Tell v. Comm'r of Internal Revenue

• Decision Date: 22 August 1979
• Docket Number: Docket No. 4649-75.
• Citation: 72 T.C. 841
• Parties: KURT H. and JOLANDA M. TEIL, PETITIONERS v. COMMISSIONER of INTERNAL REVENUE, RESPONDENT
• Court: U.S. Tax Court

72 T.C. 841

KURT H. and JOLANDA M. TEIL, PETITIONERS

v.COMMISSIONER of INTERNAL REVENUE, RESPONDENT

Docket No. 4649-75.

United States Tax Court

Filed August 22, 1979.

Taxpayer, a foreign service officer, incurred expenses while on required home leave. Held: After carefully considering Hitchcock v. Commissioner, 578 F.2d 972 (4th Cir. 1978), and Stratton v. Commissioner, 448 F.2d 1030 (9th Cir. 1971), we respectfully decline to follow the reasoning therein and hold that such expenditures are not deductible under sec. 162, I.R.C. 1954. Required or not, a vacation is a vacation and hence a personal expense. Held, further, expenses of sending daughter to school in Munich, rather than school in Ankara where taxpayer stationed, also a nondeductible personal expense. Kurt H. Teil, pro se.

Charles S. Henck, for the respondent.

STERRETT, Judge:

Respondent, on January 27, 1975, issued a statutory notice in which he determined a deficiency in petitioners' Federal income tax for their taxable year 1972 in the amount of $860.51. In his answer respondent increased the deficiency to $1,114.91. Two issues are before the Court: (1) Whether petitioners deducted properly expenses incurred by petitioner-husband while on “home leave,” and (2) whether petitioners deducted properly expenditures incurred in sending their daughter to a private school.

FINDINGS OF FACT

Some of the facts have been stipulated and are so found. The stipulation of facts, and the exhibits attached thereto, are incorporated herein by this reference.

Petitioner Kurt H. Teil (hereinafter petitioner) temporarily was living in Washington, D. C., at the time of filing the petition herein. At that time petitioner Jolanda M. Teil was living in Frankenberg, Austria. Petitioners timely filed their 1972 Federal income tax return with the Philadelphia Service Center. Pursuant to section 7482, I.R.C. 1954, the parties have agreed that the venue for appeal of any decision entered by the Court in this matter shall be the United States Court of Appeals for the District of Columbia.

During the taxable year 1972, petitioner was a foreign service officer with the Agency for International Development (hereinafter AID) assigned to Ankara, Turkey. On their 1972 return, petitioners claimed an employee business expense deduction of $3,530, consisting of $795 attributable to expenses incurred in connection with “home leave” taken by petitioner in 1972 and $2,735 attributable to “extra out-of-pocket” expenses incurred by petitioners in sending their daughter, Gita Josette Teil (hereinafter Gita), to school in Germany.

During the period July 6 through August 15, 1972, petitioner was on home leave in the United States as required by 22 U.S.C. sec. 1148 (1946). In connection with such leave petitioner incurred the following expenses:

+---------------------------------+
                ¦Car rental for 30 days      ¦$267¦
                +----------------------------+----¦
                ¦Hotel, 24 days @ $12 per day¦288 ¦
                +----------------------------+----¦
                ¦Food, 24 days @ $10 per day ¦240 ¦
                +---------------------------------+
                

 795
                

These expenses were incurred while traveling from Washington, D. C., to Sewickley, Pa. then on through Amish Country, Pa., to Boston, Mass., Ogunquit, Maine, and back to Pittsburgh, Pa. The trip lasted 24 days.

Prior to petitioner's transfer to Ankara, Gita was enrolled at the German School in Potomac, Md. Between January and November of 1970, Gita attended the German School in Ankara, a school which received some financial support from the West German Government. That school offered instruction only through the 10th grade. After November 1970, Gita was enrolled in a boarding school in Munich, Germany. She had been enrolled in the Munich school in the late 1960's while petitioner was stationed in Vietnam.

Petitioners' family is bilingual (German and English), Mrs. Teil being of German origin. All of the German schools are private schools which offer bilingual instruction and curriculums strong in Latin and French. Petitioners paid tuition for Gita's attendance at such schools.

