Sherman v. Comm'r of Internal Revenue, Docket No. 22498.
| Decision Date | 15 February 1951 |
| Docket Number | Docket No. 22498. |
| Citation | 16 T.C. 332 |
| Parties | JOSEPH H. SHERMAN, JR., AND SOPHIE SHERMAN, HUSBAND AND WIFE, PETITIONERS, v. COMMISSIONER OF INTERNAL REVENUE, RESPONDENT. |
| Court | U.S. Tax Court |
OPINION TEXT STARTS HERE
Robert D. Price, Esq., and Francis X. Reilly, Jr., Esq., for the petitioners.
Leo C. Duersten, Esq., for the respondent.
Petitioner, who resided with his family in a house owned by him in Worcester, Massachusetts, was employed during 1945 and for several years prior thereto as production manager and purchasing agent at a factory located near Worcester. In 1945 he started and operated as sole proprietor a part time sales business in New York City. Although he had a mailing address in New York, he had no office or place of business, and had no employees. While in New York he stayed at a hotel, generally several days at a time. During the year he spent more time in Worcester than in New York, but the profits realized from the New York venture exceeded his Worcester salary. Held, the petitioner's ‘home‘ for tax purposes was in Worcester and he is entitled to deduct his expenses for travel to and from New York City, for meals and lodging while there, and certain expenditures made in carrying on his New York business under the provisions of section 23(a)(1)(A), I.R.C.
The respondent determined a deficiency in income tax for the calendar year 1945 in the amount of $1,129.68, which was based in effect upon disallowance of one-half of the total deduction of $5,129.73 claimed on the return, in computing income from a business operated by petitioner Joseph H. Sherman, Jr., as ‘Traveling— (Worcester to New York 4 days each week).‘ The Commissioner's action was predicated upon the theory that, although petitioner and his family resided in Worcester, Massachusetts, where he was employed, the greater part of his time was spent in New York where he conducted a part time business and New York was therefore his ‘home‘ for income tax purposes; accordingly, the Commissioner disallowed the $5,129.73 deduction claimed as travel expense in New York, but he allowed $2,564.86 as travel expense for 2 days a week said to be spent in Massachusetts.
By amended petition, the total amount claimed by petitioner was reduced to $5,063.32 and broken down into the following components:
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¦(1) Transportation ¦$806.40 ¦
+---------------------------------------------------+--------¦
¦(2) Room and meals ¦1,631.65¦
+---------------------------------------------------+--------¦
¦(3) Postage, telephone and telegraph ¦207.61 ¦
+---------------------------------------------------+--------¦
¦(4) Entertainment ¦1,517.85¦
+---------------------------------------------------+--------¦
¦(5) Other—Tips for entertainment, travel, and hotel¦ ¦
+---------------------------------------------------+--------¦
¦and other hotel charges ¦749.81 ¦
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¦(6) Gifts ¦150.00 ¦
+---------------------------------------------------+--------¦
¦Total ¦5,063.32¦
+------------------------------------------------------------+
By answer to the amended petition, the Commissioner now asserts an increased deficiency, based upon the disallowance of all these amounts except the $806.40 for transportation. In a reply to the answer to the amended petition it is contended that even if petitioner's home were New York, he would be entitled not only to the $806.40 allowance for transportation, but also living expenses in Worcester, alleged to be in excess of the ‘room and meals‘ item in New York, and that the remaining four items (postage, etc.) would be deductible as ordinary and necessary expenses under section 23(a), irrespective of whether petitioner's home be regarded as Worcester or New York.
Petitioners are husband and wife. In their joint income tax return for the year 1945 filed with the collector of internal revenue for the district of Massachusetts, they gave their address as 31 Orne Street, Worcester, Massachusetts. Joseph H. Sherman, Jr., is referred to herein as the petitioner.
