*25 Decision will be entered under Rule 50.
1. Where petitioner, president of a corporation, realized long-term capital gain from sale of the corporation's stock in 1950 and was subsequently adjudicated liable to restore a portion of his profits under section 16 (b) of the Securities Exchange Act of 1934, held, payment of the judgment in 1954 does not entitle petitioner to reopen the taxable year 1950 so as to claim a capital loss carryover from 1950 to 1951.
2. Petitioner sporadically devoted a small percentage of his time to seeking out, investigating, and negotiating for personal profitable "deals" in oil and other natural resources. Held, travel and entertainment expenses allegedly incurred in connection therewith are not deductible on this record under section 23 (a) (1) (A), I. R. C. 1939. A possible issue as to deductibility under section 23 (a) (2) has not been raised and is therefore not adjudicated.
3. Petitioner in 1944 purchased a house with the intention of renting it to his former spouse and their son, and actually received such rent until 1946, but thereafter chose not to receive rent and had no expectation of ever receiving rent from them again. *26 Held, deductions for depreciation and repairs in 1951, 1952, and 1953 were not allowable under section 23 (l) (2) or section 23 (a), I. R. C. 1939.
*461 Respondent*27 determined deficiencies in each of petitioners' income taxes for the taxable years ended December 31, 1951, December 31, 1952, and December 31, 1953, in the following amounts: *462
| Year | Amount |
| 1951 | $ 3,655.88 |
| 1952 | 5,243.64 |
| 1953 | 5,362.23 |
Petitioners each filed timely claims for refund of taxes for 1951 in the amount of $ 3,402.83.
The questions for decision are:
1. Whether petitioners may amend their 1951 returns to reflect an amount which they paid in 1954 pursuant to a judgment rendered against Eugene H. Walet, Jr., under section 16 (b) of the Securities Exchange Act of 1934.
2. Whether petitioners are entitled to a deduction for certain expenses allegedly incurred by Eugene H. Walet, Jr., in connection with "personal business ventures."
3. Whether petitioners are entitled to deductions for depreciation and maintenance expenses attributable to a house occupied by Eugene H. Walet, Jr.'s former spouse and son.
FINDINGS OF FACT.
Certain facts have been stipulated and are so found. Petitioners, husband and wife, are residents of New Orleans, Louisiana, and filed individual returns with the district director of internal revenue in New Orleans on*28 a cash receipts and disbursements basis. Since Celia R. Walet is concerned herein only by virtue of her one-half interest in the marital communityunder Louisiana law, Eugene H. Walet, Jr., will hereinafter be referred to as the petitioner.
Since 1946, and at all times relevant to this proceeding, petitioner was president and a director of the Jefferson Lake Sulphur Company (hereinafter sometimes referred to as Jefferson Lake), a New Jersey corporation with headquarters in New Orleans. From 1936 to 1945 petitioner, a licensed attorney, served as general counsel to the company, a position which he relinquished upon assuming the presidency. As president, however, petitioner continued to do such legal work for the company as might be connected with his activities. Prior to 1936 petitioner was engaged in the general practice of law in New Orleans.
The common stock of Jefferson Lake is an equity security as defined in section 3 of the Securities Exchange Act of 1934 and the company had been registered on the New York Curb Exchange (as it was then known), a national securities exchange duly registered with the Securities and Exchange Commission pursuant to section 6 of the same Act.
*29 Between August 16, 1950, and November 24, 1950, petitioner sold 3,600 shares of Jefferson Lake common stock for which he received *463 the amountof $ 74,581.79. Of these shares, 2,400 had been acquired prior to November 1, 1949, at a cost of $ 19,086.30; 1,200 were acquired in April 1950 at a cost of $ 9,299.50. Petitioner reported long-term capital gain of $ 46,195.99 from these transactions in his 1950 return. He also reported other gains and losses, both short-term and long-term, which are not at issue here.
