Court Opinion

ID: 4486394
Source: CourtListenerOpinion
Date Created: 2020-01-16 21:34:24.109923+00
Date Added: 2024-06-11T14:50:34.618326
License: Public Domain

RUWE, J., dissenting: I respectfully disagree with the majority’s conclusion that petitioner is entitled to a home office deduction under section 280A. Section 280A generally denies deductions related to a home office unless certain conditions are met. The condition in question in this case is whether petitioner’s home office was his “principal place of business” within the meaning of section 280A(c)(l)(A). It is clear that a taxpayer can have only one principal place of business for each business in which he is engaged. Pomarantz v. Commissioner, 867 F.2d 495, 496 (9th Cir. 1988), affg. T. C. Memo. 1986-461; Drucker v. Commissioner, 79 T.C. 605, 612 (1982), revd. on other grounds 715 F.2d 67 (2d Cir. 1983). The majority ostensibly overrules the “focal point” test for determining a taxpayer’s principal place of business. It does so on the basis of cases decided by the Second and Seventh Circuit Courts of Appeals which reversed opinions of this Court. I agree that the “focal point” test, as previously applied by this Court, can place undue emphasis on where the taxpayer’s activities are most visible, where he physically meets and deals with customers, and where goods and services are ultimately exchanged for income.'1 Nevertheless, when a taxpayer has two or more places of conducting business it is incumbent upon us to specify a standard which can be applied in determining which is the principal place of business. The circuit courts that have rejected the “focal point” test have held that a taxpayer’s principal place of business for purposes of section 280A is “the place where the dominant portion of his work is accomplished.” Weissman v. Commissioner, 751 F.2d 512, 514 (2d Cir. 1984), revg. a Memorandum Opinion of this Court; Meiers v. Commissioner, 782 F.2d 75, 78-79 (7th Cir. 1986), revg. a Memorandum Opinion of this Court. I agree that this is the appropriate test. The majority, however, does not adopt this test. In fact, nowhere in the majority opinion is this test even mentioned. The majority opinion sets forth various factors to be considered in making its determination. However, the majority fails to use these factors to compare petitioner’s several places of business in order to determine where “the dominant portion of his work is accomplished.” Instead, the majority simply concludes that when “a taxpayer’s home office is essential to his business, he spends substantial time there, and there is no other location available to perform the office functions of the business” (majority opinion at p. 29), then the home office is the principal place of business. The majority eliminates the need to compare the importance of home office activities with the importance of activities at the other place of business or to compare the amount of time spent at the home office with the amount of time spent at the other place of business. Indeed, the majority eliminates the need to determine where “the dominant portion of [the taxpayer’s] work is accomplished.” In doing so, the majority takes the highly unusual step of overruling precedent in this Court on the basis of appellate court opinions and then disregarding the test articulated in those same appellate court opinions. In the three appellate court opinions in which this Court has been reversed for having applied a “focal point” test, it is obvious that a major factor relied upon by the circuit courts was the amount of time that the taxpayer spent at his various places of business. In Drucker v. Commissioner, supra, there was a factual finding that the taxpayer-musician spent the majority of his working hours in his home studio. In Weissman v. Commissioner, supra, it was found that the college professor spent 80 percent of the time devoted to his business in his home office. Finally, in Meiers v. Commissioner, supra, the taxpayer spent two-thirds of her business time in her home office. In Meiers, we held that the time spent at various business locations was not controlling, but instead, focused on the place where goods and services were provided to customers. Meiers v. Commissioner, T.C. Memo. 1984-607. In commenting on this, the Seventh Circuit stated that “we think a major consideration ought to be the length of time the taxpayer spends in the home office as opposed to other locations.” Meiers v. Commissioner, 782 F.2d at 79. The facts clearly show that in the instant case petitioner did not spend most of his business time at his home office. Instead, petitioner devoted most of his business time to practicing medicine at Suburban Hospital. The majority acknowledges that in Weissman v. Commissioner, supra, the Second Circuit considered the amount of time spent at the home office compared with the amount of time spent on campus2 to be the deciding factor (majority op. at 26 and 27). The majority states that “Such a comparison can be meaningful if the activities in the home office are similar to the activities at another place of business.” (Majority opinion at 26.) The majority infers that Professor Weissman’s campus activities were similar to those at his home office. The activities performed by Professor Weissman on campus and at his home office were not similar. The heart of the contest in Weissman v. Commissioner, supra, both in our opinion and in that of the Second Circuit, was that the taxpayer’s campus activities, including those at his campus office, were exclusively concerned with Professor Weissman’s classroom work (“where he taught, met with students, graded examinations, and prepared lectures.” Weissman v. Commissioner, 751 F.2d at 514), whereas his home office activities were exclusively related to research and writing. The Second Circuit’s only disagreement with our opinion was with respect to the relative importance of the different types of activities conducted on campus and at home. That is obviously why the court criticized our “focal point” test for placing undue emphasis on classroom activities. Weissman v. Commissioner, 751 F.2d at 514.3  The majority states that “If such a comparison [time spent at different places of business] were the determining standard, however, it would preclude the deduction approved of by the Secretary in his proposed regulations.” (Majority opinion at 26-27.) The proposed regulations, cited by the majority, say that an outside salesman’s home office may qualify as his principal place of business. The home office of an outside salesman, who spends most of his time visiting many different customers at different locations, might be his principal place of business in comparison with any other place. That situation has nothing to do with the facts in this case, and it is inappropriate to try to anticipate application of proposed regulations to facts that are not before this Court. In any event, it would be error to reject the test adopted by the Circuit Courts of Appeals because of a proposed regulation. Proposed regulations are not entitled to judicial deference. Natomas North America, Inc. v. Commissioner, 90 T.C. 710, 718 n. 11 (1988); North Ridge Country Club v. Commissioner, 89 T.C. 563, 579-580 (1987), revd. on other grounds 877 F.2d 750 (9th Cir. 1989); Laglia v. Commissioner, 88 T.C. 894, 897 (1987); Scott v. Commissioner, 84 T.C. 683, 690 (1985); F. W. Woolworth Co. v. Commissioner, 54 T.C. 1233, 1265-1266 (1970). The amount of time spent at the home office, while of major importance, is not necessarily the only consideration. Another is the importance of the business functions performed by the taxpayer in the home office. Meiers v. Commissioner, 782 F.2d at 79; Weissman v. Commissioner, 751 F.2d at 515; Drucker v. Commissioner, 715 F.2d at 69. Petitioner’s business was being an anesthesiologist. He administered to patients at the hospital and never met patients at his home office. His use of the home office to read medical journals, arrange his schedule, and perform billing activities was no doubt essential to his medical practice. However, if one were to rank the importance of those activities against the actual performance of medical services that took place exclusively during the 30 to 35 hours that he spent each week at the hospitals (24 to 28 at Suburban), there is no question that his hospital based activities were more important to his anesthesiology practice than his home office activities. In all the aforementioned appellate court opinions wherein this Court was reversed, there was a specific qualitative determination that the home office activities were at least as important to the taxpayer’s business as the activities performed away from the home office. The new test adopted by the majority makes no provision for weighing the relative importance of petitioner’s hospital activities versus his home activities.4  Even if we were to find that petitioner’s home office activities and his treatment of patients were of equal importance to his medical practice, existing precedent would still require us to decide which place of business was the one where “the dominant portion of his work is accomplished.” Weissman v. Commissioner, 751 F.2d at 514; Meiers v. Commissioner, 782 F.2d at 79. See Pomarantz v. Commissioner, supra. Comparing the amount of time petitioner spent working at his respective places of business clearly leads to the conclusion that Suburban Hospital was where petitioner spent most of his business time. In Pomarantz v. Commissioner, supra, we and the Ninth Circuit denied a home office deduction under circumstances strikingly similar to those in the instant case. Dr. Pomarantz was an emergency room physician. All of his treatment of patients occurred at the hospital where he spent about 33 to 36 hours per week. The hospital did not provide adequate office space. Dr. Pomarantz maintained a home office at which he kept an extensive medical library, business records, and copies of patient charts. He spent time at his home office reading medical publications, conducting patient followup activities, and performing business-related duties. In certain weeks, the time spent in home office business activities exceeded time spent at the hospital; but, in most weeks and as an average, he spent more time per week working at the hospital. We described Dr. Pomarantz’ home office activities as “clearly essential” to his medical practice. In denying the home office deduction, we held that under either the “focal point” test or the test applied in the Second and Seventh Circuits, the taxpayer’s principal place of business was at the hospital. In terms of importance the principal place or focal point of petitioner’s business was clearly the hospital. Petitioner diagnosed and treated injuries and illnesses, and consulted with patients, at the hospital. As a practicing physician, the hands-on treatment of patients is the essence of petitioner’s profession. Following up on patients whom he had treated was unquestionably an important part of his duties as a physician. Continuing education in a rapidly developing and changing area of medicine such as emergency care is also clearly essential. Nevertheless, we do not find that petitioner’s activities conducted in his home office were of sufficient importance to make it his principal place of business under section 280A(c)(l)(A). We have considered the fact that the hospital did not provide petitioner with adequate office space in which to read and study and to perform all patient follow up to the extent necessary. Furthermore, petitioner needed space in which to maintain corporate records. Nevertheless, these facts do not dissuade us from our conclusion that the hospital was the focal point of petitioner’s trade or business. Many professions require some work at home, but this does not make the home office the taxpayer’s principal place of business. Although his home office was appropriate and helpful, that is simply no longer the standard in light of the desire of Congress to restrict and clarify home office deductions via enactment of section 280A. [Pomarantz v. Commissioner, T.C. Memo. 1986-461, 52 T.C.M. 599, 602, 55 P-H Memo T.C. par. 86, 461 at 2131.] In affirming our opinion the Ninth Circuit held: Without adopting a specific standard, we believe that under any of these tests, the hospital, rather than the home, was Dr. Pomarantz’s principal place of business. 