Court Opinion

ID: 4599822
Source: CourtListenerOpinion
Date Created: 2020-11-20 19:24:12.157964+00
Date Added: 2024-06-11T07:52:11.613413
License: Public Domain

WILLIAM LEE TRACY, PETITIONER, v. COMMISSIONER OF INTERNAL REVENUE, RESPONDENT.Tracy v. CommissionerDocket No. 89304.United States Board of Tax Appeals39 B.T.A. 578; 1939 BTA LEXIS 1012; March 10, 1939, Promulgated *1012  1.  Petitioner, to enhance his prestige as a motion picture actor through better cooperation of studio employees with whom he was engaged, paid or distributed to them, in accordance with the custom in that industry, certain tips or gratuities.  Held, under the circumstances, ordinary and necessary expenses of his business as a professional actor.  2.  Petitioner's disbursements for meals and lodging in California while working in motion pictures were for his personal living expenses, and therefore are not deductible as traveling expenses.  3.  Petitioner, who maintained a home and provided the chief support for his mother and niece, both of whom were dependent upon him for their chief support, held, entitled to a $2,500 exemption as the head of a family.  F. A. Pike, C.P.A., for the petitioner.  E. A. Tonjes, Esq., and R. T. Miller, Esq., for the respondent.  ARNOLD *578  This proceeding involves a deficiency of $1,201.80 for 1934.  The petitioner admits liability as to $14.57 of the deficiency but denies liability as to the remainder, $1,187.23.  The pleadings, as amended, present three issues - (1) whether petitioner is entitled*1013  to deduct as ordinary and necessary expenses $161 of tips or gratuities given to various motion picture crews with whom petitioner was working; (2) whether petitioner is entitled to deduct $2,600 for board and lodging while away from Trucksville, Pennsylvania; and (3) whether petitioner is entitled to a personal exemption of $2,500 as the head of a family.  The last mentioned issue was raised by respondent by an amendment to his answer.  *579  FINDINGS OF FACT.  The petitioner is a citizen of the United States, domiciled in Trucksville, Pennsylvania.  During the taxable year the petitioner was engaged as a motion picture actor, and his chief source of income consisted of payments for his personal services as an actor.  For 1934 he reported salaries received from Metro-Goldwyn-Mayer Studio, Universal Pictures Corporation, Paramount Productions, Inc., Columbia Pictures Corporation, and the National Broadcasting Co. in the total sum of $91,870.04.  The petitioner has been engaged in the theatrical business since 1919, either as an actor on the legitimate stage or as an actor in motion pictures.  His first employment in motion pictures was in 1929, and on that occasion he*1014  remained in Los Angeles for a period of about eight weeks.  Upon completion of the picture in which he was working petitioner returned to New York City.  During 1930 the petitioner was in Los Angeles for a period of about six months.  During 1931 the petitioner spent the greater part of his time in New York or elsewhere, returning to Los Angeles in February of 1932.  Petitioner spent the remaining months of 1932 in Los Angeles, except for a short visit to New York in connection with a play which failed to materialize.  During the years 1933 and 1934 the petitioner was in Los Angleles.  While in Los Angeles the petitioner resided in hotels or furnished apartments.  His expenses for food and living quarters in Los Angeles during the taxable year 1934 were not less than $2,600.  The petitioner returned to Trucksville at every opportunity.  When he was employed in New York he was able to return to Trucksville more frequently and would often go there over week ends.  In 1929 and thereafter when he became interested in motion pictures his visits to Trucksville were less frequent as more and more of his time was spent in Hollywood.  During the period 1930 to 1934, inclusive, he made several*1015  visits to Trucksville, but all of them were of short duration.  In 1934 he made one short visit to Trucksville, a quick trip made by airplane.  The petitioner inherited the family home in Trucksville upon the death of his father in 1928.  During the taxable year the family home was occupied by petitioner's mother, who was approximately 70 years of age, and his niece who was less than 18 years of age.  The petitioner's mother had an independent income, derived from dividends, which amounted to approximately $800 or $900 during 1934, but more than 50 percent of the money needed for support of the family was provided by petitioner, who sent his mother approximately $2,500 during the taxable year.  Some of this money was used for living expenses and some for maintenance of the property and repairs.  