Walliser v. Commissioner

James Walliser, a Texas bank officer, was responsible for making loans to Texas builders, and his compensation was dependent in part on his success in marketing these loans. The bank did not reimburse Walliser for the costs of his marketing activity, but the bank considered marketing activity important, gave Walliser time off to pursue this activity, and took this activity into account in setting Walliser’s compensation. At their own expense, Walliser and his wife (plaintiffs) traveled on recreational tours that major companies organized for the benefit of Texas builders. Walliser did not conduct formal business meetings or undertake specific loan negotiations on these tours. However, Walliser spent most of his touring time socializing in order to develop personal relationships with the builders. Both Walliser and the bank valued this socializing because it fostered builder goodwill, which could lead to future loan business. Walliser and his wife deducted Walliser’s tour expenses from their gross income as tax-deductible business expenses under § 162(a)(2) of the federal tax code. The commissioner of internal revenue (commissioner) (defendant) determined that Walliser’s tour expenditures were for personal and customer entertainment, amusement, or recreation (EAR). Under § 274 of the tax code, these EAR expenses were not tax deductible, and the commissioner accordingly disallowed the Wallisers’ § 162(a)(2) tax deduction. The Wallisers paid the tax and petitioned for a refund in tax court.