forth herein (including the historical lodging aspects of factor (3) above), and therefore is considered to have a “home” in City A for purposes of section 162(a)(2) of the Code. Accordingly, his traveling expenses on trips away from that city which are of such duration as to require that he stop for substantial sleep or rest, if otherwise allowed under section 162, are deductible from gross income in computing his adjusted gross income as provided in section 62. However, the taxpayer in Situation 2, not having satisfied any of the objective factors set forth herein, is an itinerant having his “home” wherever he happens to work. Thus, since he is not "away from home,” the cost of his meals and lodging are not deductible as traveling expenses under section 162(a)(2). The Service's acquiescence in Charles G. Gustafson, 3 T.C. 998 (1944), acq., 1944 C.B. 12, in which the Tax Court of the United States concluded that the taxpayer had a “home” for traveling expense deduction purposes, is withdrawn and nonacquiescence is substituted therefor since the facts in Gustafson are substantially the same as those in Situation 2 in this Revenue Ruling. is the location of his employment able year shall be taxable as provided and he may not deduct traveling in section 1 or 1201 (b) on his taxable expenses unless he is away from income which is effectively connected this “tax home" overnight. with the conduct of a trade or busiRev. Rul. 73-578 ness within the United States. Section 873 of the Code provides, Advice has been requested whether in part, that in the case of a nontraveling expenses (including amounts resident alien individual. the deducexpended for meals and lodging) are tions shall be allowed only for purdeductible for Federal income tax poses of section 871 (b) and only if purposes under the circumstances de and to the extent that they are conscribed below. nected with income which is effectivePrior to January 1, 1973, A, a ly connected with the conduct of a citizen of a foreign country, was regu trade or business within the United e United States em- the taxable year. Section 162(a) of the Code pro- circumstances) while away from home Section 1.1-1 (a)(1) of the Income in the pursuit of a trade or business. Tax Regulations provides, in part, In order for traveling expenses to that section 1 of the Internal Revenue be deductible under section 162(a) Code of 1954 imposes an income tax of the Code, they must satisfy three on every individual, resident or non- conditions, namely, (1) they must be resident, other than a nonresident reasonable and necessary, (2) they alien individual, subject to the tax must be incurred while away from imposed by section 871(a) or section home, (3) they must be incurred in 877. Section 1.1-1(b) of the regula- pursuit of a trade or business. See tions provides, in part, that all resi- Commissioner v. J. N. Flowers, 326 dent alien individuals are liable to the U.S. 465 (1946), 1946-1 C.B. 57, and income taxes imposed by the Code Rev. Rul. 60-189, 1960-1 C.B. 60. whether the income is received from Origin sources within or without the United month leave of absence to engage in States. research for an employer in the Section 871(b) (1) of the Code pro- United States. A expected to resume vides that a nonresident alien individ- his former employment following his ual engaged in trade or business with six month leave of absence. However, in the United States during the tax when A agreed on May 10, 1973, to 26 CFR 1.162-2: Traveling expenses. Dual-status alien: traveling ex- continue his employment in the 26 CFR 1.162-2: Traveling expenses. holds that the cost of tires and tubes United States with the United States Deductibility of moving expenses by a purchased on new commercial truckemployer for the additional period Congressman who also deducts, as travel ing equipment and used in motor and performed certain acts, A became expenses, the living expenses he incurs in freight transportation is deductible as a resident alien. Under these circum page 77. an ordinary and necessary business exstances, during the period January 1, pense in full in the taxable year of 1973 until May 9, 1973, A's relation 26 CFR 1.162-3: Cost of materials. purchase and payment (or accrual, ship and regular post of duty with his where such method of accounting is foreign employer and his “tax home” Business expenses; tires and regularly employed by the taxpayer remained in his native country. tubes on purchased used construc for Federal income tax purposes) if in tion equipment. The cost properly Accordingly, reasonable and neces such use they are consumable within allocable to tires and tubes on sary amounts expended for traveling that year or their average useful life is used construction equipment purexpenses (including amounts expend less than one year even though it exchased is deductible as a business ed for meals and lodging other than tends in part into the next. expense in the taxable year of puramounts which are lavish or extrava Rev. Rul. 68-134, 1968-1 C.B. 63, chase if their average remaining gant under the circumstances) in pur extends the principle