Hollenbeck v. Commissioner

MEMORANDUM FINDINGS OF FACT AND OPINION

DAWSON, *361 Chief Judge: This case was assigned to and heard by Special Trial Judge Randolph F. Caldwell, Jr., pursuant to Rules 180 and 182, Tax Court Rules of Practice and Procedure. The parties have filed no exceptions of law or fact to Special Trial Judge Caldwell's report. The Court agrees with and adopts his opinion which is set forth below.

OPINION OF THE SPECIAL TRIAL JUDGE

CALDWELL, Special Trial Judge: This case was one of a group of 37 which were consolidated for trial, but not for opinion. At the trial, evidence was received which bears upon every case in the group. Such evidence relates to certain contractual arrangements between the husband-petitioners' employers (Lockheed Air Service Company and Dynalectron Corporation) and the United States Air Force, as well as the employment arrangements between field team members (such as the husband-petitioners) and such employers.

Respondent determined a deficiency in petitioners' 1969 Federal income taxes in the amount of $227.23. The issue for decision is whether all or any portion of per diem payments received by petitioner James Hollenbeck (hereinafter, "petitioner") from Dynalectron Corporation (hereinafter, "Dynalectron") *362 should be included in his gross income for 1969 under section 61(a)(1) of the Internal Revenue Code of 1954; ² and, if so, whether petitioner is entitled to deduct any or all of said amount as away-from-home traveling expenses under section 162(a)(2).

FINDINGS OF FACT

Petitioners, husband and wife, filed their 1969 return with the Internal Revenue Service Center at Chamblee, Georgia. At the time they filed their petition herein, petitioners were residents of Howard County, Texas.

During 1969, petitioner was employed as a member of three different field teams by Dynalectron. That corporation, as well as Lockheed Air Service Company (hereinafter, "Lockheed"), had a contract with the United States Air Force during 1969, to provide field team services for the maintenance and modification of weapons systems (i.e., aircraft) and/or support equipment.

These contracts were called "basic contracts" and the Air Force entered into such a contract with each of three different contractors. The contracts were for three years maximum duration, and those involved here*363 were for the three fiscal years, July 1, 1967-June 30, 1968; July 1, 1968-June 30, 1969; July 1, 1969-June 30, 1970. The contract was firm for the first of the three years; but the Air Force had the unilateral right to extend the contract for the second and third years of the three-year period. The contracts were so extended by the Air Force insofar as both Lockheed and Dynalectron were concerned. (The record herein does not identify the third contractor who had the basic contract.)

The basic contract did not, of itself, award any work to be performed thereunder. It did specify the wage rates which would be paid for services rendered by employees of the contractor, if the contractor got work to be performed under the contract. The contract also contained the following provisions relating to the payment of per diem:

(ii) Per Diem, not to exceed the applicable amounts set out below, when actually paid by the Contractor and approved by the Administrative Contracting Officer, shall be reimbursed to the Contractor, without regard to the duration of the assignment; provided, however, that no per diem shall be authorized or paid to any employee whose actual residence is within 50 miles*364 of the work station to which the employee is assigned, nor shall any per diem be paid to any employee who actually resides at and commutes from his actual residence during the period of his employment, regardless of the distance between said residence and his assigned work station: (See (ii)(e) below).

(a) In the CONUS (No quarters and messing facilities furnished by the Government)-- $11.00-Per day per man for Engineer and Leadman and $9.00-Per day per man for the remainder.

* * * * *

(e) For the purpose of this contract the term "actual residence" is defined as the fixed or permanent domicile of an employee. The employee shall certify to the location of his fixed or permanent domicile and this location, if accepted by the Contractor, shall be deemed, for the purpose of this contract, to be the employee's domicile in so far as per diem authorization against this contract is concerned. However, this does not relieve the Contractor of his responsibility to ascertain that the certification is valid.

The opportunity for the contractor to perform under the basic contract arose from the issuance by the Air Force of a work order thereunder. Issuance of a work order was entirely*365 within the discretion of the Air Force, and it alone had the discretion to select which one of the three holders of a basic contract that was to perform the work order. Performance under a work order might be at any place in the United States or at any place overseas where the Air Force maintained a base. Under the terms of the basic contract, work orders could only be issued during a given year of a basic contract. However, completion of a work order actually issued during such year might be effected after the end of the year.

When the Air Force had determined to issue a work order and had notified a contractor of its selection to perform that order, representatives of the Air Force and of the contractor would get together at a "pre-dock" meeting where the time for completion of the contract and the make-up of the contractor's projected field team complement would be worked out. Determination of the time of performance entailed fixing an input-output schedule -- the schedule which showed the number of units coming into the contractor for its maintenance and modification services per day or week or month, and the number of units to be completed by the contractor per day or week or*366 month.

After the projected field team complement had been worked out, the contractor would then proceed to get the team together. In assembling the team, the contractor would utilize two sources of manpower: (1) existing employees which it transferred from jobs under other work orders; and (2) new employees which it recruited.

