Westervelt v. Comm'r of Internal Revenue

• Decision Date: 26 June 1947
• Docket Number: Docket No. 7706.
• Parties: GEORGE C. WESTERVELT, PETITIONER, v. COMMISSIONER OF INTERNAL REVENUE, RESPONDENT.
• Court: U.S. Tax Court

8 T.C. 1248

GEORGE C. WESTERVELT, PETITIONER,

v.COMMISSIONER OF INTERNAL REVENUE, RESPONDENT.

Docket No. 7706.

Tax Court of the United States.

Promulgated June 26, 1947.

1. During a portion of the taxable year 1941 petitioner was engaged in constructing a shipyard in Houston, Texas. His family resided in Florida in the family home throughout 1941, except between school terms, when they visited Houston and various places in Texas and rented a house in Santa Fe, New Mexico. After finishing at the shipyard in November petitioner resided in New York. At the end of the school term in 1942 his family joined him and they have continued to reside in New York. Held, petitioner is not entitled to report any part of his income on a community property basis.

2. Petitioner made several trips during 1941 collecting data and information regarding thoroughbred cattle procedures and grasses for pasture lands and investigating land and other items in connection with the cattle business. He deducted his traveling expenses on the trips as ordinary and necessary expenses of a cattle business. Held, petitioner has failed to establish that he was engaged in carrying on the cattle business in the taxable year or that the expenditures were ordinary and necessary expenses of a trade or business in which he was engaged. John Dwight Sullivan, Esq., for the petitioner.

William F. Evans, Esq., for the respondent.

This proceeding involves an income tax deficiency for 1941 of $14,731.24. Two issues are presented: (1) Whether petitioner's salary and certain dividends were community income, and (2) whether traveling expenses in the amount of $769.80 were expenses of a trade or business.

FINDINGS OF FACT.

The petitioner filed his income tax return for the taxable year with the collector of internal revenue for the second district of New York. The address given upon his return, 27 William Street, New York, N.Y., was the office address of his employer. Petitioner's wife filed her income tax return with the collector of internal revenue for the district of Florida. The address given on her return was 1014 Hardee Road, Coral Gables, Florida.

For the period 1934 to 1940, inclusive, the petitioner, a retired captain of the United States Navy, lived with his family, his wife and two daughters, at an established residence and domicile in Florida. He and his wife owned their home at the address given on her tax return in Coral Gables. His source of income was his retired pay and such amounts as he might make from small investments or speculation. Up until October 1940 his time and attention were devoted almost exclusively to an attempt to develop a land area in Florida into a farming and cattle-raising area through a family corporation in which he was the majority stockholder.

By the latter part of 1940 petitioner was convinced that this country's entry into the war was only a matter of time. He s 61 years of age and had been retired from the Navy for 13 years. In October 1940 he went to New York for consultation in connection with the manufacture of 3-inch guns and projectiles therefor. While in New York he also discussed associating himself with Admiral Frederick R. Harris, a naval engineer.

At or about this time and while petitioner was in New York, he received orders from the Navy Department to report at Okalaka, Florida, on December 6, 1940, for a physical examination. If physically qualified he was ordered to report to Atlanta, Georgia, for active duty. Petitioner failed to qualify for active duty and returned the next day to New York.

Following his return petitioner consummated an arrangement with Admiral Harris whereby he became associated with the latter in all of his activities, corporate and individual, except one. Under the arrangement petitioner was to participate to the extent of 20 per cent in the profits derived by the Harris organizations and in addition was to have a drawing account. The Harris organizations included the Frederick R. Harris Engineering Corporation, Construction Management, and Frederick R. Harris, Inc. The Harris organizations had their headquarters in New York and New Jersey, but they operated anywhere in the world that work was offered. Petitioner's arrangement provided that he should take specific charge of the shipbuilding, ship repair, and management activities of the Harris organizations.

Petitioner's first assignment was in connection with the proposed construction of a shipyard at Houston, Texas, for the Todd Shipbuilding Corporation, which was then negotiating for a contract with the U.S. Maritime Commission. In anticipation of the Todd interests securing the contract, petitioner, as the representative of the Harris organizations, went ahead with the preliminary plans so that construction of the shipyard and the building of ships could start as soon as the contract was secured.

