*300 Decisions will be entered under Rule 50.
1. Expenses for legal fees and costs incurred in a Court Martial proceeding against petitioner were deductible from income of petitioner.
2. Expenses incident to defense of an action brought by his divorced wife to collect payments of money awarded the divorced wife in a divorce action are not deductible from income of petitioner.
3. Depreciation on a ranch house, the sole use of which was the occasional occupancy by petitioner and his family, held, not allowable as a business deduction.
*157 The respondent determined deficiencies in petitioner's tax liability as follows:
| 1943 | $ 6,204.99 |
| 1944 | 3,439.12 |
| 1945 | 2,077.84 |
| 1946 | 5,185.25 |
The issues arose from the disallowance by respondent of certain deductions as business expenses for legal fees and of depreciation on petitioner's ranch house and its furnishings. Other adjustments will be made in the recomputation consequent hereon. Part of the facts were stipulated, the stipulation*301 being incorporated herein by reference.
FINDINGS OF FACT.
Petitioner is an individual with a residence in Beverly Hills, California. The returns for the periods involved (excepting 1943) were *158 filed with the collector of internal revenue for the sixth district of California.
Petitioner and Anita Z. Howard were married June 1, 1925. On August 23, 1938, they executed a property settlement agreement providing, in part, that the petitioner would pay to Anita Z. Howard during her natural life, or until she remarried, a monthly sum of $ 1,250, commencing August 1, 1938. On November 5, 1938, Anita Z. Howard was granted a final divorce by a decree of the Second Judicial District Court of the State of Nevada in and for the County of Washoe, which decree approved, ratified and adopted in its entirety, the property settlement agreement of the parties and expressly ordered and adjudged that the covenants therein contained should be performed.
Petitioner made the payments to Anita Z. Howard of $ 1,250 per month, as specified in the property settlement agreement, from August 1938 through the calendar year 1941, and then discontinued such payments.
Thereupon, Anita Z. Howard commenced*302 an action against petitioner in the Superior Court of the State of California in and for the City and County of San Francisco, to recover the monthly payments alleged to be due her under the terms of the property settlement agreement, and praying that the Nevada decree be established as a foreign judgment and enforced by order of the California court.
Petitioner filed an "Answer and Cross-Complaint" in the action, denying liability upon two grounds:
a. That Anita Z. Howard had remarried under common law and hence his obligation to make monthly payments had terminated under the terms of the property settlement agreement; and
b. That the property settlement agreement was null and void, having been procured by the fraud and deceit of Anita Z. Howard, in that during their married life, and prior to the execution of the agreement, she had represented to petitioner that she had been a faithful wife, whereas in truth and fact for 4 years prior to the execution of the agreement she had been an unfaithful wife to plaintiff, unbeknownst to him.
The cross-complaint prayed for the cancellation and annulment of the property settlement agreement and that portion of the decree of the Nevada*303 court which purported to approve and adopt the same.Anita Z. Howard filed a demurrer to the Answer and Cross-Complaint, which was sustained by the Superior Court. The decision was reversed by the District Court of Appeal, First District, Division 2, California, on April 24, 1945, in Howard v. Howard, 157 Pac. (2d) 874, but was affirmed by the Supreme Court of California on November 27, 1945, in Howard v. Howard, 163 Pac. (2d) 439. The *159 opinions by the District Court of Appeal and the Supreme Court of California, and the facts set forth therein were, by stipulation of the parties, incorporated herein and made a part hereof.
Petitioner was commissioned a Captain in the United States Army Reserve on or about April 27, 1942, and in March 1944, while still a Captain, was released from active duty as a reserve officer for medical reasons. He was not awarded disability retirement benefits. On or about November 20, 1943, a General Court Martial was appointed to try petitioner on the charge of Conduct Unbecoming an Officer and a Gentleman, the specification of the alleged violation being that he --
* * * did, *304 without due cause, from about 1 January 1942, to about 17 November 1943, dishonorably fail, refuse, and neglect to pay to Anita Zabala Howard, divorced wife of said Captain Lindsay C. Howard, the sum of One Thousand Two Hundred Fifty ($ 1,250.00) Dollars per month as and for the support of said Anita Zabala Howard, which sum the said Captain Lindsay C. Howard was ordered to pay by a valid decree, dated 5 November 1938, rendered by a court of competent jurisdiction in the case of Anita Zabala Howard, Plaintiff, versus Lindsay C. Howard, Defendant, same being Cause No. 60623, in the Second Judicial District Court of the state of Nevada, in and for the County of Washoe, Nevada.
