Bolt v. Comm'r of Internal Revenue, Docket Nos. 3863-67
| Decision Date | 30 September 1968 |
| Docket Number | Docket Nos. 3863-67,5261-67. |
| Citation | 50 T.C. 1007 |
| Parties | LINCOLN ADOLPHUS BOLT, PETITIONER v. COMMISSIONER OF INTERNAL REVENUE, RESPONDENT |
| Court | U.S. Tax Court |
OPINION TEXT STARTS HERE
Lincoln Adolphus Bolt, pro se.
S. W. Simpson, for the respondent.
Held, petitioner's activities in connection with automobile racing, under the facts in this case, constitute a trade or business and therefore the expenses of these activities are deductible.
Respondent determined deficiencies in petitioner's income tax for the calendar years 1964 and 1965 in the respective amounts of $1,069.00 and $717.75. One of the issues raised by the pleadings has been conceded by petitioner leaving for our decision the question of whether petitioner is entitled to deduct as ordinary and necessary expenses of carrying on a trade or business amounts which he expended in each of the years 1964 and 1965 in connection with automobile-racing activities.
Some of the facts have been stipulated and are found accordingly.
Petitioner resided in Los Angeles, Calif., at the time of filing his petitions in this case. His individual income tax returns for the calendar years 1964 and 1965 were prepared on the cash basis of accounting and were filed with the district director of internal revenue at Los Angeles.
Petitioner graduated from college with a degree in electrical engineering in July 1959. Shortly thereafter he became employed on a full-time basis as an electronics engineer by North American Aviation, Inc. (now North American Rockwell Corp.), and from that time has been continuously so employed to the date of the trial of this case. During the years 1964 and 1965 petitioner on occasions did overtime work for North American Aviation, Inc.
Petitioner was 27 years old in 1959. Prior to 1959 he had never operated or driven any type of a motor vehicle. During 1959, petitioner taught himself how to drive an automobile and acquired a driver's license.
Sometime in 1960, petitioner with the idea that he might be interested in automobile racing, bought books and magazines dealing with the subject. He learned from these sources that there were a number of different types of racing cars and decided that the most likely car for him to consider was a ‘midget,‘ taking his financial status into consideration. Petitioner purchased his first racer, a midget, in 1960 for $125. The car never ran. He sold it in March 1961 for $25. After going into the racing field petitioner discovered that it was difficult to obtain technical, professional information in detail on the subject. He was able to persuade a friend to let him ride in a race car which the friend owned prior to buying a second midget racer.
Petitioner owned or had an interest in the following racers:
(1) A midget racer which he acquired in March 1961 for $600.
(2) A sprint car which he bought in 1962, used certain of its parts, and then resold for the same amount he had paid for the car.
(3) A sprint car which he acquired in 1965 and wrecked in 1966.
(4) A Chrysler engine which petitioner owned was put into a sprint car owned by a man named Orange Taylor under some agreement with respect to petitioner's being permitted to drive the car. This car was ‘demolished’ at Ascot Park Speedway in November 1965.
(5) Petitioner owned a midget jointly with a man named Smart. This car was lost when Smart's wife sold everything in his garage, including the racer, to a junkman.
Petitioner got mechanical assistance to put the midget which he acquired in 1961 for $600 in condition to race and ran this car for the first time in 1962 and crashed it. After rebuilding the car, petitioner took it out for practice and the engine ‘blew.’ Petitioner had a new Chevy II engine installed in the car, but had difficulty in getting the engine to work properly. Petitioner met a new mechanic by the name of Henderson in 1964. Henderson was able to make the engine work properly and petitioner raced this car regularly in 1964 and 1965. Petitioner owned this car until 1967 when he wrecked it.
After petitioner acquired his first midget racer he began to spend most of his weekends and free evening hours working on his car. Petitioner was not a mechanic and he sought the assistance of people who were. At first, his friend Orange Taylor, who owned his own race car, worked with petitioner. Taylor was too busy on his own car to give petitioner all the assistance he needed, so petitioner got the assistance of a professional mechanic who worked on the 1961 midget until the early part of 1964 when Henderson began doing the mechanical work on petitioner's car. Petitioner drove the 1961 midget in one race in 1962 and thereafter continued to drive it in races through 1967.
