Duval Motor Co.
v.
Comm'r of Internal Revenue

Tax Court of the United States.Apr 16, 1957
28 T.C. 42 (U.S.T.C. 1957)

Docket No. 52499.

1957-04-16

DUVAL MOTOR COMPANY, PETITIONER, v. COMMISSIONER OF INTERNAL REVENUE, RESPONDENT.

William R. Frazier, Esq., and James P. Hill, Esq., for the petitioner. Hugh G. Isley, Jr., Esq., for the respondent.


William R. Frazier, Esq., and James P. Hill, Esq., for the petitioner. Hugh G. Isley, Jr., Esq., for the respondent.

1. Petitioner, an automobile dealer, assigned from its new car inventory certain automobiles, each year, to company officials, new car salesmen, and department heads. The automobiles were to be used by these individuals for a limited period for the display to the public of the current models of the new automobiles currently held for sale, for the purpose of showing the new models to customers at hand and demonstrating to them the performance thereof, and other uses in harmony with these main purposes. Upon the introduction of new models, or at or prior to the time the mileage thereon had reached 15,000 miles, usually in a year or less, the automobiles so assigned were replaced with new cars and those so withdrawn were sold from petitioner's used car lot. Held, that the cars in question were held by petitioner primarily for sale to customers in the ordinary course of its business, and it was not entitled, under section 117(j), I.R.C. 1939, to capital gains treatment of the gain realized on their sale.

2. Certain other vehicles, including pickup trucks, had been generally and indefinitely committed to use in the conduct of the operation of petitioner's parts and service departments, and had been so used from approximately 2 1/2 years to 4 years. During one of the taxable years herein, 5 such vehicles were withdrawn from use by such departments, placed on petitioner's used car lot, and sold from that lot by petitioner's used car salesmen. Held, that the 5 vehicles were property used in petitioner's trade or business, within the meaning of section 117(j), and petitioner is entitled to capital gains treatment of any gain realized upon the sale thereof.

3. Determination made of amounts representing reasonable compensation paid to the wife of petitioner's president for services rendered by her to petitioner during the taxable years.

4. Determination also made as to deductibility of amounts paid by petitioner to certain social and recreational clubs and of payments or contributions made to various organizations and individuals.

The respondent determined deficiencies in petitioner's income and excess profits tax for the fiscal years ended March 31, 1951, and March 31, 1952, of $7,972.65 and $10,302.58. By amendments to his answer, he now claims additional deficiencies for the said years of $1,998.83 and $1,112.

The questions remaining for decision are (1) whether certain automobiles sold by petitioner in the taxable years constituted property used in its trade or business, within the meaning of section 117(j) of the Internal Revenue Code of 1939, so as to permit capital gains treatment of the gain realized thereon; (2) whether amounts shown to have been paid as salary to the wife of petitioner's president were deductible as compensation for services rendered by her to petitioner; and (3) whether membership fees in various social and recreational clubs, dues and expenses paid to those clubs, and certain contributions or donations made by petitioner constituted ordinary and necessary expenses incurred by it in carrying on its business.

FINDINGS OF FACT.

Some of the facts have been stipulated and are found as stipulated.

Petitioner is a Florida corporation, and has its principal place of business in Jacksonville. It filed its corporation income and excess profits tax returns for the fiscal years ended March 31, 1951, and March 31, 1952, with the collector of internal revenue for Florida. It reported its income on an accrual basis of accounting.

Under a Ford Motor Company franchise for Duval County, Florida, petitioner conducts an automobile sales business, including the sale of both new and used automobiles and trucks. In that business, it operates a new car department, a used car lot, a parts department, a service department, and a body shop. During the taxable years its parts distributing business covered an area approximately 100 miles west and south of Jacksonville, as well as Duval County, in which Jacksonville is located.

During the fiscal year ended March 31, 1951, petitioner sold 1,826 new cars and trucks and 2,415 used cars and trucks, and in the fiscal year ended March 31, 1952, it sold 1,286 new cars and trucks and 2,500 used cars and trucks. It paid cash for all new cars and trucks delivered to it from the Ford Motor Company.

