1958 U.S. Tax Ct. LEXIS 64">*64
The expenses of operation of a lodge and guest ranch should be computed without eliminating portions of the cost of food, insurance, fuel, electricity, laundry, and telephone to represent the cost of meals and lodging furnished to an owner-operator of the lodge and ranch who lodged and ate therein not for his own personal convenience but because it was necessary in connection with the operation of the lodge and ranch.
31 T.C. 65">*65 The respondent has determined a deficiency of $ 241.16 in the petitioners' income tax for 1953. The only issue for decision is what portions, if any, of the deductions taken by petitioners in their income tax return for operating costs and expenses incurred in the operation of a lodge and guest ranch represented personal living expenses of the petitioners and therefore were not deductible.
FINDINGS OF FACT.
The petitioners, who are husband and wife, have their residence and place of business at R. D. No. 2, Stroudsburg, Pennsylvania. They filed their joint individual income tax return for 1953 with the director at Scranton, Pennsylvania.
During 1953 the petitioners owned and operated a lodge and guest ranch 7 miles west of Stroudsburg under the name of Twin Pines Lodge and Guest Ranch, sometimes hereinafter referred to as the resort. All of their income for 1953 was derived from that business.
In addition to providing meals1958 U.S. Tax Ct. LEXIS 64">*66 and lodging for their guests at the resort, the petitioners also maintained stables with from 30 to 40 horses for the guests' use.
The resort was closed during the months of January and December 1953. During those months the petitioners went away on vacation. During the remainder of the year the petitioners lived in an apartment which they had built on to the main resort building but which was without a door connecting with that building. The apartment, which was built at a cost of approximately $ 3,500, was built by the petitioners for their personal use. Most of the furnishings in the apartment had been acquired by petitioners before they entered into the resort business about 1938. They took no deduction in their income tax return for 1953 for depreciation of the apartment structure or the furnishings therein.
31 T.C. 65">*66 Except for the 2 months the petitioners were on vacation they gave their full time and attention to the operation of the resort in 1953. Prior to opening the resort for the year the petitioners were engaged in making preparations for reopening.
During 1953 the resort was open for business about 8 1/2 months or exactly 257 days. During those days, guests were1958 U.S. Tax Ct. LEXIS 64">*67 served 3 meals a day. On each of those days the petitioners together averaged eating a total of 5 meals in the resort. Other meals eaten by the petitioners when the resort was open for business and meals eaten by them when the resort was not open were either eaten in restaurants or in their apartment where they were prepared from food purchased by petitioners. Neither the cost of petitioners' meals in restaurants nor the cost of food eaten in their apartment was included in the cost of food used in the operation of the resort and deducted by petitioners in their income tax return. A total of 29,766 meals was served in the resort during 1953 to guests and employees and to petitioners. It was necessary in the operation of the resort that the two petitioners live there and eat the meals in the resort which they actually ate there during 1953.
In their income tax return for 1953 the petitioners took deductions, among others, for the following items in the indicated amounts as costs or expenses incurred in the operation of the resort during that year:
Food | $ 14,156.00 |
Insurance | 1,592.32 |
Fuel | 1,090.68 |
Electricity | 1,054.06 |
Laundry | 456.12 |
Telephone | 390.74 |
The foregoing 1958 U.S. Tax Ct. LEXIS 64">*68 amounts included the cost of the food consumed by petitioners in the resort, the cost of insurance on petitioners' apartment, the cost of heat and electricity for the apartment, the cost of a small amount of laundry and cleaning for the petitioners, and petitioners' use of the telephone at the resort for personal purposes.
In determining the deficiency in question the respondent disallowed an amount of $ 1,200 with the following explanation:
The deductions claimed on your income tax return for the taxable year ended December 31, 1953 for operating costs and expenses have been disallowed in the amount of $ 1,200.00 for the costs attributable to your meals, lodging, and other personal and family living expenses.
OPINION.
Relying on our decisions in
In
The taxpayer in the
It is in accordance with
31 T.C. 65">*68 On appeal by respondent to the Court of Appeals for the Fourth Circuit, our holding in the
True it is, as has been 1958 U.S. Tax Ct. LEXIS 64">*72 pointed out previously, that the items here involved may be viewed, on the one hand, as business expenses, on the other hand, as personal. We think their essential nature, their inherent and dominant attributes characterize them as personal with a tinge of business and not as business with a personal tinge. And we see Section 24 (a) (1) as an absolute blanket inclusion of these items in income, thereby prohibiting their deductibility, unless the federal statutes expressly and clearly provide to the contrary. There are no such statutes.
In a dissenting opinion in the
The question involved is not one of deducting personal expenses from a tax return. It is whether deductions for the expense of operating the business should be decreased because the owner of the hotel eats and lodges at the hotel in connection with operating it. The Tax Court answered this question in the negative on the theory that meals and lodging incidental to carrying on a business are to be treated as an expense of the1958 U.S. Tax Ct. LEXIS 64">*73 business rather than as a personal expense. It is on this theory that the statute excludes from gross income of an employee the value of meals furnished the employee whose presence is required on the premises. See
In
On appeal by respondent of the
In
After carefully reconsidering the problem here presented in the light of the decisions of the Courts of Appeals for the Fourth, Eighth, and Tenth Circuits in the
Being of the opinion that the factual situation presented here falls within the purview1958 U.S. Tax Ct. LEXIS 64">*76 of our decision in the
Since the respondent made other determinations respecting the petitioners' tax liability which are not involved herein,
Raum,
1. In this case, unlike