Court Opinion

ID: 4484727
Source: CourtListenerOpinion
Date Created: 2020-01-16 21:16:57.316849+00
Date Added: 2024-06-11T12:05:43.046867
License: Public Domain

Wilbur, J., dissenting: I respectfully dissent. Petitioner was a concert musician during the taxable years 1976 and 1977. In addition to performing with the Metropolitan Opera at Lincoln Center, the New York City parks, and the various cities in which the Metropolitan performed while on tour, petitioner performed for 49 days each summer in 1976 and 1977 in Chautauqua, N.Y. During those years, petitioner also spent numerous hours rehearsing, practicing, and reviewing in his effort to maintain, refine, and perfect his skill. Petitioner contends that his principal place of business was his studio where he conducted this continuous and unceasing work of his trade or business, the trade or business of a professional musician, and that the Lincoln Center, the New York City parks, Chautauqua, and the facilities in tour cities were simply the places where the fruits of his work surfaced. I agree. It may be that in the commercial world, the principal place of business is (as the majority again holds) where the goods or services are exchanged. But this is not always the case, particularly as commerce in the "business” sense becomes more remote. Surely the principal place of business of the author-lecturer is not the place where the rights to his works are transferred or the lectures delivered. Cf. Gestrich v. Commissioner, 74 T.C. 525 (1980), affd. without published opinion 681 F.2d 805 (3d Cir. 1982). Rather it is where he continually and regularly devotes his time and effort. The painter does not consider that the principal place of his activities is where his paintings are sold or exhibited; rather it is where he uses his extraordinary skill practicing, experimenting, revising, and perfecting his craft to produce the many works of art that are then shown to the public through an exhibit or sold. Similarly, a classical musician may give performances on the guitar, violin, piano, or flute at various performing art centers. But surely, the studio where the musician perfects his craft during countless hours of meticulous, intense, and concentrated practice is his principal place of business rather than the auditorium where he exhibits his skills. In this vein, I do not agree that the principal place of a concert musician’s activities is necessarily one or more of the places where his performances take place. In a case where there are several places of business, as in the case at bar where, at one place, petitioner plays without the benefit of an audience, practices, studies, and reviews scores on a regular basis, and at several others, plays with the benefit of an audience, the principal place of business is the one of primary or leading significance to the taxpayer in performing his business functions. It is where the majority of his business activities ate accomplished. From a careful examination of the entire record and the legislative objective of section 280A, it is clear that petitioner’s home studio was the principal place of his trade or business as a concert musician. Petitioner spent most of his workday reviewing musical scores, practicing his musical skills, and perfecting his parts of numerous operatic scores. Petitioner’s procedures were absolutely necessary to the maintenance and further development of his professional skills. Admittedly, bare necessity is not enough to satisfy section 280A. However, when the necessary parts, the fundamental parts, of the work in a trade or business occur principally at one place, that place is the principal place of the trade or business. In this case, petitioner spent the necessary parts, the fundamental parts, of his work as a professional concert musician principally at his studio, and the several places of performance were the places where his skills were exhibited. This accords with the purpose Congress had in mind in enacting section 280A. The vast majority of individuals, whether employed or self-employed, work at an office, school, hospital, store, factory, or other facility, Monday through Friday, 9 a.m. to 6 p.m., 50 weeks a year, holidays excepted. Yet prior to the enactment of section 280A, a lawyer employed by a corporation or Government agency was able to deduct a portion of the costs of his personal dwelling if he completed work at home that was not finished at the office. See Bodzin v. Commissioner, 60 T.C. 820 (1973), revd. 509 F.2d 679 (4th Cir. 1975), cert. denied 423 U.S. 825 (1975). Congress specifically focused on this situation (H. Rept. 94-658 (1976), 1976-3 C.B. (Vol. 2) 695, 850; S. Rept. 94-938 (1976), 1976-3 C.B. (Vol. 3) 49, 145) in fashioning the remedial legislation of section 280A and in using the words "principal place of business.” Under any sensible criteria, the principal place of business of nearly all taxpayers is the school, office, hospital, store, or other physical facility where they toil regularly, day after day, week after week, year after year. Thus, an elementary school teacher has a classroom in a school where she teaches, day in and day out, with free periods when her class is at gym and music. The school day is from 8 a.m. to 4 p.m. at a local high school where a math teacher teaches six periods, with one period for lunch and one free period for planning. If these teachers fail to complete their lesson plans during their free periods, they may, like the lawyer in