It was petitioner's practice that its executives, new car salesmen, and department heads should have the use of and drive various models of the current new car which it had for sale. To that end, as new models appeared, petitioner assigned new cars to the individuals in question from the new line of models received. The cars so assigned were to be driven by the individuals to whom they were assigned for the purpose, in part, of displaying to the public and the potential customers therein the various new models of the Ford line of cars. In keeping with that purpose, these cars were at times also made available for use in parades promoted by civic and similar organizations, petitioner furnishing the drivers as well as the cars. They were also used by the new car salesmen in showing the new models to the customers at hand and demonstrating to them the performance thereof. In addition, there were times when such a car might be loaned to a purchaser of a new car pending delivery of the car purchased. The salesman ordinarily had control of the car assigned to him. He would drive it to and from work, and it was available to him at any time he wanted it. There were times, however, when a car so assigned might be borrowed for running an errand in connection with the general operation of the business, and at times such a car might be loaned temporarily to a customer while his car was being serviced or repaired, but such uses were exceptions rather than the rule. The company porter had a car regularly assigned to him for running errands, and the service department had a car regularly assigned to it for loan to customers pending the repair or servicing of their cars. If the customer was a prominent one or the job was of sufficient importance and one of the new model cars assigned as indicated was available, such car might be loaned to the customer. Petitioner did not like to loan the use of the cars in question in that manner, and did so only occasionally; and the loans which were so made did not constitute a substantial factor in its business.

It was petitioner's practice to replace the cars so assigned to its new car salesmen, executives, and department heads with new cars as soon as new models were introduced by and received from the Ford Motor Company; and in any event, to replace them with new cars at or prior to the time the mileage thereon had reached 15,000 miles. It is normal in the automobile business to introduce new models each year, but in the taxable years herein, and by reason of the effect of the Korean conflict on business generally, slightly more than a year may have elapsed in one or both of the years. In the main, the cars so assigned were used for the purposes indicated, for a year or less, but in a few instances the period of such assignment may have extended more than a year.

Upon the withdrawal of such cars from the new car salesmen, company executives, and department heads, they were placed on petitioner's used car lot and thereafter offered for sale and sold to the public in the ordinary course of petitioner's trade or business. After once being assigned to the used car lot they remained so assigned until sold and in such interval they were not used in any way by petitioner in the operation of its business.

Petitioner maintained its accounting records during the years in question in conformity with the accounting procedure prescribed by the Ford Motor Company for its dealers. Under that system of accounting, all new cars and trucks were first entered in account No. 120, designated as ‘New Car and Truck Inventory.’ When automobiles were assigned to petitioner's executives, new car salesmen, and department heads, as indicated above, they were transferred to account No. 153, entitled, ‘Company Cars.’ They remained in that account until they were sold from the used car lot and were never transferred on petitioner's books into a car inventory account. The first information, at least the first formal notice, the bookkeeper would have of the withdrawal of a car from its assignment to a salesman, company executive, or department head, would be the receipt of the sales slip covering the sale of the car from the used car department.

The record does not show, accounting-wise, just how the used cars in stock were carried on petitioner's books.

Also carried in the Company Cars account were such vehicles as pickup trucks assigned to the service and parts departments; the pickup truck assigned to the body department; a wrecker assigned to the used car department; a car assigned to and made available for use of the company porter; one or more Prefects, small English-built Fords, which were used for delivery purposes; 4 or 5 Prefects assigned for use under the category ‘Welcome Wagons'; a car loaned to a local high school for driver-training purposes; and 2 or 3 cars assigned to wives of petitioner's officials for their personal use.

Welcome Wagons were assigned to an organization operating in the Jacksonville area for advertising purposes. The organization would use the cars to make calls on new residents of the area. It represented a number of businesses and its purpose was to promote the products and services of the business firms represented. Petitioner, in lieu of paying a fee for such advertising services, furnished the organizations with the Welcome Wagons. These cars were all Prefects, and the purpose of their use as Welcome Wagons was to introduce petitioner's services to newcomers to the community.

There is some indication that the Welcome Wagons used were replaced as new models were introduced, but from other matter of record, that point is not too clear.

A car equipped with dual controls was assigned to a local high school in the fall of each year for use in the school's driver-training program. It carried a sign reading, ‘Courtesy of Duval Motor Company.’ In the summer following, the car would be returned to petitioner and then sold in the ordinary course of its business.

