Case Name: Jon F. Hartung and Constance M. Hartung, Petitioners v. Commissioner of Internal Revenue, Respondent
Court: United States Tax Court
Jurisdiction: United States
Decision Date: 1970-10-01
Citations: 55 T.C. 1
Docket Number: Docket No. 590-69
Parties: Jon F. Hartung and Constance M. Hartung, Petitioners v. Commissioner of Internal Revenue, Respondent
Judges: Baum, Atkins, and Stereett, JJ., agree with this dissent.
Reporter: Reports of the Tax Court of the United States
Volume: 55
Pages: 1–6

Head Matter:
Jon F. Hartung and Constance M. Hartung, Petitioners v. Commissioner of Internal Revenue, Respondent
Docket No. 590-69.
Filed October 1,1970.
Jon F. Hartung, pro se.
John E. Lahart, Jr., for the respondent.

Opinion:
OPINION
Fat, Judge:
Respondent determined a deficiency of $334.14 in petitioners' income tax for the taxable year 1964.
The only question before this Court is whether the moving expense deduction claimed by petitioners for the taxable year 1964 must be disallowed because it is properly allocable to tax-exempt income within the meaning of section 911.
All of the facts have been stipulated and are found accordingly. The stipulation of facts and exhibits attached thereto are incorporated herein by this reference.
Petitioners are husband and wife and at the time of filing the petition herein resided in Oakland, Calif. Petitioners, -cash basis taxpayers, filed a joint return for calendar year 1964 with the director of international operations, Washington, D.C. Constance Hartung is a party to this action only by virtue of filing the joint return, and for the sake of convenience Jon Hartung will hereinafter be referred to as petitioner.
Until approximately October 23, 1964, petitioner lived and was employed as a chemical engineer in the United States. At that time he terminated his employment and began making preparations for a move to Australia. Having obtained immigrant visas, petitioner and his wife entered Australia on December 1,1964.
Petitioner secured employment in Australia on January 25, 1965, and remained and worked there until March 1,1966. All compensation from his Australian employment was exempt from United States taxation, nor did he receive taxable income from any other source between October 23,1964, and March 1,1966.
In moving from the United States to Australia in 1964 petitioner incurred unreimbursed expenses of $1,677. Petitioner claimed this amount as a deduction on his 1964 income tax return. Respondent disallowed the deduction asserting that the expenses were properly allocable to tax-exempt income under section 911 and as such were not deductible.
The sole issue for us to decide is whether moving expenses, otherwise deductible as moving expenses under section 217, must be disallowed because subsequent to the move all income earned by petitioner is exempt from taxation under section 911.
Respondent concedes that petitioner satisfies the requirements of section 217. The parties also agree that the income earned while in Australia is properly exempt from taxation under section 911. Respondent, however, contends that the $1,677 expense is properly allocable to the income exempt from taxation and as such must be disallowed by section 911 (a) . Petitioner, on the other hand, argues that the moving expenses allowed by section 217 are of a personal nature; that such expenses are not allocable to earned income and consequently are deductible in full. Sec. 1.911-1 (a) (3), Income Tax Regs. We agree with petitioner.
The provision for the deductibility of moving expenses was enacted in 1964. Prior to that time taxpayers were repeatedly denied deductions for moving expenses on the ground that the expenses were of a personal nature and hence not deductible. Any doubt on this issue was resolved in Lloyd G. Jones, 54 T.C. 734 (1970), where this Court held that moving expenses were personal family expenses. Congress, in enacting section 217, did not change the character of moving expenses from personal to business.
Respondent argues that even though these expenses are not business expenses within section 162, the word "allocable" in section 911(a) is broad enough to encompass such expenses. "Allocable" was given a broad interpretation in Carstairs v. United States, 75 F.Supp. 683 (E.D. Pa. 1936). In Carstairs the court held that State income taxes paid on income exempt under the predecessor of section 911 were not deductible because they were "allocable" to the tax-exempt income. The court, while interpreting "allocable" as including some expenses not within section 162, did not extend it to include personal expenses. On this basis we think the instant case is distinguishable from Carstairs.
Respondent also argues that the legislative history of section 217 indicates an intention by Congress that expenses within section 217 be treated as business expenses. In reference to the nature of expenses incurred in moving, the committee reports state that such expenses are treated "essentially the same as business expenses." This reference is made in explaining that expenses under section 217 are deductible from gross income in arriving at adjusted gross income as are business expenses and not in arriving at taxable income as are other personal expenses. The reference, rather than indicating that moving expenses are business expenses, should be read as pointing out that while they are not business expenses they will be treated in a like manner for this particular purpose. The report again refers to moving expenses as being "substantially similar to business expenses." This again is in explanation of why they are to be deducted from gross income rather than adjusted gross income, and again may be read as pointing out that while these expenses are personal, they are being treated as a business expense for one particular purpose.
In light of the foregoing we hold that enactment of section 217 was a decision by Congress to allow a deduction for moving expenses even though they are personal living expenses. As such they should be treated in the same mariner as other personal expenses, no portion being allocable or chargeable to income. Sec. 1.911-1 (a) (3), Income Tax Eegs. Having satisfied section 217, petitioner is entitled to his moving expense in its entirety regardless of the tax-exempt character of income earned subsequent to the move.
Reviewed by the Court.
Decision will be entered for the petitioners.
All statutory references are to the Internal Revenue Code of 1954 unless otherwise specified.
SEC. 911. EARNED INCOME FROM SOURCES WITHOUT THE UNITED STATES.
(a) General Rule. — Tlie following items shall not be included in gross income and shall be exempt from taxation under this subtitle:
(1) Bona fide resident of foreign country. — In the case of an individual citizen of the united States who establishes to the satisfaction of the Secretary or his delegate that he has been a bona fide resident of a foreign country or countries for an uninterrupted period which includes an entire taxable year, amounts received from sources without the united States (except amounts paid by the united States or any agency thereof) which constitute earned income attributable to services performed during such uninterrupted period. The amount excluded under this paragraph for any taxable year shall be computed by applying the special rules contained in subsection (e).
*
An individual shall not be allowed, as a deduction from his gross income, any deductions (other than those allowed by section 151, relating to personal exemptions) properly allocable to or chargeable against amounts excluded from gross income under this subsection.
See. 1.911-1 (a) (3). However, items which are not properly chargeable against or allocable to excludable earned income are deductible in their entirety (subject to any specific statutory limitations relating to such items). Examples of such items include personal and family medical expenses, real estate taxes on a personal residence, interest on mortgage on personal residence, and charitable contributions.
Added by Pub. L. 88-2T2 (Feb. 26,1964).
H. Kept. No. 749, 88th Cong., 1st Sess. (1963), 1964-1 (Part 2) C.B. 182-185.