Anna K. Diehn, There's No Place Like "home": Sec. 162(a)(2) and Why Married Taxpayers Just Can't Get "away"

• Publication year: 2010

THERE'S NO PLACE LIKE "HOME": Sec. 162(A)(2) AND WHY MARRIED TAXPAYERS JUST CAN'T GET "AWAY"

ABSTRACT

This Comment examines Sec. 162(a)(2) of the Internal Revenue Code, which allows a taxpayer to deduct expenses incurred while traveling "away from home" for business purposes. Under this provision, a taxpayer may deduct expenses for travel fares, meals, and lodging. Although such expenses would seem to be non-deductible because they are personal in nature, Congress created a limited exception under Sec. 162(a)(2) to alleviate the burden on the taxpayer whose job requires him to work away from home and therefore essentially incur duplicate living expenses. On the face of the statute, the only apparent requirement is that a taxpayer must be "away from home," but the statute's simplicity is deceptive.

Taxpayers who wish to deduct travel expenses under Sec. 162(a)(2) face nearly a century of inconsistent interpretations and arbitrary limitations of when a taxpayer is considered "away." By analyzing a range of both cases and characteristics of different taxpayers, this Comment reveals an additional complication: the Internal Revenue Service (IRS) and courts have created a "marriage penalty" that severely limits the availability of the Sec. 162(a)(2) deduction for married taxpayers. This Comment further uncovers a gender bias against married women in the application of the provision by the IRS and courts. The gender makeup of the workforce has changed significantly since

Sec. 162(a)(2) first appeared in the Tax Code in 1921, and a revision is necessary to alleviate the burden it imposes on working families.

INTRODUCTION

Every presidential election, the public pressures the candidates to release their income tax returns, and the 2008 election was no exception.¹While serving as governor of Alaska, Sarah Palin worked out of both Juneau, the state capital, and Wasilla, her hometown where she resides with her husband and children.²On her 2007 income tax return, Governor Palin claimed a $16,591 deduction under Sec. 162(a)(2) for travel expenses she incurred while working out of Wasilla.³Under Sec. 162(a)(2) of the Internal Revenue Code, only expenses incurred while "away from home" are deductible.⁴A taxpayer unfamiliar with

Sec. 162(a)(2) might assume that Governor Palin could deduct the expenses incurred in Juneau because only then was she truly away from her hometown of Wasilla. However, the answer is not so simple.

If "home" is defined in the ordinary sense, then the governor could deduct from her income any travel expenses incurred in Juneau because she would be away from her home in Wasilla.⁵However, if "home" is defined as the taxpayer's "principal place of business," then Governor Palin would be unable to deduct expenses incurred in Juneau because Juneau is her principal place of business. By analyzing a range of "away from home" cases, this Comment reveals an additional complication in attempting to answer the governor's tax dilemma: by severely limiting the availability of the Sec. 162(a)(2) deduction, the Internal Revenue Service (IRS) and courts have created a "marriage penalty" for married taxpayers.⁶Unfortunately for Governor Palin, the bad news does not end here. This Comment further uncovers in the courts' application of

Sec. 162(a)(2) a gender bias against earnings by married women.⁷

Generally, a taxpayer can deduct his business expenses but cannot deduct any "personal, living, or family expenses."⁸Deducting business but not personal expenses is permitted because "'a person's taxable income should not include the cost of producing that income.'"⁹Section 162(a)(2) allows a taxpayer to deduct expenses for travel, meals, and lodging, although such expenses appear to be non-deductible because they are personal in nature.¹⁰

Congress created a limited exception under Sec. 162(a)(2) to alleviate the burden on the taxpayer whose business requires him to work "away from home," and therefore essentially incur duplicative living expenses.¹¹Accordingly, some living expenses are non-deductible because they are personal expenses, while duplicative living expenses may be deductible under Sec. 162(a)(2).¹²As a result, a taxpayer whose expenses qualify for the deduction under Sec. 162(a)(2) has a distinct advantage over a taxpayer whose expenses do not qualify for the deduction.¹³

This Comment first examines the varying and often conflicting strains of jurisprudence governing the interpretation of Sec. 162(a)(2) and presents a coherent analysis of what constitutes a taxpayer's "home" and when a taxpayer is considered "away."¹⁴After Congress adopted the provision in 1921, the interpretation of this provision has been left to courts.¹⁵This Comment demonstrates that in the vast majority of cases, married taxpayers are unable to obtain the benefit of the deduction because courts, by repeatedly restricting the availability of Sec. 162(a)(2) to married taxpayers, have created a marriage penalty.¹⁶This Comment asserts that the two primary victims of the

Sec. 162(a)(2) marriage penalty are dual wage earners and married women because courts fail to consider the implications of their decisions on these groups, thereby creating an additional disincentive for wives to enter and remain in the workforce.¹⁷The workforce has changed significantly since

Sec. 162(a)(2) first appeared in the Tax Code in 1921, and a revision is necessary to alleviate the burden on working families imposed by the marriage penalty and to facilitate the entry of more women into the workforce.

