54 T.C. 374 (1970), 3954-68, Primuth v. C.I.R.

Docket Nº:3954-68.
Citation:54 T.C. 374
Opinion Judge:STERRETT, Judge:
Attorney:William F. Kolbe, for the petitioners. Alan B. Shidler, for the respondent.
Judge Panel:TANNENWALD, J., concurring: TANNENWALD, J., agrees with this concurring opinion.FEATHERSTON, J., concurring: I agree with the conclusion reached by the majority, but I would decide the case on a narrower ground. FAY and IRWIN, JJ., agree with this concurring opinion. TIETJENS, J., dissenting: DRE...
Case Date:March 02, 1970
Court:United States Tax Court

Page 374

54 T.C. 374 (1970)




No. 3954-68.

United States Tax Court

March 2, 1970

William F. Kolbe, for the petitioners.

Alan B. Shidler, for the respondent.

Held, fee expended in order to secure employment is deductible as an ordinary and necessary business expense within the meaning of sec. 162, I.R.C. 1954.


Respondent determined a deficiency of $754.10 in the petitioners' Federal income tax for the taxable year 1966. The only issue for decision is whether respondent was correct in its determination that $3,016.43 expended by petitioners to secure new employment is not deductible under section 162 or 212, I.R.C. 1954.[1]


Some of the facts have been stipulated and are so found. The stipulation and the exhibits attached thereto are incorporated herein by this reference.

Petitioners David J. and Carol J. Primuth (Carol is involved herein solely by reason of filing a joint return and therefore the designation ‘ petitioner,’ will refer only to David) resided at Glenview, Ill., at the time their petition was filed herein. They filed their joint Federal income tax return for 1966 with the district director of internal revenue at Milwaukee, Wis.

In May of 1961 petitioner was employed by Foundry Allied Industries, Inc., of Racine, Wis. (hereinafter referred to as Foundry), as controller. Subsequently he became secretary-treasurer at a base salary of approximately $22,000 per annum. His total compensation with bonus was approximately $30,000 per annum for the 2 years prior to his leaving Foundry.

As secretary-treasurer petitioner had fiduciary responsibility for the financial well-being of the corporation, we well as overall management responsibility for accounting, cost accounting, purchasing, and international finance.

As of May 1966 petitioner had become dissatisfied with his prospects at Foundry. He felt the corporation, itself, had a limited future and that there was organizational instability.

After seeing an advertisement in the Wall Street Journal petitioner contacted Frederick Chusid & Co. (hereinafter Chusid) at its office in

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Milwaukee, Wis., with the sole purpose of securing new employment. Chusid, though not licensed in its home State of Illinois as an employment agency, held itself out as ‘ World's Largest Consultants in Executive Search and Career Advancement.’

Subsequent to his response to the newspaper advertisement petitioner was contacted by a Chusid representative, Mr. Fisher. On October 11, 1966, petitioner signed a contract by which he agreed to pay $2,755, or $2,636.25 if fee paid in full within 3 weeks, plus certain out-of-pocket expenses in return for Chusid's services.

According to the terms of the contract Chusid agreed to provide ‘ consulting services and direct assistance’ for a period of 8 months, beginning with the date of the contract. Under this contract petitioner agreed to pay Chusid's fee without condition. On October 11, 1966, petitioner made a payment of $775 and on November 5, 1966, he paid the remainder, $1,861.25.

Although petitioner was aware of the fact that Chusid's fee was payable irrespective of whether new employment was obtained, this aspect was minimized by Fisher at their initial meeting. Petitioner was assured that, in cases of clients with qualifications such as those he possessed, employment was invariably secured. In addition Chusid furnished a guarantee that petitioner could utilize any unused portion of the 8-month contract period, for 3 years, if he was dissatisfied with the position Chusid secured for him. If the 8-month period had been expended he would be entitled to another 30 days of Chusid's services free of charge.

The aforementioned contract of October 11, 1966, set forth the various services that Chusid had agreed to perform for petitioner. These were as follows: (1) Assignment of the client's case to various staff members, such as a ‘ supervising psychologist,‘ a ‘ counseling psychologist,‘ promotional specialists, writers, financial advisers, and researchers; (2) research into the client's background, abilities and personality; (3) evaluation of the client by the psychological staff; (4) counseling; (5) career assessment; (6) evaluation of opportunities; (7) career planning; (8) establishment of a plan of action aimed toward realization of goals; (9) development of a ‘ marketing image’ ; and (10) staff assistance in the preparation of marketing materials.

After execution of this contract petitioner's case was turned over to Charles Darwent (hereinafter Darwent) of Chusid's Chicago office. Darwent was to act as petitioner's consultant. Petitioner was interviewed by Darwent and spoke to him on a daily basis by telephone.

At Chusid's request in order to analyze the petitioner's potentialities he submitted to a series of tests which lasted 60 to 90 minutes and had at least one interview with a psychologist. Petitioner was indifferent

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to the results of these procedures; his purpose in consulting Chusid was to secure employment.

In furtherance of this purpose an extensive resume of petitioner's background and qualifications was prepared and mailed, along with a transmittal letter, to various potential employers by Chusid. Petitioner desired and was aware of this activity on his behalf by Chusid.

Petitioner also received copies of followup letters to potential employers from Chusid that Darwent indicated had been sent on petitioner's behalf. Many of these letters emphasized petitioner's qualifications and contained Chusid's endorsement of petitioner's abilities. The letters also indicated that many prospective employers had evinced interest in the petitioner due to prior contacts initiated by Chusid. This, also, was the kind of activity for which petitioner employed the services of Chusid.

By check, dated November 28, 1966, petitioner made payment of $380.18 to Executive Advertising Services, Inc. This was pursuant to his agreement with Chusid to pay certain out-of-pocket expenses. The expenditure represented payment for the printing and mailing of 1,000 ‘ Motivating Letters,‘ 300 ‘ Brochures' (apparently the aforementioned resumes), 100 ‘ Want Ads,‘ 100 ‘ Master Leads,‘ and 100 referral letters.

Each week Chusid mailed petitioner a list of positions available, together with a brief description of each of them. Upon receiving one of these lists petitioner would indicate interest in certain of the positions listed and Chusid, where appropriate, would arrange an interview.

The foregoing efforts on the part of Chusid resulted in at least seven interviews with representatives of various companies. Chusid gave petitioner descriptions of his expected duties, potential responsibilities, and compensation with prospective employers but did not directly influence his negotiations with these firms. The interviews resulted in four specific offers of employment. one of these was with the Symons Manufacturing Co. of Des Plaines, Ill. (hereinafter Symons).

On March...

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