Opinion
Docket No. 16261.
1949-08-12
HENRY C. WARREN, PETITIONER, v. COMMISSIONER OF INTERNAL REVENUE, RESPONDENT.
R. C. Scott, Esq., for the petitioner. N. A. Townsend, Esq., for the respondent.
1. Petitioner was continuously employed during the taxable year 1944 at the Navy Yard in Charleston, South Carolina, and lived there during that time. He found no housing accommodations for his wife and two children in Charleston and maintained a residence for them 300 miles from Charleston at Cornelia, Georgia, where he had lived prior to his employment at the Navy Yard. Petitioner's expenditures for meals and lodging in Charleston and for transportation between Charleston and Cornelia on week end visits, held, nondeductible because not incurred in pursuit of his employer's business. Commissioner v. Flowers, 326 U.S. 465(1946); rehearing denied, 326 U.S. 812(1947) followed.
2. Respondent made a refund to petitioner of a portion of his income tax withheld for 1944 and subsequently determined a deficiency against petitioner in income tax for 1944, disallowing certain deductions. Section 3746, Internal Revenue Code, providing that suits for recovery of erroneous refunds must be brought in the name of the United States within two years after the making of the refund, held not controlling as to the determination of deficiency, refunds of income tax withheld not being final so as to preclude subsequent disallowance of deductions. Clark v. Commissioner, 158 Fed.(2d) 851(C.C.A., 6th Cir., 1946).
3. Petitioner elected to itemize his deductions on ‘long form‘ 1040 in reporting his income for 1944, and respondent disallowed certain of these deductions. Held, petitioner is not thereafter entitled to take the standard deduction provided in section 23(aa), Internal Revenue Code, and to compute his tax under Supplement T, Internal Revenue Code, since under Regulations 111, sec. 29.402-1, such election must be made at the time of filing the return. R. C. Scott, Esq., for the petitioner. N. A. Townsend, Esq., for the respondent.
Respondent determined a deficiency in income tax for the taxable year 1944 in the amount of $325.95. Two issues are presented for decision:
(1) Is petitioner, who was employed throughout 1944 at the Navy Yard in Charleston, South Carolina, and maintained a residence in Cornelia, Georgia, some 300 miles away, for his wife and children, entitled to a deduction in that year on account of expenditures for meals and lodging in Charleston and for transportation between Charleston and Cornelia?
(2) Where respondent made a refund to petitioner of a portion of his income tax withheld for 1944 and subsequently determined a deficiency against petitioner in income tax for 1944, is the determination of deficiency controlled by section 3746 of the Internal Revenue Code, which provides that suits for recovery of erroneous refunds must be brought in the name of the United States within two years after the making of the refund?
(3) Where petitioner elected to itemize his deductions on ‘long form‘ 1040 in reporting his income for 1944, and respondent disallowed certain of those deductions, is petitioner thereafter entitled to take the standard deduction provided in section 23(aa), Internal Revenue Code, and to compute his tax under Supplement T, Internal Revenue Code?
FINDINGS OF FACT.
Petitioner is a resident of Cornelia, Georgia. His income tax return for the calendar year 1944 was filed with the collector of internal revenue for the district of Georgia.
Petitioner was continuously employed from August 24, 1943, until September 21, 1945, at the United States Navy Yard in Charleston, South Carolina, approximately 300 miles from Cornelia, Georgia. Prior to his employment at the the Navy Yard he had lived in Cornelia and he maintained a residence for his wife and two children in that city during the period he was employed in Charleston. He found no housing accommodations for his family in Charleston. He lived in a barracks at Charleston and ate his meals in various restaurants in the vicinity of the Navy Yard. His wife visited him in Charleston from time to time. About four times a year petitioner returned to Cornelia for a week end visit with his family.
Petitioner's duties at the Navy Yard were those of a pipe fitter. He worked on the night shift six or seven days per week. His duties with the Navy Yard did not require him to leave Charleston at any time. He understood when he accepted the employment that his duties would be performed in Charleston.
