Comm'r of Internal

Tax Court of the United States.Jun 14, 1950
14 T.C. 1151 (U.S.T.C. 1950)

Docket No. 22219.



Robert J. Hawkins, Esq., for the petitioner. Edward M. Woolf, Esq., for the respondent.

1. The petitioner has alleged error by the respondent in disallowing as expenses $67.50 for 11 1/4 days of business travel in the United States. He was actually on such travel 14 3/4 days, for which he was reimbursed by his employer at the rate of $6 per day. In the absence of proof that his expenses were in excess of $6 per day for the 14 3/4 days, it is held that the petitioner is not entitled to any deductions for traveling expenses for travel in the United States.

2. The petitioner took a deduction of $2,805 as traveling expenses for 121 days of foreign travel. He was on foreign travel for 128 days, of which he was reimbursed in the taxable year for 109 3/4 days at the rate of $8 per day. The respondent allowed $729 of the deduction taken. In the absence of proof that the petitioner's traveling expenses were in excess of his reimbursements plus the amount allowed by the respondent, held that the petitioner is not entitled to any additional allowance for traveling expenses for foreign travel.

3. Held, that part of the deficiency was due to fraud, with the intent to evade tax. Robert J. Hawkins, Esq., for the petitioner. Edward M. Woolf, Esq., for the respondent.

The respondent determined a deficiency in income tax against the petitioner for 1945 of $788.31 and a 50 per cent addition to tax for fraud of $1,088.65. The apparent discrepancy as to amounts is brought about by the fact that the deficiency of $788.31 as determined is after allowance for tax withheld by petitioner's employer and $400 paid on the basis of estimated tax, the $1,088.65 being 50 per cent of the difference between the tax reported by petitioner on his return and the amount determined as the correct tax by the respondent. The errors as alleged by petitioner are (1) the disallowance of the deduction of $67.50 as expenses for 11 1/4 days in domestic travel, (2) the disallowance of the deduction of $1,024 as expenses for 128 days of foreign travel, and (3) the determination of fraud.


The petitioner's 1945 income tax return, showing his mailing address as c/o Maury-Henry Company, 1811 H Street, N.W., Washington, D.C., and his home address as 1641 Summerdale Street, Chicago, Illinois, was filed with the collector for the first district of Illinois on March 15, 1946.

The petitioner has been a commercial air-line pilot since 1929 and for more than ten years has been employed by Transcontinental & Western Air, Inc., sometimes hereafter referred to as TWA. His first work as a pilot was in St. Louis, Missouri, and he was in and out of that city until he was employed by TWA in 1939. His first work with TWA was between Kansas City, Missouri, and Chicago, Illinois. In 1940 he went to Chicago, where he stayed until in 1941, when he went to Pittsburgh, Pennsylvania, and stayed until the domicile there was closed in the spring of 1942. He returned to Chicago and then took a special assignment at Homestead, Florida. In the fall of 1943 he returned to Chicago, where he was assigned by TWA until February 1, 1945.

During 1945 TWA was under contract with the Air Transport Command as a common carrier of passengers and cargo to foreign bases. Pursuant to that contract the intercontinental division of TWA was set up. On February 1, 1945, TWA assigned petitioner to its intercontinental division, with Washington, D.C., designated as his base. The petitioner's family consisted of himself and wife. When the petitioner was assigned to the Washington base, his wife was living at 5220 Blackstone Street in Chicago, where she continued to stay for three ro four months and then went to the home of her family in St. Louis. The petitioner never visited his wife in St. Louis during 1945, as they ‘were more or less at odds.‘ The Summerdale Street address in Chicago given by the petitioner on his return was that of the home of his sister and her husband, where he stayed when in Chicago. From February 1 to the end of 1945 the petitioner was in Chicago about eight or ten days, going there between trips made from his Washington base. In 1945, after his assignment to Washington, the petitioner resided with five other pilots in an apartment in Arlington, Virginia.

