White v. Comm'r of Internal Revenue
| Decision Date | 19 October 1954 |
| Docket Number | Docket No. 44257. |
| Citation | 23 T.C. 90 |
| Parties | HENRY P. WHITE AND NANCY A. WHITE, PETITIONERS, v. COMMISSIONER OF INTERNAL REVENUE, RESPONDENT. |
| Court | U.S. Tax Court |
OPINION TEXT STARTS HERE
William P. Clyne, Esq., for the petitioners.
James F. Kennedy, Jr., Esq., for the respondent.
A ballistics laboratory, owned by petitioner, and operated consistently at a loss held, on facts, not a business carried on for profit and the excess of expenditures over income not deductible as either a loss or business expense under section 23, Internal Revenue Code of 1939.
Respondent determined deficiencies in income taxes of petitioners for the calendar years 1948 and 1949 in the amounts of $1,088.51 and $10,014.28, respectively. Petitioners, in addition to resisting the deficiency determinations, claim that, if they prevail, there has been an overpayment of income taxes for the calendar year 1948, due to certain conceded arithmetical errors.
The question presented is whether petitioners were entitled to deduct under section 23 expenditures claimed to be ordinary and necessary expenses of a trade or business.
Petitioners, Henry P. White and Nancy A. White, husband and wife, filed joint income tax returns for the calendar years 1948 and 1948 with the collector of internal revenue for the eighteenth district of Ohio.
On March 19, 1951, petitioners filed with respondent a claim for a refund of $7,671.05 for the year ended December 31, 1948.
Petitioner Henry P. White, hereinafter sometimes called petitioner, was graduated from Cornell University in 1934 with a degree in engineering and was licensed as a mechanical engineer by the States of Ohio and Maryland. He sold automobiles for the remainder of 1934 and was employed by the Central National Bank of Cleveland in 1935. He also became the sole beneficiary in 1935 under a trust of approximately $2,000,000.
In 1936, petitioner opened a ballistics laboratory in Cleveland, Ohio, specializing in guns and ammunition research, and in such work employed the services of subordinates. Until petitioner went into the armed service this laboratory had continued to function under his direct supervision. During petitioner's absence, his first assistant operated the laboratory. When petitioner returned from the service, he again took over direction and management of the laboratory and it has continued to function under his supervision through the years in question. This research laboratory is now located at Bel Air, Maryland, in proximity to Army and Navy proving grounds.
Operation of the laboratory included the preparation and publication in 1948 of a book entitled ‘Centerfire Metric Pistol and Revolver Cartridges,‘ and research preparatory to the publication in 1950 of a second book entitled ‘Centerfire American and British Pistol and Revolver Cartridges,‘ but income realized from sales of the first book during the years in controversy did not exceed $500. No attempt was made in the years in issue to segregate those expenditures properly attributable to producing the copyrighted publications and laboratory research library data, although it appears that most of the endeavors of petitioner and his associates were connected with the named activities.
During the years involved, approximately one-half of petitioner's time was devoted to the preservation and conservation of his estate. His secretary expended all of her time upon petitioner's personal affairs. The general manager of the laboratory spent half of his time on the personal affairs of petitioner. An arbitrary method of allocating the latter's salary according to the time spent on petitioner's personal affairs and the laboratory endeavors was used.
Petitioners' joint income tax returns for 1948 and 1949 reported the following income and expense items in the operation of the ballistics laboratory resulting in net losses which were disallowed by respondent:
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