On June 11, 1970, petitioners applied for an educational allowance under section 276 of the Standardized Regulations (Government Civilians, Foreign Areas) with respect to Gita's attendance at the Ankara German School. After Gita transferred to the school in Munich, the application was expanded to include expenses associated therewith. The application was denied by AID personnel officials on the ground that petitioner had forfeited his entitlement to the education allowance because he did not send Gita to the school operated by the Defense Department at his post in Ankara.

By memorandum dated September 24, 1970, the AID General Counsel's Office ruled that under the language of section 276 of the Standardized Regulations petitioners were not automatically ineligible for the educational allowance, notwithstanding the general policy set forth in that section. The cover memorandum accompanying the ruling stated that the ruling reached only the methods and basis on which an exception to the general policy could be granted. It stated further that authority to make such exception rests with the “A/PM.” On February 12, 1971, the personnel officials held that petitioners' case did not warrant making an exception under the regulations and denied the allowance for both the Ankara and Munich schooling.

Because of Gita's language background, the American school could not offer her further linguistic instruction. The principal of the American school in Ankara sent a memorandum to petitioners dated April 20, 1971, stating that, due to Gita's unique educational background in the German schools and the likelihood that petitioner would again be transferred prior to her graduation, it was his opinion that placement of Gita in the American schools “would be detrimental to her future.”

Petitioner drafted a request for reconsideration dated May 7, 1971, which was signed by the Ambassador. This request was denied. If Gita had attended the U.S. sponsored school in Ankara, petitioner would have received an allowance equivalent to that school's tuition.

OPINION

Issue 1. Expenditures Attributable to Home Leave

Section 162(a)(2) provides that:

(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 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 * * *

Therefore, in order for travel expenses to be deductible they must be (1) ordinary and necessary to the taxpayer's trade or business, (2) incurred while he was away from home, and (3) made in the pursuit of such trade or business.

Petitioner, as a foreign service officer, operates subject to the Foreign Service Act of 1946. 22 U.S.C. ch. 14 (1946). Under that act, foreign service officers may be ordered to return to the United States for home leave as provided in 22 U.S.C. sec. 1148:

Sec. 1148. Return of personnel to United States, its Territories and possessions on leaves of absence

(a) The Secretary may order to the continental United States, its territories and possessions, on statutory leave of absence any officer or employee of the Service who is a citizen of the United States upon completion of eighteen months' continuous service abroad and shall so order as soon as possible after completion of three years of such service.

(b) While in the continental United States, its Territories and possessions, on leave, the service of any officer or employee shall be available for such work or duties in the Department or elsewhere as the Secretary may prescribe, but the time of such work or duties shall not be counted as leave.

We have interpreted this section to mean that home leave is of a compulsory character. Hitchcock v. Commissioner, 66 T.C. 950, 959 (1976), revd. and remanded on other grounds 578 F.2d 972 (4th Cir. 1978). Thus, because reasonable expenses incurred while a foreign service officer is on home leave are ordinary and necessary to his trade or business, petitioner has satisfied the first criterion.

Petitioner has also satisfied the second criterion. The expenses were incurred by petitioner for travel in the United States while he was assigned to duty and was residing in Ankara, Turkey. The third criterion, however, provides a fatal stumbling block to deductibility.

Section 1.162-2(b), Income Tax Regs.,¹ has established a test of primary relationship for determining whether an expense has been incurred in the pursuit of the taxpayer's trade or business. Thus, the issue becomes whether, based on all the facts and circumstances, the trip is “related primarily to the taxpayer's trade or business or is primarily personal in nature.”

Both the Fourth and Ninth Circuits have held that travel expenses incurred by a foreign service officer while on home leave were related primarily to his trade or business. Hitchcock v. Commissioner, 578 F.2d 972, 975 (4th Cir. 1978); Stratton v. Commissioner, 448 F.2d 1030, 1033 (9th Cir. 1971). Both courts emphasized the compulsory character of home leave and the concern of Congress that foreign service personnel should be periodically re-Americanized. In support thereof the Circuit Courts referenced the Foreign Service Act of 1946 and its legislative history.

The general provisions of the Foreign Service Act setting forth the purpose of that act provide:

Sec. 801. * * * (2) to insure that the officers and employees of the Foreign Service are broadly representative of the American people and are aware of and fully informed in respect to current trends in American life * * * (Foreign Service Act of 1946, 22 U.S.C. sec. 801(2) (1946).)

This concern is emphasized in the legislative history of the act which stated:

“Re-Americanization”

There is perhaps no phase of Foreign...