Under present law, H may not deduct any amount on account of "child care" expenses.

Under the House bill, H may deduct $700 as "child care" expense. The total allowable deduction is computed as follows: The $800 incurred while W was incapable of self-care, reduced by $100 (because H's income exceeds $4,500 by $100). If W had been institutionalized for 90 days, rather than incapacitated for 90 days, the income limitation would not apply. The amount expended is subject to the $900, rather than $600, limitation because the expenses were incurred at a time when I had two dependents with respect to whom "child care" deductions are allowable.

Revenue effect

This provision will result in a revenue loss of $5 million a year. Effective date

The amendments made by this provision apply to taxable years beginning after December 31, 1963.

SECTION 212. MOVING EXPENSES

By administrative action in 1954, it was ruled that amounts received by an existing employee in reimbursement of amounts expended by him to move his family and household belongings from one place of employment to another permanent place of employment are not includible in his gross income. (Rev. Rul. 54-429, 1954-2, C.B. 53.) Such amounts are considered to have been spent for the convenience of the employer. On the other hand, reimbursements for moving expenses received by new employees from their employers are includible in gross income. (Rev. Rul. 55-140, 1955-1, C.B. 317.) Moreover, no deduction is allowed by present law with respect to expenses for which no reimbursement is received. (Rev. Rul. 54–429, supra.) But in 1960, Congress provided for a special exclusion from gross income of certain amounts received by employees (between January 1, 1950, and September 30, 1955, inclusive) or reimbursement for moving himself and his immediate family, household goods, and personal effects to a new place of residence in order to accept employment with a corporation which was operating a scientific laboratory for the Atomic Energy Commission. A special period for claiming refund of taxes already paid also was provided. (Public Law 86-780, approved September 14, 1960.) This special exclusion followed litigation of the Woodall case.1

Section 212 does not change the effect of the 1954 ruling with respect to reimbursements received by existing employees from their employers. Chart I, which follows, indicates the present tax treatment of reimbursed expenses of old employees.

CHART I.-Tax treatment of moving expenses of old employees

For description of the facts of the cases referred to, see notes at end of explanation.

1 255 F. 2d 370: for description of the facts of this case see notes at end of explanation.

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Under section 212, new employees, whose reimbursements for moving expenses are includible in their gross income, and employees who are not reimbursed for their moving expenses are allowed a special deduction for certain of their moving expenses. In order for this new deduction to apply, the employee's commuting distance to his new principal place of work must be at least 20 miles more than to his former principal place of work. If the individual has never worked before, or if he has recently been unemployed for a long period of time, so that he has no former principal place of work, the new deduction will not apply unless the commuting distance from his former residence is at least 20 miles. Mileage, for this purpose, is to be measured on a straight-line basis. Ordinarily, this 20-mile test will have application only to moves within the same metropolitan area.

In addition to satisfying the 20-mile test, an employee who is not reimbursed for moving expenses must demonstrate the permanence of his employment in the new locality by remaining employed in the new locality, on a full-time basis, for at least 39 weeks in the 12month period immediately following his arrival in the "general area of his new principal place of work." It is not required that these employees work for the same employer for the full 39 weeks, but merely that they be employed in the same general locality for that period.

If a new employee is partially reimbursed for his moving expenses so that the 39-week employment test applies with respect to some of his expenses, but not all of them, then, in the absence of a specific allocation by the employer, the amount of the reimbursement is first allocated to deductible items and if a balance remains, it is then allocated to nondeductible items. This rule (of the House committee report) favors the taxpayer by limiting the portion of the moving expense deduction which (as explained below) may be recaptured under the 39-week rule. The rule can be illustrated as follows:

Example 1.-Employee M, who lives in Washington moves to Philadelphia on February 1 to begin a new employment with Widget Corp. He incurs expenses of $600 with respect to his move, of which $400 would be deductible under this provision. Widget Corp. reimburses M for $300 of his expenses without allocating any portion of the reimbursements to specific expenses. Under the rule of the House committee report, the $300 is allocated to the $400 of deductible expenses, thereby reducing to $100 the amount which may be recaptured under the 39-week rule. The amount of M's expenses which will be deductible is $400.

The special deduction under this provision covers the "reasonable expenses" (1) of moving household goods and personal effects from the former residence to the new residence, and (2) of traveling (on one trip) from the former residence to the new residence. Traveling expenses for this purpose include the cost of means and lodging while en route. It also includes costs attributable to persons other than the employee if they are members of his household (both at the old residence and at the new residence). Expenses of traveling do not include living expenses following the date of arrival at the new place of residence, living expenses preceding the date of departure from the former residence, expenses of house or apartment hunting, or expenses of trips for purposes of selling property.

The "reasonable expenses" of moving, referred to in this provision, relate to expenses which are reasonable under the circumstances of the particular move. Moving expenses are to be considered reasonable to the extent they are paid or incurred for movement by the shortest and most direct route available by the conventional mode or modes of transportation actually used. Moving expenses to which this provision applies include the costs of transportation of household goods and personal effects and expenses of packing, crating and en transit storage of such goods and effects (including storage at the new destination prior to actual unloading at the new residence). Expenses to which this provision does not apply include costs (and losses) incurred in the acquisition, or disposition, of property, penalties for breaking leases, mortgage penalties, expenses of refitting rugs or draperies and tuition fees.

