[00:01:07] Speaker 00:
Good afternoon, Judge Rogers, and may it please the Court.

[00:01:11] Speaker 00:
There are three points I'm going to make for why the tax court should be reversed in this case, but first to set the table.

[00:01:17] Speaker 00:
Almost a century ago, Congress enacted a statute which allows taxpayers to deduct ordinary and necessary expenses incurred in carrying on a trade or business, including traveling expenses while away from home,

[00:01:29] Speaker 00:
in the pursuit of a trader business.

[00:01:31] Speaker 00:
In 2012, three foreign college students left their homes in Russia, Finland, and Ireland, came to the United States as part of a Department of State work travel program.

[00:01:41] Speaker 00:
They worked temporary jobs for no more than 120 days, returned to their homes, and filed non-resident U.S.

[00:01:47] Speaker 00:
income tax returns claiming away-from-home travel deductions.

[00:01:51] Speaker 00:
Those expenses were disallowed by the IRS upon audit and the tax court sustained the IRS's disallowance on the basis that they were not away from home because they had no business connection to their home countries before they came to the United States.

[00:02:05] Speaker 00:
There's no evidence that Congress intended, when it used this in the statute, the term home, to have any unusual or special meaning beyond its common meaning.

[00:02:15] Speaker 00:
Now, the three points as to why the tax court should be reversed.

[00:02:19] Speaker 00:
First, the court found that a prior business connection to the taxpayers' original home was required.

[00:02:26] Speaker 00:
It is not.

[00:02:28] Speaker 00:
Second, because the taxpayers' work assignments were of a temporary nature,

[00:02:33] Speaker 00:
The business exigencies test of flowers, which the Supreme Court stated in the 1945 decision, does not apply.

[00:02:41] Speaker 00:
And even if the business exigencies test did apply, it was met by the taxpayers in this particular case.

[00:02:48] Speaker 00:
So let's take those in order.

[00:02:51] Speaker 00:
The commissioner has argued in this case, and as it argued in the Hanses case upon which it primarily places its position and the tax court, that the taxpayer has to have a pre-existing business or else he's not in the pursuit of business.

[00:03:11] Speaker 00:
Now, that pre-existing business position was found by the First Circuit in Hanses to not be supported by the case law, and it's inappropriate to the policies underlying the statute.

[00:03:21] Speaker 00:
The policies underlying the statute is that a deduction is intended to exclude from income expenses that were a cost of producing income, and recency of employment has nothing to do with that.

[00:03:33] Speaker 00:
In Hans's, the government cited both the Flowers case and the Eighth Circuit's decision in Jance.

[00:03:40] Speaker 00:
Now, it found the Flowers case in Hans's to be as equivocal on this prior business connection as the statutory language which it was construing on the term home.

[00:03:48] Speaker 03:
Mr. Rubin, I think part of what the authorities that require a pre-existing business relationship with the home, what they're getting at is the notion that there has to be some logic to the commute, but I think the Ninth Circuit formulates it rather well in the Coombs case, and I wonder whether this is an

[00:04:15] Speaker 03:
a definition that you would accept is that the taxpayer's home can be its usual place of abode, but that it shifts to the new location

[00:04:26] Speaker 03:
of shift to the vicinity of a new job if the job is a permanent job or a job of indefinite duration, so that you don't have someone who lives far away and who says, great, I'm going to keep my house because I like it and because I want to be here for recreational purposes, and I'm going

[00:04:46] Speaker 03:
that's clearly the commissioner's concern.

[00:04:52] Speaker 03:
But if you have this idea that home is, as you posit, home is home, except that it has to shift to within the vicinity of a permanent or indefinite job, does that satisfy you?

[00:05:03] Speaker 00:
Well, I would say this.

[00:05:05] Speaker 00:
The Supreme Court

[00:05:06] Speaker 00:
in flowers did duck the question of what is home.

[00:05:12] Speaker 00:
But it did decide under the business exigencies test that when you have an indefinite or an indeterminate employment situation, then it is place of employment.

[00:05:25] Speaker 00:
That's the presumption.

[00:05:26] Speaker 00:
And then you look at the question of what motivated the taxpayer to keep two places of residence.

[00:05:34] Speaker 00:
If it was a business concern,

[00:05:36] Speaker 00:
then it is one where it is allowed, even in an indeterminate situation.

[00:05:42] Speaker 00:
If it is a personal choice, then it is not allowed.

[00:05:46] Speaker 00:
And that is exactly the situation which presented itself in flowers.

[00:05:50] Speaker 00:
In flowers, you had a taxpayer who was a lawyer in Jackson, Mississippi.