As attorneys' fees, expenses and court costs in the Court Martial proceedings and in the litigation in the Superior Court, District Court of Appeal, and Supreme Court of California, petitioner paid the following amounts:
| 1943 | |||
| Date of check | To whom issued | Check | Amount |
| No. | |||
| 2/23/43 | Hart & Hart | 7737 | $ 52.00 |
| 3/16/43 | Walter McGovern | 7761 | 197.00 |
| 5/ 5/43 | Williams & Williams | 7790 | 25.00 |
| 5/17/43 | Hart & Hart (shorthand, etc., In re: | ||
| deposition) | 7804 | 13.09 | |
| 6/17/43 | Walter McGovern | 7830 | 63.75 |
| 8/ 5/43 | Baker, Selby & Ravenel (attorneys in | ||
| Washington | 7855 | 522.80 | |
| 9/14/43 | Walter McGovern | 7890 | 5,000.00 |
| 12/ 7/43 | Walter McGovern (services of Edward Bergner) | 7984 | 79.50 |
| 12/13/43 | Walter McGovern (disbursements -- Howard v. | ||
| Howard) | 7991 | 489.34 | |
| 12/16/43 | Walter McGovern (expense of Howard v. | ||
| Howard) | 7995 | 525.43 | |
| 12/23/43 | Walter McGovern | 8004 | 50.00 |
| 12/29/43 | do | 8013 | 3,000.00 |
| Total | $ 10,017.91 | ||
| 1944 | |||
| Date of check | To whom issued | Check | Amount |
| No. | |||
| 1/ 4/44 | Walter McGovern | 8017 | $ 253.73 |
| 2/ 1/44 | do | 8036 | 195.75 |
| 3/27/44 | Crocker 1st Nat'l. Bank (In re: Howard v. | ||
| Howard) | 8069 | 150.00 | |
| 3/31/44 | Gus Ringole | 8074 | 2,550.00 |
| 4/ 3/44 | Otton J. Bauer (Howard v. Howard -- | ||
| Transcript on Appeal) | 8078 | 265.00 | |
| 4/ 3/44 | Walter McGovern (telephone -- Howard v. | ||
| Howard) | 8077 | 31.26 | |
| 5/ 3/44 | Notary fee | (petty | .50 |
| cash) | |||
| 5/ 4/44 | Fee to file Revocation of Power of Attorney | ||
| $ 10 | 8092 | ||
| Refund $ 7 | 3.00 | ||
| 6/12/44 | Notary fees | 8110 | 2.00 |
| Total | $ 3,451.24 |
| 1946 | |
| Expenditure | Amount |
| Walter McGovern | $ 5,000.00 |
| Printing petition for rehearing | 92.21 |
| Costs in trial court | 196.80 |
| Costs on appeal | 100.00 |
| Release of attachment | 2.00 |
| Recording satisfaction of judgment | 2.00 |
| Total | $ 5,393.01 |
Petitioner was engaged in the trade or business of being an officer in the United States Army from the date he was commissioned a Captain on April 27, 1942, through the entire year 1943, and if he had been convicted in the General Court Martial proceedings he would have been discharged from such trade or business in view of the 95th Article of War (10 U. S. C. A. Section 1567), which reads as follows:
Any officer or cadet who is convicted of conduct unbecoming an officer and a gentleman shall be dismissed from the service.
All of the above fees paid to lawyers were incurred either in the civil litigation in the California courts respecting nonpayment of alimony or in the General Court Martial proceedings, in which Court Martial proceedings petitioner was acquitted of the charges specified.
In addition to his residence in Beverly Hills, the petitioner purchased a ranch in Ventura County, *306 California, on which was located a ranch house. The petitioner, in claiming depreciation in his Federal income tax returns on the ranch house and furnishings, designated it as the "manager's house" or the "owner's house." In addition to the ranch house, there is a foreman's house, as well as bunk houses where the ranch hands sleep and eat their meals. Petitioner had no ranch manager.
The Howard ranch is only an hour's drive from the petitioner's residence in Beverly Hills and he drives up about twice a week. On such trips he goes alone and usually sleeps and eats his meals at the bunk house. The ranch house is used very little. Petitioner and Mrs. Howard usually take their children to the ranch for two or three weeks in the summer when the children are out of school and occasionally on weekends. Part of the time the Howards use the ranch house on their vacations, just as one would use a beach house or a cabin in the mountains. When the ranch house is not so used, it is vacant.
Respondent disallowed depreciation claimed by petitioner in his returns for depreciation on the ranch house and furnishings. The respondent also disallowed, as being personal expenses, all of the fees*307 paid to lawyers enumerated above.
*161 OPINION.