With respect to fire and theft, petitioner insured all of its automobiles on the basis of a monthly reporting system. At the end of each month it reported to the insurance company the cars on hand on that date and the insurance coverage was based on that report. With respect to liability, the insurance was not related to individual cars at all, but was based upon the amount of the payroll and various categories of payrolls which petitioner had.

In the case of the cars assigned to its executives, new car salesmen, and department heads, and possibly all cars carried in the Company Cars account, petitioner procured in its name the regular Florida license plates for the individual cars. It had a few so-called dealer license plates, and under the limitations attendant upon the use of such plates, it used them, when necessary, in operating the automobiles on hand which were not individually licensed. An illustration was the use of such license plates in displaying or demonstrating a used car which did not carry its own license plates.

Cars sold as new cars were not driven beyond the extent necessary to service and deliver them to the purchasers. They were not driven for purposes of demonstrating them to prospective purchasers, the demonstrating of the current models being done by use of the cars assigned to new car salesmen, executives, and possible heads of departments, as outlined above.

In reporting its income for the fiscal year ended March 31, 1951, petitioner claimed a depreciation deduction on 60 automobiles and trucks carried in its Company Cars account, including the automobiles assigned to executives, new car salesmen, department heads, as Welcome Wagons, and for use in the high school driver training program. Depreciation was computed on the basis of cost and a 4-year life for each automobile.

During the fiscal year ended March 31, 1951, petitioner sold 26 automobiles, which at the time of sale it was carrying in its Company Cars account. It computed its gain on such sales on a basis of the depreciated cost of the cars, and under section 117(j), claimed capital gains treatment of the gain realized. All of the vehicles in issue had been owned for more than 6 months. Included in the cars so sold were several trucks, a wrecker, and a number of cars which had been assigned new to and used by executives of the company, new car salesmen, and department heads, as outlined above.

For the fiscal year ended March 31, 1952, petitioner likewise claimed depreciation, on a 4-year life basis, on the vehicles carried in the Company Cars account. In that year, it sold 7 of the vehicles so carried. In its return for that year, it claimed that it was entitled to capital gains treatment, under section 117(j), of the gain realized on the sale of the 7 cars. These cars had been owned by petitioner for more than 6 months. As a basis for computing the gain realized, it used cost less the depreciation which had been claimed.

The respondent, in his determination of deficiency for each of the years herein, disallowed depreciation claimed on the cars which had been assigned new to the company executives, new car salesmen, and heads of departments and the automobiles used as Welcome Wagons and that loaned to the local high school for driver-training purposes. Where such cars had been sold during the taxable year, he computed the gain realized upon the sale thereof on the basis of cost, without reduction for depreciation, and determined that the cars in question were not cars used in petitioner's trade or business, within the meaning of section 117(j), in that they were property held by petitioner primarily for sale to customers in the ordinary course of its trade or business. In the case of certain pickup trucks and other vehicles, he allowed depreciation as claimed, and where such vehicles had been sold during the taxable year, he allowed capital gains treatment under section 117(j), where the sales resulted in gains realization. These latter vehicles had generally and indefinitely been committed to use in the conduct of the operations of petitioner's parts and service departments, and those sold had been so used from approximately 2 1/2 to 4 years.

The automobiles assigned by petitioner to its executives, new car salesmen, and department heads were in fact at all times held by petitioner primarily for sale to customers in the ordinary course of its trade or business.

Jenny L. McRae is and during the taxable years was the wife of petitioner's president. She was a stockholder, officer, and director of petitioner during the years in question, and for each of the said years she received a salary of $2,700, and she had been receiving a salary in that amount since petitioner was organized in 1946. Mrs. McRae had no desk space at petitioner's place of business, and no duties. She did attend some or all of the meetings of petitioner's board of directors. On one occasion during the fiscal year ended March 31, 1952, she learned that a woman friend or acquaintance, who owned or controlled Coca-Cola businesses away from Jacksonville, might be or was contemplating the purchase of a number of trucks. She suggested to the woman that she consider buying the trucks from petitioner. She reported the matter to her husband, who called on the woman in question and quoted prices to her. Subsequently, Mrs. McRae's son, also an official of petitioner, discussed the matter with the woman and, after allowing a discount on the selling price of the trucks, succeeded in making a sale of ‘approximately thirty’ trucks. The sale actually occurred in petitioner's fiscal year next succeeding that ended on March 31, 1952.