[00:05:56] Speaker 00:
The company was in Mobile, Alabama for 12 years prior to the tax years at issue in that case.

[00:06:02] Speaker 00:
He had continued to live in Jackson even though his job had changed to Jackson, Mississippi.

[00:06:07] Speaker 00:
I'm sorry, to Mobile, Alabama.

[00:06:10] Speaker 00:
And for that reason, the court said, wait a second, in an indeterminate type of situation, you have to look at the business exigencies.

[00:06:16] Speaker 00:
You look at the business exigencies as an employer.

[00:06:18] Speaker 00:
No business exigency or business purpose of the railroad was satisfied or compelled him to stay in jail.

[00:06:27] Speaker 03:
Here, I think you may have a similar problem, which is that the statute requires for the traveling expenses to be deductible, that they be incurred

[00:06:36] Speaker 03:
in the pursuit of a trade or business.

[00:06:40] Speaker 03:
And here I think you've made a good case, or a case that one person could agree with, that the student work and travel program requires these students to be away from home, but not in the pursuit of their trade or business, as much as in pursuit of a cultural exchange.

[00:07:04] Speaker 03:
And I wonder what your response is to that.

[00:07:06] Speaker 00:
I would say that it isn't the pursuit of a trade or business.

[00:07:09] Speaker 00:
And here's why.

[00:07:10] Speaker 00:
In order to participate in this particular program, this is not just a pure cultural exchange program.

[00:07:18] Speaker 00:
It is a work travel program.

[00:07:20] Speaker 00:
And one of the requirements of the program is that the students work here in the United States.

[00:07:26] Speaker 00:
They have to have employment that has to be pre-approved by a sponsor.

[00:07:29] Speaker 00:
It has to be approved.

[00:07:30] Speaker 00:
They have to prove that to the Department of State.

[00:07:33] Speaker 00:
And only then are they entitled to then obtain a visa and to come to the United States to perform that job.

[00:07:40] Speaker 00:
Now what's different about, for instance, the Flowers case is that at the time of Flowers, it was unsettled whether or not

[00:07:47] Speaker 00:
the business of being an employee was, in fact, a trader business.

[00:07:52] Speaker 00:
That has now been decided.

[00:07:53] Speaker 00:
The tax court in the Primeth case has determined that expenses necessitated.

[00:07:59] Speaker 00:
I'm sorry, in which case?

[00:08:00] Speaker 00:
I just didn't catch the name.

[00:08:01] Speaker 00:
It's Primeth, P-R-I-M-U-T-H.

[00:08:04] Speaker 00:
It's 54 TC 374.

[00:08:07] Speaker 00:
And it recognized that expenses necessitated by the exigencies of an employee's business are deductible.

[00:08:14] Speaker 00:
So in this particular case,

[00:08:16] Speaker 00:
when these individuals come over here as employees under the requirement that they are working in a trade or business over here, that is in pursuit of their trade or business as an employee.

[00:08:34] Speaker 03:
I'm not sure I'm catching the distinction that you're trying to make because the employer here

[00:08:41] Speaker 03:
hires many people who are not part of the student work and travel program.

[00:08:46] Speaker 03:
And I understand that the student work and travel program requires that there be some employment and that it be far from home.

[00:08:51] Speaker 03:
That's the whole point.

[00:08:53] Speaker 03:
But it's not the

[00:08:55] Speaker 03:
employers' act agency or even the trader business of the student that commands it.

[00:09:03] Speaker 03:
It's the idea that, you know, the State Department and the exercise of its policy making role says this would be good for humanity if these people mixed up and understood one another better.

[00:09:15] Speaker 00:
Well, in order to employ these individuals, the individuals are only allowed to come if they have a visa, which requires them to work and to have residency over in a foreign country.

[00:09:27] Speaker 00:
But for the fact that they get the visa, they could not be employed by the employers here.

[00:09:32] Speaker 00:
All of these services are of the kind that require presence.

[00:09:37] Speaker 00:
I mean, being a maid, being a lifeguard, being a waiter, all require presence.

[00:09:42] Speaker 00:
So if the employers do wish to employ these individuals, they have to meet the requirements of the program, which require them to obtain a visa, one of the requirements of which is to have a job.

[00:09:57] Speaker 00:
and to have residency in their foreign country.

[00:09:59] Speaker 03:
What if I were my child who's under the age of employee wants to work at a summer camp and the state in which the summer camp is located requires that there be some youth employment waiver or permission obtained in that state and my child gets that permission so that they can work as an underage worker

[00:10:22] Speaker 03:
in this salutary, temporary work, would the, under your principle, would the travel expenses of going to and from the state where that camp is be deductible?

[00:10:35] Speaker 00:
If it is a temporary situation, the answer would be yes.

