*1999 Amount of deduction allowable to a motion picture corporation for expense of operation and maintenance of a yacht necessary for and used in making marine pictures, but also used for pleasure purposes, determined.
*917 In this proceeding redetermination is asked of a deficiency for the year 1922 amounting to $2,192.92. The error alleged is the disallowance of a deduction of $17,543.35 admittedly expended by the corporation for the upkeep and operation of a yacht.
FINDINGS OF FACT.
Hal E. Roach Studios was incorporated under the laws of California and in the year involved in this proceeding was engaged in the production of motion pictures and photoplays. Part of the pictures it produced were marine pictures. These and its other productions were distributed by the Pathe Co. Late in the year 1921 and early in the year 1922 the petitioner was producing a series of marine pictures called "The Vanity Fair Pictures." The corporation had owned a yacht called*2000 the Par, which it used in making the marine pictures. In the motion picture industry a boat used for marine picture purposes is used as a location point, as a means of transportation of actors, actresses and necessary properties, and for any convenient purpose in the industry connected with making marine pictures. The Par was a 65-foot cruising yacht and was operated by one man. In the latter part of 1921 or early part of 1922 to Par was burned and no part of it remained except the engine. At that time it was difficult to obtain boats for picture production. *918 Thereupon the petitioner ordered a new yacht to be built, which was called the Gypsy. The engine which had been in the Par was installed in the Gypsy, but was soon discovered to be too small and a new engine was acquired. The Gypsy was much larger than the Par. Its operation, maintenance and upkeep required a crew consisting of a captain, who also acted as engineer, and three other men. The Gypsy had living quarters for passengers. It was completed and put into commission in the early spring of 1922. Shortly after its completion the Pathe Co. refused to accept any more of*2001 the "Vanity Fair" series of marine pictures. Thereafter, during the year 1922, the Gypsy was used very little for marine picture purposes.
The Gypsy was kept in commission all the year. Its home port was Wilmington, Los Angeles Harbor. It was necessary to keep a full crew on it for the purposes of maintenance and upkeep. It did practically no cruising, but did run between its moorings in Los Angeles Harbor and its moorings in Avalon Harbor, Catalina Island, often staying at the latter place for several days. It cost little more to run the boat between Los Angeles Harbor and Avalon Harbor than to keep it at its moorings in Los Angeles Harbor. Much of the time during 1922 the Gypsy remained at its moorings and was not in immediate use for any purpose. It was, however, used more for pleasure trips than for the purpose of picture making. Hal E. Roach and members of his family - especially his father and mother - made trips on the Gypsy from Los Angeles Harbor to Avalon Harbor, staying at the latter place often over week-ends and for days at a time, and occupying the yacht's living quarters. At such times Hal E. Roach personally paid for necessary supplies such*2002 as food for himself, his family and his guests. The cost of maintenance and upkeep of the yacht was charged to and paid by the Hal E. Roach Studios. During 1922 the cost of maintenance and upkeep amounted to the sum of $17,543.35.
OPINION.
VAN FOSSAN: In methods of operation, standards of expenditure and concept of relative money values it is not perhaps too much to say that the moving picture industry is sui juris. Its criteria of what are ordinary and necessary expenditures are very different from most businesses. Thus it is that the building by petitioner of a small yacht for use in the production of marine pictures was under the circumstances of this case entirely understandable. In fact, we do not understand respondent to question petitioner's judgment in so doing. The only question is whether the expense of upkeep and operation was an ordinary and necessary expense.
*919 Since the acquisition of a yacht for use in petitioner's business was a proper business investment, it would seem to follow that the expense of its upkeep and operation would ordinarily be properly chargeable to the business. See *2003 . An exception to this conclusion, however, arises in the case of personal use.
The facts show that the petitioner acquired the boat solely for business purposes; that it used it in the making of a series of pictures; that after the failure of these pictures to sell petitioner made little use of the boat in its business. The evidence further establishes that the boat was used to an undetermined extent by various persons for pleasure, but that at such times all expense for food and supplies was personally paid, and that the only considerable expense paid by the petitioner which would otherwise not have been incurred was for fuel oil.
It is a well known fact, and the evidence here is to the same effect, that a boat deteriorates in condition and value very rapidly if not kept constantly in first-class shape. The expense of so doing would be a normal and proper expense of petitioner's business.
Albeit the boat was not used more than a dozen times for picture production, it was at all times kept available, and had the boat not been used at all for pleasure much of the expense of maintenance would have been incurred nevertheless.
*2004 Though the evidence was not precise on the relative costs incurred for business and pleasure use, we are satisfied that at least one-half of the expense was an ordinary and necessary expense of petitioner's business, and accordingly we allow the sum of $8,776.67 as a deduction.
Decision will be entered under Rule 50.