Between April 20, 1950, and November 29, 1950, petitioner acquired, in addition to the purchases noted above, 2,700 shares of Jefferson Lake common. These shares were not sold during 1950 nor at any subsequent time relevant to this case. Of the 2,700 shares, 1,200 were purchased at a cost of $ 9,404.50; the remaining 1,500 were acquired at a cost of $ 13.76 per share through the exercise of a stock option granted petitioner by corporate resolution on October 16, 1950. The option entitled petitioner to purchase up to 1,500 shares of Jefferson Lake treasury common stock at 86 per cent of its market price at the time of the accrual of the option. The motivation*30 for the option was the recognition of petitioner's unusual and extraordinary services to Jefferson Lake over a period of approximately 8 years; it was grantedto take advantage of section 130 (a) of the Internal Revenue Code of 1939. Petitioner exercised the option on November 29, 1950. The grant of the option was subsequently approved by the Jefferson Lake stockholders at their annual meeting held on March 8, 1951.
Each of the foregoing stock transactions by petitioner was consummated in good faith, resulted from no inside information, and no damage was sustained by Jefferson Lake or any of its stockholders. Petitioner used $ 20,000 of the proceeds received in 1950 to pay a personal indebtedness to Jefferson Lake and otherwise indicated that he regarded himself in rightful possession and control of said proceeds.
Petitioner duly reported his 1950 stock dealings to the Securities and Exchange Commission in accordance with the requirements of section 16 (a) of the Securities Exchange Act of 1934 whereupon, in early 1951, the Commission advised both Jefferson Lake and petitioner of petitioner's possible liability for insider's profits under section 16 (b).
*31 On June 29, 1951, Jefferson Lake filed a complaint pursuant to section 16 (b) against petitioner seeking recovery of $ 39,365 in profits realized by petitioner from his "short-swing" sales of 3,600 shares of company stock in 1950. Petitioner entered an answer on September 7, 1951, admitting the transactions alleged in the complaint and raising certain defenses to the applicability of 16 (b) in the particular circumstances. Judgment was entered for Jefferson Lake on stipulated facts on April 2, 1952, pursuant to cross-motions for summary judgment. Jefferson Lake Sulphur Co. v. Walet, 104 F. Supp. 20">104 F. Supp. 20 (E. D. La. 1952).
*464 The method employed in computing petitioner's liability to Jefferson Lake was to match the costs of certain of petitioner's purchases in 1950 with the amounts realized from certain of his 1950 sales so as to arrive at an amount representing the maximum profit to petitioner. The costs used in this computation were as follows:
| 1,200 shares of option stock (out of 1,500) at $ 13.76 | |
| per share | $ 16,512.00 |
| 1,200 shares purchased and sold in 1950 and reported | |
| on petitioner's | |
| 1950 income tax return | 9,299.50 |
| 1,200 shares purchased but not sold in 1950, therefore | |
| not reported | |
| on the petitioner's 1950 return | 9,404.50 |
| Total | 35,216.00 |
*32 The total cost thus computed was subtracted from$ 74,581.79, the amount reported as realized from sales of company stock on petitioner's 1950 income tax return, thus yielding a profit of $ 39,365. For section 16 (b) purposes the actual certificates used in the cost computation were not the same as those used in the computation of amounts realized against which said costs were matched.
In June 1952 the parties filed a stipulation decreasing petitioner's liability from $ 39,365.79 to $ 36,677.79 for the reason that insofar as the 1,200 shares of option stock was concerned, the applicable rule of law limited recovery to the profit represented by the difference between the market value of the stock on the date of the grant of the option and the sale price of said stock, rather than a profit based on the actual cost to petitioner of the option shares. The actual cost of $ 16,512 was accordingly stepped up to $ 19,200 (cost was 86 per cent of market) and the profit was reduced by a similar amount.
The decision of the District Court was affirmed on *33 March 11, 1953, 202 F. 2d 433 (C. A. 5), and certiorari was denied by the Supreme Court, also in 1953, 346 U.S. 820">346 U.S. 820. Petitioner satisfiedthe judgment in the following manner: He paid Jefferson Lake $ 11,427.79 by check on July 23, 1954, and deposited 400 shares of Chrysler Corporation common stock as security for the remainder; he paid $ 25,250 in cash on December 28, 1954, and received back the Chrysler stock.
