Martino v. Comm'r of Internal Revenue

• Decision Date: 23 September 1974
• Docket Number: Docket No. 6263-73.
• Citation: 62 T.C. 840
• Parties: JOSEPH W. MARTINO AND HELEN MARTINO, PETITIONERS v. COMMISSIONER OF INTERNAL REVENUE, RESPONDENT
• Court: U.S. Tax Court

62 T.C. 840

JOSEPH W. MARTINO AND HELEN MARTINO, PETITIONERS

v.COMMISSIONER OF INTERNAL REVENUE, RESPONDENT

Docket No. 6263-73.

United States Tax Court

Filed September 23, 1974.

Anthony J. Sestric, for the petitioners.

David R. Bosse, for the respondent.

Petitioner ran for reelection to the St. Louis Board of Aldermen during 1971 as the incumbent Democratic candidate. After apparently winning the Democratic primary by a narrow margin, petitioner was forced to defend his victory against an election contest suit filed by his opponent. Legal fees of $8,000 were paid to counsel preparing his defense. Petitioner subsequently deducted this sum from his 1971 adjusted gross income as a miscellaneous itemized deduction. Held, petitioner is not entitled to deduct these expenses either under secs. 162 and 212, I.R.C. 1954, or under sec. 183.

OPINION

DAWSON, Judge:

Respondent determined a deficiency of $3,017.30 in petitioner's Federal income tax for the year 1971. The only issue presented for our decision is whether legal expenses incurred by petitioner Joseph W. Martino while defending against an election contest suit qualify for deduction either as ordinary and necessary business expenses under section 162 or for the production of income under section 212, I.R.C. 1954,¹ or pursuant to the provisions of section 183 as expenses incurred in activities not engaged in for profit.

All of the facts have been stipulated by the parties. We adopt the stipulation of facts and the exhibits attached thereto as our findings. The pertinent facts are summarized below.

Petitioners resided in St. Louis, Mo., at the time they filed their petition herein. Helen Martino, the wife of Joseph W. Martino, is a party to this proceeding only by virtue of having filed a joint Federal income tax return with her husband. Joseph W. Martino will be referred to herein as the petitioner.

Petitioner is currently an elected member of the St. Louis Board of Aldermen representing the eighth ward. Spanning more than two decades, petitioner's record of public service to the eighth ward includes 10 years as its elected State representative to the Missouri General Assembly, from 1949 until 1959, and four consecutive terms as its voice on the board of aldermen, from 1959 to 1975. Throughout this period petitioner's political development was facilitated by his affiliation with the Eighth Ward Regular Democratic Organization, a powerful local political association whose sponsored candidates have swept every primary and general aldermanic election held in the eighth ward since 1932.

Members of the board of aldermen serve 4-year terms commencing on the third Tuesday in April in the election year. On November 6, 1970, as petitioner's third term was approaching its conclusion, he filed to run for reelection as the incumbent Democratic candidate from the eighth ward for a term of office beginning April 20, 1971, and expiring April 14, 1975.

The initial hurdle facing petitioner's reelection bid was a primary election to be held on March 9, 1971. Competition for the Democratic nomination for the forthcoming general election was supplied by a single opponent, Bruce T. Sommer. After a close race, petitioner, again sponsored by the Eighth Ward Regular Democratic Organization, prevailed by a mere six votes and was awarded the Democratic nomination in the general election to be held on April 6, 1971. Bruce T. Sommer contested the election results by filing suit against petitioner in the Circuit Court of the City of St. Louis on March 19,1971. Petitioner retained counsel and defended his victory in a legal battle which, due to the procedural issues involved, went to the St. Louis Court of Appeals and the Missouri Supreme Court before the election results were finally upheld in the Circuit Court for the City of St. Louis. Petitioner won the subsequent general election by a substantial margin and took the oath of office on April 20, 1971, for his fourth term as alderman from the eighth ward.

Counsel retained for the election contest defense presented petitioner with a bill for legal services totaling $8,000 which was paid in full by check on April 13, 1971. Petitioner timely filed his Federal income tax return for 1971 with the district director of internal revenue, St. Louis, Mo., and reported as an itemized miscellaneous deduction ‘Legal Fees Protecting Job’ in the amount of $8,000. Respondent subsequently disallowed this deduction, thus precipitating the present controversy.