established in useful life is less than one year. suit of A's business during the period Rev. Rul. 59-249 to a taxpayer enJanuary 1, 1973 through May 9, Rev. Rul. 73-357 gaged in the business of leasing new 1973, were allowable deductions un commercial trucking equipment. Advice has been requested whether der section 162(a) of the Code in Rev. Rul. 69-560, 1969-2 C.B. 25, the cost properly allocable to tires and arriving at adjusted gross income un holds, under circumstances similar to tubes on purchased used construction der section 62. those in Rev. Rul. 59-249 and Rev. equipment is deductible as an ordinary However, commencing May 10, Rul. 68-134, that the portion of the and necessary business expense in the 1973, amounts expended for traveling cost allocable to tires and tubes on taxable year of purchase if the average expenses (including meals and lodg new highway construction equipment remaining useful life of such tires and ing) in connection with A's employ purchased by the taxpayer, which the tubes is less than one year. ment in the United States are not al. The taxpayer, a construction co taxpayer both uses and leases to othlowable deductions under section 162 ers, is deductible as an ordinary and tractor, purchased used heavy con(a) of the Code, unless such expen- struction equipment and properly allo necessary business expense. ditures are incurred in connection cated a portion of the acquisition cost Where a proper allocation of cost with employment while A is away to the tires and tubes based on the has been made, used tires and tubes, from his new overnight "tax home”, value and condition of such tires and which have a proportionately shorter that is, the location of his employ- tubes in relation to the value and con life than new tires and tubes, should ment with his United States employer. dition of the entire equipment at the be similarly treated. For 1973, A is a dual status alien. time of acquisition. Accordingly, in the instant case, the A must therefore report on Form Section 162 of the Internal Revenue portion of the used equipment cost 1040, U.S. Individual Income Tax Code of 1954 provides, in part, that properly allocated to the tires and Return, the total compensation he there shall be allowed as a deduction tubes having an average remaining receives for 1973 from his United all the ordinary and necessary ex useful life of less than one year is deStates employer, whether received penses paid or incurred during the tax ductible as an ordinary and necessary during the period of nonresidence or able year in carrying on any trade or business expense under section 162 of the period of residence. Such com- business. the Code in the year of purchase. pensation is subject to tax at gradu- Section 1.162-3 of the Income Tax ated rates. However, because the Regulations provides, in part, that tax egulations provides, in part, that tax. 26 CFR 1.162-10: Certain employee beneschedules on Form 1040 do not reflect payers should include in expenses the fits. many of the factors that are involved charges for materials and supplies only (ALS (Also Section 61; 1.61-1.) in computing tax for a dual status in the amount that they are actually Insurance reserve transferred to tax year, it is necessary for A to show consumed and used in operation dur- a trust. The “retired lives reserve" tax computations and other explana- ing the taxable year, provided that the maintained by an insurance comtory matter on separate statements, or costs of such materials and supplies pany under an accrual-basis corposchedules, which should be attached have not been deducted for any previ. ration's group insurance program to and filed with his Form 1040 on or ous year. for both active and retired embefore April 15, 1974. Rev. Rul. 59-249, 1959-2 C.B. 55, ployees and attributable to premiums previously deducted, trans- der that insurance contract. Upon the taxable year for a sickness, acciferred at the corporation's request exercise of the option the balance in dent, hospitalization, medical expense, to an exempt trust to provide insur- the reserve, after all charges thereto or similar benefit plan, are deductible ance coverage for retired em- have been made, would be available under section 162(a) of the Code if ployees, is includible in the corpo for the declaration of a dividend on they are ordinary and necessary exration's gross income. Further, the the policy by the insurance company penses of the trade or business. corporation's annual contributions to the taxpayer. Rev. Rul. 69-478, 1969-2 C.B. 29, to the trust after the transfer are The taxpayer revised its employees' holds that a corporation's nonrefunddeductible in the taxable year paid insurance benefits program so that able contribution to an employee's or incurred only to the extent that insurance coverage would henceforth trust to provide group health and life they are actuarially determined and be provided for all its active and insurance for both active and retired made on a level basis. retired employees. To accomplish this employees is deductible under section it established a trust that qualifies for 