*1819 A yacht owned by a corporation with which petitioner was affiliated held to be a business asset and the cost of work one on the craft to put it in a serviceable condition to be a business expense.
*627 Proceeding for the redetermination of a deficiency of $204.37 in income tax for 1923. This petitioner contends that certain maintenance charges and depreciation on a yacht owned by the Norris Safe & Lock Co., an affiliated corporation, are deductible from gross income as a business expense, and that the allowance of the deductions will serve to reduce the consolidated net income of the group of which petitioner is a member.
FINDINGS OF FACT.
The petitioner, an association with its principal office in Seattle, Wash., in 1923 was affiliated with the Norris Safe & Lock Co., a *628 corporation, and the Norris Building Co. William G. Norris is president of the Lock Co. and the Norris Building Co.
In 1915 the Lock Co. purchased, at a cost of $6,000, a 75-foot seagoing auxiliary yacht called the La Viejera,*1820 for the purpose of advertising its business and entertaining customers. At various times prior to 1923 the Lock Co. used the yacht to take out customers and attendants at conventions meeting in Seattle. During that period it also entered the yacht in races for publicity purposes. On one occasion the Lock Co. obtained an order amounting to $76,000 after having entertained a group of bankers on the yacht. At other times orders were obtained after prospective customers had been entertained on the yacht as guests of the Lock Co. In 1919 the Lock Co. received as charter hire for the use of the yacht the sum of $2,520, which amount was included in its income-tax return for that year. During one year prior to 1923 the craft was used by the Naval Reserve for the 13th Naval District.
The only trip the yacht made in 1923 was from its place of mooring to the yards of the Lake Union Dry Dock Co., where planking and other parts of the craft which had become unserviceable from dry rot were replaced at a cost of $922.62. Had the replacements not been made the yacht would have sunk at its moorings.
William G. Norris owned a 25-foot craft propelled by an engine of 6 or 8 horse power, *1821 which he used whenever he required water transportation portation in his personal affairs.
In the return filed for the affiliated group for 1923 there were claimed as deductions on account of the yacht, the sums of $1,326.18 and $400 for repairs and depreciation, respectively. In his audit of the return the respondent capitalized $922.62 of the repair item, and disallowed the balance of the deduction, amounting to $403.56, together with the item for depreciation, on the ground that they were personal expenses of William G. Norris.
OPINION.
ARUNDELL: The respondent not only concedes the correctness of the amounts of the claimed deductions, but admits that in case we hold the yacht to be a business facility of the Lock Co. the sums of $403.56 and $400 should be allowed as deductions for repairs to and exhaustion on the property, respectively. As to the $922.62 item, the contention is made that it is a capital expenditure and not a business expense.
We think it is clear that the yacht was acquired and used to promote the business activities of the Lock Co., rather than, as respondent contends, for the personal use of William G. Norris. The yacht was purchased with the intention*1822 of employing it to advertise *629 the business of the Lock Co. and entertain its customers. It was so used until 1923, when, until repairs were made, the physical condition of the craft was such that it could not be employed. Orders were obtained occasionally after prospective customers had been entertained on the yacht, and in 1919 the Lock Co. was paid the sum of $2,520 as charter hire for the use of the yacht. The record does not disclose that William G. Norris ever used the yacht for strictly personal purposes. To take care of his personal needs for a boat, William G. Norris owned and used a much smaller craft. See .
We are also of the opinion that the charge of $922.62 made by the Lake Union Dry Dock Co. for work done on the yacht is deductible as a business expense. The work consisted merely of replacing parts of the yacht which had become unserviceable through dry rot in order to place the boat in operating condition, and was not a betterment of such a character that the cost should be capitalized.
Decision will be entered under Rule 50.