## Facts

- Robert J. Geary, a San Francisco police officer, patrolled with a ventriloquist’s dummy to support community-policing efforts and gained substantial media attention.
- Geary earned income connected to the publicity, including payment from a film-concept option and other work.
- Police supervisors restricted his use of the dummy on patrol, requiring prior written departmental approval.
- After political efforts failed to change the department’s position, Geary formed a committee and pursued a local ballot proposition to make it city policy to permit his use of the dummy in community policing.
- Geary spent more than $11,000 on petition circulation and promotional activities related to placing and supporting the proposition.
- Geary deducted these costs on his 1993 federal income-tax return as ordinary and necessary business expenses.
- The IRS disallowed the deduction as nondeductible lobbying expenditures under I.R.C. § 162(e) and imposed an accuracy-related penalty.
- The Tax Court sustained the deficiency and upheld the penalty; Geary appealed.

## Issues

1. Whether expenses incurred to place and promote a local ballot proposition affecting the taxpayer’s working conditions are deductible as ordinary and necessary business expenses under I.R.C. § 162(a), or are nondeductible lobbying expenses under I.R.C. § 162(e) as attempts to influence the general public regarding a referendum.
2. Whether an accuracy-related penalty for underpayment was proper, or should be abated due to reasonable cause and good faith.

## Decision

- The Ninth Circuit affirmed the Tax Court’s disallowance of the deduction.
- The court held the expenditures were incurred in connection with an attempt to influence the general public regarding a legislative matter (a ballot proposition) and therefore were nondeductible lobbying expenses under § 162(e).
- The Ninth Circuit reversed the Tax Court’s approval of the accuracy-related penalty.
- The court found Geary acted with reasonable cause and in good faith, reflecting an honest misunderstanding of the law in an unusual fact pattern.

## Legal Principles

- I.R.C. § 162(e) disallows deductions for amounts paid or incurred in connection with an attempt to influence the general public with respect to legislation, elections, or referendums, including ballot initiatives.
- When expenditures are directed at affecting the outcome of a referendum or similar legislative question, their advertising-like form or collateral publicity benefits do not convert them into deductible business advertising under § 162(a).
- For accuracy-related penalties, a taxpayer may obtain relief by showing the underpayment resulted from reasonable cause and good faith, including an honest, nonfrivolous misunderstanding of the law under atypical circumstances.

## Conclusion

The court treated costs of petitioning for and promoting a local ballot proposition as nondeductible lobbying under § 162(e), but held the taxpayer’s mistaken deduction position was taken in reasonable cause and good faith, requiring reversal of the accuracy-related penalty.


Geary v. Comm’r, 235 F.3d 1207 (9th Cir. 2000)