Rudolph v. United States/Dissent Harlan
Separate opinion of Mr. Justice HARLAN.
Although the reasons given by the Court for dismissing the writ as improvidently granted should have been persuasive against granting certiorari, now that the case is here I think it better to decide it, two members of the Court having dissented on the merits.
The courts below concluded (1) that the value of this 'all expense' trip to the company-sponsored insurance convention constituted 'gross income' to the petitioners within the meaning of § 61 of the Internal Revenue Code of 1954, 26 U.S.C.A. § 61 and (2) that the amount reflected was not deductible as an 'ordinary and necessary' business expense under § 162 of the Code, 26 U.S.C.A. § 162.  Both conclusions are, in my opinion, unassailable unless the findings of fact on which they rested are to be impeached by us as clearly erroneous. I do not think they can be on this record, especially in light of the 'seasoned and wise rule of this Court' which 'makes concurrent findings of two courts below final here in the absence of very exceptional showing of error.' Comstock v. Group of Institutional Investors, 335 U.S. 211, 214, 68 S.Ct. 1454, 1456, 92 L.Ed. 1911.
The basic facts, found by the District Court, are as follows. Petitioners, husband and wife, reside in Dallas, Texas, where the home office of the husband's employer, the Southland Life Insurance Company, is located. By having sold a predetermined amount of insurance, the husband qualified to attend the company's convention in New York City in 1956 and, in line with company policy, to bring his wife with him. The petitioners, together with 150 other employees and officers of the insurance company and 141 wives, traveled to and from New York City on special trains, and were housed in a single hotel during their two-and-one-half-day visit. One morning was devoted to a 'business meeting' and group luncheon, the rest of the time in New York City to 'travel, sight-seeing, entertainment, fellowship or free time.' The entire trip lasted one week.
The company paid all the expenses of the convention-trip which amounted to $80,000; petitioners' allocable share being $560. When petitioners did not include the latter amount in their joint income tax return, the Commissioner assessed a deficiency which was sustained by the District Court, 189 F.Supp. 2, and also by the Court of Appeals, one judge dissenting, in a per curiam opinion, 291 F.2d 841, citing its recent decision in Patterson v. Thomas, 5 Cir., 289 F.2d 108, where the same result had been reached. The District Court held that the value of the trip being 'in the nature of a bonus, reward, and compensation for a job well done,' was income to Rudolph, but being 'primarily a pleasure trip in the nature of a vacation,' the costs were personal and nondeductible.
Under § 61 of the 1954 Code was the value of the trip to the taxpayer-husband properly includible in gross income? That section defines gross income as 'all income from whatever source derived,' including, among other items, 'compensation for services.' Certain sections of the 1954 Code enumerate particular receipts which are included in the concept of 'gross income,'  including prizes and awards (with certain exceptions);  while other sections, §§ 101-121, specifically exclude certain receipts from 'gross income,' including, for example, gifts and inheritances  (see Commissioner v. Duberstein, 363 U.S. 278, 80 S.Ct. 1190, 4 L.Ed.2d 1218), and meals or lodgings furnished for the convenience of the employer.  The Treasury Regulations emphasize the inclusiveness of the concept of 'gross income.' 
In light of the sweeping scope of § 61 taxing 'all gains except those specifically exempted,' Commissioner v. Glenshaw Glass Co., 348 U.S. 426, 430, 75 S.Ct. 473, 476, 99 L.Ed. 483; see Commissioner v. Lo Bue, 351 U.S. 243, 246, 76 S.Ct. 800, 802, 100 L.Ed. 1142; James v. United States, 366 U.S. 213, 219, 81 S.Ct. 1052, 1055, 6 L.Ed.2d 246, and its purpose to include as taxable income 'any economic or financial benefit conferred on the employee as compensation, whatever the form or mode by which it is effected,' Commissioner v. Smith, 324 U.S. 177, 181, 65 S.Ct. 591, 593, 89 L.Ed. 830, it seems clear that the District Court's findings, if sustainable, bring the value of the trip within the reach of the statute.
Petitioners do not claim that the value of the trip is within one of the statutory exclusions from 'gross income' (see notes 4 and 5, supra) as did the taxpayer in Patterson v. Thomas, 289 F.2d 108, 111-112; rather they characterize the amount as a 'fringe benefit' not specifically excluded from § 61 by other sections of the statute, yet not intended to be encompassed by its reach. Conceding that the statutory exclusions from 'gross income' are not exhaustive, as the Government seems to recognize is so under Glenshaw, it is not now necessary to explore the extent of any such nonstatutory exclusions.  For it was surely within the Commissioner's competence to consider as 'gross income' a 'reward, or a bonus given to * * * employees for excellence in service,' which the District Court found was the employer's primary purpose in arranging this trip. I cannot say that this finding, confirmed as it has been by the Court of Appeals, is inadequately supported by this record. 