[00:10:39] Speaker 00:
If it was an indefinite situation, then perhaps not, because then we'd be looking at business exigencies.

[00:10:45] Speaker 00:
But the temporary test that the Supreme Court recognized that the tax court has imposed upon the business exigencies test, there is no reason to inquire as to

[00:10:58] Speaker 00:
why you have to have two residences in a temporary situation, because there is only one residence in those situations.

[00:11:07] Speaker 00:
While you have traveled to somewhere else, it's not reasonable for a taxpayer in a temporary situation to pick up and move his family and his center of interest to a place that he's only going to be at temporarily.

[00:11:18] Speaker 00:
And so that's the reason why the tax court recognized that temporary exception.

[00:11:23] Speaker 00:
The Supreme Court recognized that in purifoy.

[00:11:27] Speaker 00:
And the temporary exception has been widely accepted thereafter.

[00:11:32] Speaker 00:
I mean, in Frederick, an 8th Circuit case, and I'm quoting from 603 F.

[00:11:36] Speaker 00:
2nd, 1295, they recognized that a taxpayer's discretion as to where he lives is severely limited or nonexistent when employed for temporary time.

[00:11:46] Speaker 00:
And for that reason, his choice of residence is considered to be a business, not a personal reason.

[00:11:52] Speaker 03:
What if I'm an adjunct professor hired from year to year?

[00:11:55] Speaker 03:
Is a year long less than a year, nine months, is that temporary?

[00:11:59] Speaker 00:
That would be temporary.

[00:12:01] Speaker 03:
And I like to live in Paris because it's great in the summertime and then every school year I come and I re-up in Washington DC and I deduct the expenses of flying to Washington and having a place to live here and going back to Paris for the summertime.

[00:12:20] Speaker 03:
Under your theory that would also, those expenses would also be deducted.

[00:12:23] Speaker 00:
Because they are temporary, that would be correct.

[00:12:26] Speaker 00:
That would be correct.

[00:12:30] Speaker 00:
The difference is the business exigencies test applies in situations where there is an ambiguous situation that involves indefinite or indeterminate

[00:12:42] Speaker 00:
employment.

[00:12:44] Speaker 00:
And the business executions test sorts out the taxpayers' reasons for having two homes, business versus personal.

[00:12:51] Speaker 00:
If it's business, it's allowable.

[00:12:53] Speaker 00:
If it is personal, then it's not allowable.

[00:12:56] Speaker 00:
But the temporary exception applies when due to the short-term nature of the job,

[00:13:02] Speaker 00:
The taxpayer is not expected to or required to maintain a formal second home with a place of employment.

[00:13:09] Speaker 00:
And in those situations, no inquiry as to business reasons.

[00:13:12] Speaker 01:
I want to take you back to your beginning just for a moment.

[00:13:15] Speaker 01:
You have different levels of resistance.

[00:13:18] Speaker 01:
But is it your position, at least your first position, that there cannot be a different meaning of home for tax purposes and for other residential purposes?

[00:13:31] Speaker 00:
Yes, it is.

[00:13:35] Speaker 00:
That is our first position.

[00:13:36] Speaker 01:
You're willing to assume for the sake of second and third positions that

[00:13:41] Speaker 01:
we would not necessarily agree with that, that there could be, if you would, a term of art definition for tax purposes for the word home.

[00:13:49] Speaker 01:
You asked me to take an awful lot of ground with you if we were to reach that first conclusion.

[00:13:56] Speaker 00:
Correct.

[00:13:56] Speaker 00:
You are correct, Ron.

[00:13:57] Speaker 00:
Our first position is that the word home is not a term of art.

[00:14:01] Speaker 00:
It is a simple term, common English, which means a permanent place for learning.

[00:14:05] Speaker 01:
It seems to me that...

[00:14:06] Speaker 01:
The expanded term tax home has been used in a lot of different contexts for a lot of years now, often short in just the home when you're dealing with the tax question.

[00:14:16] Speaker 01:
So you don't have to win on that question to win.

[00:14:18] Speaker 01:
You have other fallback positions that you've been discussing with Jeff Pillard, right?

[00:14:23] Speaker 00:
I don't have to win on that position.

[00:14:25] Speaker 00:
I can win on my fallback positions.

[00:14:27] Speaker 00:
For example, even if you were to find that the business exigencies test applies here,

[00:14:32] Speaker 00:
I believe we win on the business excellence test because you look at these people and they are required to maintain their residency over in the foreign country in order to be able to hold us accountable.

[00:14:44] Speaker 00:
It's much like the situation that we cited to with Judge LeBlanc in the LeBlanc case out of the Fifth Circuit.

