Edward W. And Leona J. Andrews v. Commissioner of Internal Revenue

Citations: 931 F.2d 132; 67 A.F.T.R.2d (RIA) 881; 1991 U.S. App. LEXIS 7117; 1991 WL 61313Docket: 90-2165

Court: Court of Appeals for the First Circuit; April 24, 1991; Federal Appellate Court

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Edward W. and Leona J. Andrews appealed a Tax Court decision regarding a tax deficiency assessment by the Commissioner of Internal Revenue for the year 1984. The central issue was whether Edward Andrews could deduct travel expenses, including meals and costs for maintaining a second home in Lighthouse Point, Florida, as "traveling expenses while away from home in the pursuit of a trade or business" under 26 U.S.C. Sec. 162(a)(2). The Tax Court ruled against Andrews, determining that he was not considered "away from home" when incurring these expenses. 

The background includes that Andrews was the president of Andrews Gunite Co. Inc., which operated a seasonal swimming pool construction business in New England, and that he had also established a horse racing and breeding business in Florida. By 1984, Andrews managed both his horse businesses and assisted in a Florida-based pool construction venture formed with his family, which had grown significantly by the time of trial. However, he did not draw a salary for his involvement in the pool business, and his only compensation related to Pilgrim Farms was covered airfare to Florida.

Andrews lived in Lynnfield, Massachusetts, with his wife during 1984 but frequently traveled to Florida for his expanding horse business. To reduce travel costs, he purchased a condominium in Pompano Beach in 1976, later moving to a single-family home in Lighthouse Point in 1983 due to safety concerns and proximity to the Pompano Beach Raceway. The Tax Court found that Andrews worked primarily in Florida for his horse business for half the year and in Massachusetts for his pool construction business for the remaining months. He claimed full business usage of his Florida home on his 1984 tax return, seeking deductions for related expenses, which he categorized as "lodging expenses."

The Tax Court recognized that section 162(a)(2) deductions aim to alleviate the financial burden on taxpayers maintaining two residences due to business demands. It established a rule that a taxpayer's home is the vicinity of their principal business location. The Tax Court concluded Andrews had two "tax homes" in 1984, countering the Commissioner's claim that Florida was his sole tax home, thereby classifying his Florida expenses as personal. On appeal, the Commissioner agreed with Andrews that the Tax Court erred in recognizing multiple tax homes and argued for a remand to determine Andrews' principal place of business. The appellate court sided with the Commissioner, asserting the Tax Court's finding of two tax homes was incorrect. It reiterated that section 162 allows deductions for necessary and reasonable travel expenses incurred while away from home and in pursuit of business, as established in prior case law.

The Tax Court ruled that Andrews could not deduct his Florida expenses because he did not meet the second requirement established in Flowers, determining that he had residences in both Massachusetts and Florida in 1984, thus not being "away from home" when incurring these expenses. The interpretation of "home" under section 162(a)(2) is central to this case; specifically, whether Andrews could have two homes. The Supreme Court in Flowers acknowledged the complexities surrounding the definition of "home" for travel expense deductions, noting that the IRS traditionally considers a taxpayer's home to be the vicinity of their principal place of employment. While the Tax Court recognized this IRS position, it also noted that some courts, including the Second Circuit, have argued that "home" should reflect its ordinary meaning as a primary residence. Additionally, the court in Hantzis suggested a functional definition of "home," emphasizing that expenses incurred out of business necessity for maintaining two residences should typically be deductible. The ultimate decision on such deductions hinges on the court's evaluation of the reasons for maintaining two homes, focusing on business necessities rather than personal convenience.

Living expenses are deductible if they arise from business necessity, particularly for temporary and itinerant workers, as affirmed by case law. Taxpayers are not required to relocate their primary residence for temporary employment, allowing for the deduction of duplicate living expenses at the temporary work location. This principle aligns with the Flowers test's third prong. Courts have made an exception to the definition of "tax home" when business assignments are temporary, as seen in cases like Peurifoy and Yeates. Conversely, itinerant workers with no principal business location typically do not incur deductible duplicate living expenses.

In the case of Andrews, the Tax Court found he operated two businesses in different locations in 1984, leading to the conclusion that he had two "tax homes." However, this contradicts the policy of section 162(a)(2), which allows deductions for duplicated living expenses incurred due to business requirements. The precedent set in Chandler supports that travel to secondary employment qualifies for travel expense deductions.

The Tax Court established that Andrews maintained residences in both Massachusetts and Florida, incurring duplicate expenses that could relate to business needs. Therefore, Andrews likely had only one "home" for tax purposes in 1984, with expenses for the other location being necessary for income production. The Tax Court is not directed on which residence should be considered the tax home, but it should determine this based on the time spent at each location, aligning with the taxpayer's "major post of duty." Deductions should be allowed for duplicate living expenses incurred while at the "minor post of duty," governed by the principle of business necessity.

The case has been vacated and remanded for further proceedings. Leona Andrews is involved only due to her joint tax return with her husband, Edward Andrews, who is the sole taxpayer in question. Andrews does not contest the Tax Court's decisions regarding other deductions on his 1984 return unrelated to travel expenses. Since the tax year in question predates the Tax Reform Act of 1986, the applicable law is the Internal Revenue Code of 1954, specifically Section 162(a)(2), which allows deductions for ordinary and necessary business expenses, including travel expenses.

The Commissioner conceded that real estate taxes and mortgage interest for the Florida property are deductible if substantiated, and this is not disputed in the appeal. Andrews lacks documentation for his claimed meals expenses, which he calculated at $28.40 per day for 140 days in Florida. The Tax Court found that even if Andrews was away from home for six months, the meals deduction was properly disallowed due to insufficient substantiation. Andrews nonetheless claims entitlement to a $9.00 per day deduction based on Rev. Proc. 83-71 for a total of 200 days of business travel in 1984, which the Commissioner agrees to if Andrews is deemed "away from home."

The Tax Court ruled that Andrews was not eligible for deductions under section 162(a)(2) for living expenses in Florida and did not consider possible deductions for unsubstantiated meals. Additionally, it ruled that section 280A(a) prohibits deductions for lodging expenses at a taxpayer’s residence. However, both Andrews and the Commissioner argue that the Tax Court overlooked section 280A(f)(4), which allows deductions under section 162(a)(2) for business travel expenses. Congressional discussions indicate that home ownership expenses could qualify as deductible business lodging expenses under certain circumstances.

The travel expense provision referenced in Flowers aligns closely with the provision in question under 26 U.S.C. Sec. 23(a)(1)(A). In Rosenspan, Judge Friendly highlighted that taxpayers without a permanent residence cannot deduct travel expenses, as their costs do not reflect a duplication of expenses that a permanent residence would imply. The Tax Court's decision regarding Andrews in 1984, citing Regan v. Commissioner, concluded that he had two "tax homes" based on equal time spent and income earned in Tampa and Gainesville, leading to the disallowance of travel expense deductions. The summary expresses skepticism about this ruling, suggesting that the taxpayer incurred duplicate lodging costs. It also clarifies that prior Tax Court decisions are not binding precedent. The text acknowledges that there could be exceptional circumstances where a taxpayer without a permanent home might qualify for two tax homes, but this was not applicable in the case discussed. The Sixth Circuit's "objective test" for determining a taxpayer's "major post of duty" includes analyzing time spent, activity level, and income derived from each location, with time being the most significant factor. Other circumstances may influence the determination of expenses as well.