Memorandum Findings of Fact and Opinion
FEATHERSTON, Judge: Respondent determined deficiencies in petitioners' Federal income taxes for 1966 and 1967 in the amounts of $2,646.32 and $3,930.75, respectively, and additions to such taxes under section 6653(a) 1 in the amounts of $132.31 and $196.53, respectively. The issues for decision are:
1. Whether the issuance of the deficiency notice in the instant case violated petitioners' constitutional rights;
2. Whether, pursuant to
(a) costs of provisions,
*146 (b) promotional expenses, including:
(1) restaurant meals for crew,
(2) Christmas parties for crew,
(3) entertaining business associates, and
(4) gifts to business associates,
(c) foreign port expenses,
(d) storage of gear and office space, and
(e) licensing fees and taxes;
3. Whether respondent properly disallowed a portion of the amount claimed as a deduction in petitioners' return for 1967 under section 167(a) for depreciation of shrimp gear;
4. Whether, under section 46(b), petitioner is entitled to carry an unused investment credit forward from 1965 to 1966 and 1967 without first carrying such credit back to prior taxable years; and
5. Whether any part of any underpayment of petitioners' income tax liabilities for 1966 and 1967 was "due to negligence or intentional disregard of rules and 467 regulations" within the meaning of section 6653(a).
Findings of Fact
Richard Haman (hereinafter referred to as petitioner) and Beverly Haman, husband and wife, were legal residents of Fortuna, California, at the time they filed their petition. They filed joint Federal income tax returns for 1966 and 1967 with the district director of internal revenue, San Francisco, *147 California.
Petitioner is a commercial fisherman and has been engaged in this business for more than 20 years. He owns and operates a 60-foot fishing vessel named Mari-Joann. From this boat, petitioner fishes for tuna, shrimp, and crabs. When fishing for crabs, he usually makes daily deliveries to Eureka, the home port for his boat, located about 17 miles from his residence in Fortuna. When engaged in other kinds of fishing, petitioner is frequently at sea for extended periods. His pursuit of tuna, for example, may take him anywhere along the coast from Mexico to the State of Washington. The Mari-Joann, which is equipped for extended journeys, usually carries a crew of two or three men in addition to petitioner. During 1966 and 1967, petitioner's fishing business produced gross receipts of $66,055.62 and $100,060.12, respectively.
Petitioner, his wife, and, sometimes, members of his crew purchased substantial quantities of food and drinks for use on the boat while petitioner and his crew were working. The cash register receipts received on the purchase of these provisions were kept by petitioner's wife in a tin box which she used exclusively for that purpose. In addition, petitioner's*148 wife sometimes took to the boat food which she had prepared at home and food which she had purchased for use at home. A record of the costs of these items was kept by petitioner's wife in a diary. The cash register receipts and the diary indicate that the following amounts were expended for food and drinks to be used on the boat during 1966 and 1967:
| Costs of | ||||||
| Provisions | ||||||
| 1966 | 1967 | |||||
| From | From | |||||
| Purchased | Home | Total | Purchased | Home | Total | |
| Jan. | $ 174.12 | $167.50 | $ 341.62 | $ 373.32 | $ 59.00 | $ 432.32 |
| Feb. | 176.20 | 48.00 | 224.20 | 247.59 | 54.00 | 301.59 |
| Mar. | 237.13 | 42.00 | 279.13 | 78.15 | 70.00 | 148.15 |
| Apr. | 138.06 | 31.00 | 169.06 | 308.52 | 55.50 | 364.02 |
| May | 112.98 | 21.00 | 133.98 | 181.66 | 181.66 | |
| June | 247.94 | 247.94 | 255.95 | 255.95 | ||
| July | 152.24 | 152.24 | 176.91 | 176.91 | ||
| Aug. | 361.70 | 11.00 | 372.70 | 176.42 | 176.42 | |
| Sept. | 148.77 | 18.00 | 166.77 | 291.87 | 291.87 | |
| Oct. | 76.92 | 9.00 | 85.92 | 328.94 | 328.94 | |
| Nov. | 31.00 | 31.00 | 42.50 | 42.50 | ||
| Dec. | 293.51 | 23.00 | 316.51 | 283.63 | 36.00 | 319.63 |
| Total | $2,119.57 | $401.50 | $2,521.07 | $2,702.96 | $317.00 | $3,019.96 |
During 1966, petitioner was engaged in crab*149 fishing from January through May. From the middle of June until early August, the Mari-Joann was in dry dock in Morro, Bay; during this period. petitioner and one crew member painted the boat and had a refrigeration unit installed. When the reconditioning was finished, petitioner engaged in tuna fishing from early August through October. Petitioner and his crew devoted November to preparing his boat and gear for crabbing and, when the season opened in December, they resumed fishing for crabs.
