Opinion
Docket No. 32248.
1953-01-27
EMANUEL O. DIAMOND, PETITIONER, v. COMMISSIONER OF INTERNAL REVENUE, RESPONDENT.
Harry J. Winick, Jr., Esq., for the petitioner. S. Jarvin Levison, Esq., for the respondent.
Harry J. Winick, Jr., Esq., for the petitioner. S. Jarvin Levison, Esq., for the respondent.
Petitioner, a stockholder, director, officer, and employee of a corporation, seeks to deduct as trade or business expenses under section 23(a)(1)(A) of the Code certain sums he paid to settle a judgment obtained against him as the result of an automobile accident. Held, the automobile, although owned by petitioner, was engaged in the business of the corporation at the time of the accident, not that of the petitioner, and the deduction is disallowed.
This case involves an income tax deficiency in the amount of $973.46 for the calendar year 1947. The question to be decided is whether a $4,000 payment in 1947 in settlement of a judgment obtained against petitioner as a result of an automobile accident, together with certain attorneys' fees paid in defense of the suit, are deductible as trade or business expenses of the petitioner under section 23(a)(1)(A) of the Internal Revenue Code.
Some of the facts were stipulated.
FINDINGS OF FACT.
The stipulated facts are so found and are incorporated herein.
The petitioner is an individual residing in New York City. He filed his 1947 income tax return, on a cash basis, with the collector of internal revenue for the fourteenth district of New York.
The petitioner and Cy B. Elkins (hereinafter referred to as Elkins) organized the Elco Installation Co., Inc., a New York corporation (hereinafter referred to as the Corporation), on September 18, 1940, which Corporation was still in existence at the time this proceeding was heard. Its principal place of business was located at 345 East 23d Street, New York City, and it engaged in the electrical contracting business. Petitioner was a stockholder and director of the Corporation and, also, its secretary and treasurer. He owned one-half of the stock of the Corporation, and Elkins, the president, owned the other one-half. Both the petitioner and Elkins were employed by the Corporation and devoted all of their time to the Corporation's business.
Both the petitioner and Elkins owned automobiles which, by mutual agreement, were used in the conduct of the business. Petitioner's automobile was used by Elkins and other employees of the Corporation, as well as by the petitioner. Elkins' automobile was used in the same manner. The automobiles were used to transport men from job to job in New York City; to transport materials that were needed for a job in the City; and, also, to transport men to other jobs outside of the City. Whenever petitioner's automobile was put to such use, the petitioner was reimbursed by the Corporation for the expenses of operating the automobile. The Corporation also paid for the insurance and repairs of the automobile.
The 1942 balance sheet of the Corporation contained the following entry:
+---------------------------------------+ ¦Automobiles ¦$2,469.91¦ +-----------------------------+---------¦ ¦Less reserve for depreciation¦565.17 ¦ +-----------------------------+---------¦ ¦Total ¦$1,904.74¦ +---------------------------------------+
The automobiles listed on the balance sheet were trucks owned by the Corporation to handle heavy equipment. In addition to the trucks, it was necessary to use Elkins' and petitioner's automobiles in the conduct of the business.
On June 26, 1942, petitioner's automobile was driven by Elkins from a job conducted by the Corporation in Washington, D.C., to Middletown, Pennsylvania, where another job conducted by the Corporation was in progress. Accompanying Elkins on the trip were Robert Andrews and Irving Diamond, both employees of the Corporation. While en route to Middletown, a collision occurred with a truck owned by George Earl Evans, as a result of which Andrews and Diamond suffered personal injuries.
Andrews and Diamond subsequently commenced an action on July 14, 1942, in the Supreme Court of the State of New York, County of New York, for damages for personal injuries received in the collision, against the petitioner, Elkins, and Harriet K. Evans, administratrix of the Estate of George Earl Evans, deceased. The Corporation was not made a party-defendant. On January 15, 1944, Andrews received a judgment in the amount of $15,000, and Diamond received a judgment in the amount of $30,000. An action by Elkins against Harriet K. Evans, as administratrix of the Estate of George Earl Evans, deceased, was dismissed.
The petitioner was insured against liability for damages and for injuries sustained by any person or persons arising out of the ownership or use of the automobile in the sum of $10,000, which was insufficient to cover the judgment. The judgments were finally settled in 1947 in some informal manner not shown by the record, and petitioner paid Irving Diamond the sum of $4,000 on September 24, 1947. He also paid some attorneys' fees in that year in connection with the defense of the action brought by Andrews and Diamond.
The expenses of the trip on June 26, 1942, except the amount paid in settlement of the judgment arising out of the accident, were paid for by the Corporation. No evidence was introduced that a demand was ever made by petitioner upon the Corporation for reimbursement for the amount paid in such settlement, nor was any demand for reimbursement made by petitioner upon Elkins, the driver of the car.
Petitioner deducted the $4,000, plus attorneys' fees, as a casualty loss coming within section 23(e)(3) of the Internal Revenue Code on his 1947 income tax return. In this proceeding he claims the deduction as an ordinary and necessary trade or business expense under section 23(a)(1)(A).
The $4,000 and the attorneys' fees paid by petitioner in connection with the automobile accident were not expenses incurred by him in his trade or business within the meaning of section 23(a)(1)(A) of the Code.
OPINION.
