Rosenspan v. United States

• Decision Date: 18 February 1971
• Docket Number: Docket 35100.,No. 295,295
• Citation: 438 F.2d 905
• Parties: Robert ROSENSPAN, Plaintiff-Appellant, v. UNITED STATES of America, Defendant-Appellee.
• Court: U.S. Court of Appeals — Second Circuit

438 F.2d 905 (1971)

Robert ROSENSPAN, Plaintiff-Appellant, v. UNITED STATES of America, Defendant-Appellee.

No. 295, Docket 35100.

United States Court of Appeals, Second Circuit.

Argued January 14, 1971.

Decided February 18, 1971.

James B. Lewis, New York City (Paul, Weiss, Goldberg, Rifkind, Wharton & Garrison, and Ira B. Shepard, New York City, of counsel), for plaintiff-appellant.

Richard Farber, Atty., Tax Division, Dept. of Justice, Washington, D. C. (Johnnie M. Walters, Asst. Atty. Gen., Meyer Rothwacks and Ann E. Belanger, Attys., Tax Division, Washington, D. C., Edward R. Neaher, U. S. Atty., for the Eastern District of New York, Brooklyn, N. Y., of counsel), for defendant-appellee.

Before WATERMAN, FRIENDLY and KAUFMAN, Circuit Judges.

FRIENDLY, Circuit Judge:

This appeal is from the dismissal on the merits of an action for refund of income taxes, brought in the District Court for the Eastern District of New York, 316 F.Supp. 194. The taxes were paid as a result of the Commissioner's disallowance of deductions for unreimbursed expenses for meals and lodging, allegedly incurred "while away from home in the pursuit of a trade or business," I.R.C. § 162(a) (2), in 1962 and 1964.

Plaintiff, Robert Rosenspan, was a jewelry salesman who worked on a commission basis, paying his own traveling expenses without reimbursement. In 1962 he was employed by one and in 1964 by two New York City jewelry manufacturers. For some 300 days a year he traveled by automobile through an extensive sales territory in the Middle West, where he would stay at hotels and motels and eat at restaurants. Five or six times a year he would return to New York and spend several days at his employers' offices. There he would perform a variety of services essential to his work — cleaning up his sample case, checking orders, discussing customers' credit problems, recommending changes in stock, attending annual staff meetings, and the like.

Rosenspan had grown in Brooklyn and during his marriage had maintained a family home there. After his wife's death in 1948, he abandoned this. From that time through the tax years in question he used his brother's Brooklyn home as a personal residential address, keeping some clothing and other belongings there, and registering, voting, and filing his income tax returns from that address. The stipulation of facts states that, on his trips to New York City, "out of a desire not to abuse his welcome at his brother's home, he stayed more often" at an inn near the John F. Kennedy Airport. It recites also that "he generally spent his annual vacations in Brooklyn, where his children resided, and made an effort to return to Brooklyn whenever possible," but affords no further indication where he stayed on such visits. In 1961 he changed the registration of his automobile from New York to Ohio, giving as his address the address of a cousin in Cincinnati, where he also received mail, in order to obtain cheaper automobile insurance. Rosenspan does not contend that he had a permanent abode or residence in Brooklyn or anywhere else.

The basis for the Commissioner's disallowance of a deduction for Rosenspan's meals and lodging while in his sales territory was that he had no "home" to be "away from" while traveling. Not denying that this would be true if the language of § 162(a) (2) were given its ordinary meaning, Rosenspan claimed that for tax purposes his home was his "business headquarters," to wit, New York City where his employers maintained their offices, and relied upon the Commissioner's long advocacy of this concept of a "tax home," see, e. g., G.C.M. 23672, 1943 Cum.Bull. 66-67. The Commissioner responded that although in most circumstances "home" means "business headquarters," it should be given its natural meaning of a permanent abode or residence for purposes of the problem here presented. Rosenspan says the Commissioner is thus trying to have it both ways.

The provision of the Internal Revenue Code applicable for 1962 read:

"§ 162. Trade or business expenses.

(a) In general. — 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 the entire amount expended for meals and lodging) while away from home in the pursuit of a trade or business; * * *"

For 1964 the statute remained the same except for the interpolation in the parenthesis after "lodging" of the words "other than amounts which are lavish or extravagant under the circumstances" — a change not relevant in this case.

