T.C. Memo. 1999-111
UNITED STATES TAX COURT
ROBERT J. GEARY, Petitioner v.
COMMISSIONER OF INTERNAL REVENUE, Respondent
Docket No. 7380-97. Filed April 2, 1999.
Stephen M. Moskowitz and Robert L. Goldstein, for
petitioner.
Margaret S. Rigg, for respondent.
MEMORANDUM FINDINGS OF FACT AND OPINION
GOLDBERG, Special Trial Judge: This case was heard pursuant
to the provisions of section 7443A(b)(3) and Rules 180, 181, and
182. Unless otherwise indicated, all section references are to
the Internal Revenue Code in effect for the year in issue, and
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all Rule references are to the Tax Court Rules of Practice and
Procedure.
Respondent determined a deficiency in petitioner's 1993
Federal income tax in the amount of $3,499 and an accuracy-
related penalty in the amount of $700 pursuant to section
6662(a).
After concessions,1 the issues for decision are: (1) Whether
petitioner is entitled to claim a Schedule C advertising expense
deduction for the 1993 tax year; and (2) whether petitioner is
liable for an accuracy-related penalty pursuant to section
6662(a) in the amount of $700 for the 1993 tax year.
Some of the facts have been stipulated and are so found.
The stipulation of facts and the attached exhibits are
incorporated herein by this reference. At the time the petition
was filed, petitioner resided in San Francisco, California.
FINDINGS OF FACT
During the year in issue, petitioner was a full-time police
officer for the City and County of San Francisco. Petitioner was
a 24-year police veteran who had been decorated four times for
valor.
In 1991, the San Francisco Police Department started a
Community Police on Patrol Program (Patrol Program) which was
designed to encourage patrol officers "to be a highly visible
1
Petitioner conceded respondent's adjustments of claimed 1993
Schedule C deductions for supplies and legal expenses.
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presence in the city's neighborhoods" and "encouraged [police
officers] to engage in responsible, creative ways to make the
community safer and more attractive."
After attending a course on the Patrol Program at the police
academy, petitioner purchased a ventriloquist dummy/puppet.
Petitioner named the puppet Officer Brendan O'Smarty
(Officer O'Smarty) and outfitted him in a San Francisco
Police Department uniform complete with badge2 and water pistol.
Petitioner began to patrol his beat with Officer O'Smarty in
1991.
Petitioner patrolled the North Beach District of San
Francisco, an area with a multicultural mix of people speaking
several different languages. Petitioner felt that a
ventriloquist puppet such as Officer O'Smarty helped petitioner
improve his working relationship with residents of North Beach by
making petitioner more approachable and less forbidding.
Though petitioner's supervisors at the police department
initially permitted petitioner and Officer O'Smarty to patrol
together "for a year or so", they later ordered petitioner to
stop taking Officer O'Smarty on patrol. Petitioner met with
police officials in an attempt to get the order rescinded but was
only partially successful. The Chief of Police of the San
Francisco Police Department modified the order, but petitioner
2
Petitioner issued Officer O'Smarty badge No. ½.
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was still prohibited from taking Officer O'Smarty on patrol
without advance written permission.
In response to the restrictions on petitioner's use of the
puppet, the San Francisco Board of Supervisors (Board) passed a
resolution "[urging] the Mayor to urge the Police Commissioner to
allow [petitioner] police officer Bob Geary to use his
professional judgement in using non-traditional 'tools' to gain
the trust of the public." The Mayor refused to act on the
Board's resolution, and petitioner, after exhausting his
administrative remedies, decided to take the Officer O'Smarty
puppet issue to local voters.
In the latter part of 1992, or early in January 1993,
petitioner formed the Committee to Save Puppet Officer Brendan
O'Smarty (Committee). Through the Committee, petitioner paid
$9,711.49 to professional "signature gatherers" to circulate
petitions and gather signatures from local voters in order to
place the issue on the November 1993 ballot. Once the signatures
were gathered, petitioner contributed $1,200 to local political
organizations which recommended passage of "Proposition BB", the
Officer O'Smarty proposition.3 In addition, petitioner paid $621
3
Petitioner contributed $600 to the Richmond District
Democratic Club, $400 to the District Eight Democratic Club, and
$200 to the Affordable Housing Alliance Political Action
Committee, all of which endorsed Proposition BB on their
respective slates.
