Wilson v. COMMISSIONER OF INTERNAL REVENUE, Docket No. 18634.

• Decision Date: 16 October 1929
• Docket Number: Docket No. 18634.
• Citation: 17 BTA 976
• Parties: HIRAM C. WILSON, PETITIONER, v. COMMISSIONER OF INTERNAL REVENUE, RESPONDENT.
• Court: U.S. Board of Tax Appeals

17 B.T.A. 976 (1929)

HIRAM C. WILSON, PETITIONER, v. COMMISSIONER OF INTERNAL REVENUE, RESPONDENT.

Docket No. 18634.

Board of Tax Appeals.

Promulgated October 16, 1929.

Camden R. McAtee, Esq., for the petitioner.

LeRoy L. Hight, Esq., for the respondent.

The Commissioner determined a deficiency in income taxes for the calendar year 1921 in the amount of $4,797.78.

The petitioner alleges that the Commissioner erred in failing (1) to allow as a deduction $2,752.95 expended by the petitioner in the year 1921 for traveling expenses, and (2) to exclude from the petitioner's taxable income a certain dividend of $32,900 declared by the Hiram Oil & Gas Co. on or about May 17, 1921, and not received by the petitioner until the year 1922.

FINDINGS OF FACT.

The petitioner is an individual residing at Tulsa, Okla. He was engaged in drilling oil wells, and either in his individual capacity or in partnership with another, had from three to five strings of drilling tools in operation during the taxable year. At some time either before the beginning of the taxable year or during the taxable year he gave a man named Wierough a one-fourth interest in certain of his drilling tools. The drilling of each well resulted in a profit. The partnership of Wilson and Wierough made a partnership return for the year 1921, but the petitioner claimed certain drilling expenses as deductions on his personal income-tax return for the year 1921.

The operation of each string of tools required a crew of four men besides the services of roustabouts, pumpers, teamsters and others. In 1921 the petitioner lived about four miles south of Kellyville, Okla. During that year, either in his individual capacity or in partnership with Wierough, he drilled wells around Bristow, Depew, Kellyville, and Cowetta. The latter wells were about sixty miles from Kellyville. It was necessary for the petitioner to visit each of these wells frequently. Some of the wells he visited every day during drilling operations, but those near Cowetta he did not visit that often. He supervised the work of the various crews personally. It was frequently necessary to take men from one job to another and in doing this he used his own Studebaker automobile. While traveling with employees he paid their expenses, including board and lodging while away from home. In the course of his business he had to make visits to Bristow, Tulsa, Sapulpa, and Muskogee for supplies. On the average he traveled about one hundred miles per day throughout the year. Wierough was a driller and did not attend to paying expenses and did not provide any money for the business.

During the year 1921 the petitioner was president of the Hiram Oil & Gas Co., an Oklahoma corporation, and owned at least two-thirds of its stock. The other stockholders were E. B. Matthews, Troy A. Bond, H. H. Harvey, H. A. McCauley and Dr. Sweeney. McCauley owned about 20 per cent of the stock of this corporation. As a result of the sale of a lease in February, 1921, the Hiram Oil & Gas Co. was the owner of four notes of the Foster Oil Co. One of these notes was for $22,500 and was payable on May 16, 1921; another for a like amount was payable August 16, 1921; another for $25,000 was payable on November 16, 1921; and another for $25,000 was payable on February 16, 1922. While the Hiram Oil & Gas Co. held these notes in 1921, H. A. McCauley asked the petitioner for two of these notes. The petitioner promised McCauley that he would have the Hiram Oil & Gas Co. lend him two of these notes. Thereupon a meeting of the board of directors of the Hiram Oil & Gas Co. was called for the purpose of discussing the matter. The minutes of the meeting were as follows:

It was moved and seconded that the president be authorized to sell note of Foster Oil Company for $22,500 due August 16, 1921, and note of Foster Oil Company for $25,000, due November 16, 1921. Motion carried. It was moved and seconded that 10% dividend be declared on all stocks on record May 1st, 1921. Motion carried.

The two notes were then transferred to McCauley and McCauley gave his own demand note to the Hiram Oil & Gas Co. in exchange. He also endorsed the stock which he owned in the Hiram Oil & Gas Co. and deposited it with the corporation as security. McCauley then had the notes of the Foster Oil Co. discounted at his bank and received cash for them. The books of the Hiram Oil & Gas Co. contain no record of the transaction with McCauley, except as set forth above in the minutes of the directors' meeting.

About March 1, 1922, McCauley paid his note which he had given to the Hiram Oil & Gas Co. The corporation then paid the petitioner $32,000. The petitioner included the $32,000 as income in his return for the year 1922. The Commissioner excluded it from his income for 1922 and included it in his income for 1921. The petitioner's income-tax returns for the years 1921 and 1922 were made upon a basis of cash receipts and disbursements.

OPINION.

MURDOCK:

The petitioner contends that the respondent erred in disallowing a deduction of $2,752.95 claimed in his 1921 return as ordinary and...