The Navy Yard classified his position as ‘temporary,‘ but petitioner accepted the employment with the understanding that it would probably last for the duration of the war. He worked at the Navy Yard continuously until after the war with Japan had terminated.
On his 1944 income tax return petitioner reported wages from the Navy Yard in the amount of $3,580.98. Deductions were itemized on his return, Form 1040, and included, among others, a deduction of $1,355 for subsistence ‘while away from home at Charleston Navy Yard, Charleston, S.C.‘ This deduction represented the cost of petitioner's transportation to and from Cornelia and the cost of his meals and lodging in Charleston. Respondent disallowed the deduction.
During 1944 the sum of $399.20 was withheld as income tax from petitioner's wages by his employer. Petitioner's return for 1944 disclosed a tax liability of $47.14. Upon the basis of this information the collector of internal revenue for the district of Georgia made a refund to petitioner on or about July 20, 1945, in the amount of $358.14, representing withheld tax of $352.06 plus interest of $6.08.
Petitioner's 1944 return was filed March 13, 1945. The notice of deficiency was mailed to petitioner on August 5, 1947.
OPINION.
HARLAN, Judge:
Petitioner contends that the cost of his meals and lodging while he was employed in Charleston, South Carolina, and the cost of his transportation to and from Cornelia, Georgia, where he maintained a residence for his wife and children, are deductible under section 23(a)(1)(A), Internal Revenue Code, as travel expenses incurred while away from home in pursuit of a trade or business. Respondent determined that these expenditures were ‘personal, living or family expenses‘ within the meaning of section 24(a)(1), Internal Revenue Code, and hence not deductible.
The matter is governed by Commissioner v. Flowers, 326 U.S. 465 (1946); rehearing denied, 326 U.S. 812 (1946). In that case the taxpayer's post of duty in his employment was Mobile, Alabama, but he chose for personal reasons to maintain his residence in Jackson, Mississippi. He deducted in his 1939 and 1940 returns as traveling expenses the cost of trips from Jackson to Mobile and of meals and hotel accommodations while in Mobile. The Commissioner disallowed the deductions and the Supreme Court sustained the disallowance. In its opinion the Supreme Court said:
Three conditions must thus be satisfied before a traveling expense deduction may be made under section 23(a)(1)(A):
(1) The expense must be a reasonable and necessary traveling expense, as that term is generally understood. This includes such items as transportation fares and food and lodging expenses incurred while traveling.
(2) The expense must be incurred ‘while away from.‘
(3) The expense must be incurred in pursuit of business. This means that there must be a direct connection between the expenditure and the carrying on of the trade or business of the taxpayer or of his employer. Moreover, such an expenditure must be necessary or appropriate to the development and pursuit of the business or trade.
In the case at bar it is quite clear that the expenditures in question fail to satisfy the conditions stated above. Petitioner's maintenance of a home for his family in Cornelia may have been caused by a housing shortage in Charleston, but that consideration was irrelevant to the prosecution of his employer's business. The extra expense of his trips to and from Cornelia and of his living apart from his family in Charleston did not advance his employer's business. They were thus personal expenses, not business expenses, and are accordingly not deductible. Commissioner v. Flowers, supra; Ney v. United States, 171 Fed.(2d) 449 (C.C.A., 8th Cir., 1948); certiorari denied, 336 U.S. 967(1949); York v. Commissioner, 160 Fed.(2d) 385(1947); Virginia Ruiz Carranza (Zuri), 11 T.C. 224; William W. Todd, 10 T.C. 655; John D. Johnson, 8 T.C. 303; S. M. R. O'Hara, 6 T.C. 841.