This special deduction for moving expenses is subtracted from gross gross income in computing adjusted gross income, in effect permitting the employee to deduct his moving expenses and still qualify for the standard deduction.

For withholding tax purposes, the definition of the term "wages" is modified to exclude reimbursement for which it is reasonable to believe that a moving expense deduction is allowable. This modification continues withholding of tax by the employer from nondeductible reimbursements paid to new employees. (Rev. Rul. 59-236, 1959-1 C.B. 234 treats reimbursed moving expenses of new employees as compensation for social security and unemployment tax purposes, as well as for income tax purposes.)

Under the provision, as already indicated, an employee who is not reimbursed for his moving expenses (or who is only partially reimbursed) must remain employed on a full-time basis (but not necessarily with the same employer) at the new location for 39 weeks in order for his moving expenses to be deductible. Where the move occurs after April 1 (in the case of a calendar year taxpayer) the 39-week test cannot be satisfied in the same taxable year in which the move occurred. In order to prevent the necessity of filing amended returns, the provision permits the deduction to be taken in the return for the year in which the moving expense was incurred, if the 39-week test can still be satisfied then the expense may be deducted on that return. However, if an employee deducts his moving expenses under this rule and it subsequently develops that he does not satisfy the 39-week employment test, then an amount equal to the amount of the deductions taken which are subject to the 39-week rule must be included in the employee's gross income for the subsequent taxable year. This can be illustrated as follows:

Example 2.-Assume the same facts as in example 1, except that the move occurred on August 1, 1964. (The 39-week employment test would be satisfied on May 1, 1965.) On February 15, 1965, when M files his 1964 tax return, he believes he will satisfy the 39-week test and so he elects to deduct on his 1964 return the $400 of his moving expenses which are deductible. On April 1, 1965, however, M obtains new employment in New York and immediately moves his family there. Since M did not satisfy the 39-week test, but did deduct his moving expenses, $100 must be added to his gross income for 1965. (This $100 is the amount of the deduction subject to the 39-week rule

after applying the $300 nonallocated partial reimbursements to the $400 of deductible expenses.)

On the other hand, if the employee decides not to elect to deduct his moving expenses until he has satisfied the 39-week rule, then after he has satisfied this test, he may file an amended return for the year in which the moving expense was incurred and claim the moving expense deduction on the amended return.

Revenue estimate

This provision is estimated to reduce revenues by about $60 million in a full year of operation.

Effective date

This provision is to apply with respect to moving expenses incurred after December 31, 1963, in taxable years ending after that date. Digest of cases referred to in chart I

John E. Cavanaugh, 36 T.C. 300 (1961). Taxpayer, who lived in Alexandria, Va., and who worked in Washington, D.C., entered into a new employment contract with Lockheed Aircraft Corp. in April 1956. Under the agreement taxpayer was to work in Lockheed's Washington, D.C., office from May 21, 1956, until July 1, 1956, at which time he was required to move to Burbank, Calif. (The delay from May to July was to provide time for taxpayer's wife to give birth to an expected child.) Lockheed paid the $1,398.51 expenses of moving taxpayer's family and household goods from Alexandria to Burbank, and also reimbursed taxpayer for $280 living costs incurred by him which were in excess of the ordinary living expenses of his family while his household effects were in transit. The tax collector argued that taxpayer was a "new" employee and the exclusion for moving expenses did not apply. Taxpayer argued the amount of moving expenses paid by Lockheed were not gross income. The Tax Court found that taxpayer was not a "new" employee and that the exclusion applied.

Alan J. Vandermade, 36 T.C. 607 (1961). Taxpayer who lived in New Jersey (and worked in New York) was "loaned" by his employer to a California corporation for a 6-month period commencing March 1, 1954. About July 1, 1954, taxpayer agreed to terminate his employment with his New York employer and begin work for the California corporation. The California employer paid the $2,557.04 expenses of moving taxpayer's family and household goods to Palto Alto, Calif., in July 1954. Taxpayer did not include in his income the amount of the moving expenses paid by his new employer. The tax collector argued the amount was taxable income. The Tax Court contrasted Rev. Rul. 54-429 (exclusion for old employees) with Rev. Rul. 55-140 (inclusion for new employees) and determined the case was governed by Rev. Rul. 55-140, since the agreement by the new employer to pay moving expenses was a motivating cause for taxpayer's move to Palo Alto, citing U.S. v. Woodall, 255 F. 2d, 370 (CA-10).

Otto Sorg Schairer, 9 T.C. 549 (1947). Taxpayer, who lived in Bronxville, N.Y., was required by his employer to move to Princeton, N.J., in 1943, to direct electronic research activities. RCA, the employer, offered to, and did, reimburse taxpayer for any loss he might incur on the sale of his Bronxville residence. The tax collector