Facts
- David J. Primuth was employed by Foundry Allied Industries, Inc. as controller and later secretary-treasurer, with senior financial and managerial responsibilities.
- His compensation was about $22,000 salary plus bonus, totaling roughly $30,000 per year in the two years before he left.
- In 1966, Primuth became dissatisfied with his prospects at Foundry and sought new employment as a corporate executive.
- He contacted Frederick Chusid & Co., an executive-search firm, and signed an agreement to pay a substantial fee plus out-of-pocket expenses for assistance in locating a new position.
- The search resulted in Primuth obtaining new executive employment in the same general line of work, using the same skills and qualifications.
- On the Primuths’ 1966 joint return, they deducted $3,016.43 for the agency fee and related expenses as a business expense under I.R.C. § 162 or, alternatively, under § 212.
- The Commissioner disallowed the deduction as a personal expense and determined a $754.10 deficiency.
Issues
- Whether an employee’s job-search and employment-agency expenses incurred to obtain new employment in the same occupation are deductible as “ordinary and necessary” expenses “in carrying on” a trade or business under I.R.C. § 162.
- If not deductible under § 162, whether the expenses are deductible under I.R.C. § 212 as expenses for the production or collection of income.
Decision
- The Tax Court held for the taxpayer and allowed the $3,016.43 deduction.
- The court concluded Primuth was engaged in the trade or business of being a corporate executive and that the challenged expenses were incurred to continue that same trade or business with a new employer.
- The court held the expenses were “ordinary and necessary” within the meaning of I.R.C. § 162.
- Because the deduction was allowed under § 162, the court did not rely on § 212 to sustain the deduction.
Legal Principles
- An employee may be engaged in a “trade or business” for purposes of I.R.C. § 162.
- Job-search expenses may be deductible under § 162 when incurred to obtain employment in the same trade or business, rather than to enter a new trade or business.
- For § 162, expenses are deductible if they are (1) paid or incurred during the taxable year, (2) ordinary and necessary, and (3) sufficiently connected to carrying on the taxpayer’s existing trade or business.
- An employment-agency fee can qualify as an ordinary and necessary expense when it is appropriate and helpful to maintaining continuity in the taxpayer’s existing occupation.
Conclusion
The Tax Court permitted an executive to deduct employment-agency and related job-search expenses under I.R.C. § 162 because the expenditures were made to secure new employment in the same trade or business and were ordinary and necessary to continuing that occupation.