For the year 1945 petitioner was reimbursed by his employer, TWA, for traveling expenses at the rate of $8 per day for foreign travel and $6 per day for domestic travel. For the purpose of reimbursement for traveling expenses, all of the petitioner's intercontinental flights started from Washington.

In his 1945 income tax return the petitioner reported total compensation received in that year from TWA as $12,710.94, deductions therefrom totaling $5,624.84, and net compensation of $7,086.10. In addition to the $7,086.10, the petitioner reported dividends and interest amounting to $56.59, making a total of $7,142.69. In arriving at net income on the return the standard deduction of $500 in lieu of itemized deductions for contributions, interest, taxes, losses, medical and dental expenses, and miscellaneous items was taken. The tax computed and shown on the return was $1,587.09. Payments by withholding from wages and on declaration of estimated tax were shown as totaling $2,976.08 with an indicated overpayment of $1,388.99.

The deductions of $5,624.84 were explained as follows in a schedule attached to the return:

+----------------------------------------------------------------------------+ ¦Travel Expense: ¦ ¦ +----------------------------------------------------------------------------¦ ¦U. S. Travel—Columbus, Dayton, Topeka, Indianapolis, St. Louis, Kansas City,¦ +----------------------------------------------------------------------------¦ ¦Washington, D. C., Detroit, Toledo, Pittsburgh, New York, Los Angeles, ¦ +----------------------------------------------------------------------------¦ ¦Minneapolis, San Francisco, Miami, New Hampshire, Virginia: ¦ +----------------------------------------------------------------------------¦ ¦168 days at $11.95 per day ¦$2,007.60 ¦ +--------------------------------------------------------------+-------------¦ ¦Dues and CAA Physicals ¦112.00 ¦ +--------------------------------------------------------------+-------------¦ ¦Supplies and equipment ¦389.50 ¦ +--------------------------------------------------------------+-------------¦ ¦Equipment maintenance ¦208.00 ¦ +--------------------------------------------------------------+-------------¦ ¦Railroad fares ¦258.10 ¦ +--------------------------------------------------------------+-------------¦ ¦Comm. ration car travel 8,780 miles at 5¢ ¦439.00 ¦ +--------------------------------------------------------------+-------------¦ ¦Plane liability insurance and TWA insurance ¦376.64 ¦ +----------------------------------------------------------------------------¦ ¦Foreign travel—Newfoundland, Azores, Iceland, Ireland, Scotland, England, ¦ +----------------------------------------------------------------------------¦ ¦Wales, France, French Morocco, Libia, Egypt, Iran, Judea, Greece, Italy, ¦ +----------------------------------------------------------------------------¦ ¦Bermuda: ¦ ¦ +--------------------------------------------------------------+-------------¦ ¦121 days at $15.00 [ sic ] ¦$2,805.00 ¦ +--------------------------------------------------------------+-------------¦ ¦ ¦6,595.84 ¦ +--------------------------------------------------------------+-------------¦ ¦Less partial reimbursement ¦971.00 ¦ +--------------------------------------------------------------+-------------¦ ¦ ¦5,624.84 ¦ +----------------------------------------------------------------------------+

In determining the deficiencies in controversy the respondent, for lack of substantiation and lack of evidence showing any official domestic travel by petitioner for TWA, disallowed the deduction of $2,007.60 taken by the petitioner as traveling expenses for 168 days of travel in the United States as $11.95 per day. Because of the absence of records showing actual expenditures in excess of $729, the respondent disallowed $2,076 of the deduction of $2,805 taken by petitioner as traveling expenses for 121 days of foreign travel. The other deductions shown in the schedule, amounting to $1,783.24 were disallowed by the respondent for lack of substantiation and because the petitioner had elected to take the optional standard deduction.

In 1945 the petitioner was during the month of January away from Chicago on domestic travel in the course of his employment for TWA and during the rest of the year away from Washington on domestic travel for his company a total of 14 3/4 days, for which he was reimbursed at the rate of $6 per day in the total amount of $88.50. During the remaining 153 1/4 days for which expense deductions for domestic travel were claimed by petitioner on his return he was either at his residence in Arlington, Virginia, or on personal business or pleasure trips at various places in the United States, but away from Chicago. The petitioner kept no records of his expenses and the amount of $11.95 per day claimed in his return was an estimate of his expenditures for personal living expenses.

