374 F. 2d 204 - Commissioner of Internal Revenue v. A Bagley

Taxpayer, a consulting engineer, maintained his office at his home in Milford, New Hampshire. During the taxable years 1960 and 1961 he was employed from time to time by various power companies in the New England area on a per diem basis. On many of these days he left home early, ate breakfast on the way, ate lunch at work, and stopped to dine on the drive back. His employers' places of business were from thirty to seventy-five miles distant, and taxpayer normally reached home about ten P.M. The sole question is whether he can deduct the cost of these meals1 as "traveling expenses (including the entire amounts expended for meals and lodging * * *) while away from home in the pursuit of a trade or business". 1954 I.R.C. § 162 (a) (2).2

For the 45 years that this provision has been on the books in substantially its present form the Commissioner has sought to apply a rule of thumb which, in general, has found favor with the Tax Court. See, e. g., Al J. Smith, 1960, 33 T.C. 861; Louis Drill, 1947, 8 T.C. 902. Some other courts have been critical. See, e. g., Hanson v. Commissioner, infra; Correll v. United States, infra. We cannot find, however, that these courts have substituted anything better. Rather, we believe that to this area of almost unlimited factual variations their admittedly subjective approach brings neither clarification nor ease of application nor, even, overall fairness.

The Commissioner's rule was originally known as the overnight rule. Travel did not qualify unless the taxpayer was away from home overnight.3 As a result of the decision in Williams v. Patterson, 5 Cir., 1961, 286 F.2d 333, which the Commissioner accepted, this became known as the necessary sleep or rest rule — a trip long enough to require interruption for rest during the day is equivalent to being away overnight.4 We in no way disagree with Williams. It marked, however, the beginning of a broader attack on the rule. In Hanson v. Commissioner, 8 Cir., 1962, 298 F.2d 391, the taxpayer was in the construction business. He was employed contemporaneously at several different job sites at substantial distances from his home. He normally checked in at his office in the morning, and then visited the various jobs, usually returning late at night. The court concerned itself principally with ruling that the overnight rule without legal basis. Having determined this, it then decided the case on the ground that Williams v. Patterson justified the deduction of the lunches and dinners "albeit the expense is `personal in nature.'" Id. 298 F.2d at 397. The court did not discuss the factual complications involved or, apparently, note that Williams v. Patterson, where there was a substantial rest period involved, was a very different case.5

In the case at bar the Tax Court decided to follow Hanson. One judge, in concurring on special grounds, expressed what seems to us a poignant regret, that neither the Hanson decision nor the Tax Court in the present case had offered any guiding principles to take the place of the Commissioner's rule.

The most recent blow against the Commissioner's rule was struck in Correll v. United States, 6 Cir., 1966, 369 F.2d 87, 90. In permitting a traveling salesman who returned nightly for dinner to deduct his breakfast and lunch on the road, the court conceded that "the rule adopted by Appellate Courts may not always work satisfactorily," but concluded that "the remedy lies with Congress and not with the judiciary." With all respect, we suggest that the Commissioner's rule has worked adequately for many years, and that the remedy which is needed is to correct its unsettling by the judiciary itself. Furthermore, we believe that the so-called "rule adopted by Appellate Courts" is not a rule at all, and not even a guide.

We start with the principle that both travel and meals away from home are not deductible if they are personal, as distinguished from business, expenses. 1954 I.R.C. § 262. If a taxpayer chooses to live in one locality and work in another, normally his travel from one to the other is regarded as being for his personal convenience. Commissioner v. Flowers, 1946, 326 U.S. 465, 66 S.Ct. 250, 90 L.Ed. 203.6 It is equally clear that a commuter cannot deduct his lunch. Cf. Fred M. Osteen, 1950, 14 T.C. 1261. But cf. Emmert v. United States, S.D.Ind., 1955, 146 F.Supp. 322. Under such circumstances it would seem unfair to allow a deduction for lunch to a man whose business requires him to spend his eight hour day on the road, even though in a sense he is traveling. We have held against such a taxpayer. Amoroso v. Commissioner, 1 Cir., 1952, 193 F.2d 583, cert. den. 343 U.S. 926, 72 S.Ct. 759, 96 L.Ed. 1337 (traveling salesman). Nor do we suppose, if a commuter were required to work late at his place of business, that any court would distinguish between his lunch and his supper. Cf. Jerome Mortrud, 1965, 44 T.C. 208; Fred G. Armstrong, 1965, 43 T.C. 733; Louis Drill, 1947, 8 T.C. 902.