[00:14:51] Speaker 00:
He was a Supreme Court Justice in Louisiana.

[00:14:53] Speaker 00:
He was required to maintain residency in his home district while he became a Supreme Court Justice of Louisiana.

[00:15:01] Speaker 00:
They said that is sufficient, and they allowed that.

[00:15:04] Speaker 00:
That's a business reason.

[00:15:06] Speaker 00:
And on that basis alone, we believe we would win, recognizing that you do not have to accept our definition of home.

[00:15:14] Speaker 03:
Thank you.

[00:15:14] Speaker 03:
All right.

[00:15:15] Speaker 03:
Shall we hear from counsel for the IRS?

[00:15:25] Speaker 02:
Good afternoon, and may it please the court?

[00:15:27] Speaker 02:
My name is Nora Bringer, and I represent the commissioner in this appeal.

[00:15:32] Speaker 02:
The taxpayers in this case were foreign college students in 2012, when they spent their summers working as a lifeguard in the Wisconsin Delves, as a housekeeper on San Juan Island in Washington State, and a waiter in Montauk, New York.

[00:15:45] Speaker 02:
They seek to deduct their travel expenses, and in the case of Mr. Conway, some living expenses that he incurred during that employment.

[00:15:52] Speaker 02:
The general rule in the Internal Revenue Code is in Section 262, and that provision says that personal living and family expenses are not deductible.

[00:16:02] Speaker 02:
The idea is that one's basic living expenses, something to eat, a place to live, and a place to sleep,

[00:16:09] Speaker 02:
are to be paid for with taxable income.

[00:16:11] Speaker 02:
That's the general rule.

[00:16:13] Speaker 02:
Now the exception at issue here is in section 162A2, which provides for this deduction for traveling expenses while away from home in the pursuit of a trade or business.

[00:16:25] Speaker 02:
And the purpose of that deduction

[00:16:27] Speaker 02:
is to mitigate the extra expenses that are incurred by a taxpayer who must live in one place and work in another for business reasons or maintain two residences due to the requirements of his or her trade or business.

[00:16:42] Speaker 02:
The Supreme Court has held that a deduction is a matter of legislative grace and must be strictly construed.

[00:16:49] Speaker 02:
Ms.

[00:16:49] Speaker 03:
Springer, the tax court relied on Hansa's and in particular embraced the notion that only a taxpayer who lives in one place works in another and has business ties to both.

[00:17:05] Speaker 03:
can deduct travel expenses in connection with a temporary employment location.

[00:17:11] Speaker 03:
That seems to me to swallow up the entire purpose of Congress in enacting this provision, which is if you have someone who really doesn't have a principal place of business, often people who are self-employed and work

[00:17:26] Speaker 03:
in a lot of different places, an orchestra extra, the bridge construction expert who goes wherever the bridge is being built on his or her own dime, the forensic expert who travels around the country testifying in cases and doesn't have a business reason to go back home but needs a home somewhere

[00:17:52] Speaker 03:
That's, I thought, the core of what this provision is about, so I'm having trouble reconciling that with the tax court's embrace of Hansa's.

[00:18:01] Speaker 02:
So the IRS has issued guidance that essentially lays out a three-step process for determining somebody's tax home or whether they have a tax home at all.

[00:18:10] Speaker 02:
The first step is determining whether taxpayers, in fact, have a principal place of business.

[00:18:15] Speaker 02:
Now here, we know that these students who were here for the summer worked in one place for four months, and the government's position is that where they worked, in Wisconsin, in Washington State, and in New York, was their principal place of business.

[00:18:29] Speaker 02:
Now, I think what you're talking about, Your Honor, is a situation where somebody does not, in fact, have a principled place of business.

[00:18:36] Speaker 02:
And in that case, there are a number of factors that the service would look at to determine whether a person's abode could be their home.

[00:18:45] Speaker 02:
Those factors look at things like, do they perform work there?

[00:18:49] Speaker 02:
How often are they there?

[00:18:50] Speaker 02:
Those kinds of things.

[00:18:51] Speaker 02:
And then there is another class of taxpayers, which may include some of the people that you're thinking about,

[00:18:56] Speaker 02:
who do not, in fact, have what most of us would think of as a permanent residence or place that they live.

[00:19:03] Speaker 02:
There are cases about traveling salespeople who

[00:19:06] Speaker 02:
You know, stay in hotels all year long and don't in fact incur any duplicate living expenses.

[00:19:12] Speaker 02:
And so that idea comes into play in determining whether itinerant taxpayers have a tax home at all.

[00:19:18] Speaker 02:
Here our position is that these taxpayers were not in that position.

