Wiles v. United States, 6841

Decision Date06 December 1962
Docket Number6842.,No. 6841,6841
PartiesRichard E. WILES, Jr., and Constance K. Wiles, Appellants, v. UNITED STATES of America, Appellee. Brooks C. NOAH and Mary Ann Noah, Appellants, v. UNITED STATES of America, Appellee.
CourtU.S. Court of Appeals — Tenth Circuit

Elmer B. Hodges, Kansas City, Mo. (John K. Dear, Kansas City, Kan., and John H. Foard, Kansas City, Mo., on brief), for appellants.

Abbott M. Sellers, Washington, D. C., (John B. Jones, Jr., Lee A. Jackson, David O. Walter and Ralph A. Muoio, Washington, D. C., on brief), for appellee.

Before MURRAH, Chief Judge, and BREITENSTEIN and HILL, Circuit Judges.

MURRAH, Chief Judge.

This is a joint appeal from a judgment of the District Court on a jury verdict, denying recoupment of the taxes paid on amounts expended for the purpose of carrying on appellant-taxpayers' alleged trade or business, during the years 1953 and 1954. The disallowed deductions were claimed under Section 162(a) and 167(a) of 26 U.S.C.,1 for travel expenses and depreciation incurred in the asserted business of "seeking out, promoting, organizing, financing and operating numerous corporations, and other promotional enterprises." Appellants contend that the trial court erred in giving certain instructions, and by excluding certain evidence.

Since the incurring of the expenses and depreciation were conceded by the government, the sole issues at trial were whether the activities of appellants constituted a "trade or business" within the meaning of the applicable statutes and, if so, whether and to what extent, the expenses and depreciation were incurred in "carrying on" that trade or business. The testimony tended to show a rather continuous activity of appellants in seeking out, investigating and developing opportunities for the investment of their money, and the use of their personal efforts in a number of enterprises. These activities involved prolonged negotiations for the establishment or purchase of drive-in theaters, the formation of corporations to own and operate them, the manufacture of new or novel items of theater accessories or equipment, a distributorship for a remote control television set, development and patenting of a remote control television speaker, advertising novelties, efforts to develop a new type drive-in theater, and others. Some of these activities developed into profitable enterprises — most did not.

In addition, the record shows, and it seems to be agreed, that during all or part of the tax years in question, the taxpayers were officers, directors and stockholders in four corporations, established by them for the purpose of engaging in some of the foregoing activities; and, that an undetermined amount of the disputed expenditures were, in some way, related to the business of those corporations.

The Court recognized the indisputable legal premise that the taxpayers could, for tax purposes, engage in the business of "seeking out, promoting, organizing, financing and managing business ventures," and that they also might be engaged in carrying on a number of trades or businesses. The jury was instructed that, in determining the existence of the claimed business, they could consider the frequency or number of times appellants engaged in the activity said to be their business; the intent of appellants, i. e., their hope or expectation of deriving part of their livelihood from such activity; and, the profitability of such activity. As to the latter criterion, the Court instructed that "the trade or business need not be continuously profitable, but persistent failure to make a profit is a factor which you may consider in determining whether there is the trade or business involved." Appellants concede that the intent to make a profit is essential, and that "profitability" is a proper inquiry to the determination of that intent. But they say tha profitability itself cannot properly be considered as a separate criterion, in determining the existence of a trade or business.

In the first place, the jury was not so instructed. Moreover, the financial results of an enterprise may be more important than other manifestations of intent. See Cecil v. Commissioner (4 C.A.), 100 F.2d 896, 899. Certainly, the profit motive is the essence of any trade or business. And where, as here, none of the taxpayers' reported income for the taxable years was derived from the claimed business, or as officers, directors and principal stockholders of the related corporations, non-profitability is, to be sure, cogent evidence of the non-existence of the alleged business.2

The Court also instructed the jury, in essence, that a corporation was a separate entity, having its own business apart from the business of its shareholders, officers, directors or employees; that ordinary and necessary expenses paid or incurred primarily in carrying on corporate business, could be deducted only by the corporations, not by the taxpayers; that if, therefore, the jury found that the taxpayers were, during the tax years in question, engaged in the business of "seeking out, promoting, organizing, financing and managing business ventures," and that either or both of them incurred traveling expenses in carrying on that business, they should find for either or both of the taxpayers, in the amount of such expenses. The jury was further instructed in that connection, however, that if it found that the claimed expenses were incurred "in part, primarily, on behalf of corporate business and, in part, primarily on behalf of the plaintiffs' business of seeking out, organizing, financing, promoting, and managing corporations and business ventures," they must determine what part of the total expenses and depreciation were attributable to each, remembering that "plaintiffs are entitled to deduct only that part of the total expense and depreciation that proximately relates to their business * * *;" and, that the burden was upon the taxpayers to prove the...

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26 cases
  • Coors v. Comm'r of Internal Revenue
    • United States
    • United States Tax Court
    • 12 Junio 1973
    ...returns and the treatment of given items thereon will operate as an admission against interest by the respondent. See Wiles v. United States, 312 F.2d 574 (C.A. 10, 1962). A prior determination cannot serve to relieve a petitioner of his burden of proving error in the Commissioner's present......
  • Snyder v. U.S.
    • United States
    • United States Courts of Appeals. United States Court of Appeals (10th Circuit)
    • 30 Marzo 1982
    ...legal premise that the (taxpayer) ... might be engaged in carrying on a number of trades or businesses." Wiles v. United States, 312 F.2d 574, 576 (10th Cir. 1962). Accord Mercer v. Commissioner, 376 F.2d 708, 710 (9th Cir. 1967). Furthermore, it is well settled that the term "trade or busi......
  • Petersen v. Commissioner
    • United States
    • United States Tax Court
    • 25 Enero 1971
    ...estop him from inquiring into those events in determining a deficiency for 1961. Wiles v. United States 62-2 USTC ¶ 9663, 312 F. 2d 574, 577-578 (C. A. 10, 1962); Municipal Bond Corporation Dec. 26,340, 41 T. C. 20, 31-32 (1963), reversed on other grounds, 65-1 USTC ¶ 9247, 341 F. 2d 683 (C......
  • Jackson v. C.I.R., s. 87-1173
    • United States
    • United States Courts of Appeals. United States Court of Appeals (10th Circuit)
    • 10 Enero 1989
    ...behalf of the corporation of which he is an officer or investor. See du Pont, 308 U.S. at 494, 60 S.Ct. at 366-67; Wiles v. United States, 312 F.2d 574, 576-77 (10th Cir.1962). Similarly, the advertising and license amortization expenses incurred in this case clearly do not arise out of tax......
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