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Palo Alto Town & Country Village, Inc. v. Commissioner

United States Court of Appeals for the Ninth Circuit
565 F.2d 1388 (1978)

Written by Heather Whittemore, JD

Facts

Palo Alto Town & Country Village, Inc. (Town & Country) (plaintiffs) paid Commander Aviation, Inc., to keep a plane on standby for business use. The president of Town & Country, Ronald Williams, also owned Commander Aviation. Town & Country personnel, including Williams, would use the plane to go on business trips or fly prospective tenants in to visit Town & Country’s shopping centers, saving money by having the plane available instead of having to charter a plane each time they needed one. In one emergency, the plane was used to make a trip that saved Town & Country $1 million in interest on a loan. Town & Country deducted the cost of the plane on its income-tax returns as a business expense. The United States Tax Court held that Town & Country could only deduct ordinary and necessary business expenses and limited Town & Country to deducting the cost of the plane when it was flying. The tax court explained that Town & Country did not use the plane enough to justify keeping it on standby, making the expense unnecessary. Town & Country appealed.

Rule of Law

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Issue

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Holding and Reasoning (Schnacke, J.)

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