Major *580  questions relating to the family were determined by the petitioner, but control of the niece and minor matters were left to his mother. One room was set aside and maintained exclusively for the petitioner's personal use and he kept many of his personal effects there and used Trucksville as his permanent address.  Dividends, life insurance premium notices, and other things*1016  of a nature requiring a permanent address were mailed to him at Trucksville and forwarded to him by his mother.  During 1934 petitioner distributed gratuities amounting to $161 to the employees of various studios where he was engaged in acting in motion pictures.  The distributions were made to electricians, property men, assistant directors, a policeman, and others connected with the studios.  The recipients were all salaried employees of the various studios paid to perform particular services in connection with each picture.  It is customary for the leading actors and actresses to distribute largess at the conclusion of a picture.  The distributions by the petitioner during the taxable year represented an acknowledgment of additional services and personal favors rendered to him in his profession as an actor beyond what the employees were required to do by the studios.  Petitioner filed his income tax return for 1934 on or before March 15, 1935, giving his post office address as Trucksville, Pennsylvania.  He claimed deductions from gross income of $161 for "studio gratuities", and $2,600 for "board and lodging away from home on business." Both deductions were disallowed by the*1017  respondent in determining the deficiency.  By an amendment to his answer the respondent has asked the Board to increase the deficiency in accordance with his claim that petitioner is entitled to a personal exemption of only $1,000, whereas in determining the deficiency he was granted a personal exemption of $2,500 as the head of a family.  OPINION.  ARNOLD: The deductions claimed by the petitioner are allowable, if at all, under section 23(a) of the Revenue Act of 1934, the pertinent portions of which are set forth in the margin. 1It is petitioner's contention that the bestowal of gratuities on the employees of different studios is an ordinary and necessary expense of a featured*1018  motion picture actor.  He further contends that his expenditures *581  for meals and lodging while he was away from home in pursuit of his business as a professional actor are deductible as ordinary and necessary expenses of his business.  There is no dispute as to the amounts involved, and petitioner is entitled to deduct the entire amount claimed in each instance if he is entitled to any deduction whatsoever.  We will consider first whether the so-called studio gratuities were ordinary and necessary expenses of petitioner's business.  The testimony in this case shows that the distribution of gratuities among studio employees is a customary practice among leading actors and actresses, and petitioner testified that his distribution was a recognition that the studio employees had rendered additional services beyond what was required of them by the employing studio in the production of the picture.  We have considered the right to deduct "tips" in a number of cases, both where the tip formed a part of a larger deduction, and where it was a separate deduction, *1019 , reversed by mandate of Second Circuit, without opinion, February 14, 1935; , reversing memorandum opinion of the Board; and . In , the amount of the gift was so large that the Board refused to consider it as either an ordinary or a necessary expenxe without a showing that the services were in some way commensurate with the outlay, citing . The success and earning power of motion picture actors depend upon their appeal to the public.  Their salaries are based largely on their ability through public popularity to increase box office receipts.  Reasonable expenditures, although in the nature of gratuities, designed to improve the quality of their work and enhance their reputation as actors, promote popularity with the public and result in better box office receipts.  This in turn enhances the earning power of featured actors.  Better cooperation of studio employees tends to that end.  It contributes to the build-up*1020  of the actors which justifies the studio in paying for their services salaries in proportion to their drawing power.  Cf. The gratuities given by Tracy were not of such large amounts as to come within the doctrine of the Denny case, supra. None of the recipients of Tracy's bounty was in his employ and there was no obligation on his part to make the gifts, but they were made in accordance with a custom in the motion picture industry and for a recognized business purpose.  It was his association with these studio employees in making pictures and their services for him that prompted *582  the making of the gifts.  