Whitney v. Comm'r of Internal Revenue
| Decision Date | 08 December 1949 |
| Docket Number | Docket No. 18194. |
| Citation | 13 T.C. 897 |
| Parties | CHARLES D. WHITNEY, PETITIONER, v. COMMISSIONER OF INTERNAL REVENUE, RESPONDENT. |
| Court | U.S. Tax Court |
OPINION TEXT STARTS HERE
The petitioner was sole trustee of a trust formed to liquidate a company in which he was the major stockholder. An employee of the trust, a truck driver, struck and fatally injured a third party. The personal representative of the deceased instigated a suit against the company and a suit against the driver. The suit against the company was settled by a payment from the insurer of the truck to the estate of the deceased. The petitioner then settled the suit against the driver by paying to the estate an amount of $2,750. Held, that petitioner has failed to show that the payment of $2,750, plus an attorney's fee of $200, was a loss ‘not compensated for by insurance or otherwise‘ within the meaning of section 23(e) of the Internal Revenue Code. Frank W. Morrison, Esq., for the petitioner.
Leo C. Duersten, Esq., for the respondent.
The Commissioner has determined a deficiency of $4,551.27 in petitioner's income tax for the taxable year ended December 31, 1944.
The sole issue in this case is whether the petitioner is entitled to a deduction in the amount of $2,950 for the calendar year 1944 under the provisions of section 23(e)(1) and/or (e)(2) of the Internal Revenue Code.
The case has been submitted on a stipulation of facts, exhibits, and oral testimony.
Petitioner is an individual, residing in Franklin, Massachusetts. Petitioner's individual income tax return for the calendar year 1944, prepared on a cash receipts and disbursements basis, was filed with the collector of internal revenue for the district of Massachusetts.
During the years 1942 and 1944 petitioner was general manager and vice president of the Premier Worsted Mills, hereinafter sometimes referred to as Premier. In addition, petitioner was treasurer and major stockholder of Whitney Worsted Co., referred to hereinafter as the company, of Franklin, Massachusetts, and from July 20, 1942, through 1944 was the sole trustee of the Whitney Worsted Trust, referred to hereinafter as the trust, successor to the Whitney Worsted Co. He also held stock and had duties to perform in other mills located in Massachusetts and Rhode Island.
Petitioner visited each plant regularly and he had arranged for a private chauffeur, Eddy Thibeault, to drive him in his own car to and from the various mill sites. Petitioner's employment of Thibeault was on an hourly basis and Thibeault's compensation while so engaged as petitioner's chauffeur was paid in cash by petitioner.
As a result of recommendations of engineers that a merger of the northern mills into the Premier Co. and their removal to a North Carolina site would result in substantial economies of operation, the petitioner, acting for the company, purchased a plant in Raleigh, North Carolina, as a site for the Premier mills. All of the machinery and equipment of these mills has been or is being removed to that plant.
On July 20, 1942, the directors of the Whitney Worsted Co., which was controlled by the petitioner, voted to liquidate and, in order to facilitate its liquidation, to transfer all its assets to the trust of which petitioner was sole trustee. Among the assets of the company so transferred was the truck involved in the accident described below.
The trust sold machinery to Premier and many carloads of equipment of the trust's mill and other mills merged with Premier were shipped under petitioner's supervision to its new location in Raleigh.
From January 1 to July 20, 1942, Thibeault was employed by the company and later by the trust. During the year 1942 Thibeault was employed on an hourly basis and received no weekly salary. Thibeault's duties while employed by the trust consisted of driving and operating the above mentioned truck between the various plants. Payments for work done for the company and the trust were made by check.
On the morning of December 1, 1942, Thibeault went to Whitney's house with the truck to receive his orders for the day. No one there gave him directions, and after spending a short time at the petitioner's garage, he returned to the office of the old Whitney mill for orders. Again there was no one present to give him instructions. He started then for the Onawa Co. which adjoined a branch of Premier on Woonsocket, Rhode Island, where he expected to find petitioner or Teressa Sheehan, a 30-year employee of the petitioner in his various enterprises, to get his orders from one of them.
On his way to Woonsocket, Thibeault had to retrace the course he had traveled earlier that morning to petitioner's residence. When on this stretch the sun blinded him and he drove the truck against the rear of a Massachusetts state truck and thrust this state truck against Charles D. McQuesten, a state employee, and pinned him against a concrete post and wire fence, severely injuring him. As a direct result of these injuries, McQuesten died on December 30, 1942. Thibeault was, at the time of this accident, employed by the trust and acting within the scope of his duties.
Thibeault was arrested and fined $200, which on appeal was reduced to $100. Petitioner paid the fine, as Thibeault had no means.
The administratrix of the estate of Charles D. McQuesten instituted suit against Thibeault and the company, each for damages of $25,000. No suit was instituted or commenced by the administratrix of the estate of Charles D. McQuesten against petitioner personally or against the trust on account of the injuries and wrongful death of McQuesten.
The administratrix, upon discovering that the assets of the Whitney Worsted Co. had been transferred to the Whitney Worsted Trust, attached real estate in the name of Charles D. Whitney, trustee of the Whitney Worsted Trust.
The company carried compulsory insurance of $5,000 on the truck involved in the accident. The insurer of the truck paid the $5,000 in settlement of the suit instituted by the administratrix of the estate against the company. After several conferences, petitioner's counsel advised him that he would become personally liable for any judgment above the $5,000 insurance. In March 1944, acting on counsel's advice, petitioner settled the suit instituted against Thibeault by paying $2,750 to the administratrix of McQuesten's estate. Petitioner's counsel charged $200 for his services, which made a total of $2,950.
On his income tax return for the calendar year 1944 petitioner claimed as a ‘casualty loss‘ a deduction in the amount of $2,950. The $2,950 consisted of $200 paid to petitioner's attorney and...
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