There remains the question whether, though income, this outlay for transportation, meals, and lodging was deductible by petitioners as an 'ordinary and necessary' besiness expense under § 162.  The relevant factors on this branch of the case are found in Treas. Reg. § 1.162-2.  In summary, the regulation in pertinent part provides:
Traveling expenses, including meals, lodgings and other incidentals, reasonable and necessary in the conduct of the taxpayer's business and directly attributable to it are deductible, but expenses of a trip 'undertaken for other than business purposes' are 'personal expenses' and the meals and lodgings are 'living expenses.' Treas.Reg. § 1.162-2(a).
If a taxpayer who travels to a destination engages in both 'business and personal activities,' the traveling expenses are deductible only if the trip is 'related primarily' to the taxpayer's business; if 'primarily personal,' the traveling expenses are not deductible even though the taxpayer engages in some business there; yet expenses allocable to the taxpayer's trade or business there are deductible even though the travel expenses to and fro are not.  Id., § 1.162 2(b)(1).
Whether a trip is related primarily to the taxpayer's business or is primarily personal in nature 'depends on the facts and circumstances in each case.' Id., § 1.162-2(b) (2); so too with expenses paid or incurred in attending a convention. Id., § 1.162-2(d).
Finally, the deductibility of the expenses of a taxpayer's wife who accompanies her husband depends, first, on whether his trip is a 'business trip.' Id., § 1.162-2(c); if so, it must further be shown that the wife's presence on the trip also had a bona fide business purpose. Ibid.
Where, as here, it may be arguable that the trip was both for business and personal reasons, the crucial question is whether, under all the facts and circumstances of the case, the purpose of the trip was 'related primarily to business' or was, rather, 'primarily personal in nature.' That other trips to other conventions or meetings by other taxpayers were held to be primarily related to business is of no relevance here; that certain doctors, lawyers, clergymen, insurance agents or others  have or have not been permitted similar deductions only shows that in the circumstances of those cases, the courts thought that the expenses were or were not deductible as 'related primarily to business.'
The husband places great emphasis on the fact that he is an entrapped 'organization man,' required to attend such conventions, and that his future promotions depend on his presence. Suffice it to say that the District Court did not find any element of compulsion; to the contrary, it found that the petitioners regarded the convention in New York City as a pleasure trip in the nature of a vacation. Again, I cannot say that these findings are without adequate evidentiary support. Supra, 370 U.S., pp. 273 274, 82 S.Ct., p. 1280.
The trip not having been primarily a business trip, the wife's expenses are not deductible. It is not necessary, therefore, to examine whether they would or would not be deductible if, to the contrary, the husband's trip was related primarily to business.
Where, as here, two courts below have resolved the determinative factual issues against the taxpayers, according to the rules of law set forth in the statute and regulations, it is not for this Court to re-examine the evidence, and disturb their findings, unless 'clearly erroneous.' That is not the situation here.
I would affirm.
^1 As I see this case, there is no need to explore whether the proper reporting procedure for a deductible expense is not to include it in income in the first place, cf. Treas.Reg. § 1.162 17(b), or to 'run it through' the taxpayer's income with an offsetting deduction in the same amount.
^2 E.g., § 71 (Alimony and separate maintenance payments), § 72 (Annuities; certain proceeds of endowment and life insurance contracts), § 73 (Services of child).
^3 § 74: '(a) GENERAL RULE.-Except as provided in subsection (b) and in section 117 (relating to scholarships and fellowship grants), gross income includes amounts received as prizes and awards.
'(b) EXCEPTION.-Gross income does not include amounts received as prizes and awards made primarily in recognition of religious, charitable, scientific, educational, artistic, literary, or civic achievement, but only if-
'(1) the recipient was selected without any action on his part to enter the contest or proceeding; and
'(2) the recipient is not required to render substantial future services as a condition to receiving the prize or award.'
^4 § 102.
^5 § 119. Some of the other exclusions are § 101 (Certain death payments), § 103 (Interest on certain governmental obligations), § 104 (Compensation for injuries or sickness), § 105 (Amounts received under accident and health plans), § 113 (Mustering-out payments for members of the Armed Forces), § 117 (Scholarship and fellowship grants).
