Mortrud v. Comm'r of Internal Revenue

• Decision Date: 21 May 1965
• Docket Number: Docket No. 4848-62.
• Citation: 44 T.C. 208
• Parties: JEROME MORTRUD AND LORRAINE MORTRUD, PETITIONERS, v. COMMISSIONER OF INTERNAL REVENUE, RESPONDENT
• Court: U.S. Tax Court

44 T.C. 208

JEROME MORTRUD AND LORRAINE MORTRUD, PETITIONERS,

v.COMMISSIONER OF INTERNAL REVENUE, RESPONDENT

Docket No. 4848-62.

Tax Court of the United States.

Filed May 21, 1965.

Gordon D. Simons, for the petitioners.

Sidney C. Freed, for the respondent.

Issue 1.— Petitioner was engaged as an independent contractor in the operation of two wholesale dairy routes. He operated the routes on alternate days of each week. On route A, he would leave Grand Forks, N. Dak., in the morning between 4 and 6, and arrive back at Grand Forks not later than 7 p.m. The total round trip distance of this route was approximately 162 miles. On route B, he would leave Grand Forks between 4 and 6 a.m. and arrive back at Grand Forks not later than 4 p.m. The total round trip distance of this route was approximately 94 miles. The operation of these routes was a daily routing matter. Petitioner spent $612.70 in 1959 and $614.90 in 1960 to purchase meals consumed during working hours. Held, the cost of the meals is personal and not allowable as ordinary and necessary expenses of ‘traveling * * * while away from home’ as that phrase is used in section 162(a)(2), I.R.C. 1954.

Issue 2.— Held, the cost of certain clothing and the cleaning thereof, worn by petitioner in the operation of the two routes, which clothing was not adaptable to general wear, is allowable as ordinary and necessary business expenses under section 162(a), I.R.C. 1954.

OPINION

ARUNDELL, Judge:

Respondent determined deficiencies in income tax for the calendar years 1959 and 1960 in the amounts of $190.31 and $222.56, respectively.

The only issues to be decided are (1) whether the cost of meals incurred by petitioner Jerome Mortrud during 1959 and 1960 in the amounts of $612.70 and $614.90, respectively, in the operation of his two wholesale dairy routes as an independent contractor are deductible under the provisions of sections 62(1) and 162(a)(2), I.R.C. 1954; and (2) whether the cost of certain clothing and the cleaning thereof in 1959 and 1960 in the total amounts of $47.53 and $71.65, respectively, in the operation of the same business, are deductible under the provisions of sections 62(1) and 162(a), of the same Code.

Other adjustments to income were made by the respondent for both years which are not in dispute.

The parties agree that the amount of the deduction for each of the years 1959 and 1960 for medical expenses is subject to recomputation under Rule 50 in a manner consistent with the provisions of section 213, I.R.C. 1954.

All of the facts have been stipulated except, in connection with issue 2, samples of the clothing there involved were received in evidence, in addition to the stipulation. No oral testimony was offered. The stipulation is incorporated herein by reference and summarized below under the respective issues.

Issue 1

Petitioners are husband and wife, residing at East Grand Forks, Minn. They timely filed a joint U.S. Individual Income Tax Return (Form 1040) with the district director of internal revenue for the district of Minnesota for each of the calendar years 1959 and 1960. Hereafter, petitioner Jerome Mortrud will be referred to as petitioner.

Petitioners used the cash receipts and disbursements method of accounting in computing their taxable income for the taxable years involved. Petitioners itemized their deductions.

During the years 1959 and 1960 petitioner was engaged in the operation of two wholesale dairy routes. He operated the routes as an independent contractor. In this operation he purchases and resells dairy products, pays his own expenses, and owns the truck used for making deliveries.

Petitioner usually makes the deliveries himself. However, in the event of sickness, vacation, or similar circumstances, petitioner is responsible for securing a substitute driver to make deliveries.

Petitioner is responsible for servicing his dairy routes 6 days per week. The routes are termed ‘route A’ and ‘route B’ and such routes are serviced on alternate days of each week.

Route A begins and ends at Grand Forks, N. Dak., which is situated just across the State line from East Grand Forks, Minn. Intermediate delivery points on this route consist of the following towns located in North Dakota: Grafton, Auburn, St. Thomas, Hoople, Edinburg, Park River, Minto, Gilby, and Emerado. The total round trip distance of this route is approximately 162 miles.

Route B also begins and ends at Grand Forks, N. Dak. Intermediate delivery points on this route consist of the following towns located in North Dakota: Grafton, Minto, Gilby, and Emerado. The total round trip distance of this route is approximately 94 miles.

