Schwartz v. Commissioner, Docket No. 10838-75.
| Decision Date | 25 November 1980 |
| Docket Number | Docket No. 10838-75. |
| Citation | 41 TCM (CCH) 431,1980 TC Memo 525 |
| Parties | Richard E. Schwartz v. Commissioner. |
| Court | U.S. Tax Court |
Richard E. Schwartz, pro se, 1108 Olive St., St. Louis, Mo. Henry Thomas Schafer, for the respondent.
Memorandum Findings of Fact and Opinion
Respondent determined a deficiency in petitioner's income tax of $980 and an addition to tax under section 6651(a), I.R.C. 1954,1 of $137.97 for the calendar year 1970. After concessions by petitioner, the issues remaining for decision are (1) whether the expenses incurred by petitioner, a foreign service officer, while on statutory home leave are deductible business expenditures; (2) whether petitioner is entitled to a deduction for moving expenses under section 217; and (3) whether petitioner's failure to file a timely return was due to reasonable cause and not due to willful neglect.
Some of the facts have been stipulated and are found accordingly.
Petitioner, Richard E. Schwartz, resided in St. Louis, Missouri, at the time of the filing of his petition in this case. Petitioner signed his Federal income tax return for the calendar year 1970 on April 14, 1974, and the return was filed with the Internal Revenue Service Center in Kansas City, Missouri, on April 18, 1974.
In January 1970, petitioner was a foreign service officer employed by the Department of State (Department) at the American Embassy in Rio de Janeiro, Brazil. Petitioner was employed by the Department until he resigned for personal reasons on March 23, 1973.
Petitioner was informed in January 1970 that he would not be returning to the American Embassy in Rio de Janeiro upon the expiration of his statutory home leave and that he would probably next be assigned to the U.S. Embassy in Quito, Ecuador. Thereafter, petitioner received his orders from the Department authorizing him to take statutory home leave as provided by the Foreign Service Act of 1946, ch. 957, 60 Stat. 999, 22 U.S.C. sec. 801 et seq. Specifically, the act provides that after a certain period abroad a foreign service officer may be ordered to return to the United States for home leave:
After the receipt of his orders authorizing statutory home leave, petitioner was advised that he would next be assigned to the U.S. Embassy in Santiago, Chile, rather than Quito, Ecuador. Petitioner departed Rio de Janeiro on February 23, 1970, for New York City, New York, via Caracas, Venezuela. At that time, petitioner had not received orders specifying exactly where his next duty station would be. Petitioner's personal and household effects were stored in Rio de Janeiro and the storage costs were paid directly by his employer. In addition, he prepaid tennis club dues and also prepaid a retainer to his child's governess in order that said services would remain available should he return to that post.
Petitioner's final orders assigned him to the U.S. AID Mission in Santiago, Chile, and they were dated May 3, 1970.
From March 19 to April 26, 1970, petitioner was on home leave in Carmel, California, a period of 39 calendar days. On April 27 petitioner left Carmel, California, and reported under travel orders to the State Department in Washintgon, D.C., on May 3, 1970, for consultation and training. On July 18, petitioner drove from Washington, D.C., to St. Louis, Missouri, to begin additional home leave. While on home leave, petitioner flew to Portland, Oregon, to visit his wife and then returned to St. Louis. On August 4 petitioner departed St. Louis for his next assignment in Santiago, Chile. Petitioner was on home leave a total of 56 days and during this time he engaged in a number of public information activities as a foreign service officer for the Department such as making speeches and appearing at academic conferences and seminars. He also engaged in vacation-type activities during this period.
