Green v. Comm'r of Internal Revenue

• Decision Date: 15 September 1980
• Docket Number: Docket No. 6183-78.
• Citation: 74 T.C. 1229
• Parties: MARGARET CRAMER GREEN, PETITIONER v. COMMISSIONER of INTERNAL REVENUE, RESPONDENT
• Court: U.S. Tax Court

74 T.C. 1229

MARGARET CRAMER GREEN, PETITIONER

v.COMMISSIONER of INTERNAL REVENUE, RESPONDENT

Docket No. 6183-78.

United States Tax Court

Filed September 15, 1980.

Petitioner possesses a rare type of blood. Thus, her blood plasma is a rare commodity which is profitably processed and marketed by others who are willing to pay “donors” for the plasma. Petitioner has sold her blood plasma for a number of years, including 1976, as her primary source of funds. As a seller of blood plasma, petitioner devotes constant attention to her diet and made 95 “donations” in 1976 for which she was paid by the pint. Held, the payments received by petitioner for her plasma “donations” were income received in her trade or business of selling the product of blood plasma: Held, further, health insurance is an inherently personal expense deductible only as allowed as a medical expense under sec. 213, I.R.C. 1954: Held, further, the loss of minerals from the blood and the eventual loss of the ability of the blood to regenerate from “donations” are not among those depletions of “natural deposits” for which deductions are provided within the scope of sec. 611, I.R.C. 1954: Held, further, the amount of other business deductions are determined. Margaret Cramer Green, pro se.

Linda J. Wise, for the respondent.

BRUCE, Judge:

Respondent determined a deficiency in petitioner's Federal income tax for the year 1976 of $577 as set forth in his statutory notice of deficiency dated April 17, 1978. The issues presented¹ for our decision all involve whether petitioner is entitled to business-expense deductions relative to her activity as a blood plasma donor in excess of those allowed by respondent. Petitioner claimed as business-expense deductions amounts allegedly spent for medical insurance premiums, special drugs, high protein diet foods, and transportation to and from the laboratory where petitioner donated her plasma. Petitioner also claimed as a business deduction a depletion allowance for certain minerals and antibodies in her blood.

FINDINGS OF FACT

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

Petitioner Margaret Cramer Green resided in Milton, Fla., when the petition herein was filed and when she filed her Federal income tax return for 1976 with the Internal Revenue Service Center, Chamblee, Ga. In 1976, petitioner had income in the form of wages from Wiggins, Inc., and The Shirt Shop, both in Pensacola, Fla., in the amounts of $4,080.59 and $368.50, respectively. However, petitioner's primary source of income² was from her activity as a blood plasma donor to Serologicals, Inc., of Pensacola (hereinafter the lab), an activity she has been engaged in for approximately 7 years.

By a process known as plasmapheresis, a pint of whole blood is removed from the arm of a blood plasma donor, such as petitioner. From this whole blood, the plasma is centrifugally removed and the remaining red cells are returned to the donor's body. The process is repeated. Generally, two bleeds produce one pint of plasma. Petitioner is paid for her donations by the pint.

Petitioner, who has that rare blood type known as AB negative, reported gross receipts of $7,170 from her donor activity in 1976. This amount consisted of $6,695 in donor “commissions” and $475 in travel allowances, paid at a rate of $5 per trip. Offsetting these gross receipts, petitioner claimed related business-expense deductions totaling $2,355 of which only the amount of $132 was allowed by respondent in his notice of deficiency as shown below:

+-----------------------------------------------+
                ¦Expenses                   ¦Claimed  ¦Allowed  ¦
                +---------------------------+---------+---------¦
                ¦                           ¦         ¦         ¦
                +---------------------------+---------+---------¦
                ¦Legal and professional fees¦$20      ¦$20      ¦
                +---------------------------+---------+---------¦
                ¦Medical insurance          ¦150      ¦0        ¦
                +---------------------------+---------+---------¦
                ¦Special drugs              ¦260      ¦112      ¦
                +---------------------------+---------+---------¦
                ¦High protein diet foods    ¦780      ¦0        ¦
                +---------------------------+---------+---------¦
                ¦Travel                     ¦475      ¦0        ¦
                +---------------------------+---------+---------¦
                ¦Depletion                  ¦670      ¦0        ¦
                +-----------------------------------------------+
                

 2,355  132
                

During 1976, petitioner paid $93.09 in premiums on hospitalization insurance policies. In support of the $260 deduction claimed for special drugs, petitioner submitted receipts, canceled checks, and cash register tapes from two drug stores and a health food store, all totaling $285.90. Items totaling $13.79 are clearly dated 1977. Some of the receipts and the cash register tapes duplicate purchases evinced by canceled checks submitted by the petitioner. Items not duplicated or dated in 1977 total $206.60. Petitioner submitted no evidence to support her deduction for travel expenses for $475, the amount she received as travel reimbursement. However, it is clear that, at $5 per trip, petitioner made 95 trips between her home and the lab where she made her plasma donations, a distance of 20 miles, 40 miles round trip. Although sometimes petitioner performed a few personal tasks during her return trips from the lab, petitioner always traveled directly to the lab prior to her donation.

