Court Opinion

ID: 9481676
Source: CourtListenerOpinion
Date Created: 2023-08-05 08:28:09.898232+00
Date Added: 2024-06-11T17:48:30.239182
License: Public Domain

PHILLIPS, Circuit Judge,
dissenting:
The majority affirms the Tax Court’s adoption and application of its new “facts and circumstances” test for determining a taxpayer’s principal place of business under Internal Revenue Code § 280A. Because I believe the “facts and circumstances” test misconstrues the meaning of § 280A, I respectfully dissent.
Section 280A opens with the “general rule” 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.” 26 U.S.C. § 280A(a). Section 280A(c), however, provides several exceptions to that general rule for certain kinds of “business use.” Critical here is the exception that allows deduction to the extent that any portion of a dwelling unit is “used on a regular basis [as] the principal place of business for any trade or business of the taxpayer.” 26 U.S.C. § 280A(c)(l)(A) (emphasis added). The issue here is narrowly and simply whether Soliman’s home office use came within this “principal place of business” exception.
Adopting the Tax Court’s new “facts and circumstances” test as the law of this circuit, the majority concludes that a home office can be a taxpayer’s “principal place of business” if “management or administrative activities are essential to the taxpayer’s trade or business and the only available office space is in the taxpayer’s home.” At 54. Because Soliman’s home office was essential to his business, he spent a substantial amount of time there, and there was no other location where he could perform the office functions of his business, the Tax Court found and the majority agrees that Soliman’s home office was his “principal place of business.”
I disagree with this approach. Under the plain language of § 280A(c)(l)(A), a taxpayer can only have one “principal place of business.” See Pomarantz v. Commissioner, 867 F.2d 495, 496 (9th Cir.1988). Section 280A does not in terms allow a taxpayer to deduct home office expenses any time those expenses are essential to his business. As the dissenting judges in the Tax Court’s decision point out, the “facts and circumstances” test eliminates any need for comparing a taxpayer’s use of several business locations to determine which constituted his “principal place of business.” See Soliman v. Commissioner, 94 T.C. 20, 33, 35 (1990) (Nims, J., dissenting) and (Ruwe, J., dissenting). They thought, and I agree, that the term “principal place of business” compels an inquiry directed to that specific question— which is the one that is “principal.” Otherwise Congress could have used language such as “essential place of business” or “necessary place of business.”
All three of the cases relied on by the majority in which circuit courts have concluded that a taxpayer’s home office was *56his “principal place of business” are distinguishable from Soliman’s case. Unlike this case, they involve situations where the taxpayer spent the majority of his time in his home office, or did his most important work there, or both. See Meiers v. Commissioner, 782 F.2d 75, 79 (7th Cir.1986) (taxpayer “spent most of her time in the home office and performed what may be her most important functions as a manager there”); Weissman v. Commissioner, 751 F.2d 512, 516 (2d Cir.1984) (taxpayer spent 80% of his work time in his home office); and Drucker v. Commissioner, 715 F.2d 67, 69 (2d Cir.1983) (“[b]oth in time and in importance, home practice was the ‘focal point’ of the appellant musicians’ employment-related activities.”). In each of these decisions, the circuit court compared business locations to see which one qualified as the principal place of business. As the dissenting Tax Court judges in this case both recognized, those decisions actually provide more proper tests for locating the principal place of business than does the amorphous “facts and circumstances” test. Chief Judge Nims proposed a “time and importance” modification of the “focal point” test. Under it the courts would continue to apply the “focal point” test— which defines the “focal point” as the place where the taxpayer provides goods and services and generates revenue — except “in the rare situation where in time and importance the home office itself became the focal point of the taxpayer’s activities.” Soliman v. Commissioner, 94 T.C. 20, 32 (1990) (Nims, J., dissenting). Judge Ruwe suggested a test under which a taxpayer’s principal place of business would be “the place where the dominant portion of the taxpayer’s work is accomplished.” Id. at 41 (Ruwe, J., dissenting). With those dissenting judges, I believe that either of these tests is more consistent with the meaning of § 280A(c)(l)(A) than is the Tax Court’s new, more open-ended one.
It is undisputed that Solimán does not spend the majority of his time at his home office. He also does not do his most important work — treating patients — at his home office. Although Soliman’s home office work is essential to his business, this should not mandate a finding that the home office is his principal place of business. In a quite similar ease, the Ninth Circuit recently concluded that an emergency care physician’s home office was not his “principal place of business” under § 280A. See Pomarantz v. Commissioner, 867 F.2d 495 (9th Cir.1988). The Ninth Circuit ruled that Pomarantz could not deduct home office expenses because
he consistently spent more time on duty at the hospital rather than at home. The essence of his profession is the hands-on treatment of patients which he did only at the hospital and never at home. Finally, he generated income only by seeing patients at the hospital not studying or writing at home.
Id. at 497-98. I would apply this very reasoning to find that Soliman’s home office was not his principal place of business.
In sum, I would not adopt the “facts and circumstances” test as the law of this circuit. It avoids what I think a fair application of § 280A(c)(l)(A) flatly compels: a comparison of the uses of multiple business locations to determine which is the principal place of business of a taxpayer. It does so by requiring courts to weigh so many factors that great uncertainty in the application of this critical tax concept is bound to result. Cf. Cadwallader v. Commissioner, 919 F.2d 1273, 1275 (7th Cir.1990) (noting “vagaries” of the “ ‘all relevant factors’ laundry list” used by the Tax Court in Solimán). Because Solimán spends the majority of his time and does his most important work away from his home office, I would reverse.5

. The majority cites Proposed Income Tax Reg. § 1.280A — 2(b)(3), 45 Fed.Reg. 52399 (Aug. 7, 1980), as amended, 48 Fed.Reg. 33320 (July 21, 1983), in support of its decision. As the majority recognizes, this proposed regulation is not binding precedent on the Tax Court or this *57court. Moreover, the proposed example the majority cites from the regulation specifically applies to "outside salesperson[s]” who do not spend any large portion of their time in one particular location. Although these salespersons spend more time on the road than in their home offices, they may spend more time at their home offices than in any one particular place that they sell goods. Solimán, in addition to spending the majority of his time at the hospital, spent more time at one of the three hospitals, Suburban Hospital, than he spent at his home office. Thus, his home office is not the base for his business in the same way that it would be for a salesperson.