Document ID: s3://data.kl3m.ai/documents/govinfo/USCOURTS/USCOURTS-ca8-06-02443/USCOURTS-ca8-06-02443-0/pdf.json

Parties Involved:
Marc Jordan
Appellant
United States of America
Appellee

Document Text:

1

The Honorable John F. Nangle, United States District Judge for the Eastern

District of Missouri, sitting by designation.

2

The Honorable Joan N. Ericksen, United States District Judge for the District

of Minnesota. 

United States Court of Appeals

FOR THE EIGHTH CIRCUIT

___________

No. 06-2443

___________

Marc Jordan, *

*

Appellant, *

* Appeal from the United States 

v. * District Court for the

* District of Minnesota.

United States of America, *

*

Appellee. *

___________

Submitted: January 12, 2007

Filed: June 21, 2007

___________

Before WOLLMAN and MURPHY, Circuit Judges, and NANGLE,1

 District Judge.

___________

WOLLMAN, Circuit Judge.

Marc Jordan appeals from the district court’s2

 grant of summary judgment in

favor of the United States on his claim for a refund of Federal Insurance Contributions

Act (FICA) taxes withheld by his employer, Atlas Air, Inc. (Atlas). We affirm.

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I.

Jordan is employed as a pilot for Atlas, a company that provides aircraft, crew,

maintenance, and insurance services for the transportation of air cargo, as well as

charter operations for airlift services to commercial customers and the United States

military. Atlas operates out of bases in California, New York, Alaska, and Florida.

Pursuant to a collective bargaining agreement (CBA), Atlas has the discretion to

reassign its crewmembers to the various bases for a number of reasons, including

shifts in manpower, furloughs, or reductions in the number of crewmembers employed

by Atlas. Jordan was assigned to work out of the operational base in Anchorage,

Alaska, in January 2001 and continued to work there through the period at issue – the

quarter ending on June 30, 2003. During this time, Jordan resided in Bemidji,

Minnesota. Atlas, in accordance with the terms of the CBA, provided him with

transportation from Bemidji to Anchorage at the beginning of each work assignment

and then back to his residence in Bemidji at the end of each work assignment. In

addition, Atlas provided Jordan with lodging and a per diem for meals and incidental

expenses while he was in Alaska. The parties refer to these travel, lodging, and per

diem expenses as “gateway expenses.” 

In June 2003, Atlas began withholding income and FICA taxes on the value of

the gateway expenses it paid on behalf of its crewmembers. Jordan subsequently filed

an administrative claim for a refund of $110.42 – the amount of FICA taxes that were

withheld from his paycheck in the second quarter of 2003 based on the value of the

gateway expenses he received. After the IRS took no action on his claim, Jordan filed

this suit requesting a refund of the specified amount. The government subsequently

moved for summary judgment, asserting that Atlas had correctly determined that the

gateway expenses were wages and therefore subject to withholding. In response,

Jordan moved for summary judgment and also opposed the government’s motion,

asserting that a genuine issue of material fact existed as to whether the gateway

expenses constituted wages. The district court granted summary judgment to the

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government, concluding that the expense payments were properly considered to be

wages and that Jordan was therefore precluded from receiving a refund.

II. 

On appeal, Jordan contends that summary judgment was improper because the

gateway expenses were not wages and therefore not subject to withholding. Jordan

alternatively argues that summary judgment was inappropriate because the evidence

established a genuine issue of material fact. “We review a grant of summary

judgment de novo” and will “affirm when the record, viewed in the light most

favorable to the non-moving party, demonstrates that there are no genuine issues of

material fact and that the moving party is entitled to judgment as a matter of law.”

Frosty Treats, Inc. v. Sony Computer Ent. Am., Inc., 426 F.3d 1001, 1003 (8th Cir.

2005). 

The Internal Revenue Code (IRC) requires individuals to pay FICA taxes on

wages received from employment. 26 U.S.C. § 3101 (2007). These taxes are

collected by employers, who are required to deduct and withhold from their

employees’ wages the FICA taxes each employee is likely to owe. 26 U.S.C. §

3102(a) (2007). 

For purposes of FICA tax withholding, the term “wages” is broadly defined as

“all remuneration for employment, including the cash value of all remuneration

(including benefits) paid in any medium other than cash . . . .” 26 U.S.C. § 3121(a)

(2007). This term does not include, however, “any benefit provided to or on behalf

of an employee if at the time such benefit is provided it is reasonable to believe that

the employee will be able to exclude such benefit from income under section . . . 132.”

