Tracy v. COMMISSIONER OF INTERNAL REVENUE

• Citation: 39 BTA 578
• Decision Date: 10 March 1939
• Docket Number: Docket No. 89304.
• Parties: WILLIAM LEE TRACY, PETITIONER, v. COMMISSIONER OF INTERNAL REVENUE, RESPONDENT.
• Court: U.S. Board of Tax Appeals

39 B.T.A. 578 (1939)

WILLIAM LEE TRACY, PETITIONER, v. COMMISSIONER OF INTERNAL REVENUE, RESPONDENT.

Docket No. 89304.

Board of Tax Appeals.

Promulgated March 10, 1939.

F. A. Pike, C. P. A., for the petitioner.

E. A. Tonjes, Esq., and R. T. Miller, Esq., for the respondent.

This proceeding involves a deficiency of $1,201.80 for 1934. The petitioner admits liability as to $14.57 of the deficiency but denies liability as to the remainder, $1,187.23. The pleadings, as amended, present three issues — (1) whether petitioner is entitled to deduct as ordinary and necessary expenses $161 of tips or gratuities given to various motion picture crews with whom petitioner was working; (2) whether petitioner is entitled to deduct $2,600 for board and lodging while away from Trucksville, Pennsylvania; and (3) whether petitioner is entitled to a personal exemption of $2,500 as the head of a family. The last mentioned issue was raised by respondent by an amendment to his answer.

FINDINGS OF FACT.

The petitioner is a citizen of the United States, domiciled in Trucksville, Pennsylvania.

During the taxable year the petitioner was engaged as a motion picture actor, and his chief source of income consisted of payments for his personal services as an actor. For 1934 he reported salaries received from Metro-Goldwyn-Mayer Studio, Universal Pictures Corporation, Paramount Productions, Inc., Columbia Pictures Corporation, and the National Broadcasting Co. in the total sum of $91,870.04.

The petitioner has been engaged in the theatrical business since 1919, either as an actor on the legitimate stage or as an actor in motion pictures. His first employment in motion pictures was in 1929, and on that occasion he remained in Los Angeles for a period of about eight weeks. Upon completion of the picture in which he was working petitioner returned to New York City. During 1930 the petitioner was in Los Angeles for a period of about six months. During 1931 the petitioner spent the greater part of his time in New York or elsewhere, returning to Los Angeles in February of 1932. Petitioner spent the remaining months of 1932 in Los Angeles, except for a short visit to New York in connection with a play which failed to materialize. During the years 1933 and 1934 the petitioner was in Los Angeles. While in Los Angeles the petitioner resided in hotels or furnished apartments. His expenses for food and living quarters in Los Angeles during the taxable year 1934 were not less than $2,600.

The petitioner returned to Trucksville at every opportunity. When he was employed in New York he was able to return to Trucksville more frequently and would often go there over week ends. In 1929 and thereafter when he became interested in motion pictures his visits to Trucksville were less frequent as more and more of his time was spent in Hollywood. During the period 1930 to 1934, inclusive, he made several visits to Trucksville, but all of them were of short duration. In 1934 he made one short visit to Trucksville, a quick trip made by airplane.

The petitioner inherited the family home in Trucksville upon the death of his father in 1928. During the taxable year the family home was occupied by petitioner's mother, who was approximately 70 years of age, and his niece who was less than 18 years of age. The petitioner's mother had an independent income, derived from dividends, which amounted to approximately $800 or $900 during 1934, but more than 50 percent of the money needed for support of the family was provided by petitioner, who sent his mother approximately $2,500 during the taxable year. Some of this money was used for living expenses and some for maintenance of the property and repairs. Major questions relating to the family were determined by the petitioner, but control of the niece and minor matters were left to his mother. One room was set aside and maintained exclusively for the petitioner's personal use and he kept many of his personal effects there and used Trucksville as his permanent address. Dividends, life insurance premium notices, and other things of a nature requiring a permanent address were mailed to him at Trucksville and forwarded to him by his mother.

During 1934 petitioner distributed gratuities amounting to $161 to the employees of various studios where he was engaged in acting in motion pictures. The distributions were made to electricians, property men, assistant directors, a policeman, and others connected with the studios. The recipients were all salaried employees of the various studios paid to perform particular services in connection with each picture. It is customary for the leading actors and actresses to distribute largess at the conclusion of a picture. The distributions by the petitioner during the taxable year represented an acknowledgment of additional services and personal favors rendered to him in his profession as an actor beyond what the employees were required to do by the studios.

Petitioner filed his income tax return for 1934 on or before March 15, 1935, giving his post office address as Trucksville, Pennsylvania. He claimed deductions from gross income of $161 for "studio gratuities", and $2,600 for "board and lodging away from home on business." Both deductions were disallowed by the respondent in determining the deficiency. By an amendment to his answer the respondent has asked the Board to increase the deficiency in accordance with his claim that petitioner is entitled to a personal exemption of only $1,000, whereas in determining the deficiency he was granted a personal exemption of $2,500 as the head of a family.

OPINION.

ARNOLD:

The deductions claimed by the petitioner are allowable, if at all, under section 23 (a) of the Revenue Act of 1934, the pertinent portions of which are set forth in the margin.¹

It is petitioner's contention that the bestowal of gratuities on the employees of different studios is an ordinary and necessary expense of a featured motion picture actor. He further contends that his expenditures for meals and lodging while he was away from home in pursuit of his business as a professional actor are deductible as ordinary and necessary expenses of his business. There is no dispute as to the amounts involved, and petitioner is entitled to deduct the entire amount claimed in each instance if he is entitled to any deduction whatsoever.

We will consider first whether the so-called studio gratuities were ordinary and necessary expenses of petitioner's business. The testimony in this case shows that the distribution of gratuities among studio employees is a customary practice among leading actors and actresses, and petitioner testified that his distribution was a recognition that the studio employees had rendered additional services beyond what was required of them by the employing studio in the production of the picture.

We have considered the right to deduct "tips" in a number of cases, both where the tip formed a part of a larger deduction, and where it was a separate deduction, Lenore Ulric, 27 B. T. A. 666, reversed by mandate of Second Circuit, without opinion, February 14, 1935; Blackmer v. Commissioner (C. C. A., 2d Cir.), 70...