With respect to foreign travel during 1945, petitioner was reimbursed for 109 3/4 days at the rate of $8 per day, or a total of $878, by TWA. Petitioner was actually in foreign travel during 1945 for a total of 128 days. He was not reimbursed by TWA in 1945 for 18 1/4 days. Whether he was reimbursed at a later date for such travel is not shown.

During 1945 the petitioner made trips to England, Scotland, Wales, France, Morocco, Italy, Greece, Egypt, Iran, and India. On such trips he made stops at times in Newfoundland, Labrador, Bermuda, and the Azores. At most of the places visited on such trips, Army barracks were available for petitioner and his crew. They were crowded and noisy and were not conducive to rest. The number of men present sometimes ranged from 4 in a cubbyhole to 32 in one big room. Hotels or better accommodations were available in most places and, where they were available, the petitioner did not stop at the Army barracks, but instead preferred to spend the extra money for quieter and more comfortable accommodations. Amounts expended for such accommodations in excess of the $8 allowed by TWA were paid from petitioner's own funds. In determining the deficiency the respondent allowed a deduction of $729 as expenses of petitioner in foreign travel. Petitioner kept no records of such expenditures and the $15 per day at which such expenses were computed in making his return was an estimated amount.

The item of $112 taken as a deduction for dues and CAA physicals represented $100 dues paid by the petitioner to the Airline Pilots Association of which he was a member, and $12 for two physical examinations.

The deduction of $389.50 for supplies and equipment represented an estimate of the cost of the petitioner's Army uniform, navigation kits, computers, chronometers, replacement of lost items, baggage, wear and tear. Except for the uniform, the petitioner was not required by either TWA or the Army to have such equipment.

The item of $208 taken for equipment maintenance represented the estimated cost of uniform maintenance, cleaning and mending equipment, loss of equipment, chronometers, etc.

The deduction of $258.10 taken as railroad fares represented an estimate by the petitioner of the amounts expended for personal travel on trains and air lines. The amount of $439 taken as commercial ration car travel represented the estimated cost of the operation of petitioner's automobile for personal travel between his apartment and the airport and on personal trips elsewhere. The rail and plane fares and the cost of operating the automobile away from Washington were for pleasure and personal reasons and were not in the course of his duties with TWA. The trips included pleasure trips to New York, Pittsburgh, and possibly St. Louis.

The amount of $376.64 deducted as plane liability insurance and TWA insurance represented premiums paid by petitioner on his accident and life insurance policies.

The first income tax return filed by the petitioner was for 1939. He personally prepared that return and the returns filed by him for subsequent years through 1944. After the close of 1945 he prepared his income tax return for 1945, in which he claimed certain undisclosed deductions as expenses. This return showed a tax due of $350, or $400 in addition to the $400 he had paid on the declaration of estimated tax and the tax that had been withheld during the year from his compensation. After preparing this return he submitted it for examination to some undisclosed person or official stationed in the post office of other Government building in Alexandria, Virginia. The petitioner was about to mail this return, but decided before doing so that he would consult Bernard P. Nimro to see if Nimro could help him effect a savings in his tax. During 1945 the petitioner had heard of Nimro through pilot acquaintances. He had heard that Nimro was a tax expert who could save pilots considerable sums of money by deductions to which they were entitled and that he had saved some pilots substantial amounts on their taxes.

