APPEAL OF JACKLING, Docket No. 4272.

• Decision Date: 25 November 1927
• Docket Number: Docket No. 4272.
• Citation: 9 BTA 312
• Parties: APPEAL OF D. C. JACKLING.
• Court: U.S. Board of Tax Appeals

9 B.T.A. 312 (1927)

APPEAL OF D. C. JACKLING.

Docket No. 4272.

Board of Tax Appeals.

Promulgated November 25, 1927.

Lyle T. Alverson, Esq., for the petitioner.

George G. Witter, Esq., and E. C. Lake, Esq., for the Commissioner.

This is an appeal from the determination of deficiencies in income and profits taxes for the years 1917, 1918, and 1919, in the amounts of $75,647.22, $16,219.20, and $11,078.12, respectively.

FINDINGS OF FACT.

The petitioner is an individual residing at San Francisco, Calif. He is a mine operator and metallurgical engineer and stands and has stood for many years at the head of his profession. The petitioner on April 1, 1918, filed an income and profits-tax return for the year 1917 showing tax due thereon in the amount of $18,663.99. On the March, 1923, assessment list the Commissioner assessed additional tax against the petitioner for the year 1917 in the amount of $174,786.74. On April 13, 1923, the petitioner filed a claim for the abatement of the additional tax so assessed and on March 20, 1925, the Commissioner allowed said claim in the amount of $99,139.52, rejected it in the amount of $75,647.22, and advised the petitioner thereof by letter mailed March 20, 1925, from which letter the petitioner appealed to the Board. The petitioner did not, at any time, consent in writing that his income and excess-profits taxes for the year 1917 should be determined, assessed or collected at a date later than that prescribed by law.

During the years 1904 to 1909, the petitioner developed and put into successful operation, the mines of the Utah Copper Co., the Ray Consolidated Copper Co., and the Chino Copper Co. These mines contained low-grade copper ore which, until 1904, was considered to have no commercial value. In the years 1910 and 1911 the petitioner also took over the management and operation of the Butte and Superior copper mines located in Montana and the Nevada Consolidated copper mines located in Nevada. During the years 1911 to 1919, inclusive, he had absolute control of the direction and operation of the Utah Copper Co., the Ray Consolidated Copper Co., the Chino Copper Co., the Butte & Superior Mining Co., and the Nevada Consolidated Copper Co. In addition to these activities he was financially interested in and connected with many other business enterprises, including mining operations in various parts of the United States, Alaska, Mexico, and South America. The copper mines managed and operated by the petitioner produced, in the year 1912, 20 per cent of the total copper output of the world. The owners of these properties have received more than $250,000 in dividends.

While the Utah, Ray, and Chino mines were still under development, the petitioner found that in order to visit them as often as he should and still attend to his other business, it would be necessary for him to have a private railroad car on which he could carry on his work while traveling between the several mines and at other times when he was away from his office. He therefore in the year 1909 purchased a private car from the Pullman Company, which was fitted with office equipment, filing cabinets, desks, etc., and living quarters for himself and his secretary. It was necessary for the petitioner to have available at all times, reports, maps, blueprints and other data relating to his various business activities, and satisfactory living quarters while visiting the mines which he controlled or in which he was interested. In each of the years 1910 and 1911, he traveled on his private car in connection with his business, between 60,000 and 75,000 miles. In 1912 he traveled more than 112,000 miles in connection with his business, of which more than 70,000 miles were traveled on his private car. The petitioner spent more than half of each of the years 1910, 1911, and 1912, at or traveling between the properties which he managed, or in which he was interested.

