Noyce v. Comm'r of Internal Revenue, Docket No. 21094-88.

CourtUnited States Tax Court
Citation97 T.C. 670,97 T.C. No. 46
Docket NumberDocket No. 21094-88.
Decision Date16 December 1991

97 T.C. 670
97 T.C. No. 46


Docket No. 21094-88.

United States Tax Court

Filed December 16, 1991.

P's position as vice chairman of Intel Corporation required frequent and extensive travel. By virtue of P's use of his private airplane, he was able to increase the number of meetings he could attend on behalf of Intel. Pursuant to Intel's policies, employee air travel was reimbursable only to the extent of commercial coach rates. Also as a matter of corporate policy, Intel officers were expected to bear certain travel expenses without reimbursement. R disallowed deductions P claimed for depreciation and expenses related to using the airplane in his employment with Intel.

HELD: P's use of his private airplane and payment of related expenses in the course of his employment were part of his trade or business of being a corporate official. P may deduct depreciation and expenses related to such travel to the extent such amounts exceed amounts reimbursable under Intel's policy.

HELD FURTHER: In determining whether expenses are reasonable in amount so as to be “ordinary and necessary” within the meaning of sec. 162, I.R.C., the amount of such “expenses” does not include amounts allowed by statute to be deducted for depreciation.

HELD FURTHER: Deductions for depreciation pursuant to sec. 168, I.R.C., (ACRS) are not subject to the requirements of sec. 162, I.R.C., that they be “ordinary and necessary” or reasonable in amount.

HELD FURTHER: Business use of the airplane was 36.7 percent of the total use.

[97 T.C. 671]

Lawrence A. Aufmuth and Thomas J. Moraan, for the petitioners.

Robert J. Misey, Jr., for the respondent.


Respondent determined a deficiency in petitioners' Federal income taxes for 1983 in the amount of $68,633.50. The issues for decision are: (1) Whether petitioners may deduct operating expenses and depreciation with respect to use of an airplane by Mr. Noyce in his capacity as a corporate official; (2) whether petitioners are entitled to deduct the airplane expenses and depreciation with respect to its use for Mr. Noyce's flight training; (3) whether petitioners are entitled to deduct expenses and depreciation for flight time related to airplane maintenance; (4) what is the total allowable amount of deductible expense and depreciation on the airplane for 1983; and (5) whether petitioners are entitled to an investment tax credit for the airplane.


Some of the facts have been stipulated. The stipulation of facts and attached exhibits are incorporated herein.

Petitioners, Robert N. Noyce and Ann S. Bowers Noyce, are husband and wife. They timely filed a joint income tax return for the year 1983. In 1983, petitioners had legal residence at Los Altos, California. At the time they filed their petition in this case, they were residents of Austin, Texas.

On their 1983 return, petitioners claimed deductions for depreciation, management fees, fixed expenses, and operating expenses attributable to a Cessna Citation airplane (the airplane) as follows:

                ¦Depreciation ¦$112,463¦
                ¦Management fees ¦2,880 ¦
                ¦Fixed expenses ¦7,043 ¦
                ¦Operating expenses ¦16,983 ¦
                ¦ ¦ ¦
Petitioners also claimed an investment tax credit for the airplane in the amount of $12,500.

On June 23, 1988, respondent mailed a notice of deficiency for the year 1983. Respondent determined a deficiency

[97 T.C. 672]

in the amount of $68,633.50 as the result of disallowing all but $9,647.00 of depreciation and $3,348.00 of the other fixed and operating expenses deducted. Respondent also disallowed $5,444.00 of the investment tax credit claimed by petitioners.

All references to petitioner in the singular are to Robert N. Noyce.


Petitioner was graduated from Grinnell College in 1949 with a B.A. in physics and mathematics. Petitioner was later graduated from the Massachusetts Institute of Technology in 1953 with a Ph.D. in physics. From 1956 to 1957, petitioner worked with William Shockley, the inventor of the transistor and the recipient of the Nobel Prize in physics, at the Shockley Semiconductor Laboratory in Mountain View, California. In 1957, petitioner cofounded Fairchild Semiconductor, a pioneer corporation in the semiconductor industry.