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. His home office was not his principal place of business within 26 U.S.C. §280A(c)(l)(A). [Pomarantz v. Commissioner, 867 F.2d at 497-498.] The majority attempts to distinguish Pomarantz by saying that Dr. Pomarantz “spent an insubstantial amount of time in his home office.” (Majority opinion at 27.) Neither this Court nor the Ninth Circuit Court of Appeals found that Dr. Pomarantz spent an insubstantial amount of time in his home office. The Ninth Circuit simply observed that Dr. Pomarantz “spent more time on duty at the hospital rather than at home. * * * ” Pomarantz v. Commissioner, 867 F.2d at 497. (Emphasis added.) After describing the various activities Dr. Pomarantz performed in his home office, we found as a fact that “In certain weeks the time required in these additional [home office] activities surpassed the amount of time petitioner spent treating patients at the hospital. In most weeks, however, and as an average, petitioner spent more time per week working shifts at the hospital than working in his home office.” Pomarantz v. Commissioner, T. C. Memo. 1986-461, 52 T.C.M. at 600-601, 55 P-H Memo T.C. at 2129. This finding does not indicate in any way that Dr. Pomarantz’ home office time was insubstantial. Pomarantz cannot be distinguished on the basis suggested by the majority, and the majority makes no attempt to draw any other distinctions. In two recent unpublished opinions, the Sixth Circuit Court of Appeals seems to have adopted the same standards for purposes of section 280A as the Ninth Circuit. Kisicki v. Commissioner, 871 F.2d 1088 (6th Cir. 1989), affg. a Memorandum Opinion of this Court; Dudley v. Commissioner, 860 F.2d 1078 (6th Cir. 1988), affg. a Memorandum Opinion of this Court. The majority holds that the principal place of business for a doctor who performs all medical services at the hospital and spends a lesser amount of time performing his administrative and billing activities in his home, is the place where administrative and billing activities are carried out. This new test appears to be an insupportable and unexplained reincarnation of the “focal point” test that merely shifts the focus from the place where the taxpayer meets and deals with his patients, customers, students, audience, etc., to the place where administrative and billing activities are performed. It may seem unfair to deny deductions for home office expenses that are essential to a taxpayer’s business. Deductions, however, are a matter of legislative grace. Section 280A clearly disallows home office deductions unless there is a specific statutory exception. There is no exception for home office activities that are “essential” or “substantial.” In enacting section 280A, Congress sought to provide definitive rules to alleviate administrative burdens inherent in trying to distinguish between business and personal expenses. Baie v. Commissioner, 74 T.C. 105, 108-109 (1980). Surely, Congress anticipated that the effect of section 280A would be to deny deductions to some taxpayers despite the business necessity of activities performed at home. We are not free to disregard a specific, albeit sometimes harsh, statutory restriction on home office deductions by superimposing our own concept of what the law should be. Bate v. Commissioner, supra at 110. The majority overrules precedent in this Court on the basis of prior reversals and then fails to adopt the only other test found acceptable by the four circuit courts of appeals mentioned. The majority provides no criteria for comparing a taxpayer’s several places of business in order to determine which is the “principal place of business.”5 I would apply the test adopted by the Second and Seventh Circuit Courts of Appeals, which has also been used by the Sixth and Ninth Circuits. Under that test, we must determine the place where the dominant portion of the taxpayer’s work is accomplished. Under that test, petitioner is not entitled to a home office, deduction. NlMS, CLAPP, and PARR, JJ., agree with this dissent.   In many cases the “focal point” test will produce the same result as the other test which has been used by the Courts of Appeals. See Pomarantz v. Commissioner, 867 F.2d 495 (9th Cir. 1988), affg. T. C. Memo. 1986-461.    The majority incorrectly says that the comparison was between the hours “spent at the home office” as opposed “to the number of hours * * * spent at the campus office.” (Majority opinion at 26. Emphasis added.) The facts show that Professor Weissman spent very little of his campus time at the campus office. Both this Court and the Second Circuit compared home office time with total time spent on campus including classroom time, consultations with students, and time spent in the campus library. Weissman v. Commissioner, T.C. Memo. 1983-724, affd. 751 F.2d 512 (2d Cir. 1984).    “In the case of educators, the focal point approach does not always adequately distinguish between individuals with very different employment activities.” Weissman v. Commissioner, 751 F.2d at 514. (Emphasis added.) The same approach was taken in Meiers v. Commissioner, 782 F.2d 75 (7th Cir. 1986), revg. a Memorandum Opinion of this Court. The Seventh Circuit clearly found that Mrs. Meiers’ activities at her home office and at the laundry were different, but of equal importance. Time spent at the respective places of business thus became the deciding factor. Meiers v. Commissioner, 782 F.2d at 79.    The majority describes petitioner’s home office activities as “essential to his medical practice but * * * ancillary to the primary income generating services petitioner performed as an anesthesiologist.” (Majority op. at 25.) (Emphasis added.) The word “ancillary” is most often used to describe something that is subordinate to that which is principal or primary. Webster’s Third International Dictionary (Unabridged) (1986); see Black’s Law Dictionary 78, 79 (5th ed. 1979).    Principal means “Chief; leading; most important or considerable; primary. Highest in rank, authority, character, importance, or degree.” Black’s Law Dictionary, p. 1073 (5th ed. 1979).