Opinion
Docket No. 27147.
1952-03-7
HAROLD A. CHRISTENSEN, PETITIONER, v. COMMISSIONER OF INTERNAL REVENUE, RESPONDENT.
James S. Delehanty, Esq., for the petitioner. Edward C. Adams, Esq., for the respondent.
DEDUCTION— ORDINARY AND NECESSARY EXPENSE— SECTION 23(a)(1)(A).— Amounts spent by a field manager to build up business and increase his compensation, though spent for the entertainment of salesmen under his supervision, were ordinary and necessary expenses of his business as field manager. James S. Delehanty, Esq., for the petitioner. Edward C. Adams, Esq., for the respondent.
The Commissioner determined a deficiency of $125.41 in the income tax of the petitioner for 1947. The only issue for decision is whether the petitioner may deduct $600 or any part thereof as an ordinary and necessary business expense for 1947.
FINDINGS OF FACT.
The petitioner filed his individual income tax return for 1947 with the collector of internal revenue for the district of Minnesota. He resides at Minneapolis, Minnesota.
He was employed during 1947 and for a number of years prior thereto as a field manager for Parke-Davis Company, a corporation which manufactured medicines and related products in Detroit, Michigan. The territory on which the petitioner was field manager was large. It covered all or parts of six states. He had 15 salesmen under him. They were stationed at various points throughout the territory. He had authority to hire and discharge those salesmen, but they were paid directly by Parke-Davis Company. Their compensation consisted of a fixed salary, plus a bonus representing a percentage of increased sales for each year. The petitioner was paid for 1947 a salary of $5,400 plus a bonus of $250. The bonus was 5 per cent of the average increase in the business made by the salesmen under him.
The petitioner was required to make periodic visits to the 15 salesmen above mentioned. He made 32 such trips in 1947, each trip lasting about one week. He was reimbursed by his employer for all of his expenses for travel on those trips, including his railroad fare and his board and lodging.
The petitioner, while on those trips, spent some of his own money on the salesmen or their families in an effort to bring about and maintain good business relations between those salesmen and himself so that the business of his employer might prosper and his own earnings increase. He was not required by his employer to make those expenditures, but made them entirely on his own initiative. He and his predecessor had followed this practice for many years. The expenditures were for such items as charges for bowling, cost of theater tickets, cost of salesmen's meals, and candy for an employee's wife or toys for his children if he called at their house.
The petitioner kept no record of such expenditures but he estimated that they amounted to about $50 a month, or $600 a year, and he claimed on his return for 1947 a deduction of $600 on account of such expenditures. The Commissioner, in determining the deficiency, disallowed the deduction of $600 for lack of substantiation as to amount or as to the expenses being ordinary and necessary in the production of the petitioner's income.
The petitioner spent $300 during 1947 on his visits to salesmen, which amount represented ordinary and necessary expenses of his business as field manager, not reimbursed by his employer.
OPINION.
MURDOCK, Judge:
The petitioner does not know exactly how much he spent on the salesmen under him and on their wives and children, but he testified that he did spend his own funds for that purpose and he gave as his best estimate of the total, $50 a month or $600 a year for 1947. If he had kept some record, he might have been able to prove the exact amount which he spent. It is not clear whether or not he included in the estimate the amount which he spent for his own entertainment and which might not properly be regarded as an expense of his business as field manager. Some of the amounts which he spent were ordinary and necessary expenses of that business. They were spent by him in an honest and legitimate effort to do a better job by creating and maintaining friendly relations between himself and the salesmen upon whom he had to depend not only for his bonus, but for the selling in the territory under his supervision. The one answer clearly wrong is that given by the Commissioner, who allowed no deduction whatsoever. William Lee Tracy, 39 B.T.A. 578; John J. Ide, 43 B.T.A. 799. The parties should have settled the case on some amicable basis, but since they failed to do so, the Court, following the principle of Cohan v. Commissioner, 39 F.2d 540, has determined that $300 is a proper deduction.
Reviewed by the Court.
Decision will be entered under Rule 50.