Whenever a contractor hired a new employee for field team work, that employee was advised that he was subject to being sent anywhere that the contractor might be called upon to perform a work order, and that if the employee was unwilling to travel where thus directed to go, his only alternative was to resign. The employee was also advised that the contractor only had a basic contract for a year and that it had no way of knowing whether or when it would receive work orders under that contract. It was also made clear to the employee that, while the contractor would endeavor to continue to utilize the services of the employee after completion of the work order in connection with which he was hired, it could not guarantee any such further employment; and if none were available, the employee would be laid off. Neither Lockheed nor Dynalectron maintained any pool*367 or central area where an employee who had completed an assignment could be sent pending the contractor getting another work order on which such employee could be used.

Both Lockheed and Dynalectron were involved in the performance of work orders at Key Field in Meridian, Mississippi, during the years involved. ³Lockheed had first come to Meridian in 1965 and it remained there until June 30, 1969, at which time (although it did not lose its status as holder of one of the three basic contracts) it was supplanted by Dynalectron. During the fiscal year ended June 30, 1969, Lockheed received two work orders to be performed at Meridian; and during the succeeding fiscal year, Dynalectron likewise received two work orders. While in most instances, the contractor's field teams were sent to the location where the aircraft were located, in the case of the work orders performed at Meridian, the aircraft were brought by the Air Force to that work site from other locations.

*368 During the performance of a work order, the Air Force always had an on-site representative, monitoring the performance of the contractor. One of the areas of concern was to determine whether the field team was over strength or under strength, as well as the quality of work of the field team members. Instances occurred when the composition of the field team was changed as the result of the recommendation of the Air Force's on-site representative. For this reason, as well as for the reason that the composition of the field team varied according to the nearness in point of time to the beginning or the end of the performance under the work order, the projected field team complement as worked out at the pre-dock meeting might vary as much as 10 to 20 percent during the performance of the contract.

When an employee was hired, or rehired, by a contractor, he was required to certify to the contractor his "permanent or domicile" address (in the case of Lockheed) or his "fixed or permanent domicile" (in the case of Dynalectron). If the address so certified was further than 50 miles from the job site where the employee was to work and if the employee did not drive back and forth to work, *369 irrespective of the address which he had furnished, he was paid the per diem mentioned and described above. The per diem payments made by the contractors were included in their invoices to the Air Force, solely for the purpose of being reimbursed. There was no element of profit to the contractors in the per diem for which they sought reimbursement.

Per diem paid to the field team employees who qualified therefor was at the rate of $11 per day for a leadman and an engineer, and $9 per day for the other members of the field teams. Per diem was paid for seven days per week, although the regular work week for field team members was a 5-day, 40-hour week. Field team members also received per diem during their initial travel to a work site, for days of travel when transferred to different work sites, and for a maximum of three days for return to their homes, in the event they were laid off. They did not receive per diem during vacation periods; but they did receive per diem for three days up to a maximum of six days if they were sick.

Neither Lockheed nor Dynalectron withheld Federal income tax from the per diem payments made to their employees.

Petitioner was first hired by Dynalectron*370 in 1962. From September 1964 to September 1967, he was assigned to Mather Air Force Base in California, from which place he was transferred to Maxwell Air Force Base in Alabama. Petitioner remained in Alabama for almost a year, when on September 6, 1968, he was transferred to Webb Air Force Base in Texas. In the following Spring of 1969, petitioner was placed on a six-month overseas assignment in Vietnam. He did not stay the full six months, because his wife became ill and required an operation. Petitioner returned to the United States in August 1969, and was assigned on August 5 to Key Field in Meridian, Mississippi. Dynalectron advised petitioner at the time of his assignment to Meridian that he would be there for no longer than until June 30, 1970. Petitioner's Meridian assignment did in fact last throughout 1970 and until February 1971.

Petitioner, in 1966 and 1967, certified to Dynalectron that his fixed or permanent domicile was at 1045 1/2 Virginia Street, Vallejo, California. That is a rented house where his wife's mother resides.

Petitioner did not own any property, real or personal, in Vallejo during 1969. His wife and three children rented an apartment in Vacaville, *371 California, a town about 30 miles distant from Vallejo, during the time of petitioner's assignment to Vietnam. Petitioner and his wife opened and maintained a savings account and a checking account at a bank in Vacaville, which they closed when petitioner was assigned to Meridian. Petitioner paid light and gas bills at Vacaville, and had his pay checks sent to his wife there while he was on assignment in Vietnam. Mrs. Hollenbeck and the children gave up the Vacaville apartment and went with petitioner to Meridian; and they remained with him there during the time of his assignment. If any mail had been sent to petitioner at the Virginia Street address in Vallejo (and the record does not show that any mail was so sent), his mother-in-law would have forwarded the same to him.

Petitioner received per diem payments from Dynalectron in 1969, in respect of his Texas, Vietnam, and Meridian assignments, in the respective amounts of $1,080, $1,170, and $1,224. He did not include any of such amounts in gross income on his return for that year. In his statutory notice of deficiency, respondent included $1,215 of the amount petitioner received in respect of his Meridian assignment in his 1969*372 gross income. Respondent has not sought by amendment to his answer to include any additional amount of per diem payments in petitioner's 1969 gross income.