Bodzin, finish them at home. In these and similar cases, Congress clearly intended to deny a home office deduction.1  Similarly, an individual running a prosperous hot dog stand on a busy street of a major city will toil at that facility every business day. At that retail establishment, supplies are delivered, bills are received, employees work and are supervised, and customers are served. There, all products are packaged and sold, and all gross receipts received. Accordingly, that location is the principal place of business, even though some of the food is prepared in the personal kitchen of the taxpayer’s residence at the end of the business day. And this, of course, would be true whether the basic product at a franchise location is hot dogs, hamburgers, or pizza. See Baie v. Commissioner, 74 T.C. 105 (1980).2  The circumstances of a concert musician are uniquely different. Aside from his musical instrument, nothing is more essential to a concert musician than his studio. There he keeps his skills finely tuned, learns new parts, reviews difficult passages, and perfects his performance of the music he will play for the public. He listens to performances — his own and others — on tapes or records. When he plays at various concert halls (solo, in a string quartet, or in an orchestra) we hear the end result of all these efforts. Petitioner exhibits his skills principally with the Met, but in the final analysis, he should not be treated differently from other classical musicians. He is a performing artist exhibiting his talents at various facilities — the Lincoln Center, the concert halls in various tour cities, the New York City parks, and Chautauqua.3 The Lincoln Center was the principal artistic center where his skills were exhibited to the public (as one gallery may be the principal facility where an artist’s paintings are exhibited), but the question here is where his principal place of business is. The majority erroneously equates the term "principal place of business” with the principal place of public performance. Similarly, respondent was wrong in originally suggesting that the Met is petitioner’s principal place of business. The Met is an organization, not a physical location. Respondent’s final position is that petitioner’s principal place of business "was wherever the Met Orchestra rehearsed or performed, whether it be at Lincoln Center, the various tour cities visited during the tour or the park performances which the orchestra played.” This ubiquitous view — which ironically enough leaves out only Chautauqua — serves only to demonstrate the absurdity of equating a concert hall with the market place in the case of a concert musician. Unfortunately, this is precisely the error the majority commits. A performing artist in petitioner’s circumstances is not even a piece of the evil Congress sought to remedy in enacting section 280A. Abraham Marcus, orchestra manager of the Met, made it clear that not only was it presumed, but it was expected that petitioner would continually and unceasingly practice on an individual basis,4 and such individual work was required to perform in the manner in which the position demanded. This intense and concentrated year-round practice on an individual basis, required of any truly successful concert musician, was also required to enable petitioner to perform at Chautauqua for 49 days (the better part of 2 months) during the summer, for which he earned a significant portion of his performance income (approximately 17 percent in each year). Nothing more graphically illustrates the fundamental misconception the majority has of a musician’s life than its statement that petitioner "did not use his apartment when practicing for the Chautauqua performances.” The Metropolitan Opera House at Lincoln Center was the facility where the Met most often performed while in New York City, but it did not contain studios where any of the 93 musicians in the orchestra could practice on an individual basis, and the Met did not provide a facility for that integral, fundamental, and principal aspect of the concert musician’s work. Thus, petitioner is quite different from the university professor5 (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; Staff of the Joint Comm, on Taxation, 94th Cong., 2d Sess., General Explanation of the Tax Reform Act of 1976, 1976-3 C.B. (Vol. 2) 151), and the real estate salesmen who merely exercise a personal preference by using an area of their home rather than the other facilities available to them. The demarcation of the term "principal place of business” is seldom an easy one. But line drawing is the daily grist of judicial life, and we should not make it easier by drawing a circle so large that the difficult cases jiist outside the perimeter simply disappear within. Congress expects no such mechanical performance and Justice Holmes has admonished us not to be "troubled by the question where to draw the line. That is the question in pretty much everything worth arguing in the law.” Irwin v. Gavit, 268 U.S. 161, 168 (1925). Congress has given us the pencil for individual cases along with a general schematic outline that surely does not include a concert musician in petitioner’s circumstances. Since his quite unique circumstances are no part of the evil Congress envisioned, we should not draw him into any judicial picture of section 280A. The majority sees the facts pretty much the same way. "As a professional musician,” the majority states, "petitioner was