O'Dwyer v. Comm'r of Internal Revenue, Docket Nos. 54608

• Decision Date: 24 June 1957
• Docket Number: Docket Nos. 54608,59475.
• Citation: 28 T.C. 698
• Parties: WILLIAM O'DWYER AND SLOAN O'DWYER, PETITIONERS, v. COMMISSIONER OF INTERNAL REVENUE, RESPONDENT.
• Court: U.S. Tax Court

28 T.C. 698

WILLIAM O'DWYER AND SLOAN O'DWYER, PETITIONERS,

v.COMMISSIONER OF INTERNAL REVENUE, RESPONDENT.

Docket Nos. 54608

59475.

Tax Court of the United States.

Filed June 24, 1957.

Paul O'Dwyer, Esq., and Michael Kaminsky, Esq., for the petitioners.

John James O'Toole, Esq., for the respondent.

1. The respondent's determination that petitioner William O'Dwyer received $10,000 from John P. Crane during the year 1949, and that this amount was includible in the taxable income of petitioners for that year, held not to be erroneous where petitioners introduced no evidence showing either that the amount was not received or that, if received, it was not taxable income under section 22(a) of the Internal Revenue Code of 1939.

2. The amounts which petitioners are entitled to deduct for the years 1950 and 1951 as ordinary and necessary expenses incurred by petitioner William O'Dwyer, which were attributable to the performance of his duties as Ambassador to Mexico, determined.

3. The respondent's determination that $1,500 deposited by petitioner Sloan O'Dwyer during the year 1951 in a joint bank account with the Chase National Bank was includible in the taxable income of petitioners for that year held not to be erroneous where petitioners introduced no evidence showing that the amount deposited did not constitute taxable income under section 22(a) of the Internal Revenue Code of 1939.

The respondent determined the following deficiencies in the income tax of petitioners:

+-----------------------------------+
                ¦Docket No.  ¦ ¦Years  ¦Income tax  ¦
                +------------+-+-------+------------¦
                ¦            ¦(¦1949   ¦$4,676.06   ¦
                +------------+-+-------+------------¦
                ¦54608       ¦(¦       ¦            ¦
                +------------+-+-------+------------¦
                ¦            ¦(¦1950   ¦5,023.50    ¦
                +------------+-+-------+------------¦
                ¦59475       ¦ ¦1951   ¦10,820.76   ¦
                +-----------------------------------+
                

Some issues raised by the pleadings have been conceded by the parties and effect will be given to these concessions upon settlement under Rule 50.

The remaining issues are:

1. Did the respondent err in determining that the petitioner William O'Dwyer received from John P. Crane, president of the Uniformed Firemen's Association, during the taxable year 1949, taxable income in the amount of $10,000?

2. Did the respondent err in determining that expenditures made by petitioner William O'Dwyer in the amounts of $6,135.94 in 1950 and $10,000 in 1951 were not deductible by petitioners as expenditures made by William O'Dwyer in connection with his duties as Ambassador to the Republic of Mexico?

3. Did the respondent err in determining that the amount of $1,500 deposited in the Chase National Bank, New York City, during the year 1951 was includible in the taxable income of petitioners for that year?

FINDINGS OF FACT.

The petitioners, formerly husband and wife, filed joint income tax returns for the year 1949 with the collector of internal revenue for the second district of New York and for the years 1950 and 1951 with the collector of internal revenue at Baltimore, Maryland.

William O'Dwyer will hereinafter be referred to as the petitioner. He was formerly a city magistrate of the City of New York; a county judge in Kings County, New York City; a district attorney of Kings County; and Mayor of the City of New York from November 1945 until his resignation in August 1950. On August 30, 1950, he was nominated as United States Ambassador to the Republic of Mexico, and served in that position from the latter part of 1950 until his resignation on December 6, 1952.

John P. Crane during 1949 was president of the Uniformed Firemen's Association of New York City. During 1949 Terrance Dolan was treasurer of that organization.

The Uniformed Firemen's Association of New York City (hereinafter called U.F.A.) was an organization which represented the firemen of that city for the purposes of their general welfare. Part of its functions was to support legislation favorable to the firemen, and to oppose such legislation as was unfavorable.

During 1949 the petitioner as Mayor of New York and Crane as president of U.F.A. had the occasion to meet together to discuss matters relating to the general welfare of the firemen.

As president of U.F.A., Crane was voted funds by that organization to be used by him in his discretion for purposes of promoting U.F.A.‘S programs.

In the early part of 1949 relations between the petitioner and the U.F.A. became strained as the result of a resolution adopted by the latter stating that it would not support petitioner for reelection unless he lived up to a promise to support certain legislation involving salaries for firemen. Subsequently, Crane decided to heal the differences between U.F.A. and petitioner, and determined to give him the sum of $10,000 to evidence the support of U.F.A.

