*4014 Held, that amounts expended by a wholesale liquor dealer in entertaining customers in 1918 were deductible as ordinary and necessary business expenses. Right to deduct certain other amounts denied.
*849 In this proceeding the petitioner seeks a redetermination of its income and excess profits tax liability for the year 1918 for which year the respondent has determined a deficiency of $11,389.63.
The petition alleges that the respondent erred in refusing to allow as deductions certain sums expended in entertaining customers and other sums expended for political purposes in the Ohio state elections in the fall of 1918, at which time liquor questions were at issue.
FINDINGS OF FACT.
The petitioner is an Ohio corporation with its principal office at Cleveland. During the taxable year in question it was engaged in the wholesale liquor business. The books of the petitioner show that during the year 1918 the following amounts were charged to "sundry expense":
| September 28 | $2,000 |
| October 5 | 3,000 |
| October 10 | 3,000 |
| October 17 | 3,000 |
| November 8 | 3,000 |
| December 5 | 1,000 |
| Total | 15,000 |
*4015 From September 5, 1918, to December 25, 1918, the petitioner sold approximately $500,000 worth of liquor to a clientele consisting of some 5,000 customers. The liquor business during this period was very much unsettled, and it was the practice of the trade to spend large sums in the entertainment of their customers.
The above-mentioned withdrawals were made by check made payable to "cash," for the purpose of providing the treasurer and sales manager, Julius Adler, with ready funds to be used in the entertainment of prospective buyers. It was especially desirable to push sales in 1918, as there was every indication that both state and national prohibition laws would be enacted.
*850 Adler did not keep any detailed record showing how or when these funds were expended. He was unable to state whether the money was deposited in his account or in a special account of the petitioner. His testimony shows that $12,500 was spent in entertainment expenses, and that the remaining $2,500 was used for political purposes in connection with the wet issue of the campaign held in the fall of 1918. The entertainment expenses included charges for hotel rooms, meals, theatre tickets, *4016 articles of clothing, and numerous forms of entertainment, as well as an occasional cash payment in the amount of several hundred dollars.
The respondent refused to allow the deduction of $15,000 as an ordinary and necessary business expense for the year 1918 and determined a deficiency of $11,389.63.
OPINION.
GREEN: The sole question at issue in this case is the deductibility of the $15,000 under section 214(a)(1) of the Revenue Act of 1918.
It is clear that the checks, totaling $15,000, were made out payable to cash and delivered to the sales manager. Of this amount $12,500 was expended by the sales manager in promoting sales during the period in which some $500,000 worth of liquor was sold. It has been shown that it was customary in the wholesale liquor business to entertain buyers in the manner in which the petitioner did. From all of the evidence we conclude that such amount was expended within the taxable year.
The remainder of the $15,000 paid to the sales manager was by him expended within the year in campaign and other contributions for the purpose of defeating state and national prohibition, the coming of which it was anticipated would destroy the petitioner's*4017 business. Section 214(a)(1) of the 1918 Act provides for the deduction of "all ordinary and necessary expenses paid or incurred during the taxable year in carrying on any trade or business." It seems to us that the expenditure may well be said to be "necessary" but it must also be "ordinary." Without attempting to decide whether. under any circumstances, such an expenditure may be classed as "ordinary," we hold that the proof here does not warrant any such conclusion. We, therefore, hold that the petitioner is entitled to a deduction in the amount of $12,500 and approve the action of the respondent in disallowing as a deduction the amount of $2,500.
Judgment will be entered after 15 days' notice, under Rule 50.