Rockefeller v. Comm'r of Internal Revenue (In re Estate of Rockefeller)
| Decision Date | 24 September 1984 |
| Docket Number | Docket No. 4894-82. |
| Citation | 83 T.C. No. 24,83 T.C. 368 |
| Parties | ESTATE OF NELSON A. ROCKEFELLER, DECEASED, LAURANCE S. ROCKEFELLER, J. RICHARDSON DILWORTH AND DONAL C. O'BRIEN, JR., EXECUTORS, and MARGARETTA F. ROCKEFELLER, Petitioners v. COMMISSIONER OF INTERNAL REVENUE, Respondent |
| Court | U.S. Tax Court |
OPINION TEXT STARTS HERE
On August 20, 1974, President Ford nominated Nelson A. Rockefeller to serve as Vice President of the United States pursuant to the 25th Amendment to the United States Constitution. In l975, Mr. Rockefeller paid expenses in the amount of $550,159.78 incurred in connection with investigations and congressional hearings on the confirmation of his nomination.
HELD, the expenses so incurred and paid by Mr. Rockefeller are not deductible under sec. 162(a) or sec. 162(e), I.R.C. 1954. JOSEPH M. PERSINGER and STUART E. KEEBLER, for the petitioners.
DAVID M. BRANDES, for the respondent.
Respondent determined a deficiency in the amount of $44,293 in the income tax of Nelson A. Rockefeller, deceased, and Margaretta F. Rockefeller for 1975. Petitioners in this proceeding allege that the determination was erroneous and claim an overpayment of income tax in the amount of $355,180 for that year. Other issues having been resolved, the only issue for decision is whether the legal fees and other expenses in the stipulated amount of $550,159.78 incurred and paid by Mr. Rockefeller in connection with his confirmation as Vice President of the United States, are deductible under either section 162(a) or section 162(e).1
All of the facts are stipulated.2
Petitioners Laurance S. Rockefeller, J. Richardson Dilworth, and Donal C. O'Brien, Jr., are executors of the will of Mr. Rockefeller, who died on January 27, 1979, a resident of Westchester County, New York. Petitioner Margaretta F. Rockefeller was the wife of Mr. Rockefeller both during the period here in controversy and at the time of his death.
When the petition was filed, Laurance A. Rockefeller was a legal resident of Pocantico Hills, New York; J. Richardson Dilworth was a legal resident of Princeton, New Jersey; Donal C. O'Brien, Jr., was a legal resident of New Canaan, Connecticut; and Mrs. Rockefeller was a legal resident of Pocantico Hills, New York.
The joint income tax return of Mr. and Mrs. Rockefeller for 1975 was timely filed with the Internal Revenue Service Center, Philadelphia, Pennsylvania. Mr. and Mrs. Rockefeller used a calendar year accounting period and reported their income in accordance with the cash receipts and disbursements method of accounting.
Mr. Rockefeller had a long and distinguished career in public service. Upon the resignation of President Nixon in 1974, Gerald R. Ford, then Vice President, became President, and the office of Vice President became vacant. On August 20, 1974, President Ford nominated Mr. Rockefeller to serve as the Vice President. The nomination was made pursuant to section 2 of the 25th Amendment to the Constitution of the United States, which provides as follows:
Whenever there is a vacancy in the office of the Vice President, the President shall nominate a Vice President who shall take office upon confirmation by a majority vote of both Houses of Congress.
Following his nomination, Mr. Rockefeller underwent lengthy and exhaustive investigations and examinations by several Federal agencies and two committees of Congress, the Judiciary Committee of the House of Representatives and the Committee on Rules and Administration of the Senate (the Committees). The Committees were charged with investigating the credentials, finances, public life, viewpoints on topical issues, and other qualifications of Mr. Rockefeller for the office of Vice President.
Mr. Rockefeller's nomination as Vice President was confirmed by the United States Senate on December 10, 1974, and by the United States House of Representatives on December 19, 1974. Mr. Rockefeller was sworn in as Vice President of the United States on December 19, 1974. He served as Vice President until January 20, 1977.
In 1975, Mr. Rockefeller paid expenses in the amount of $550,159.78, all of which were incurred by reason of the investigations, examinations, and hearings in connection with his confirmation as Vice President. The expenses were incurred in responding to numerous requests by Federal agencies and the Congress for documents and information, and in preparing memoranda and testimony for, and in testifying before, the Committees. The parties have stipulated that respondent does not contend that the expenses were excessive or unreasonable in relation to the services rendered.
