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Lustman v. Commissioner of Internal Revenue

decided: August 22, 1963.

JACK LUSTMAN AND IDA LUSTMAN, PETITIONERS,
v.
COMMISSIONER OF INTERNAL REVENUE, RESPONDENT.



Author: Shaw

Before STALEY and SMITH, Circuit Judges, and SHAW, District Judge.

SHAW, District Judge.

Petitioner, Jack Lustman, appearing pro se, and hereinafter referred to as "the taxpayer,"*fn1 seeks review of a decision of the Tax Court of the United States (Docket 61630) entered August 29, 1960, whereby it was determined as to the taxpayer and his wife, Ida Lustman, on joint returns filed by them for the years 1949 and 1950 that there were deficiencies in the tax liability reported for those years in the respective amounts of $14,728.78 and $1,809.92.

During the years in question, the taxpayer was the sole proprietor of a hosiery manufacturing business in Myerstown, Pennsylvania, conducted by him under the name of Myerstown Hosiery Mills He was also employed by the L.B. Hosiery Company, Inc., and was an officer of FAD Hosiery Mills. The income out of which tax liability arose was derived from the business conducted by him under the name of Myerstown Hosiery Mills, reported on an accrual basis, and his employment with L.B. Hosiery Company, Inc.

Certain deductions from gross income claimed for the years 1949 and 1950 as "ordinary and necessary expenses paid or incurred"*fn2 in the conduct of the business of Myerstown Hosiery Mills were disallowed by respondent, and the disallowance thereof was affirmed by decision of the Tax Court. These items of claimed deductible expense are:

1949

Merchandise purchased for resale $31,897.00

Miscellaneous manufacturing expense 819.00

Auto and Travel expense 2,230.00

Medical Deduction*fn3 1,642.22

Total for 1949 $36,588.22

1950

Commissions paid 4,740.32

Medical Deduction 3 112.04

Auto Depreciation 678.04

Total for 1950 5,532.40

Total for 1949 and 1950 $42,120.62

The taxpayer contends that the Tax Court erred in its affirmance of the disallowance by the respondent of the above-mentioned items of claimed expense and advances the further argument that he should be entitled to include in deductions for expense incurred during the years 1949 and 1950 the amount of $19,999.26, which he was compelled to pay to certain of his employees by Order of the National Labor Relations Board enforced by Decree of this Court*fn4 and subsequent Writ of Attachment issued September 13, 1954.

The determination of respondent had presumptive validity, and the burden of proof rested upon the taxpayer in the Tax Court to establish, from the evidence adduced there, that disallowance of the items of deductible expense claimed was erroneous. Botany Worsted Mills v. United States, 1929, 278 U.S. 282, 49 S. Ct. 129, 73 L. Ed. 379; Cotan Corp. v. Commissioner of Internal Revenue, 3 Cir. 1945, 147 F.2d 509; Brooks v. ...


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