Jenkins v. Commissioner

In Jenkins v. Commissioner, T.C. Memo 1983-667 (U.S. Tax Court Memos 1983), the U.S. Tax Court held that the payments Conway Twitty, a country singer, made to investors in a defunct restaurant business known as “Twitty Burger, Inc.” were deductible under § 162 as ordinary and necessary business expenses of petitioner's business as a country music performer.

The petitioner, Harold L. Jenkins, was a well-known country music singer who was commonly known by his stage name of “Conway Twitty”. Conway had been a musical performer since the 1950s, but it was not until the late 1960s that Conway became well-established in the country music industry. By mid-1970, Conway Twitty had 43 Number 1 hit records.

In 1968, Twitty Burger, Inc. was formed by Conway, along with approximately 75 friends and business associates who invested money in Twitty Burger for the operation of Twitty Burger Fast Food Restaurants. Late in 1970, Twitty Burger began to encounter financial difficulties and nearly every Twitty Burger restaurant was closed by 1971. Although he had no assets with which to pay the debentures, Conway decided to repay the investors the amount of their investments with future earnings. On his 1973 and 1974 Federal income tax returns, Conway deducted these total amounts, $92,892.46 and $3,600, respectively, as ordinary and necessary business expenses under § 162.

Were the payments made by Conway Twitty to investors in the failed corporation known as Twitty Burger, Inc., deductible as ordinary and necessary business expenses of Conway’s business as a country music performer?

The Court held that the payments to the investor by Conway Twitty were deductible as ordinary and necessary business expenses of his business as a country music performer. Lohrke v. Commissioner, 48 T.C. 679 (1967), a landmark Tax Court case, established a two-part test to determine whether a payment is deductible as ordinary and necessary.

The court applied the Lohrke test to the instant case as follows. To determine whether the payments were deductible under § 162, the United States Tax Court was required to

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