[00:19:22] Speaker 02:
They had one job and that job was in the United States in the locations we've talked about.

[00:19:27] Speaker 01:
It's difficult to say that for non-tax purposes, their homes weren't their home.

[00:19:33] Speaker 01:
Each of these persons came from another country where they had normal living arrangements.

[00:19:40] Speaker 01:
They went back to that country where they had normal living arrangements, and conceding the possibility of the concept of a tax home,

[00:19:49] Speaker 01:
It isn't very accurate.

[00:19:50] Speaker 01:
It doesn't sound very accurate.

[00:19:51] Speaker 01:
So they didn't have homes except for the tax home.

[00:19:56] Speaker 01:
Am I wrong about that?

[00:19:57] Speaker 02:
No, Your Honor.

[00:19:58] Speaker 02:
I would agree with you about that.

[00:20:00] Speaker 02:
But the key is that the tax court and most courts of appeals to have addressed the issue have held that home for purposes of this deduction means a principal place of business.

[00:20:10] Speaker 02:
And this court in York embraced this concept without looking at the away from home phrase.

[00:20:16] Speaker 02:
and said a man's living expenses while he is carrying on his business at his regular place of business are personal and not business expenses.

[00:20:25] Speaker 02:
And the Supreme Court, although it dodged this question of what away from home means and flowers, got there in essentially the same way.

[00:20:32] Speaker 02:
The court said that business trips are to be identified in relation to business demands and the traveler's business headquarters.

[00:20:40] Speaker 02:
Now, in Flowers, the taxpayer lived in Jackson, but worked in Mobile.

[00:20:45] Speaker 02:
That was the taxpayer's business headquarters.

[00:20:48] Speaker 02:
And the court said, you know, the travel expenses were not allowed, looking at where he actually worked.

[00:20:56] Speaker 02:
What's clear from the many courts who have defined home and from the courts who haven't but have reached the same results through other provisions of the statute is that the only business expenses deductible are those for travel and living away from a taxpayer's principal or regular place of business.

[00:21:12] Speaker 02:
Again, the only regular place of business for these taxpayers were in Wisconsin, Washington State, and New York.

[00:21:19] Speaker 02:
And there's nothing about their work as a lifeguard or a housekeeper or a waiter that, in the words of Flowers, forced them to travel or live temporarily away from where they worked.

[00:21:32] Speaker 03:
So you're saying that the summer camp and the waitering and housekeeping jobs that these students have were their principal place of business?

[00:21:42] Speaker 03:
Yes, Your Honor.

[00:21:44] Speaker 03:
So if somebody wants to be a dancer, a professional dancer, and they're in school in Paris and training, and then they get a break to go and dance in Atlanta,

[00:21:59] Speaker 03:
and they travel and do that work and then go back home hoping for the next gig in Madrid and the next gig Buenos Aires.

[00:22:11] Speaker 03:
That person could not deduct their travel expenses because by your logic the place they went even temporarily in Atlanta was their principal place of business because they weren't working when they were in

[00:22:27] Speaker 03:
Paris, at home?

[00:22:29] Speaker 02:
So there are a few things to unpack there, and I'll try to do them.

[00:22:32] Speaker 02:
But please remind me if I missed something there.

[00:22:35] Speaker 02:
So there are some workers who are people who do not have a principal place of business.

[00:22:42] Speaker 02:
And whether somebody has a principal place of business is likely a question of fact for the original court to determine.

[00:22:49] Speaker 02:
So in your example,

[00:22:51] Speaker 02:
We would have questions about how long the dancer who lived in Paris worked somewhere else.

[00:22:58] Speaker 02:
Where else did he or she work during the year?

[00:22:59] Speaker 03:
I'm positing that it was short term.

[00:23:03] Speaker 03:
It was for the season of a particular show.

[00:23:07] Speaker 03:
Because that's the way you get these gigs if you're not in a core.

[00:23:13] Speaker 02:
So if that person did one season in New York and another season in Beijing and a third season in Rome, let's say, then there are cases that look at identifying where that person's principal place of business is.

[00:23:29] Speaker 02:
And those cases look at things like how many days were they in each location?

[00:23:33] Speaker 02:
How much of their income did they earn from each job?

[00:23:36] Speaker 02:
and that kind of thing.

[00:23:37] Speaker 02:
And so that could come into play with your HIPAA.

[00:23:40] Speaker 03:
But what if they don't have a principal place of business?

[00:23:42] Speaker 03:
They just do seriatim temporary jobs, because that's the nature of what they do.

[00:23:48] Speaker 02:
So if they don't, if there's no temporary place of business, again the IRS's... Principal.

[00:23:52] Speaker 02:
You said temporary, but there's no principal place of business.