Petitioner filed an amended return for 1950 and a claim for refund for 1950 on March 12, 1954, seeking to reduce his long-term capital gain for 1950 by $ 36,677.79, the amount of the recovery, and to claim a capital loss carryover to 1951 of $ 13,603.17. The claim for refund for 1950 is not in issue here. On May 3, 1954, petitioner filed an amended return for 1951 and a claim for refund for 1951 based on inclusion of the alleged capital loss carryover from 1950.
At all times relevant to this proceeding Jefferson Lake was engaged principally in the production of crude sulphur in the United States, operating two Frasch production plants in Texas and one in Louisiana. *465 In the years 1951 through 1953 it was beginning to enter the oil and*34 gas business and the petro-chemical business. As of the present date the company has plants in Texas, Louisiana, Wyoming, British Columbia, Oklahoma, Kentucky, and Canada which, in addition to those above noted, produce sulphur from sour gas recovery, make petro-chemicals, and engage in extensive oil and gas operations.
Petitioner, as president of Jefferson Lake from 1951 to 1953, traveled extensively on behalf of the company, making contracts and leases on new properties and laying the foundations for new projects. These activities required him to be outside the city of New Orleans 40 per cent of the time in 1951, 50 per cent of the time in 1952, and 42 per cent of the time in 1953. He represented the company in similar fashion within New Orleans.
During these years petitioner occasionally sought personal profitable opportunities in oil, gas, and other minerals by which he hoped to increase his personal income in subsequent years. These activities had nothing to do with the business of Jefferson Lake nor were they in furtherance of any practice of law by petitioner. While traveling for Jefferson Lake petitioner would devote a small percentage of his time to contacting and entertaining*35 persons who might help him secure the personal profitable opportunities he was seeking. These latter activities were not conducted with any degree of regularitybut only sporadically. The record does not reveal any specific business transaction actually consummated by petitioner during these years. Petitioner's income tax returns for 1951, 1952, and 1953 report substantial amounts of income from mineral "rents" and "royalties" but do not reveal the nature of petitioner's activities in relation to the securing or the development of the underlying properties, nor do his returns indicate any other income from personal business activities in oil, gas, or minerals.
During these years petitioner incurred certain traveling and entertainment expenses in connection with his activities on behalf of Jefferson Lake. After each trip, and upon the presentation of expense accounts, Jefferson Lake reimbursed petitioner for expenses incurred for the company's benefit. Usually the company would advance funds to petitioner prior to his leaving on a trip. When petitioner's expense accounts were settled after each trip, Jefferson Lake would reimburse petitioner in the amount of his reported expenses*36 less the advances. In addition some transportation expenses were paid directly by the company. Total advances and reimbursements, together with amounts paidby the company directly for transportation, for 1951 through 1953 were as follows: *466
| Table A | |||
| Advances and | Transportation | ||
| Year | reimbursements | paid directly | Total |
| by company | |||
| 1951 | $ 13,668.40 | $ 1,213.26 | $ 14,881.66 |
| 1952 | 16,251.68 | 2,685.16 | 18,936.84 |
| 1953 | 13,550.29 | 1,949.24 | 15,499.53 |
Petitioner did not include any of the foregoing amounts in gross income on his income tax returns for 1951 through 1953, nor did he take any deductions for expenses paid by him on behalf of Jefferson Lake.
On audit petitioner produced canceled personal checks substantiating the following amounts of hotel and restaurant expenses:
| Table B | |
| 1951 | $ 9,564.89 |
| 1952 | 12,981.18 |
| 1953 | 12,678.43 |
Neither the checks nor petitioner's records revealed whether the checks were in payment of expenses incurred on behalf of Jefferson Lake or of expenses in connection with petitioner's personal activities.
In addition to the hotel and restaurant expenses substantiated by personal check, *37 petitioner was able to support the following expenses for transportation on behalf of the company (including those paid directly by the company):
| Table C | |
| 1951 | $ 1,994.88 |
| 1952 | 2,956.31 |
| 1953 | 1,916.18 |
These amounts were in large measure paid directly by Jefferson Lake to the transportation companies by corporate check (see Table A) and were substantiated in toto by receipted transportation bills.