RICE, Judge:
Petitioner claims he is entitled to deduct the amount in controversy as a trade or business expense under section 23(a)(1)(A) of the Code
because his business was that of being an employee of the Corporation; that his duty as an employee was that of acting as a foreman and supervisor over the jobs conducted by his employer; that he was required to own an automobile and make it available for the employer's use; that the accident in question occurred in the course of his business as an employee; and that the expenses arising out of the accident were not personal expenses but were incurred by petitioner in connection with or proximately resulting from his business as an employee.
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, ** * .
Petitioner relies chiefly on Anderson v. Commissioner, 81 F.2d 457 (C.A. 10, 1936). In that case, the taxpayer was a farmer who also owned and managed some rental buildings. One night while driving his car from his home to a nearby town to hire a workman to put a cement floor in one of his buildings, his car collided with another, a man was killed, and his car was damaged. The accident resulted in litigation and loss to the taxpayer not covered by insurance. The Court of Appeals reversed this tribunal, and held that the accident proximately resulted from the taxpayer's business and that he was entitled to the deduction. The petitioner recognized on brief that there is a distinction in that the taxpayer in the Anderson case was self-employed at the time of the accident, and that the petitioner here was employed by a corporation, but states that they were both carrying on their respective businesses and that the expense incurred were of the same type.
The respondent argues that the expense was not a trade or business expense of the petitioner; that the car was used in the Corporation's business, and not that of the petitioner; that the Corporation's business was not the petitioner's business; that the petitioner placed the automobile at the disposal of the Corporation to be used as the Corporation saw fit; that other employees of the Corporation used the automobile in pursuit of the corporate business; that the Corporation paid the insurance premiums and repairs on the car and its operating expenses when used for Corporation business; that it was being driven by another employee of the Corporation at the time of the accident which gave rise to the litigation; and that the Corporation paid the operating expenses of the car for that trip.
Respondent cites a number of cases for the proposition that where an individual, who was an officer, director, and stockholder, paid an expense of his corporate employer, he was disallowed a deduction for the expenditure because it was not a payment coming within the individual's trade or business. See Deputy v. duPont, 308 U.S. 488 (1940). He seems to rely chiefly, however, on the case of W. S. Dickason, 20 B.T.A. 496 (1930). In that case the taxpayer was an officer, director, and general manager of a lumber corporation. He owned an automobile which he maintained for business purposes and for pleasure and family use. His son often drove him to work; and while driving the car back home after having left the taxpayer and a business associate at a hotel, had an accident in which personal injuries were sustained. This tribunal said at page 498:
The facts disclose that petitioner's automobile was used for both personal and business purposes and that the lumber company reimbursed the petitioner for all expenses of the car resulting from use in business. Title to the car was in petitioner's name and he had absolute control of its use. We have held on numerous occasions that expenses incurred in going from home to the place of business are not ordinary and necessary business expenses. * * * . If as petitioner contends, the loss here sustained resulted from use of the car for business purposes, the lumber company was liable, and should have reimbursed the petitioner for the amount expended. If it was a personal expenditure, as we think it was, it is not deductible in computing petitioner's net income for 1921.
We do not think that either the Anderson case, supra, cited by petitioner or the Dickason case, supra, cited by respondent are determinative here. The facts in this case clearly show that the automobile was used in the business of the Corporation at the time the accident occurred. It was being used to transport employees of the Corporation from a job in one city to a job in another city. The operating expenses of the trip were being borne by the Corporation. Insurance premiums and repairs on the car were also borne by the Corporation. Under such circumstances, we are unable to hold that the automobile was engaged in petitioner's individual trade or business at the time of the accident.
Two cases not cited by either party but which are somewhat analogous to this case are Ralph D. Hubbart, 4 T.C. 121 (1944), and Arthur A. Byerlein, 13 T.C. 1085 (1949). In those cases the taxpayers were officers of corporations and used their personal cars in performing their official duties. In neither case was the taxpayer reimbursed by the corporation for the operating expenses of the car, nor does it appear that the corporation paid the insurance premiums or repairs for the car. The cars in those cases were used exclusively by the taxpayers, and not by other employees of the corporations. The cars in both cases were also used for pleasure and family use as well as for business purposes, and this Court allocated the expenses and allowed the deductions. It is to be noted that the deductions allowed in those cases were for expenses incurred in operating the cars, and not for expenses arising out of personal injuries sustained in an accident. Whether such an expense is allowable under the facts of those cases need not be decided here. We cite and comment upon these two cases, not because they are determinative of this case, but merely to point out that operating expenses of an individually owned automobile by an officer-employee of a corporation in performing his official duties are allowable deductions and under a proper set of facts.
The facts of this case make it completely distinguishable from those two cases because here the automobile was on the Corporation's business when the accident occurred. If the sums paid had been paid or incurred by the Corporation, they would, no doubt, have been deductible under section 23(a)(1)(A) by the Corporation. See Low v. Nunan, 154 F.2d 261 (C.A. 2, 1946). It might well be that the Corporation was liable for reimbursement of such sums to petitioner and, after reimbursement, could have claimed a deduction under that section; but that question also is not before us.
We, therefore, hold that petitioner's automobile was engaged in the business of the Corporation at the time of the accident, and respondent did not err in determining the deficiency.
Reviewed by the Court.
Decision will be entered for the respondent.