Westervelt v. Commissioner

George C. Westervelt, Petitioner, v. Commissioner of Internal Revenue, Respondent Westervelt v. Commissioner Docket No. 7706 United States Tax Court 8 T.C. 1248; 1947 U.S. Tax Ct. LEXIS 167; June 26, 1947, Promulgated *167 Decision will be entered for the respondent. 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 *168 engaged. John Dwight Sullivan, Esq., for the petitioner. William F. Evans, Esq., for the respondent. Arnold, Judge. ARNOLD *1248 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. *1249 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*169 of income was his retired pay and such amounts as he might make from some 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 was 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*170 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 *1250 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*171 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*172 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*173 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. *1251 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*174 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 had brought them to Houston. Conditions in Houston*175 were so uncertain and indefinite that petitioner deemed it inadvisable 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 1942 he voted in New York City. On his income tax return for the taxable year petitioner reported as community income, received as a resident of Texas from February 20 to November 15, inclusive, two-thirds of his retirement pay, or $ 3,000; salary payments from the Houston Shipbuilding Co. of $ 12,750; and payments from the Harris organizations of $ 35,300, or a total of $ 51,050. One-half thereof, or $ 25,525, was reported by *1252 petitioner, together with sums received before arriving and after leaving Texas, as his individual income, and the other half was reported by his wife on her return for the taxable year. During the same period petitioner received corporate dividends aggregating $ 285. One-half thereof was reported by petitioner on his 1941 income tax return and the other half was reported on the income tax return of his wife as her share of community income. Other corporate dividends received by petitioner *176 during 1941 were reported as his individual income. During 1941 petitioner's domicile was in the State of Florida. His intention to abandon his Florida domicile and establish a permanent home elsewhere did not crystallize until after the taxable year. On his return for the taxable year petitioner deducted $ 769.80 as travel expenses. The deduction was explained in a schedule attached to his return as follows: "One phase of business activity was connected with investigation of land, and of matters connected with cattle, with the intention of going into the cattle business at a favorable time. Foundation laid for this through purchase of cattle from Hudgins Farm, Hungerford, Texas. Actual activity still in primary stages of investigation and examination, and collection of information and data, although cattle for foundation herd have been contracted for." The schedule showed the following amounts as business expenses: Jan. 7-14 Trip from N. Y. C. to Florida, to Texas, to N. Y. C. $ 163.00 Apr. 19-20 Houston, Corpus Christi, Kingsville, Brownsville 157.00 May 1-5 Trip to North Florida from Houston and return 129.60 July 4-7 Round trip Houston and Santa Fe, New Mexico 182.55 Aug. 24-26 Houston to Brownsville, and return 56.40 Sept. 26-28 Round trip Houston, Austin, San Antonio 81.25 Total 769.80 *177 Petitioner was individually interested in getting into the cattle business. In the taxable year he had only a few cattle in Florida and Texas. His foundation herd was acquired in Texas subsequent to the taxable year. His trips in 1941 were partly in connection with his cattle buying in Texas, partly for collecting data and information regarding certain thoroughbred cattle procedures, growing grasses for improved pastures, and investigating land and other items in connection with the cattle business, and partly in making arrangements for carrying on the cattle business in Texas and in Florida. His trips were usually made in a hired automobile, but his January trip was by train and his July trip was by airplane. On his April trip petitioner bought some bulls from the King ranch near Kingsville, Texas. At the time he made his airplane trip to Santa Fe, New Mexico, petitioner's family was living in Santa Fe. *1253 Petitioner was not engaged in the cattle business during the taxable year. OPINION. The principal issue is whether certain compensation and dividends received by petitioner while in Texas constituted community income. Petitioner's right to report this income as income*178 of the marital community depends in the first instance upon whether he abandoned his Florida domicile and established a new domicile in Texas. As proof that he effected a change in his domicile, petitioner offered his own testimony and certain letters which he contends show his intention to change his domicile. Respondent contends that petitioner's domicile remained in Florida during the taxable year and that petitioner is not entitled to return the income in question as community income under the laws of Texas. "Residence in fact, coupled with the purpose to make the place of residence one's home, are the essential elements of domicile." Texas v. Florida, 306 U.S. 398, 424, 83 L. Ed. 817, 59 S. Ct. 563. A change of domicile requires an abandonment of the old and an acquisition of a new domicile, coupled with the intention