Page v. Commissioner
| Decision Date | 12 May 1970 |
| Docket Number | 2573-68.,Docket No. 3848-67 |
| Citation | 1970 TC Memo 112,29 TCM (CCH) 497 |
| Parties | Don Page v. Commissioner. |
| Court | U.S. Tax Court |
Gabriel T. Pap, 51 E. 67th St., New York, N. Y., for the petitioner. Marvin E. Hagen, Stanley J. Goldberg, and Patrick E. Whelan, for the respondent.
Memorandum Findings of Fact and Opinion
Respondent determined deficiencies in petitioner's 1963 and 1964 income taxes in the amounts of $2,109.37 and $3,083.93, respectively. The remaining issues for our determination are whether petitioner is entitled to deduct as trade or business expenses travel costs between New York City and Martha's Vineyard, Massachusetts, a portion of the rent of a summer cottage at Martha's Vineyard for 1963 and 1964, and the cost of landscaping an undeveloped tract at Martha's Vineyard in 1964. Both docket numbers have been consolidated for the purposes of trial and opinion.
Some of the facts are stipulated and are found accordingly.
The petitioner had his legal residence in New York, New York, at the time of filing the petitions herein. He filed individual income tax returns for the years 1963 and 1964 with the district director of internal revenue, Manhattan, New York.
Petitioner is a designer, primarily occupied with the design of houses, interiors, and landscapes, although he also engages in some graphic design work. During the years in question, he was a full-time employee of the architectural firm of I. M. Pei & Associates. He also maintained his own design practice which was principally based at petitioner's personal residence in New York City.
During the 1950's, petitioner began to spend a portion of each summer in Martha's Vineyard, Massachusetts. In 1956 or 1957, he first rented a one-room cottage there, which practice continued through the years in question. He customarily spent most weekends there from April through November. Petitioner paid rent for this cottage in the amounts of $670.00 in 1963 and $957.14 in 1964 and deducted one-half of the 1963 and one-third of the 1964 rental payments as a business expense. The rented cottage was equipped with a table which served both for dining and for drawing. Most of the drawing done at the cottage consisted of designs for petitioner's own house at Martha's Vineyard which he intended to construct on a 36½-acre undeveloped non-waterfront tract purchased in 1960 or 1961.
Shortly after purchasing this tract, petitioner began a continuing process of landscaping several acres and planting shrubbery in a manner which would relate to his then projected house. He reported a deduction of $3,715.63 with respect to this activity in 1964, of which $2,750.00 related to four unsuccessful attempts to drill for water. As an alternative, petitioner constructed a small dam across a stream on the property to provide water. Construction of the house began in late 1967.
Petitioner incurred transportation expenses on his trips between New York and Martha's Vineyard in the amounts of $598.11 for 1963 and $378.15 for 1964.
OpinionPetitioner, a designer, was engaged during the years in question in the landscaping (including the planting of shrubbery) of an undeveloped tract of land at Martha's Vineyard, Massachusetts. The issues are the deducibility, as business expenses, of landscaping and well drilling costs during the year 1964 and a portion of the rent of a cottage at Martha's Vineyard and travel expenses between New York and Martha's Vineyard during the years 1963 and 1964.
Petitioner maintains that the expenses are deductible because he was in the process of executing a long-range plan, including landscaping of the grounds and construction of a house at Martha's Vineyard, which would serve to demonstrate his design abilities to prospective clients. Because of the asserted relationship between these activities and his trade or business, petitioner claims that the costs incurred therein are deductible under section 162.1
Respondent contends that the expenses in question constitute personal living expenses and are accordingly, under section 262,2 not deductible. In addition, respondent asserts that the cost of landscaping is a capital expenditure that is, pursuant to section 263,3 not deductible.