Petitioner's household during 1976 consisted of herself and three children aged approximately 14, 15, and 16 years. As proof of the total grocery bill for this household, petitioner has canceled checks totaling $2,705, an approximate monthly average of $225.41. Of this amount, petitioner's claimed deduction for high protein diet foods was $780, or $65 per month.

To insure that the substance necessary for the production of typing serums is being obtained, the blood of each plasma donor is tested for the desired concentration of iron, protein, and antibodies. If a donor's blood has a low concentration of these items, the donor is not allowed to give plasma. Although the red cells of each bleeding are returned to the donor, the usable iron of those cells is lost in that bleeding and protein is taken from the blood in the form of the plasma itself. These items, as well as vitamins and minerals, must be replaced by diet. If a donor's blood has a low antibody concentration, the donor may receive a “stim shot” whereby this concentration is artificially increased by an injection of incompatible blood type. This process is accompanied by pain and discomfort and carries the risk of hepatitis and blood clotting. Eventually, a donor's blood plasma will lose its ability to regenerate and will not respond to a “stim shot.” For this loss of blood content and ability to regenerate, petitioner claimed a 10-percent depletion deduction for 1976.

Respondent has disallowed those claimed business-expense deductions as shown above as (1) not constituting ordinary and necessary expenses for the performance of a trade or business under section 162,³ or (2) not substantiated as paid, and if paid, as paid for the deductible purpose designated.

OPINION

Generally stated, the question presented by this case is whether petitioner may offset her taxable income by the expenses she incurred in obtaining payment for her blood plasma “donations.” The ability to offset income with expenses incurred either under section 162, in carrying on a trade or business, or under section 212, for the production of income, requires by definition the existence of related income. Both parties to this case base their respective arguments upon the implied assumptions that petitioner realized income upon receiving payment for her plasma and that this income should be characterized as ordinary. Although these assumptions may seem obvious, since this case presents some novel legal questions, we feel compelled to lay a firmer foundation for our conclusions herein.

Clearly, petitioner realized income. Section 61 states that “gross income means all income from whatever source derived.⁴ Such sweeping language must be broadly interpreted to fulfill the intent of Congress to implement a comprehensive income tax. Commissioner v. Jacobson, 336 U.S. 28, 49 (1949); Commissioner v. Smith, 324 U.S. 177, 181 (1945). Congress intended ”to use the full measure of its taxing power.“ Helvering v. Clifford, 309 U.S. 331, 334 (1940). Fulfilling this intent, the well-settled test for income is that enunciated in Commissioner v. Glenshaw Glass Co., 348 U.S. 426, 431 (1955), which looks for ”undeniable accessions to wealth, clearly realized, and over which the taxpayers have complete dominion.“ The Fifth Circuit, to which appeal in this case would go, has followed this test as a search for lasting economic gain realized primarily by the taxpayer personally, United States v. Gotcher, 401 F.2d 118, 121 (5th Cir. 1968); United States v. Rochelle, 384 F.2d 748, 751 (5th Cir. 1967), cert. denied 390 U.S. 946 (1968). See also the Fifth Circuit's general discussions of this and other matters as they specifically relate to blood plasma sales in United States v. Garber, 607 F.2d 92 (5th Cir. 1979), revg. and remanding, on rehearing en banc, 589 F.2d 843 (1979), a criminal fraud case. All of these gains are taxable, unless specifically excluded. Commissioner v. Kowalski, 434 U.S. 77, 82-83 (1977). Petitioner received the payments for her plasma directly, without any conditions subsequent which might require repayment of the funds or might control her use of the funds. The payments were not subject to any exclusion from income.⁵ The payments were gross income to petitioner under section 61.

Next, we must determine the character of the income realized by petitioner for her plasma. This income was not capital gain. Capital gain involves the sale or exchange of a capital asset. Section 1222(1) ...