In the operation of route A petitioner customarily leaves Grand Forks, N. Dak., between 4 and 6 a.m., completes his deliveries, and arrives at Grand Forks not later than 7 p.m. In the operation of route B, petitioner customarily leaves Grand Forks, N. Dak., between 4 and 6 a.m., completes his deliveries, and arrives at Grand Forks not later than 4 p.m.

The operation of these routes was a daily routine matter.

During the years involved petitioner spent $612.70 in 1959 and $614.90 in 1960 to purchase meals consumed during working hours. He deducted these amounts on the joint returns as expenses of doing business. The respondent disallowed the claimed deductions and, in a statement attached to the deficiency notice, explained the disallowance thus:

(a) The deduction of * * * (appropriate amount inserted) claimed for meals expense has been disallowed because it has not been established that it constitutes an ordinary and necessary business expense or was expended for the purpose designated. Therefore, your taxable income is increased in the amount of * * * (appropriate amount inserted).

The respondent no longer contends that the amounts were not ‘expended for the purpose designated’ for the parties have stipulated that the amounts were spent by petitioner ‘to purchase meals consumed during working hours.’

The applicable statutes regarding both issues are in the margin. ¹ (Note: Par. (2) of sec. 162(a) is not applicable to issue 2.) The provisions of the 1954 Code which we have set out in the margin ‘are in effect the same as the correlative sections contained in the 1939 Code and accordingly decisions construing similar provisions in the 1939 Code are applicable herein.’ Commissioner v. Janss, 260 F.2d 99 (C.A.8, 1958), reversing on other issues a Memorandum Opinion of this Court.

The phrase ‘traveling expenses (including the entire amount expended for meals and lodging) while away from home in the pursuit of a trade or business' first appeared in section 214(a)(1), Revenue Act of 1921, and has remained in all the revenue acts and revenue codes, without change, until section 162(a)(2) of the 1954 Code was amended by section 4(b) of the Revenue Act of 1962 by striking out '(including the entire amount expended for meals and lodging)‘ and inserting in lieu thereof '(including amounts expended for meals and lodging other than amounts which are lavish or extravagant under the circumstances).’ This amendment is only applicable to taxable years ending after December 31, 1962.

In S. Rept. No. 275, 67th Cong., 1st Sess., Calendar No. 289, 1939-1 C.B. (Part 2) 181, 191, the Senate explained the phrase in section 214(a)(1), Revenue Act of 1921, as follows:

Section 214 allows substantially the same deductions in computing net income as are authorized under existing law, but adds the following provisions: (1) The deduction for business expenses is extended to include all traveling expenses incurred while away from home in the pursuit of a trade or business * * *

Much to the same effect was H. Rept. No. 350, 65th Cong., 1st Sess., 1939-1 C.B. (Part 2) 168, 177; section 213 later changed to section 214.

The decisions on the question here involved are too numerous to mention. Twice the question has reached the Supreme Court with dissenting opinions in both cases. See Commissioner v. Flowers, 326 U.S. 465 (1945); Peurifoy v. Commissioner, 358 U.S. 59 (1958).²

The Supreme Court, in the Flowers case, in dealing with a similar question under section 23(a)(1)(A) of the 1939 Code, said in part:

Three conditions must thus be satisfied before a traveling expense deduction may be made under Sec. 23(a)(1)(A):

(1) The expense must be a reasonable and necessary traveling expense, as that term is generally understood. This includes such items as transportation fares and food and lodging expenses incurred while traveling.

(2) The expense must be incurred ‘while away from home.’

(3) The expense must be incurred in pursuit of business. This means that there must be a direct connection between the expenditure and the carrying on of the trade or business of the taxpayer * * * . Moreover, such an expenditure must be necessary or appropriate to the development and pursuit of the business or trade.

Failure to satisfy any one of the three conditions destroys the traveling expense deduction.

In the Flowers case the Supreme Court held that the taxpayer there involved failed to meet the third condition. In the instant case the argument of both parties centers around the second condition.

In the Peurifoy case the taxpayer was a construction worker who was employed at Kingston, N.C., for several continuous periods which ended in 1953. He maintained an established residence elsewhere in North Carolina, and he deducted his expenses for meals and lodging at the jobsite in Kingston and his transportation cost back to his residence. The Commissioner disallowed the deduction. We allowed it on the ground that the employment in Kingston was ‘temporary’ rather than ‘indefinite’ and that the taxpayer was, therefore, ‘away from home.'³ The Court of Appeals for the Fourth Circuit reversed our decision on the ground that our finding was ‘clearly erroneous' because Peurifoy's employment was ‘indefinite’ rather than ‘temporary’ and that, therefore, Kingston was his ‘tax home’ and...