Opinion
Docket No. 41990.
1954-07-15
ALLAN CUNNINGHAM AND MARY CUNNINGHAM, PETITIONERS, v. COMMISSIONER OF INTERNAL REVENUE, RESPONDENT.
Allan Cunningham, pro se . Hugh B. Muir, Esq. , for the respondent.
1. Petitioner failed to establish that he furnished over half of the support of his mother whom he claimed as a dependent in 1948.
2. Petitioner was a civilian employee of the United States, stationed in Tokyo in 1948. Held, expenses for food and lodging for him and his wife in Tokyo are not deductible as traveling expenses merely because, while he was so employed, they engaged in certain activities in Japan alleged to constitute the carrying on of a trade or business; moreover, the evidence does not justify treating such activities as trade or business. Held, further, certain expenses incurred in Washington, D. C., during the first 4 months of 1948 are not deductible as business expenses. Allan Cunningham, pro se. Hugh B. Muir, Esq., for the respondent.
The respondent determined a deficiency in the income tax of petitioners for the year 1948 in the amount of $487.04.
The issues are:
(1) Did petitioner Allan Cunningham provide more than one-half of the support of his mother during the year 1948 so as to entitle him to a credit against net income under the provisions of section 25(b)(1)(D) of the Internal Revenue Code?
(2) Are the petitioners entitled to deduct as trade or business expenses under section 23(a)(1)(A) of the Internal Revenue Code certain amounts for food, lodging, car expense, miscellaneous expense, and apartment maintenance during the year 1948?
FINDINGS OF FACT.
Petitioners, husband and wife, reside in Washington, D. C. During the years 1945 through 1948 they maintained a residence at Glen Ellyn, Illinois. They filed a joint income tax return for the year 1948 with the collector of internal revenue for the first district of Illinois.
In this return petitioner Allan Cunningham (hereinafter sometimes referred to as petitioner) claimed a dependency credit for his mother, Mary C. Cunningham. During the year 1948 she was 75 years old. She lived in Idaho and was a widow. Petitioner had not seen or talked with her for many years. During that year she received assistance from the State of Idaho in the amount of $504, and petitioner sent her for her support a check for $100 payable to her and also sent a check for $100 payable to his sister Grace for the use of his mother.
From January 1942 to May 1, 1945, petitioner was employed by the National Smelting Company of Cleveland, Ohio. During that period he had occasion to spend time in Washington, D. C., and his employer reimbursed him for his Washington expenses including the rent for a living-room-and-one-bedroom apartment at 1801 16th Street NW. After termination of that employment he continued to maintain that apartment to April 1948. From May 1945 until early in 1946 he was in Germany as a civilian employee of the United States Government. From January 1, 1947, to August 1947, he was employed by the Library of Congress in Washington, D. C., and lived in the aforesaid apartment. Beginning in August 1947 and throughout the year 1948, he was employed by the United States Army as a civilian specialist stationed in Tokyo, Japan. His travel expenses to and from Japan were paid by the Government. He was not reimbursed for his expenses while in Japan. His employment was of indefinite duration.
The apartment at 1801 16th Street NW., Washington, D. C., was used by petitioners when either or both of them were in Washington. The apartment had a telephone for which the petitioners paid a residence rate. They did not employ a secretary or any other kind of similar help. They paid a total of $312.10 for rent, telephone, gas, and electricity for the apartment for the first 4 months of 1948.
Petitioner's wife joined him in Japan as a dependent in April 1948 and remained with him during the remainder of that year. She purchased a new automobile in the United States and took it with her to Japan. During 17 months of operation in Japan it was driven 26,250 miles. The total car expenses for the year 1948 are estimated by petitioners to have been $1,067.98. Included in this amount was a loss of $214.75, representing the difference between the cost of the automobile, $1,414.75, and the amount received when it was sold in September 1949 in Tokyo for $1,200. A dependency credit for petitioner's wife was claimed in their joint income tax return for 1948.
During the period petitioner and his wife were in Japan they became interested in articles available in that country which could be purchased at advantageous prices. They made a number of purchases of such articles, some of which they intended for their own personal use and some of which they hoped to be able to sell at a profit upon their return to the United States. The articles purchased included such items as kimonos, vases, rugs, cloth for suits, dresses, shoes, lamps, and various items of jewelry. Petitioners did not buy any particular article or type of article in such quantities as might ordinarily be purchased by a dealer or a person engaged in the business of trading in such articles. They also investigated the prices at which Japanese fur skins, particularly mink, could be purchased, and in that connection they were in communication with Walter Mahon, an uncle of petitioner's wife, who was engaged in the fur business in Chicago. He gave them a description of the types of Japanese minks that are considered desirable in the United States and the prices at which they were being offered in Chicago. Sample skins sent to him by petitioners were of low grade, and on August 10, 1948, he wrote petitioner's wife stating, among other things, that ‘If some arrangement could be made with a collector of fur skins in Japan to handle for his account, it would probably be the better way as you do not know furs well enough to use your judgment in purchasing them.’ While in Japan, petitioner spent some of his spare time investigating opportunities for profitable trade between Japan and the United States.