162 of the Code, when contributions Rev. Rul. 73-599 exemption under section 501(c)(9) are actuarially determined and made Advice has been requested as to the of the Code. The taxpayer exercised by the employer on a level basis so Federal income tax consequences of its option under the group insurance that at the time of an employee's a revision of the taxpayer's group life contracts of which it was the named retirement there is enough money in and health insurance program for insured and directed that the amount the fund to enable the trustee to conboth active and retired lives where accumulated in the retired lives re- tinue to make the premium payments the amount of the “retired lives re serve attributable to its contract be on the contracted insurance. serve” maintained by an insurance transferred to the trust. The amount Rev. Rul. 69-382, 1969-2 C.B. 28, company will be transferred to and transferred will thereafter be held and holds, in part, that for taxable years henceforth be maintained by a trust maintained by the trust for the sole ending on or before June 17, 1969, that qualifies for exemption under purpose of providing insurance cover premiums paid or incurred by an section 501(c)'(9) of the Internal age for retired employees who are employer policyholder under contracts Revenue Code of 1954. covered under the program so long providing group term life and health as any active or retired employee covThe taxpayer, an industrial corpo and accident coverage for its active ered by the revised program remains ration, files its returns on a calendar and retired employees are deductible alive. As eligible employees retire the year basis using an accrual method in full even though a portion of the trustee will use such amounts either of accounting. It has a program premium is credited to a retired lives to pay premiums for insurance covwhereby life insurance and hospital, reserve if (1) the balance in the erage to which the retired employees surgical, and other medical benefits reserve is held by the insurance comare entitled or, alternatively, to proare provided for certain of its active pany solely for the purpose of providvide such benefits directly from the and retired employees. These benefits ing insurance coverage on active or trust fund. The trust will become the are provided for by group term in retired lives so long as any active or named insured of new group insursurance contracts issued to the tax retired employees remain alive, and ance contracts and premiums called payer by an insurance company. The (2) the amount added to the retired for by the new contracts will be paid premiums called for by the contract lives reserve is not greater than an by the trust. are paid by the taxpayer to the insur amount which would be required to ance company and a deduction there In determining the amount of the fairly allocate the cost of the insurance taxpayer's contributions to the trust for is claimed by the taxpayer thus coverage provided over the working under reducing its income subject to tax. the revised program, the lives of the employees involved. Fur amounts allocated to the fund for A portion of such premiums is allo ther, that Revenue Ruling holds, in continuing post retirement coverage cated by the insurance company to a pertinent part, that these conclusions will not be greater than that which "retired lives reserve” established and would be applicable to future years maintained by it for the purpose of would be required, on an actuarial provided that the employer policyaccumulating a fund that would be basis, to fairly allocate the cost of in holder forthwith amends the contract used to pay all or a portion of the surance coverage provided for retired to provide that it has no right to employees over the working lives of cost of continuing coverage for the recapture any portion of the reserve retired employees. However, under the such covered employees. so long as any active or retired emprovisions of the contract, the tax- Section 1.162-10 of the Income ployee remains alive. payer has the option to discontinue Tax Regulations provides, in part, Based on the stated facts, it is held coverage for its retired employees un- that amounts paid or accrued within that the taxpayer exercised its option is claime income subiums is alloa cont not be gruired, on ost of continues. However, umhe taxretired emp of the contro discontinue that am year, themat order to terminate coverage under its in- resent the taxpayers' future annual amount of the deficiencies, does not surance policies, at which time it had contributions to the fund and in fu- result in payment of income tax, penthe right to receive the balance ac- ture taxable years, if determined on alties, or interest, but is in lieu of cumulated in the retired lives reserve. an actuarial basis, will constitute a liability therefor, and that no part of Payment was directed to be made to deduction under section 162. the amount accepted by the Governthe trust pursuant to that right. There ment from the taxpayer in comprofore, the accumulated balance in such mise of the Federal income tax defiSection 163.