1950 U.S. Tax Ct. LEXIS 146">*146 Decisions will be entered under Rule 50.
1. Overstatements of travel expenses in returns filed by a Transcontinental & Western Air, Inc, pilot held not shown on the evidence to have been false and fraudulent with intent to evade tax.
2. Petitioner's actual expenses of foreign travel held not less than his per diem allowance.
14 T.C. 1448">*1448 These proceedings, consolidated for hearing, involve deficiencies in petitioner's income taxes for 1944 and 1945, in the amounts of $ 581.06 and $ 1,019.10, respectively, and fraud penalties for those years in the respective amounts of $ 290.53 and $ 509.55.
For 1944 the fraud penalty only is contested, while 1945 involves the fraud penalty and that portion of the deficiency which results from the inclusion in gross income of travel expenses allowed the petitioner by his employer over and above the amounts actually expended for travel.
FINDINGS OF FACT.
The petitioner is now a resident of Kansas City, Missouri. He timely filed an original income tax return for 1944 with the collector of internal revenue at Baltimore, Maryland. 1950 U.S. Tax Ct. LEXIS 146">*147 He later filed an amended return for that year and an original return for 1945 with the collector of internal revenue at Atlanta, Georgia.
The petitioner was employed as a flight instructor for the Army Air Corps in July 1942. He was then 20 years of age and had completed three years of study at the University of Georgia. Before entering college he had lived continuously at Clarksville, Georgia, the place of his birth.
From January 1 to September 1, 1944, petitioner was employed as a flight instructor for the Army Air Corps at Georgia Aero Tech. 14 T.C. 1448">*1449 On September 1, 1944, he was employed by Transcontinental & Western Air, Inc., as a student navigator and was assigned to ground school at National Airport, Washington, D. C.
The petitioner began making flights to the European theater in January 1945 as a student navigator. He made his first flight as a graduate navigator in April 1945. He became a co-pilot for T. W. A. in May 1945 and so continued for the remainder of that year. He made numerous flights to England, France, Italy, India, and other foreign countries.
The Intercontinental Division of T. W. A., with which petitioner served, was set up pursuant to contract with, 1950 U.S. Tax Ct. LEXIS 146">*148 and was under the control of, the Army Transport Command. It was engaged primarily in transferring army personnel and cargo to and from foreign countries.
The petitioner received reimbursement from T. W. A. for travel expenses of $ 6 per day while traveling within and $ 8 per day while traveling without the continental United States. He kept no records of the amount so received. Petitioner did not do any traveling on business for T. W. A. during 1944. He had a total of 95 1/4 days of travel in 1945, 88 of which were spent outside the United States. According to T. W. A. records the petitioner received travel reimbursement payments for 1945 travel amounting to $ 643.50 in 1945 and $ 104 in 1946.
The petitioner was off duty and under medical treatment for stomach ulcers for three months during 1945.
The Army Transport Command provided meals and lodging at all foreign bases for all T. W. A. crewmen. These accommodations were usually provided at officers' quarters in barracks or at hotels taken over for that purpose. The cost of meals and lodging was from $ 5 to $ 7 per day. Whenever they were available, the petitioner stayed at civilian hotels, where the cost of meals and lodging1950 U.S. Tax Ct. LEXIS 146">*149 was considerably more than at service accommodations. The over-all cost to petitioner of meals and lodging while on foreign travel status in 1945 amounted to not less than $ 8 per day.
The petitioner prepared and filed an original income tax return for 1944 with the collector at Baltimore, Maryland, in which he reported salaries of $ 3,805.84 from Georgia Aero Tech and $ 533.50 from T. W. A., making a total of $ 4,339.34. He claimed the following deductions on the return:
| Contributions: | |
| Church | $ 200.00 |
| Charity | 65.00 |
| Taxes: | |
| Gas | 60.00 |
| Car | 15.00 |
| Motorcycle | 13.50 |
| State and retail | 25.00 |
| Losses: | |
| Automobile repairs | $ 61.50 |
| Motorcycle repairs | 72.00 |
| Depreciation on car and motorcycle | 250.00 |
| Bad debts | 50.00 |
14 T.C. 1448">*1450 He also deducted medical expenses in the amount of $ 137 and the cost of uniforms amounting to $ 230. The total deductions claimed amounted to $ 1,179, the net income was $ 3,160.34 and the tax shown to be due $ 625.08.