OPINION

It must first be determined whether the per diem payments received by petitioner from Dynalectron in 1969, in respect of his assignment to Meridian, is includible in his gross income for that year.

It is believed that the Meridian-related per diem payments when received by petitioner constituted gross income. In very broad and sweeping language, section 61(a)(1) provides that "gross income means all income from whatever source derived." The Supreme Court has construed this "broad phraseology" to evince a Congressional intention "to tax all gains except those specifically exempted." Commissioner v. Glenshaw Glass Co.,348 U.S. 426, 430. The per diem payments were "undeniable accessions to wealth, clearly realized and over which the [petitioner had] complete dominion," ( Commissioner v. Glenshaw Glass Co.,supra, p. 431); and the Code contains no provision exempting per diem payments from taxation. Manifestly, then, the respondent was correct in including in petitioner's income*373 the $1,215 of per diem payments received in respect of the Meridian assignment in 1969. Leo C. Cockrell,38 T.C. 470, 477-478, affd. (8th Cir.) 321 F.2d 504; Darrell Spear Courtney,32 T.C. 334, 341. ⁴

The question remains whether petitioner is entitled to deduct any part or all of the $1,215 of Meridian-related per diem payments under section 162(a)(2), as expenses for travel while away from home in pursuit of his trade or business as an employee of Dynalectron, Leo C. Cockrell, supra, p. 479. In the Cockrell case, it was pointed out that the Supreme Court, in Commissioner v. Flowers,326 U.S. 465, rehearing denied 326 U.S. 812, had laid down three requirements that a taxpayer must meet to be entitled to deduct away-from-home expenses: The expense must be (1) reasonable and necessary traveling expense, (2) incurred by the taxpayer while away from home, and (3) incurred in pursuit of business. In the present case, the parties differ only on the point of whether petitioner was away from home.

In the case of Truman*374 c. t/ucker,55 T.C. 783, 786, the factors to be considered in determining whether a taxpayer should be treated as away from home for tax purposes were crystallized. It was there said:

The purpose of allowing the deduction of living expenses while a taxpayer is "away from home" is "to mitigate the burden of the taxpayer who, because of the exigencies of his trade or business, must maintain two places of abode and thereby incur additional and duplicate living expenses." Ronald D. Kroll,49 T.C. 557, 562 (1968). In furtherance of this purpose, when a taxpayer with a principal place of employment goes elsewhere to take work which is merely temporary, he may deduct the living expenses incurred at the temporary post of duty, because it would not be reasonable to expect him to move his residence under such circumstances. Emil J. Michaels,53 T.C. 269 (1969); Ronald D. Kroll,supra.For this purpose, temporary employment is the type which can be expected to last for only a short period of time. Beatrice H. Albert,13 T.C. 129, 131 (1949).

Two points are thus presented: Was petitioner's assignment*375 to Meridian temporary as opposed to indefinite? And, did he maintain two places of abode and thereby incur additional and duplicate living expenses?

Presumably, respondent concedes that petitioner's 1969 assignments to Texas and to Vietnam were temporary, for he did not include the per diem payments with respect to such assignments in petitioner's gross income for that year. Respondent does contend that petitioner's 1969 assignment to Meridian was indefinite. However, bearing in mind the contractual arrangements between Dynalectron and the Air Force, the employment arrangements between petitioner and Dynalectron (especially his being advised when he went to Meridian in August 1969 that he would remain there no longer than the following June 30, 1970), and petitioner's employment history with the company -- all having been described in the findings of fact -- it is believed that the 1969 Meridian assignment should likewise be characterized as a temporary one. Respondent urges, correctly, that an assignment temporary in its inception may, with the passage of time, be transformed into an indefinite one. It is not believed, however, that by the end of 1969, the point in time for such*376 a transformation had been reached insofar as petitioner's assignment to Meridian is concerned.

On the second point, the evidence is not persuasive that petitioner maintained two places of abode and thereby incurred those additional and duplicate living expenses, the burden of which the deduction afforded by section 162(a)(2) is designed to mitigate. Mrs. Hollenbeck and the children accompanied petitioner on his assignment to the job site at Meridian, and it was in that city that they worked, ate, slept -- in short, made their home and incurred family living expenses. Petitioner incurred no such expenses in Vallejo, or any other locality, during the time of his 1969 assignment in Meridian. His tenuous ties to Vallejo are just not substantial in nature so as to qualify that city as his home for tax purposes during the time of such Meridian assignment. Summing up, petitioner was at, not away from, his home, for the purposes of section 162(a)(2), during his 1969 Meridian assignment. Perhaps at some earlier point in time, Vallejo could have qualified as petitioner's tax home. But, if so, by 1969, and probably long before that year, it had been abandoned and could no longer qualify as*377 such. Accordingly, petitioner should not be entitled to any deduction for away-from-home travel expenses under section 162(a)(2) for 1969.

* * * * *

In accordance with the foregoing,

Decision will be entered for respondent.