# Jenkins v. Commissioner

In Jenkins v. Commissioner, T.C. Memo 1983-667 (U.S. Tax Court Memos 1983), the U.S. Tax Court held that the payments Conway Twitty, a country singer, made to investors in a defunct restaurant business known as "Twitty Burger, Inc." were deductible under § 162 of the Internal Revenue Code as ordinary and necessary business expenses of petitioner's business as a country music performer.

## Facts

The petitioner, Harold L. Jenkins, was a well-known country music singer who was commonly known by his stage name of "Conway Twitty". Conway had been a musical performer since the 1950s, but it was not until the late 1960s that Conway became well-established in the country music industry. By mid-1970, Conway Twitty had 43 Number 1 hit records.
In 1968, Twitty Burger, Inc. was formed by Conway, along with approximately 75 friends and business associates who invested money in Twitty Burger for the operation of Twitty Burger Fast Food Restaurants. Late in 1970, Twitty Burger began to encounter financial difficulties and nearly every Twitty Burger restaurant was closed by 1971. Although he had no assets with which to pay the debentures, Conway decided to repay the investors the amount of their investments with future earnings. On his 1973 and 1974 Federal income tax returns, Conway deducted these total amounts, $92,892.46 and $3,600, respectively, as ordinary and necessary business expenses under § 162.

## Issue

Were the payments made by Conway Twitty to investors in the failed corporation known as Twitty Burger, Inc., deductible as ordinary and necessary business expenses of Conway's business as a country music performer?

## Holding

The Court held that the payments to the investor by Conway Twitty were deductible as ordinary and necessary business expenses of his business as a country music performer. Lohrke v. Commissioner, 48 T.C. 679 (1967), a landmark Tax Court case, established a two-part test to determine whether a payment is deductible as ordinary and necessary.
The court applied the Lohrke test to the instant case as follows. To determine whether the payments were deductible under § 162, the United States Tax Court was required to
* ascertain the purpose or motive of the taxpayer in making the payments and
* determine whether there was a sufficient connection between the expenditures and the taxpayer's trade or business.
After a lengthy explanation of how vital personal reputation is to a member of the country music industry, the Court found that Conway's motive in repaying the investors was to protect his personal business reputation. Direct quotes from Conway himself, and from a number of country music historians, were presented in this case to explain how the success of country musicians is extremely dependent on their images. After determining Conway's motive, the Court went on to find a proximate relationship between payments made to the investors and Conway's trade or business as a country music entertainer. Having determined the motive and the connection between the expenditures and the trade or business, Conway's payments to the Twitty Burger investors were held to be ordinary and necessary business expenses of a country music performer.

## Real World Interest

Aside from providing an analysis to use in determining whether certain payments constitute ordinary and necessary business expenses under § 162, this case provides a fascinating, if brief, history of the country music industry and the unique relationship between country musicians and country music fans.
But, the case is probably best known for the rare exchange of public humor it elicited between two government entities. The Tax Court closed its opinion with the following footnote:
   "Ode to Conway Twitty"
   Twitty Burger went belly up But Conway remained true He repaid his investors, one and all It was the moral thing to do. His fans would not have liked it It could have hurt his fame Had any investors sued him Like Merle Haggard or Sonny James. When it was time to file taxes Conway thought what he would do Was deduct those payments as a business expense Under section one-sixty-two. In order to allow these deductions Goes the argument of the Commissioner The payments must be ordinary and necessary To a business of the petitioner. Had Conway not repaid the investors His career would have been under cloud, Under the unique facts of this case Held: The deductions are allowed.
In Action on Decision 1984-022, the Internal Revenue Service announced whether it would appeal the decision as follows:
   Our reaction to the Court's opinion is reflected in the following "Ode to Conway Twitty: A Reprise":
   Harold Jenkins and Conway Twitty They are both the same But one was born The other achieved fame. The man is talented And has many a friend They opened a restaurant His name he did lend. They are two different things Making burgers and song The business went sour It didn't take long. He repaid his friends Why did he act Was it business or friendship Which is fact? Business the court held It's deductible they feel We disagree with the answer But, let's not appeal.
   RECOMMENDATION Nonacquiescence
   DAVID C. FEGAN Attorney
   JOEL GERBER Acting Chief Counsel
   By: CLIFFORD M. HARBOURT Senior Technician Reviewer Branch No. 2
   Tax Litigation Division