26 U.S.C. § 3121(a)(20). As noted by the district court, 26 U.S.C. § 132(a)(3), the

only § 132 exclusion relevant here, excludes a “working condition fringe” from an

individual’s income. 26 U.S.C. § 132(a)(3) (2007). The term “working condition

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Jordan contends that his employment in Anchorage, Alaska, should be

considered temporary because Atlas had the discretion to reassign its crewmembers

to various bases at any time and has done so in the past. 

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fringe” is defined as “any property or services provided to an employee of the

employer to the extent that, if the employee paid for such property or services, such

payment would be allowable as a deduction under section 162 or 167.” 26 U.S.C. §

132(d). Section 162(a)(2), in turn, allows a taxpayer to deduct traveling expenses

incurred “while away from home in the pursuit of a trade or business.” 26 U.S.C. §

162(a)(2) (2007). Under this framework, then, the gateway expenses should not have

been classified as wages for the purposes of FICA tax withholding if Jordan could

have deducted these expenses under § 162(a)(2). The district court concluded that

Jordan’s expenses could not be deducted under § 162(a)(2) because they were not

incurred “while away from home” or “in the pursuit of a trade or business.” We agree

with the district court in both respects. 

A taxpayer’s “home” for purposes of § 162 “is his principal place of business,

and the taxpayer is ‘away from home’ when required to travel to a vicinity other than

his principal place of business for temporary work.” Walraven v. Comm’r, 815 F.2d

1246, 1247 (8th Cir. 1987). As an exception to this rule, a taxpayer may also be

considered “away from home” if his “‘employment outside the area of his regular

abode will be for a ‘temporary’ or ‘short’ period of time . . . .’” Frederick v. United

States, 603 F.2d 1292, 1294 (8th Cir. 1979) (quoting Cockrell v. Comm’r, 321 F.2d

504, 507 (8th Cir. 1963)). With regard to the temporary employment situation,

however, “the taxpayer shall not be treated as being temporarily away from home

during any period of employment if such period exceeds 1 year.” 26 U.S.C. § 162(a).

Jordan’s principal place of business (and “home” for purposes of § 162) was

Anchorage, Alaska, and he is not seeking a refund of taxes paid on expenses incurred

traveling to vicinities other than Anchorage for work. Further, because Jordan had

been stationed in Anchorage for well over a year, there is no genuine issue of material

fact as to whether his employment was “temporary.”3

 The gateway expenses at issue

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H B & R, Inc. provided “hot oil” and other services to oil producers on

Alaska’s North Slope. H B & R, 229 F.3d at 689. Because of the severe climate and

security concerns, no one lived near the North Slope oil fields. Id. Most of H B & R,

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here were therefore not incurred “while away from home” and are not deductible

under § 162. 

The gateway expenses also fail to meet the requirements of § 162 because they

were not incurred “in the pursuit of a trade or business.” An employee’s expenses in

commuting from home to work are generally considered to be personal, and not

deductible business expenses. Comm’r v. Flowers, 326 U.S. 465, 473-74 (1946); H

B & R, Inc. v. United States, 229 F.3d 688, 690 (8th Cir. 2000). “The exigencies of

business rather than the personal conveniences and necessities of the traveler must be

the motivating factors” for the travel. Flowers, 326 U.S. at 474. As the district court

noted, the gateway expenses in this case were incurred as a result of Jordan’s personal

desire to maintain a home in Bemidji. Atlas did not require him to live in Bemidji and

did not gain anything by having him live there. Moreover, Jordan could have lived

in Anchorage had he so desired, and he was encouraged to do so. The exigencies of

business were therefore not the motivating factors for Jordan’s travel to and from

Anchorage, and the costs associated with this travel are not deductible under § 162.

Accordingly, we agree with the district court and conclude that the gateway expenses

were not excludable from the term wages. 

Despite the conclusion reached under the framework set forth above, Jordan

argues that the gateway expenses would not have been considered wages for purposes

of FICA tax withholding if the district court had applied the analysis set forth in H B

& R, and he contends that the district court erred in refusing to apply this analysis. 

In H B & R, the employer (H B & R, Inc.) sought a declaration that it was not

liable for failing to withhold FICA and income taxes on the expenses it paid in

providing transportation for its workers to and from an inhospitable job site.4

 After

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Inc.’s employees chose to live in the lower 48 states and would travel to and from the

North Slope on a three-week-on/three-week-off schedule. Id. H B & R, Inc. would

transport its employees from their homes in the lower 48 states to the North Slope by

providing round-trip commercial airline tickets from the employees’ homes to Alaska.

Id. 