Petitioner deducted on his returns the following amounts for traveling, gifts, entertainment, and club dues in connection with his alleged "personal business activities":
| Table D | |
| 1951 | $ 4,571.06 |
| 1952 | 9,974.29 |
| 1953 | 10,466.31 |
Petitioner kept personal records for each trip that he made on behalf of the company and compiled his expense accounts on the basis of these records. These records classified petitioner's expenses into expenses incurred on behalf of Jefferson Lake and alleged "personal business expenses." As to items in the latter classification, petitioner's records do not reveal the connection that the particular expenses had to be his "personal business"; they do not reveal the nature *467 of the business, if any; nor do*38 they reveal the nature of the expenditures apart from the general description as "personal business expenses." The total amounts noted on these records as "personal business expenses," plus an additional amount for telephone expenses from petitioner'shome telephone, add up to the exact amount claimed by petitioner as deductions for "personal business expenses." Respondent disallowed these deductions in their entirety.
Petitioner was divorced from Virginia Lutes Walet on July 14, 1943, by decree of the Civil District Court for the Parish of Orleans, State of Louisiana, ordering petitioner to pay his former wife the amount of $ 275 per month for her support and the amount of $ 75 per month for the support of their minor child, beginning August 1, 1943, until the further orders of the court.
On September 11, 1944, petitioner purchased a house located at 429 Audubon Boulevard, New Orleans, for $ 14,000 with the intention of having his former wife and their son live in it. The estimated life of the property was 20 years as of the date of purchase. Petitioner's former wife and son moved into the house on October 1, 1944, and continued to occupy it through the taxable years 1951, 1952, *39 and 1953. Petitioner has never lived or resided in such property.
At the time he purchased the house, petitioner intended to charge his former wife rent for her occupancy. He in fact reported rental income from the property in the amount of $ 75 permonth for 3 months of 1944, the full year of 1945, and an unspecified number of months in 1946. In many instances he deducted the rent from the checks he gave to his former wife in payment of alimony. At some time in 1946 petitioner stopped receiving rent from the property and neither received nor reported any income from it in any subsequent year. Although petitioner continued to regard himself as having the right to deduct a charge for rent from his alimony payments, he chose not to do so. His first wife had been ill for a number of years, periodically in the hospital, and her only support was from petitioner. She had remarried on December 28, 1945, but lived with her second husband less than 2 months when she separated, never living together with him thereafter. She was divorced from her second husband on November 26, 1947, and has never received any support from him. In 1946 petitioner's income was increasing while the rising*40 cost of living placed added financial burdens on his former spouse who had no independent source of income. In these circumstances petitioner decided that his former wife needed the $ 75 per month more than he did and thereafter discontinued his practiceof deducting that amount from his alimony payments. Petitioner had no expectation that his former wife would ever again be in a financial position to pay him rent.
*468 Petitioner deducted depreciation on the house in the amount of $ 700 per year in each year since 1944, including 1951, 1952, and 1953. He also deducted certain amounts for repair and maintenance of the property which in 1951, 1952, and 1953 were as follows:
| Year | Amount |
| 1951 | $ 286.09 |
| 1952 | 316.87 |
| 1953 | 534.69 |
OPINION.
1. Adjustment with respect to liability under section 16 (b). -- Petitioner is not entitled to reopen the taxable years 1950 and 1951 in order to reflect the amount of his 1954 payment of a judgment rendered against him under section 16 (b) of the Securities Exchange Act of 1934. Our conclusion in this regard is grounded in two fundamental concepts of tax accounting, the claim of right doctrine and the annual accounting*41 period.