Petitioner has lived in Worcester all of his life. In 1945 he and members of his family lived in a house owned by him at 31 Orne Street. He paid real estate taxes and poll taxes to the City of Worcester, where he was a registered voter from 1932 to 1949, inclusive. One of his two children attended school in Worcester, and he and his family were parishioners of St. John's Church located in that city. He estimated that his household expenses for the maintenance of his family at Worcester were between $3,500 and $4,000 per year.
During the calendar year 1945, and for several years prior and subsequent thereto, petitioner was employed by the Haskins Manufacturing Company, which manufactured plastic products. Its offices and factory were situated near Worcester. He had no proprietary interest in the enterprise; he served in the capacity of ‘production manager and purchasing agent.‘ His duties were to see that production was maintained and that the machines produced at their fastest rate. He also handled the purchase of machines for the factory, and did some real estate work for the company. He received $4,066.40 as compensation for services rendered to it during the year 1945. It employed between 75 and 125 people, depending upon the season. A subforeman and foreman in the machine department assisted petitioner in the maintenance of production. The position of production manager and purchasing agent did not require petitioner's full time and attention, and production was maintained when he was absent from the plant.
Prior to 1945, the petitioner had never engaged in the business of selling plastic products. Early in that year he formed the Metropolitan Sales Company in New York City, which he operated as a sole proprietorship. The company's principal business during 1945 consisted of selling plastic combs and plastic toys to the jobbing trade. Sales made through it represented about 80 per cent of the entire production of the Haskins Manufacturing Company. Petitioner maintained a mailing address in New York City at 799 Broadway where he picked up mail pertaining to this business. He had no employees at this address and customers did not come there to transact business. It was his practice to call on those who sent letters, and the sales of the Metropolitan Sales Company were due entirely to his personal efforts. In his income tax return for the year 1945, he reported the results of the Sales Company's operations, as follows:
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¦Gross receipts ¦$141,850.60¦ ¦
+---------------------------+-----------+----------¦
¦Merchandise bought for sale¦126,471.23 ¦ ¦
+---------------------------+-----------+----------¦
¦Gross profit ¦ ¦$15,379.37¦
+---------------------------+-----------+----------¦
¦Depreciation ¦17.89 ¦ ¦
+---------------------------+-----------+----------¦
¦Expenses ¦7,020.54 ¦7,038.43 ¦
+---------------------------+-----------+----------¦
¦Net profit ¦ ¦$8,340.94 ¦
+--------------------------------------------------+
In Schedule C, attached to this 1945 return, petitioner itemized the expenses, totaling $7,020.54, as follows:
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¦Commissions ¦$813.26 ¦
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¦Freight ¦55.31 ¦
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¦Office supplies ¦98.30 ¦
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¦Rent ¦660.00 ¦
+--------------------------------------------------+---------¦
¦Advertising ¦10.50 ¦
+--------------------------------------------------+---------¦
¦Telephone ¦190.14 ¦
+--------------------------------------------------+---------¦
¦Miscellaneous expenses ¦19.22 ¦
+--------------------------------------------------+---------¦
¦Postage ¦44.08 ¦
+--------------------------------------------------+---------¦
¦Traveling—(Worcester to New York 4 days each week)¦5,129.73 ¦
+--------------------------------------------------+---------¦
¦Total ¦$7,020.54¦
+------------------------------------------------------------+
In lieu of the $5,129.73 figure in the foregoing tabulation, petitioner now claims $5,063.32 as a deduction, which consists of the following items:
+----------------------------------------------------------------+
¦(1) Transportation ¦$806.40 ¦
+-------------------------------------------------------+--------¦
¦(2) Room and meals ¦1,631.65¦
+-------------------------------------------------------+--------¦
¦(3) Postage, telephone and telegraph ¦207.61 ¦
+-------------------------------------------------------+--------¦
¦(4) Entertainment ¦1,517.85¦
+-------------------------------------------------------+--------¦
¦(5) Other—Tips for entertainment, travel, and hotel and¦ ¦
+-------------------------------------------------------+--------¦
¦other hotel charges ¦749.81 ¦
+-------------------------------------------------------+--------¦
¦(6)...To continue reading
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