Petitioner engaged in crab fishing from December 1966 through March of 1967. During April, he painted his boat and prepared it to fish for shrimp. From May through the middle of October, petitioner fished for shrimp. In November, he and his crew again prepared the boat to fish for crabs, and in December, they resumed fishing.
When in port, petitioner made a practice of occasionally taking his crew to lunch and sometimes to dinner. He did this in order to reward them for their performances and to assure that they would continue to work for him. These meals were provided in addition to their wages and were not treated as compensation for purposes of withholding taxes. During 1966 and 1967, the*150 costs of these meals were $681.23 and $786.21, respectively. These costs were recorded in a diary which petitioner maintained. Entries in this diary also reflected the dates on which petitioner purchased meals for his crew and the places where they were purchased. In addition to these amounts, petitioner spent $100 and $125 during 1966 and 1967, respectively, for Christmas parties for his crew.
During 1966 and 1967, petitioner also incurred expenses in taking individuals other than members of his crew to lunch or dinner. These expenditures were recorded in the diary which petitioner maintained. Each entry disclosed the date, the amount spent, and the people present. In addition, some of the entries, in the total amounts of $939.90 and $686.40 for 1966 and 1967, respectively, recorded the business purposes for the meals. During these years, petitioner also made gifts of bottles of liquor to an individual who helped him in his business; these gifts cost $14.80 and $15.20, respectively.
As referred to above, petitioner's boat was in dry dock in Morro Bay, California, during the summer of 1966. En route from Eureka, California, to Morro Bay, petitioner stopped at Moss Landing, California, *151 for 2 days while his boat was hauled out of the water. His diary indicates that he spent a total of $44.75 for undisclosed purposes during those 2 days. Leaving Moss Landing, petitioner proceeded to Morro Bay where he was joined by his wife and their 4 children who ranged in age from 7 to 16 years. They spent the next approximately 1 1/2 months waiting for a refrigeration unit to be installed in the boat. During this period, petitioner incurred the following expenses:
| Transportation to Morro Bay for petitioner's family | $ 98.00 |
| Rent | 135.00 |
| Food | 1,157.07 |
| Laundry | 17.00 |
Upon leaving Morro Bay, petitioner proceeded to Oregon to fish for tuna. His diary discloses that he spent a total of $195.95 for unidentified purposes while in Oregon; entries in the diary disclose only the date, place, and total amount of the expenditures. Petitioner's wife made three trips to Oregon while he was there. Two of these trips were made to deliver gear which petitioner needed; the third was for an unidentified purpose. On the two trips to Newport, Oregon, to deliver gear, petitioner's wife incurred the following expenses:
| Transportation | $ 55.00 |
| Lodging | 32.00 |
| Food | 80.00 |
| Total | $167.00 |
During 1967, petitioner made numerous trips, the expenses of which are recorded in his diary. In most instances, however, no indication is given of the purpose for which the trips were taken. Only the following entries reflect a business purpose for the trips: on May 5 to Newport and Garibaldi, Oregon, to look for an unloading dock; on June 15 to Brookings, Oregon, to look into the fishing operations in that area; on September 3 to Brookings and Eureka, Oregon, to check on the recovery of shrimp; and on September 20 to Astoria and Westport, Oregon, to look for a better crab market. However, even with respect to these trips, only the total amount expended for each trip is recorded in 469 petitioner's diary - a total for all such trips of $548.15. The diary gives no indication of the purpose for which each item of expenditure was made.