The claim of right doctrine was thus stated by Mr. Justice Brandeis in North American Oil Consolidated v. Burnet, 286 U.S. 417">286 U.S. 417, 424:
If a taxpayer receives earnings under a claim of right and without restriction as to itsdisposition, he has received income which he is required to return, even though it may still be claimed that he is not entitled to retain the money, and even though he may still be adjudged liable to restore its equivalent. * * *
Petitioner has given numerous indications that at all times prior to the Supreme Court's denial of certiorari in Jefferson Lake Sulphur Co. v. Walet, 104 F. Supp. 20 (E. D. La. 1952), affirmed 202 F. 2d 433 (C. A. 5, 1953), certiorari denied 346 U.S. 820">346 U.S. 820 (1953), he regarded as his own the entire amount realized on his 1950 sales of Jefferson Lake common stock. He reported such amount on his 1950 income tax return; he used $ 20,000 of the proceeds to discharge his personal indebtedness to Jefferson Lake; he contested his liability for insider's profits under section 16 (b) both in the District Court and on appeal; the proceeds were in his possession and*42 subject to his control from 1950 to 1954; and he stated at the hearing in this case, with reference to his liability under section 16 (b), that "I don't believe that I owed it and I still don't think I owed it." It is thus clear that petitioner claimed the profits as of right, that such profits were properly includible in his gross income for 1950, and, consequently, that there was no capital loss carryover from 1950 to 1951.
Petitioner places great emphasis on the language of section 16 (b) that any profit realized from insider trading "shall inure to and be recoverable by the issuer." He argues that if the profit "inured" to Jefferson Lake, it could not also have "inured" to petitioner. This *469 argument overlooks the point that the language of section 16 (b) regarding the inurement of insider's profits cannot control the "realization" of income for tax purposes. Section 16 (b) is a prophylactic rule designed to prevent misuse of inside information by officers and large shareholders of corporations; it is not an expression of tax policy or accounting principles. For tax purposes income is realized when it is in fact received by the taxpayer under a claim of right. If*43 such claim exists, as it does here, the adjudication in a later year that the claim was mistaken will not operate to reopen the year in which the income was realized. Further, the "profits" contemplated by section 16(b) are not necessarily the same as those subject to tax. For tax purposes gain is computed by subtracting the cost (or other basis) of shares of stock from the amount realized on the disposition of the same shares. If the particular shares cannot be identified, a first-in, first-out presumption is usually applied. For section 16 (b) purposes, on the other hand, purchases and sales may be coupled without regard to a specific stock certificate and an arbitrary matching is employed to achieve the showing of a maximum profit. Smolowe v. Delendo Corporation, 136 F. 2d 231 (C. A. 2), certiorari denied 320 U.S. 751">320 U.S. 751.
Similar reasoning disposes of petitioner's contention that he was a "trustee" of the profits for the corporation, and, therefore, that he never realized the profits in his individual capacity. Petitioner was not a trustee for the corporation in any formal sense. It does not appear that there was a res or that petitioner in*44 any manner segregated the profits for the benefit of the corporation. Rather, he appears to have commingled them with his own funds and used them for his own purposes. Certainly he has notshown otherwise. At most he may have become a "constructive" trustee of the profits for the corporation. But a constructive trusteeship subsequently imposed by equity does not warrant an exception to the claim of right doctrine. Cf. Healy v. Commissioner, 345 U.S. 278">345 U.S. 278; Phillips v. Commissioner, 238 F. 2d 473 (C. A. 7), affirming 25 T. C. 767. Petitioner's enjoyment of the proceeds during the taxable year in question was not, and could not have been, disturbed by a declaration of a constructive trust in a later taxable year.
The principle of fixed accounting periods is coordinate with the claim of right doctrine and need only be set forth briefly. "Income taxes must be paid on income received (or accrued) during an annual accounting period. * * * The 'claim of right' interpretation of the tax laws has long been used to give finality to that period, and is now deeply rooted in the federal tax system." *45 United States v. Lewis, 340 U.S. 590">340 U.S. 590. See also N. Gordon Phillips, 29 T. C. 47, on appeal (C. A. 9). Thus, adjustmentsin income attributable to events *470 occurring subsequent to the accounting period in which such income was realized may be reflected, if at all, only in the subsequent year.
In accordance with these views we hold that respondent was correct in disallowing petitioner's refund claim for 1951. If petitioner is entitled to any adjustment, it is by way of a deduction in 1954. Cf. Lawrence M. Marks, 27 T.C. 464">27 T. C. 464. The question whether petitioner is so entitled is not at issue here since the year 1954 is not before us.
