1938 BTA LEXIS 1089 | B.T.A. | 1938
Lead Opinion
In the deficiency notice sent to the petitioner the respondent treated separately some of the items making up the total claimed deduction of $11,493.13. He disallowed “the item of $4,000 representing payment to an individual for auditing books, preparation of tax returns, and procuring refund of taxes. The remainder of the total deduction is listed in the deficiency notice as $5,951.63, whereas the correct remainder is $5,979.43, a difference of $27.80. This item is the same in amount as the amount of taxes paid on rental of safe deposit boxes, and apparently was allowed by the respondent. Of the remainder of $5,951.63 the respondent disallowed $4,469.67 as being “allocable to tax-exempt income.” The amount of $4,469.67 is 75.1 percent of $5,951.63.
In the petition filed herein the petitioner alleged the amount of $9,951.63 to be “ordinary business expenses” and alleged error on the part of the respondent in disallowing as ordinary business expenses (a) the amount paid for services of tax advisor and accountant and (b) the “75.1 percent of the • total amount of all other expenses * * These allegations were denied by the respondent in his answer. By amended answer subsequently filed the respondent avers that he committed error in allowing the deduction of any portion of the claimed $11,493.13 and (quoting from the amended answer), “alleges affirmatively: (a) That during the year 1933 petitioner was not engaged in a trade or business, (b) That the deduction claimed was not incurred in connection with the carrying on of a trade or business.”
Some of the items making up the total claimed by the petitioner are not affected by the respondent’s change of position and will be disposed of first. There is an item of $173.63 claimed as postage, etc., as to which counsel for the petitioner concedes there is no proof as to the amount of the expenditure. The disallowance of that item is sustained. The $27.80 stipulated to be “taxes on safe deposit boxes” is clearly allowable as “taxes paid” under section 23 (c) of the Revenue Act of 1932, whether or not the petitioner was engaged in carrying on a trade or business. The item of $1,513.70, being the loss sustained on bonds, is not separately discussed by either side. This amount was claimed by petitioner to be a loss on the redemption of bonds; the parties have stipulated it to be a loss sustained on the sale of bonds. In either event the matter of allowance of the deduction would not depend upon whether the petitioner was engaged in trade or business. ' Losses are not confined to those sustained in the operation of business enterprises but are allowable “if incurred in any transaction entered into for profit, though not connected with the
According to the notice of deficiency in this case the respondent’s disallowance of the $4,000 item is based on the ruling in Gliarles Henry Mattlage, 3 B. T. A. 242. In that case the Board, without opinion, sustained the disallowance of an amount paid to a firm of accountants for services rendered in connection with the preparation of the individual taxpayer’s income tax return. The decided cases in which this question has been discussed hold that fees paid in connection with tax matters are deductible as expenses where the taxes result from business in which the taxpayer is engaged. J. W. Forgeus, 6 B. T. A. 291; Caroline T. Kissel, 15 B. T. A. 1270. Fees paid in connection with taxes on transactions not amounting to a trade or business are considered personal expenditures and not deductible. See Malcolm G. Gibbs, 34 B. T. A. 1028, and cases there cited. As to this item there has been no change of position by the respondent, and the burden of proof is on the petitioner.
The $4,000 fee paid in this case was paid for services rendered in prior years. The only evidence in regard to this payment is the testimony of the individual to whom it was paid. He testified that it was paid for audits, preparation of returns, and services in connection with proposed additional income taxes for prior years. The proposed additional taxes, he stated, involved the same question “as is raised in this case.” We take this to mean that there was a controversy over whether or not the petitioner was engaged in carrying on a trade or business in the earlier years.
We have no evidence of the extent of the petitioner’s business activities for the years prior to 1933. We have not been informed as to the outcome of the controversy over additional taxes for prior years. We do not know whether the Commissioner, or whoever passed judgment on the matter, determined the petitioner to have been engaged in a trade or business. Thus, the petitioner has failed to establish that she was engaged in a trade or business in the years for which this fee was paid, and consequently we can not find that it was a business expense.
We have left for consideration the following items: $5,000 salary paid to Austin C. Cooley; $500 paid to Cooley’s secretary for services
But if our holding as to the burden of proof is questioned and if the burden is on the petitioner to establish a trade or business, our opinion is that that burden has been met. The petitioner’s evidence shows that she was engaged in the taxable year in managing securities of close to $9,000,000 in value in addition to her interest in the Roebling Co. Her management was an active one; she did not confine her interest to employing others to manager her property for
The cases chiefly relied on by the respondent are distinguishable on the facts from this case. In Helen W. Heilbroner, 34 B. T. A. 1200, the taxpayer inherited a substantial amount of securities. She had no business experience. She placed some of the securities with a trust company to collect the income for which she paid the trust company a commission, and she engaged an employee of her brother to look after her accounts and paid $1,200 as her share of the employee’s compensation and office rent. In that case it wras found from the evidence that the taxpayer “did not manage her estate or direct its management. She merely received income from investments, and this is not a trade or business.” In this case, as pointed out above, the evidence abundantly establishes active management by the petitioner. In Alice G. Kales, 34 B. T. A. 1046, the taxpayer was a woman of considerable means. A major part of her wealth was received from the estate of her father and included a block of automobile stock, Dividends on that stock and profit on its sale gave
Reviewed by the Board.
Decision will be entered under Rule 50.
Concurrence Opinion
concurring: I think this case is contrary to that of Victor G. Marquissee, 11 B. T. A. 334; affd., 47 Fed. (2d) 32. The effort to distinguish the latter case in the Watson case does not satisfy me. However, since the Commissioner has acquiesced in the Watson case, I concur in the result reached here.
Dissenting Opinion
dissenting: The majority opinion undertakes to distinguish this case from the case of Alice G. Kales, 34 B. T. A. 1046. In my opinion, the two cases are- indistinguishable and for that reason I note my dissent.