In 1968, petitioner cofounded Intel Corporation (Intel) with Drs. Gordon Moore and Andrew Grove with whom he had worked previously at Fairchild. Upon the formation of Intel, petitioner became the chief executive officer and served in that capacity until 1974 when he became the chairman of the board. In 1979, petitioner became vice chairman of the board and served in that capacity throughout 1983.


Intel was formed as a manufacturer of integrated circuits on silicon chips. Intel's business currently focuses on microcomputers, consisting of both silicon chips and microcomputing systems which are typified by the personal computer.

Intel operates primarily in the western United States, the Far East, Asia, and Europe. In 1983, it had manufacturing facilities in Hillsboro, Oregon, located outside Portland, Oregon, and in Albuquerque, New Mexico. Intel generated approximately $1 billion in revenues and employed approximately 7,000 people worldwide in 1983. By June 1989, it generated approximately $3 billion in revenues and employed about 20,000 people worldwide.

[97 T.C. 673]

Intel has developed and fostered the “Intel Culture.” This culture consists of a relatively distinctive operating style, management philosophy, and compensation policy. The Intel culture is summarized by an egalitarian approach to employees where everyone is treated alike in all respects except compensation. The company's open-office concept epitomizes this egalitarian style -- there is no executive dining room and there are no private offices or reserved parking spaces for anyone.

Drs. Moore and Grove, who were the chairman of the board and the President, respectively in 1983, set the salaries for all of the Intel officers, including petitioner. During some years, petitioner had asked that his salary as determined by Drs. Moore and Grove be reduced. As a result, petitioner was probably earning less than one- half of the market rate for his position. Petitioner received $105,076 compensation from Intel in 1983.

Petitioner had invested $250,000 in Intel upon its founding. By 1983, petitioner's Intel holdings were worth over $60 million. This represented less than 3 percent of the outstanding Intel stock at that time. Petitioner sold approximately $5 million of Intel stock in 1983.

Petitioner also frequently invested in startup high technology companies acquiring low basis stock which he disposed of after it appreciated over time. As a result of his investments in high technology and startup companies in 1983, petitioner served as a board member for three of the companies and as chairman of the board for two others. He attended board meetings regularly, consulted with the officers, and reviewed engineering designs.

Over the years, petitioner's role at Intel emerged as that of the company's public representative. During 1983, petitioner fulfilled the function of being Intel's representative to its outside constituencies. Petitioner often “opened doors” to various corporate customers, and for certain major customers of Intel, petitioner's liaison role was crucial.

As vice chairman, petitioner was the governmental affairs liaison and responsible for Intel's public relations. His duties included accepting speaking engagements throughout the United States, performing various governmental and public-service duties, serving as the chairman of the semiconductor

[97 T.C. 674]

Industry Association, serving as a member of various trade associations of the semiconductor industry, and serving as a member of the Presidential Commission on Industrial Competitiveness (the Young Commission). Petitioner was also expected to attend numerous onsite meetings at Intel.

Petitioner also served as a regent of the University of California and as a trustee of Grinnell College during 1983. Petitioner attended Grinnell Board of Trustee meetings as part of his general networking in the educational community and because Grinnell was an Intel stockholder. When petitioner formed Intel in 1968, Grinnell College and two of the Grinnell College trustees each contributed $100,000 to the startup of Intel. The two trustees subsequently contributed their Intel shares to Grinnell College. Service on Grinnell's Board offered petitioner an opportunity to compare his views on trade and competition with other individuals involved in banking, economics, and other areas. Petitioner's service as a University of California Regent allowed him to network with people of significance in commerce, education, science, and government. The Board of Regents is charged with all business aspects of the University of California, including being the final overseer of the energy laboratories in Los Alamos, Livermore, and Berkeley. As part of petitioner's duties as an official of Intel, petitioner was expected to serve on the Grinnell and University of California Boards. Such service was an essential part of networking for the benefit of Intel and provided an opportunity to gain access to people to test and develop ideas on trade and international competition.

In addition to the Board of Regents at the University of California and the Board of Trustees at Grinnell College, petitioner served on the Engineering Advisory Board at Stanford, the Applied Physics Advisory Board at Harvard, and the Electrical Engineering Advisory Board at MIT. Petitioner was also President and chief executive officer of the Semiconductor-Industry Cooperative Consortium, Sematech,...

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