TAX COURT OPINION

Case: Raymond J. & Maria V. Zbylut
Docket Number: 15269-06
Judge: Cohen
Opinion Type: memo
Filed: 02/27/2008
Pages: 20

STAT , 7s.:DDGE T .C . Memo . 2008-4 4 UNITED STATES TAX C URT RAYMOND J . AND MARIA V . ZBYLUT COMMISSIONER OF INTERNAL REV E Petitioners v . E, Respondent Docket No . 15269-06 . Fill d February 27, 2008 . Ellin Vicki Palmer , for petitioner s Valerie L . Makarewicz , for respond e MEMORANDUM FINDINGS OF FAC T AND OPINION COHEN, Judge : Respondent determine a deficiency of $2,293 and an addition to tax of $573 .25 for fa lure to file a timel y return pursuant to section 6651(a)(1) wi h regard to petitioners' Federal income tax liability for 2002 . fter concessions, th e issues to be decided are : SERVED FEB 2 7 2008 - 2 - (1) Whether for the years in issue petitioners may deduct at Federal per diem rates meal expenses that Raymond J . Zbylut (petitioner) did not pay or incur ; (2) whether petitioners are entitled to deductions for expenses related to petitioner's travel to union halls in 2002 ; and (3) whether petitioners are entitled to deductions claimed for other job-related expenses in 2002 . Unless otherwise indicated, all section references are to the Internal Revenue Code in effect for the year in issue, and all Rule references are to the Tax Court Rules of Practice and Procedure . FINDINGS OF FAC T Some of the facts have been stipulated, and the stipulated facts are incorporated in our findings by this reference . Petitioners resided in Nebraska at the time they filed their petition . Petitioner was employed as a merchant sailor at various times in 2002 by American Ship Management, L .L .C . (American Ship), and by Matson Navigation Co . (Matson Navigation) . Durin g that year, American Ship provided meals and lodging without cost to petitioner whenever he was on active status and assigned to a vessel for that company . Petitioner worked for American Ship aboard a container vessel called the President Wilson for approximately 112 consecutive days betwe - 3 - 2002 . Petitioner incurred expenses travel ng to union halls in San Francisco, California, and Honolulu, Haw ii, in order to see k temporary employment in 2002 . Petitione traveled to and remained at the union hall in San Franci co in order to see k employment from March 17 through 27, 200 Petitioner did not obtain a job during his March 2002 tri p San Francisco . Petitioner traveled to the union hall i n Honolulu in order to seek employment on June 15, 2002 . He r e ained in Honolulu unti l at least June 28, 2002, during which tim he was able to secure several temporary jobs . On the followin dates in 2002 , petitioner served as a port relief engin er in Honolulu for Matson Navigation, which provided petiti ner with meals when h e was serving aboard one of its vessels : Vesse l SS Chief Gadao SS Maui SS Manulani June June Jun e Petitioner incurred lodging expenses on 11 but the last 5 days of his trip to Honolulu, during which pe itioner was employed exclusively on the SS Manulani . Petitio er incurred necessary meal expenses on the days he was in Hono ulu looking for work but not employed on a Matson Navigation vess - 4 - Petitioner did not receive a per diem cash allowance or reimbursement for lodging, meals, or incidental expenses from American Ship or Matson Navigation in 2002 . He was not a permanent or indefinite employee of either employer or of any other company during 2002 . He served only in temporary positions on various vessels that year and then returned to his home in Nebraska for vacation and during periods of unemployment . In addition to wages from American Ship and Matson Navigation, petitioner received unemployment compensation in 2002 from the New York State Department of Labor-Unemployment Insurance . Petitioners filed their Form 1040, U .S . Individual Income Tax Return, for 2002 over 9 months late on January 28, 2004 . Petitioners did not request an extension of time to file their 2002 return . Under Job Expenses and Most Other Miscellaneous Deductions on their Schedule A, Itemized Deductions, for 2002, petitioners claimed the following deductions : Unreimbursed employee expenses $13,067 Other expenses 3,488 Petitioners attached an extensive compilation of document s entitled "Sailor Travel Statement" to substantiate their claim for unreimbursed employee expenses . The Sailor Travel Statement included, among other things, the "Supplemental Sailor Travel Schedule" reproduced below, authorities upon which petitioners rely in support of their tax position, a the respective locations of petitioner a d d documentation showin g the President Wilso n on particular