On several occasions both prior and subsequent to 1948, petitioner attempted to promote some kind of a ‘deal’ which would enable him to realize some income in addition to his salary. In 1946 he got in touch with a manufacturer of aluminum insulator pins, and early in 1947 he attempted to interest the Tennessee Valley Authority in using these pins for telephone lines and electric power lines. In November 1949 he wrote to the manager of a Japanese fur company relative to the purchase of mink skins and was advised by this company that its skins failed to meet specifications. In 1950 he wrote a Japanese metal manufacturing company asking them to quote a price on aluminum ingot; attempted to get a Chicago concern interested in having some automotive parts and assemblies manufactured in Japan; and also attempted to interest another concern in the possibility of exporting salt to Japan.
In their income tax return for the year 1948, the petitioners claimed a deduction for ‘Expenses incurred in course of business, not reimbursed’ in the amount of $2,200.80. These expenses were itemized in a schedule attached to the return as follows:
+-------------------------------------------+ ¦Food and entertainment ¦$1,270.60¦ ¦ +-----------------------+---------+---------¦ ¦Room rent ¦854.00 ¦ ¦ +-----------------------+---------+---------¦ ¦Telephone and telegraph¦37.41 ¦ ¦ +-----------------------+---------+---------¦ ¦Miscellaneous expense ¦12.54 ¦ ¦ +-----------------------+---------+---------¦ ¦Total travel expense ¦ ¦$2,174.55¦ +-----------------------+---------+---------¦ ¦Interest paid ¦ ¦16.25 ¦ +-----------------------+---------+---------¦ ¦Advertising ¦ ¦10.00 ¦ +-----------------------+---------+---------¦ ¦Total deductions ¦ ¦$2,200.80¦ +-------------------------------------------+ These deductions were disallowed by the respondent in determining the deficiency.
Petitioners now assert that they are entitled to deduct as business expenses the following:
+-------------------------------------------------------------+ ¦Expenses in Japan: ¦ ¦ +---------------------------------------------------+---------¦ ¦Lodging ¦$820.00 ¦ +---------------------------------------------------+---------¦ ¦Food ¦1,270.60 ¦ +---------------------------------------------------+---------¦ ¦Car expense ¦1,067.98 ¦ +---------------------------------------------------+---------¦ ¦Miscellaneous ¦ 9.35 ¦ +---------------------------------------------------+---------¦ ¦Total ¦3,167.93 ¦ +---------------------------------------------------+---------¦ ¦Expenses in maintaining a Washington, D. C. address¦ 457.19¦ +---------------------------------------------------+---------¦ ¦Total ¦$3,625.12¦ +-------------------------------------------------------------+ The foregoing figures are based to a large extent on estimates. Petitioners do not claim an overpayment of tax.
Cost of cable sent to Walter Mahon.
Included in this amount are the expenses of maintaining the Washington apartment, $312.10; the cost of purchasing the ‘Social Register,’ $10; and $19.60 paid to the Mayflower Hotel.
1 SEC. 25. CREDITS OF INDIVIDUAL AGAINST NET INCOME.(b) CREDITS FOR BOTH NORMAL TAX AND SURTAX.—(1) CREDITS.—There shall be allowed for the purposes of both the normal tax and the surtax, the following credits against net income:* * * * * * *(D) An exemption of $600 for each dependent whose gross income for the calendar year in which the taxable year of the taxpayer begins is less than $600, except that the exemption shall not be allowed in respect of a dependent who has made a joint return with his spouse under section 51 for the taxable year beginning in such calendar year.* * * * * * *(3) DEFINITION OF DEPENDENT.—As used in this chapter the term ‘dependent’ means any of the following persons over half of whose support, for the calendar year in which the taxable year of the taxpayer begins, was received from the taxpayer:* * * * * * *(D) the father or mother of the taxpayer, or an ancestor of either,
2 SEC. 23. DEDUCTIONS FROM GROSS INCOME.In computing net income there shall be allowed as deductions:(a) EXPENSES.—(1) TRADE OR BUSINESS EXPENSES.—(A) In General.—All the ordinary and necessary expenses paid or incurred during the taxable year in carrying on any trade or business, including a reasonable allowance for salaries or other compensation for personal services actually rendered; traveling expenses (including the entire amount expended for meals and lodging) while away from home in the pursuit of a trade or business; * * *
3 SEC. 24. ITEMS NOT DEDUCTIBLE.(a) GENERAL RULE.—In computing net income no deduction shall in any case be allowed in respect of—(1) Personal, living or family expenses, except extraordinary medical expenses deductible under section 23(x);
OPINION.
