Frank v. Comm'r of Internal Revenue
| Decision Date | 29 May 1953 |
| Docket Number | Docket No. 32374. |
| Parties | MORTON FRANK AND AGNES DODDS FRANK, PETITIONERS, v. COMMISSIONER OF INTERNAL REVENUE, RESPONDENT. |
| Court | U.S. Tax Court |
OPINION TEXT STARTS HERE
Held, the petitioners, who had no business and no permanent home, are not entitled to deduct traveling expenses and legal fees incurred during the taxable year on a trip to investigate numerous business properties with the purpose in mind of finding a suitable enterprise to purchase and operate. Albert B. Arbaugh, Esq., for the petitioners.
Charles Speed Gray, Esq., for the respondent.
The respondent determined an income tax deficiency against the petitioners for the year 1946 in the amount of $2,914.92. The only issue presented is whether the petitioners are entitled to deduct traveling expenses and legal fees in the amount of $5,965 in the taxable year.
Morton Frank and Agnes Dodds Frank, the petitioners, are husband and wife who filed a joint income tax return for 1946 with the collector of internal revenue for the eighteenth district of Ohio. In November 1945, Morton Frank was released from the Navy. His place of residence during the period of his service was Pittsburgh, Pennsylvania. Prior to the war, he had been employed by such newspapers as The Pittsburgh Press, the Braddock Free Press, the Braddock Daily News Herald, and the Michigan Daily. His wife, an attorney, had no experience in the newspaper business and during the war had been employed by several government agencies. During and prior to his service in the Navy, Morton Frank was interested in purchasing and operating a newspaper or radio station. Near the end of November 1945, The petitioners began a trip to examine newspapers and radio properties throughout the country. The purpose of the trip was to investigate, and, if possible, acquire a newspaper or radio enterprise to operate.
The trip took both petitioners westward from Pittsburgh through Ohio, Indiana, Michigan, Minnesota, Wisconsin, Oklahoma, and New Mexico. They interviewed persons in these states with respect to local newspapers and radio stations. On January 1, 1946, the petitioners were in San Diego, California. They then traveled through California, New Mexico, Texas, and Arizona. They arrived in Phoenix, Arizona, on February 12, 1946. The taxpayers estimated that their travel and communication expenses from January 1, to February 12, 1946, aggregated $1,596.44.
The petitioners took employment in Phoenix with The Arizona Times and remained in that city from February to mid-July 1946. While working in Phoenix, the petitioners made several trips to various cities throughout the country in search of a newspaper plant to purchase. They traveled to Los Angeles and Santa Barbara, California, Yuma, Arizona, Pittsburgh, Pennsylvania, and Wilmington, Delaware. Offers of purchase were made to the owners of several newspapers. While in Phoenix, the petitioners lived first in a hotel and later in a house which they acquired. The petitioners estimated their traveling, telephone, and telegraph expenses from March through December 1946 at $5,027.94. Included within this total was a legal fee of $1,000 paid to an attorney for services rendered in connection with unsuccessful negotiations to purchase a newspaper in Wilmington, Delaware. None of these claimed expenses were incurred in connection with petitioners' employment in Phoenix, Arizona. A portion of it was based on estimated allowances of mileage at 6 cents per mile, lodging at $5 per day per person, and other costs at comparable rates, the whole expenditures reasonably aggregating $5,027.94. In November 1946, the petitioners purchased a newspaper in Canton, Ohio, and commenced publication of the Canton Economist in that month.
The only question presented is whether the petitioners may deduct $5,965 in the determination of their net income for the year 1946 as ordinary and necessary business expenses or as losses. The petitioners base their claim for deductions upon section 23(a)(1) and (2) and (e)(2) of the Internal Revenue Code.1 The evidence reasonably establishes that the petitioners expended the amount of expenses stated in our Findings of Fact during the taxable year in traveling, telephone, telegraph, and legal expenses in the search for and investigation of newspaper and radio properties. This total amount was spent by the petitioners in their travels through various states in an endeavor to find a business which they could purchase and operate. These expenses do not include amounts spent while living in Phoenix, Arizona.
The travel expenses and legal fees spent in searching for a newspaper business with a view to purchasing the same cannot be deducted under the provisions of section 23(a)(1), Internal Revenue Code. The petitioners were not engaged in any trade or business at the time the expenses were incurred. The trips made by the taxpayers from Phoenix, Arizona, were not related to the conduct of the business that they were then engaged in but were preparatory to locating a business venture of their own. The expenses of investigating and looking for a new business and trips preparatory to entering a business are not deductible as an ordinary and necessary business expense incurred in carrying on a trade or business. George C. Westervelt, 8 T.C. 1248. The word ‘pursui...
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