Aside from compensation received for services rendered in the conduct of petitioner's business, petitioner's directors did not receive any compensation for attending directors' meetings. Stated otherwise, none of the compensation received by them was conditioned upon their attendance at directors' meetings.

Reasonable compensation to Jenny L. McRae for services rendered by her to petitioner was $50 for the fiscal year ended March 31, 1951, and $150 for the fiscal year ended March 31, 1952.

In each of the years herein, petitioner claimed as entertainment and promotional expenses amounts paid to various organizations, such as country clubs and the like. Of the deductions so claimed, the respondent in his determination of deficiency for each of the years disallowed the following:

+--------------------------------------------------------------------------+ ¦ ¦Fiscal year ¦Fiscal year ¦ +----------------------------------------------+-------------+-------------¦ ¦ ¦ended Mar. ¦ended Mar. ¦ +----------------------------------------------+-------------+-------------¦ ¦Item ¦31, 1951 ¦31, 1952 ¦ +----------------------------------------------+-------------+-------------¦ ¦Timuquana Country Club ¦$528.00 ¦$709.17 ¦ +----------------------------------------------+-------------+-------------¦ ¦Seminole Club ¦93.00 ¦99.00 ¦ +----------------------------------------------+-------------+-------------¦ ¦Ponte Vedra Country Club ¦153.92 ¦187.78 ¦ +----------------------------------------------+-------------+-------------¦ ¦San Jose Country Club ¦ ¦784.12 ¦ +----------------------------------------------+-------------+-------------¦ ¦Ye Mystic Revellers ¦18.00 ¦78.00 ¦ +----------------------------------------------+-------------+-------------¦ ¦Jax Quarterback Club ¦50.00 ¦50.00 ¦ +----------------------------------------------+-------------+-------------¦ ¦Phi Delta Theta Alumni Association ¦10.00 ¦ ¦ +----------------------------------------------+-------------+-------------¦ ¦Royal Order of Jesters ¦25.00 ¦ ¦ +----------------------------------------------+-------------+-------------¦ ¦Jacksonville Woman's Club ¦10.00 ¦ ¦ +----------------------------------------------+-------------+-------------¦ ¦Asheville Country Club ¦ ¦100.28 ¦ +----------------------------------------------+-------------+-------------¦ ¦Jacksonville Children's Museum ¦ ¦10.00 ¦ +----------------------------------------------+-------------+-------------¦ ¦University of Florida Alumni Association ¦ ¦15.00 ¦ +----------------------------------------------+-------------+-------------¦ ¦H. N. Kirkman—gift ¦100.00 ¦ ¦ +----------------------------------------------+-------------+-------------¦ ¦Mr. and Mrs. John P. James—gift ¦150.00 ¦ ¦ +----------------------------------------------+-------------+-------------¦ ¦Joe Hays—political contribution to Dan McCarty¦ ¦200.00 ¦ +----------------------------------------------+-------------+-------------¦ ¦Jax Chamber of Commerce (re millage election) ¦ ¦50.00 ¦ +----------------------------------------------+-------------+-------------¦ ¦ ¦1,191.92 ¦2,283.35 ¦ +--------------------------------------------------------------------------+

Timuquana, Ponte Verda, and San Jose were country clubs. Petitioner paid monthly dues and part of the charges for use of the clubs, for its president and other individual officers. The amounts deducted by petitioner on its returns did not include all costs of the use of the clubs by these individuals. When the monthly statements were received from the clubs, the individual officers would make a check of the charges which represented expenses personal to them and would supply the funds to cover that part of the charges. Petitioner paid the balance of the charges, and the dues and membership fees. The monthly charges for the use of these clubs as paid by petitioner represented business costs to it. With respect to dues, only one-half thereof represented expenses of petitioner. Membership fees were of a capital nature, whether paid in behalf of petitioner or its individual officers.

The Seminole Club was a downtown club, which served ‘nice food’ and had ‘a place to relax during the middle of the day.’ It also had a gymnasium and a room or rooms for cards, billiards, and the like. Insofar as the use of the Seminole Club by petitioner's president, Walter A. McRae, Sr., was concerned, it was used strictly for business. To the extent of $25 for each of the years, the payments made by petitioner to the Seminole Club represented expenses of doing business.