[00:23:54] Speaker 02:
No principal place of business.

[00:23:55] Speaker 02:
Then the IRS's guidance is that

[00:23:58] Speaker 02:
The service would first look to whether they indeed have a residence, such that they're incurring duplicate living expenses.

[00:24:07] Speaker 02:
That's where that comes into play, is this question of are they incurring duplicate living expenses?

[00:24:12] Speaker 02:
And if they're not, if there's somebody who's truly itinerant, who has no home, as most of us would think of that, then they are never away from home because they don't have a home to begin with and their expenses are not deductible.

[00:24:25] Speaker 02:
There's a number of cases about itinerant workers that come into that provision.

[00:24:29] Speaker 02:
That's not what we have here.

[00:24:32] Speaker 03:
Why not?

[00:24:34] Speaker 03:
Because there's not proof of duplicative living expenses, or because they're living with their parents, or because their home country homes are not their homes.

[00:24:44] Speaker 03:
I mean, I'm just trying to probe why you say their principal place of business is away at a temporary job, where I think there are a lot of other examples I can think of where they wouldn't have a principal place of business based on such a short term stint, and their home would be their actual residence.

[00:25:01] Speaker 02:
So the fact is, in this case, that these taxpayers only had one job and that they did it for several months.

[00:25:06] Speaker 02:
And so when you look at that tax year 2012 and say, well, where is their principal place of business, the only jobs that are at issue here are those that they did in the United States.

[00:25:16] Speaker 03:
But that seems odd to me.

[00:25:17] Speaker 03:
I mean, I know this is very hard to get all the examples.

[00:25:19] Speaker 03:
But if my ballerina, for example, living in Paris,

[00:25:22] Speaker 03:
you know, for a period of two or three years, she only gets that one gig in Atlanta.

[00:25:27] Speaker 03:
She's still waiting and working and getting better.

[00:25:30] Speaker 03:
And then, you know, in year three, four and five, she's going to be in, you know, in Rome and Barcelona and Sao Paulo and Sydney and, you know, so it is part of a career.

[00:25:40] Speaker 03:
It's just that she hasn't gotten lucky yet.

[00:25:42] Speaker 03:
And why, how just conceptually under the tax law can we distinguish this situation?

[00:25:48] Speaker 02:
So there are close questions here.

[00:25:51] Speaker 02:
And looking at the cases, there are times when courts have said somebody who was working somewhere for eight months out of the year was in a temporary job, and sometimes the courts have said they are not in a temporary job.

[00:26:03] Speaker 02:
And the courts tend to look at a number of the other factors around the taxpayers.

[00:26:08] Speaker 02:
But let me say that no.

[00:26:13] Speaker 03:
I'm sorry to interrupt you.

[00:26:13] Speaker 03:
I just want to make sure that I get this question out, which is, what about just saying that taxpayers did not incur these expenses in the pursuit of the trader business, but rather in pursuit of a cultural exchange?

[00:26:26] Speaker 02:
So this is the point that I was going to turn to next.

[00:26:28] Speaker 02:
So thank you for bringing us to that point.

[00:26:33] Speaker 02:
In this, this record is fairly limited and we don't actually have any information about the intent of these particular taxpayers.

[00:26:44] Speaker 02:
But I think this kind of a program does invite that question.

[00:26:48] Speaker 02:
Unfortunately, it's not in the record here.

[00:26:51] Speaker 02:
But what I will say is that there's no court of appeals that has held that for temporary employment, there is an exception from the Flowers test.

[00:27:02] Speaker 02:
And there's no suggestion in the Supreme Court's opinion in Flowers that it applied only to permanent employment.

[00:27:10] Speaker 02:
The First Circuit certainly reached that conclusion.

[00:27:14] Speaker 02:
And the 7th Circuit in Wilbert was dealing with an airline mechanic who was laid off from his work in Minneapolis and then worked a number of temporary gigs around the country, was held to not be able to deduct his business expenses because he did not have a business reason to keep his home in the Minneapolis suburbs.

[00:27:34] Speaker 02:
And so that was the Seventh Circuit's reasoning in that case.

[00:27:38] Speaker 02:
The Ninth Circuit has also discussed Hansus with approval in the Henderson case, which was about an itinerant worker, but it discussed Hansus with approval.

[00:27:46] Speaker 02:
And I'll also note that the Fourth Circuit and the Supreme Court in the Porifoy case assumed but did not decide that there was some kind of exception for temporary employment.

[00:27:58] Speaker 02:
And they certainly didn't say that temporary employment was an exception from the Flowers Test.

[00:28:05] Speaker 02:
The 4th Circuit in Purifoy, in fact, said that the deduction was allowed only when an individual already has a well-established tax home and leaves that well-established tax home to do work elsewhere.