dates in 2002 . The Supple ental Sailor Travel Schedule, with original emphases, that p titioners attached to their 2002 return is reproduced in par t elow : Taxpayer is a Merchant Sailor assigned to traveling between ports located around the and therefore qualifies per attached Rev P "Transportation Industry Employees" and at COURT DECISION & IRS Publication 463 (Chap his DEE ME D SUBSTANTIATED Out-of-Town Trave attached Pub 1542's Foreign OCONUS Rates a for EACH CITY as follows : ork aboard a Cargo Ship entire Pacific Ocean oc 2001-47' s ached MARIN JOHNSON TAX er 1 Page 5 ) to compute Costs by usin g d Domestic CONUS Rate s 27 Days x $119 Yokohama, Japan 23 Days x $76 Guam, Island o f 15 Days x $82 Qingdao <Beijing>, Ch 10 Days x $87 Pusan, South Kore a 14 Days x $50 San Pedro <L .A .>, Cal 6 Days x $113 Nagoya, Japa n 7 Days x $84 Naha <Okinawa>, Japan 6 Days x $46 San Pedro <L .A .>, Cal 4 Days x $38 Oakland, Californi a na fornia fornia 3,213 . 1,748 . 1,23 0 870 . 700 . 678 . 588 . = 276 . 152 . Total Sailor Travel Costs Allowed per OCONUS & ONUS Rates 9,455 . Taxpayer also took a Sailor Continuing Edu additional Rating is deductible since he a ratings and this course does NOT qualify h Note the Union paid the tuition in full . Educational Travel Expenses ONLY . tion Program . This ready has other SAILOR m for a new occupation . his is relate d 35 Days x $42 Easton <St . Michaels> Airfare & Other Education Related Less Union Education Reimburseme n Maryland = 1,470 . osts = 1,272 . Per 1099 <2,712 > As a ME RCHANT SAILOR , taxpayer was forced Letter to personally show up at his Union next work assignment . He was NOT ALLOWED Union Hall to see what new jobs were curre attached IRS Publication 17, auto mileage travel-related costs back and forth to his [sic] for work are FULLY DEDUCTIBLE as fo l 16 Days x $72 Honolulu <Oahu>, Hawa 12 Days x $205 San Francisco, Calif o y his attached Union all to look for his o simply phone his tly available . Per nd possibly other Union Hall Looking ows : i = 1,152 . nia = 2,460 . Total U .S . Tax Cour t & Other Sailor Travel Expenses Allowe d 13,067 . In another statement attached to t h it 2002 return, petitioners listed their other expenses s follows : Sailor required medical expenses $1,227 Sailor required supplies 655 Sailor uniforms/cleaning 692 Sailor union dues 91 4 3,48 8 OPINION Section 162 permits taxpayers to deduct all ordinary an d necessary business expenses paid or incurred during the taxable year and specifically includes traveling expenses (including amounts expended for meals and lodging other than amounts that are lavish or extravagant under the circumstances) while away from home in the pursuit of a trade or business . Sec . 162(a)(2) . Section 274(d) generally disallows any deduction under section 162 for, among other things, "any traveling expense (including meals and lodging while away from home)", unless the taxpayer complies with stringent substantiation requirements as to the amount, time and place, and business purpose of the expense . Sec . 274(d)(1) . Section 274(d) authorizes the Secretary to provide by regulations that some or all of these substantiation requirements "shall not apply in the case of an expense which does not exceed an amount prescribed pursuant to such regulations . " Under the applicable section 274 regulations, the Commissioner is authorized to prescribe rules under which optional methods of computing expenses, including per diem - 7 - allowances for ordinary and necessary ex enses for traveling away from home, may be regarded as satisfying the substantiation requirements of section 274(d) . Sec . 1 . 74-5(j), Income Tax Regs . Under this authority, the Commiss oner issued Rev . Proc . 2001-47, 2001-2 C .B . 332 (applicable to etitioner's trave l January through September 2002), and Rev Proc . 2002-63, 2002-2 C .B . 691 (applicable to petitioner's tra el October throug h December 2002) (collectively, the applic ble revenue procedures) . Under the applicable revenue procedures, taxpayers may elect to use, in lieu of substantiating actual ex enses, certai n authorized methods for deemed substantia ion of employee lodging, meal, and incidental expenses incurred w ile traveling away from home . Rev . Proc . 2002-63, sec . 1, 2002- C .B . at 691, provide s the following introduction : SECTION 1 . PURPOS E This revenue procedure updates 2001-2 C .B . 