Libertini v. Comm'r Revenue

• Decision Date: 16 July 2019
• Docket Number: 18-P-1101
• Parties: Christopher G. LIBERTINI v. COMMISSIONER OF REVENUE.
• Court: Appeals Court of Massachusetts

95 Mass.App.Ct. 1120

132 N.E.3d 560 (Table)

Christopher G. LIBERTINI

v.COMMISSIONER OF REVENUE.

18-P-1101

Appeals Court of Massachusetts.

Entered: July 16, 2019.

MEMORANDUM AND ORDER PURSUANT TO RULE 1:28

The taxpayer appeals from a decision of the Appellate Tax Board (ATB) that disallowed certain deductions that he had taken, as business expenses, on his 2012 and 2013 Massachusetts income tax returns. The taxpayer maintains a family residence in Massachusetts and has several jobs, but his principal occupation is as a professor of history at Dominican College (Dominican), in Orangeburg, New York. The ATB ruled that the taxpayer's "tax home" was accordingly in New York, and that the taxpayer could not deduct his expenses incurred in traveling to, and living in, New York.

We affirm the ATB's decision disallowing the deduction of New York travel expenses. However, the expenses the taxpayer incurred in traveling from New York to Massachusetts, for his other employment in Massachusetts, should be deductible if properly raised and substantiated, and we accordingly remand to the ATB to address that issue.

Background. The taxpayer maintains a multifamily residence in Lowell, which is the home of his wife and two children. In 2006 he began working as a professor at Dominican. Each school year he signed a one-year contract, with the school year running from August to August. The taxpayer's responsibilities at Dominican included teaching four classes per semester, holding office hours, advising students, attending faculty meetings, and serving as coach of the debate team. In 2012 the taxpayer became the coordinator of Dominican's history department. In that role the taxpayer managed a department staff of at least six faculty, designed course schedules, and resolved student complaints within the department.

The taxpayer's schedule was that during the school year he would drive from Lowell to New York at the beginning of each week, live in New York during the week, and then return to Lowell on the weekends. He did not work in New York in the summer months. In 2006 the taxpayer purchased a condominium in New York, and lived there during the week. The taxpayer was obligated to be on the Dominican campus twenty hours per week, but estimated that he was actually on campus more hours. He also did university work at his condominium, for example, planning lessons and answering e-mail.

In addition to his Dominican job, the taxpayer had three other sources of income in 2012 and 2013: (1) he worked one weekend each month, and two additional weeks per year, in the Army National Guard, at Fort Devens, Massachusetts; (2) he was a teaching assistant for the Harvard Extension School -- this work was done remotely, and did not require travel to Massachusetts; and (3) he was a landlord for the other units in his multifamily residence in Lowell. The ATB expressly found, however, that the taxpayer's main source of income was his Dominican job, and that the majority of the taxpayer's work time was spent on his Dominican tasks.

The taxpayer filed Massachusetts resident income tax returns for 2012 and 2013. In each year he deducted as business expenses the costs of working in New York -- this included travel costs, meals, and the cost of the condominium and its mortgage. The Department of Revenue (DOR) disallowed the deductions and assessed an additional tax for 2012 of $1,649.53, and for 2013 $2,198.61. On appeal the ATB ruled that the deductions were properly disallowed, because the taxpayer's tax home under G. L. c. 62, § 2 (d ) (2), was New York, and thus the taxpayer could not deduct the costs of living in New York. The taxpayer appeals.

Discussion. The question is what expenses incurred while traveling for business are properly deductible as business expenses. Under G. L. c. 62, § 2 (d ) (2), taxpayers may deduct from their gross income:

"An amount equal to the deductions allowed by Part IV of the [Internal Revenue] Code which (i) consist of expenses of travel, meals and lodging while away from home, or expenses of transportation paid or incurred by the taxpayer in connection with the performance by him of services as an employee."

Part IV of the Federal tax code, in turn, provides for the deduction of expenses for travel, meals, and lodging as follows:

"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; ...

"For purposes of paragraph (2), the taxpayer shall not be treated as being temporarily away from home during any period of employment if such period exceeds 1 year."

26 U.S.C. § 162(a) (2012 & Supp. V 2017).

To qualify for deduction under these sections, the expenses must be (1) reasonable and necessary expenses, (2) incurred while away from home, and (3) incurred while in pursuit of a trade or business. See Andrews v. Commissioner of Internal Revenue, 931 F.2d 132, 136 (1st Cir. 1991).² The critical issue here is whether the taxpayer was away from home when he was working in New York. The Federal Tax Court has held that a taxpayer's "tax home" is the location of his principal place of business, not his personal residence. Mitchell v. Commissioner of Internal Revenue, 74 T.C. 578, 581 (1980). See Andrews, supra. The United States Court of Appeals for the First Circuit has stated that the purpose behind the away from home expense deduction is "to mitigate the burden upon a taxpayer who, because of the exigencies of his trade or business, must maintain two places of abode and thereby incur additional living expenses" (citation omitted). Id. at 135. A taxpayer cannot, however, claim the expense deduction where he has chosen to live in one place and work permanently in another. See Mitchell, supra at 584 n.7; Tucker v. Commissioner of Internal Revenue, 55 T.C. 783, 786 (1971). The expenses must arise from an exigency or "business necessity," not from "personal choice." Andrews, supra at 137.

Although a taxpayer's "tax home" is generally his or her "principal place of business," there is an exception to that rule when the taxpayer relocates for a business assignment that is only "temporary." Id. Under the statute, however, "the taxpayer shall not be treated as being temporarily away from home during any period of employment if such period exceeds 1 year." 26 U.S.C. § 162(a) (2012 & Supp. V 2017).

Accordingly, to resolve whether the deduction was proper, the ATB had to address two separate issues: first, which location should be deemed the taxpayer's principal place of business for tax purposes, where the taxpayer worked in two separate locations; and second, even assuming that New York would qualify as the taxpayer's principal place of business in 2012 and 2013 because that is where he did the preponderance of his work, could his work in New York nevertheless qualify as temporary, such that his tax home remained in Massachusetts during those years. We address each issue in turn.

2. Taxpayer's principal place of business. When a taxpayer has a place of business in two or more locations, courts have asked where "most of [the taxpayer's] work was performed," to determine his principal place of business. Montgomery v. Commissioner of Internal Revenue, 64 T.C. 175, 179 (1975). The test is heavily fact dependent. Factors courts have looked at include the "length of time spent engaged in business at each location," as well as the "relative portion of the taxpayer's income derived from each place." Andrews, 931 F.2d at 138 & n.10. Here the ATB addressed the facts in detail, noting that during the approximately eight-month school year the taxpayer spent the weekdays working in New York, and that his Dominican responsibilities were "extensive." The ATB specifically found that collectively, the taxpayer's other jobs did not "occupy an equivalent amount of his time." The ATB also found that the taxpayer's Dominican job was his main source of income, and that the evidence showed that Dominican accounted for considerably more than fifty percent of the taxpayer's income during the tax years at issue.

The taxpayer takes issue with the...