Petitioner's wife also made numerous trips of undisclosed reasons during 1967. Late in June, she and the 4 children moved to Garibaldi, Oregon, for the summer to be near petitioner. She remained in Garibaldi through August; this trip was primarily a vacation for her and the children. *153 Following her stay in Garibaldi, petitioner's wife made two trips to Newport, Oregon, to deliver gear to petitioner. On these trips, she made the following expenditures which she recorded in her diary:
| Transportation | $ 63.50 |
| Lodging | 35.00 |
| Food | 161.50 |
| Total | 260.00 |
Each time that petitioner changed the kind of fishing in which he was engaged, he changed the kind of equipment he used on the boat; he carried on the boat only such equipment as was required for the type of fishing in which he was engaged. Crabbing, for example, required the use of crab pots, cages about 42 inches square and 12 inches deep, buoys about 16 to 18 inches long and 5 inches in diameter, and lines to keep the crab pots in place. Petitioner had 538 crab pots, 1,200 buoys, and sufficient line to use them. When not fishing for crabs, these items were stored in sheds which petitioner rented at an annual cost of $396 in 1966 and $456 in 1967.
In addition, petitioners used a portion of their 5-bedroom house as an office and as a place to store fishing gear. The entire garage and one of the bedrooms were devoted exclusively to the storage of gear; other gear was stored in closets and other*154 rooms throughout the house. The cost allocable thereto was $200 per year.
During 1967, petitioner purchased, at a cost of $12,000, the equipment he needed to fish for shrimp. This equiment consisted of nets, winches and rigging required to operate the nets, and the power take-offs needed to operate the winches. When not fishing for shrimp, most of this gear was stored off the boat in one of the sheds or at his home.
During 1967, petitioner paid $300 to the California Department of Motor Vehicles for licensing fees and taxes on his boat and automobiles which he used in his business. In addition, he paid $848.26 to the county tax collector for property taxes on his boat. Also during 1967, petitioner paid $40 and $65 to the California Department of Fish and Game and the Oregon State Fish Commission, respectively, for fishing licenses.
In his returns for 1966 and 1967, petitioner claimed the standard deduction allowed by section 144, plus deductions for business expenses, 2 portions of which were disallowed by respondent as follows:
*155
| 1966 | 1967 | |||||
| Claimed | Disallowed | Allowed | Claimed | Disallowed | Allowed | |
| Provisions | $2,660.28 | $2,000.00 | $660.28 | $1,923.52 | $1,000.00 | $923.52 |
| Promotions | 2,080.00 | 2,080.00 | 0 | 1,790.00 | 1,790.00 | 0 |
| Foreign port | 2,043.00 | 1,500.00 | 543.00 | 3,766.39 | 3,000.00 | 766.39 |
| Storage & | ||||||
| office | 1,126.00 | 1,000.00 | 126.00 | 1,416.00 | 1,000.00 | 416.00 |
| Taxes & | ||||||
| licenses | 912.71 | 400.00 | 512.71 | 1,165.26 | 600.00 | 565.26 |
| Depreciation | 0 | 0 | 0 | 1,200.00 | 1,150.00 | 50.00 |
In addition to disallowing portions of petitioner's claimed business expense deductions, respondent, in his notice of deficiency, 470 determined that petitioner was not entitled to the benefit of an investment credit carryover from 1965 in the amount of $1,837.81 because it had not first been carried back to the three taxable years preceding 1965.
Ultimate Findings of Fact
Petitioner has substantiated*156 the following amounts of business expenses which he incurred during 1966 and 1967:
| 1966 | 1967 | |
| Costs of provisions | $1,919.03 | $2,605.23 |
| Promotional expenses: | ||
| Restaurant meals for crew | 681.23 | 786.21 |
| Christmas parties for crew | 100.00 | 125.00 |
| Entertaining business associates | 939.90 | 686.40 |
| Gifts to business as- sociates | 14.80 | 15.20 |
| Foreign port expenses | 1 543.00 | 766.39 |
| Storage of gear and office space | 596.00 | 656.00 |
| Licensing fees and taxes | 2 512.71 | 1,153.26 |
| Depreciation of shrimp gear | 0 | 1,200.00 |
These amounts include the sums in each category allowed as deductions by respondent.
