Salt v. Comm'r of Internal Revenue, Docket Nos. 26049

• Decision Date: 05 May 1952
• Docket Number: Docket Nos. 26049,26048.
• Citation: 18 T.C. 182
• Parties: WALDO SALT, PETITIONER, v. COMMISSIONER OF INTERNAL REVENUE, RESPONDENT.MARY D. SALT, PETITIONER, v. COMMISSIONER OF INTERNAL REVENUE, RESPONDENT.
• Court: U.S. Tax Court

18 T.C. 182

WALDO SALT, PETITIONER,

v.COMMISSIONER OF INTERNAL REVENUE, RESPONDENT.MARY D. SALT, PETITIONER,

v.COMMISSIONER OF INTERNAL REVENUE, RESPONDENT.

Docket Nos. 26049

26048.

Tax Court of the United States.

Promulgated May 5, 1952.

DEDUCTION— BUSINESS EXPENSE— ATTORNEYS' FEES.— Petitioner, a movie script writer, was summoned to appear as a witness before a Committee of Congress to give testimony in a hearing wherein his business and that of the motion picture industry was under investigation relating to the charge of communistic infiltration in the industry, etc. The fact that he was summoned as a witness and the hearing by the Committee threatened to prevent or impair his future employment in the industry. He paid attorneys to represent him and advise him of his legal rights in connection with the hearing and to also aid in preventing his being blacklisted from further employment. Held, such payments to his attorneys were ordinary and necessary business expenses and deductible under section 23(a), I.R.C. George T. Altman, Esq., for the petitioners.

Wm. P. Flynn, Jr., Esq., for the respondent.

The Commissioner determined deficiencies in petitioners' income tax for the calendar year 1947 as follows:

+-------------------------------+
                ¦Docket¦Petitioner   ¦Deficiency¦
                +------+-------------+----------¦
                ¦No.   ¦             ¦          ¦
                +------+-------------+----------¦
                ¦26048 ¦Mary D. Salt ¦$79.04    ¦
                +------+-------------+----------¦
                ¦26049 ¦Waldo Salt   ¦70.72     ¦
                +-------------------------------+
                

Overpayments in the amount of $439.61 were claimed by each petitioner for the year 1947.

These cases were consolidated for hearing. Waldo Salt will hereinafter be referred to as petitioner.

The only question for decision is whether respondent erred in disallowing attorney's fees and other expenses, including traveling expenses, incurred by petitioner pursuant to and as result of a subpoena of the House Committee on Un-American Activities requiring petitioner's personal appearance in Washington, D.C., to testify before said Committee, which expenses petitioners claimed as a deduction for business expenses under section 23(a) of the Internal Revenue Code.

At the hearing petitioners waived their assignment of error based on Commissioner's disallowance of their claimed deduction for contributions to certain organizations.

FINDINGS OF FACT.

Petitioners Waldo Salt and Mary D. Salt are husband and wife, residing in Los Angeles, California, and filed their income tax returns for the year 1947 with the collector of internal revenue for the sixth district of California.

Petitioner is and has been since 1935 employed as a writer in the motion picture industry, writing the script for plays produced therein, and in the year 1947 he received for his work as such writer a total of $31,655, of which $31,500 was paid to him by RKO Pictures Corporation.

In October 1947, petitioner, in obedience to a subpoena served upon him, went to Washington, D.C., to testify before the Committee on Un-American Activities of the House of Representatives, hereinafter called the ‘Committee.‘ Eighteen other individuals, also employed in the motion picture industry in Hollywood, were subpoenaed to appear at the same time, and did so appear. Those 19 individuals, of whom petitioner was one, will be termed ‘the group.‘ Of the group 14 were writers, 3 were directors, 1 was an actor, and 1 was an assistant producer. The hearings before the Committee of this group continued for 2 weeks, and petitioner and the others, together with their attorneys, remained in Washington. Eleven of them testified, ten of whom, after testifying, were cited for contempt by the Committee. Petitioner was not called upon to testify and was not cited for contempt, and he and 8 others of the group returned to their jobs after the hearing.

The group collectively employed four different firms of lawyers to represent them, three from California and one from Washington, D.C., of whom Robert W. Kenny of California was chief counsel. The group contributed, each in proportion to his earnings, an aggregate sum of $40,000 in payment of attorneys' fees and expenses incurred by their attorneys. All payments to this fund were made to Robert W. Kenny, Trustee, who properly distributed same to the attorneys employed. Petitioner paid to this fund $2,000 in October 1947 and $667 in November 1947, all of which was expended in 1947 in payment of petitioner's pro rata part of the attorneys' fees and attorneys' expenses, which amounts, together with an additional sum of $384.77 alleged to have been spent by petitioner for travel and hotel expenses in attending the hearings, were claimed as deductions by petitioners in their income tax return for 1947, and all of which sums were disallowed by the Commissioner in his notice of deficiency.

The attorneys were employed by the group to represent and advise them with reference to their rights and duties as witnesses before the Committee, and also to aid in preventing a threatened blacklisting, whereby petitioner would be denied further employment in the industry.

The attorneys accompanied the group to Washington, and during the hearings by the Committee had daily conferences with the group, including petitioner, and gave them advice regarding the powers of the Committee, the scope of its investigative powers, and the rights and duties of individual witnesses regarding particular questions which might be asked them at the hearings. Robert W. Kenny, chief counsel, both before and after the Committee hearings, conferred with the employer of petitioner and employers of others of the group, and also with Eric Johnston, who was then president of the Motion Picture Association of America, and with Paul McNutt, who was then acting as general counsel for the Association, and as result of these conferences obtained promises of the continued employment of the petitioner and others in the motion picture industry. So far as petitioner was concerned these promises were carried out. He was not blacklisted and his employment continued.

The purpose of the committee hearings was to investigate whether there existed communistic infiltration in the motion picture industry, whether any of its employees were communists, and whether the scope of the plays produced were subversive and designed to promote communism. Petitioner and the group were generally recognized as belonging to the ‘left wing‘ of the industry and were under suspicion by the Committee, and under the circumstances, the fact of their being summoned as witnesses, together with the scheduled hearings and the result thereof, all was calculated to and did threaten the present and future employment of petitioner and the group in the industry, and this prompted them to employ counsel.

The attorneys' fee of $2,667 paid by petitioner was ordinary and necessary expenses incurred by him in carrying on his trade or business.

OPINION.

JOHNSON, Judge:

Petitioners failed to make proof of the expenditure by them of any sum for travel or hotel bills, and accordingly the Commissioner's disallowance of the claimed deduction of $384.77 therefor is sustained.

The evidence, however, does establish that petitioners in 1947 did expend $2,667 for attorneys' fees or legal expenses, and under the facts and the record as a whole we are of the...