Ernest L. Merlino and Lieselotte M. Merlino v. Commissioner of Internal Revenue

The Merlinos claimed a moving expense deduction of $2,901 after retiring and returning to Seattle from Germany. Because they lived in an apartment awaiting completion of a new home, Mr. Merlino did not work for at least 39 weeks in the 12-month period following their arrival. The Commissioner concluded that I.R.C. § 217(c)(2) prohibited the moving expense deduction and assessed a deficiency. The Tax Court upheld the Commissioner’s ruling.

On appeal, the appellants renew their arguments to the Tax Court: (1) the 12- month, 39-week work requirement should not have begun to run until they had moved into their new residence, at which time Mr. Merlino’s self-employment would have satisfied the work requirement; (2) because Mr. Merlino was a civilian employee of the military before retirement, the I.R.C. § 217(g) provision exempting members of the Armed Forces from the work requirement should apply; and, (3) section 217(i), which allows a deduction for moving expenses incurred by a retiree who worked abroad and upon retirement returns to the United States, should apply retroactively to them.

We do not overturn a Tax Court decision absent a clear mistake of law. Cruttenden v.…