The gratuity to each was an acknowledgment by petitioner that the extra personal services rendered were of benefit to him in making the pictures.  In our opinion there was a direct relationship between the expenditures and petitioner's business as a professional actor.  For the foregoing reasons it is our opinion that the $161 should be allowed as an ordinary and necessary business expense.  The other deduction in controversy involves $2,600, representing petitioner's expenses for meals and lodging during*1021  1934.  Petitioner's entire argument with respect to this deduction is based upon his claim that Trucksville, Pennsylvania, is his home, and that while he was in California in pursuit of his business as a professional actor, he was "away from home" within the meaning of the statute.  Petitioner's "home" within the meaning of the controlling statute includes his business location, post, or station, ; ; and ; affirmed without opinion, , and clearly under the facts in this case his "home" was in California.  He testified that by 1929 he had definitely determined to pursue a career as a professional actor.  Necessarily such a career would have taken him away from Trucksville, as there were no opportunities there for a professional actor.  His purpose in going to California was to pursue his vocation as an actor, particularly in motion pictures.  He further testified that during 1933 and 1934 he spent practically his entire time in California pursuing his career.  In view of these facts his expenditures for meals and*1022  lodging represent his personal living expenses, which are not deductible from gross income.  Sec. 24, Revenue Act of 1934.  In his return for the taxable year the petitioner claimed an exemption of $2,500 as the head of a family.  In determining the deficiency he was allowed this exemption but, by an amendment to the answer, respondent asserts that petitioner is entitled only to the exemption allowed a single man, namely, $1,000.  The evidence shows that petitioner inherited the family home from his father in 1928, that it was occupied by his mother and his niece, that his mother had a small independent income, but that more than 50 percent of the funds needed to support the family was provided by petitioner.  It further appears that petitioner exercised control so far as the determination of major questions relating to the family home was concerned, and that his mother operated the home and took care of his niece, who was less than 18 years of age.  Section 25(b)(1) of the Revenue Act of 1934 provides that the personal exemption "in the case of a head of a family or a married *583  person living with husband or wife" is $2,500.  Article 25-4 of Regulations 86 states: *1023  A head of a family is an individual who actually supports and maintains in one household one or more individuals who are closely connected with him by blood relationship, relationship by marriage, or by adoption, and whose right to exercise family control and provide for these dependent individuals is based upon some moral or legal obligation.  In the absence of continuous actual residence together, whether or not a person with dependent relatives is a head of a family within the meaning of the Act must depend on the character of the separation.  * * * This petitioner actually supported and maintained in one household two individuals who were closely connected with him, his mother and niece, and exercised a certain amount of family control over them.  He provided the home inherited from his father and approximately $2,500 for their care and maintenance during the taxable year.  Petitioner was morally and legally obligated to support his widowed mother to the extent needed, and certainly there was a moral obligation to support his dependent niece.  The evidence clearly discloses the character of the separation of Tracy from his family.  The pursuit of his profession required his*1024  presence in California, but we do not understand the regulations or the decided cases to hold that Tracy must have resided with his mother and niece in order to be entitled to the exemption.  Cf. , and cases cited.  In determining the present deficiency the respondent allowed the petitioner a personal exemption as a head of a family, and in our opinion, the evidence in this case shows that such an exemption is correct.  Reviewed by the Board.  Decision will be entered under Rule 50.Footnotes1. SEC. 23.  DEDUCTIONS FROM GROSS INCOME.  In computing net income there shall be allowed as deductions: (a) EXPENSES. - All the ordinary and necessary expenses paid or incurred during the taxable year in carrying on any trade or business. including a reasonable allowance for salaries or other compensation for personal services actually rendered; traveling expenses (including the entire amount expended for meals and lodging) while away from home in the pursuit of a trade or business; * * * ↩