[00:28:18] Speaker 02:
I'd like to say a few words about the visa requirements at play here.

[00:28:24] Speaker 02:
The taxpayers' argument is that they did have a business reason to maintain two residences because of the visa requirements.

[00:28:32] Speaker 02:
The tax court correctly held that visa holders in the taxpayers' position are not required to maintain a second place to live in their home countries.

[00:28:41] Speaker 02:
No court has held this, as the tax court noted, and the taxpayers have pointed to no cases on point.

[00:28:55] Speaker 02:
And preparing for oral argument, we in fact confirmed that the State Department does not interpret this provision to require them to have a second place to live in their home countries while they're here.

[00:29:05] Speaker 02:
And indeed, if that was the holding, it would have some consequences for other visa holders.

[00:29:11] Speaker 03:
You're saying this is their principal business, but they can't stay long term.

[00:29:17] Speaker 03:
They're prohibited from staying in these jobs long-term.

[00:29:20] Speaker 02:
Yes, that's true, Your Honor.

[00:29:22] Speaker 03:
Doesn't that cut against the notion that this is indefinite or permanent work?

[00:29:26] Speaker 03:
Or you're saying that's separate from principal points of business?

[00:29:30] Speaker 02:
I'm not sure I understand your question.

[00:29:32] Speaker 03:
Well, the notion that when you move somewhere for a job that becomes your tax home, it makes sense to me when you're moving to an indefinite or permanent job.

[00:29:47] Speaker 03:
It's a little harder to compute when you're moving for a job that everybody knows is short term, to then call that your principal place of business.

[00:29:55] Speaker 02:
So the idea of the deduction again is to provide relief for the typical taxpayer who does have living expenses in one place and is required by work to move somewhere else.

[00:30:10] Speaker 02:
In this case,

[00:30:11] Speaker 02:
that was not actually the case.

[00:30:14] Speaker 02:
First of all, the immigration requirements didn't require them to maintain a second home.

[00:30:18] Speaker 02:
So to the extent they had two homes, such that they were away from home, there's no requirement in the immigration law that they do that.

[00:30:29] Speaker 02:
Secondly, any of those requirements were not directly connected to the trade or business of being a lifeguard, a waiter, or a housekeeper.

[00:30:38] Speaker 03:
If someone has business reasons to maintain their... But that's going to never be true for these traveling people that this provision is directed at.

[00:30:46] Speaker 03:
They could live on the street side for all anybody cares.

[00:30:51] Speaker 03:
I mean, that's some of these sad cases where someone apparently couldn't even afford to have a home.

[00:30:56] Speaker 03:
It's not that the program needs to require it, it's that you allow someone to have a home who's a traveling person, right, and you allow them to deduct the expenses because it's coherent, it's not voluntary, it's part of the kind of field that they're in that they have to go hither and yon.

[00:31:12] Speaker 02:
So the government certainly agrees that taxpayers can live anywhere they would like to.

[00:31:18] Speaker 02:
The question is whether they're entitled to this deduction for their expenses.

[00:31:23] Speaker 02:
And where a taxpayer has business reasons to maintain their original home,

[00:31:28] Speaker 02:
then there's reason for them to receive a deduction for having to go somewhere else, for having to maintain a second home for purposes of business.

[00:31:39] Speaker 02:
But where someone has no business ties and chooses to go somewhere else to work for a few months, that's an entirely different situation from what Congress was anticipating.

[00:31:50] Speaker 02:
Again, the general rule is that

[00:31:52] Speaker 02:
taxpayers are responsible for paying their living expenses with taxable income.

[00:31:57] Speaker 02:
And if a taxpayer chooses to live in Paris and then take a job in Chicago for a few months, that's the taxpayer's choice.

[00:32:04] Speaker 02:
It's not a business reason that's motivating them to have a home in one place and temporarily work elsewhere.

[00:32:12] Speaker 03:
I just have one question, which has bedeviled me, which is what do you make of the statement in Parafoy that temporary work is accepted from the requirement that the travel be required by the exigencies of business?

[00:32:36] Speaker 02:
Your Honor, I'm looking at the Parafoy case.

[00:32:38] Speaker 02:
Do you happen to have a page number where that is?

[00:32:42] Speaker 02:
Oh, mine is page 16.

[00:32:44] Speaker 02:
It's a short case.

[00:32:54] Speaker 02:
So here the Supreme Court says, to this rule, the rule in flowers, the tax court has engrafted an exception, which allows a deduction for expenditures of this type.