—Interest reserve, made up to in part by pre ciencies may be deducted as interest. miums paid by the taxpayer and de 26 CFR 1.163-1: Interest deduction in Section 163 of the Internal Reveducted by it in reduction of its taxes general. nue Code of 1954 provides that there (Also Section 7122; 301.7122-1.) and, in part, by interest increments shall be allowed as a deduction all added by the insurance company, shall Offers in compromise; allocation interest paid within the taxable year be includible in the gross income of of payments to tax, penalty, and in- on indebted, the taxpayer under section 61 of the 61 of the terest. An allocation to tax, pen terest. An allocation to tax, pen The court held in Robbins that the Code for the taxable year in which its alty, and interest in the case of amount of deductible interest would right to receive such balance becomes payments made pursuant to an of be determined in accordance with fixed notwithstanding that, at its re- fer and a collateral agreement ac Rev. Rul. 58-239, 1958-1 C.B. 94 quest, the insurance company trans- cepted in compromise of outstand (superseded by Rev. Rul. 73-305, ferred such balance to the section 501 ing tax liabilities will be made as this page), which relates to the (c)(9) trust. In those cases in which specified in the agreement. If no application of payments to outstandthe tax benefit rule under section 111 allocation is specified in the offer ing tax liabilities, and that each payapplies, it is also held that the rule is or agreement, or if no agreement ment ment made by the petitioner would be only applicable to that part of the has been accepted and the amount has been accepted and the amount applied first to tax, penalty, and inter applied first is balance that was accumulated out of of the accepted offer exceeds the est, in that order, due for the earliest premiums. The rule has no applica- combined tax and penalties, pay combined tax and penalties, pay year, then to tax, penalty, and intertion to that part of the accumulated ments received (whether install est, in that order, for the next sucbalance that is the interest increments. ment or lump sum) will be applied ceeding year until the payment is ceedino vear un It is further held that annual con- to tax, penalty, and interest in that absorbed. The decision in Robbins the taxpayer to the fund order, beginning with the earliest was grounded on the premise that I.T. maintained by the trustee for retired year. The allocated interest is de 3852 applies only when an offer in lives will constitute business expenses ses ductible in accordance with the compromise has been executed "in a deductible under section 162 of the he taxpayer's method of accounting. lump sum less than the principal Code in the taxable year paid or in. However, if no collateral agree-. amount of the deficiencies". and that curred only to the extent that such ment has been accepted and the where the offer in compromise and a contributions are actuarially deter amount of the accepted offer does collateral agreement, viewed as a sin not exceed the combined tax and gle contract, permit the Commissioner Therefore, out of the entire amount penalties, no amount may be allo- to collect. even condition transferred from the insurance com- cated to interest; I.T. 3852 super- amount equal to the total liabilities pany to the trust, which amount is seded. sought to be compromised, such conheld for retired lives, the taxpayer tract cannot be held to be a lump sum Rev. Rul. 73-304 may have that portion that is actuari offer in compromise for an amount ally determined and made on a level The Internal Revenue Service has less than the principal amount of the basis represent its otherwise payable reconsidered I.T. 3852, 1947-1 C.B. deficiencies. annual contribution to the fund and 15, in light of the decision in Robbins In view of the Robbins decision, only to that extent will it constitute a Tire and Rubber Co. 52 T.C. 420 payments made pursuant to the terms deduction under section 162 in the (1969) and 53 T.C. 275 (Supple of offers in compromise and collateral year of transfer. The excess, if any, of mental Opinion) (1970), acq., page agreements that have been accepted the amount transferred to the trust 3, this Bulletin. by the Government in compromise of over the amount that represents its LT. 3852 holds that the acceptance outstanding tax liabilities, in accordcontribution to the fund for the year by the Government of a lump sum in ance with section 7122 of the Code, of transfer, shall constitute a prepay- compromise of Federal income tax de- will be applied as follows: ment of future annual contributions to ficiencies, including penalties and in- 1. If an offer in compromise and the fund. Such prepayment may rep- terest, which is less than the principal collateral agreement have been ac and intell be apstall an cepted by the Government in compro- terest. A partial payment of as- income for the year in which the paymise of an outstanding liability, allo- sessed tax, penalty, and interest ment is made. cation of payments made pursuant to made by a cash method taxpayer W here