Once more a candidate for elected public office seeks judicial sanction of a deduction taken for expenses related to the functioning of the election process. The familiar legal questions presented to us in the instant case arise in connection with previously unlitigated expenses. However, our determination as to the status of these expenses will necessarily rest upon the degree to which extant decisions remain persuasive when applied to the particular facts involved herein.

The courts have not allowed candidates for public offices to deduct their election-related expenses under sections 162 and 212. The leading authority for this position is McDonald v. Commissioner, 323 U.S. 57 (1944), affirming 139 F.2d 400 (C.A. 3, 1943), affirming 1 T.C. 738 (1943), where the Supreme Court held that a State court judge serving an interim appointment could not deduct either a party assessment or campaign expenses under the predecessor of sections 162 and 212 (section 23(a), I.R.C. 1939 ² ). After a careful review of public policy considerations militating against allowance of such deductions³ and the uniform history of ‘disallowance * * * reflected by legislative history, court decision, Treasury practice and Treasury regulations,‘ 323 U.S.at 62, the Supreme Court concluded that the expenses in issue were nondeductible on the ground that they related to office-seeking activities rather than to activities normally engaged in by officeholders. The line of demarcation presented to this Court and others in McDonald has engendered a uniform denial of claimed deductions for campaign expenditures in accordance with its provisions.⁴

Petitioner endeavors to persuade us that the expenses he incurred in defense of his aldermanic primary victory do not fall within the McDonald guidelines of nondeductibility, but rather within the province of necessary legal expenses incurred by an officeholder defending against attacks upon his right to hold office. Commissioner v. Tellier, 383 U.S. 687 (1966); United States v. Gilmore, 372 U.S. 39 (1963); James B. Carey, 56 T.C. 477 (1971), affirmed per curiam 460 F.2d 1259 (C.A. 4, 1972), certiorari denied 409 U.S. 990 (1972). Emphasizing his longstanding political association with the Eighth Ward Regular Democratic Organization and its unblemished record of victories in every primary and general aldermanic election since 1932, the petitioner contends that his victory in the March 9, 1971, primary was tantamount to a victory in the general election subsequently held on April 6, 1971. Therefore, he argues that the legal expenses in issue are properly deductible as ordinary and necessary business expenses incurred by an officeholder protecting his right to that office.⁵

Despite the impressive record of the Eighth Ward Regular Democratic Organization and the fact that petitioner, as its representative, prevailed once again in the April 6, 1971, general election, we are constrained to hold that a primary victory does not endow a party's nominee to a subsequent general election with the same status enjoyed by a candidate emerging from that general election as the certified choice of the electorate. No primary victor has concrete assurance of winning the general election. Indeed, intervening events and changes in public opinion have terminated substantially longer episodes of political dominance by one party.

Petitioner alleges further that the expenses in issue are not ‘campaign expenses,‘ and contends that their failure to fit within that classification leaves them deductible under sections 162 and 212. Although the legal expenses here are clearly not campaign expenses in the traditional sense— such as advertising, printing, traveling, barbecues, and other outlays designed to influence directly the opinions of individual voters— certain other expenditures which have little, if any, influence on public opinion have either been classified as campaign expenses or disallowed as deductions for income tax purposes along with the more traditional expenses. In Mays v. Bowers, 201 F.2d 401 (C.A. 4, 1953), certiorari denied 345 U.S. 969 (1953), the Court of Appeals for the Fourth Circuit included ‘party campaign contributions' within its definition of campaign expenses. 201 F.2d at 403. The Supreme Court in McDonald suggested that among ‘customary campaign expenses' are included outlays for advertising, printing, and traveling. 323 U.S.at 58-59. The taxpayer in McDonald was forced to pay his political party and ‘assessment’ before receiving its sponsorship during his campaign for a judgeship on the Court of Common Pleas of Luzerne County, Pa. The amount of each candidate's mandatory assessment, utilized to defray a portion of the party's campaign expenses, was determined on an individual basis in proportion to the prospective salary to be received by a successful candidate. The Supreme Court denied each of the taxpayer's claimed deductions, stating that:

his campaign contributions were not expenses incurred in being a judge but in trying to be a judge for the next ten years. That is as true of the money he spent more immediately for his own reelection as it is of the ‘assessment’ he paid into the party coffers for the success of his party's ticket. * * * (323 U.S.at 60.)

Recent decisions of this Court reflect our adherence to the principle established in McDonald whether deductions are claimed for the costs of seeking a public office, Horace E. Nichols, 60 T.C. 236 (1973), on...