Petitioner, from the time he bought his first midget in 1960 throughout the years here in issue and subsequent years, acquired mechanical experience by working with other mechanics on his own car and, also, by working with Orange Taylor's pit crew. On April 18, 1962, a picture taken shortly before that date at a California racetrack showing a race car and Orange Taylor, his driver Don Johns, and two crew members, one of whom was petitioner, was published in a paper entitled, ‘National Speed Sport News.’ The caption of the picture was ‘Colored Team on Way Up’ and the statement beneath the picture included the following: ‘The Taylor team, one of CRA's finest, is the first colored team to join the organization since its incorporation in 1946.’
During the time petitioner was attending college and for several years thereafter he shared a room or apartment with William Smith. During the early 1960's petitioner began to have the apartment he shared with Smith cluttered with racing-car parts and racing magazines and books. Previous friends of petitioner's visited the apartment less frequently than in prior years since petitioner devoted all of his weekend time when he was not at his employment with North American Aviation, Inc., and many of his evenings, to work on his racing car or going to races. During the years 1962 through 1966 Smith questioned petitioner on a number of occasions as to why he spent so much of his time and money in connection with race cars. Petitioner would tell Smith that he was engaging in these activities to make a profit, that he envied the drivers who were driving for owners for money, and that he wanted eventually to be able to reach this point.
Petitioner drove for other owners only two or three times during the years 1960 through 1966. Petitioner drove the car owned by Taylor in which his Chrysler engine was installed on several occasions before he and Taylor had a disagreement. Their disagreement arose when Taylor asked petitioner to run the car behind the pack and not risk an accident and petitioner told Taylor that he was in there to race and not to practice and that he would not follow the pack. Petitioner drove the car in a race at Ascot Park Speedway in November 1965 in which it was ‘demolished.’
Petitioner joined the United Racing Association (URA) in 1961. The URA went defunct in 1964 or 1965 after a lawsuit was brought against it claiming a large amount of money. Petitioner was a member of the California Racing Association (CRA) in 1964 and 1965. Petitioner drove in races sponsored by the United States Auto Club (or the United States Racing Club) (USAC) in 1964 and 1965 but he did not join that organization until 1967. He did not join USAC in 1964 and 1965 because of the restriction placed by the organization on its driver members racing in local races. Since he was permitted to drive in USAC races without being a member, he was unwilling to accept the limitations of membership during the years here in issue.
These various racing clubs held races in and around southern California. USAC held about 30 races in southern California in both 1964 and 1965 and CRA held about 40 in each of those years. Each of these associations had regulations governing the specifications, mechanical fitness, and appearance of cars which would be permitted to enter the races. The track stewards at each race passed upon the fitness of a car to enter a race and upon the fitness of the driver of the car to drive. A physical examination of a driver might be required before the driver could enter a race. A new driver at any particular track was required by the track steward to demonstrate his driving ability before he was permitted to enter a race. By 1962 petitioner was able to qualify as a driver at the various racetracks.
Petitioner never took part in a race which did not have a ‘purse.’ The purse is the amount of money available for prizes in the race. Typically the purse would be a guaranteed amount or a certain percentage of the gate receipts if more than the guaranteed amount. Sometimes, the purse would be a flat guarantee with no increase because of gate receipts.
A racing event is broken down into several parts. First, there is the warming up; then there is qualifying; next there are the various heat races; then the semimain event; and, finally, the main event. The total purse would generally be divided among the various events as follows:
+-----------------------------+
¦ ¦Percent of ¦
+---------------+-------------¦
¦Event ¦total purse ¦
+---------------+-------------¦
¦ ¦ ¦
+---------------+-------------¦
¦Main event ¦62.75 ¦
+---------------+-------------¦
¦Semimain event ¦21.50 ¦
+---------------+-------------¦
¦Heat races ¦13.50 ¦
+---------------+-------------¦
¦Qualifying ¦2.25 ¦
+---------------+-------------¦
¦ ¦100.00 ¦
+-----------------------------+
In each one of the events, the prize money would be further subdivided to persons coming in first, second, third, etc. Accordingly at a typical USAC race in 1964 or 1965, the prize money for the main event would be $1,500 and the person coming in first would...
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