The expenses in the amount of $550,159.78 consisted of the following:
+-----------------------------------------------------------+
¦Legal and other professional services ¦$503,726.89¦
+-----------------------------------------------+-----------¦
¦Travel expenses ¦17,764.35 ¦
+-----------------------------------------------+-----------¦
¦Printing of testimony and preparation of charts¦2,618.60 ¦
+-----------------------------------------------+-----------¦
¦Office temporary services ¦10,224.53 ¦
+-----------------------------------------------+-----------¦
¦Office rentals1 ¦4,442.72 ¦
+-----------------------------------------------+-----------¦
¦Office machines and furniture rentals ¦4,180.25 ¦
+-----------------------------------------------+-----------¦
¦Telephone and telegraph ¦2,193.55 ¦
+-----------------------------------------------+-----------¦
¦Transcripts of hearings ¦3,828.00 ¦
+-----------------------------------------------+-----------¦
¦Other expenses2 ¦1,180.89 ¦
+-----------------------------------------------+-----------¦
¦Total expenses ¦550,159.78 ¦
+-----------------------------------------------------------+
Mr. and Mrs. Rockefeller's joint income tax return for 1975 discloses gross income of $4,479,437, charitable contributions of $1,328,562, and taxable income of $609,131. In addition, the return shows a deduction in the amount of $63,275, an amount equal to his salary as Vice President, for expenses incurred in connection with his confirmation hearings. Among other adjustments, not here in dispute, the notice of deficiency disallowed the deduction of the $63,275 with the following explanation:
It is determined that the deduction of $63,275.00 shown on your return as expenses in connection with confirmation as Vice President is not deductible because it has not been established that such expense is an ordinary and necessary business expense. Therefore, your taxable income is increased $63,275.
In the petition, petitioners allege that the full amount of $550,159.78 expended in the confirmation proceedings is deductible.
Petitioners contend that Mr. Rockefeller's confirmation hearing expenses are deductible under section 162(a) as ordinary and necessary business expenses. Alternatively, petitioners contend that the expenses are deductible under section 162(e) as ordinary and necessary expenses incurred in carrying on a trade or business in connection with appearances before committees of Congress.
Respondent maintains that the disputed expenses were not ordinary and necessary expenses paid in performing business duties, but were expenses paid in connection with Mr. Rockefeller's efforts to become Vice President of the United States, citing McDonald v. Commissioner, 323 U.S. 57 (1944), and its progeny. Alternatively, respondent contends that, because Mr. Rockefeller's expenditures so greatly exceeded the salary that he could earn, a profit motive was lacking and the principle of section 183(b) limiting the deduction to the amount of his salary applies.3
Section 162(a)4 allows a deduction for ‘ordinary and necessary‘ expenses paid or incurred in the taxable year in ‘carrying on any trade or business.‘ Section 7701(a)(26) provides that the term ‘trade or business‘ includes ‘the performance of the functions of a public office.‘ These provisions clearly would allow all of the ordinary and necessary expenses paid by Mr. Rockefeller in carrying on the work of the office of Vice President. Frank v. United States, 577 F.2d 93, 95-96 (9th Cir. 1978); United States v. LeBlanc, 278 F.2d 571, 574, 577 (5th Cir. 1960); Jackling v. Commissioner, 9 B.T.A. 312, 320 (1927). The expenses paid in connection with Mr. Rockefeller's confirmation, however, were not incurred in the performance of his Vice Presidential functions; rather, they were incurred in the course of his efforts to attain the office.
The principles of McDonald v. Commissioner, 323 U.S. 57 (1944), control. In that case, a judge was appointed to complete an unexpired term and agreed to become a candidate for the judgeship at the next election. To obtain the support of his party organization, he paid an ‘assessment‘ to his party's executive committee, and he incurred campaign expenses for advertising, printing, traveling, and the like. Denying a deduction for these ‘reelection‘ expenses, the Supreme Court explained the applicable law and its conclusion as follows (323 U.S. at 59-60):
‘All the ordinary and necessary expenses paid or incurred during the taxable year in carrying on any trade or business‘ are allowed by * * * (section 162(a)) as deductions in computing net income. according to tax law technology * * * (section 7701(a)(26)) the performance by petitioner of his judicial office constituted carrying on ‘trade or business‘ within the terms of * * * (section 162(a)). He was therefore entitled to deduct from his gross income all the ‘ordinary and necessary expenses‘ paid during 1939 in carrying on that ‘trade or business.‘ He could, that is, deduct all expenses that related...
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