Pollock v. Commissioner

EDWIN T. POLLOCK, PETITIONER, v. COMMISSIONER OF INTERNAL REVENUE, RESPONDENT. Pollock v. Commissioner Docket No. 11980. United States Board of Tax Appeals 10 B.T.A. 1297; 1928 BTA LEXIS 3905; March 12, 1928, Promulgated *3905 Amounts necessarily paid out of his personal funds by a naval officer appointed the Governor of American Samoa for official entertainment of representatives of foreign governments held deductible as ordinary and necessary expenses. Edwin T. Pollock pro se. W. F. Gibbs, Esq., for the respondent. STERNHAGEN *1297 The respondent has determined a deficiency of $43.60 against the petitioner for 1923. The petitioner by this proceeding seeks a redetermination of that portion of the deficiency which results from the disallowance of the deduction as a necessary business expense of an amount claimed to have been expended for official entertainment. FINDINGS OF FACT. The petitioner is a retired naval officer. In 1923 he was on the active list and was stationed at American Samoa. He was commandant of the American naval station at that place and was Governor of American Samoa. For over twenty years prior to 1900 the United States had had exclusive rights in the harbor of Pago Pago, where the naval station is located. In 1900, by treaty, Great Britain and Germany renounced any rights to the territory now known as American Samoa and the President*3906 of the United States accepted a cession of the islands from the natives. He declared the islands to be a naval reserve and directed the Secretary of the Navy to take such steps as necessary to care for them. The Department of the Navy has had jurisdiction over American Samoa since that time. *1298 The Governor of American Samoa has always been a naval officer. He is appointed by the President, upon the recommendation of the Secretary of the Navy, and without the advice of the United States Senate. The fitness and experience of the particular appointee are considered. At the same time that the appointment is made by the President, the Secretary of the Navy assigns the appointed officer to the station as his post. The appointee has no alternative to accepting the post. The petitioner was appointed Governor of American Samoa in 1922 and went there early in that year. He did not seek the appointment, was not consulted as to whether he wanted it, did not want the position, after being notified that he was being sent expressed his desire not to take it, and tried to get out of it. In connection with the duties of the office certain official visits are made to and returned*3907 by representatives of other governments. When a foreign ship or man-of-war comes to the station or when the place is visited by foreign diplomats there is an exchange of courtesies. The obligations in connection with these matters devolve upon the governor. Foreign under-secretaries visit the station at least once and frequently twice a year. During the year involved the petitioner entertained among others British and French naval officers, the Governor of Western Samoa (who was a New Zealander) and his staff, the British Admiral commanding the New Zealand squadron of warships, the Under-Secretary of External Affairs for New Zealand, and the Consul General of a European power in Australia. There is no satisfactory hotel at the station and it is incumbent upon the governor to care for these foreign officials. The courtesies extended depended upon the visitors' offical position and rank. The petitioner acted as judge of what should be extended and whenever he received notice from his superiors to extend courtesies, it was invariably left to him to determine what form the courtesies should take. There was no one on the island better fitted to make a decision with regard to*3908 these matters than he. He expended $946 on these visitors during 1923. This amount was spent on dinners, luncheons and teas, transportation and trips around the islands, household expenses incurred on their account, and entertainment, such as native dances. This amount includes $125 or $150 for the hire of automobiles for transporting these guests. No part of it was expended for liquors. No portion of the amount was expended for personal or family needs, pleasures or conveniences, nor on account of any Americans, nor on account of any one other than foreign officials and dignitaries. The entire amount of $946 was paid by the petitioner from his own funds. There was no salary attached to the position of Governor of *1299 American Samoa in addition to the petitioner's regular salary as captain in the United States Navy. There were no perquisites or allowances. Congress made no appropriation or provision for such expenditures in American Samoa. Occasionally, if it is known far in advance a small amount can be obtained from a contingent fund of the Department of the Navy for such expenses. These funds, however, are very inadequate and usually there is no opportunity*3909 to make application therefor. There was no definite understanding between the petitioner and the officials of the Department of the Navy or the President that petitioner would be compelled to extend these courtesies or spend the money therefor. On one occasion, however, the petitioner received orders from both the President and the Department of the Navy to extend all possible courtesy to a British Commission which visited Samoa, but no allowance was made for expenditures on their account. In making these expenditures petitioner believed he was carrying on his profession or business of being a naval officer and the position of Governor of American Samoa, and upholding the dignity and prestige of the United States. He considered that he could not decline invitations from foreign officials nor refuse to return them in kind without lowering the dignity of and the respect for the United States. These expenditures were imposed on him entirely outside his own volition. They were an absolutely necessary incident to his position. He could not consistently with his duties have refrained from making the expenditures. If he had failed to extend courtesies to a foreign official, *3910 he probably would not have been demoted, but he would have been liable to being summarily detached for failing in official courtesy, his record would have been impaired, and it probably would have resulted in his loss of future promotion. The Governor of Western Samoa has an allowance of about $1,500 for purposes like those for which the expenditures here involved were made. The Governor of American Samoa at the present time has an automobile which is furnished by the United States. The Government also supplies the gasoline and oil and maintains the automobile in good condition, fully equipped. The following circular letter was recently, and after 1923, issued by the Department of the Navy: The allotments made from appropriation "Contingent Navy," to Commanders-in-Chief, and to other officers of the Navy, holding certain official positions of responsibility, are for the purpose of relieving these officers of the unusual and extraordinary expenditures made necessary by virtue of their official position to maintain the standing and prestige of the United States in their contact with *1300 foreign officials, with officials of the insular possessions, or in their official*3911 contract with officials of other departments of the United States Government, States, or Municipalities. The general policy of the Navy Department is to confine expenditures from these allotments to those incurred on account of official entertaining upon occasions of visits of United States vessels to foreign ports, or to the insular possessions, and to confine entertaining in home ports at the expense of the Government to occasions requiring the official entertaining of representatives of foreign governments, or for return entertainment necessitated by official courtesies extended to officers and men of the Navy, by Governors of States, Mayors of Cities, and Citizens Committees. As a rule other local entertainment within the United States, or entertainment of officers of the United States Army or Navy, does not come within the scope of this policy. When, in the opinion of an officer to whom an allotment is made from "Contingent Navy," it is desirable and proper to charge against that allotment expenditures which do not come within the scope of the general policy as outlined above, special requests will be made to the Secretary of the Navy for such authority. OPINION. *3912 STERNHAGEN: The very full and complete statement of the facts and circumstances under which these expenditures were made establishes clearly that they were ordinary and necessary expenses paid by the petitioner in carrying on the occupation in which he was engaged for livelihood. The amount is expressly limited to such as was spent, not for his personal convenience or enjoyment, but for account of his office and which he had no election but to make. His income depended on them - at least the continuance of his naval standing, from which his income was derived, required them and would have been seriously jeopardized had he failed to make them. We are of opinion that the amount is a proper deduction. See . Reviewed by the Board. Judgment will be entered for the petitioner.