Edward W. And Leona J. Andrews v. Commissioner of Internal Revenue
67 A.F.T.R.2d (RIA) 881, 931 F.2d 132, 1991 U.S. App. LEXIS 7117 (1991)
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Rule of Law:
Under Internal Revenue Code § 162(a)(2), a taxpayer cannot have two 'tax homes' simultaneously. For the purpose of deducting travel expenses, a taxpayer's home is their principal place of business or 'major post of duty,' and they may only deduct duplicate living expenses incurred while conducting business at a 'minor post of duty.'
Facts:
- Edward W. Andrews was the president and CEO of Andrews Gunite Co., a seasonal swimming pool construction business based in New England.
- During the off-season, Andrews operated a seasonal horse racing and breeding business, which he started in New England in 1964 and moved to Florida in 1972.
- Andrews Gunite later diversified by establishing a Florida-based horse division, and in 1983, Andrews also formed a separate Florida pool construction business with his son and brother.
- Andrews maintained a primary residence with his wife in Lynnfield, Massachusetts throughout the year.
- To facilitate his work in Florida, Andrews purchased a condominium in 1976 and later, in 1983, a single-family home in Lighthouse Point, Florida, which he used as his personal residence during the racing season.
- In the 1984 tax year, Andrews spent approximately six months (January-April, November-December) working in his Florida businesses and six months (May-October) working in his Massachusetts business.
- On his 1984 tax return, Andrews deducted costs associated with his Florida home, including depreciation, utilities, and insurance, as well as meal expenses, characterizing them as 'traveling expenses... while away from home.'
Procedural Posture:
- The Commissioner of Internal Revenue assessed an income tax deficiency against Edward Andrews for the 1984 tax year, disallowing deductions for travel expenses.
- Andrews filed a petition in the U.S. Tax Court to challenge the deficiency.
- The Tax Court sustained the Commissioner's disallowance, ruling that Andrews had two 'tax homes' and was therefore not 'away from home' when he incurred the expenses in Florida.
- Andrews, as the appellant, appealed the Tax Court's decision to the U.S. Court of Appeals for the First Circuit.
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Issue:
Does Internal Revenue Code § 162(a)(2) permit a taxpayer who maintains two geographically separate businesses, and spends approximately six months working at each, to have two 'tax homes,' thereby precluding the deduction of living expenses incurred at either location?
Opinions:
Majority - Levin H. Campbell
No. A taxpayer cannot have two 'tax homes' under § 162(a)(2) because the purpose of the deduction is to mitigate the burden of duplicate living expenses incurred due to business necessity. The Tax Court's conclusion that Andrews had two tax homes is inconsistent with the policy underlying the statute, which presumes a taxpayer has one principal place of business from which they travel. The court reasoned that the deduction is intended for situations where business exigencies require a taxpayer to maintain two places of abode, resulting in duplicate living expenses. By finding two tax homes, the Tax Court incorrectly implied that neither set of expenses was duplicative. The proper analysis requires determining which location constitutes the taxpayer’s 'major post of duty' or principal place of business; that location is the tax home. The expenses incurred while temporarily conducting business at the 'minor post of duty' are then potentially deductible as costs of producing income.
Analysis:
This decision solidifies the 'one tax home' rule for taxpayers with multiple, geographically dispersed business locations. It rejects the novel approach of allowing two tax homes, which would effectively eliminate travel deductions for individuals with significant, recurring business activities in two separate areas. The case reinforces the importance of the 'principal place of business' test and directs courts to focus on which location is the taxpayer's 'major post of duty' to determine the deductibility of expenses. This provides a clearer, more predictable framework for taxpayers and prevents the deduction from being denied simply because a taxpayer's business is substantial in more than one location.