Respondent admits that the petitioner, while on active duty as a captain in the Army, was engaged in a trade or business. Albeit the original instigation of the Court Martial proceedings was at the behest of the petitioner's divorced wife, the charges were made and the trial was conducted and prosecuted by petitioner's employer, the United States Army. The 95th Article of War (10 U. S. C. A. Section 1567) states that a conviction of "conduct unbecoming an officer and a gentleman" carries with it the penalty of dismissal from the service. Thus it was that petitioner was defending himself against possible loss of his commission as an officer in the Army, which was a source of part of his income. The fact that he had other income is immaterial. In Commissioner v. Heininger, 320 U.S. 467">320 U.S. 467, the Supreme Court said:
* * * Upon being served with notice of the proposed fraud order respondent was confronted with a new business problem which involved far more than the right to continue using his old advertisements. He was placed in a position in which not only his*308 selling methods but also the continued existence of his lawful business were threatened with complete destruction. So far as appears from the record respondent did not believe, nor under our system of jurisprudence was he bound to believe, that a fraud order destroying his business was justified by the facts or the law. Therefore he did not voluntarily abandon the business but defended it by all available legal means. To say that this course of conduct and the expenses which it involved were extraordinary or unnecessary would be to ignore the ways of conduct and the forms of speech prevailing in the business world. * * *
The fact that petitioner was successful in defending himself against the charge and was acquitted demonstrates that petitioner was justified in his position that the charge was baseless. We are of the opinion that under the facts here present legal expenses and costs incurred by petitioner in contesting the Court Martial proceeding constituted legitimate business expenses and were deductible as such. We see no merit in respondent's argument that the item of $ 522.80, supra, for services in attempting to prevent the institution of the trial by Court Martial*309 was against public policy. Petitioner knew of the threatened action and believed that he was not guilty of the impending charge of misconduct. There was nothing improper in making such representations to the proper authority.
From a careful study of the evidence, which lacks much of being precise and complete, we find that petitioner incurred and paid legal expenses in the amount of $ 3,522.80 in 1943 and $ 2,550 in 1944 in connection with the Court Martial proceedings, which amounts are deductible as business expenses.
*162 The legal expenses incident to the case of Howard v. Howard are different. The litigation had its genesis in the personal relationship of the petitioner and his former wife and stems from the property settlement agreement of 1938. That contract was followed by a divorce and final decree which incorporated the contract provision for payment of the sums fixed therein. The litigation known as Howard v. Howard was predicated on this decree and was instituted by the former wife to compel compliance therewith. It was in no wise related to petitioner's business activity. The whole situation involved personal (as distinguished from business) *310 relationships and personal considerations. It never lost its basic character or personal nature. Throughout the entire history and development of income tax law there has existed a sharply defined distinction between business expenses allowable as deductions and nonallowable personal expenses. If the bars were let down so as to accommodate petitioner's position and approval were given to his argument, this historic distinction would practically cease to exist. The contention that such expenditures are allowable as expenses of retaining income previously earned leaves us unmoved.
It may seem strange that we find no decided case squarely in point. Perhaps this is because the answer seems so obvious that no one has heretofore raised the issue. Be that as it may, we find no basis for petitioner's contention and accordingly affirm respondent's disallowance of the legal expenses incident to the case of Howard v. Howard. The Kornhauser case (Kornhauser v. United States, 276 U.S. 145">276 U.S. 145) is not in point since the expenses there under study grew directly out of and were proximately related to the business activity of the taxpayer. Similar*311 observations might be made as to Commissioner v. Heininger, supra.
Petitioner claimed, and respondent disallowed, depreciation on a ranch house and its furnishings. Petitioner contends that the ranch house was not his residence but was used for business purposes. We disagree with the petitioner. Petitioner went to the ranch on the average of twice a week and usually slept in the bunk house where the ranch hands lived. The only use made of the ranch house was perhaps once a month by petitioner, or by petitioner and his family for two or three weeks in the summertime when the children were out of school, and occasionally on a week end. Petitioner and his family used the ranch house much as one "would use a beach house or a cabin in the mountains." It was apparently never used for business purposes. There was another house which was occupied by the man in charge of petitioner's horses. He had no ranch manager.
A man may have more than one residence. The amount of its use is not controlling. Here there is no evidence of any business use of *163 the property nor does the evidence show affirmatively the size, the purpose or the use of the*312 ranch. Except by indulging in unwarranted inferences from the record, we do not know whether it was a business activity or a hobby. Under the facts of record, we have no alternative to holding that petitioner has failed to show that his use of the ranch house was a business use. His bald statement that it was not his residence does not prove his contention. We affirm the Commissioner on this point.
Decisions will be entered under Rule 50.