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to the Registrar of Voters in order to include a lengthy pro-
Officer O'Smarty statement in voting materials.
Proposition BB asked voters to decide whether it should "be
the policy of the people of San Francisco to allow Police Officer
Bob Geary to decide when he may use his puppet Brendan O'Smarty
while on duty." Voters ultimately approved Proposition BB and
petitioner was once again allowed to patrol the streets of San
Francisco with Officer O'Smarty.
On or about November 13, 1992, petitioner signed an option
agreement with Golden Door Productions (Golden Door), a movie
studio, whereby Golden Door would use its best efforts to exploit
the concept of using petitioner and Officer O’Smarty in various
law enforcement scenarios suitable for motion pictures,
television, etc.4 This option agreement was subsequently amended
by agreement prepared on September 3, 1993. In 1993 Golden Door
assisted petitioner to enter into a contract with Interscope
Communications (Interscope).
Petitioner attracted significant media attention as a result
of his high-profile ballot campaign.5 Petitioner was able to
4
The precise terms of this contract are unclear as the
contract does not appear in the record.
5
See Jane Gross, Dummy is on Ballot (He isn't Seeking
Office), "New York Times", Oct. 30, 1993, at A-1. Petitioner
also spoke to local community groups and schools and even
attracted international attention. Foreign media interest was
generated in Turkey, Portugal, Australia, Britain, Canada, and
Sarajevo.
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capitalize on the resultant publicity to develop commercial
interest in his unique patrol ideas.
Interscope paid petitioner $10,000 under the contract for
consulting services in connection with the development of a
screenplay, which income petitioner reported as wage income on
his 1993 Federal income tax return.6 Petitioner also received
$4,500 from Golden Door Productions, the movie studio which
helped petitioner sell his idea to Interscope, and $2,216 from
miscellaneous sources for various appearances as a "hand model"
and as an "entertainer". Petitioner reported these
amounts, a total of $6,716, on Schedule C attached to
his 1993 Federal income tax return. Petitioner claimed an
$11,465 advertising expense deduction on Schedule C representing
petitioner's total ballot expenditures for Proposition BB.7
6
Petitioner is still under contract with Interscope. If
Interscope exercises the option and a movie is ever made,
petitioner will earn $25,000 as a consultant, plus 15 percent of
the fee which would be paid to the producers of the film, and 33
percent of the profits to be paid to the producers from any
assignment of the story.
7
This amount includes $9,711.49 for signature gatherers,
$1,200 in contributions to local political organizations that
endorsed Proposition BB on their local slates, and other
miscellaneous expenses. Though petitioner only claimed as
advertising expenses the amount of $11,465 on Schedule C of his
1993 Federal income tax return, the parties stipulated that
petitioner incurred total ballot expenses in the amount of
$11,645. The difference between these two numbers seems to be a
transpositional error.
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In a notice of deficiency dated January 16, 1997, respondent
disallowed petitioner's total claimed Schedule C advertising
expense deduction for the 1993 tax year. Respondent contends
that petitioner's claimed advertising expenses were actually
lobbying and political expenditures which are disallowed by
section 162(e).
OPINION
Deductions are a matter of legislative grace. See New
Colonial Ice Co. v. Helvering, 292 U.S. 435, 440 (1934). A
taxpayer bears the burden of proving that he is entitled to
claimed deductions. See Welch v. Helvering, 290 U.S. 111, 115
(1933).
Petitioner has advanced two alternative arguments in support
of his claim that the expenses incurred should be allowable as an
ordinary and necessary business deduction: (1) Petitioner
contends that the claimed deduction represents Schedule C
business expenses incurred by petitioner in his business as an
entertainer; or, alternatively, (2) petitioner contends that the
expenditures represent unreimbursed employee business expenses
which are deductible on Schedule A.
1. Section 162(e)(2)(B) Exclusion
Relying on Section 162(e), respondent contends that
petitioner would not be entitled to deduct his claimed expenses
even if they otherwise had been allowable deductions under
section 162(a).
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Section 162(e)(2)(B) prohibits a deduction for any amount
paid or incurred "in connection with any attempt to influence the
general public, or segments, thereof, with respect to legislative
matters, elections, or referendums."
