Historic Tax Case | Boyd V. Commissioner

• Published date: 23 September 2022
• Subject Matter: Tax, Income Tax, Tax Authorities
• Law Firm: Freeman Law
• Author: Freeman Law

Boyd v. Commissioner, 122 T.C. No. 18 | April 27, 2004 | Vasquez, J. | Docket. No. 13229-01

Short Summary:

Continental Express, Inc. (Continental) was engaged in the long-haul, irregular route trucking business, and employed between 277 and 344 drivers during the three years at issue: 1995, 1996, 1997. Continental compensated drivers on a per mile basis, adjusted to account for a driver's experience; drivers were also paid a per diem allowance on a per mile basis that was intended to reimburse drivers for travel expenses.

Continental's accounting and payroll system tracked miles driven, not days worked, by its drivers. During the years at issue, drivers were in short supply. In an effort to retain drivers, Continental made a business decision not to alter its compensation system, and to substantiate deductions for its drivers per diem allowance using relevant Revenue Procedures. Drivers were not required to submit any records of expenses incurred during travel - the per diem allowance was paid by Continental in lieu of reimbursing actual expenses for meals and incidental expenses incurred by each of its drivers.

On its Form 1120-S, U.S. Income Tax Return for an S Corporation, under 'Other deductions,' Continental deducted expenses related to those incurred by drivers including fuel, tolls, 'motels & layover,' per diem allowance, and costs associated with hiring drivers. The total deductions taken during the years at issue amount to 80% of the per diem allowances actually paid to drivers during the same period. In determining the amount of its deduction for each of the years at issue, Continental cited only the specific sections of the relevant Revenue Procedures that supported its application of the 50% deduction limitation of IRC ' 274(n) to 40% of the total per diem allowance. Continental deducted the other 60% of the per diem allowance in full, treating it as reimbursements for drivers' lodging expenses.

The Commissioner of Internal Revenue (Commissioner) disallowed portions of each of the following deductions claimed by Continental as per diem payments to its drivers: $2,231,279 for the taxable year ending December 31, 1995; $2,208,178 for the taxable year ending December 31, 1996; $529,232 for the taxable year ending March 31, 1997; and $2,796,499 for the taxable year ending December 31, 1997.

Petitioners Charles A. Boyd and Darby A. Boyd (Petitioners) filed for a redetermination of deficiencies arising from the IRS's conclusion that Continental was entitled to deduct only 50% of the...