Court Opinion

ID: 4484629
Source: CourtListenerOpinion
Date Created: 2020-01-16 21:16:53.118745+00
Date Added: 2024-06-11T14:54:04.958036
License: Public Domain

Scott, </., dissenting: I respectfully disagree with the interpretation the majority places on the provisions of section 280A, I.R.C. 1954. That section, insofar as here relevant, provides that the expense of a home office is deductible only if the home office is "a place of business which is used by patients, clients, or customers in meeting or dealing with the taxpayer.” The facts in this case show that no patients, clients, or customers came to petitioner’s home office for any purpose. They called petitioner on the telephone which was located in his home office. In my view, when a person calls a telephone number and talks to a person who answers, he does not "use” the room in which the telephone to which the call is made is located. The words "used by patients, clients, or customers in meeting or dealing with the taxpayer” envisions that the user be personally present in the home office. It may be that a patient, client, or customer could use the taxpayer’s home office in "dealing” with the taxpayer without the taxpayer’s being present in the office. If the taxpayer had a secretary, nurse, or agent in his home office to represent him, a patient, client, or customer who came to the home office might deal with the taxpayer through that person. However, it is my view that in order for the patient, client, or customer to "use” a taxpayer’s home office, the patient, client, or customer must be personally present in that office. Tannenwald, Wilbur, Chabot, and Parker, JJ., agree with this dissenting opinion. Wilbur, J., dissenting. For the reasons set out hereafter, I respectfully dissent from the reading of section 280A that the majority has provided. Section 280A limits the deductions for expenses of an office in the home for taxable years beginning after December 31, 1975.1 Section 280A(a) provides generally that "no deduction * * * shall be allowed with respect to the use of a dwelling unit which is used by the taxpayer during the taxable year as a residence.”2 Section 280A(c)(l), as recently amended, sets forth an exception to this general disallowance3 by providing that: (1) Certain business use. — Subsection (a) shall not apply to any item to the extent such item is allocable to a portion of the dwelling unit which is exclusively used on a regular basis— (A) [as] the principal place of business for any trade or business of the taxpayer, (B) as a place of business which is used by patients, clients, or customers in meeting or dealing with the taxpayer in the normal course of his trade or business, or (C) in the case of a separate structure which is not attached to the dwelling unit, in connection with the taxpayer’s trade or business. In the case of an employee, the preceding sentence shall apply only if the exclusive use referred to in the preceding sentence is for the convenience of his employer. Congress enacted section 280A to provide "definitive rules relating to deductions for expenses attributable to the business use of homes.” S. Rept. 94-1236 (Conf.) (1976), 1976-3 C.B. (Vol. 3) 807, 839. Also see H. Rept. 94-658 (1976), 1976-3 C.B. (Vol. 2) 695, 852; S. Rept. 94-938 (1976), 1976-3 C.B. (Vol. 3) 49, 185; Joint Comm. Explanation of the Tax Reform Act of 1976, 1976-3 C.B. (Vol. 2) 1, 151. Prior to the enactment of section 280A, we employed an "appropriate and helpful” standard in determining whether a home-office deduction was proper.4 Congress, in specifically rejecting that standard, opted for a less "subjective determination” and set out clear rules in order to alleviate administrative burdens which it believed were inherent in such a standard. H. Rept. 94-658, supra, 1976-3 C.B. (Vol. 2) at 852, S, Rept. 94-938, supra, 1976-3 C.B. (Vol. 3) at 185, and Joint Comm. Explanation, supra, 1976-3 C.B. (Vol. 2) at 151. Congressional dissatisfaction with the "appropriate and helpful” standard, however, was not limited to administrative problems; Congress also felt that such a standard would treat personal living expenses as ordinary and necessary business expenses.5 H. Rept. 94-658, supra, 1976-3 C.B. (Vol. 2) at 852; S. Rept. 94-938, supra, 1976-3 C.B. (Vol. 3) at 185; Joint Comm. Explanation, supra, 1976-3 C.B. (Vol. 2) at 151. Congress has seldom spoken with a clearer or more forceful remedial purpose. It was particularly concerned to disallow residential expenses where the dwelling was used by the taxpayer to finish up the day’s work — to continue doing at home essentially what he did at the office. See H. Rept. 94-658, supra, 1976-3 C.B. (Vol. 2) at 852; S. Rept. 94-938, supra, 1976-3 C.B. (Vol. 3) at 185; Bodzin v. Commissioner, 60 T.C. 820 (1973), revd. 509 F.2d 679 (4th Cir. 1975), cert. denied 423 U.S. 825 (1975). Thus section 280A(c)(1)(A) and (C) provides that use by the taxpayer affords a deduction only when the dwelling unit is the taxpayer’s principal place of business, or a separate structure used in connection with the taxpayer’s trade or business. Sandwiched directly between these two exceptions is the one before us that — in sharp contrast — requires use by patients, clients, or customers. In these three exceptions, Congress deliberately distinguished between use by the taxpayers and use by patients, clients, or customers. In making use by patients, clients, or customers the focal point of the exception before us, Congress had something more in mind than some incoming phone calls. Congress obviously contemplated the practice of physicians, dentists, or other medical personnel who sometimes have a treatment facility