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determining that none of the exclusions to the definition of wages found in § 3121(a)

(applicable for FICA tax withholding purposes) or § 3401(a) (applicable for income

tax withholding purposes) were applicable, the court turned to the corresponding

Treasury Regulations, 26 C.F.R. §§ 31.3121(a)-1(h) and 31.3401(a)-1(b) (which are

nearly identical). Section 31.3121(a)-1(h), which applies to FICA tax withholding,

states: 

Amounts paid specifically--either as advances or reimbursements--for

traveling or other bona fide ordinary and necessary expenses incurred or

reasonably expected to be incurred in the business of the employer are

not wages. . . . For amounts that are received by an employee on or after

July 1, 1990, with respect to expenses paid or incurred on or after July

1, 1990, see § 31.3121(a)-3.

Based on these regulations, the court in H B & R concluded that employee

traveling expenses are excluded from the term wages “so long as the expense is

ordinary and necessary to the business of the employer.” H B & R, 229 F.3d at 691.

The court went on to conclude further that “viewed from the perspective of H B & R

at the time the withholding decision was made, the employee airfare expenses were

incurred regularly and necessarily in the business of providing hot oil services to

North Slope oil producers” and, as a result, H B & R was not liable for failing to

withhold FICA taxes on such expenses. Id. Based on this analysis, Jordan asserts that

the district court should have examined whether the gateway expenses paid by Atlas

were ordinary and necessary to its business and that such expenses were in fact

ordinary and necessary to Atlas’s business. We find Jordan’s argument unpersuasive.

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As set forth in 26 C.F.R. § 31.3121(a)-3(a), travel expenses must meet the

requirements set forth in 26 U.S.C. § 62(c) and 26 C.F.R. § 1.62-2, to be excluded

from wages. Section 1.62-2 provides that expenses are to be excluded from the

definition of wages if they are “allowable as deductions by part VI (section 161 and

the following), subchapter B, chapter 1of the Code, and . . . are paid or incurred by the

employee in connection with the performance of services as an employee of the

employer.” 26 C.F.R. § 1.62-2(d)(1). As we noted above, § 162 allows a taxpayer to

deduct traveling expenses incurred “while away from home in the pursuit of a trade

or business . . . .” 26 U.S.C. § 162(a)(2). 

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As the government points out, the last sentence of § 31.3121(a)-1(h) provides

that 26 C.F.R. § 31.3121(a)-3 is applicable when travel expenses are paid after July

1, 1990, such as those at issue here. Under the framework established by §

31.3121(a)-3, various income tax provisions are incorporated into the determination

of whether expenses are excluded from wages.5

 These include 26 C.F.R. § 1.62-2,

which provides that, to be excluded from wages, the expenses be “incurred by the

employee in connection with the performance of services as an employee of the

employer,” as well as 26 U.S.C. § 162, which, as recounted in our analysis above,

requires that those expenses be incurred “while away from home in the pursuit of a

trade or business.” In H B & R, we acknowledged that the reference to § 31.3121(a)-3

in § 31.3121(a)-1(h) might have an effect on our analysis under § 31.3121(a)-1(h) by

essentially incorporating the income tax distinctions between personal expenses and

business expenses when determining whether expenses were ordinary, necessary, and

incurred in the business of the employer. H B & R, 229 F.3d at 691 & n.1. We

declined to decide the issue, however, because the Commissioner failed to fully argue

the point. Id. at 691 n.1. In addition, we were hesitant to incorporate this

interpretation and impose a liability on H B & R, Inc. when it did not appear that a

withholding obligation had ever been imposed in this type of situation. Id. at 691-92.

Now that this point has been fully argued before us, however, and because Atlas

is actually withholding FICA taxes, rather than failing to do so, we conclude that the

reference to § 31.3121(a)-3 in § 31.3121(a)-1(h) does in fact have a bearing upon our

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analysis. The framework set forth in § 31.3121(a)-3 incorporates income tax

provisions that, among other things, require the expenses to be “incurred by the

employee in connection with the performance of services as an employee of the

employer,” and “while away from home in the pursuit of a trade or business.” 26

C.F.R. § 1.62-2; 26 U.S.C. § 162. As recounted earlier in this opinion, commuting

expenses have been classified as personal expenses, rather than business-related

expenses, in this context. See H B & R, 229 F.3d at 690. As a result, we conclude

that for expenses paid after July 1, 1990, the income tax distinctions between personal

expenses and business expenses are relevant in determining whether expenses are

incurred in the business of the employer under § 31.3121(a)-1(h). 

Based on this framework, then, our earlier analysis under § 162 becomes

applicable. As we concluded above, the gateway expenses incurred here did not meet

the requirements of § 162, as they constituted personal, rather than business, expenses.

Accordingly, the district court did not err in concluding that they were properly

considered wages.

The judgment is affirmed.

______________________________

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