James Maule, a tax prof at Villanova and blogger at Mauled Again, has posted some intriguing comments on a recent Tax Court case.
The case [Berge v. Comr.] involves a lawyer who also is a CPA, and who resided in Los Angeles. Berge not only was employed full-time as a consultant by Arthur Andersen, he also was self-employed as both an attorney and an accountant. Of the almost 14,000 business miles that he drove during the year in question, he racked up roughly 4,300 miles traveling to the law library at Chapman University Law school in Orange County. Each round-trip to that library involved roughly 70 miles of driving. Berge, a graduate of Southwestern University School of Law, lived about 5 miles from that school's library, and his office at Arthur Andersen was roughly the same distance from Southwestern.
Berge claimed a $5,216 business deduction for his business mileage. The IRS audited Berge's return and disallowed $2,710 of the deduction. At trial, Berge conceded that because of a math error he should have claimed a deduction of only $4,544, thus conceding $672 of the disputed deduction and leaving $2,038 at issue. The IRS argued that the $2,038 represented the cost of mileage driven by Berge to visit his family in Orange County, which would make it non-deductible under section 262 as a personal expense.
There was no question that Berge had relatives living in Orange County. He testified that roughly 4,300 of the miles he drove were on account of his visits to the Chapman Law School library. He conceded that there were law school libraries closer to his home and office than the one at Chapman, including the one at Southwestern. Berge testified that he "found the Chapman Law School Library was superior to the libraries that were closer to his residence."
The Court explained that a business deduction is allowable if an expense is paid or incurred during the taxable year in carrying on any trade or business, and that for an expense to be “ordinary” the transaction generating the expense must be of a common or frequent occurrence in the type of business involved. This principle was set forth by the Supreme Court in Deputy v. du Pont, 308 U.S. 488, 495 (1940). The Court also explained that to be “necessary” an expense must be “appropriate and helpful” to the taxpayer’s business, referring to a principle enunciated by the Supreme Court in Welch v. Helvering, 290 U.S. 111, 115 (1933). Ultimately, the “determination of whether an expenditure satisfies the requirements of section 162 is a question of fact,” an observation made in Shea v. Commissioner, 112 T.C. 183, 186 (1999) and many other cases.
The court then stated:Upon the basis of the record in this case, we find that the primary purpose for petitioner’s trips to Chapman Law School Library was to conduct legal research for his business clients, and, therefore, said travel is directly connected to petitioner’s business. Petitioner’s visits to his family, if such visits occurred, were a secondary consideration. We hold for petitioner on this issue, as modified by petitioner’s concession at trial.Implicit in the court's decision is the notion that the travel expense deduction of an attorney, or any other professional needing to use a law library, is not limited to the cost of visiting the closest such library but can include the cost of visiting a more distant one if the professional determines that doing so is necessary to the conduct of his or her business activities.
Imagine if, instead, the outcome of the case enabled a test that permitted a deduction for traveling to a more distant library only if it were proven objectively that the more distant library was, in fact, superior. Tax law litigators then would need to embark on an analysis of the advantages and disadvantages of law libraries. Perhaps U.S. News and World Reports would have reason to publish yet another "rankings" issue. Courtrooms would fill with "experts" testifying about the superiority or inferiority of law libraries. Would the number of volumes matter? Would the scope of the collection be relevant? Would the adequacy of the heating and, more importantly in southern California, the air conditioning system be admissible? If you don't think the last concern matters, just stop by when the HVAC system supplying the law library a mere 1/20 of a mile from my office decides to take a vacation.
If I'm giving the impression that I'm pleased with the court's decision because it frees the tax practice world of another matter for which non-tax expertise must be developed, I should explain another impression that struck me when I read the case. In an age of on-line research, why does anyone need to go to a library to do tax research? I have a fine friend who is an elementary school librarian, and so I must write carefully lest I give the impression that libraries have been obsoleted by digital technology. They have not. Look, I like libraries. I enjoy books. I've been told I have the mind of a librarian. This isn't an obituary for libraries. Quite the opposite. There are many important reasons to go to libraries. They are places of quiet conducive to reading and study, places where one can learn to do research, places that are fascinating to browse, places where interesting book and print exhibitions are held, places where fun activities are undertaken, and places where one can have conversations with librarians who can open wide vistas of adventure and excitement conveyed through a variety of media including but extending beyond books.
But for a busy tax professional, does it make good business sense to drive 70 miles round-trip in southern California traffic to access tax and legal materials that most likely are available on-line? I wonder if Berge charged his clients for the time invested in his library trips. Fifteen years ago, I was in our school's library at least once a day, and sometimes I spent an hour or two or three doing research in the stacks. Today, I rarely enter our school's library, and when I do so it's almost always to interact with the computer technology specialists who are housed there or to provide the library with its traditional copy of something that I have published. I haven't been in the stacks for years. Of course, were I a first-year student, I'd be in the library for hours, as I once was and as our students now are, not only to study but to learn how to do the research I would be needing to do. . . . [All emphases added.]