Memorandum Findings of Fact and Opinion

FORRESTER, Judge: Respondent has determined deficiencies in petitioner's Federal income tax for the years 1963 and 1964 in the amounts of $741.75 and $739.62, respectively.

Concessions having been made, the only issue for decision is whether petitioner is entitled to certain entertainment expenses claimed as deductions under section 162 and section 274 of the Internal Revenue Code of 1954. ¹

Findings of Fact

Petitioner herein is Arthur Hughes (hereinafter sometimes referred to as Arthur). At the time the petition in the instant case was filed, he resided in Fresh Meadows, New York. His income tax returns for the years 1963 and 1964 were filed with the district director of internal revenue, Manhattan, New York.

During the years 1963 and 1964, Arthur was employed as a stage manager for the Columbia Broadcasting System (hereinafter sometime referred to as CBS), working 1643 only in CBS's studios in Manhattan, New York. In his position he was in charge of stagehands working on various CBS television1970 Tax Ct. Memo LEXIS 22">*24 programs.

It was customary at CBS for stage managers to buy coffee, doughnuts and occasionally some sandwiches for their crews. Other men in a supervisory capacity, such as lighting directors and technical directors, also bought refreshments for their crews. During the years in issue Arthur purchased coffee and doughnuts two or three times a week for a crew, which normally numbered eight. On occasion there were strangers on the program sets who also received coffee and doughnuts; however, this was exceedingly rare.

During the years in issue Arthur occasionally purchased drinks for six or eight stagehands at bars near CBS. Quite often, he also purchased drinks for his boss and a few stagehands at Fresh Meadows Inn (hereinafter sometimes referred to as the Inn) which was three blocks from his home.

In his 1963 and 1964 income tax returns, Arthur deducted (as business entertainment expenses) amounts which he broke down in his petition as follows:

Opinion

The only issue for decision concerns the deductibility of certain alleged entertainment expenses incurred during 1963 and 1964. Respondent contends that all of the expenses were entertainment expenses which have not been substantiated, pursuant to section 274(d), and which do not meet the requirements of section 274(a)(1)(A), ² and hence, are not deductible. Respondent also argues that petitioner has not substantiated these expenses under section 162(a), but otherwise he concedes their deductibility under that section.

1970 Tax Ct. Memo LEXIS 22">*26 Under section 274(d), petitioner is to be allowed no deduction for entertainment expense:

unless * * * [he] substantiates by adequate records or by sufficient evidence corroborating his own statement (A) the amount of such expense or other item, (B) the time and place of the travel, entertainment, amusement, recreation, or use of the facility, or the date and description of the gift, (C) the business purpose of the expense or other item, and (D) the business relationship to the taxpayer of persons entertained, using the facility, or receiving the gift. The Secretary or his delegate may by regulations provide that some or all of the requirements of the preceding sentence shall not apply in the case of an expense which does not exceed an amount prescribed pursuant to such regulations.

The regulations set up detailed descriptions of what is required. Section 1.274-5(c), Income tax Regs. ³

1970 Tax Ct. Memo LEXIS 22">*27 With regard to the claimed deductions for drinks purchased at bars for his crew, Arthur estimated at trial that these expenses totaled $264 and $252 for the 1644 respective years in issue, based on his estimates of $6 per week for forty-four and forty-two weeks. No records written at or near the times of the expenditures, which recorded the amounts spent, the times and places of, or the business purposes for these expenditures, were introduced into evidence; nor were any receipts or billing statements introduced to confirm in any way the amounts spent. Only Arthur's uncorroborated assertions that the amounts were incurred in buying drinks for stagehands are in the record. This evidence alone falls far short of the substantiation necessary under section 274(d); accordingly, the deductions are denied. Likewise, entertainment expenses for the two parties, one in 1963 and one in 1964, are unsubstantiated as required by section 274(d), since Arthur's verbal estimates of these expenses are all we have. Accordingly, those deductions must also be denied.

Arthur's expenses at the Inn were evidenced to a greater extent than those above. For 1963, 11 checks, totaling $260.07, payable1970 Tax Ct. Memo LEXIS 22">*28 to the Inn, are in evidence. For seven of these checks, totaling $204.77, Arthur introduced the Inn's billing statements which broke down the times and amounts of such expenditures. For 1964, eight checks payable to the Inn, totaling $152.80, are in evidence. For all eight checks there were billing statements providing the same information as those statements for 1963. In addition, for 1964 three other Inn statements, marked paid in cash and totaling $68.96, are in evidence.

Arthur testified that the expenditures represented by the above amounts were for drinks for his boss, who often rode home with him, and at times for a few stagehands. He admitted that some of these expenditures were for his own food when he was unaccompanied by business associates. There is no written record or other substantiating evidence as to the purposes for these drinks, i.e., of what business relevance they had insofar as Arthur was concerned, nor for whom the expenditures were incurred. We only have Arthur's statements that these expenses were incurred for his boss and stagehands. Which expenses were incurred for each and which were his own personal expenses are unknown. We hold that lack of such records, 1970 Tax Ct. Memo LEXIS 22">*29 evidence and information precludes 1645 the deductions for lack of substantiation under section 274(d) and the regulations thereunder.

The final deductions in contention concern expenditures for coffee and doughnuts for Arthur's crew. Petitioner contends that these expenses have been properly substantiated as required by section 274(d). ⁴ He points to his testimony at trial that he expended approximately $7, two or three times a week, to purchase coffee, doughnuts and sandwiches for a crew of eight stagehands. The only other evidence even tending to substantiate these expenses consists of testimony by petitioner's witness, Fred L. Beraud, that he had seen Arthur entertain in this manner both years in issue and testimony by petitioner's witness, Edward Corcoran (who was also a stage manager at CBS) that he himself averaged spending $7 for doughnuts and coffee on the days he purchased such food items for his crew.

1970 Tax Ct. Memo LEXIS 22">*30 It seems obvious to us that the above evidence is insufficient to satisfy the substantiation requirements of section 1.274-5 (c)(2) and (3), Income Tax Regs. We recognize, however, that in the recent case of Harry G. LaForge, 53 T.C. 41">53 T.C. 41 (1969), reversed and remanded - F. 2d - (C.A. 2, Nov. 10, 1970), the Second Circuit has ruled that section 1.274-5(c)(2) and (3), Income Tax Regs., are invalid insofar as they require solely written records to substantiate entertainment expenses.

In 53 T.C. 41">LaForge, supra, the taxpayer, a physician, claimed a deduction for certain business lunches which he gave for business associates at a hospital cafeteria. The cafeteria cashier testified at trial that the doctor regularly purchased lunch for business associates and himself at a cost of from $2.65 to $3. The doctor kept no records of these expenses but deducted on his income tax return $2 per day for each day of his hospital schedule as an estimate. The Second Circuit held that the taxpayer's testimony estimating the amount of the expenses, plus that of the cashier, was sufficient to substantiate the deduction, but that the case had to be remanded for further evidence as to the1970 Tax Ct. Memo LEXIS 22">*31 amount of the expense which represented the doctor's own lunches. Thus, under that decision, oral evidence of the taxpayer, plus other "sufficient corroboratory evidence," would be adequate to sustain the burden of substantiation required by section 274(d).

In the instant case there was no testimony by any witness other than Arthur concerning the number of times in each year in issue, or the amounts of money which Arthur had expended for the coffee and doughnuts. Accordingly, even under the LaForge decision, petitioner has not met his burden of substantiation.

Decision will be entered for the respondent.