required to practice numerous hours in order to maintain, refine, and perfect his skill.” We are told that "His practice was admittedly essential to maintain his technical expertise and to learn or review the particular music to be played.” Indeed, "orchestra employees were expected to practice individually off the premises. Practice was necessary as a practical matter in order for petitioner to carry out his obligations to the Met.” Joint rehearsals were "essential,” in the majority’s words, to enable the Met to maintain "its performance quality,” but, "Of even more importance to petitioner, he, himself, was judged at each rehearsal. His retention of his job depended on the quality of his playing at rehearsals as well as at the public performances.” (Emphasis added.) In other words, insufficient practice to enable him to perform at the highest level would have cost petitioner his job. The item of fundamental importance to petitioner’s job as a concert musician was his ability to play up to the extremely high standards his position demands, and he was required to spend the greater part of his time practicing in his studio in order to meet these extremely high standards.6 Since he spent the greater portion of his time practicing in his studio, and since this was of fundamental importance to his success as a musician (the "retention of his job” to quote the majority), petitioner’s studio was his principal place of business. Accordingly, my disagreement with the majority is not over the facts, but the law. Section 280A(c)(l) permits a deduction for a home office (studio) when it is "the principal place of business” of any trade or business of the taxpayer. We must look at "all the facts and circumstances” to determine which place of business, in light of the activities performed there, is most important to petitioner’s trade or business. See sec. 1.280A-2(b)(2), Proposed Regs., 45 Fed. Reg. 52399 (Aug. 7, 1980). Based on the factual picture seen by both the majority and dissenters, the intense and continuous individual practice on a year-round basis is the most important contributing factor to petitioner’s success as a concert musician. If the majority followed the statute, this conclusion would be unavoidable. Unfortunately, this Court has its own test that permits a deduction for a home office (studio) only when it is "the focal point of the taxpayer’s activities.” See Baie v. Commissioner, 74 T.C. 105 (1980). As noted earlier, we correctly held in Baie that a fast food franchise (the "Gay Dog”) was petitioner’s principal place of business although she prepared some food in her home kitchen. In Baie, we reached the right result for the wrong reason, creating a "source of income” or "focal point’* test. Since the sales "generated her income” and the "sales occurred on the premises of the 'Gay Dog,”’ we held that those premises were the "focal point” of her activity. 74 T.C. at 109, 110. Unlike the test prescribed by Congress, the focal point test places great emphasis "on the source of income to determine the focal point.” See Kulsrud, "New Statutory and Judicial Developments Have Liberalized Home-Office Deductions,” 56 J. Tax. 344, 347 (1982). Cf. Chauls v. Commissioner, T.C. Memo. 1980-471.7  But commerce is not culture, and the sound of the cash register, however sweet, is not the music of the violin. Nevertheless, as in Baie and its offspring, the majority focuses on the source of income to determine "the focal point,” stating: A day of missed practice would not be known to the employer. But a missed rehearsal or performance normally would result in his pay being docked. [Emphasis added.] This focal point focus on the cash register leads to other errors. "The most important business location,” according to the majority, "was the place where public performances were held.” (Emphasis added.) (It is here that tickets are sold and redeemed for professional services — the "business” of the Met — and that petitioner is docked for a no-show). Of importance to the majority is the physical presence of the artist in the spotlight of the arena, where he is watched and "judged by the public,” and we are told that the "sole reason for the existence of this orchestra was to perform as a group for the public.”8  It is clear that the "focal point test,” as applied by the majority, sharply restricts the scope of the statute. In focusing on the place where goods and/or services are transferred to customers and clients, the majority makes the "principal place of business” test (sec. 280A(c)(l)(A)) to a significant extent coextensive with the exception for meeting or dealing with customers and clients (sec. 280A(c)(l)(B)). If the business exchange activities the majority focuses on in applying the focal point test (sec. 280A(c)(l)(A)) occur in a home office, it probably already qualifies under section 280A(c)(l)(B) as customers and/or clients would be dealt with. Indeed, since we have broadly interpreted the section 280A(c)(l)(B) exception for meeting or dealing with clients to include a room at home where a taxpayer talks over the phone to customers (see Green v. Commissioner, 78 T.C. 428, 433 (1982)), any home office that qualifies under the focal point test of the majority (with its emphasis on the point of business exchange) generally will already have qualified due to client or customer contact. The focal point test, as applied to this case, imposes the most narrow barriers. Petitioner was a concert musician. He was not compensated simply for performing; he was compensated for performing with complete mastery. Like the author or the artist, petitioner was not simply compensated for the final moments of the long hours he worked every day; he was compensated for the time he worked maintaining, refining, and perfecting his professional skills on a year-round basis, as well as for exhibiting those skills. In arguing otherwise, one may as well contend that a trial lawyer is compensated solely for his appearance in court.91 would hold for petitioner. Fay, Dawson, Goffe, Kórner, and Shields, JJ., agree with this dissenting opinion.  