Tyler v. Commissioner , 13 T.C. 186 ( 1949 )

Grover Tyler, Petitioner, v. Commissioner of Internal Revenue, Respondent

Tyler v. Commissioner

Docket No. 17875

United States Tax Court

13 T.C. 186; 1949 U.S. Tax Ct. LEXIS 112;

August 10, 1949, Promulgated

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Decision will be entered under Rule 50.

In 1942 petitioner, a pilot employed by United Air Lines in Seattle, accepted employment with a firm in Cleveland, which employment was thought at first to be temporary but continued until November 1, 1946. Petitioner's former employer from time to time from 1942 to May 1944 granted petitioner leaves of absence in order that he might retain his seniority rights as a pilot with United. On March 30, 1945, petitioner's wife left him, taking with her various assets, including U. S. savings bonds jointly owned by petitioner and his wife and valued at $ 14,325. Held:

(1) That the petitioner's living expenses during 1942 and 1943 while residing in Cleveland, which was his principal place of employment, are not deductible as traveling expenses away from home within the meaning of section 23 (a) (1) (A) of the Internal Revenue Code.

(2) Expenditures required to be paid by petitioner incident to carrying on his work as a test pilot and for which he was not reimbursed by his employer allowed as deductions for 1942, 1943, and 1945.

(3) That the taking of jointly owned U. S. savings bonds by the petitioner's wife in 1945 did not constitute a loss by theft or a loss sustained in a transaction entered into for profit within the meaning of section 23 (e) of the Internal Revenue Code.

Horace W. Peters, Esq., for the petitioner.

Lawrence R. Bloomenthal, Esq., for the respondent.

Arundell, Judge.

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ARUNDELL

The respondent has determined deficiencies in income and victory tax for the calendar year 1943 in the amount of $ 1,575.14 and income tax for the calendar year 1945 in the amount of $ 144.39. Adjustments made to the petitioner's tax liability for 1942 are involved herein, due to the provisions of the Current Tax Payment Act of 1943.

The petitioner contends not only that the Commissioner erred in determining the deficiencies for both years, but claims also that his traveling and entertainment expenses for the years 1942 and 1943 were greater than the amounts deducted on his returns for those years and that he is entitled to a deduction for entertainment expense for the year 1945 which he did not report on his return for that year.

Three questions are presented herein:

(1) Whether certain amounts expended by the petitioner in 1942 and 1943 are properly deductible by him as traveling expenses, including meals and lodging while away from home in pursuit of a trade or business within the meaning of section 23 (a) (1) (A) of the Internal Revenue Code.

(2) Whether the petitioner was entitled to deduct in 1942, 1943, and 1945, as ordinary and necessary business expense under section 23 (a) (1) (A), certain amounts expended by him in those years.

(3) Whether petitioner was entitled in 1945 to deduct $ 14,325 as a loss from theft or as a loss in a transaction entered into for profit.

Petitioner has abandoned assignments of error relating to the respondent's determination that certain income reported by the petitioner in 1943 as community income was his separate income and the respondent's application of withheld taxes for 1943 and 1945 to the petitioner's tax liability for those years. Petitioner has also dropped the claim made in the petition for traveling expenses in 1945. Evidence was presented by oral testimony, stipulation, and exhibits. The facts stipulated by the parties are hereby found and, in so far as necessary in the determination of the issues herein, are incorporated in our findings of fact.

FINDINGS OF FACT.

The petitioner is an individual who now resides in Seattle, Washington. His returns for the calendar years 1942 and 1943 were filed with the collector of internal revenue of the State of Washington, at Tacoma, Washington. His return for the calendar year 1945 was filed with the collector of internal revenue for the eighteenth district of Ohio, at Cleveland, Ohio.

Petitioner is a citizen of the United States, 56 years of age, and at all times material to the issues herein was legally domiciled in the State of Washington. He was employed as general manager and chief pilot of the Pacific Transport Co. from 1926 to 1933. From 1933 until May 1944 he occupied the position of senior pilot of the western division of the United Air Lines, Inc. His salary from United Air Lines in 1942, when he ceased active flying for that company, was approximately $ 10,000 per year.

Jack & Heintz, Inc., a corporation located in Cleveland, Ohio, was engaged in 1942 in the development and manufacture of aircraft flight instruments for the armed forces. Before starting full scale production of a new automatic pilot, Jack & Heintz wanted it tested and approved by an outside expert, independent of its engineering department, and one with long experience in instrument flying. The petitioner was selected for this work and was hired by Jack & Heintz at the end of June 1942 for a 30-day period. United agreed to release the petitioner for this work and gave him a 30-day leave of absence.