Some time in May or June of 1945 petitioner learned from some of his associates that there was an attorney in Washington, D. C., by the name of Bernard P. Nimro, who was familiar with T. W. A. problems, 1950 U.S. Tax Ct. LEXIS 146">*150 particularly as related to the income tax matters of its officers and personnel, and "could get back a lot of tax money." In March 1946 the petitioner sought Nimro's aid in making out his 1945 return. Nimro held himself out to the petitioner as a reputable tax consultant with a large clientele, including a number of employees and officials of T. W. A. Nimro advised the petitioner to file amended returns for 1942, 1943, and 1944. Together he and petitioner "roughed in" 1040 forms for 1944 and 1945 and, at Nimro's suggestion, petitioner signed blank forms which Nimro said he would have a secretary fill out on the typewriter and mail to the collector. At Nimro's request, the petitioner furnished him with expense vouchers and gave him the names of towns and cities in the United States which he had visited on training flights. Nimro told the petitioner that since his home was in Georgia he was entitled to deduct his living expenses while in Washington and other places. Petitioner relied upon and believed the advice given him by Nimro.
Nimro prepared an amended return for 1944 and an original return for 1945 and mailed them to the collector at Atlanta, Georgia. As so prepared, the1950 U.S. Tax Ct. LEXIS 146">*151 amended return filed for 1944 showed the same gross income as the original return filed by the petitioner for that year, $ 4,339.34, and the following deductions:
| Business expenses: | ||
| U. S. travel -- 268 days -- Augusta, Maine, D. C., | ||
| Atlanta, Tampa, Americus, St. Petersburg, Richmond, | ||
| Charlotte, Greenville, S. C. | ||
| Hotels, lodging, meals | $ 1,176 | |
| Public conveyances | 304 | |
| Commercial C ration car travel 9,600 miles at | ||
| 5 cents | 480 | |
| Dues | 52 | |
| Telephone and telegraph | 72 | |
| Navigation equipment | 118 | |
| Equip. maint | 104 | |
| $ 2,306 | ||
| Contributions: | ||
| Methodist Church | $ 200 | |
| Red Cross, Comm. W. F., Paralysis Fund, T. B | 65 | |
| Taxes: | ||
| Georgia taxes | 30 | |
| Adm., sales and misc. taxes | 60 | |
| Miscellaneous: | ||
| Bad debt | 50 | |
| $ 405 | ||
| Total | $ 2,711 |
14 T.C. 1448">*1451 The net income as thus reported was $ 1,628.34 and the tax liability $ 259.52, or $ 365.56 less than the tax shown to be due on the original return.
The 1945 return showed a gross income of $ 6,672.21 and expense deductions of $ 3,349.60, including the following items:
| Business expenses: | |
| U. S. travel -- 191 days -- Kansas, Memphis, Atlanta, Dallas, | |
| Albuquerque, N. Mexico, Miami, New York, Maine, Va., | |
| D. C., Georgia, Baltimore, Jacksonville: | |
| Hotels, lodging and meals | $ 1,146.00 |
| Public conveyances | 429.60 |
| Commercial ration C travel 10,750 miles at 5 cents | 537.50 |
| Foreign travel -- Ireland, Newfoundland, Paris, Scotland, | |
| Rome, Athens, Cairo, Iran, Tripoli, Karachi Casa Blanca, | |
| Marrakech, Santa Maria, Azores: | |
| 106 days at $ 15 | 1,590.00 |
| Telephone, telegraph and cables | 112.50 |
| Navigation supplies, equip., and maint | 334.00 |
| Dues | 6.00 |
| 4,155.60 | |
| Less partial expense reimbursement | 806.00 |
| $ 3,349.60 |
1950 U.S. Tax Ct. LEXIS 146">*152 There were also listed on the return contributions of $ 210 and medical expenses of $ 396, of which $ 229.87 (the excess over 5 per cent of the adjusted gross income) was deducted. The return showed an adjusted gross income of $ 3,322.61, a net income of $ 2,882.74, and a tax liability of $ 555.68.
