child support. On September 22, 1992, Clinton's child support obligation was reduced to $189 per month. Tammy assigned her claim to the Regional Child Support Enforcement Unit of Cass County, which filed a motion to increase child support in November of 1995. The motion contended Clinton's monthly net income was over $2,000 per month, and the previously set amount of child support did not comply with the Child Support Guidelines. Clinton resisted this motion, claiming his monthly net income was not as high as stated by the Child Support Enforcement Unit.

¶3 At the time this action was brought, Tammy was receiving public assistance and living in West Fargo with the parties' three minor children, and Clinton was a self-employed long-haul truck driver whose home was in Harvey, North Dakota. A hearing was held on June 13, 1996, during which the court heard testimony from Clinton and his daughter Leslie. The court received Clinton's 1993, 1994, and 1995 tax returns into evidence, and made a determination of Clinton's net income for child support by calculating Clinton's average monthly income over that three year period. This determination was made by including the amounts Clinton deducted and claimed as business meal expenses on the basis that those expenses were "personal and living expenses" which were already accounted for by the Guidelines. The court found Clinton's net income to be $2,000 for purposes of child support and set Clinton's support amount at $690 per month, the amount prescribed by the Guidelines.

¶4 Clinton appealed the trial court's amended judgment, claiming the trial court erred in its computation of his net income for purposes of child support. Clinton argues the lower court should not have included his meal expenses in determining his net income.

¶5 Clinton claims the Internal Revenue Service regulations currently permit him to deduct a specified percentage of his meal expenses as a business expense for income tax purposes. Clinton's 1993 tax return shows he deducted 100% of his meal costs as a business expense in 1993, and his 1994 and 1995 returns show he deducted 50% of his meal costs in each of those years. Clinton argues he should be able to deduct 100% of his meal expenses in 1994 and 1995 as well as 1993 for purposes of computing his net income. We do not agree.

¶6 Child support determinations are findings of fact, and are governed by the "clearly erroneous" standard of review. Wolf v. Wolf, 557 N.W.2d 742, 744 (N.D.1996). A finding is "clearly erroneous" if this court finds, after a review of the entire record, it was induced by an erroneous view of the law, or if this court is left with a definite and firm conviction that a mistake has been made. Id. ¶7 Child support determinations are governed by N.D.A.C. Chapter 75-02-04.1. A correct finding of an obligor's net income is essential to determining the proper amount of child support. Shaver v. Kopp, 545 N.W.2d 170, 174 (N.D.1996). To determine the proper amount of support owed, the court must first determine the obligor's net income from all sources and the number of children to be supported. N.D.A.C. §§ 75-02-04.1-02(3) and 75-02-04.1-10. After the obligor's net income is established, that amount is applied to the Guidelines to determine the proper amount of child support. The amount prescribed by the Guidelines enjoys a rebuttable presumption of correctness. Edwards v. Edwards, 1997 ND 94, p 5, 563 N.W.2d 394.

¶8 Determining net income from self-employment is specifically covered by the Guidelines. See N.D.A.C. §§ 75-02-04.1-01(8) and 75-02-04.1-05. Under the Guidelines, before net income from self-employment can be computed, the trial court must first compute the obligor's adjusted gross income. See N.D.A.C. § 75-02-04.1-05(1). Only after the correct amount of adjusted gross income is determined can the trial court compute net income. See N.D.A.C. § 75-02-04.1-05(2).

¶9 N.D.A.C. § 75-02-04.1-05(1) reads in part: "Deducting expenses from the gross income of the business determines the adjusted gross income, according to internal revenue service terminology." This section of the Guidelines allows the deduction of "business expenses" as defined by Internal Revenue Service terminology in computing a self-employed obligor's adjusted gross income.

¶10 The standard for allowing a taxpayer to deduct money spent for meals or lodging as a business expense is found at 26 U.S.C.A. § 162(a)(2):

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--

(1) ...

(2)traveling expenses (including amounts expended for meals ... ) while away from home in the pursuit of a trade or business; and

(3) ...

This section was first interpreted by the U.S. Supreme Court in Commissioner of Internal Revenue v. Flowers, 326 U.S. 465, 66 S.Ct. 250, 90 L.Ed. 203 (1946). The Court held in order for the deduction to be allowed: (1) the expense must be ordinary and reasonable, (2) it must be incurred while away from home, and (3) the expense must be incurred in pursuit of a trade or business. Id. "[T]here must be a direct connection between the expenditure and the carrying on of the trade or business of the taxpayer." Flowers, 326 U.S. at 470, 66 S.Ct. at 252. "Failure to satisfy any one of the three conditions destroys the traveling expense deduction." Flowers, 326 U.S. at 472, 66 S.Ct. at 253. Because of the record-keeping requirements, the burden of proving the deduction is on the taxpayer.

¶11 Section 274(d) of the Internal Revenue Code provides, in part, no deduction for any travel expense, including meals while away from home shall be allowed "unless the taxpayer substantiates by adequate records or by sufficient evidence corroborating the taxpayers own statement" the amount of the expense, the time, the place, and the business purpose. 26 U.S.C.A. § 274(d). This section, however, further provides that the Secretary has authority to prescribe regulations relating to per diem allowances to which some or all the substantiation requirements shall not apply. Id.

¶12 Current tax regulations grant authority to the Commissioner to establish rules under which a taxpayer may elect to use a per diem or specified amount for meals while traveling in lieu of substantiating the actual cost of meals. 26 C.F.R. § 1.274-5T(j). Although the taxpayer is relieved of establishing the actual cost of meals, he still must establish the time, place, and business purpose of the travel. Id.; see also 26 C.F.R. § 1.274-5T(b)(2). The use of the standard per diem meal allowance is optional and the taxpayer can elect to deduct actual meal expenses by maintaining records to substantiate the expenses in accordance with the Internal Revenue Code, 26 U.S.C.A. § 274(d).

¶13 From 1986 to 1993, section 274(n) of the Internal Revenue Code limited the deduction to 80% of meal expenses. 26 U.S.C.A. § 274(n)(1988). When section 274(n) was originally adopted by Congress in 1986, the reason given for the limit on the deduction was that meal expenses inherently involve an element of personal living expenses. See Report of the Senate Finance Committee, S.Rep. No. 99-313, at 68 (1986). Since 1993 changes in the law, a taxpayer can deduct only 50% of meal expenses incurred while away on business travel from gross income. 26 U.S.C.A. § 274(n) (1993).

¶14 Clinton testified the I.R.S. regulations permit a standard per diem meal deduction of $30 each day he is on the road. See Rev. Proc. 90-38, 1990-2 C.B. 363. Clinton testified he actually spent $30 per day on meals while on the road in pursuit of his trucking business and the $30 per diem deduction is allowed even with no receipts or record of the meal expenditures. He offered no documentation to the court other than copies of his income tax returns for 1993, 1994, and 1995. He testified he is required to maintain trucking logbooks and that his 1995 logbook showed he was on the road for 306 days that year. He also testified he was close to the same number of days for 1993 and 1994.

¶15 Clinton argues his logbooks are sufficient to substantiate his meal deduction for I.R.S. purposes, and therefore, they should be sufficient to substantiate his meal deduction for determination of net income from self-employment under the Guidelines. We agree in part.

¶16 The Guideline applicable to determining net income from self-employment specifically directs the deduction of business expenses from the gross income of the business in accordance with I.R.S. terminology. N.D.A.C. § 75-02-04.1-05(1). Although this court has held that income...

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