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business, when limited to charitable institutions, hospitals, or educational institutions conducted for the benefit of its employees or their dependents, are a proper deduction as ordinary and necessary expenses. Donations which legitimately represent a consideration for a benefit flowing directly to the corporation as an incident of its business are allowable deductions from gross income. For example, a street railway corporation may donate a sum of money to an organization intending to hold a convention in the city in which it operates, with the reasonable expectation that the holding of such convention will augment its income through a greater number of people using the

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Illustrating Deductions from Gross Income-Group Insurance of Employees

FACTS:

The Style Dress Company, in analyzing its expenses for the taxable year 1921, finds that included in its expenses is an item of $1,352, annual premium on group insurance for its employees.

QUESTION:

Is such premium deductible from gross income?

ANSWER:

Yes, since as in the case of group insurance, the employer is not a beneficiary except as he may derive increased efficiency from his employees. The premium is therefore deductible.

REFERENCES:

Art. 294, Regulations 62: Where a ". . . . taxpayer is in no sense a beneficiary under such a policy, except as he may derive benefit from the increased efficiency of the officer or employee, premiums so paid are allowable deductions.

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Bul. 12-20-793; 0. D., 1014, held in part that "premiums paid for group life insurance constitute proper deductions under the head of 'ordinary and necessary expenses' in computing the net income of an employer, whether individual or corporation."

NOTE:

The same rule would apply in case the taxpayer were an individual instead of a corporation.

PROBLEM 138

Illustrating Items Not Deductible Personal, Living or Family Expense

FACTS:

The books of account of J. Bole, investor, showed among others, the following charges during the year 1921:

1. Household expenses (groceries, fuel, etc.) $2,350

2. Clothing (including tax $18)

438

3. Railroad fare, to and from office (including
tax $24)

324

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Are the above items deductible in Mr. Bole's income tax return?

ANSWER:

The various items of tax, totaling $54, are deductible. All of the balance of the amounts are not deductible.

REFERENCES:

Sec. 214 (a) (3): (Quoted under Problem 101.)

Sec. 215 (a): "In computing net income no deduction shall in any case be allowed in respect of-(1) Personal, living, or family expenses."

PROBLEM 139

Illustrating Items not Deductible-Damages Paid For
Breach of Promise to Marry

FACTS:

U. V. White in 1921, under direction of the court, was required to pay $3,000 as damages for breach of promise to marry.

Mr. White undertakes to deduct the amount in his income tax return.

QUESTION:

Is the above item properly deductible for income tax purposes?

ANSWER:
No.

REFERENCES:

Bul. 24-20-1003; O. D. 546: "Amounts paid as damages for breach of promise to marry are considered personal expenses which are not deductible from the gross income of the taxpayer." Sec. 215 (a) (1): (Quoted under Problem 138.)

PROBLEM 140

Illustrating Items not Deductible-Sums Paid Under Terms of Marriage Agreement-Alimony

FACTS:

W. W. White during the first six months of 1921, under the terms of a marriage agreement, pays out $1,800. During the last six months of the year he pays alimony amounting to $2,400.

QUESTION:

Is either of the above amounts deductible in Mr. White's income tax return?

ANSWER:
No.

REFERENCES:

Bul. 20-19-507; O. D. 275: "Sums paid to a wife under terms of a marriage agreement are considered payments in discharge of a personal obligation of the husband and are not deductible in computing his net income subject to tax."

Art. 291, Regulations 62: ". . . . Alimony and an allowance paid under a separation agreement are not deductible from gross income."

PROBLEM 141

Illustrating Items not Deductible-Fees Paid to Attorney in Defense of Prosecution for an Alleged Illegal Sale of

FACTS:

Drugs

I. O. Dyne, a druggist, in 1921 was found guilty of illegally distributing certain drugs. In his effort to defend the case, Mr. Dyne paid attorney fees amounting to $2,000.

QUESTION:

Is the $2,000 a deductible item in Mr. Dyne's income tax return?

ANSWER:

The attorney fees are not deductible.

REFERENCES:

Bul. 25-21-1693; O. D. 952: "A taxpayer engaged in the retail drug business was indicted and tried for an alleged illegal sale of narcotics in connection with his business and was sentenced to pay a fine and to imprisonment. The case has been appealed and is still pending.

Held, that the attorney's fees paid are a personal expense and not an allowable deduction in computing net income."

Sec. 215 (a) (1): (Quoted under Problem 138.)

PROBLEM 142

Illustrating Items not Deductible-Expenses Incurred in Taking Post-graduate Course

FACTS:

George H. Golden, a practicing physician, in 1921 takes a post-graduate course in medicine preparatory to an examination which he must take in order to qualify to practice in a State other than the one in which he was previously practicing. His

tuition and expenses incident to taking the course amounted to $60.

QUESTION:

Is this expense deductible in Dr. Golden's income tax return?

ANSWER:

No.

REFERENCES:

Bul. 31-21-1755; O. D. 984: "Expenses incurred by doctors in taking post-graduate courses are deemed to be in the nature of personal expenses and not deductible."

Sec. 215 (a) (1): (Quoted under Problem 138.)

PROBLEM 143

Illustrating Items Not Deductible-State Examination Fees

FACTS:

Dr. George H. Golden, a practicing physician, in order to practice in a State other than that in which he has been practicing, is required to pass the State examination. The examination fees and the traveling and other expenses incurred by him in taking the examination amounted to $50.

QUESTION:

Is this expense deductible in Dr. Golden's income-tax return?

ANSWER:

No. His case is parallel to that of a certain attorney, in whose case similar expenses were considered by the Bureau to be in the nature of capital expenditures, and therefore not deductible.

REFERENCE:

Bul. 15-20-849; O. D. 452: "State bar examination fees and traveling expenses incurred and paid by a lawyer in securing admission to practice his profession are in the nature of capital expenditures and may not be deducted from gross income."

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