2. Deductions for "personal business expenses." -- Petitioner's returns claimed deductions in the aggregate amounts of $ 4,571.06, $ 9,974.29, and $ 10,466.31 for the years 1951-1953, respectively, as expenses with respect to traveling, gifts, entertainment, and club dues. During these years petitioner was president of Jefferson Lake Sulphur Company and traveled extensively on behalf of his company. He incurred substantial expenses in this regard, but his company reimbursed him therefor, *46 and they are not involved herein. The expenses at issue in this proceeding were claimed by petitioner as "personal business expenses." The burden, of course, was upon him to show the nature of that business, the nature and amount of the expenses claimed, and the proximate relationship between such expenses and the alleged business. However, the evidence is so loose, general, and unsatisfactory that we have no doubt that the burden of proof has not been met. We cannot find that the Commissioner erred in disallowing the claimed deductions.
Petitioner is a lawyer. He was general counsel for his company, and as president he appears to have guided its affairs with notable success. He impressed us as being an intelligent and perceptive person. Yet, despite repeated attempts by the Court at the trial to obtain clarification as to these expenses and the nature of the business to which they allegedly pertain, petitioner's testimony was vague and general. We are convinced that petitioner was fully aware of the difficulties generated by the vagueness of his testimony, and the blame for the deplorable condition of the record must be placed upon him. Petitioner's reply brief states:
*47 It is true that the record is not as clear as it should be on the substantiation of the deductions. This is due to the fact that petitioner representedhimself at the trial and did not properly present available evidence at the trial. * * *
The first sentence is a gross understatement. And as to the second sentence, even assuming that it might otherwise be a justification, the fact that petitioner was both a lawyer and an astute businessman belies the implications which the brief suggests.
In general terms petitioner testified that he would from time to time seek out profitable "deals" in oil or other natural resources, and that in the course of his attempts to obtain such deals he expended the amounts in question for entertainment, meals, and the like. He *471 testified that he entered into such deals with "partners" or other joint venturers. However, there is no convincing evidence in this connection that any partnership returns were filed. The so-called partners were not satisfactorily identified, and the vagueness of the testimony in this connection left us with a sense of unreality about the entire matter.
*48 Moreover, even if there were a genuine business, as distinguished from mere investment activities, not every expense in connection therewith would be deductible under section 23 (a) (1) (A). Expenditures made in investigating a potential new trade or business and preparatory to entering therein are not deductible under section 23 (a) (1) (A) since they are not incurred in carrying on such trade or business. George C. Westervelt, 8 T. C. 1248; Morton Frank, 20 T. C. 511; Frank B. Polachek, 22 T. C. 858; J. W. York, 29 T.C. 520">29 T. C. 520.