While, as has been pointed out, there are certain travel and other expenses of a purely personal nature, the manifest statutory purpose is to permit deductions when business activities require duplication. Lodging away from home may well be all extra expense.7 However, even though a meal away from home may be more expensive, presumptively it is not all added cost. And, in fact, prior to the enactment of what is now section 162(a) (2) in 1921, the Commissioner had promulgated a regulation which permitted the deduction of only that part of the expenses for meals and lodging incurred while traveling "in an amount in excess of any expenditures ordinarily required for such purposes when at home." Treas.Reg. art. 292 (1920 ed.). The difficulties involved in calculating the "excess" under this regulation proved so onerous that the Treasury itself asked Congress to grant a deduction for the "entire amount" of such expenditures for meals and lodging.8 Accordingly section 214(a) (1) of the Revenue Act of 1921, ch. 136, 42 Stat. 227, for the first time contained as a subcategory of ordinary and necessary business expenses the language that is now section 162(a) (2). Compare section 214 of the Revenue Act of 1918, ch. 18, 40 Stat. 1057. Hence taxpayers who incur meal expenses while traveling away from home now receive a tax windfall in that, unlike taxpayers who pay for meals while "at home," they are permitted to deduct some expenses that are incontestably "personal" as that term is used in section 262, i. e., that portion of their meal expenses that they would have incurred had they not been traveling.

This codified accounting convenience intensifies the windfall which accrues to taxpayers like Correll and Hanson as against such taxpayers as Osteen and Amoroso. It may well be the reason why the Commissioner sought to invoke the overnight rule. In any event, we think it a good reason to do so. We see no justification for allowing salesman Correll two meals, and salesman Amoroso none. Nor would we give Amoroso one and commuter Osteen none. Equally, we see no reason, to take a frequently referred to hypothetical, why a man who makes a quick trip to Washington, missing neither breakfast nor dinner at home, should be allowed his lunch merely because he is traveling more miles than Amoroso, the salesman who travels locally. The courts in Hanson and Correll do not discuss this inevitable question. We think, at best, that all they do is to push the dividing line somewhere else, with no avoidance of the ultimate necessity, and difficulty, of drawing it. At worst, they make the drawing of it considerably harder.9

We believe that fairness to the greatest number of people, and at the same time a practical administrative approach which will not permit every meal-purchasing taxpayer to take pot luck in the courts, is to accept the Commissioner's sleep or rest rule. If in some instances it be thought illogical, it is not uninteresting to note that the very circuit which has been relied on to justify a substantial assault on the Commissioner's rule is the one which has most succinctly pointed out that fairness and administrative consistency in this area are more important than the total pursuit of logic. See Steinhort v. Commissioner, 5 Cir., 1964, 335 F.2d 496, 503-505.

Nor do we find the Commissioner's rule wide of the mark as a matter of statutory construction. Admittedly all travel is not "away from home." Not only have the courts recognized this even when travel was not strictly commuting, Clarence J. Sapp, 1961, 36 T.C. 852, aff'd per curiam, 5 Cir., 309 F.2d 143, but, were the contrary interpretation given, in qualifying travel as "away from home" the statute would be redundant. Since a line must be drawn somewhere, it seems not unreasonable to say that the test of whether travel is away from home is whether it is so extensive as to require "lodging," viz., that "meals and lodging" be read in the conjunctive. This construction arguably finds some historical corroboration.10 We believe, in any event, that it is a reasonable compromise in what seems otherwise an impossible situation.

It would be an insuperable objection to the sleep or rest rule if not merely meals, but also business transportation costs, were deductible only if incurred in connection with lodging. However, in spite of the fact that section 162(a) (2) links the deduction of travel expenses with the deduction of meal costs, such correlation has not been uniformly required. E. g., Summerour v. Allen, M.D.Ga., 1951, 99 F.Supp. 318; Joseph M. Winn, 1959, 32 T.C. 220. In some circumstances transportation may be an ordinary and necessary expense under the general provisions of section 162. E. g., Steinhort v. Commissioner, 5 Cir., 1964, 335 F.2d 496; Clarence J. Sapp, supra. Cf. I.R.C. § 62 (2) (C). But cf. Crowther v. Commissioner, 9 Cir., 1959, 269 F.2d 292; Rice v. Riddell, S.D.Calif., 1959, 179 F.Supp. 576.11 The fact that some transportation costs are deductible even where meals would not be not only removes the necessity of making a liberal interpretation of section 162(a) (2), but in itself suggests that "travel away from home" with it specific inclusion of meals and lodging, means travel in a substantial sense and not a diurnal round starting and ending at home.

On this basis the present taxpayer is not entitled to the deduction. Nor do we find it an answer to say that had he chosen to stay overnight, instead of coming home late, the result would have been otherwise. Not only in a rule of thumb, but in any application of principles there has to be a dividing line, and in as complex an area as this one the line is bound to be indistinct. It can become totally lost by talking equivalents.

We can think of no sharper place to draw the line, and since we also think of no better one, we accept what has long been the Commissioner's.

The decision of the Tax Court is vacated and the cause remanded for further proceedings.