additional taxes, penalty, those agreements will be made by the with directions as to its application and interest are assessed for one or Service in accordance with the terms will be so applied. A partial pay more taxable periods and there are of the agreements; ment on assessed deficiencies, or no specific instructions as to the appli2. If neither the offer in compro- on deficiencies mutually agreed to cation of the partial payment tendered mise nor the collateral agreement con but unassessed, received without by the taxpayer, the amount of the tains provisions regarding the alloca. instructions for its application will payment will be applied by the Servtion of payments made pursuant be applied to tax, penalty, and in- ice to tax, penalty, and interest, in thereto, payments when received, terest in that order, starting with that order, for the earliest period, then whether paid in installments or in a the earliest period. The portion of to tax, penalty, and interest, in that lump sum, or whether paid pursuant the payment applied to interest is order, for the next succeeding period, to the offer or the collateral agree. deductible in the year paid; Rev. until the payment is absorbed. The ment, shall be applied by the Service Rul. 58-239 superseded. portion of the payment applied to infirst to tax, penalty, and interest, in terest for any period will be deductithat order, for the earliest taxable peRev. Rul. 73-305 ble in computing taxable income for riod, then to tax, penalty, and interest, The purpose of this Revenue Rul- the year in which the partial payment in that order, for the next succeeding ing is to update and restate the posi- is made. taxable period, until the payments are tion set forth in Rev. Rul. 58-239, Amounts tendered in partial payabsorbed; 1958-1 C.B. 94. ment of taxes, penalty, and interest 3. If the amount of the accepted The issue relates to the application, for one or more periods, mutually offer in compromise covering original agreed to as to the amount but unasliability for tax, penalty, and interest by the Internal Revenue Service, of a sessed at the time of the tender, withexceeds the liability for tax and pen partial payment of tax, penalty, and alties (but not all the interest) and no interest, assessed for one or more tax out instructions from the taxpayer as able periods, made by a taxpayer regucollateral agreement has been accepted to the application of the payment, by the Government, the same alloca will be applied by the Service to tax, larly employing the cash receipts and tion of payments as provided by 2 disbursements method of accounting. penalty and interest, in that order, for The specific question is whether the above, will be made by the Service; the earliest period, the interest to be 4. If, however, no collateral agree. interest, if any, satisfied by such pay computed under the applicable provi sions of law, then to tax, penalty and mient has been accepted by the Gov- ment, is deductible for Federal income interest, in that order, for the next sucerument and the amount of the ac- tax purposes in the year in which it is ceeding period until the payment is cepted offer in compromise covering paid. absorbed. The tax, penalty, and interthe original liability for tax, penalty, Section 163 of the Internal Revenue est will be immediately assessed and ard interest is equal to or less than Code of 1954 provides that there shall notice and demand issued for any unthe liability for taxes and penalty, no be allowed as a deduction all interest paid tax, penalty, and interest due for payments will be allocated to interest. paid within the taxable year on in any period. The portion of the payAutomatic Sprinkler Co. of America, debtedness. ment applied to interest for any pe27 B.T.A. 160 (1932). Where additional taxes, penalty, riod will be deductible in computing Accordingly, amounts paid which and interest are assessed for one or taxable income for the year in which are allocated to interest as set forth more taxable periods against a taxpay- the partial payment is made. above may be deducted as interest un er whose income is reported on the For allocation of payments made der section 163 of the Code in ac cash method of accounting, a partial pursuant to the terms of offers in cordance with the taxpayer's method payment thereon tendered to and ac compromise and collateral agreements of accounting cepted by the Internal Revenue Serv- that have been accepted by the GovI.T. 3852 is hereby superseded. ice with specific directions by the tax ernment in compromise of outstanding payer as to its application will be tax liabilities under section 7122 of 26 CFR 1.163-1: Interest deduction in applied in accordance with such di- the Code, see Rev. Rul. 73-304, page general. rections. The amount of interest satis- 42. (Also Section 6601; 301.6601-1.) fied by such a partial payment will, to Rev. Rul. 58-239 is hereby superPartial payment of deficiencies; the extent of the taxpayer's liability, seded, since the position set forth allocation to tax, penalty, and in- be deductible in computing taxable therein is restated in this Revenue |