in their home. And of course, the provision is not confined to medical services, but encompasses a wide variety of situations, including a barber or beautician providing services in an area of his home, or a businessman who sees customers at his home on a regular basis. But quite clearly, the statute contemplates the physical presence of the patient, client, or customer. The majority seems to recognize this when it states: No doubt the typical situation the drafters of section 280A(cXlXB) had in mind was the doctor, the dentist, or the lawyer who maintains a home office, in addition to his principal office, where he meets with patients or clients. The meeting-or-dealing provision for allowance, however, is not limited to professional persons * * * I agree with the specific words of the majority that what Congress "had in mind was the doctor, the dentist, or the lawyer who maintains a home office * * * where he meets with patients or clients” (i.e., is physically present). Majority opinion at p. 434; emphasis added. Congress required no less when it included nonprofessionals of various kinds, even though it used the terms "dealing with” to describe these individuals.6  If the statute simply said used by patients, clients, or customers "in meeting with the taxpayer” (rather than "in meeting or dealing with the taxpayer” (emphasis added), there could be no doubt that physical presence is required — the word "meet” unequivocally requires physical presence and is clearly not satisfied by telephone calls. While this was surely Congress’ intention in using the words "meeting with the taxpayer,” the majority tells us that the addition of the words "or dealing with the taxpayer” nullifies this intent, eliminating the need for physical presence. "Meeting,” with its requirement of physical presence, becomes largely a superfluous word under this odd interpretation. I would avoid a construction that eliminates the need for physical presence that is clearly contemplated by the statute. The majority’s reading of the statute, enabling the exception to take a large bite out of the general rule, undermines the congressional goal in enacting section 280A. Congress enacted "definitive rules” in order to provide a "less subjective” determination. Clear rules, it was hoped, would alleviate administrative problems inherent in a subjective standard. Requiring that the dwelling be used by individuals other than the taxpayer (i.e., his patrons), provides a concrete standard objectively verifiable. For when patients, clients, or customers must deal with a doctor or dentist, a barber or beautician, or a lawyer or businessman at the latter’s home office on a regular basis, there will be books and/or business records, and bills for services, reflecting the business usage.7  In contrast, all we have before us is the bare assertion of the taxpayer — whose employer provided an office and a secretary — that he received business phone calls at home in the evening. What businessman doesn’t? Insurance salesmen and real estate brokers, home improvement contractors and television repairmen, physicians and clergymen — indeed, the majority of those in sales and services — regularly make and receive business calls at home. But we are here concerned not with telephone expenses, but home-office expenses. The majority opinion does belatedly recognize that the central requirement of the exception is use "by patients, clients, or customers in meeting or dealing with the taxpayer.” Almost as an aside, near the end of the opinion (note 11), the majority relegates the central to the incidental: The statute requires that the place of business be "used by * * * clients in meeting or dealing” with the taxpayer. The syntax here may suggest that it must be the clients who initiate the meeting or dealing. In the instant case, the telephone calls were nearly exclusively initiated by the clients; to make such calls, the callers in every real sense "used” both their telephones and petitioner’s telephone and the office space in which he handled the calls. Petitioner would, therefore, qualify under a literal reading of this requirement. * * * Here, the majority finally focuses on the critical words — "used by patients, clients, or customers.” But Congress was surely not at all concerned with who initiates the business encounter, but the nature of the business encounter. Certainly there is no statutory requirement that "in meeting” with the taxpayer, the patients, clients, or customers initiate the meeting. Is client initiation important only in "dealing with” as opposed to "meeting with” the taxpayer, even though both words ("meeting” and "dealing”) follow the words "used by patients, clients, or customers”? This emphasis on client initiation is entirely foreign and wholly unrelated to the structure of the statute and to any remedial purpose Congress had in mind in enacting it. It simply serves as the only ship the majority saw on the horizon for circumnavigating the requirement that the dwelling be "used by the patient, client, or customer.”8  In the final analysis, one word in a statute, like one joist under a floor, can only carry so much weight before collapsing. That collapse comes here when the majority tells us that in making the client-initiated calls, "the callers in every real sense 'used’ both their telephones and petitioner’s telephone and the office space in which he handled the call.” (Emphasis added.) Fictions are occasionally the raw material of the judicial process, and we should seldom be surprised at the metaphysical products of legal literature. Nevertheless, it startles me (and no doubt the typical patient) to learn that "in every