Part I of this Comment discusses the development of Sec. 162(a)(2) case law and demonstrates the increasing reluctance of courts to allow a taxpayer to receive the deduction. Part II argues that courts have created a Sec. 162(a)(2) marriage penalty, which prevents married taxpayers from obtaining the deduction. Part III argues that there are two primary victims of the marriage penalty: (1) dual wage earners, and (2) married women taxpayers. Part IV advocates for the enactment of a special provision reinterpreting Sec. 162(a)(2) for married couples who file jointly, whereby "home" is defined as a taxpayer's place of residence. Solving the problems created by the current interpretation of Sec. 162(a)(2) through a statutory amendment is neither drastic nor unprecedented; the IRS and courts have made similar exceptions for certain groups of taxpayers in the past.¹⁸

It is important to note that Sec. 162(a)(2) also has created obstacles for groups other than married and women taxpayers. However, such obstacles are based on the occupation of the taxpayer and do not trigger marital status and gender concerns.¹⁹This Comment addresses the situation of these other taxpayers briefly in Part IV but focuses on the need for a legislative solution for married women taxpayers.

I. THE EVOLUTION OF Sec. 162(A)(2) "AWAY FROM HOME" JURISPRUDENCE

Section 162(a) of the Internal Revenue Code allows a taxpayer to deduct "all the ordinary and necessary expenses paid or incurred during the taxable year in carrying on any trade or business."²⁰Under Sec. 162(a)(2) these expenses include "traveling expenses (including amounts expended for meals and lodging other than amounts which are lavish or extravagant under the circumstances) while away from home in the pursuit of a trade or business."²¹

On its face, the statute has only two requirements: (1) the taxpayer must be "away from home;" and (2) the taxpayer must be "in the pursuit of a trade or business." Therefore, it would appear that Governor Palin could deduct expenses she incurred in Juneau because she was working away from her hometown of Wasilla. However, the question of whether an expense is deductible under Sec. 162(a)(2) has been "a prolific and continuous source of litigation under the income tax law."²²At the heart of the controversy is what constitutes a taxpayer's "home" for purposes of Sec. 162(a)(2).²³

Because neither the Tax Code nor the Supreme Court provides a definition of the word "home," the IRS and lower courts have interpreted the term inconsistently.²⁴A shrinking minority of courts define "home" in this context as the taxpayer's "place of residence."²⁵On the other hand, the IRS and the Tax Court have adopted the position that a taxpayer's "home" is his "principal place of business."²⁶Although the Supreme Court has addressed Sec. 162(a)(2) on three different occasions, it has failed to offer clear guidance on the interpretation of "home."²⁷This section explains and distinguishes the minority rule, the majority rule, and the Supreme Court's position.

A. "Home" Means Home

The ordinary meaning of the word "home" is one's "place of residence."²⁸

Such an interpretation does not appear to conflict with the purpose of the deduction, which is to avoid taxing people whose business requires them to travel away from home and thus incur duplicative living expenses.²⁹If Congress had intended for "home" to mean something unusual, it could have used a "more appropriate term."³⁰In the dissent to Commissioner v. Flowers,

Justice Rutledge rejected the notion of "home" as the taxpayer's principal place of employment because he could find "no purpose stated or implied in the Act, the regulations or the legislative history to support such a distortion."³¹

According to Justice Rutledge, the only stated purpose of Sec. 162(a)(2) is to relieve the tax burden when a taxpayer is away from home on business.³²

Therefore, a taxpayer who is away from her place of residence, like Governor

Palin, should be able to deduct those costs incurred in the pursuit of business.

Today, however, for purposes of Sec. 162(a)(2) only a minority of courts define "home" as a taxpayer's residence. In Coburn v. Commissioner, the Second Circuit found that the taxpayer's "home" was his home in the "ordinary meaning of the word."³³In Coburn, the taxpayer maintained a residence in New York, but spent 263 days of the taxable year in California pursuing an acting career.³⁴Although he...