Petitioner contends that section 162(e)(2)(B) is
inapplicable in this case, but concedes that if this Court finds
section 162(e)(2)(B) applicable, then expenses incurred by
petitioner in obtaining voting slate approval for Proposition BB
from various political groups totaling $1,200 would be
nondeductible. Petitioner contends, however, that expenses
incurred by petitioner for the use of signature gatherers would
not be prohibited since petitioner's use of signature gatherers
was not an "attempt to influence the general public". We
disagree.
Petitioner contends that his sole purpose in getting the
Officer O'Smarty issue on the ballot was to let the voters decide
the issue. Petitioner thereby claims a disinterest in the
outcome of the vote though his actions at the time indicate
otherwise.
Petitioner organized his Committee with the express purpose
of "saving" Officer O'Smarty. Indeed the very name of the
Committee, the Committee to Save Puppet Officer Brendan O'Smarty,
is a good indication of its purpose. Petitioner funded the
ballot proposition entirely through the Committee and paid the
signature gatherers with Committee funds.
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Petitioner's signature gatherers were employed to gather
signatures with the express purpose of putting the puppet issue
on the November 1993 ballot. These signature gatherers were paid
by petitioner's Committee and certainly made statements
supporting the inclusion of the issue on the November 1993 ballot
while gathering signatures from the public in San Francisco.
This Court has consistently held that expenses incurred to
influence the public with respect to legislative matters,
decisions, or referendums are nondeductible. See Cloud v.
Commissioner, 97 T.C. 613 (1991); Southern Pac. Transp. Co. v.
Commissioner, 90 T.C. 771, 780-782 (1988). Taken as a whole,
petitioner's actions show a clear intent to influence the general
public. Petitioner formed his Committee, funded it with his own
money, sent out signature gatherers to qualify the issue for the
November 1993 ballot, and then secured voting slate approval of
Proposition BB from local political organizations. Petitioner is
now attempting to break out certain expenses and narrowly isolate
those expenses so they do not fall under the section 162(e)(2)(B)
exclusion. We are not persuaded by his argument in that respect.
Petitioner's claimed expenses are disallowed by section
162(e)(2)(B).
We therefore hold that petitioner is not entitled to claim
expenses incurred in putting the Officer O'Smarty issue on the
November 1993 ballot as section 162 deductions on his 1993
Federal income tax return.
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Inasmuch as we hold that section 162(e) is dispositive of
the issue, we need not address petitioner's contentions that the
claimed expenses represent either Schedule C business expenses or
Schedule A unreimbursed employee business expenses. Respondent
is sustained on this issue.
2. Accuracy-Related Penalty
Section 6662(a) imposes an accuracy-related penalty equal to
20 percent of the portion of any underpayment of tax that is due
to negligence or disregard of rules or regulations. Under
section 6662(c), negligence is any failure to make a reasonable
attempt to comply with the provisions of the Code, and the term
"disregard" includes any careless, reckless, or intentional
disregard. Negligence includes the failure to exercise the due
care of a reasonable and ordinarily prudent person under the
circumstances. See Allen v. Commissioner, 925 F.2d 348, 353 (9th
Cir. 1991), affg. 92 T.C. 1 (1989); Neely v. Commissioner, 85
T.C. 934, 947 (1985).
Petitioner contends that he is not liable for the section
6662(a) accuracy-related penalty because he relied on erroneous
expert advice given by his tax preparer. When an expert provides
erroneous advice on a matter of tax law, such as whether a tax
liability exists, it may be reasonable for a taxpayer to rely on
that advice. See United States v. Boyle, 469 U.S. 241, 250-251
(1985).
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Though petitioner contends that he received erroneous tax
advice from his tax preparer, petitioner did not testify to such
advice or call his tax preparer as a witness at trial. This
Court can infer that testimony which was not produced at trial
would not have been favorable to a taxpayer. See Wichita
Terminal Elevator Co. v. Commissioner, 6 T.C. 1158, 1165 (1946),
affd. 162 F.2d 513 (10th Cir. 1947). Additionally, there is no
evidence in the record supporting petitioner's contention
regarding erroneous expert advice.
On the basis of the record, we hold that petitioner did not
comply with the requirements of section 162, and failed to
exercise the due care of a reasonable and ordinarily prudent
person. We therefore hold that petitioner is liable for an
accuracy-related penalty for the 1993 tax year.
To reflect the foregoing,
Decision will be entered
for respondent.