332, by providing rules amount of ordinary and necessary bu an employee for lodging, meal, and or for meal and incidental expenses traveling away from home will be de under section 1 .274-5 of the Income when a payor (the employer, its age party) provides a per diem allowanc reimbursement or other expense allo pay for the expenses . In addition, procedure provides an optional meth self-employed individuals who pay o to use in computing the deductible meal and incidental expenses paid o traveling away from home . This rev provides an optional method for use deductible costs of incidental expe Rev . Proc . 2001-47, under which the iness expenses of ncidental expenses incurred whil e med substantiated Tax Regulations t, or a third under a ance arrangement to this revenu e d for employees and incur meal costs osts of busines s incurred while nue procedure also in computing the ses paid or incurred while traveling away from home by employees and self-employed individuals who do not pay or incur meal costs and who are not reimbursed for th e incidental expenses . Use of a method described in this revenue procedure is not mandatory, and a taxpayer may use actual allowable expenses if the taxpayer maintains adequate records or other sufficient evidence fo r proper substantiation . Rev . Proc . 2001-47, sec . 1, 2001-2 C .B . at 332, is almost identical to the passage quoted above, but the following sentence is omitted : This revenue procedure also provides an optional method for use in computing the deductible costs of incidental expenses paid or incurred while traveling away fro m home by employees and self-employed individuals who do not pay or incur meal costs and who are not reimbursed for the incidental expenses . * * * Rev . Proc . 2002-63, sec . 4 .05, 2002-2 C .B . at 694, expressly provides that taxpayers who do not pay or incur meal expenses when traveling away from home may use, in lieu of providing actual receipts to substantiate incidental expenses, an established rate of $2 per day . Rev . Proc . 2001-47, sec . 4, 2001-2 C .B . at 333-334, which provides specific rules for the per diem substantiation method, does not contain a similar provision . However, we have held previously that the incidental portion of the per diem rates for meals and incidental expenses (M&IE) may be used as deemed substantiation of incidental expenses when meals are provided by a taxpayer's employer . Johnson v . Commissioner , 115 T .C . 210, 210-211 (2000) . - 9 - Rev . Proc . 2001-47, sec . 6 .01, 2001- .2 C .B . at 337, and Rev . Proc . 2002-63, sec . 6 .01, 2002-2 C .B . at 698, each provide that the Federal M&IE rate will be applied, w th stated exceptions, in the same manner as applied under the Fed ral Travel Regulations, 41 C .F .R . sec . 301-11, in effect at the ime each respectiv e revenue procedure was released . Deductions for Meals and Incidental Ex e se s American Ship furnished petitioner ith lodging and meals without charge while he worked on the Pr sident Wilson in 2002 . Matson Navigation provided meals to peti ioner without charge while he worked as a relief port enginee on its vessels docke d in Honolulu for several days in 2002 . A though petitioner di d not pay for his meals while at sea or wh le docked in ports, petitioners deducted the full M&IE rate or each day tha t petitioner worked aboard a vessel in 200 Petitioners argue that the applica b e revenue procedures , which are cited above, in conjunction wi h the Federal Trave l Regulations, permit them to deduct the f 11 applicable M&IE rat e for work-related travel even though all f petitioner's meals were provided to him free of charge by h s employers . Section 301-11 .17 of the Federal Travel Regulati ns provides that a meal provided by a common carrier or a compli entary meal provided by a hotel or motel does not affect a taxpa er's otherwise allowabl e per diem expense deduction for meals . 4 C .F .R . sec . 301-11 .17 - 10 - (2000) ; 41 C .F .R . sec . 301-11 .17 (2002) . None of the vessels on which petitioner worked were common carriers, and he did not receive meals from a hotel or motel . Additionally, the Federal Travel Regulations require that a Federal employee's M&IE rate be adjusted for meals provided by the Government by deducting appropriate amounts for each meal provided . Johnson v . Commissioner , supra at 227-228 ; Federal Travel Regulations, 41 C .F .R . sec . 301-11 .18 (2000) ; 41 C .F .R . sec . 