The petitioner reported for work with Jack & Heintz on July 1, 1942, traveling from Seattle to Cleveland by air, for which he paid the fare, amounting to $ 123.11. The test work on the automatic pilot was completed before the expiration of his 30-day leave of absence. However, new flight instruments had been developed which the Army Air Forces wanted the petitioner to test and the Commanding General of the Army Air Force at Wright Field, Dayton, Ohio, telegraphed United for a 60-day extension of the petitioner's leave, stating that "it is to the advantage of the Government that the tests be uninterrupted." United granted the extension to September 27, 1942.

The original 30-day leave of absence granted by United Air Lines was extended from time to time until May 1944, as follows:

July 29, 1942, 60 days to Sept. 27, 1942.

Sept. 14, 1942, additional 60 days.

Nov. 23, 1942, 6 months to May 26, 1943.

May 25, 1943, additional 6 months to Nov. 24, 1943.

Nov. 24, 1943, additional 6 months to May 24, 1944.

United refused to grant a further extension of petitioner's leave of absence after May 24, 1944, and on July 1, 1944, the petitioner's name was removed from the United Air Lines pilots' seniority list and his employment with that company was terminated effective May 24, 1944.

Petitioner's original salary with Jack & Heintz was $ 15,000 annually. Late in 1942 or early in 1943 it was increased to $ 25,000 per year. After United refused in 1944 a further extension of petitioner's leave of absence, he definitely decided to remain with Jack & Heintz rather than return to his position with United. Petitioner was prompted to take this course by reason of the fact that his sight and hearing were falling below the air line requirements and moveover he hoped that his increased salary at Jack & Heintz would permit him to accumulate sufficient savings to retire after the war. The petitioner remained with Jack & Heintz until November 1946.

When the petitioner first went to Cleveland he left his home in Seattle, which he had owned and occupied as a residence since 1934, fully furnished and unrented so that it would be available to him upon his return to Seattle. In Cleveland he lived at the Carter Hotel from July 1942 to April 1943; at the Hotel Westlake from May to August 1943; and at an apartment in Shaker Heights from September 1943 to December 1945, except during such periods as he was required to be out of town on flight test work for Jack & Heintz. All of the petitioner's living and traveling expenses incurred while away from Cleveland overnight on business for Jack & Heintz were paid by that firm.

Petitioner claims that in 1942 and 1943 he incurred traveling expense, including meals and lodging while away from Seattle, in the amounts of $ 1,133.11 and $ 2,217.50, respectively. Petitioner claimed in his tax returns for 1942 and 1943 deductions for traveling expenses of $ 874.01 and $ 2,353. Of these amounts the respondent allowed only $ 341.86 for 1942, which represented expenses of petitioner while in the employ of United, and in 1943 a deduction of $ 12 was allowed, which represented the cost of two physical examinations which were required of air line pilots.

Virtually all of the petitioner's flight and laboratory tests were made in cooperation with technicians representing the Army Air Forces. The Air Force technicians from Wright Field spent an average of about three days and nights each week in Cleveland working with the petitioner on flight tests. There were usually at least four Wright Field technicians present for each test and sometimes as many as ten. Petitioner and the technicians frequently had their meals together and on these occasions continued their discussion of the work on which they were engaged. The petitioner also made daytime test flights to Wright Field. On those occasions he usually took to lunch the several people with whom he worked at Wright Field.

When petitioner's salary was raised from $ 15,000 to $ 25,000 a year, some part of the consideration for the increase was the understanding between petitioner and Jack & Heintz that the former would pay from his own salary the minor items of expense connected with his position. Petitioner now claims that he is entitled to deductions of $ 2,660 for 1942, $ 4,760 for 1943, and $ 4,110 for 1945, covering such outlays.

In 1942, 1943, and 1945 petitioner incurred and paid certain ordinary and necessary expenses for which he was not reimbursed, in the following amounts: 1942, $ 500; 1943, $ 900; and 1945, $ 800.

Petitioner sold his Seattle home for $ 12,000 in May 1944, and the proceeds from that sale, $ 11,993, were deposited on May 22, 1944, in a joint checking account maintained by the petitioner and his wife at the Cleveland Trust Co. The petitioner had purchased stock of the Venezuela Petroleum Co. in 1937 and stock of the Borg-Warner Co. in 1939, which securities, at all times material hereto, constituted the petitioner's separate property. The Venezuela Petroleum Co. stock was sold on March 3, 1944, for $ 1,000, and the Borg-Warner stock was sold for $ 3,650 on February 28, 1944. The proceeds of the Borg-Warner stock, $ 3,623.99, were deposited in the petitioner's joint checking account on March 27, 1944.