In July, 1911, there was brought to the attention of the petitioner by the bankers associated with him in his many enterprises, a large gold deposit in Alaska known as the Alaskan gold mines. This deposit was of low-grade ore which was believed to be susceptible of being treated successfully by a process similar to that which had been employed in the case of low-grade copper ore. At about the same time there was also brought to his attention a similar property in Alaska known as the Kensington gold mines. The petitioner, at the request of his banking associates, visited these properties and examined them. He advised that they be purchased and developed. The bankers were willing to finance the undertaking provided the petitioner would agree to assume full charge and control of the development and operation thereof, as he had done with the copper properties heretofore mentioned. This the petitioner agreed to do and the Alaskan gold mines were acquired, developed and started, and the Kensington mines were also acquired shortly thereafter. The petitioner was at that time constantly traveling between the several copper companies which he managed and which at that time were at the height of their development, and he decided that if he was to give the Alaska gold properties the attention and supervision that would be required to operate them successfully, he would have to visit them frequently, and that he would have to acquire a vessel of his own for that purpose, since the regular passenger boats took about four or five days to make the trip from Seattle to Juneau, and made stops which would greatly inconvenience him if he were to travel on those boats. He therefore attempted to purchase a boat which would enable him to travel more quickly between the United States and the Alaskan properties, and to work while so traveling in the same manner that his private car enabled him to carry on his work while traveling between his several copper mines and other business enterprises in the United States. He was not able to find a vessel of the kind desired and in the year 1912 he placed an order for the construction of a vessel capable of making between 12 to 14 knots per hour, and traveling in any kind of weather. The vessel was completed about October, 1913, but was subsequently altered and lengthened by the builders to make it more seaworthy and to provide adequate quarters. The vessel, which was named Cyprus, was fitted with offices and equipped practically the same as the offices and equipment on the petitioner's private car. In addition to the offices and quarters for the crew the Cyprus had quarters for about 12 persons. It was capable of making the trip from San Francisco to Juneau in two days and three nights. The Cyprus was provided with an elaborate system of forced ventilation so that it could travel in any kind of weather, and the auxiliary machinery was in duplicate in order that there would be slight possibility of the boat being delayed by accidents.

The Cyprus was first used to convey the petitioner and a party of his associates, who were interested in the Alaska gold mines, from Vancouver to Seattle, on their return from a visit to the Alaska properties. At that time it was found to be unsatisfactory and was turned back to the builders for certain alterations. It was next used on a trial trip from Seattle to San Pedro in ballast. The petitioner and some of his business associates boarded the boat at San Pedro and went as far as Panama. On this trip the boat proved to be still unsatisfactory and was again returned to the builders for further alteration. In June, 1914, it made a trip from Seattle to Juneau, where the properties of the Alaska gold mines were located. On this trip were the petitioner, his secretary, and a number of business associates, and the wives of some of his business associates. The trip was made by the petitioner for the purpose of looking after the development and equipment of the Alaka mine and to keep in touch with the business thereof. This trip required about ten days or two weeks.

The Cyprus was next used in August, 1914. At that time it was sent to Vancouver for the purpose of meeting the petitioner and several other directors of the Alaska gold mines and taking them to the mines. However, the World War having broken out, the trip was abandoned and the persons who intended to make the trip returned by rail to their respective business headquarters. The next trip of the Cyprus was from Seattle to San Francisco in August, 1914. The petitioner was not on board nor were there any passengers. The next time the boat was used was on an overnight trip to Santa Cruz for the purpose of having an opportunity of going over it in operation. It was then laid up with a skeleton crew for the remainder of the year.

In June, 1915, the Cyprus was again used by the petitioner. On this occasion he made a trip to Alaska, taking with him a party of business associates and Alaska gold mine officials. The trip was between Seattle and Juneau, and return, and was made in order to enable the petitioner to inspect the properties of the Alaska gold mine and the progress of their development, and to give the members of the board of directors, a majority of whom were present on the trip, an opportunity to do likewise.

The Cyprus was next used by the petitioner in September, 1915. On that occasion it went from San Francisco to Seattle in ballast, and from Seattle it carried the petitioner and a party of business associates to Alaska. The trip was made by the petitioner for the express purpose of inspecting the progress of the operation and development of the Alaska gold mine property. There were on the trip, in addition to the petitioner and certain business associates interested with him in the Alaska gold mine, the petitioner's wife, whom he had married in April, 1915, and four of her friends. There were no other trips made by the Cyprus in 1915 except some incidental trips about San Francisco Bay, and a short trip to Monterey, which was made...