real sense” when I call my physician at home, I not only use my telephone but his, and not only his telephone, but the "space in which he handled the call,” even though I have not the slightest notion where in his dwelling this transpired. And Congress is entitled to ask how did such a bizarre analysis result from a statute specifically designed to provide "definitive rules” producing a less "subjective determination,” alleviating administrative burdens, and precluding the deduction of personal living expenses. Judge Learned Hand once reminded us that "the meaning of a sentence may be more than that of the separate words, as a melody is more than the notes, and no degree of particularity can ever obviate recourse to the setting in which all appear, and which all collectively create.” Helvering v. Gregory, 69 F.2d 809, 811 (2d Cir. 1934), affd. 293 U.S. 465 (1935). The word "dealing” is only one note in a carefully constructed melody. The majority has heard the note but not the melody. Tannenwald, Scott, Simpson, Chabot, and Parker, JJ, agree with this dissenting opinion. Chabot, J, dissenting: The majority hold that when a customer telephones the taxpayer, the customer is using the room in which the taxpayer answers the telephone. Respectfully, I dissent. In enacting section 280A, I.R.C. 1954, the Congress sought to restrict the deductibility of "home office” expenses. In order to be allowed the deduction, the taxpayer is required by the Congress to meet a series of tests. One of these conjunctive tests is embodied in section 280A(c)(l)(B), that "a portion of the dwelling unit * * * is exclusively used on a regular basis — (B) as a place of business which is used by patients, clients, or customers in meeting or dealing with the taxpayer in the normal course of his trade or business.” (Emphasis supplied.) The majority’s holding treats the statute as though subpara-graph (B) read as follows: (B) as a place of business which is used by the taxpayer in meeting or dealing with patients, clients, or customers in the normal course of the taxpayer’s trade or business * * * One may agree with, or quarrel with, the policy of the majority’s view of the statute, but that is not what the Congress wrote and enacted. I do not believe the Congress thought that the use-by-the-taxpayer’s-customer test could be satisfied merely by the taxpayer’s receiving a telephone call. I do not believe the language of the statute or the legislative history suggests (much less requires) this result. I would not reach this result under section 280A as enacted by the Congress. Scott, Wilbur, Nims, and Parker, JJ., agree with this dissenting opinion.  Sec. 601, Tax Reform Act of 1976, Pub. L. 94-455,90 Stat. 1520,1569-1572.   Sec. 280A(b) provides that "subsection (a) shall not apply to any deduction allowable to the taxpayer without regard to its connection with his trade or business (or with his income-producing activity).”   Other exceptions to the general disallowance provision of sec. 280A(a) are set forth in sec. 280A(cX2), (3), and (4).   Bodzin v. Commissioner, 60 T.C. 820 (1973), revd. 509 F.2d 679 (4th Cir. 1975), cert. denied 423 U.S. 825 (1975), but see Sharon v. Commissioner, 66 T.C. 515 (1976), affd. per curiam 591 F.2d 1273 (9th Cir. 1978), cert. denied 442 U.S. 941 (1979), in which we overruled Bodzin. See also H. Rept. 94-658 (1976), 1976-3 C.B. (Vol. 2) 695,849-850; S. Rept. 94-938 (1976), 1976-3 C.B. (Vol. 3) 49, 183; Joint Comm. Explanation of the Tax Reform Act of 1976, 1976-3 C.B. (Vol. 2) 1,149, where Bodzin as well as other decisions of this Court are cited.   "In many cases, the application of the appropriate and helpful test would appear to result in treating personal, living, and family expenses which are directly attributable to the home (and therefore not deductible) as ordinary and necessary business expenses, even though those expenses did not result in additional or incremental costs incurred as a result of the business use of the home. Thus, expenses otherwise 'considered nondeductible personal, living, and family expenses might be converted into deductible business expenses simply because, under the facts of the particular case, it was appropriate and helpful to perform such portion of the taxpayer’s business in his personal residence.” (H. Rept. 94-658, supra, 1976-3 C.B. (Vol. 2) at 852; S. Rept. 94-938, supra, 1976-3 C.B. (Vol. 3) at 185.)   I also agree with the implication of the majority that in including businessmen (as well as a professional who, in the words of the majority, "meets with patients or clients” (emphasis added)), Congress may well have selected "dealing with” as a more appropriate term to describe business relationships.   And these records will reflect "the gross income derived from such use” for purposes of applying the limitation on deductions prescribed by sec. 280A(cX5XA). It is not clear how the majority will, in a case like this one, determine how much gross income was derived from the business use (i.e., telephone calls) involved.   The majority tells us the proposed regulations fail to state that such meetings must be in person. What other kinds of meetings are there? Prior to this case, it would have taken an imaginative draftsman to realize that the regulations should deal with telephone calls. The proposed regulation does require that the use of the dwelling by patients be "substantial and integral” to the taxpayer’s business, concluding that "Occasional meetings are insufficient.” If occasional meetings are insufficient, what does this imply about telephone calls? Certainly not what the majority suggests. (Sec. 1.280A-2(c), Proposed Income Tax Regs. Emphasis added.)