## Facts

- Robert N. Noyce, an Intel corporate officer, had duties requiring frequent and extensive travel and significant public and governmental relations work.
- In 1983, Noyce purchased a Cessna Citation aircraft for about $1.26 million and used it for a mix of corporate travel, flight training, maintenance-related flights, and personal travel.
- Intel maintained a written reimbursement policy limiting reimbursement for employee air travel to commercial coach rates; officers were also expected to bear certain travel costs without reimbursement.
- The taxpayers claimed 1983 deductions for aircraft depreciation and expenses totaling $139,369 and claimed a $12,500 investment tax credit.
- The IRS disallowed most of the claimed depreciation and expenses and partially disallowed the investment tax credit, determining a 1983 deficiency; the taxpayers sought redetermination in the U.S. Tax Court.

## Issues

1. Whether aircraft operating expenses and depreciation attributable to Noyce’s use of his personally owned aircraft in his capacity as a corporate officer were deductible as employee business expenses.
2. Whether expenses and depreciation attributable to flight training were deductible as business expenses.
3. Whether expenses and depreciation attributable to maintenance-related flight time were deductible as business expenses.
4. What portion of total aircraft use in 1983 constituted business use and the resulting allowable deductions.
5. Whether, and to what extent, the taxpayers were entitled to an investment tax credit for the aircraft.

## Decision

- The court held that Noyce’s unreimbursed aircraft costs incurred in performing his duties were incurred in his trade or business as an employee/corporate official and were deductible to the extent they exceeded amounts available under Intel’s reimbursement policy.
- The court held that operating expenses remained subject to § 162’s “ordinary and necessary” standard, including reasonableness, as applied to the business-use portion.
- The court held that depreciation allowable under § 168 (ACRS) is not limited by § 162’s “ordinary and necessary” or “reasonableness” constraints.
- The court found total business use of the aircraft for 1983 was 36.7%, after classifying flight time among business, training, maintenance, and personal categories.
- The court sustained the IRS in part and rejected it in part; final amounts (including the investment tax credit consistent with allowable business use) were left to computation under Rule 155.

## Legal Principles

- An employee’s unreimbursed expenses can be deductible under § 162 when incurred in the employee’s own trade or business of being an employee, particularly where the employer’s policy limits reimbursement and the employee substantiates business purpose and use.
- Out-of-pocket operating costs for business aircraft are deductible only to the extent they are ordinary, necessary, and reasonable in amount, and only for the substantiated business-use portion.
- Depreciation deductions claimed under § 168 (ACRS) are statutory cost-recovery allowances and are not subject to § 162 “ordinary and necessary” or “reasonableness” limits.
- Business-use percentages for mixed-use assets must be determined from credible records (e.g., flight logs) that permit classification of flights and allocation between business and nonbusiness use.
- Eligibility for an investment tax credit for mixed-use property depends on the extent the asset qualifies through business use, with the credit limited consistently with the allowable business-use portion.

## Conclusion

The Tax Court treated the corporate officer’s unreimbursed aircraft costs as employee business expenses to the extent they exceeded employer reimbursement limits, allocated deductions based on a 36.7% business-use finding, and held that ACRS depreciation under § 168 is not constrained by § 162 reasonableness, while operating expenses remain subject to § 162 and substantiation.


Noyce v. Commissioner, 97 T.C. 670 (1991)