301-11 .18 (2002) . Because, as petitioners acknowledge, the revenue procedures regarding M&IE rate deductions for non-Government employees are to be applied according to the Federal Travel Regulations for Federal employees, the regulations require that petitioner decrease the M&IE rate deduction otherwise allowable to account for meals provided by petitioner's employers . Petitioners also argue that this issue is novel to the Court . We disagree . In Johnson v . Commissioner , supra, the taxpayer, also a merchant seaman, deducted the full Federal M&IE rates on his return, even though all of his meals were provided to him free of charge by his employer . We held that, because the taxpayer's actual expenses consisted solely of incidental expenses, his use of the M&IE rates to calculate his deductions for business expenses due to travel away from home was limited to the incidental portion of those rates . Id . at 210-211 . The taxpayer in that case established that he had incurred incidental - 11 - expenses during his travel away from horn and was allowed to use the incidental portion of the M&IE rates to substantiate those expenses in lieu of providing actual rec 'pts . The purpose of the Federal per diem rates is to ease th burden o f substantiating travel expenses away from ome, not to eliminate the requirement that those expenses be i urred before they can be claimed as deductions from income . A hough petitioner s contend that the Court has not yet addre sed this issue, w e explicitly stated in Johnson v . Commissi4ner , supra at 227 : "We do not read the revenue procedures to al w a taxpayer to use the full M&IE rates when he or she incurs on ] incidental expenses ." Respondent concedes that petitioner are entitled to a miscellaneous itemized incidental expen s s deduction for 2002 equal to the per diem rate then applicab ll for each da y petitioner was traveling away from home ff~ or business . Respondent performed those calculations according t' methods established b y relevant revenue procedures . Petitioners may, as respondent has all onceded, deduct the incidental portion of the M&IE per diem ate for days that petitioner worked away from home for whi h they hav e substantiated the time, place, and busin ss purpose o f petitioner's travel . Johnson v . Commissioner , supra at 225 ; se e also Westling v . Commissioner , T .C . Memo 2000-289 . I n accordance with the applicable revenue p ocedures, respondent - 12 - calculated petitioner's deemed substantiated incidental expenses using the incidental expense portion of applicable M&IE rates based on petitioner's substantiated work locations for January through September 2002 and a fixed per diem rate of $2 fo r incidental expenses for October through December 2002 . We sustain respondent's calculations regarding petitioner's deemed substantiated incidental expenses for 2002 . Travel to Union Hall s Section 162 generally allows a taxpayer to deduct "all the ordinary and necessary expenses paid or incurred during the taxable year in carrying on any trade or business", including travel expenses while the taxpayer is "away from home in the pursuit of a trade or business" . Sec . 162(a)(2) . A taxpayer's "home", for purposes of section 162(a)(2), is generally considered as the vicinity of his principal place of employment rather than his personal residence . Mitchell v . Commissioner , 74 T .C . 578, 581 (1980) ; Daly v . Commissioner , 72 T .C . 190 (1979), affd . 662 F .2d 253 (4th Cir . 1981) . Accordingly, expenses incurred in commuting from a taxpayer's personal residence to a taxpayer's business or place of employment are generally nondeductible personal expenses . Gilbera v . Commissioner , 55 T .C . 611, 616-617 (1971) ; sec . 1 .262-1(b)(5), Income Tax Regs . Where a taxpayer does not have a permanent place of business, but rather is employed temporarily by various employers at different - 13 - locations, we generally deem the situs o the taxpayer' s permanent residence to be his or her tax ome, and the taxpayer's traveling expenses from his residence to hose temporary place s of employment may be deductible . Johnsorily . Commissioner , 11 5 T .C . at 221, 223 ; Dean v . Commissioner , 4 T .C . 663, 667-668 (1970) ; see Case v . Commissioner , T .C . M o . 1985-530 (holding that taxpayer, a merchant sailor who Inc red expenses traveling to a union hall in order to seek employm it, could deduc t traveling expenses related to his busine s affairs at the union hall because he was not employed by the ion hall, hi s employment with each employer that he me through the union hall was temporary, and thus his expenses wer not related t o commuting) . Petitioner testified at trial that e took trips to Sa n Francisco and Honolulu to seek work in 2 02 and that obtaining a job in his field required being present hysically at union halls when job opportunities were announced . etitioner incurred expenses traveling to union halls in San Francisco and Honolul u in order to seek temporary employment . e was not a permanent or indefinite employee of American Ship, Ma son Navigation, or any other company . He served only in tempor ry positions on various vessels and then returned to his home in Nebraska for vacations and during periods of unemployment . - 14 - Petitioners deducted on their 2002 return as unreimbursed employee expenses the following amounts for "auto mileage and possibly other travel-related costs back and forth to his Union Hall looking for work" : 16 Days x $72 Honolulu <Oahu>, Hawaii 12 Days x $205 San Francisco, California = 1,152 . 