Frank F. And Romana M. Paal v. Commissioner of Internal Revenue

Appellants, husband and wife (hereinafter “appellant”), claim as business expenses certain items for the years 1962 and 1963 in their income tax returns for those years. Appellant was allowed all the claimed deduction for labor, telephone, and mail; $600 each year for estimated transportation; a $400 approximation each year for lunches and dinners; and disallowed $62 and $45 for “presents”; and $139 and $195 for “parties” (held each year on appellant’s birthday and on New Year’s Eve).

Appellant had made no claim for these business expenses on his original returns, but testified he “kept records” during that time on the backs of loose papers — (Ex. 6) which “notes” disclosed no figures of moneys expended, but disclosed certain pencilled dates, with abbreviations known only to plaintiff, and some first names. Five or six years later (in 1968), appellant made up from such “notes” a “dairy” (Exs. 7 and 8), with pencilled notations. The number of entries in the diaries greatly exceeded the number of entries on the notes, and some entries in the notes were not shown in the “diaries”, and vice versa. The amount allowed by the Tax Court was more than double the original business expenses…