The record does not show how the membership in the Seminole Club was carried. Neither does it show the extent of the use, if any, by other officers of petitioner for business or personal recreation purposes.

Petitioner also paid the expenses covering the participation of its officers in organizations known as the Jax Quarterback Club, Ye Mystic Revellers, and the Royal Order of Jesters. These organizations were composed of prominent people of Jacksonville and likely or potential customers of petitioner. The participation of petitioner's officers in those organizations was in promotion of petitioner's business for which the payments in question were made.

Phi Delta Theta Alumni Association is a unit of a college social fraternity. A son of petitioner's president was a member of Phi Delta Theta Fraternity, and the $10 payment was a payment by petitioner of his son's annual dues. It was not a business expense of petitioner, but was an expenditure personal to the son.

During the fiscal year ended March 31, 1951, the home of the John P. James family in Jacksonville was destroyed by fire. The Jacksonville Journal, a local newspaper, initiated and conducted a fund-raising drive to restore the James home, and in doing so, printed the names of the contributors to the fund in a prominent manner on the first page of its paper. On that basis, petitioner contributed $150 to the fund. The contribution so made was in the nature of an expense by petitioner in the promotion and operation of its business.

During the years herein the petitioner sold automobiles to the Florida State Highway Patrol. At Christmastime, in 1950, petitioner presented H. N. Kirkman, director of the Florida State Highway Patrol, with a $100 gift certificate.

OPINION.

TURNER, Judge:

Pursuant to leave granted at the trial, the respondent, by amendment to his answer, now claims that for the fiscal year ended March 31, 1951, the gain from the sale of 5 vehicles additional to those covered in his determination should also be held to have been ordinary income. The 5 vehicles were 4 trucks and 1 sedan, which had been assigned to and used by the parts and service departments in the ordinary course of their operations, and had been so used from approximately 2 1/2 to 4 years. The claim as we understand it is that, even though the said vehicles had generally and indefinitely been committed to use in the conduct of operations of those departments, they were, when withdrawn from service, placed on petitioner's used car lot along with other cars held for sale and from that time and at the date of sale were in fact held primarily for sale to petitioner's customers in the course of its trade or business, and that he, respondent, had been in error in his determination of deficiency in allowing capital gains treatment, under section 117(j) of the Internal Revenue Code of 1939, of the gain realized. On the other hand, there is no allegation that the depreciation deduction in respect of the 5 vehicles, as claimed by petitioner in its return and allowed by respondent in his determination of deficiency, should now be disallowed.

Aside from the above, however, the issues for decision have been narrowed to a substantial degree, by concessions of the parties both at the trial and on brief. At the trial, petitioner conceded that it had improperly claimed depreciation on specified cars and capital gains treatment of the gain from the sale thereof, in that these cars had not been used by petitioner in its business, but had been assigned to the personal use of wives of petitioner's officials. It also conceded that deductions of a $200 contribution to one Joe Hays and a $50 contribution to the Jax Chamber of Commerce, both in the fiscal year 1952, were not business expenses, as had been claimed. In its reply brief, petitioner has withdrawn any claim for depreciation on the cars still in controversy under the capital gains issue, in the event the Court determines that they were held primarily for sale to customers in the course of its trade or business, and were therefore an exception to section 117(j).

The respondent, on the other hand, has conceded, on brief, that the automobiles used as Welcome Wagons and those used in the high school driver-training program were used in petitioner's trade or business within the purview of ‘applicable decisions * * * Cf. Latimer-Looney Chevrolet, Inc. (19 T.C. 120).’