Dolan had withdrawn $5,000 from the U.F.A. account with National City Bank on September 26, 1949, and had this amount on hand as of October 6, 1949. Crane told Dolan that he wanted a sum of $10,000. On or about October 6, 1949, Dolan withdrew an additional $5,000, and gave the two sums to Crane in two ‘standard-size’ white envelopes.

Crane had met the petitioner on the steps of City Hall and told him he wanted to see him; the petitioner told him to ‘drop up’ to Gracie Mansion, the official residence of the Mayor of New York.

After Dolan took the $10,000 in two packages out of his safe and gave it to Crane, the latter placed it in a second safe in the office of U.F.A. He then instructed the girl who had the combination to the safe to report to work early on the morning of Monday, October 10, 1949, in order that he could get the money out of the safe.

On the morning of Monday, October 10, 1949, Crane went to the office of U.F.A. about 8:30. He had three missions to perform: First, to leave his car at Mezey Motors for servicing; second, to go to Gracie Mansion and deliver the $10,000 to petitioner; and third, to take a plane to St. Paul to attend a labor convention. Crane took the money from the safe, broke open the two packages, and placed the money in a brown manila envelope.

Crane then drove his car to a fire station on 67th Street between Third and Lexington Avenues, where he met Victor Wilders, a fireman stationed there. Crane had been in touch with Wilders during the previous week with respect to Wilders' seeing to it that Crane's car would be taken to Mezey Motors for servicing. Crane and Wilders drove to the garage, each in his own car.

Upon leaving the garage, Crane attempted to hail a taxi at Second or Third Avenue, but was unsuccessful. Wilders offered to drive him wherever he was going. Crane directed Wilders to go first to a building at 96th Street and Park Avenue, where they were joined by Jerry Finkelstein, who was then the manager of petitioner's campaign for reelection as Mayor of New York. Crane had promised Finkelstein that when he went to see petitioner with an election contribution he would allow Finkelstein ‘to come along.’

On the way to 96th Street and Park Avenue, Wilders had to make a sudden stop at a traffic light. The jar caused the flap of the envelope on Crane's lap to open, and Wilders saw money in the envelope.

Upon arrival at the gate of Gracie Mansion, a policeman stopped the car, put his head in the door of the car, and upon seeing Finkelstein told Wilders to go ahead.

Crane got out of the car and ascended the steps of the mansion Finkelstein stayed behind to talk to Mrs. O'Dwyer, then Sloan Simpson, who was waiting in a car. As Crane was going up the stairs, the petitioner was coming out of the front door, adjusting his coat, assisted by a valet. Crane handed the manila envelope containing the $10,000 to the petitioner, who thanked him, walked back to the door, and tossed it to someone inside.

Finkelstein then walked up the steps and spoke to the petitioner on the porch. Crane, the petitioner and Finkelstein thereupon descended from the porch; Crane and Finkelstein entered Wilders' car, and Wilders drove them to the vicinity of 42d Street and Lexington Avenue, near the airline terminal. Crane then took a plane to St. Paul.

In determining the deficiency for the year 1949, the respondent added $10,000 to the taxable income reported by petitioners in their return for that year.

After petitioner's nomination as Ambassador to the Republic of Mexico on August 30, 1950, the petitioners kept a record of expenditures made by them during the remainder of the year 1950 and the year 1951. Some were ordinary and necessary expenses connected with petitioner's activities as Ambassador and some were personal in nature. The record maintained listed the dates and gave some indication as to the nature of the various expenditures, but in many instances did not contain sufficient information from which it could be determined whether a particular expenditure was of a business or personal nature. Petitioners were in Mexico for a period of approximately 33 days during 1950, and expenditures made during that period were denominated ‘Mexican Expenses.’ The total of all expenditures made by petitioners during the period August 30, 1950, to December 31, 1950, was $7,678.63, and during the year 1951 was $28,390.76. Petitioner received reimbursement from the Department of State for certain expenses incurred by him in connection with his activities as Ambassador. The amount received as reimbursement in 1950 was $542.69 and in 1951 the amount was $10,124.50. Deductions of $6,135.94 and. $12,266.26 were claimed by petitioners in their returns for 1950 and 1951, respectively, for ‘expenses in connection with earning income.’ They arrived at these amounts by deducting from the total expenditures made in each year the amount received as reimbursement and an estimated amount for personal expenses. The amount estimated for personal expenses for ‘one month’ in 1950 was $1,000, and the amount estimated for such expenses for 1951 was $6,000....