Opinion
1. Constitutional Issue
The notice of deficiency recites that some of the disputed deductions were disallowed "to the extent that they have not been substantiated or established to be deductible business expenses under the provisions of
Petitioners' only argument based on constitutional grounds is found in their reply brief, where they appear to argue that disallowance of the disputed deductions for "lack of substantiation" was not permissible under the
Petitioners have not shown any violation of their constitutional rights. They have the burden of showing that respondent's determinations are erroneous,
2. Business Expense Deductions
As indicated in the list of questions presented for decision and in our Findings, the business expense deductions disallowed for "lack of substantiation" cover a wide range of items. With respect to the costs of (a) boat provisions, (b) promotional expenses, (c) foreign port expenses, (d) *159 storage of gear and office space, and (e) licensing fees and taxes, we must decide whether the expenditures in dispute were "ordinary and necessary" business expenses within the meaning of
*160 In this connection,
* * * an "adequate" record of an expenditure is defined as an entry in an account book, diary, or similar record, made "at or near the time of the expenditure," and documentary evidence such as a receipt, paid bill, or similar*161 evidence (unless the expenditure is less than $25), which in combination are sufficient to establish each of the elements of the expenditure (amount, time, place, business purpose, and business relationship) for which substantiation is required by
See also
(a) Costs of Provisions
We consider first the costs of provisions for petitioner's boat. These are the costs of food and drinks used on the boat to feed petitioner and his crew. To the extent such provisions were consumed by the crew, their costs are clearly deductible. This is an additional expense of obtaining help on the boat and is deductible under
To the extent the provisions were consumed by petitioner, different considerations 1 are involved. Obviously, the costs of his food are not in the nature of additional compensation to him. Rather, such costs are similar to the expense incurred by any other businessman for meals during his workday, and they normally constitute nondeductible personal expenditures. Sec. 262;
The evidence in the instant case indicates that petitioner was not "away from home" within the meaning of
With respect to the costs of the provisions used on petitioner's boat while he was away from home, we think the requirements of
The costs of the provisions which petitioner used on the boat have been adequately established by cash register receipts obtained on the purchase of such items. These receipts were kept in a tin box used exclusively for this purpose. The business purpose for petitioner's trip to Morro Bay has been adequately substantiated by the testimony of petitioner and his wife and by notations in her diary. We think also that the business purpose of petitioner's fishing trips "is evident from the surrounding facts and circumstances" so that no "written explanation of such business purpose * * * [is] required."
While the times and places of petitioner's tuna and shrimp fishing trips are not so well substantiated, we think they are adequately verified by reference to all the surrounding facts and circumstances. That petitioner was away from home on fishing trips of substantial duration is apparent when one considers the distance from his home port to the various ports at which both his*167 and his wife's diaries show he stopped. Giving due consideration to the nature of petitioner's business, we think his evidence meets the substantiation requirements. See
(b) Promotional expenses
Under this heading, petitioner claimed, and respondent disallowed, deductions for (1) restaurant meals for his crew, (2) 473 Christman parties for his crew, (3) expenses incurred in entertaining business associates, and (4) gifts to business associates.
(1) Restaurant meals for crew. The costs of the meals which petitioner purchased for his crew in various restaurants constitute deductible expenses. He purchased these meals in order to reward his crew for their efficient performances and to assure that they would continue to work for him. Thus, the costs of these meals were "ordinary and necessary" business expenses within the meaning of
*169 * * *
With respect to the meals he purchased for his crew, petitioner has met the substantiation requirements of
However, other individuals were also present at some of the meals, and no evidence relating to their business relationship to petitioner has been introduced. As to them, petitioner has failed to carry his burden of substantiating in the manner required by
(2) Christmas parties for crew. We hold that the costs of the Christmas parties which petitioner gave for his crew in 1966 and 1967 are deductible business expenses under
(3)Entertaining business associates. Other entries in petitioner's diary relate to food and drinks which he purchased*172 for various named individuals. Most of these entries fail to indicate the reason by petitioner entertained such individuals, and this deficiency in petitioner's records has not been remedied by any other evidence. See
(4) Gifts to business associates. During 1966 and 1967, petitioner purchased liquor which he gave to an individual who helped him on his boat during those years. The amounts of these gifts ($14.80 and $15.20 in 1966 and 1967, respectively) did not exceed $25 for any one individual so that*173 such expenditures are deductible in full.