of making the last acquired residence a permanent home. Lee Rosenberg, 10 B.T.A. 601; affd., 37 F.2d 808, and authorities cited. The courts regard abandonment or change of domicile as a very serious matter and an intention to make a change requires proof by very satisfactory evidence. Samuel W. Weis, 30 B.T.A. 478, 487,*179 and cases there cited. Residence alone is neither conclusive nor sufficient evidence of a change in domicile, Mitchell v. United States, 88 U.S. 350, 21 Wall. 350; 1, 22 L. Ed. 584Weis case, supra. *180 Both parties agree and we have found as a fact that petitioner's established residence and domicile in 1940 was in Florida. Petitioner has shown that he left Florida with the possibility in mind that he might give up his Florida home at some time in the future. He has shown that he resided in Texas for about nine months while constructing the shipyard at Houston. His letters to friends and relatives show that he was considering the possibility of settling his family permanently in Texas. But the letters, his own testimony, and his conduct show that he never established a home in Texas. His family never actually resided with him in a home in Texas. They *1254 visited him after school was out in the summer of 1941 for two weeks or so, and then rented a house in Santa Fe, New Mexico. They visited him again on the way back to their Florida home, prior to the girls' reentry into school in the fall term of 1941. His family did not again return to Texas. By the middle of November 1941 his duties with the Harris organizations required him to be in New York. It was to New York that he moved his family at the end of the school year in May 1942. The most that can be said for *181 petitioner's residence in Texas is that it was transitory. Whatever consideration he had given to making Texas his permanent home was put aside and forgotten before any positive steps were taken to abandon his Florida home and establish a new home in Texas. His home in Texas was primarily a hotel room. He lived practically out of a suitcase. By his own admissions conditions were too unsettled and uncertain in Houston to break up his Florida home and settle his family in Texas. We agree with respondent that petitioner's domicile in 1941 was in Florida. Furthermore, it is doubtful whether petitioner could qualify as a resident under the laws of Texas. Article 2958 of the Texas Revised Civil Statutes, which relates to residence, provides in part as follows: The "residence" of a single man is where he usually sleeps at night; that of a married man is where his wife resides, or if he be permanently separated from his wife, his residence is where he sleeps at night; * * * In Fidelity Deposit Co. of Maryland v. First National Bank of Teague, 113 S.W.2d 622, the Texas court, speaking with reference to article 2958, and particularly with reference*182 to that portion thereof which provides that the residence of a married man is where his wife resides, stated: "While said article is primarily an election statute, the rules for determining residence prescribed therein have been applied in other civil cases." The remaining issue is whether $ 769.80 expended by petitioner was for ordinary and necessary expenses of a trade or business deductible under section 23 (a) (1) (A) of the Internal Revenue Code. We can not agree with petitioner that he was engaged in carrying on a cattle business during the taxable year. His testimony shows that the expenses claimed as deductible were traveling expenses. The trips were preparatory to entering the cattle business. Petitioner was collecting data, investigating lands and methods used in the cattle business and grasses for pasture land, seeking a foundation herd, and acquiring bulls for his foundation herd, which he acquired subsequent to the taxable year. Petitioner's testimony is general in character. He produced no books of account of the cattle business, no receipts, no canceled checks or stubs, and no breakdown showing railroad and airplane fares, car hire, hotel bills, or other items*183 making up the $ 769.80 total. Except for the April trip, petitioner made no effort to identify *1255 any trip with a business purpose. We can not assume that his trip to Santa Fe in July was for the purpose of inspecting Hereford cattle. If that was the purpose of the trip, he should have so testified. Every opportunity was afforded him on cross-examination to give in detail the business purposes of the several trips. It may well be that some of the expenditures were capital in nature, but the evidence here will not justify this classification. It is sufficient for our purposes to hold, as we do, that the expenditures were not ordinary and necessary expenses of a trade or business carried on by the taxpayer. Decision will be entered for the respondent. Footnotes 1. "The court's opinion in this case sets forth the following principles regarding domicile (p. 353): "A domicile once acquired is presumed to continue until it is shown to have been changed. Where a change of domicile is alleged the burden of proving it rests upon the person making the allegation. To constitute the new domicile two things are indispensable: First, residence in the new locality; and, second, the intention to remain there. The change cannot be made except facto et animo↩. Both are alike necessary. Either without the other is insufficient. Mere absence from a fixed home, however long continued, cannot work the change. There must be the animus to change the prior domicile for another. Until the new one is acquired, the old one remains. These principles are axiomatic in the law upon the subject."