Monro v. Commissioner

WALTER J. MONRO, PETITIONER, v. COMMISSIONER OF INTERNAL REVENUE, RESPONDENT. FRANK R. MOLL, PETITIONER, v. COMMISSIONER OF INTERNAL REVENUE, RESPONDENT. W. HARRY GLENNY, PETITIONER, v. COMMISSIONER OF INTERNAL REVENUE, RESPONDENT. Monro v. Commissioner Docket Nos. 35317-35319. United States Board of Tax Appeals 19 B.T.A. 71; 1930 BTA LEXIS 2467; February 27, 1930, Promulgated *2467 Dues paid by a partnership for membership of the partners in various social clubs disallowed as ordinary and necessary expenses where it was shown that membership in the clubs was availed of by the partners for both personal and business purposes. Walter J. Monro, Frank R. Moll, and W. Harry Glenny, pro sese. Bruce A. Low, Esq., for the respondent. SEAWELL *71 These proceedings which were consolidated for hearing and decision involve deficiencies in income tax as determined by the Commissioner for 1924 and 1925 as follows: [1925] Walter J. Monro $113.50 $178.00 Frank R. Moll 115.51 136.81 W. Harry Glenny 295.38 68.77 *72 The only question involved is whether the amounts paid by the partnership as dues of the petitioners (members of the partnership) to various clubs and associations are deductible in determining the distributable net income of the partnership for income-tax purposes. The facts were stipulated, from which we make the following findings. FINDINGS OF FACT. The petitioners are residents of Buffalo, N.Y., and during 1924 and 1925 were members of the partnership of Glenny, Monro*2468 & Moll, with offices located in Buffalo. The business of Glenny, Monro & Moll was that of dealing in investment securities and the amounts of distributable income of said partnership shown in the returns for the calendar years 1924 and 1925 were as follows: [1924] $63,571.07 [1925] 220,476.05 During 1924 and 1925 the petitioners were members of certain country clubs, golf clubs and riding and athletic clubs, all of which were used by the members individually and also on occasions for business conferences and the entertainment of prospective customers. The partnership paid the dues of the petitioners to these clubs in 1924 and 1925 in the respective amounts of $1,478.25 and $2,448.93. No amounts were paid by the partnership to the clubs and associations for the entertainment of customers by petitioners nor was any reimbursement made to petitioners by the partnership on account of such expenses. The foregoing amounts of $1,478.25 and $2,448.93 were claimed as deductions from gross income in determining the distributable income of the partnership subject to tax as income to the petitioners, but these amounts were disallowed by the Commissioner, thus resulting*2469 in an increase of taxable income to each of the petitioners in 1924 of $492.75 and in 1925 of $734.68. OPINION. SEAWELL: On the facts as presented we can not do other than affirm the Commissioner's determination. The deductions are claimed under the provisions of section 214(a)(1), Revenue Act of 1924, as ordinary and necessary expenses of carrying on the investment banking business; that is, as we understand the petitioners' contention, it is that because the partnership was engaged in the investment banking business, it therefore follows that one of the ordinary and *73 necessary expenses of such business is the payment of dues of its members in various clubs and associations. Whether a given expense is ordinary and necessary is a question of fact and the burden of proof with respect thereto in these proceedings is on the petitioners. We do not think this burden is satisfied by a mere showing that the partnership was engaged in the investment banking business and paid the dues of its members to various clubs of a social nature. In this modern age of business we recognize that much business is transacted because of membership in associations of this character and*2470 that such memberships are often of such importance to the business as a place of entertainment for customers or clients and the making of connections desirable and helpful to the business that the expenditures for such dues are not luxuries or personal expenses, but both ordinary and necessary to a business thus carried on. But without more proof than we here have, we can not say, as the petitioners argue in their brief, that "the nature of the business required that the partners be members in all the important business and social clubs" of the community in which the business was carried on. And an even greater objection to the allowance of the deduction is that the clubs were availed of by the petitioners for both personal and business purposes, the stipulated fact being that they "were used by the members individually and also on occasions for business conferences and entertainment of prospective customers." Certainly, under the statute expenses of a personal nature, though made by the partnership for the members and thereby served merely to reduce the distributable income to the members, are not deductible as ordinary and necessary expenses of carrying on a business. On the*2471 record we have no evidence from which we can say what part of the total expenditures in question might be termed business and what part personal in their nature. The cases cited by the petitioners of so-called luxury or social expenses being allowed as deductions (; ; and ) are easily distinguishable from the case at bar on account of the proof therein offered in support of the deductions claimed. The determination of the Commissioner is accordingly affirmed. Cf. ; ; ; ; . Judgment will be entered for the respondent.