Law School Case Brief
Nicholls, N., Buse Co. v. Commissioner - 56 T.C. 1225 (1971)
I.R.C. § 162 provides for the deductibility of all ordinary and necessary expenses paid or incurred during the taxable year in carrying on a trade or business. Section 167 provides for the deductibility of depreciation of property used in the trade or business. The general requirement of both §§ 162 and 167 that expenses and assets be attributable to a trade or business has led to repeated litigation involving both the nexus between expenditure and enterprise and the quantum of evidence necessary to substantiate the event and its surrounding circumstances. Section 274 (1962) is applicable for the purpose of limiting substantial abuses in the area of deductions for entertainment and entertainment facilities.
The Commissioner for the Internal Revenue Service (IRS) disallowed depreciation and operating expense deductions for the boat purchased with corporate funds; the Commissioner also disallowed the taxpayers' related investment credit. Based on the theory that a constructive dividend was received by the taxpayers to the extent of either the purchase price of the boat or the value of the use of the boat, the Commissioner determined a deficiency in the taxpayers' federal income tax. The taxpayers contested the Commissioner's determinations.
Was the Commissioner correct in its determination that the taxpayers had deficiencies in their federal income taxes?
The court ruled that the Commissioner was correct in the determination that the taxpayers had deficiencies in their federal income taxes. The court determined that the taxpayers' records were insufficient to support the deductions and investment credit claimed for the business use of a boat. The court also found that the taxpayers had a taxable constructive dividend for their personal use of the boat that was purchased with corporate funds.
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