Carey v. Comm'r of Internal Revenue, Docket No. 5556-68.

• Decision Date: 14 June 1971
• Docket Number: Docket No. 5556-68.
• Parties: JAMES B. AND MARGARET CAREY, PETITIONERS v. COMMISSIONER OF INTERNAL REVENUE, RESPONDENT
• Court: U.S. Tax Court

56 T.C. 477

JAMES B. AND MARGARET CAREY, PETITIONERS
v.
COMMISSIONER OF INTERNAL REVENUE, RESPONDENT

Docket No. 5556-68.

United States Tax Court

Filed June 14, 1971.

[56 T.C. 478]

Ellis W. Manning, Jr., and Lyman G. Friedman, for the petitioners.

Thomas C. Morrison, for the respondent.

Petitioner husband incurred certain expenses in an unsuccessful attempt to be reelected president of a large labor union. Held, the expenses of seeking reelection are not allowable as a deduction. Held, further, that petitioner is entitled to deduct under sec. 162, I.R.C. 1954, the legal expenses incurred in defending an action arising out of the performance of his duties as president of the union.

OPINION TANNENWALD, Judge:

The respondent determined a deficiency of $3,819.76 in petitioners' Federal income tax for the calendar year 1965. The principal issue for our consideration is whether James B. Carey (hereinafter sometimes referred to as petitioner) is entitled to deduct expenditures which he made in connection with an unsuccessful attempt to be reelected president of the International Union of Electrical, Radio, and Machine Workers, AFL-CIO-CLC (hereinafter referred to as the IUE).¹

All of the facts have been stipulated, and the stipulation and exhibits attached thereto are incorporated herein by reference.

James B. and Margaret Carey, who are husband and wife, filed a joint a Federal income tax return for the calendar year 1965 with the district director of internal revenue, Baltimore, Md. At the time of the filing of their petition herein, they resided in Silver Spring, Md.

Petitioner has been active in the labor union movement since the early 1930's. During that period, he served as secretary, and then as secretary-treasurer, of the Congress of Industrial Organizations (CIO) from its formation in 1938 to its merger with the American Federation of Labor (AFL) in 1955. Following that merger, he served as secretary-treasurer of the AFL-CIO Industrial Union Department, as vice president of the AFL-CIO, and as a member of the executive committee and executive council of the AFL-CIO. He is presently director of labor participation for the United Nations Association of the United States.

From 1949 to 1965, petitioner was elected by acclamation to eight consecutive 2-year terms as president of the IUE, a major labor union. Petitioner, as chief executive officer of the IUE, was charged with responsibility for directing union affairs, which included presiding over conventions of the union and meetings of the union's executive board. Along with the district president of each district of the union, he was responsible for the maintenance and improvement of conditions of employment for those persons within the jurisdiction of the IUE.

The union's constitution set the president's maximum salary at $25,500 per year. In his 1965 return, petitioner reported receiving a salary of $25,499.76.

[56 T.C. 479]

Pursuant to the IUE constitution, the candidates for IUE president are nominated at the national convention. Election is by means of a referendum conducted by mail. At the 1964 convention, held in September of that year, Paul Jennings and Petitioner were nominated for the presidency of the IUE. When the results of the referendum were finally tabulated, Jennings was declared the winner.

In December 1964, during the course of the counting of the ballots, Jennings filed suit in the United States District Court for the District of Columbia seeking to enjoin further vote tabulation until adequate safeguards were provided to insure accuracy. The defendants in this suit were the petitioner, the union trustees charged with supervision of the election, the IUE'S secretary-treasurer, and the IUE itself. The complaint alleged, inter alia, that petitioner, as the incumbent president of the IUE, would not act impartially to insure an accurate tabulation of the votes. In defending against this action, which was dismissed, petitioner incurred expenses of $260 which were paid in 1965.

On their income tax return for the year 1965, petitioners deducted the following amounts as ‘Employee business expenses' which were incurred by petitioner as president of the IUE and which were disallowed by respondent in the deficiency notice:

+-----------------------------------------------------------------------------+
                ¦Date ¦Description ¦Amount ¦
                ¦paid ¦ ¦ ¦
                +--------+---------------------------------------------------------+----------¦
                ¦9/29/64 ¦Petitioner's contribution to his campaign ¦ ¦
                +--------+---------------------------------------------------------+----------¦
                ¦ ¦fund ¦1 ¦
                ¦ ¦ ¦$680.16 ¦
                +--------+---------------------------------------------------------+----------¦
                ¦9/30/64 ¦Petitioner Margaret Carey's contribution to ¦ ¦
                +--------+---------------------------------------------------------+----------¦
                ¦ ¦petitioner's campaign fund ¦1 700.00¦
                +--------+---------------------------------------------------------+----------¦
                ¦1/28/65 ¦Petitioner's personal assumption and payment of accrued ¦ ¦
                ¦ ¦but unpaid ¦ ¦
                +--------+---------------------------------------------------------+----------¦
                ¦ ¦campaign fund expenses. ¦14,108.19 ¦
                +--------+---------------------------------------------------------+----------¦
                ¦1965 ¦Petitioner's payment of interest in $14,108.19 ¦ ¦
                +--------+---------------------------------------------------------+----------¦
                ¦ ¦loan used to repay unpaid ¦ ¦
                +--------+---------------------------------------------------------+----------¦
                ¦ ¦campaign expenses. ¦2 296.84¦
                +--------+---------------------------------------------------------+----------¦
                ¦1965 ¦Petitioner's payment of legal fee in defending ¦ ¦
                +--------+---------------------------------------------------------+----------¦
                ¦ ¦action brought by Paul ¦ ¦
                +--------+---------------------------------------------------------+----------¦
                ¦ ¦Jennings. ¦260.00 ¦
                +--------+---------------------------------------------------------+----------¦
                ¦1965 ¦Petitioners payment of accounting fee for ¦ ¦
                +--------+---------------------------------------------------------+----------¦
                ¦ ¦election expense audit ¦25.03 ¦
                +--------+---------------------------------------------------------+----------¦
                ¦Total ¦ ¦16,070.22 ¦
                +-----------------------------------------------------------------------------+
                

We are again confronted— this time in the context of campaign expenditures made in the course of an unsuccessful attempt by petitioner to be reelected president of an international labor union— with the extent of the allowable deductions under sections 162 and 212.² In

[56 T.C. 480]

essence, the determination of this issue rests upon the extent to which our recent decision in David J. Primuth, 54 T.C. 374 (1970), or that of the Supreme Court in McDonald v. Commissioner, 323 U.S. 57 (1944), is applicable.

In reaching this decision, however, the Court strongly indicated its deep concern for the powerful considerations of public policy involved in allowing a deduction for expenses incurred in running for public office. Moreover, the Court emphasized the history of ‘disallowance of campaign expenses as consistently reflected by legislative history, court decision, Treasury practice and Treasury regulations.’ See 323 U.S.at 62.⁴ As a consequence, and in light of the additional fact that the actual majority in McDonald was obtained by a simple concurrence in result by Mr. Justice Rutledge, it is questionable whether the legal theory espoused in the opinion of the Court has as wide an application as respondent would have us believe. Indeed, the Court itself indicated that the broad brush stroke of its opinion might be more apparent than real, when it stated that it would leave to this Court the ‘detailed analysis of the special circumstances of various ‘businesses' and expenses incident to their ‘carrying on“ and the consequent determination of the ‘allowed or disallowed deductions.’ See 323 U.S. at 65. It seems to us that the Court clearly left room for different results in different factual...