Newi v. Commissioner, Docket No. 2803-67.
| Decision Date | 26 June 1969 |
| Docket Number | Docket No. 2803-67. |
| Parties | George H. Newi and Sarah Newi v. Commissioner. |
| Court | U.S. Tax Court |
Gabriel T. Pap, 51 E. 67th, New York, N. Y., for the petitioners. Marvin A. Fein, for the respondent.
Memorandum Findings of Fact and Opinion
The Commissioner determined a deficiency in petitioner's income tax for the calendar year 1964 in the amount of $901.22.
The parties have made certain concessions relating to this deficiency amount. The issues remaining for our decision are as follows:
(1) Whether certain "Christmas tips" given by petitioner to various office hands, delivery boys, elevator starters, doormen, and maitre d's are deductible as ordinary and necessary business expenses under section 162(a) of the Internal Revenue Code of 19541 and/or as entertainment expenses under section 274.
(2) Whether petitioner is entitled to deduct certain taxicab fares, in addition to those allowed by respondent, as ordinary and necessary business expenses pursuant to section 162.
(3) Whether petitioner may deduct under section 162 amounts incurred for the rental, cleaning, and lighting of one room of his apartment, which was used by him for business purposes.
(4) Whether certain telephone calls charged to petitioner's home telephone, in addition to those allowed by respondent, are deductible as ordinary and necessary business expenses within the meaning of section 162.
(5) Whether premiums paid by petitioner for an insurance policy providing ordinary life coverage and monthly income payments to petitioner's wife or children in the event of his death are deductible as medical expenses under section 213.
Some of the facts have been stipulated. The stipulation of facts and the exhibits attached thereto are incorporated herein by this reference.
The legal residence of George H. and Sarah Newi at the time of filing the petition herein was New York, New York. Their joint income tax return for the calendar year 1964 was filed with the district director of internal revenue at New York, New York.
George H. Newi (hereinafter referred to as the petitioner) was employed during the year here involved as an outside salesman of television time for the American Broadcasting Company television network (hereinafter referred to as "ABC").
Issue 1. Christmas Tips
At Christmas time during the year in issue, petitioner claims that he gave an average of $10 each to three office hands, two delivery boys, two elevator starters, three doormen, and six maitre d's for a total expenditure of $160. Petitioner did not maintain a record of these Christmas tips. He received no reimbursement from ABC for such tips.
In a statement attached to his 1964 tax return, the petitioner claimed a deduction in the amount of $160 for "Xmas business tips (not exceed $25.00/person)." This amount was disallowed by the respondent in entirety due to lack of substantiation and on the further ground that such deduction was not allowable under section 274.
Issue 2. Taxicab Fares
In the course of his selling activities, petitioner traveled by taxicab from his employer's place of business located at 7 West 66th Street, New York, New York, to the offices of various advertising agencies and clients. A partial listing of the advertising agencies visited by the petitioner during the year in issue is as follows:
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Company Location
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N. W. Ayer ..................................... 58th and 6th
G. M. Basford .................................. 52nd and 5th
Ted Bates ...................................... 52nd and 5th
Batten, Barton, Durstine and Osborne ........... 46th and Madison
Benton and Bowles .............................. 52nd and 5th
Leo Burnett .................................... 53rd and Park
Castor-Hilton .................................. 52nd and Lexington
Compton Advertising ............................ 59th and Madison
Dancer, Fitzgerald and Sample .................. 45th and Madison
Doherty, Clifford, Steers and Schenfeld ........ 43rd and 5th
Doyle, Dane and Bernbach ....................... 43rd and 6th
William Esty ................................... 42nd and Madison
Foote, Cone and Belding ........................ 42nd and Park
Fuller, Smith and Ross ......................... 52nd and 5th
Grey Advertising ............................... 47th and 3rd
Kenyon and Ekhardt ............................. 42nd and Park
Lennen and Newell .............................. 47th and Madison
McCann-Erickson ................................ 47th and Lexington
McCann-Marchalk ................................ 58th and 6th
Richard K. Manoff .............................. 48th and 3rd
Maxon Advertising .............................. 50th and 6th
Norman, Craig and Kummell ...................... 52nd and Madison
North Advertising .............................. 58th and Lexington
Ogilvy, Benson and Mather ...................... 48th and 5th
Parkson Advertising ............................ 52nd and Park
Sullivan, Stauffer, Cowles and Baywell ......... 51st and Lexington
J. Walter Thompson ............................. 43rd and Lexington
Young and Rubicam .............................. 48th and Madison
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Petitioner took an average of eight or nine taxi rides per work day. The taxicab rate in effect in New York City during 1964 was 25 cents for the first quarter of a mile and 5 cents for each one-fifth of a mile thereafter. Petitioner customarily tipped the cab driver 20 to 30 percent.
