Friday, September 29, 2006

As someone with an extensive collection of tax bric-a-brac, I was crestfallen to hear that I had missed out on the ebay sale of a menu from the defunct Twitty Burger fast-food restaurant chain. Celebrity tax aficionados will recognize the restaurant from the famous case of Harold L. Jenkins (a/k/a Howard Twitty) v. Commissioner, T.C. Memo. 1983-667.

Twitty convinced 75 of his friends in the country western music business to invest in the restaurant chain with him. When the business failed, Twitty reimbursed his friends for their losses even though he was under no legal compulsion to do so. The Tax Court upheld the claimed business deduction and closed with an "Ode to Howard Twitty," which the Service matched in its nonacquiesence in an "Ode to Howard Twitty: A Reprise" (A.O.D. 1984-022 (March 23, 1984)). (Both tax poems are reprinted in full below the fold.)

Joel Newman has an in-depth discussion of the Twitty case in our Tax Stories book in his chapter on Welch v. Helvering, 290 U.S. 111 (1933): The Use (and Misuse) of the "Ordinary and Necessary" Test for Deducting Business Expenses.

The menu was a steal for $102.50! (Hat Tip: Ann Murphy.)

Tax Court's "Ode to Conway Twitty":

Twitty Burger went belly up

But Conway remained true

He repaid his investors, one and all

It was the moral thing to do.

'His fans would not have liked it

It could have hurt his fame

Had any investors sued him

Like Merle Haggard or Sonny James.

'When it was time to file taxes

Conway thought what he would do

Was deduct those payments as a business expense

Under section one-sixty-two.

'In order to allow these deductions

Goes the argument of the Commissioner

The payments must be ordinary and necessary

To a business of the petitioner.

'Had Conway not repaid the investors

His career would have been under cloud,

Under the unique facts of this case

Held: The deductions are allowed.

IRS's: "Ode to Conway Twitty: A Reprise":

Harold Jenkins and Conway Twitty

They are both the same

But one was born

The other achieved fame.

The man is talented

And has many a friend

They opened a restaurant

His name he did lend.

They are two different things

Making burgers and song

The business went sour

It didn't take long.

He repaid his friends

Why did he act

Was it business or friendship

Which is fact?

Business the court held

It's deductible they feel

We disagree with the answer

But let's not appeal.

https://taxprof.typepad.com/taxprof_blog/2006/09/tax_and_twitty_.html