Early in March, 1946, the petitioner consulted Nimro, who had an office with the Maury-Henry Co. in Washington. The petitioner had no record of his expenses and consequently was only able to furnish Nimro with approximations. Petitioner also gave Nimro approximations as to his travel time, both foreign and in the United States. After talking with the petitioner, Nimro prepared a 1945 return for him. Some of the deductions taken in the return represented estimates made by Nimro and others represented estimates made by the petitioner. After preparing the return Nimro forwarded it to the petitioner at the latter's Arlington, Virginia, address. Upon examining the return the petitioner questioned certain of the deductions taken, particularly the deductions for travel in the United States. Thereupon, he consulted Nimro again, who advised him that for income tax purposes Chicago was his home and that he was entitled to deduct all expenses while away from Chicago. After this conference he signed and filed the return as prepared by Nimro. His fee arrangement with Nimro was a retainer of $25 and 10 per cent of any refund of 1945 income tax that the petitioner might receive.

Nimro was disbarred from the practice of law in the District of Columbia in 1937, subsequent to his being convicted of embezzlement and being sentenced to imprisonment for a term of from 15 to 30 months. At a still later date and after he had advised petitioner as shown above, he was convicted of larceny and embezzlement and sentenced to serve a term for the misappropriation of funds entrusted to him for tax purposes by an employee of the United States Department of State.

Part of the deficiency was due to fraud, with intent to evade tax.


TURNER, Judge:

As to the deficiency determined, we do not find that petitioner has shown any error on the part of the respondent. In that respect only two errors were alleged, one that disallowance of the deduction of $67.50 as traveling expenses for 11 1/4 days of domestic travel and the other the disallowance $1,024 as expenses paid and incurred by petitioner in foreign travel. As to the domestic travel, there is nothing in the record which would in any way substantiate any claim that petitioner expended more than the $6 per day allowed and paid to him by his employer. For foreign travel the petitioner was reimbursed by TWA to the extent of $8 per day for 109 3/4 days and in determining the deficiency the respondent has allowed a deduction of $729 as amounts expended by petitioner from his own funds. While we do believe that the petitioner's expenses while on foreign travel most likely exceeded the $8 per day allowed to him by his employer, the evidence of record is not sufficient to supply any basis for concluding that the amounts expended in excess of the $8 per day allowed to him by TWA were greater than the $729 which the respondent has allowed in determining the deficiency. As to the other deductions claimed by petitioner which were disallowed, the petition contains no allegation of error, possibly because of a recognition on the part of his counsel that such claim would be futile in view of the fact that in making the return the standard deduction provided for by the statute in lieu of itemized deductions had been claimed.

With respect to the determination of fraud, the conclusions of the respondent and his contentions made at the hearing and on brief center largely around the deductions claimed for expenses while on domestic and foreign travel. In making his return petitioner had claimed $2,805 for expenses while on foreign travel as representing 121 days at $15 per day. He claimed $2,007.60 for expenses while on domestic travel as covering 168 days at $11.95 per day. He also claimed a total of $797.10 to cover his estimate of cost of travel by train, plane, and automobile. The amounts so claimed were reduced by $971 as being the amount for which he was reimbursed by his employer. On its face the amount claimed for foreign travel was excessive in the amount of $990. The claim was stated as being for 121 days at $15 per day and the total was shown as $2,805 instead of $1,815, the correct mathematical result. The respondent, however, makes no point about the matter, and there is nothing in the record which would indicate that the agent or anyone else noticed the mathematical discrepancy. It is also apparent that the respondent was of the view that the petitioner did have expenses in foreign travel in excess of the amount for which he was reimbursed by his employer. Taking the amount of reimbursement and the amount allowed by the respondent in his determination with respect to foreign travel, it is to be noted that the total is fairly close to the amount that would have been shown from an accurate mathematical computation for 109 3/4 days of foreign travel at $15 per day, 109 3/4 days being the foreign travel allowed by respondent in his computation. The main item accordingly upon which the respondent rests his determination of fraud is the claim with respect to domestic travel and possibly the claim of deductions for other expenses made by petitioner in connection with his employment.

Petitioner concedes that in his return he claimed deductions to which he was not entitled. It is his contention, however, that in making the return his claim of those deductions was not due to fraud with intent to evade tax, but rather that he was of the view that Nimro was experienced and competent in tax work and that he signed and filed the return which Nimro had prepared after being assured that all of the expenses listed as having been made by him while away from Chicago were allowable deductions. He admits that the amounts were in practically every instance estimates, but believes that they are substantially correct.

