Beech Trucking Company, Inc., Arthur Beech, Tax Matters Person, (2002)

Extract

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Beech Trucking Company, Inc., Arthur Beech, Tax Matters Person, (2002)

118 T.C. No. 27

UNITED STATES TAX COURT BEECH TRUCKING COMPANY, INC., ARTHUR BEECH, TAX MATTERS PERSON, Petitioner v.

COMMISSIONER OF INTERNAL REVENUE, Respondent Docket No. 16452-99. Filed May 23, 2002.

P, a trucking company, leases its drivers from an affiliated company. P compensates the drivers at a rate of 24 to 26 cents per mile dispatched, of which amount 6.5 cents is designated as a per diem allowance. R does not dispute that P's per diem payments are ordinary and necessary business travel expenses that are deemed substantiated pursuant to Rev. Proc. 94-77, 1994-2 C.B. 825, and Rev. Proc. 96-28, 1996-1 C.B. 686.

Held: On the facts involved herein, P is the common law employer of the drivers and therefore is subject to the 50-percent limitation of sec. 274(n), I.R.C., to the extent the per diem payments are for the drivers' meal expenses. Held, further, pursuant to Rev. Proc. 94-77, supra, and Rev. Proc. 96-28, supra, the per diem payments are treated as being for the drivers' meal expenses and thus are subject to the sec. 274(n), I.R.C. limitation.

James Allen Brown, for petitioner.

Edith F. Moates and John S. Repsis, for respondent.

THORNTON, Judge: By notice of final S corporation administrative adjustment (FSAA), respondent determined adjustments of $251,885 and $286,878 to the ordinary income of Beech Trucking Co., Inc. (Beech Trucking), for 1995 and 1996, respectively. At issue is the amount that Beech Trucking may deduct with respect to per diem allowances it provided drivers that it leased from an affiliated company, and, more particularly, whether the 50-percent limitation of section 274(n) applies to the total amount of the per diem payments. Subsumed in these issues is the question of whether the section 274(n) limitation applies to Beech Trucking as the recipient of the services of the leased drivers.

Unless otherwise indicated, all section references are to the Internal Revenue Code in effect for the years at issue; all Rule references are to the Tax Court Rules of Practice and Procedure.

FINDINGS OF FACT The parties have stipulated some of the facts, which we incorporate herein by this reference.

Beech Trucking During the years at issue, Beech Trucking was an S corporation within the meaning of section 1361(a)(1). Arthur Beech (petitioner) was the tax matters person. When the petition for readjustment was filed, Beech Trucking had its principal office in North Little Rock, Arkansas.

During the years at issue, Beech Trucking had six shareholders. As of yearend 1996, their ownership percentages were as follows:1 Ownership Shareholder percentage Arthur Beech 55.333 Ed Harvey 26.000 Ralph Bradbury 16.667 Diane Miller .667 James Willbanks .667 Warren Garrison .667 Petitioner was president of Beech Trucking, Ed Harvey (Harvey) was vice president, and Ralph Bradbury was secretary-treasurer.

Beech Trucking operated as an irregular-route, common carrier transporting general commodities within the midwestern and southern United States. During 1995 and 1996, it had one terminal in Little Rock, Arkansas, and another in Nashville, Tennessee. During 1995 and 1996, Beech Trucking owned and operated between 100 and 125 trucks, all of which...

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