James O. Henderson v. Commissioner of Internal Revenue
98 Daily Journal DAR 4393, 98 Cal. Daily Op. Serv. 3179, 143 F.3d 497 (1998)
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Rule of Law:
For purposes of deducting travel expenses 'away from home' under IRC § 162(a)(2), a taxpayer's 'tax home' is generally their principal place of employment, and an itinerant worker without a permanent business connection to a locale and who does not incur substantial, continuous duplicated living expenses in that locale, does not have a tax home.
Facts:
- James Henderson graduated from the University of Idaho in 1989 and maintained strong personal contacts in Boise, Idaho, where his parents resided.
- Henderson received mail at his parents' residence, lived there between work assignments, kept many belongings and his dog there, was registered to vote in Idaho, paid Idaho state income tax, maintained an Idaho driver's license, and kept his bank account in Idaho.
- During 1990, Henderson spent approximately two to three months in Boise, staying at his parents' residence, where he performed minor jobs to maintain or improve the family home and contributed about $500 for supplies, but paid no rent and had no ownership interest.
- In 1990, Henderson worked as a stagehand for Walt Disney’s World of Ice, a traveling show, on a tour-by-tour basis, with his employers' corporate offices located in Vienna, Virginia.
- Henderson worked on three different Disney tours that year, lasting from January to May, July to November, and December, traveling to thirteen states and Japan, with stops in each city lasting a few days or weeks.
- Between tours, Henderson returned to his parents’ home in Boise, and although he claimed to look for employment there, he only worked as a stagehand for a single ZZ Top concert in Boise.
Procedural Posture:
- James Henderson claimed deductions on his 1990 federal income tax return for living expenses incurred 'away from home' while working for a traveling ice show.
- The Commissioner of Internal Revenue disallowed these deductions, concluding Henderson had no legal tax home for tax purposes, which resulted in a deficiency of $1,791.
- Henderson challenged the Commissioner's decision in the United States Tax Court.
- The Tax Court upheld the Commissioner’s decision, agreeing that Henderson had no tax home because his choice to live in Boise was not dictated by business reasons and he continuously traveled for work.
- Henderson appealed the Tax Court's decision to the United States Court of Appeals for the Ninth Circuit.
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Issue:
Does a taxpayer, who has strong personal ties to a particular locale but no business reason for maintaining a residence there and incurs no substantial, continuous living expenses while on the road, qualify that locale as his 'tax home' for purposes of deducting travel expenses under Internal Revenue Code § 162(a)(2)?
Opinions:
Majority - Wiggins
No, Boise was not Henderson's tax home for the 1990 tax year, meaning he could not deduct expenses incurred 'away from home.' For purposes of Internal Revenue Code § 162(a)(2), 'home' does not have its usual meaning; rather, it typically refers to 'the taxpayer’s abode at his or her principal place of employment.' The deduction is intended to mitigate the burden on taxpayers who incur substantial, continuous living expenses at a permanent home that are duplicated by expenditures required while traveling for business. A taxpayer has no tax home if they continuously travel and do not duplicate substantial, continuous living expenses for a permanent home maintained for a business reason. The court applied three factors from Revenue Ruling 73-539: (1) the business connection to the locale of the claimed home; (2) the duplicative nature of the taxpayer’s living expenses while traveling and at the claimed home; and (3) personal attachments to the claimed home. Henderson had virtually no business reason for his tax home to be in Boise, as he constantly traveled for work, and his minimal employment efforts in Boise were insufficient to establish a business nexus. He also did not incur substantial, continuous duplicated living expenses in Boise because he lived with his parents rent-free and had no expenses in Boise while traveling. Given the lack of business connection and duplicative expenses, his personal attachments to Boise were insufficient to establish it as his tax home. Therefore, his travel was not 'away from home' as defined by tax law. The court affirmed the Tax Court's finding that Henderson was an itinerant taxpayer.
Dissenting - Kozinski
Yes, Henderson should be allowed to deduct his travel expenses because Boise was his home in the common sense of the word, and he incurred expenses while 'away from home' in pursuit of business. The Tax Code simply requires that expenses be incurred 'away from home' in the pursuit of business, and Henderson lived with his parents in Boise, where he kept his belongings, received mail, and housed his dog, making it his home. The fact that his parents did not charge him rent is irrelevant, as neither the Code nor common experience requires a taxpayer to pay for their home. The 'business necessity' requirement established in cases like Hantzis v. Commissioner does not apply when the job itself has no fixed location, making it impossible for the taxpayer to move closer to work. Unlike the taxpayer in James v. United States, who was on the road 365 days a year with no permanent home, Henderson had a fixed residence in Boise where he returned between tours. The purpose of the deduction is for being away from home, not solely for duplicated expenses, as exemplified by the deductibility of meals while traveling. The Commissioner's position unfairly penalizes families who provide housing to adult children and imposes extra taxes based on a lifestyle that doesn't conform to the IRS's idea of normalcy, without clear congressional mandate.
Analysis:
This case significantly clarifies the strict interpretation of 'tax home' under IRC § 162(a)(2), emphasizing that strong personal ties to a location are insufficient without a foundational business connection and the incurrence of substantial, continuous, duplicated living expenses. It reinforces the principle that the deduction is for business necessity, not personal choice, making it challenging for itinerant workers without a fixed business base to establish a tax home. The ruling serves as a caution for individuals whose employment requires constant travel, highlighting the functional rather than emotional definition of 'home' in tax law and potentially impacting the deductibility of expenses for traveling professionals, artists, and seasonal workers who may return to a personal residence without an ongoing business nexus.