But for the inclusion of the items totaling $797.10 covering the cost of pleasure and other unexplained personal trips by train, plane, and automobile, we should have no difficulty in arriving at the conclusion that the respondent has failed to prove his case. The petitioner was an air pilot, regularly employed by TWA. In that employment his post of duty was Chicago, and had been Chicago for approximately two years. On the 1st of February he was assigned to duty which by its nature indicated that so long as it lasted his operations would be from Washington. It was evidence, however, that with or shortly after the conclusion of the war such duty would come to an end, and if petitioner continued in his employment with TWA he would either be returned to his old post in Chicago or receive some other assignment suitable to TWA. A claim to the effect that while on such war duty with his post in Washington petitioner was away from home on business within the meaning of section 23(a)(1) of the Internal Revenue Code is neither novel nor startling. As a matter of fact, such a view as to the meaning of the statute was quite prevalent and the conclusion that such view was not within the meaning of the statute was not received in the decided cases without widespread differences of opinion and without recognition that very respectable arguments could be made in support of the opposite conclusion. In that state of affairs we are unable to find any force in the respondent's view that the mere claiming of deductions covering petitioner's living expenses and traveling expenses in the course of his employment while away from Chicago is necessarily an indication of fraud. The same view also applies to that portion of petitioner's deductions for transportation cost which represents the cost of operating his automobile from his place of abode to the airport or other places he was required to visit in the course of his employment. See and compare Charles C. Rice, 14 T.C. 503.

We do have difficulty, however, with certain portions of the deductions claimed by petitioner covering transportation cost. With respect to a substantial part of those expenditures the petitioner testified that they represented cost of trips made for pleasure and for personal reasons. Except to the extent that the recreation indulged in might tend to maintain for him a state of physical and mental well-being and thereby enable him to perform his duties as an airplane pilot, those expenditures could have no relation whatever to petitioner's business or profession, and in his testimony he admitted that at the time of making his return he had some question about his right to claim those amounts as deductions. His only excuse is that Nimro convinced him that he was entitled to deduct all of his expenses while away from Chicago, even though personal and for pleasure. We are able to understand how it might be conceivable for one to have such ideas about the cost of his meals and lodging, since those were items which would necessarily continue whether he remained in Washington at his post of duty, which he considered as being away from home because he was away from Chicago, or whether he happened to be in New York for pleasure and recreation. It is extremely difficult, however, to comprehend how a man of petitioner's apparent intelligence, ability, and experience could possibly believe, even with the assurance of Nimro, that the cost of pleasure trips to New York and pleasure and personal trips to Pittsburgh or St. Louis could be regarded as expenses sufficiently related to the conduct of his business as a pilot for TWA to believe that they were traveling expenses while away from home in the pursuit of his trade or business so as to entitle him to a deduction therefor in the computation of his income tax.

All of this brings us to two alternatives— either he knew he was not entitled to the deductions and, knowing they were not proper deductions, he excused himself in the claiming of them because of the advice of Nimro and proceeded to sign a false return with fraudulent intent of evading a portion of his just income tax, or he was a very gullible man and not of such experience and capacity for thinking correctly as might have been expected of one in his position. It is an unpleasant and difficult task to conclude that either is the case. We have listened attentively to the testimony of the petitioner and we have examined and reexamined the evidence of record, and it is our conclusion that the petitioner did not believe or think that in computing the amount of his tax he was entitled to deduct from gross income amounts expended by him for travel for personal pleasure. He knew that such items were not expenditures in the course of his employment, and, rather than being convinced that they were allowable deductions, it is our conclusion that he persuaded himself or allowed himself to be convinced that they would not be checked, but would be overlooked, to the end that he would not have to pay the full amount of his tax. The deficiency was due in part to fraud, with intent to evade tax.

Reviewed by the Court.

Decision will be entered under Rule 50.