## Facts

- Harold L. Jenkins, a country music performer known professionally as “Conway Twitty,” was a long-established entertainer whose income depended heavily on reputation and relationships within the country-music community.
- In 1968, Jenkins and approximately 75 friends and business associates formed Twitty Burger, Inc., to operate “Twitty Burger” fast-food restaurants, which were closely identified with Jenkins’s name and persona.
- The corporation experienced financial difficulties by late 1970; by 1971 nearly all restaurants had closed, and the corporation lacked sufficient assets to repay debenture holders.
- Jenkins was not personally liable on the debentures, but he decided to reimburse investors from future earnings due to concern that the failure would harm his professional reputation and goodwill.
- Jenkins deducted reimbursement payments as business expenses under I.R.C. § 162(a): $92,892.46 for 1973 and $3,600 for 1974.
- The Commissioner determined deficiencies and disallowed the deductions; after concessions, the sole remaining dispute was whether the reimbursements were deductible under § 162(a).

## Issues

1. Whether voluntary payments made by an entertainer to reimburse investors in a failed, separate corporation—where the entertainer had no legal liability—are deductible as “ordinary and necessary” expenses under I.R.C. § 162(a) when made to protect the entertainer’s business reputation and goodwill.

## Decision

- The Tax Court held that Jenkins’s reimbursement payments to Twitty Burger investors were deductible under I.R.C. § 162(a) as ordinary and necessary expenses of his trade or business as a country-music performer.
- Applying the two-part framework for payments of another’s obligations, the court found (1) Jenkins’s dominant motive was business-related and (2) the payments were sufficiently connected to his entertainment business.
- The court rejected the Commissioner’s characterization of the payments as nondeductible personal expenses or capital expenditures.

## Legal Principles

- Under I.R.C. § 162(a), a taxpayer may deduct ordinary and necessary expenses paid or incurred in carrying on the taxpayer’s trade or business.
- When a taxpayer pays obligations of another entity without legal liability, deductibility turns on a two-part inquiry: (1) the taxpayer’s purpose or motive in making the payment, and (2) whether the payment has a sufficient connection to the taxpayer’s own trade or business such that it is appropriate and helpful to that business.
- Expenditures aimed at protecting business reputation and goodwill can qualify as ordinary and necessary business expenses when reputation and relationships are material to producing income in the taxpayer’s trade or business.
- A payment is not rendered nondeductible merely because it is voluntary or reflects mixed motives, so long as the primary purpose is business-related.
- Payments made to maintain ongoing business standing may be treated as current expenses rather than capital expenditures when they do not create or improve a distinct, long-lived capital asset.

## Conclusion

The Tax Court allowed deductions for Jenkins’s voluntary reimbursements to investors in a failed restaurant venture because the payments were primarily motivated by, and sufficiently connected to, preserving his reputation and goodwill in his entertainment business, making them ordinary and necessary expenses under § 162(a).


Jenkins v. Comm’r, T.C. Memo. 1983-667, 47 T.C.M. (CCH) 238 (1983)