^6 Treas.Reg. § 1.61-1(a) provides:
'Gross income means all income from whatever source derived, unless excluded by law. Gross income includes income realized in any form, whether in money, property, or services. Income may be realized, therefore, in the form of services, meals, accommodations, stock, or other property, as well as in cash.' See also Treas.Reg. § 1.61-2(a) (1), (d) and § 1.74-1(a).
^7 Petitioners rely on § 3401 of the 1954 Code, 26 U.S.C.A. § 3401, relating to withholding taxes, and more especially on Treas.Reg. § 31.3401(a)-1(b) (10) providing that certain fringe benefits are not considered 'wages' subject to withholding. The Government admits that not all 'fringe benefits' have been taxed as income, but it is enough to point out here that the withholding tax analogy is not perfect, for payments to laid-off employees from company-financed supplemental unemployment benefit plans are 'taxable income' to the employees although not 'wages' subject to withholding. Rev.Rul. 56-249, 1956-1 Cum.Bull. 488, as amplified by Rev.Rul. 60-330, 1960-2 Cum.Bull. 46.
^8 The District Court said (189 F.Supp., at 4-5):
'All of the evidence considered, we think it irrefutably leads to this conclusion: That the insurance company was just doing a gracious magnanimous thing of awarding those leading agents a trip just as much as if it had awarded them an automobile, or suit of clothes * * *.
'* * * (W)e conclude, that the trip was earned by * * * Rudolph, and was in the nature of a bonus, reward, and compensation for a job well done.'
It is pertinent to note that in addition to the facts referred to on p. 271 of 370 U.S., on p. 1279 of 82 S.Ct., supra, the record shows that company-sponsored conventions of the same kind have in recent years been held in Canada, Mexico City, Havana, Colorado and California, places well known for their appeal to tourists, and far removed from the home office in Dallas. While this factor alone does not render the expenses nondeductible, see I.R.S. News Rel. No. IR-394, August 3, 1961, it certainly was a relevant circumstance for the District Court to consider.
^9 '(a) IN GENERAL.-There shall be allowed as a deduction all the ordinary and necessary expenses paid or incurred during the taxable year in carrying on any trade or business, including-
'(2) traveling expenses (including the entire amount expended for meals and lodging) while away from home in the pursuit of a trade or business * * *.'
No question is raised in this case as to whether the $80,000 paid by the company for the total convention expense is deductible by the corporation.
There is no need to explore the lack of symmetry in certain 'income' and 'deductibility' areas in the 1954 Code permitting employers to provide certain 'fringe benefits' to employees-such as parking facilities, swimming pools, medical services-which have not generally been considered income to the employee, but which, if paid for by the employee with his own funds, would not be a deductible expense. The practicalities of a tax system do not demand hypothetical or theoretical perfection, and these workaday problems are properly the concern of the Commissioner, not of the Courts.
^10 Although this Regulation is part of those promulgated on April 3, 1958, it is applicable to this 1956 transaction. The power to make the Regulations prospective only, Int.Rev.Code of 1954, § 7805(b), 26 U.S.C.A. § 7805(b), was not exercised, and they were made applicable to taxable years beginning after December 31, 1953. T.D. 6291, 1958-1 Cum.Bull. 63. Moreover, the result here would not be different under the prior comparable Regulation. Treas.Reg. 118, § 39.23(a)-2(a).
^11 No claim has been made by the husband in this case that specific business expenses which may have been incurred at the convention in New York are deductible. The only issue is the deductibility of the entire trip expense. Compare Patterson v. Thomas, 289 F.2d 108, 114 and n. 13.
^12 Deductions allowed: Coffey v. Commissioner, 21 B.T.A. 1242 (doctor); Coughlin v. Commissioner, 2 Cir., 203 F.2d 307 (lawyer); Shutter v. Commissioner, 2 B.T.A. 23 (clergyman); Callinan v. Commissioner, 12 T.C.M. 170 (legal secretary); see Rev.Rul. 59-316, 1959-2 Cum.Bull. 57; Rev.Rul. 60-16, 1960-1 Cum.Bull. 58.
Deductions not allowed: Duncan v. Commissioner, 30 T.C. 386 (doctor); Ellis v. Burnet, 60 App.D.C. 193, 50 F.2d 343 (lawyer); Reed v. Commissioner, 35 T.C. 199 (lawyer); Patterson v. Thomas, 289 F.2d 108 (insurance agent); Russell v. Commissioner, 11 T.C.M. 334 (railroad fireman).