(c) Foreign port expenses
Petitioner claimed "foreign port expense" - costs of food and lodging incurred while traveling away from his home port - in the amounts of $2,043 and $3,766.39 for 1966 and 1967, respectively. Respondent allowed deductions of $543 and $766.39, respectively, for such years. We do not think petitioner has shown that he is entitled to any further deductions for*174 these items.
To be deductible, expenses in this category must be shown to have been incurred on a trip "related primarily to the taxpayer's trade or business,"
With respect to many of the trips taken by petitioner and his wife, the business purpose has not been substantiated either "by adequate records or by sufficient evidence corroborating * * * [their] own statement."
Some of the other trips were taken by petitioner and his crew to seaport towns. We think an adequate showing of the business purpose for these trips has been made. However, with respect to these trips, only the total amount expended was recorded in petitioner's diary. Such entries give no indication of the purpose for which each expenditure was made - i.e., whether for food, lodging, transportation, or other traveling expenses - and, therefore, do not meet the requirement that each expenditure be adequately substantiated.
However, some of the "foreign port" expenses - the expenses allocable to petitioner during his stay in Morro Bay in 1966 - have been adequately substantiated and are deductible business expenses.
*177 (d) Storage of gear and office space
Petitioner has also claimed deductions for the costs of storage space for his fishing gear and office space for his business. Much of the storage space was rented by petitioners, and deductions for the rental payments are allowable in the amounts set forth in our Findings. In addition to such rental payments, deductions have been allowed for the costs incurred in using a portion of petitioners' residence for storage and office space. The amount of these additional deductions has been based upon an allocation of the estimated costs of maintaining petitioners' residence.
(e) Licensing fees and taxes
Deductions were also claimed for licensing fees and taxes paid on petitioner's automobiles and his boat and for fishing licenses obtained from the States of California and Oregon. After carefully reviewing the record in this case, we find that the amounts of these items set forth in our Findings were ordinary and necessary expenses incurred in carrying on petitioner's business and are deductible under
3. Depreciation of Shrimp Gear
In his return for 1967, petitioner claimed a deduction for depreciation for the shrimp gear which he added to his boat during that year. Respondent disallowed a portion of this deduction on the ground that petitioner's $12,000 "cost basis as reported on * * * [his] return * * * [had] not been substantiated in the amount claimed." At the trial of this case, petitioner stated that he does "not contest the Commissioner's determination as to the amount of expenses allowed on the return to be capital in nature." And in response to a question of the Court - "You're not claiming any larger amount of depreciation?" - petitioner replied, "No." However, taking into account the entire record on this point and the fact that petitioner appeared pro se, we construe his concession to be conditioned on the treatment of his expenditure for the shrimp gear as an ordinary expense deductible under
Clearly, we think, the purchase of*179 the shrimp gear constitutes a capital expenditure for which no ordinary expense deduction is allowable. Sec. 263(a)(1); 14
4. Investment Credit
Next we consider petitioner's contention that his excess investment credit from 1965 need not first be carried back to the preceding taxable years, but may, at his option, be carried forward only. Section 46(b)(1) provides:
SEC. 46. AMOUNT OF CREDIT
(b) Carryback and Carryover of Unused Credits. -
(1) Allowance of credit. - If the amount of the credit determined under subsection (a)(1) for any taxable*180 year exceeds the limitation provided by subsection (a)(2) for such taxable year (hereinafter in this subsection referred to as "unused credit year"), such excess shall be -
(A) an investment credit carryback to each of the 3 taxable years preceding the unused credit year, and
(B) an investment credit carryover to each of the 7 taxable years following the unused credit year,
and shall be added to the amount allowable as a credit by section 38 for such years, except that such excess may be a carryback only to a taxable year ending after December 31, 1961. The entire amount of the unused credit for an unused credit year shall be carried to the earliest of the 10 taxable years to which (by reason of subparagraphs (A) and (B)) such credit may be carried, and then to each of the other 9 taxable years to the extent that, because of the limitation contained in paragraph (2), such unused credit may not be added for a prior taxable year to which such unused credit may be carried. * * *
This statutory language is clear and unambiguous; it leaves no room for petitioner's argument. He must first carry his unused investment credit from 1965 back to 1962; any portion unused in 1962 may be*181 carried successively to 1963 and 1964. Petitioner has failed to carry his burden of showing the unused 1965 credit would not be dissipated through carryback to such prior years. 15
5. Additions to the Tax
Section 6653(a) provides for the imposition of an addition to the tax if the taxpayer's underpayment "is due to negligence or intentional disregard of rules and regulations." In applying this section, it is held that "Negligence is lack of due care or failure to do what a reasonable and ordinarily prudent person would do under the circumstances."