In light of the concessions made, and aside from the 5 vehicles covered by respondent's amendment to answer, our inquiry under the capital gains issue is now directed, in the main if not wholly, to cars assigned by petitioner to its officers, department heads, and its new car salesmen, and is whether, on the facts, they constituted property used in petitioner's trade or business, within the meaning of section 117(j), in which case the gain realized on the sale thereof was properly accounted for as capital gain, or whether they constituted ‘property held by (petitioner) primarily for sale to customers in the ordinary course of (its) trade or business,‘ and were, therefore, specifically excepted from section 117(j). It is to be noted that the quoted exception to the term ‘property used in the trade or business, ‘ as defined in section 117(j), does not prescribe that there may be no use whatever of the property in the trade or business, if the exception is to apply, or that it must be held solely for sale to customers. To the contrary, property held by a taxpayer does not, by the terms of the statute, qualify as property used in the trade or business if it is ‘held * * * primarily for sale to customers * * *,‘ The question then is one of fact. W. R. Stephens Co. v. Commissioner, 199 F.2d 665, affirming a Memorandum Opinion of this Court; Johnson-McReynolds Chevrolet Corporation, 27 T.C. 300; and Latimer-Looney Chevrolet, Inc., 19 T.C. 120.

SEC. 117. CAPITAL GAINS AND LOSSES.(j) GAINS AND LOSSES FROM INVOLUNTARY CONVERSION AND FROM THE SALE OR EXCHANGE OF CERTAIN PROPERTY USED IN THE TRADE OR BUSINESS.—(1) DEFINITION OF PROPERTY USED IN THE TRADE OR BUSINESS.— For the purposes of this subsection, the term ‘property used in the trade or business' means property used in the trade or business, of a character which is subject to the allowance for depreciation provided in section 23(1), held for more than 6 months, * * * which is not * * * property held by the taxpayer primarily for sale to customers in the ordinary course of his trade or business * * *(2) GENERAL RULE.— If, during the taxable year, the recognized gains upon sales or exchanges of property used in the trade or business * * * exceed the recognized losses from such sales, exchanges, and conversions, such gains and losses shall be considered as gains and losses from sales or exchanges of capital assets held for more than 6 months. * * *

We have examined and considered the evidence of record in this case and in our Findings of Fact have set forth in considerable detail and particularity the facts covering and relating to the automobiles in question which are shown by the evidence; and, in our opinion, the facts of record require the conclusion and holding that the said automobiles are within the above-quoted exception to property used in petitioner's trade or business, as that term is defined by section 117(j). The automobiles were acquired by petitioner from the Ford Motor Company in its normal and usual acquisition of its stock in trade, and at no time was there any thought or intention but that they were to be sold to customers in the ordinary course of petitioner's business. In short, the petitioner looked to the sale of the cars for the recovery of most or substantially all of its investment therein, and not to consumption through use of the vehicles in the course of its operations. It is true that they were assigned temporarily to use in the business and they were temporarily so used, but the assignment and use were at all times conditioned upon their withdrawal from such use, after a period of time, which was comparatively short in relation to the useful life of the automobiles themselves. There was no general or indefinite commitment to use in the business, to say nothing of a final or unqualified commitment, and though temporarily assigned, they were, on the facts, at all times held primarily for sale to customers in the ordinary course of petitioner's business. Johnson-McReynolds Chevrolet Corporation, supra, is, we think, directly in point, and on authority of that case, the question at issue is resolved and decided for the respondent.

Through strenuous effort throughout the trial and on brief, to have the cars in question catalogued as ‘company cars' rather than ‘demonstrators,‘ and through emphasis of various exceptional or comparatively rare uses, petitioner seeks to bring its case within the decision of this Court in Latimer-Looney Chevrolet, Inc., supra. The respondent, on the other hand, seeking to characterize the cars as demonstrators rather than company cars, strives to avail himself of the reasoning in W. R. Stephens Co. v. Commissioner, supra. Similar contentions were dealt with in Johnson-McReynolds Chevrolet Corporation, supra, and we there demonstrated that the facts as found and which supplied the basis for the decision in the Latimer-Looney case differed in substance from the facts shown by the evidence in the Johnson-McReynolds case. Such is the situation in the instant case. It is true that there is a parallel between some of the uses to which the cars were put in the instant case and some two or three of the tem stated uses which were dominant in the Latimer- Looney case. But cross-examination of petitioner's witnesses in the instant case disclosed that such uses were exceptions rather than the rule, and were not factors of any moment in the operation of petitioner's business.

