Manocchio v. Commissioner
United States Tax Court
78 T.C. 989 (1982)
Facts
John Manocchio (plaintiff) worked as a pilot for Hughes Air West and took flight-training classes through the Veterans Administration (VA). As a veteran, Manocchio was reimbursed by the VA for 90 percent of the cost of the VA-provided flight training. Manocchio deducted the cost of the VA-provided flight training in the amount of $4,193, but consistent with Internal Revenue Code § 3101(a), which exempted from taxation certain veterans’ benefits, he did not report as income the $3,743 he received from the VA as partial reimbursement for the cost of the training. The commissioner of Internal Revenue (defendant) denied Manocchio’s deduction for the cost of the VA-provided flight training, and Manocchio appealed the denial to the United States Tax Court. Manocchio argued that the entire cost of the flight training should be deductible because Internal Revenue Code § 265(1), which barred deductions for expenses allocable to income that is wholly tax-exempt, should be read narrowly and limited to expenses incurred for the purpose of generating tax-exempt income and should not apply to expenses merely paid for with exempt income. Manocchio further argued that he took the VA flight training because it was required by his job as an airline pilot, not for the purpose of generating tax-exempt income, namely, the VA reimbursement.
Rule of Law
Issue
Holding and Reasoning (Dawson, J.)
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