UNITED STATES COURT OF APPEALS FOR THE SECOND CIRCUIT
decided: January 18, 1971.
RICHARD STEEL AND LUCY KNIGHT STEEL, APPELLANTS,
COMMISSIONER OF INTERNAL REVENUE, APPELLEE
Friendly, Smith and Anderson, Circuit Judges.
Author: Per Curiam
Attorney Richard Steel and his wife, Lucy,*fn1 filed a joint income tax return for the year 1964 in which they claimed a business deduction in the amount of $4,850.21 for entertaining Richard's clients and other guests in their Manhattan apartment and a business deduction of $306.19 for the cost of air travel between New York and New Orleans and the cost of food, lodging, and miscellaneous expenses incurred.*fn2 The Commissioner disallowed the entertainment expense because neither the taxpayer nor his wife kept any expense accounting, cancelled checks, receipts or other documentary evidence by which to substantiate their claim as required by § 274(d) of the Internal Revenue Code of 1954 and Treas. Regs. 1.274-5. As the only proof of the business travel expense was a cancelled check to Eastern Airlines in the amount of the New York, New Orleans fare, the Commissioner disallowed this claim also and assessed a deficiency of $2,550.77 for the year in question. The Tax Court upheld the Commissioner's holdings on both of these claims.*fn3
Section 274(e)(1), upon which the taxpayer relies, exempts from the substantive requirements of § 274(a) expenditures for meals furnished in a manner conducive to business discussion. That section does not, however, exempt such expenditures from the substantiation requirements of § 274(d). See Treas. Regs. 1.274-2(f)(1) and (2). Notwithstanding the fact that the business meals are provided in the taxpayer's home, each element of such entertainment expenditure must be substantiated by "adequate records or by sufficient evidence corroborating [the taxpayer's] own statement." § 274(d); Andress v. Commissioner of Internal Revenue, 51 T.C. 863, aff'd per curiam, 423 F.2d 679 (5 Cir. 1970).
Unlike the taxpayer in LaForge v. Commissioner of Internal Revenue, 434 F.2d 370, 371 (1970), taxpayer here offered no evidence to corroborate his oral statements and cannot, therefore, fulfill this alternative method of substantiation. Finally, because the taxpayer has shown nothing inherent in his situation which prevented him from maintaining an expense diary or obtaining receipts, he cannot rely on the "exceptional circumstances" provisions of Treas. Regs. 1.274-5(c)(4).