As noted in our Findings, petitioner's sales exceeded $65,000 in 1966 and $100,000 in 1967. His records consisted primarily of original receipts, invoices, or canceled checks for various expenditures and daily*182 diaries maintained by him and his wife. The diaries contain many entries extraneous to the business as well as entries which are not sufficiently informative to support claimed deductions. In making our Findings, we have been compelled to piece together the facts from these various documents as explained in the oral testimony which we found to be basically credible. Our Findings reflect that the records were inadequate with respect to many items. Petitioners offered no explanation of the inadequacy of their records.
We conclude that petitioners have not shown that respondent erred in determining that they are liable for the additions to the tax prescribed by section 6653(a).
Decision will be entered under Rule 50.
Footnotes
1. All section references are to the Internal Revenue Code of 1954, as in effect during the tax years in issue, unless otherwise noted.↩
2. At the trial, petitioner produced records indicating that some of the deductions claimed in his return were understated and he claims deductions for the full amounts substantiated.↩
1. These amounts were allowed by respondent and are not here in dispute. Petitioners have failed to show that they are entitled to deduct any greater amounts. ↩
2. This is the amount allowed by respondent. At the trial, petitioner conceded that he is not entitled to deduct any larger amount.↩
3.
SEC. 274 . DISALLOWANCE OF CERTAIN ENTERTAINMENT, ETC., EXPENSES.(a) Entertainment, Amusement, or Recreation. -
(1) In general. - No deduction otherwise allowable under this chapter shall be allowed for any item -
(A) Activity. - With respect to an activity which is of a type generally considered to constitute entertainment, amusement, or recreation, unless the taxpayer establishes that the item was directly related to * * * the active conduct of the taxpayer's trade or business, or * * * ↩
4.
SEC. 274 . DISALLOWANCE OF CERTAIN ENTERTAINMENT, ETC., EXPENSES.(d) Substantiation Required. - No deduction shall be allowed -
(1) under
section 162 or212 for any traveling expense (including meals and lodging while away from home),(2) for any item with respect to an activity which is of a type generally considered to constitute entertainment, amusement, or recreation, or with respect to a facility used in connection with such an activity, or
(3) for any expense for gifts, unless the taxpayer substantiates by adequate records or by sufficient evidence corroborating his own statement (A) the amount of such expense or other item, (B) the time and place of the travel, entertainment, amusement, recreation, or use of the facility, or the date and description of the gift, (C) the business purpose of the expense or other item, and (D) the business relationship to the taxpayer of persons entertained, using the facility, or receiving the gift. The Secretary or his delegate may by regulations provide that some or all of the requirements of the preceding sentence shall not apply in the case of an expense which does not exceed an amount prescribed pursuant to such regulations.↩
5.
SEC. 274 . DISALLOWANCE OF CERTAIN entertainment, etc., expenses./(e) Specific Exceptions to Application of S1bsection (a). - Subsection (a) shall not apply to - * * *
(2) Food and beverages for employees. - Expenses for food and beverages (and facilities used in connection therewith) furnished on the business premises of the taxpayer primarily for his employees. * * *↩
6.