See Besch v. Commissioner, T.C. Memo. 1982-15 (elementary school principal); Strasser v. Commissioner, T.C. Memo. 1981-523 (university professor); Weightman v. Commissioner, T.C. Memo. 1981-301 (university professor); Cousino v. Commissioner, T.C. Memo. 1981-19, affd. 679 F.2d 604 (6th Cir. 1982); (junior high school teacher); Chauls v. Commissioner, T.C. Memo. 1980-471 (music teachers); Kostin v. Commissioner, T.C. Memo. 1980-341 (physical education teacher and track and field coach). See also Jackson v. Commissioner, 76 T.C. 696 (1981).   It is, of course, possible that a taxpayer may own several hot dog or hamburger stands or Pizza Huts, each run by a manager. If the taxpayer has a central office from which the businesses are collectively managed, the central office may be his principal place of business, rather than one or more of the retail facilities. Not surprisingly, it is often the close cases presenting the greatest difficulty that are litigated. In the final analysis, the appropriate resolution depends on all of the facts and circumstances presented.   In the years before us, the W-2 forms attached to petitioner’s returns show small amounts of income from sources in addition to the Met or Chautauqua institutions. He received income in 1976 from Amato Opera Theatre, Inc., New York City, and in 1976 and 1977 from the Phonograph Record Manufacturers Special Payment Fund. Nearing the twilight of his career, petitioner may have curtailed his activities somewhat more than the typical concert musician playing (as he does) at the highest level.   A musician without the benefit of sufficient individual work could affect and disrupt the entire 93-member orchestra.   See note 1 supra.   Petitioner performed between 25 and 26 hours per week at the Met facility at Lincoln Center for slightly more than one-half of the year (about 30 weeks). This includes the "rehearsals” at the Met that the majority correctly notes were of "the entire 93-piece orchestra, differing from a performance principally due to the absence of an audience.” Conversely, petitioner practiced on an individual basis approximately 30 hours per week for the entire year. This practice occurred in his home studio, except when he was on tour or at Chautauqua (when he practiced in his hotel room or an apartment). Those facts are not in dispute, and the majority notes that in quantitative terms, petitioner’s individual practice in his home studio was predominant whether we include only his Met activities or also include Chautauqua. And this seems odd since the majority places great weight on its assertions that Chautauqua (where petitioner earned 17 percent of his income during nearly 2 months) had nothing to do with petitioner’s trade of being a musician and required none of his year-round practice. Ignoring Chautauqua on this record seems peculiar, but of no great moment, since, in either case, petitioner’s individual practice was his most important activity in both quantitative and qualitative terms.   Chauls v. Commissioner, T.C. Memo. 1980-471, was correctly decided in part for the right reasons, and in part for wrong reasons. The wrong reason was the following application of the focal point test: "in the Baie case, it was the taxpayer’s sale of her product that generated the income * * * . Similarly, here it was petitioner’s teachings of classes that generated his income.”   No doubt this is where the public (the "consumers” of petitioner’s services) focus their attention on petitioner’s performance. But it is a non sequitur to conclude that his principal place of business necessarily coincides with this public focal point. Is the courtroom the most important business location of a trial lawyer, even when he works on a contingent fee basis? This is where the spotlight focuses on his performance as a trial lawyer (the public focal point) and where the payoff is, but isn’t preparation infinitely more important? Isn’t practice in the studio more important to a concert violinist or pianist giving solo performances on tour or touring with a string quartet? Surely, his principal place of business is his studio and not the various concert halls he plays in, although the spotlight focuses on his performance in the concert hall where he is watched by and judged by the public. That petitioner plays in an orchestra rather than solo, or in a string quartet, should make no difference.   AIthough an allocation as such is not part of the record, since the gross income so far exceeds the deductions taken by petitioner with respect to his home studio, any reasonable allocation would satisfy sec. 280A(c)(5). See H. Rept. 94-658 (1976), 1976-3 C.B. (Vol. 2) 695, 853-854; S. Rept. 94-938 (1976), 1976-3 C.B. (Vol. 3) 49, 187; and Staff of the Joint Comm, on Taxation, 94th Cong., 2d Sess., General Explanation of the Tax Reform Act of 1976, 1976-3 C.B. (Vol. 2) 1,153.