2,460 . Although petitioners' statement attached to their return attributes the deductions to auto mileage and other travel- related expenses, the rate petitioners used to calculate the expenses for Honolulu was the applicable M&IE rate for June 2002 . The rate they used to calculate expenses for San Francisco was the applicable maximum per diem rate, which includes standard deemed substantiated expense allowances for lodging, meals, and incidental expenses . Respondent argues that petitioners are not entitled to the expense deductions claimed for petitioner's travels to San Francisco and Honolulu for several reasons . In respondent's opening brief, respondent argues that Nebraska was petitioner's personal residence and advances the argument that expenses for travel to San Francisco and Honolulu were nondeductible commuting expenses to and from his places of work . Respondent argues that petitioners should not be allowed deductions for these commuting expenses because they were free to choose the location of their personal residence and chose to live far from petitioner's various places of work . Respondent's implicit argument is that petitioner's union halls, rather than - 15 - his personal residence in Nebraska, shou d be considere d petitioner's tax home . However, as we e plained in Johnson v . Commissioner , supra , because petitioner as employed by variou s employers in various locations, he had n principal place of business, and his personal residence is is tax home . See Johnson v . Commissioner , supra at 221-22 Thus, petitioner' s travel between his personal residence an his union halls and various places of employment is business related travel away fro m home . In respondent's reply brief, respon, ent argues that, because petitioner received unemployment compens tion from the State of New York and did not testify explicitly hat he resided i n Nebraska during 2002, petitioners have n t established that Nebraska was their permanent residence a d tax home . Such an argument is inconsistent with arguments n respondent's opening brief that assume that Nebraska was peti Toner's home and permanent residence . Respondent never q estioned petitioner at trial about where he resided in 2002 or bout his receipt of unemployment compensation from the State of New York . Th e parties stipulated that petitioners resi ed in Nebraska at the time they filed their petition . Petitio er's permanent residence was not an issue presented before or dur ng trial, and th e argument that Nebraska was not petitione 's permanent residence was first made in respondent's reply bri f . Until respondent's - 16 - reply brief, neither we nor petitioners were aware that respondent did not consider Nebraska petitioner's permanent residence . Because their residence was not an issue presented until respondent's reply brief, we are not persuaded by respondent's argument that, because they did not explicitly establish that Nebraska was their permanent residence and tax home at trial, petitioners may not treat their personal residence as their tax home . We find that petitioners did have a permanent residence and tax home for 2002 in Nebraska, where petitioners maintained their personal residence, and we hold that petitioner's traveling and living expenses related to trips to union halls in order to seek temporary employment are not commuting expenses but may be deductible expenses for business- related travel away from home . Respondent also argues that petitioner's trips to San Francisco and Honolulu do not constitute ordinary and necessary business trips and thus are not deductible under section 162 because petitioners have not shown that petitioner's employers required petitioner to stop at the union halls . Petitioner testified credibly that he was notified of job opportunities only if he was physically present at a union hall, where potential employers announced their current needs . Petitioners have adequately established that petitioner's trips to union halls in 2002 were ordinary and necessary business expenses . - 17 - Respondent also argues that petiti o ers have failed t o substantiate petitioner ' s expenses relat d to his trips to union halls in 2002 . Petitioners claimed ded u tions at per diem rates for 16 days in Honolulu and 12 days in S n Francisco . Although the per diem rates serve as an alternati e method o f substantiating the amount of expenses, p titioners must still substantiate the time, place, and busine s purpose of the underlying trip to deduct the per diem r tes as ordinary an d necessary business expenses . Sec . 