American Properties, Inc. v. Commissioner of Internal Revenue

Petitioner Stanley S. Sayres, a well known power boat racing enthusiast, sought to deduct expenses of building, maintaining and operating certain of these boats as an ordinary and necessary expense of petitioner American Properties, Inc., a corporation of which Sayres was the sole owner. Int.Rev.Code of 1939, § 23(a) (1) (A), 26 U.S.C.A. § 23 (a) (1) (A). These deductions were denied by the Commissioner who considered them not to be business expenses, but actually dividends to Sayres as the funds in question were expended for his own personal use. Furthermore, Sayres as an individual was also denied a deduction for the same amounts which were considered dividend income to him because, just as they were not business expenses of the corporation, they were not individual business expenses of Sayres, Int. Rev.Code of 1939, § 23(a) (1) (A), nor losses incurred in a trade or business or in any transaction entered into for profit, Int.Rev.Code of 1939, § 23(e) (1, 2), but were sums spent in the pursuit of his hobby — boat racing.

The tax court upheld the Commissioner’s determinations, finding as a fact (and petitioners do not contend that it was not a finding of fact) that the…