The petitioner purchased United States savings bonds of series E in the face amount of $ 18,950 during the period from April 1943 to April 1944, and $ 15,000 of series G bonds on June 14, 1944. These bonds were purchased by check drawn against the joint checking account. All of the aforesaid bonds were inscribed and registered in the name of the petitioner and his wife as "owner" and "Co-owner," respectively, as follows:

Grover Tyler

2843 Hampton Road

Shaker Square

Cleveland, Ohio

or

Mrs. Alice M. Tyler

The bonds were kept in a safe deposit box at the Cleveland Trust Co. which was rented in the name of Alice M. Tyler and Grover Tyler as deputy and to which the petitioner and his wife had access. Petitioner at no time made a gift of his interest in the property to his wife.

Petitioner's wife, as a result of family differences, left him on the morning of March 30, 1945. Before leaving she informed the petitioner of her intention to leave and to take certain funds with her. She took with her the sum of $ 575 in cash from a pocket of petitioner's trousers, $ 2,000 in cash from the joint checking account, and all of the aforementioned savings bonds from the safe deposit box. Petitioner definitely learned his wife had taken the bonds on the morning of March 31, 1945, when he visited the lock box. He immediately thereafter consulted legal counsel in an effort to recover the bonds and cash taken by his wife.

The petitioner filed suit for divorce in the Common Pleas Court of Cuyahoga County, Ohio, on April 3, 1945, in which he asked the court to issue an order enjoining his wife from disposing of, or otherwise dissipating, the cash and savings bonds mentioned above. His wife, on the same day, filed a suit for divorce on her own behalf. Both actions were dismissed by the court for lack of prosecution, the wife's on September 13, 1945, and the petitioner's on May 24, 1946.

When the petitioner's employment with Jack & Heintz was terminated in November 1946, he returned to Seattle, Washington, where he applied for and was granted an interlocutory decree of divorce by the Superior Court for King County of the State of Washington, on February 7, 1947, which was made final on August 8, 1947.

The petitioner's wife redeemed all of the savings bonds of series E and series G in July and August, 1945, receiving a redemption price of $ 14,670 for the series G bonds and $ 14,212.50 for the series E bonds. She did not offer at any time to return any part of the bonds, their proceeds, or the cash taken from the petitioner or the joint checking account, and none of said funds have ever been returned to petitioner.

The petitioner's wife filed suit for alimony against him on February 3, 1947, in the Common Pleas Court of Cuyahoga County, Ohio. The petitioner thereupon filed an answer and cross-petition to his wife's alimony suit on April 23, 1948, in which he set forth the unlawful taking of the bonds and cash, requested the return of that property, and secured an order from the court restraining a corporation known as Wishing Well, Inc., in which his wife was the sole stockholder, from disposing of any of its assets and funds to his wife.

In April or May, 1948, Wishing Well, Inc., became insolvent. The stock petitioner's wife held therein was worthless and she had no funds or other property except her personal effects. For this reason petitioner voluntarily moved to dismiss his cross-petition. The decree of the Court of Common Pleas of Cuyahoga County dated December 8, 1948, recognized the validity of the petitioner's Washington divorce and ordered petitioner to pay his wife's counsel fees in the amount of $ 1,000. The court, calculating that a reasonable sum for alimony or property settlement to which the petitioner's wife was entitled would not exceed $ 12,000, awarded no alimony, as it concluded she had received more than that amount in the bonds and cash taken by her on March 30, 1945.

Petitioner claimed as loss by "theft" on his 1945 return the amount of $ 14,325 incident to the taking by his wife of certain series G bonds. These bonds petitioner claims were purchased with his separate funds accumulated prior to his marriage. Respondent disallowed in full the loss of $ 14,325 claimed by petitioner.

OPINION.

Three principal issues are raised in this proceeding: First, the deduction as traveling expense in 1942 and 1943 of the cost of petitioner's plane fare from Seattle to Cleveland and the cost of his meals and lodging while in Cleveland during those years; second, the deductibility of certain so-called entertainment expenses paid during the years 1942, 1943, and 1945; and, third, the deduction as a theft or embezzlement of a sum equal to the value of certain bonds jointly held by petitioner and his wife which the latter appropriated to her own use.