Petitioner cites E. G. Leach, 12 T.C. 20, in support of the disputed deductions. In that case the taxpayer husband was temporarily employed at numerous locations during the course of a taxable year. A deduction for travel expenses was allowed by this Court on the ground that the taxpayer had no regular post of duty or place of employment during the taxable year. In the case at bar petitioner was continuously employed at one post of duty, the Navy Yard in Charleston, South Carolina, for more than two years. His employment there was not temporary, but indefinite. There is a well recognized difference between ‘indefinite‘ employment and ‘temporary‘ employment. John D. Johnson, supra. As was said in Commissioner v. Flowers, supra:
* * * Travel expenses in pursuit of business within the meaning of section 23(a)(1)(A) could arise only when the railroad's business forced the taxpayer to travel and to live temporarily at some place other than Mobile, thereby advancing the interests of the railroad. * * *
Substituting ‘Navy Yard‘ for ‘railroad‘ and ‘Charleston‘ for ‘Mobile,‘ that sentence is applicable to the case at bar.
Wallace v. Commissioner (two cases), 144 Fed.(2d) 407(C.C.A., 9th Cir., 1944); Coburn v. Commissioner, 138 Fed.(2d) 763(C.C.A.2D Cir.19431; and Harry F. Schurer, 3 T.C. 544, also relied on by petitioner, also involve ‘temporary‘ employment and therefore do not apply here. Furthermore, they antedate Commissioner v. Flowers, supra, which controls the case at bar.
Petitioner's second contention is that the deficiency herein at issue is barred by the statute of limitations set forth in section 3746(b), Internal Revenue Code.
SEC. 3746. SUITS FOR RECOVERY OF ERRONEOUS REFUNDS.(b) REFUNDS OTHERWISE ERRONEOUS.— Any portion of an internal revenue tax (or any interest, penalty, additional amount, or addition to such tax) which has been erroneously refunded (if such refund would not be considered as erroneous under section 3774) may be recovered by suit brought in the name of the United States, but only if such suit is begun before the expiration of two years after the making of such refund.
As stated in our findings of fact, during 1944 the sum of $399.20 was withheld as income tax from petitioner's wages by his employer. Petitioners 1944 return disclosed a tax liability of $47.14, and on July 20, 1945, the collector of internal revenue for the district of Georgia refunded to petitioner the sum of $358.14. Notice of deficiency was mailed to petitioner on August 5, 1947, the return having been filed March 13, 1945. Petitioner now contends that the deficiency asserted in the notice of deficiency and herein at issue is barred by section 3746(b), Internal Revenue Code, because the notice was mailed more than two years after the refund of withholding tax was made.
We do not agree. As held in Clark v. Commissioner, 158 Fed.(2d) 851 (C.C.A., 6th Cir.,1946), (see syllabus):
Refunds of alleged excess withheld from wages under ‘pay-as-you-go‘ income tax plan are a matter of grace to taxpayer made in consequence of amount due as shown on return, are subject to final audit and adjustment, and hence are not final determinations so as to preclude subsequent disallowance of deductions. 26 U.S.C.A. Int. Rev. Code, section 3801.
Hence the provisions of section 3746(b) are inapplicable to the refund received by petitioner in this case.
Petitioner also contends that if deductions itemized by him on a ‘long form‘ income tax return are disallowed by respondent, his tax should be computed ‘in a manner that would demand of him the least amount of tax. In short, under Supplement T.‘ However, Regulations 111
provide that the taxpayer who files under Supplement T. Not having done so and having elected instead in the return to itemize his deductions, petitioner's election is irrevocable and he may not now ask that his tax be computed under Supplement T.
SEC. 29.402-1. MANNER OF ELECTION TO COMPUTE TAX UNDER SUPPLEMENT T.— * * *(b) Taxable years beginning after December 31, 1943.— * * * the taxpayer elects to pay his income tax under Supplement T either by (1) filing a return of his gross income on Form W-2 (Rev.), prescribed in section 29.51-2, or (2) by filing a return on Form 1040 and electing in such return, in the manner prescribed in section 29.23(aa)-1(b), to take the standard deduction provided in section 23(aa). * * *
We accordingly hold that respondent did not err in his determination of a deficiency in income and victory tax for the taxable year 1944 in the amount of $325.95.
Decision will be entered for the respondent.