Nor does the evidence show whether there was any proximate relationship between the expenditures and the alleged business. Certainly, the word "entertainment" is not a magic formula entitling one to deduction without inquiry as to whether the entertainment in question really had a significant bearing upon the conduct of the alleged business. The situation is one that is susceptible of gross abuse, and it is not too much to ask that one claiming such deductions show that the expenditures in question were genuinely related to the conduct of a business. *49 We cannot say on the record before us that any of the claimed expenditures could qualify for deduction; accordingly, there is no occasion to make an approximation such as was indicatedin Cohan v. Commissioner, 39 F. 2d 540 (C. A. 2). And finally, we do not have satisfactory evidence that expenditures in the amounts claimed were in fact made, or, even if made, that they were not reflected in some fashion, at least in part, in the expenses which petitioner incurred on behalf of his company and for which he has already been given credit. Compare Allan Cunningham, 22 T. C. 906, 911, a case similar in some respects to the case at bar, where we said:
To the extent that petitioner may have spent some time, after hours, in investigating the possibility of profitable "deals" in Japan, such activities do not satisfy us as being of the kind that would qualify as carrying on a trade or business. Cf. George C. Westervelt, 8 T. C. 1248, 1254; Morton Frank, 20 T. C. 511, 514; *50 Frank B. Polachek, 22 T. C. 858, 863. Furthermore, the evidence as to such activities was so vague and general that we could not in any event conclude that they involved any considerable expenditure of time or energy on the part of petitioner or that any of the expenses claimed as deductions were in any way related to such activities. * * *
The issue herein was presented to us as involving "business" deductions, which would be allowable under section 23 (a) (1) (A). No question was litigated with respect to possible deductibility of nonbusiness *472 expenses under section 23 (a) (2), and we do not consider any such issue, although some of the considerations outlined above would be equally fatal to the claim of deduction under the latter provisions. 1
*51 3. Deductions for depreciation and repairs. -- Although we have found that petitioner purchased the property at 429 Audubon Boulevard in 1944 with the intention of renting it to his former wife and their son, and that he actually received rent for more than a year, the record plainly shows that such intention had been completely abandoned long before 1951. Petitioner testified that he "elected" not to charge rent in 1946 and years subsequent thereto and that thereafter he neither received nor reported any rental income from the property. Further, petitioner did not anticipate that he would ever again receive rental income from the property so long as his former wife and son continued to use it as their home. He testified on one occasion that he could not have obtained rent unless "she [his former wife] came into a lot of money some place," and on another occasion that "I knew that the only support revenue for the rest of her life will come from me." Finally, petitioner's motives in permitting the rent-free occupancy of the house from 1946 through 1953 were largely magnanimous, springing from the recognition that he had a substantial income while his former wife and son werefinding*52 it difficult to keep pace with the rising cost of living. In view of these facts we hold that the property in question was not held for the production of income during 1951, 1952, and 1953 but rather for the personal use of supporting petitioner's former wife and their minor child. It follows that respondent correctly disallowed deductions for depreciation under section 23 (1) (2) and for maintenance expenses under section 23 (a), I. R. C. 1939.
Petitioner relies principally on the following statement from section 39.23 (a)-15 (b), Regulations 118:
Similarly, ordinary and necessary expenses incurred in the management, conservation, or maintenance of a building devoted to rental purposes are deductible notwithstanding that there is actually no income therefrom in the taxable year, and regardless of the manner in which or the purpose for which the property in question was acquired. Expenses incurred in managing, conserving, or maintaining property held for investment may be deductible under this provision even though the property is not currently productive and there is no likelihood that the property will be sold at a profit or will otherwise be productive of income * * *
*53 *473 In our opinion, however, the property was not "devoted" to rental purposes. Any intention of renting the property to his former spouse had long been abandoned by petitioner. This case is, in one respect, the converse of William C. Horrmann, 17 T. C. 903. There we held that a taxpayer could deduct maintenance and depreciation expenses where he had abandoned his home as a residence and devoted it to income-producing purposes. Petitioner in the present case did just the opposite; he abandoned any income-producing purpose 2 and devoted his property to a personal use. Cf. James Parks Bradley, 30 T. C. 702.
*54 Decision will be entered under Rule 50.
Footnotes
1. Moreover, a serious question exists under section 23 (a) (2) as to whether deduction is precluded because the alleged expenses were incurred in the search for business opportunities rather than for the protection or management of property that the petitioner already owned. For, it appears settled that expenses incurred not to produce income from an existing right but to create a new interest are not within the purview of section 23 (a) (2). Marion A. Burt Beck, 15 T.C. 642">15 T. C. 642, affirmed 194 F. 2d 537 (C. A. 2), certiorari denied 344 U.S. 820">344 U.S. 820. Cf. United States v. Mellinger, 228 F. 2d 688↩ (C. A. 5).
2. It is highly questionable on this record whether petitioner held the property for profit or investment even when he first acquired it. The evidence is clear that he purchased it specifically as a home for his former wife and son, and it is doubtful whether the amount of so-called rental which he deducted from her alimony was sufficient to meet all charges, including depreciation, repairs, real estate taxes, etc. The evidence strongly suggests that petitioner's sole motive in purchasing and holding the property even in that early period was a personal one, without any thought or intention of realizing a profit.↩