When Conway Twitty, the country-music singer, founded Twitty Burger Inc., in 1968, he envisioned a whole string of fast-food restaurants bearing his personal logo -- a small yellow bird (the Twitty bird) strumming a guitar. But less than three years later, the company went bust.
Twitty, to his credit, decided to repay the people who invested in his hamburger chain -- some 75 friends and business associates. Then the entertainer took an income tax deduction for the $96,492.46 he shelled out in repayments.
The Internal Revenue Service balked, and the case wound up in Tax Court. The IRS argued that Twitty was not obligated to repay the money, so he wasn't entitled to an income tax deduction. But Twitty's attorney maintained the singer had good reason to reimburse investors. "Imagine," he told the court, "trying to keep a band together where somebody has stiffed the drummer's mother."
The court sided with the singer. The decision concluded with its own "Ode to Conway Twitty":
Twitty Burger went belly up
But Conway remained true
He repaid his investors, one and all
It was the moral thing to do.
His fans would not have liked it
It could have hurt his fame
Had any investors sued him
Like Merle Haggard or Sonny James.
When it was time to file taxes
Conway thought whathe would do
Was deduct those payments as a business expense
Under section one-sixty-two.
In order to allow these deductions
Goes the argument of the Commissioner
The payments must be ordinary and necessary
To a business of the petitioner.
Had Conway not repaid the investors
His career wouldhave been under cloud,
Under the unique facts of this case
Held: The deductions are allowed.