Petitioner was partially reimbursed by ABC for his taxi trips in the amount of $2 or $3 per day. He did not keep a record of his taxicab expenses.
The statement attached to petitioner's 1964 return contains the following explanation for petitioner's claimed deduction of $963.60 for taxicab expenses:
Taxis, 219 days at an average of $4.40 ............................... $963.60.
In his notice of deficiency, respondent did not contest the number of days, but allowed only $3 per day for taxicab fares. Thus, respondent disallowed $306.60 of the claimed taxicab expense, citing lack of substantiation as his reason therefor.
Issue 3. Rental, Cleaning and Lighting of Study
In 1964, the petitioner and his wife rented a three-room apartment at $260 per month for 6 months. Later in the same year, the petitioner, his wife, and a newly-born infant moved to a four-room apartment in the same building for which he paid $300 per month for 5 months. Petitioner's electric bills during the year in controversy were in the total amount of $48.93 for the three-room apartment and $60.42 for the four-room apartment.
The three-room apartment had a 12 foot by 13 foot bedroom with an adjacent bathroom, a 12 foot by 20 to 24 foot living room and a kitchen. The four-room apartment was approximately the same as the three-room apartment except that it had an additional bedroom which was slightly smaller than the master bedroom. In addition, both of these apartments had an 8 foot by 8 to 10 foot room which adjoined the living room, but was separated therefrom by partitions and doors. This room (hereinafter referred to as the study) was furnished with a big leather chair, a desk, a settee, a television set, a radio, some lamps and pictures.
After dinner each night, petitioner would spend an average of 3 hours in the study reviewing his notes on the day's selling activities, studying various research materials and ratings, making his plans for the next day's work, and viewing the television advertisements of ABC and its competitor networks. Petitioner's wife and child occasionally entered the study, but did not convert it to their personal use. The study was sometimes used by petitioner for discussions with business acquaintances. However, the study was not used by petitioner or his wife for personal entertaining or personal television viewing. The petitioner's personal television viewing was done on other television sets located in the living room and the bedroom.
Petitioner was not requested by his employer to set aside a portion of his apartment for office work, and ABC's office building was open and available for petitioner's use during the evening hours.
On his Federal income tax return for the calendar year, petitioner deducted an amount equal to one-third of the rental, cleaning, and lighting expenses attributable to his three-room apartment, and one-fourth of the rental, cleaning and lighting expenses for his four-room apartment. He included these deductions in an itemized statement of "outside salesman expenses" attached to his return as follows:
Rent — value of one room of apartment ...................... $958.332
Cleaning — value of one room of apartment .................. 65.00
Lighting — value of one room of apartment .................. 31.41
The respondent disallowed these amounts in entirety on the basis that they do not constitute ordinary and necessary business expenses within the purview of section 162.
Issue 4. Home Telephone Expenses
Petitioner used his home telephone to make approximately two business calls per night to clients, employees of various advertising agencies, and office associates. Many of those whom he called lived outside the New York area in Connecticut or New Jersey.
With the exception of the months of January and February of 1964 when she was working, petitioner's wife often used their home telephone during the day to call her friends. However, a majority of her calls were local since most of her friends lived in the New York City area.
During the year in controversy, the petitioner paid telephone bills...
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