Petitioner submitted travel vouchers to the Department and it paid the cost of his and his family's transportation from his former post abroad, Rio de Janeiro, to New York City, New York, and from St. Louis to his new post of duty, Santiago, Chile. In addition, his employer paid him a portion of the standard per diem rate of $25 per day while traveling between these points in 1970. Petitioner was also reimbursed at a portion of the per diem rate during the time spent in training in Washington, D.C. However, petitioner was not reimbursed for the time he spent on home leave and he was not required to and did not make an accounting to or file any report with his employer concerning expenditures incurred on home leave. The only requirement imposed on petitioner with respect to his home leave was that he had to account for the actual number of days spent on home leave. Overall, he claimed total expenses in the amount of $4,088.95 and his employer reimbursed him for these expenses in the amount of $2,435.83.
After he departed from Rio de Janeiro, Brazil, petitioner did not maintain a permanent residence in the United States or at his new post of duty in Santiago, Chile. On April 14, 1970, petitioner's employer authorized limited shipment of his personal effects from Rio de Janeiro to Santiago pending a decision as to the type of living quarters petitioner would occupy in Santiago. Although he arrived in Santiago on August 6, 1970, petitioner resided in hotels until early December 1970.
On Schedule A of his return, petitioner deducted $1,687.50 as "home leave per service orders" expenses. This amount was calculated by multiplying the 56 days spent on home leave by the per diem rate of $25 per day. In addition, petitioner claimed $282, the cost of his round-trip flight from St. Louis, Missouri, to Portland, Oregon, as a home leave expense. Petitioner also claimed a deduction of $3,930.10 for expenses incurred in travel, meals, and lodging during the move from his old residence to his new area of principal employment. He explained on his return that these expenses were incurred over a period of "97 days in transit from Rio de Janeiro, Brazil to Santiago, Chile via New York, St. Louis and Washington." Since he did not have an itemized list of the actual expenses incurred, he used the per diem rate as the basis for computing the amount of moving expenses. The total moving expenses claimed by petitioner were $3,995.87. Petitioner also reported reimbursements and allowances from his employer for moving expenses in the amount of $2,426 resulting in a net deduction of $1,569.87.
In the notice of deficiency for the calendar year 1970, respondent disallowed deductions for the claimed moving expenses of $1,569.87 and the claimed home leave expenses of $1,687.50. Respondent in his notice of deficiency further determined that because of failure to timely file his return petitioner was liable for an addition to tax under section 6651(a) of 25 percent of the $551.87 portion of the deficiency which had not been paid by withholding or $137.97.
OpinionThe first issue presented is whether the expenses incurred by petitioner while on home leave are deductible expenses attributable to his trade or business or nondeductible personal expenses. Section 162 (a)(2) provides that:
Under this section travel expenses are deductible only if they are ordinary and necessary to the taxpayer's trade or business and are incurred while the taxpayer is away from home in the pursuit of a trade or business. Commissioner v. Flowers 46-1 USTC ¶ 9127, 326 U.S. 465, 470 (1946); Teil v. Commissioner Dec. 36,256, 72 T.C. 841, 844 (1979), on appeal (D.C. Cir., Oct. 12, 1979).
If we assume that travel expenses incurred by a foreign service officer on home leave are ordinary and necessary to his trade or business due to the mandatory nature of home leave, see Hitchcock v. Commissioner, 66 T.C. 950, 956, 959 (1976), reversed and remanded 578 F. 2d 972 (4th Cir. 1978), only one of the criteria of section 162(a)(2) has been met. Even if the "home leave" expenses are ordinary and necessary to petitioner's trade or business, the deduction must be denied unless expenses are shown to be incurred in the pursuit of petitioner's trade or business. Although the Fourth and Ninth Circuits have held in Hitchcock v. Commissioner, supra, and Stratton v. Commissioner 71-2 USTC ¶ 9630, 448 F. 2d 1030, 1033 (9th Cir. 1971), that expenses paid by a foreign service officer while on "home leave" are incurred in pursuit of his trade or business because of the compulsory nature of the "home leave", after careful consideration, we have declined to follow the holdings of these Courts of Appeals. In Teil v. Commissioner, supra, we held that the expenses of a foreign service officer incurred while on home leave are inherently personal in nature. Specifically, we...
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