The petitioner paid Nimro $ 80 for his services in making the 1945 return. For the amended return he agreed to pay Nimro a $ 25 retainer and 10 per cent of the taxes recovered.
The statement contained in the 1944 amended return that the petitioner had travel expenses in that year for 268 days of domestic travel, amounting to $ 1,176, on visits to the places named in the return was false. The petitioner did not do any traveling at any time in 1944 14 T.C. 1448">*1452 in connection with his business and he incurred no travel expenses in that year.
The statement contained in petitioner's 1945 return that he had 191 days of domestic travel and 106 days of foreign travel in that year at a total cost of $ 2,736 was false. Actually, the petitioner was on travel status in 1945 for a total of only 95 1/4 days, 88 of which were foreign and 7 1/4 domestic travel.
Nimro was convicted of embezzlement in1950 U.S. Tax Ct. LEXIS 146">*153 the Supreme Court of the District of Columbia and, on January 12, 1934, was sentenced to the penitentiary for a period of fifteen to eighteen months. He was disbarred from the practice of law in the District of Columbia in 1937. In 1948 he was again convicted of embezzlement in the District Court of the United States for the District of Columbia and sentenced to the penitentiary.
The petitioner did not file false and fraudulent returns for 1944 and 1945 with intent to evade tax.
OPINION.
The petitioner does not deny that his returns contained false statements. In his brief he states: "At the outset, let it be noted that the petitioner does not deny the presence in his amended return for 1944, and in the original return for 1945, of certain false statements."
Both of the returns in question claimed deductions for travel expenses and, as separate items, hotel expenses which the petitioner did not have. Petitioner claims that these items were inserted in the returns by Nimro and that he did not know of them until he was confronted by the investigating revenue agent. He testified that he signed blank returns which he left with Nimro to be filled out and filed by him and that Nimro1950 U.S. Tax Ct. LEXIS 146">*154 did not fill out the returns according to the information which he had furnished.
The evidentiary facts in this case are essentially like those in
The petitioner's difficulty here stems largely from a mistaken impression that for the purposes of the statute covering and allowing a deduction for living expenses while away from home on business, Anniston, Alabama, was to be regarded as his home during the taxable year and not Washington, D. C., which was his post of duty with his employer, T. W. A. That view while in error is 14 T.C. 1448">*1453 not novel. The impression that a person away from his legal residence or domicile on war duty was absent from 1950 U.S. Tax Ct. LEXIS 146">*155 home for the purpose of allowing on income tax returns deductions for living expenses was widely prevalent, and there was and still is some difference of opinion as to the correctness of some of the decisions which have held that the post of duty in such employment is the home of the taxpayer for the purpose of determining his right to deductions such as those here claimed. We do not therefore find in the claim of the deductions covering petitioner's living expenses while in Arlington, Virginia, or while away from Washington on duty a sufficient basis for the respondent's determination of fraud. * * *
Petitioner testified that Nimro advised him that he was entitled to deduct all of his living expenses while away from his home in Georgia and that the deduction of the travel expenses as shown in the returns was the proper way to claim them. The same representations were made to the taxpayer in
Because of the close similarity of the facts in this case to those in the Charles C. Rice case, we think that our ruling in that case should govern here. Therefore, in accordance with our opinion in that case, we hold that the Commissioner1950 U.S. Tax Ct. LEXIS 146">*156 has not met his burden of proving that the returns filed by the petitioner for the years 1944 and 1945 were false and fradulent with intent to evade tax.
The respondent has included in petitioner's income for each of the years involved $ 2 per day for the time that petitioner was on travel status, which represents the difference between the $ 8 per day which T. W. A. allowed the petitioner for travel reimbursements and the amount, $ 6 per day, which the respondent determined was the actual cost of travel expenses to the petitioner. We have found on the evidence that petitioner's actual travel expenses were not less than $ 8 per day. The $ 2 per day charged to him by the respondent should, therefore, be eliminated.
Decisions will be entered under Rule 50.