Congress has seen fit to place the expenditures of an individual into two broad categories for tax purposes, one involving expenses for trade or business or profitoriented activities, which are generally deductible, the other the satisfaction of human or family needs, which are not deductible. See United States v. Gilmore 63-1 USTC ¶ 9285, 372 U. S. 39, 44 (1963); Joseph D. Murphy Dec. 28,541, 48 T. C. 569 (1967).
Whether petitioner's expenditures are ordinary and necessary business expenses within the meaning of section 162 is primarily a question of fact. Commissioner v. Heininger 44-1 USTC ¶ 9109, 320 U. S. 467 (1943); James Schulz Dec. 18,128, 16 T. C. 401 (1951). The burden of proof is upon the petitioner. United Aniline Company v. Commissioner 63-1 USTC ¶ 9434, 316 F. 2d 701 (C. A. 1, 1963), affirming a Memorandum Opinion of this Court Dec. 25,409(M); Bennett's Travel Bureau, Inc., Dec. 22,671, 29 T. C. 350 (1957).
The contested expenditures herein present that oft-encountered combination of personal and claimed business elements. The unusual factor is that, in the latter respect, the particular promotional activities for which the expenditures were made are of the same character as petitioner would engage in in carrying on his business as a designer. Cf.George A. Papineau Dec. 18,044, 16 T. C. 130, 132 (1951); Dewey F. Cobb Dec. 17,213, 13 T. C. 495, 503-504 (1949), reversed on other issues 50-2 USTC ¶ 9508, 185 F. 2d 255 (C. A. 6, 1950). The more common situation, with respect to asserted section 162 deductions, relates to promotional activities which are not of a kind which the taxpayer would engage in directly in carrying on his business. Cf.Robert Lee Henry Dec. 24,994, 36 T. C. 879 (1961) (); Ralph E. Larrabee Dec. 24,039, 33 T. C. 838 (1960) (); Louis Greenspon Dec. 20,629, 23 T. C. 138 (1954), affirmed as to this issue 56-1 USTC ¶ 9249, 229 F. 2d 947 (C. A. 8, 1956) (). This distinguishing factor, however, does not relieve petitioner of his burden of showing affirmatively that the expenditures, which exhibit primarily personal attributes, are ordinary and necessary to the conduct of his business. See Robert Lee Henry,supra, 36 T. C. at p. 884. This, we hold petitioner has failed to do.
Petitioner in part relies upon a "but for" test in seeking to demonstrate the relationship between his landscaping and his design business. He testified that he would probably have purchased waterfront property if he had only been interested in vacationing at Martha's Vineyard rather than in designing and constructing an example of his professional skills. But the mere presence of some causal connection between the payments in question and petitioner's business does not alone classify those payments as the ordinary and necessary expenses of a business. Welch v. Helvering 3 USTC ¶ 1164 290 U. S. 111 (1933). Moreover, numerous categories of expenses have been termed non-deductible because of their personal nature, in spite of the fact that they are advantageous or even necessary in the sense of being required to enable a taxpayer to conduct a particular trade or business. See, e. g., Richard Walter Drake Dec. 29,711 52 T. C. 842 (1969); Ronald D. Kroll Dec. 28,864, 49 T. C. 557, 567-568 (1968); James Donnelly Dec. 22,592, 28 T. C. 1278 (1957), affd. 59-1 USTC ¶ 9196, 262 F. 2d 411 (C. A. 2, 1959); Louis Drill Dec. 15,740, 8 T. C. 902 (1947).
Thus, the fact that petitioner undertook the landscaping of his 36½-acre tract because he was a designer does not per se establish the requisite relationship between the activities in question and petitioner's trade or business. Petitioner is in no different position than a manufacturer or an artisan who may choose, and may find it commercially or professionally advantageous, to have outstanding examples of his production in his personal residence, but this factor alone does not transform the essentially personal character of such use into a trade or business activity. The evidence as a whole suggests that petitioner simply hoped that his landscaping house construction project might contribute to the development of a design practice at Martha's Vineyard. While petitioner did say that certain of his clients had seen his...
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