What is now § 162(a) (2) was brought into the tax structure by § 214 of the Revenue Act of 1921, 42 Stat. 239. Prior to that date, § 214 had permitted the deduction of "ordinary and necessary expenses paid or incurred * * * in carrying on any trade or business," Revenue Act of 1918, 40 Stat. 1066 (1918), without further specification. In a regulation, the Treasury interpreted the statute to allow deduction of "traveling expenses, including railroad fares, and meals and lodging in an amount in excess of any expenditures ordinarily required for such purposes when at home," T.D. 3101, amending Article 292 of Regulations 45, 3 Cum.Bull. 191 (1920) (emphasis supplied). A formula was provided for determining what expenditures were thus "ordinarily required"; the taxpayer was to compute such items as rent, grocery bills, light, etc. and servant hire for the periods when he was away from home, and divide this by the number of members of his family. Mim. 2688, 4 Cum.Bull. 209-11 (1921). The puzzlement of the man without a home was dealt with in a cryptic pronouncement, O.D. 905, 4 Cum.Bull. 212 (1921):

Living expenses paid by a single taxpayer who has no home and is continuously employed on the road may not be deducted in computing net income.

The 1921 amendment, inserting what is now § 162(a) (2)'s allowance of a deduction for the entire amount of qualified meals and lodging, stemmed from a request of the Treasury based on the difficulty of administering the "excess" provision of its regulation. See United States v. Correll, 389 U.S. 299, 301, 88 S.Ct. 445, 19 L.Ed.2d 537 n. 6 (1967). While the taxpayer cites statements of legislators in the 1921 Congress that the amendment would provide "a measure of justice" to commercial travelers,¹ there is nothing to indicate that the members making or hearing these remarks were thinking of the unusual situation of the traveler without a home. There is likewise nothing to indicate that the Treasury sought, or that Congress meant to require, any change in the ruling that disallowed deductions for living expenses in such a case. The objective was to eliminate the need for computing the expenses "ordinarily required" at home by a taxpayer who had one, and the words used were appropriate to that end. If we were to make the unlikely assumption that the problem of the homeless commercial traveler ever entered the legislators' minds, the language they adopted was singularly inept to resolve it in the way for which plaintiff contends. Thus, if the literal words of the statute were decisive, the Government would clearly prevail on the simple ground that a taxpayer cannot be "away from home" unless he has a home from which to be away, cf. Haddleton, Traveling Expenses "Away from Home," 17 Tax L. Rev. 261, 263, 286 (1962); 49 Va.L.Rev. 125, 126-28 (1963). Although that is our ultimate conclusion, the Supreme Court has wisely admonished that "More than a dictionary is thus required to understand the provision here involved, and no appeal to the `plain language' of the section can obviate the need for further statutory construction," United States v. Correll, supra, 389 U.S. at 304 n. 16, 88 S.Ct. at 448. We turn, therefore, in the first instance to the Court's decisions.

The initial Supreme Court decision bearing on our problem is C. I. R. v. Flowers, 326 U.S. 465, 66 S.Ct. 250, 90 L.Ed. 203 (1946). Flowers, a lawyer, had a "home" in the conventional sense in Jackson, Mississippi, but his principal post of business was at the main office of his employer, the Gulf, Mobile & Ohio Railroad in Mobile, Alabama. Flowers sought to deduct the cost of transportation for his trips to Mobile and the meal and lodging expenses which he incurred in that city. In upholding the Commissioner's disallowance of these deductions, the Court said that "three conditions must thus be satisfied before a traveling expense deduction may be made" under what was substantially the present statute, 326 U.S. at 470, 66 S.Ct. at 252. These were:

(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 or of his employer. Moreover, such an expenditure must be necessary or appropriate to the development and pursuit of the business or trade.

It noted that "The meaning of the word `home' * * * with reference to a taxpayer residing in one city and working in another has engendered much difficulty and litigation," with the Tax Court and the administrative officials having "consistently defined it as the equivalent of the taxpayer's place of business" and two courts of appeals having rejected that view and "confined the term to the taxpayer's actual residence," 326 U.S. at 471-472, 66 S.Ct. at 253. The Court found it "unnecessary here to enter into or to decide this conflict," 326 U.S. at 472, 66 S.Ct. at 253. This was because the Tax Court had properly concluded "that the necessary relationship between the expenditures and the railroad's business was lacking." The railroad's...