Capital Traction Co. v. Commissioner

THE CAPITAL TRACTION COMPANY, PETITIONER, v. COMMISSIONER OF INTERNAL REVENUE, RESPONDENT. Capital Traction Co. v. Commissioner Docket No. 60431. United States Board of Tax Appeals 27 B.T.A. 926; 1933 BTA LEXIS 1279; March 15, 1933, Promulgated *1279 1. Contribution made by corporation to Community Chest is not deductible from gross income, in the absence of express statutory provision for allowance as such, unless it is an ordinary and necessary expense of carrying on the business of the donor. 2. Facts concerning the corporation, its business and affairs, sufficient to supply the knowledge thereof necessary to adjudge whether such a contribution is so related and connected to the business within its ordinary scope as to constitute such an expense, must be produced. George E. Hamilton, Esq., and John F. McCarron, Esq., for the petitioner. Carl R. Perkins, Esq., for the respondent. GOODRICH *926 In this proceeding petitioner contests respondent's determination of a deficiency in income tax of $175.22 for the year 1929, alleging that *927 respondent erred in refusing to deduct from petitioner's income for that year the sum of $3,000 which it had paid as a donation to the Community Chest of Washington, D.C. FINDINGS OF FACT. Petitioner is a corporation, maintaining its principal office in Washington, D.C. The Community Chest of Washington, D.C., is also a corporation, *1280 organized and existing under laws for the District of Columbia, and engaged in activities commensurable to the powers ascribed to it by charter, as follows: Third. The particular purposes and objects for which this association is formed are to raise through solicitation or otherwise to collect, receive and hold funds for the use and benefit of such corporations, organizations and agencies engaged in social welfare or charitable work in the District of Columbia, as this association shall determine; to distribute these funds among these corporations, organizations and agencies; and to promote, develop, maintain and co-ordinate social, welfare and charitable work in the District Columbia, so far as may be necessary to carry out the above purposes effectively and economically. In 1929, fifty-seven organizations or agencies variously engaged in charitable, educational, and social welfare activities were "members" of the Community Chest and derived financial support therefrom. Contributors to the Community Chest were permitted to designate the member agencies amongst which their gifts should be distributed. If no designation was made, the contribution would be distributed by the*1281 Community Chest amongst the member agencies prorata, according to their budgets. Petitioner pledged to the Community Chest in 1929, without designation of particular member agencies, $3,000 and paid its pledge during that year. On its return for 1929 it deducted this amount from its gross income. Respondent disallowed the deduction and from that action arises the deficiency here in controversy. Petitioner's contribution was made in the hope that its employees "could get the benefit of it in event of illness." When a report of illness of an employee was made to petitioner's office some one there would request one of the member agencies to send a visiting nurse to the home of the employee. Frequently it happened that the nurse was able to render the assistance needed and hospitalization was unnecessary. Petitioner maintained no hospital of its own. When an employee was injured in performance of duty, he was sent to some hospital at petitioner's expense. OPINION. GOODRICH: The Revenue Act of 1928 contains no provision specifically allowing as a deduction in computing net income amounts *928 contributed by corporations to charitable, educational and related social*1282 welfare agencies. Such corporate contributions, to be deductible from gross income, must fall within the provisions of section 23(a), 1928 Act, and article 262 of Regulations 74, as "ordinary and necessary expenses paid or incurred during the taxable year in carrying on any trade or business." They must be an expense directly connected with or proximately resulting from the business; must bear a reasonable relation to the business within its ordinary scope, and be reasonably incidental to its proper operation. These requirements are so well established by the numerous decisions treating of this problem by this Board and the courts that discussion thereof seems unnecessary. Poinsett Mills,1 B.T.A. 6; Thomas Shoe Co.,1 B.T.A. 124; Killian Co.,20 B.T.A. 80; Yamhill Electric Co.,20 B.T.A. 1232; Lenore Ulric,2 B.T.A. 666; American Rolling Mills Co. v. Commissioner, 41 Fed.(2d) 314 (reversing 14 B.T.A. 529); Niles Bement Pond Co.,67 Ct.Cls. 693; affd., *1283 281 U.S. 357. See also article 262, Regulations 74, and I.R.B. XI-44-5819, I.T. 2653. The record before us is regrettably inadequate for it contains no facts respecting the business of petitioner. We are not told whether petitioner was an operating or a holding company, nor the business in which engaged, if it was so engaged. We are not told what medical, financial or social care petitioner was required or undertook in the operation of its business to give its employees, nor the amount it expended for those ends. The sole witness testified that the company's employees had the right to go to the various hospitals listed by the Community Chest and receive treatment. Whether they had a legal right to demand medical care, based upon some contract or special arrangement made in their behalf by the company with the Community Chest, or whether they had only the same privilege of requesting aid possessed by all other citizens of the community, does not appear. He testified also that, generally, the result of the care given by visiting nurses was that the employees recovered from illness more quickly than they would have without it and, consequently, lost less time from*1284 work. His conclusion was entirely unsupported, nor was it shown what effect, if any, the return of an ill employee to his duties, might have upon the company's operations. Such testimony alone reveals but little of the cause or necessity for the contribution made by petitioner and, obviously, without some knowledge of the business and affairs of this corporation it is impossible for us to adjudge whether the contribution it made was so related and connected to its business as to be an ordinary and necessary expense of operation. Perhaps it was assumed, because trial of this case was held in Washington, D.C., where petitioner's principal office is located and *929 where the offices of this Board are maintained, that we should take notice of these matters concerning itself and its business which petitioner has failed to prove. If such an assumption was made, it was ill-founded. In the determination of proceedings before us we are bound strictly to the evidence of record, save as to such matters as may be properly a subject of judicial notice. The statement of this fundamental rule needs no elaboration and, clearly, however inclined we might be to reach voluntarily beyond*1285 the record for extraneous facts necessary to a consideration of the character of a donation probably prompted in part by laudable motives of community interest, we are not permitted so to do. And we are so restricted no matter where the residence of the taxpayer; consequently, extraneous facts are no more available to us because petitioner is located in Washington than if it were located in Abanda, Alabama, or Zenith, Wyoming, or elsewhere. Since the facts concerning petitioner's business, necessary to proof under the issue, are not contained in the record and are not matters of which we properly may take judicial notice, we are forestalled from any consideration of the deductibility of the contribution made by petitioner and, perforce, must sustain respondent's determination. We do not decide whether contributions made by corporations to the Community Chest of Washington, D.C., are or are not deductible from income as ordinary and necessary expenses of business. We say only that in the case at bar petitioner has failed to produce facts respecting itself, its business, and the relation thereto of its contribution from which we can determine whether the donation may be so classified. *1286 Judgment will be entered for the respondent.