Weinstein v. United States, 275-68

• Decision Date: 23 January 1970
• Docket Number: No. 275-68,58-69.,275-68
• Citation: 420 F.2d 700
• Parties: Doran S. WEINSTEIN and Jean S. Weinstein v. The UNITED STATES.
• Court: U.S. Claims Court

420 F.2d 700 (1970)

Doran S. WEINSTEIN and Jean S. Weinstein v. The UNITED STATES.

Nos. 275-68, 58-69.

United States Court of Claims.

January 23, 1970.

L. L. Leatherman, Louisville, Ky., attorney of record, for plaintiffs. Greenebaum, Barnett, Doll & Matthews, Louisville, Ky., of counsel.

Philip R. Miller, Washington, D. C., with whom was Asst. Atty. Gen. Johnnie M. Walters, for defendant. William C. Ballard, Jr., and Ira M. Langer, Washington, D. C., of counsel.

Before COWEN, Chief Judge, and LARAMORE, DURFEE, DAVIS, COLLINS, SKELTON and NICHOLS, Judges.

ON DEFENDANT'S MOTION FOR SUMMARY JUDGMENT

LARAMORE, Judge.

These are consolidated actions to recover Federal income taxes paid by plaintiffs for calendar years 1965, 1966 and 1967. Defendant has moved for summary judgment. The sole issue involves the deductibility under section 212 of the 1954 Code of certain expenses incurred by plaintiffs in their attempt to acquire investments.

Plaintiffs, husband and wife, employed the cash receipts and disbursements method of accounting and filed income tax returns for the years in suit on a calendar year basis. Plaintiff Doran Weinstein was president of Celanese Coatings Company, Division of Celanese Corporation, Louisville, Kentucky, until he resigned in March or April of 1965. Thereafter, he served as a consultant to Celanese until March or April of 1966. Mr. Weinstein was not employed again until 1968, when he accepted the presidency of Daylight Industries, Inc., Jacksonville, Florida.

Throughout the entire period in suit, plaintiffs had available to them, for investment purposes, securities, bank deposits and borrowing power aggregating approximately $750,000.

After terminating his employment relationship with Celanese, Mr. Weinstein traveled extensively within the United States, inspecting and evaluating prospective investments with a view toward diversifying his existing portfolio. With respect to the many trips taken by Mr. Weinstein, some resulted in the consummation of investments, while others did not. In seeking, inspecting and evaluating the prospective investments, Mr. Weinstein incurred travel, lodging, meals and other miscellaneous expenditures which were deducted on the return filed by plaintiffs for each of the years in issue. Plaintiffs also deducted a portion of their rent expense, telephone expense and the cost of a Dun & Bradstreet service which supplied reports on the companies plaintiffs were investigating. Plaintiff Jean Weinstein traveled with her husband on some occasions and served as a "sounding board" for her husband. A portion of her expenses was also deducted, including some for a trip she made by herself for the purpose of investigating certain prospective investments.

The Commissioner of Internal Revenue disallowed the claimed deductions. Plaintiffs paid the assessed deficiencies and filed claims for refund. The refund claim for 1966 has been formally disallowed, and more than six months have expired since the filing of the refund claims for 1965 and 1967.

Section 212 of the Internal Revenue Code of 1954 provides in pertinent part:

In the case of an individual, there shall be allowed as a deduction all the ordinary and necessary expenses paid or incurred during the taxable year —

(1) for the production or collection of income;

(2) for the management, conservation, or maintenance of property held for the production of income; * * *

Plaintiffs urge that since any gain derived from the prospective investments that were investigated would be includible in gross income, the expenses detailed above were incurred for the "production of income." Because the activities undertaken were for the purpose of diversifying an existing investment portfolio, moreover, plaintiffs assert that the subject expenses were also incurred for the "management, conservation, or maintenance of property held for the production of income." It is our opinion that plaintiffs' positions are not supportable in law and, therefore, are not well taken.

The substantively identical predecessor of section 212 was enacted in response to the holding of the Supreme Court in Higgins v. Commissioner, 312 U.S. 212, 61 S.Ct. 475, 85 L.Ed. 783 (1941), that the management of investments did not constitute carrying on a business and, therefore, expenses incurred in the management of such investments were not deductible as business expenses. The congressional intent underlying the new investment-deduction Code provision was "to provide for a class of nonbusiness deductions coextensive with the business deductions." Bingham v. Commissioner, 325 U.S. 365, 374, 65 S.Ct. 1232, 1237, 89 L.Ed. 1670 (1945); California & Hawaiian Sugar Refining Corp. v. United States, 311 F.2d 235, 245, 159 Ct.Cl. 561, 577 (1962).

It is well settled that expenditures made in connection with acquiring, rather than retaining or protecting, a business are not deductible as ordinary and necessary business expenses. George C. Westervelt, 8 T.C. 1248 (1947); Morton Frank, 20 T.C. 511 (1953). See also, McDonald v. Commissioner, 323 U.S. 57, 65 S.Ct. 96, 89 L.Ed. 68 (1944); John F. Koons, 35 T.C. 1092 (1961); T. R. Ewart, 25 TCM 96 (1966); Paul C. Seguin, 26 TCM 950 (1...