In the latter part of December 1940 petitioner returned to Florida to spend the Christmas holidays with his family. He left Florida three or four days after Christmas for Houston on a preliminary survey of the proposed shipyard.

During November and December 1940 and January 1941, petitioner wrote his mother and brother, who resided in Texas, and a friend in Texas, about his personal plans. Statements therein were to the effect that he was leaving Florida; that the girls would have to finish the school year and then the family would join him wherever he was; that he had no plans for disposing of his Florida property, as market conditions were unfavorable; that if the war lasted as long as he thought it would ‘we shall probably wash up here‘; that maybe ‘we can work out some way of living in Texas‘; that he would like living in Texas and believed his family would too; and that he hoped the family would like Texas as it ‘is quite likely we may live there permanently.‘

Petitioner arrived in Houston on or about January 2, 1941, and made his temporary headquarters at the Rice Hotel, awaiting execution of the contract between Todd Shipbuilding Corporation and the Maritime Commission. With the execution of the contract on January 11, 1941, the Todd organization created a separate corporation, Houston Shipbuilding Co., which was financed by the Todd Shipbuilding Corporation. Petitioner was made vice president and general manager of the new corporation. He occupied this position as the representative of the Harris organizations and for the purpose of carrying out their contract with the Todd interests, which was to design, build, organize, and manage the Houston shipyard. Petitioner received a salary of $12,000 at first and later a salary of $18,000. This salary, while paid to petitioner by Houston Shipbuilding Co., was a part of the earnings of the Harris organizations and it was taken into account in determining the profits in which petitioner shared. Petitioner remained at the Rice Hotel while the shipyard was being constructed, except for a period of about two weeks in the summer, when his wife and family were in Houston. After a two-day stay at the Rice Hotel, petitioner and his family moved to another hotel because the Rice management objected to the presence of the family dog.

When petitioner left Florida for Houston late in December 1940 his family continued to reside in their home at Coral Gables. He took none of his personal property to Texas except his wearing apparel and things of that kind. His personal automobile was stored in Florida. His daughters were attending a private school and their tuition was paid to the end of the school year. His family remained in Florida until the end of the school term in or about May 1941. When the school term ended the home in Coral Gables was closed, and petitioner's family went to Houston. After about two weeks in Houston with petitioner, the family went to Santa Fe, New Mexico, where they rented a house for about six weeks. From Santa Fe the family went to Fort Davis, Texas, for a visit, then to San Antonio, Texas, for a visit with petitioner's mother. After the visit in San Antonio petitioner's family visited ten days or two weeks with him in Houston. They then returned to Florida, reopened their home in Coral Gables, and the girls reentered school. Petitioner's family remained in their Coral Gables home until the end of the school year in May 1942, when they closed their home in Coral Gables, stored the furniture, and joined petitioner in New York. Petitioner's household furniture remained in storage in Florida until the latter part of 1945. The family home in Coral Gables was sold in July 1945.

Petitioner's stay in Houston was terminated on or about November 15, 1941. By that time the plans for the shipyard had been completed. The first 6 ways were practically completed, ships had been laid on at least 5 of the ways, an organization of 15,000 people had been built up, and other management had been put in charge. The incidents of World War II and the demands on the Harris organizations by the Navy Department and others had increased to such an extent that petitioner returned to New York to handle the shipbuilding repair and the management activities of the widespread Harris organizations.

The construction job which petitioner supervised at Houston was an exceedingly high pressure job. It took all the hours a day that he had to put in on it. The shipyard plant was built under wartime conditions so that ships could be turned out as quickly as possible. The demands of the job would have prevented petitioner from giving much time to his family if he brought them to Houston. Conditions in Houston were so uncertain and indefinite that petitioner deemed it advisable to break up his Florida home and take his daughters out of school.

In 1940 petitioner voted in the State of Florida. He did not vote during the taxable year in Florida or elsewhere. In...