Perkins v. Commissioner ( 1928 )

M. T. PERKINS, PETITIONER, v. COMMISSIONER OF INTERNAL REVENUE, RESPONDENT.

Perkins v. Commissioner

Docket No. 10320.

United States Board of Tax Appeals

12 B.T.A. 49; 1928 BTA LEXIS 3605;

May 23, 1928, Promulgated

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Deductions may not be allowed upon an estimate of the amount expended, such estimate being based upon a computation which does not exclude personal expenditures and not being substantiated in any satisfactory manner.

Mills Kitchin, Esq., for the petitioner.

J. E. Marshall, Esq., for the respondent.

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PHILLIPS

This proceeding is for a redetermination of a deficiency in income tax for the calendar year 1921 amounting to $2,478.90.

FINDINGS OF FACT.

Petitioner resides at 1914 Perrysville Avenue, Pittsburgh, Pa. During 1921, petitioner and J. L. Hamel were sales managers of the Motors Mortgage Corporation, a corporation, and were associated in the business of selling the securities of the said corporation. Petitioner and Hamel received as commissions from the sales of the securities 85 per cent of the amount for which the securities sold above par. The remaining 15 per cent of that amount was paid to the salesmen who sold the securities. One-third of the said 85 per cent went to petitioner, one-third to Hamel, and one-third was used in paying certain expenses of the Motors Mortgage Corporation. Petitioner and Hamel kept a joint bank account and paid themselves their shares of the commissions from this bank account. Offices were maintained in Pittsburgh, Philadelphia, New York, Scranton and Buffalo continuously during 1921 and in Erie and Harrisburg for part of that year. All of the securities of the Motors Mortgage Corporation sold were sold through those offices and by salesmen under the management and supervision of petitioner and Hamel. During 1921, there were 75 to 125 salesmen distributed among the various offices, with an average of 20 or 30 salesmen at each office. Petitioner spent the greater part of his time in 1921 in visiting the branch offices. The purpose of his visits was to boost and help the salesmen. It was his custom to stop at expensive hotels and to provide food and entertainment for the salesmen and their prospective customers.

Petitioner and Hamel filed a partnership return for the year 1921. That return showed expenses of the partnership amounting to $8,880. Petitioner received $89,747.43 during 1921 as his share of the commissions or profits earned from the sales of the said securities. Commissioner has disallowed a deduction of $7,000 claimed by petitioner for business expenses.

OPINION.

PHILLIPS: Petitioner contends that he is entitled to a deduction from income for 1921 for ordinary expenses incurred in his business. The basis on which the amounts expended are arrived at is stated by the petitioner in his testimony as follows:

If I made a trip to any particular place, I usually determined the amount of expenses as the difference between the amount of money I left with and what I returned with. I couldn't have an itemized statement of expenses when I was entertaining salesmen and customers.

Such evidence is too unsatisfactory to permit an allowance of the amount claimed. ; ; and . There is no basis upon which personal expenditures may be segregated. If estimates are to be accepted, they must be better substantiated than has been done in the record made in this proceeding.

There is no assurance that the amounts expended by the petitioner are not included in the allowance made to the partnership, for, while he testified that he was not reimbursed therefor by the partnership, his petition indicates an accounting therefor between himself and his partner. Some evidence of the lack of care with which figures are used in this proceeding may be gathered from the fact that in the petition the petitioner states under oath that he and Hamel managed from 10 to 12 offices in as many cities in selling the stock of the Motors Mortgage Corporation, while before the Board he testified that there were five such offices maintained during the whole of 1921 and two during a part of the year. We entertain no doubt that the petitioner did make expenditures which he or the partnership was entitled to deduct but upon the record before us we would be unable to determine the amount, even if we were satisfied that proper allowance had not been made in computing the income of the partnership.

Decision will be entered for the respondent.