With respect to the 5 vehicles covered by the respondent's amendment to his answer, we think the respondent's contention is not supported by the facts, and that the vehicles in question, in truth and in fact, were property used by petitioner in its trade or business, within the meaning of section 117(j). Even if we assume that in character they were originally similar or the same as some items included in petitioner's stock in trade, the facts clearly show that they were generally and indefinitely withdrawn from such stock in trade and committed to use in the ordinary operations of petitioner's business. The facts also show that they continued in such use throughout, or substantially throughout, the period regarded by petitioner as the useful life of such vehicles, and only then were they withdrawn from such use and sold. It is clear, we think, that they are particularly representative of property which Congress had in mind when section 117(j) was enacted. It is, of course, true that petitioner's principal business was the sale of automobiles, both new and used, and when the 5 vehicles were withdrawn from use in its business petitioner utilized its selling machinery to dispose of them. To say that that fact alone would defeat the applicability of section 117(j), would in our opinion be wholly unrealistic. The claim of the respondent is denied. See and compare Nelson A. Farry, 13 T.C. 8, and Carl Marx & Co., 12 T.C. 1196.

The decisions above, as we understand the case, together with the petitioner's concession on brief, dispose of a depreciation issue which was raised on the pleadings. There was at the time of trial and there is on brief a suggestion of argument in a somewhat ‘left-handed manner’ that in his disallowance of depreciation herein, respondent was challenging the 4-year useful life which petitioner had attributed to the automobiles and on the basis of which the depreciation allowances claimed had been computed. Furthermore, insofar as we are able to determine, the depreciation disallowed related to the automobiles which have been determined to have been held by petitioner primarily for sale to customers in the ordinary course of its trade or business; and subject to the decision reached above on the section 117(j) issue, the petitioner, as noted, has withdrawn its claim for depreciation on the cars there involved. It is to be noted also that where the respondent in his determination allowed the depreciation as claimed, the allowances, in most if not all instances, had been computed and claimed on the basis of a 4-year useful life.

The remaining issues have to do with the deduction of amounts paid as salary to Jenny L. McRae, wife of petitioner's president, and of various payments to social and recreational clubs and certain contributions or donations made during the taxable years.

In the case of the amounts paid as compensation to Jenny L. McRae, the burden was on the petitioner to show that she actually rendered services to it and the amounts paid constituted reasonable compensation therefor. Beyond broad generalities and stated conclusions of petitioner's president in the course of his testimony, the participation of Jenny McRae in petitioner's business narrowed to two things, namely, attendance at director's meetings and the passing on, in 1952, of a tip to her husband that a friend or acquaintance of hers, who owned Coca-Cola businesses in southern Florida, might be a potential customer for some trucks. The actual sale of the trucks resulted from the efforts of petitioner's president and those of his son, the son eventually closing the transaction in the next succeeding taxable year, after offering a discount on the selling price previously quoted. We are satisfied from the testimony of her husband that Jenny McRae was a good wife and as a good wife she did take a particular interest in petitioner's business and that she did many things which she would not have done but for that connection, but deduction of the amounts paid to her as compensation may not be allowed on that basis. Furthermore, even if we assume that the efforts which she did put forth in petitioner's behalf were put forth as an officer of the company, and not the wife of petitioner's president, the evidence supplies no basis even with respect to the trucks for evaluating her services with respect thereto. It may be noted also that petitioner did not pay its directors on the basis of their attendance at directors' meetings, and there is no indication that they regarded any portion of the compensation which it did pay to its directors as being for such attendance. We have carefully considered the evidence, and applying the rule in Cohan v. Commissioner, 38 F.2d 540, we have made our finding as to the amounts paid Jenny McRae which we regard as reasonable compensation to her for the services rendered to petitioner by her during the taxable years.

As to various of the remaining items of deduction here in issue, our findings of fact are conclusive both as to deductibility and the amount thereof, and no discussion is indicated. With respect to others, however, the evidence is not sufficient to show whether the payments or contributions were or were not of such nature as to make them deductible. In this latter group are the payments or contributions to the Jacksonville Woman's Club, the Asheville Country Club, the Jacksonville Children's Museum and the University of Florida Alumni Association. As to those items, the respondent is accordingly sustained, by reason of petitioner's failure to carry its burden of proof.

With respect to the gift certificate to H. N. Kirkman, director of the Florida State Highway Patrol, the case of Wm. T. Stover Co., 27 T.C. 434, is directly in point. What was said in that case is, in our opinion, patently applicable here, and on authority of that case, the respondent's disallowance of the deduction claimed is sustained.

Decision will be entered under Rule 50.