Rev. Rul. 55-235, 1955-1 C.B. 274 , is, in part, as follows:Crew members of a commercial fishing boat have their principal or regular post of duty at the home port where they ordinarily, or for an indefinite (as distinguished from a temporary) period, begin and end their fishing trips. Thus, they may deduct the reasonable and necessary expenses actually incurred by them for travel, meals, and lodging when on a business trip requiring their absence from such home port for a minimum period which lasts substantially longer than an ordinary day's work and during which their duties require them to obtain necessary sleep while away from such home port. See
Rev. Rul. 54-497 ,C.B. 1954-2, 75 ↩. * * *7.
SEC. 274 . DISALLOWANCE OF CERTAIN ENTERTAINMENT, ETC., EXPENSES.(e) Specific Exceptions to Application of Subsection (a). - Subsection (a) shall not apply to -
(1) Business meals. - Expenses for food and beverages furnished to any individual under circumstances which (taking into account the surroundings in which furnished, the taxpayer's trade, business, or income-producing activity and the relationship to such trade, business, or activity of the persons to whom the food and beverages are furnished) are of a type generally considered to be conducive to a business discussion.↩
8. The evidence indicates that the size of petitioner's crew varied between two and three men. Because the number of the crew at any given time is not shown, and because petitioner has the burden of proof, we have viewed the evidence in the light least favorable to him - i.e., that the crew consisted of two men - in making the allocation provided for in
sec. 1.274-5(c)(6)(ii), Income Tax Regs.↩ 9. See Abe Wolkowitz, a Memorandum Opinion of this Court dated Aug. 25, 1949,
8 T.C.M. 754, 767 ; Miami Roofing &sheet Metal, Inc., a Memorandum Opinion of this Court dated Apr. 9, 1947,6 T.C.M. 375↩, 377 .10.
SEC. 274 . DISALLOWANCE OF CERTAIN ENTERTAINMENT, ETC., EXPENSES.(e) Specific Exceptions to Application of Subsection (a). - Subsection (a) shall not apply to - * * *
(5) Recreational, etc., expenses for employees. - Expenses for recreational, social, or similar activities (including facilities therefor) primarily for the benefit of employees (other than employees who are officers, shareholders or other owners, or highly compensated employees). * * *↩
11.
SEC. 274 . DISALLOWANCE OF CERTAIN ENTERTAINMENT, ETC., EXPENSES.(b) Gifts. -
(1) Limitation. - No deduction shall be allowed under
section 162 orsection 212↩ for any expense for gifts made directly or indirectly to any individual to the extent that such expense, when added to prior expenses of the taxpayer for gifts made to such individual during the same taxable year, exceeds $25. * * * * * *12. Petitioner's wife testified that during her stay in Morro Bay, she purchased gear for petitioner and helped on the boat. We think these services were merely incidental in nature and do not show a bona fide business purpose for her presence.
Sec. 1.162-2(c), Income Tax Regs.↩ This is also true with respect to petitioner's children. We note that both the 1966 and 1967 trips lasted throughout most of the summer months - periods during which the children were on vacation from school. Furthermore, most of the entries in petitioner's wife's diary for the 1967 trip indicate a personal, rather than a business, purpose for her presence. We think that both trips were in the nature of summer vacations for petitioner's family.13. Taking into account that petitioner spent most, if not all, of his time during the summer of 1967 fishing on his boat, we have been unable, on the basis of the evidence presented, to determine the portion, if any, of the expenses incurred during that summer by petitioner's family which is property allocable to him. Since the burden is on petitioner to maintain records sufficient to make such an allocation, we have determined that all the expenditures recorded in his wife's diary were made for the benefit of her and the children. Consequently, no portion of those expenses is deductible.↩
14. SEC. 263. CAPITAL EXPENDITURES.
(a) General Rule. - No deduction shall be allowed for -
(1) Any amount paid out for new buildings or for permanent improvements or betterments made to increase the value of any property or estate. * * *↩
15. Cf., e. g.,
Walter Wilson Flora, T.C. Memo. 1965-64, 24 T.C.M. 333 ;Benjamin S. Dowd, T.C. Memo. 1961-238, 20 T.C.M. 1220↩ .