The first issue we think is without merit. Petitioner had for many years been employed by United Air Lines and its predecessor as an air line pilot. During this period he made his home in Seattle. At some time prior to June 30, 1942, he was contacted by Jack & Heintz and offered employment in Cleveland as a test pilot, which position he accepted after obtaining a 30-day leave of absence from United. It is true that originally it was thought that his stay in Cleveland would be short, but, in fact, it extended into years. This fact we regard as of little significance. Petitioner came to Cleveland to accept a new and different job and his work with Jack & Heintz had no connection with his duties as an air line pilot with United. While in Cleveland petitioner was not in the pursuit of a business of his own or of his former employer in Seattle. Cleveland succeeded Seattle as his principal place of business from and after June 30, 1942, and therefore his presence in Cleveland did not involve travel away from home within the meaning of section 23 (a) (1) (A) of the Internal Revenue Code. Commissioner v. Flowers, 326 U.S. 465">326 U.S. 465; John Henry Chapman, 9 T. C. 619; Arnold P. Bark, 6 T. C. 851; S. M. R. O'Hara, 6 T.C. 841">6 T. C. 841; Barnhill v. Commissioner, 148 Fed. (2d) 913; Mort L. Bixler, 5 B. T. A. 1181. Such traveling expenses as petitioner incurred while away from Cleveland and in the performance of his duties as a test pilot with Jack & Heintz were paid by the latter and consequently there would appear to be no "necessary" expenses that were payable out of his own pocket. The expenses allowed by respondent for 1942 incident to petitioner's employment with United are not in dispute, nor is the $ 12 allowed for physical examinations in 1943.

The second issue has to do with the deductibility of so-called entertainment expenses. It seems to have been accepted between petitioner and Jack & Heintz that the latter would pay all expenses incurred by petitioner on behalf of the company, but that certain minor expenses would be absorbed by petitioner, and in increasing petitioner's salary from $ 15,000 to $ 25,000 per year Jack & Heintz recognized this fact. There seems to be no question but that these expenditures by petitioner resulted in his performing his duties as a test pilot more efficiently, principally because it permitted his constant association with technicians from Wright Field who were working with him in the testing of certain equipment that Jack & Heintz had under contract for the Air Forces. The sums expended were not for entertainment as such, but were outlays incident to the work being jointly performed by petitioner and his associates from Wright Field. In principle, we agree with petitioner that these expenditures constituted a deduction for tax purposes. The real difficulty in this case is in determining from the record the amount of such expenses, as petitioner kept no records and has produced no evidence from which an accurate determination can be made of the expenditures sought to be deducted. Under such circumstances, we are obliged to determine as best we may from the record the amount of the deductions bearing most heavily upon the taxpayer. Cohan v. Commissioner, 39 Fed. (2d) 540. Having in mind that Jack & Heintz stood ready to or did reimburse petitioner for all but minor expenses, we have determined that the petitioner incurred and paid, and may properly deduct as ordinary and necessary business expenses, $ 500 in 1942, $ 900 in 1943, and $ 800 in 1945.

The third issue raises an interesting question. Petitioner claims that his wife stole certain Government bonds from him and that he is therefore entitled to a loss by reason of the theft. The bonds were taken by his estranged wife on March 30, 1945, when she left petitioner and within a few days instituted divorce proceedings.

The bonds alleged to be stolen were in the joint names of petitioner and his wife and were deposited in a lock box which was accessible to both spouses. Mrs. Tyler called petitioner's office and advised that she was leaving him and that she intended to take the bonds with her. Apparently petitioner made no effort to stop her and it was not until the following day that he visited the lock box and found the bonds gone. It is true that within a few days he filed a suit for divorce against his wife, in which he attempted to secure an order enjoining her from disposing of the bonds. However, he did not seek to have criminal proceedings instituted against her, nor did he attempt to have the bonds canceled by the Treasury Department and new bonds issued, which is a permissible procedure where Government bonds have been stolen. It seems well established under the common law that one spouse may not be guilty of larceny of the other's belongings, and in most states it is held that this rule is not affected by the passage of a married woman's property act. It seems to be equally well established that one who owns goods jointly with another ordinarily has the same right of possession as the coowner and therefore he can not commit larceny in respect of such goods. 36 C. J. 782, 783; 32 Am. Jur. 953, and cases collected therein.

We are satisfied after a careful consideration of the facts, the course of conduct of the parties, and the law as it is generally accepted and particularly as it appears to have been laid down in Ohio (State v. Phillips, 85 Ohio 317">85 Ohio 317; 97 N. E. 976; secs. 12447 and 12467, Ohio General Code) that the wife's action in taking the bonds in question did not constitute either larceny or embezzlement within the meaning of section 23 (e) (3) of the Internal Revenue Code. Petitioner's alternative argument that the taking of the property constituted a loss from a transaction entered into for profit under section 24 (e) (2), we think, is without merit. Whatever loss was sustained by the petitioner can not be reasonably regarded as a proximate result or a logical consequence of his purchase of the bonds. The loss was incident to the disruption of petitioner's family.

Decision will be entered under Rule 50.