Taxation – Federal Income Tax – Deductibility by an Employee of Sum Paid in Settlement of Claim Arising from His Operation of Automobile Used in Company’s Business

Petitioner and one Elkins were employed by a corporation which they had organized to engage in the electrical contracting business. They furnished their own automobiles to transport men and material from job to job, and were reimbursed by the corporation for operating expenses. The corporation also paid for insurance and repairs of the automobiles. While Elkins was using petitioner’s car to drive two employees to a job in progress, a collision occurred causing personal injuries to the two employees, who recovered a judgment against petitioner which he finally settled by payment of $4,000 in excess of the amount of the insurance coverage. The corporation was not made a party to the suit, nor was any demand ever made against it for reimbursement of the amount paid by petitioner. He sought to deduct the $4,000 on his personal income tax return as a trade or business expense. Upon hearing, the Tax Court held that, at the time of the accident, the automobile was being used in the business of the corporation, not that of petitioner, and the deduction was disallowed. Emanuel O. Diamond, 19 T.C. 737 (1953).