Becker v. Commissioner

William Becker (plaintiff) was a former member of the United States military who was employed as a commercial airline pilot. Becker enrolled in a flight training school to improve his aviation skills, for which he paid $6,150 in 1976 and $6,100 in 1977. Becker received an educational reimbursement from the Veterans’ Administration (VA) covering 90 percent of the training-school cost, reducing Becker’s out-of-pocket cost to $615 in 1976 and $610 in 1977. Becker did not include the VA payments on his 1976 and 1977 tax returns; Becker also claimed business-expense deductions for $6,150 and $6,100 on his returns. According to Becker, he relied on Internal Revenue Service (IRS) Revenue Ruling 62-213 and IRS Publication No. 17, which stated that veterans did not have to reduce their education-expense deductions by any nontaxable educational benefits they received from the VA. Before 1980, the IRS twice audited Becker’s 1976 and 1977 returns, after which the IRS notified Becker in writing that it accepted his deductions and that his case was closed. In 1980, pursuant to Internal Revenue Code (code) § 7805(b), the IRS issued Revenue Ruling 80-173, which provided that a veteran could not deduct flight-training expenses for which the veteran was reimbursed by the VA because the veteran suffered no economic detriment and incurred no expense to the extent of the reimbursement. The IRS thereafter again audited Becker’s 1976 and 1977 returns, this time assessing deficiencies of $2,578 for 1976 and $2,884 for 1977. Becker challenged the deficiencies in the United States Tax Court, arguing that he detrimentally relied on Revenue Ruling 62-213 and that it was inequitable for the IRS to retroactively change its position with respect to him. The Tax Court rejected Becker’s estoppel argument. Becker appealed, arguing that the IRS should not be permitted to retroactively apply Revenue Ruling 80-173 against him because the equities tipped heavily in his favor due to the IRS’s initial allowance of the deductions and the IRS’s sudden change of its longstanding position.