274(d 1) ; sec . 1 .274-5T(b) , Temporary Income Tax Regs ., 50 Fed . Reg . 46014 (Nov . 6, 1985) . Petitioner testified that the expen es related to his trip s to the union halls to seek employment ar accurately represente d by credit card statements that petition e s presented as evidence at trial . The credit card statements, w ich include an array o f expenditures including personal expenses show that petitione r was present in San Francisco approximate y 11 days in March an d incurred expenses there for lodging and eals . Petitione r asserts, and we believe, that he travele o the San Francisco area union hall in March 2002 in search a job, but it appears that he was unable to secure a job at th t time . Petitione r incurred ordinary and necessary business expenses related to his trip to San Francisco in March 2002 and ay deduct his expenses for lodging, meals, and incidental expen es at the applicable per diem rates for those 11 days . - 18 - The credit card statements also show that petitioner was present in Honolulu at least 14 days in June, during which period he incurred expenses including some for lodging and meals . Petitioner asserts, and we believe, that he traveled to the Honolulu area union hall in June 2002 in search of a job, in which endeavor he was successful . Petitioner was employed by Matson Navigation as a port relief engineer in Honolulu on three different ships at various times totaling 9 days . Matson Navigation provided petitioner with meals on the days he was working aboard a vessel, and petitioner did not incur necessary meal expenses during the 9 days when he was employed by Matson Navigation . Matson Navigation generally did not provide housing for port relief engineers, and petitioner incurred lodging expenses for the 4 days that he was employed on two of Matson Navigation's ships in Honolulu . However, petitioner did not incur lodging expenses for the other 5 days he was employed by Matson Navigation on the SS Manulani . Petitioner also incurred lodging and meal expenses for the remaining 5 days in Honolulu during which he was seeking employment . Petitioners claimed deductions for meals and incidental expenses for 16 days in Honolulu on their 2002 return . Petitioners have shown that petitioner was present in Honolulu and seeking employment or working for 14 days in June 2002 . Petitioners are entitled to deductions at the applicable per diem - 19 - rate for lodging, meals, and incidental xpenses for the 5 day s that petitioner was not employed but was seeking work at th e Honolulu area union hall . Petitioners a e entitled only to lodging and incidental expense deduction for the 4 days tha t petitioner worked on two of Matson Navig tion' s ships and wa s provided meals but incurred lodging expe ses . See Federal Trave l Regulations, 41 C .F .R . sec . 301-11 .18 (2 2) . For the 5 days between June 24 and June 28, during whic petitioner worked fo r Matson Navigation on the SS Manulani and did, not incur an y lodging or meal expenses, petitioners ma deduct the applicabl e per diem rate for incidental expenses on See Johnson v . Commissioner , 115 T .C . at 210-211 ; Feder 1 Travel Regulations, 4 1 C .F .R . sec . 301-11 .18 (2002) . Other Job-Related and Miscellaneous Expente s Petitioners claimed other job expens deductions in 2002 for medical exams, supplies, uniform expenses and union dues . Respondent has allowed a deduction of $71 .45 for petitioner's union dues paid in 2002 . Petitioners hav not established that they paid more than the amount respondent has allowed fo r petitioner's union dues in 2002 . Petitio ers have no t substantiated the amount of any of the of er miscellaneou s expenses they claimed on their 2002 retur . Although petitioners presented copies of their credit card sta ements for 2002, the statements do not list any items purchase by petitioner and - 20 - include charges for patently personal expenses . Petitioners are not entitled to deductions for "other expenses " beyond those conceded by respondent . In reaching our decision, we have considered all arguments made, and, to the extent not mentioned, we conclude that they are irrelevant, moot, or without merit . Decision will be entere d under Rule 155 .