[00:33:06] Speaker 02:
And then it says the respondent, in that case the commissioner, does not, in the present case, challenge the validity of this exception to the general rule, and then goes on to find that the work in that case was not, in fact, temporary.

[00:33:19] Speaker 02:
So in this case, in purifoy, is a matter of the commissioner not challenging that rule, and the Supreme Court apparently assuming for purposes of that case that it applied, and indeed not having to reach that issue because it found that the employment was not temporary.

[00:33:37] Speaker 02:
Any other questions from the panel?

[00:33:39] Speaker 02:
Thank you very much.

[00:33:47] Speaker 00:
If I might pick up on the existence of the temporary rule and its purposes, there is no doubt that there is a temporary rule which applies.

[00:33:56] Speaker 00:
The tax court came up with this, and purify the Supreme Court recognized the existence of the temporary exception to the business act.

[00:34:03] Speaker 00:
And we've cited in our briefs, virtually every circuit court of appeals

[00:34:08] Speaker 00:
that has considered this issue other than, and in fact, the 7th Circuit recognized it in the Wilbur case, and the 1st Circuit recognized it in the Hansa's case, but put this business connection limitation on it.

[00:34:22] Speaker 00:
But it exists.

[00:34:24] Speaker 00:
There is a temporary exception.

[00:34:26] Speaker 00:
And in fact, it was put in the statute in 1990.

[00:34:29] Speaker 00:
It was put in because it said, now, anything over a year will not be considered temporary.

[00:34:36] Speaker 00:
So the temporary rule exists, and the question is, why does it exist?

[00:34:40] Speaker 00:
Why is there an exception to the business exigencies test?

[00:34:44] Speaker 00:
And the reason is because when it's temporary, the taxpayer is not considered to have two homes.

[00:34:53] Speaker 00:
Whereas in indefinite and indeterminate situations,

[00:34:58] Speaker 00:
The taxpayer is determined to have two homes.

[00:35:01] Speaker 00:
Then you have to look at business reasons to determine, personal versus business, indefinite and indeterminate.

[00:35:08] Speaker 00:
But in the temporary situation, that same inquiry is not necessary.

[00:35:16] Speaker 00:
to the Hansus case then, Hansus fundamentally misunderstood that and let in through the back door this business connection requirement, which it recognized didn't exist when it was discussing the in-pursuit of a trade or business.

[00:35:30] Speaker 00:
And that's the reason why it got bollocksed up in its decision.

[00:35:36] Speaker 00:
The fact of the matter is there is no business connection which is required.

[00:35:42] Speaker 00:
Here, the travel is for business.

[00:35:45] Speaker 00:
The commissioner tries to ignore this threshold mandatory requirement.

[00:35:49] Speaker 00:
This is a work travel program.

[00:35:51] Speaker 00:
You have to have a job.

[00:35:54] Speaker 00:
You come over here on a job or you don't get the visa.

[00:35:58] Speaker 03:
It's appealing in its simplicity, your position, but the

[00:36:02] Speaker 03:
problem I have with it is that basically if I live in Des Moines and I just think I'm going to go, you know, wait tables at high-end restaurants in San Francisco for six months and LA for six months and Miami for six months and New York for six months because I think that would be fun.

[00:36:19] Speaker 03:
I get to deduct all my living expenses and travel expenses going hither and yon, and then I go back to my home in Des Moines.

[00:36:28] Speaker 03:
That doesn't seem like what the Congress had in mind.

[00:36:34] Speaker 00:
What's your positive situation where there's no reason for that taxpayer to be maintaining the second home bill?

[00:36:40] Speaker 03:
Well, no, there is, because the taxpayers are not staying in any one of those places.

[00:36:47] Speaker 03:
They don't have a center of gravity anywhere else.

[00:36:52] Speaker 00:
For tax purposes, for purposes of section 162, the taxpayer can have only one home at any particular point in time.

[00:37:00] Speaker 00:
What you've posited is an itinerant situation.

[00:37:03] Speaker 00:
In an itinerant situation, the taxpayer is not considered to have any home because they travel from place to place to place.

[00:37:10] Speaker 03:
No, I think the whole point, the core point of this provision was for someone who works on contract hither and yon and doesn't have a logical place to go be near work but wants to work and maybe there's work that is by its nature only available to far flung like the dancer who's dancing in theaters around the world versus work that hey, actually you could do it near home and just stick with it and the only reason you're going around is because you think it'd be fun.

[00:37:40] Speaker 03:
It's hard to see how that's captured by a test.

[00:37:42] Speaker 00:
That's very elegant, but yes And again, we're back to them.

[00:37:47] Speaker 00:
What is the definition of home and what is the requirement of the temporary exception?

[00:37:53] Speaker 03:
Thank you