RAUM, Judge:
1. Petitioner contends that he is entitled to a credit against net income of $600 for his mother as a dependent. In order to be entitled to such credit, he has the burden of establishing that he furnished more than one-half of her support for the taxable year 1948.
1 We think that burden has not been carried.
Petitioner's mother received $504 from the State of Idaho for her support in 1948, and the only satisfactory proof of any amounts furnished by petitioner during 1948 consisted of two canceled checks of $100 each. His vague and uncorroborated testimony as to additional amounts paid to his mother in that year do not represent convincing proof, particularly in the light of his admission that he had not seen or talked with her ‘for a great many years.’ Moreover, the total cost of the support of his mother for 1948 was not shown, and we are left in the dark as to what assistance, if any, she may have had from petitioner's sister Grace. Petitioner has not proved that the Commissioner erred in disallowing the dependency credit.
2. The remaining issue is whether petitioners are entitled to deduct as trade or business expenses the cost of food, lodging, car expense, and miscellaneous expenses incurred in Japan, and certain expenses in Washington, D. C., particularly the cost of maintaining an apartment. Although the amounts claimed as deductions are based to a large extent on estimates, the respondent does not stress the unreasonableness of the amounts claimed. He contends that neither of the petitioners was engaged in a trade or business during the taxable year 1948, other than the performance of services by Allan as an employee; that even if they were engaged in a trade or business, none of the alleged traveling expenses was incurred while ‘away from home’ in the pursuit of such trade or business;
2 and that they constitute personal, living, or family expenses which are not allowable as deductions in computing net income.
The expenditures for food and lodging are plainly not deductible. Petitioner was a civilian employee of the United States. His post of duty was in Tokyo. That was his ‘home’ within the meaning of section 23(a)(1)(A). His employment appears to have lasted for about 2 years. While it lacked permanence, it was ‘indefinite in duration rather than obviously temporary, in that it was not the sort of employment in which termination within a short period could be foreseen * * *.’ Beatrice H. Albert, 13 T. C. 129, 131. In Michael J. Carroll, 20 T. C. 382, we held that amounts paid for meals and lodging in similar circumstances by a War Department employee in Korea were not traveling expenses while ‘away from home’ and were not deductible under section 23(a)(1)(A). We make the same holding here. Cf. Commissioner v. Flowers, 326 U. S. 465; York v. Commissioner, 160 F. 2d 385 (C. A., D. C. Cir.); Bercaw v. Commissioner, 165 F.2d 521 (C. A. 4).
The cost of meals and lodging for petitioner's wife do not stand on any different footing. She joined her husband as a dependent in Tokyo, and his ‘home’ thereupon became her ‘home.’ The mere fact that she busied herself at times in a fruitless attempt to investigate the availability of skins for an uncle in Chicago who was in the fur business is far from convincing evidence on this record that she was in travel status and was ‘away from home in the pursuit of a trade or business.’ Nor was either petitioner away from home in the pursuit of a trade or business by reason of their purchase of a variety of articles many of which were obviously for their personal use and some of which they hoped to sell at a profit upon their return to the United States. Their activities in this regard do not appear to be different from those of numerous tourists who seek to take advantage of bargains, real or fancied, which they encounter in foreign countries.
Neither petitioner nor his wife was engaged in any business within the meaning of the statute during his stay in Tokyo other than his employment as a civilian employee of the United States Government. To the extent that petitioner may have spent some time, after hours, in investigating the possibility of profitable ‘deals' in Japan, such activities do not satisfy us as being of the kind that would qualify as carrying on a trade or business. Cf. George C. Westervelt, 8 T. C. 1248,1254; Morton Frank, 20 T. C. 511, 514; Frank B. Polacheck, 22 T. C. 858, 863. Furthermore, the evidence as to such activities was so vague and general that we could not in any event conclude that they involved any considerable expenditure of time or energy on the part of petitioner or that any of the expenses claimed as deductions were in any way related to such activities. We conclude that none of the expenses incurred in Japan is deductible.
On this record, the expenses in maintaining the apartment at 1801 16th Street NW., in Washington, D. C., and other expenses incurred in Washington during the first 4 months of1948 do not appear to qualify as deductible business expenses.
Decision will be entered for the respondent.