Perelli-Minetti v. Commissioner , 12 B.T.A. 1082 ( 1928 )

ESTATE OF A. G. PERELLI-MINETTI, CHARLES PERELLI-MINETTI, EXECUTOR, PETITIONER, v. COMMISSIONER OF INTERNAL REVENUE, RESPONDENT.

Perelli-Minetti v. Commissioner

Docket No. 3538.

United States Board of Tax Appeals

12 B.T.A. 1082; 1928 BTA LEXIS 3406;

July 2, 1928, Promulgated

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(1) Disallowance of traveling expense and selling costs approved.

(2) Increases to petitioner's income derived from partnership interests approved for lack of proof of error.

Edwin V. McKenzie, Esq., for the petitioner.

T. M. Mather, Esq., for the respondent.

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VAN FOSSAN

This proceeding is brought to redetermine the income tax of A. G. Perelli-Minetti, deceased (also known as Anton Julius Perelli0Minetti and A. F. Perelli-Minetti), for the year 1919. The petition was duly filed by Charles Perelli-Minetti as the decedent's executor and is being prosecuted in the name of the Estate of A. G. Perelli-Minetti. The respondent has determined a deficiency in tax amounting to $18,252.23 for the said year.

The petitioner alleges that respondent erred:

(1) In disallowing as deductions from gross income certain business expenses incurred by the decedent while engaged in operating several ranches in California. These are itemized as (a) $1,933.53 paid to an office employee and to short-time laborers; (b) $1,148.59 paid for general supplies; and (c) $1,000 disbursed for the benefit of the business by Fred Perelli, who died in 1919.

(2) In disallowing as deductions from gross income the sum of $10,276.75 representing certain business expenses incurred principally in connection with the sale of wine products.

(3) In increasing the net incomes of the partnerships of Scatena, Lawson & Perelli and C. Scatena & Co., in each of which the decedent held a one-third interest, and thereby adding to the petitioner's net income the sum of $33,347.06.

(4) In refusing to allow as deductions from gross income losses in the sum of $1,943.15 sustained in the sale and exchange of foreign moneys and in the sale of Liberty bonds.

FINDINGS OF FACT.

During the year 1919 A. G. Perelli-Minetti held a one-third partnership interest in the firm of Scatena, Lawson & Perelli, composed of Silvestro Scatena, W. H. Lawson, and A. G. Perelli-Minetti, and in the firm of C. Scatena & Co., composed of Scatena, his son, his son-in-law, and A. G. Perelli-Minetti. Both firms were engaged in the manufacture and sale of wines. A. G. Perelli-Minetti also operated several ranches in California as independent enterprises and was engaged in the business of selling wine on his own behalf. He died in July, 1924. His brother, Charles Perelli-Minetti, was duly appointed executor of his estate and is prosecuting this appeal.

The decedent kept no books in connection with his ranch operations, but made informal memoranda which served as a basis for his cost estimates and his income-tax return. His executor found among the decedent's papers certain checks and memoranda which are alleged to represent amounts deductible as expenses in the computation of his income derived from ranch operations and as traveling and selling expenses incurred in connection with his trips to New York and elsewhere. The checks, issued incident to his ranch management, are 43 in number and aggregate approximately $2,300. All but one are payable to cash. Twenty-five of them, totaling $1,845.04, bear the endorsement of the decedent, but no words or marks appear on any of the 43 checks indicating the purpose for which they were drawn or used. The memoranda are in the form of lists of monthly expenses identified as being in the handwriting of the decedent and aggregating $10,978. Such lists do not contain any itemization of the expenditures but are composed of totals under general heads, such as entertaining customers, gas and oil, telephone and telegraph tolls, etc. The executor, the sole witness in the proceeding, had no knowledge of the fact of payment or of the uses to which these alleged expenditures were devoted, if made.

The specific amounts of the income increases from each of the partnership interests of the decedent do not appear. Certain testimony taken in the proceeding of W. H. Lawson, Docket 4510, relating to inventory values, was stipulated as evidence in the case under consideration. The increase of income of the partnership of Scatena, Lawson & Perelli as determined by the Commissioner was due largely to his computation of inventories at market value instead of cost.

No evidence was submitted relating to the losses claimed to have been sustained by reason of the sale and exchange of foreign moneys and the sale of Liberty bonds of the par value of $5,000.

OPINION.

VAN FOSSAN: In the consideration of this case we are confronted with the difficulties often incident to proving the acts of a decedent during his lifetime. A. G. Perelli-Minetti kept no books of account relating to his individual business ventures. After his death there were found among his papers certain checks and memoranda which his brother, Charles Perelli-Minetti, concluded were representative of amounts paid out as ordinary and necessary business expenses incurred by the decedent in 1919 in carrying on his trade or business. However, such alleged payments are not proved either to have been proper and necessary business expenses or to have been actually made for those purposes. No endorser of any check purporting to have been given in payment of a business expense was introduced as a witness to show that the amount of such check was devoted to the use alleged. The memoranda of the decedent's expenditures aggregating $10,978, claimed to have been paid out as "general expenses," ordinary and necessary to his trade or business, were at the most merely estimates of his monthly expenses and were not supported by adequate and competent documentary or oral evidence. We sustain the respondent in his disallowance of the alleged expenses set forth in the petitioner's allegations of error (1) and (2).

The record does not disclose the sources of the increases in the incomes of the partnerships of Scatena, Lawson & Perelli and C. Scatena & Co., as determined by the respondent. No proof was submitted relating to any such additions to income except as to the method of taking the inventories of Scatena, Lawson & Perelli, as of December 31, 1919. In the proceeding of W. H. Lawson, Docket 4510, we sustained the action of the Commissioner with respect to inventories for lack of evidence of error. We adhere to that decision. The respondent's determination of the increased income of the petitioner as derived from the above partnership is approved.

The petitioner's claim to losses sustained in the sale and exchange of foreign moneys and in the sale of Liberty bonds is disallowed for failure to submit any proof relative thereto.

Judgment will be entered for the respondent.