*995 1. Where the evidence shows that a sweepstakes ticket was given to both petitioner and his wife prior to its winning any prize, petitioner is taxable only in respect of one-half the prize money, less one-half the cost of the ticket. Christian H. Droge,35 B.T.A. 829">35 B.T.A. 829, and Samuel L. Huntington,35 B.T.A. 835">35 B.T.A. 835, followed.
2. Although he and his wife acquired the winning ticket by gift, petitioner is taxable on his proportionate part of the prize money, under both the definition of income in Eisner v. Macomber,252 U.S. 189">252 U.S. 189, and section 22(b)(3) of the Revenue Act of 1936.
3. Petitioner's expenses on a trip to Ireland to collect the prize are not deductible, since he was not thus engaged in a trade or business.
*461 This is a proceeding to redetermine a deficiency in income tax of $14,737.16 for the calendar year 1937. The issues are, (1) whether petitioner is taxable in respect of the entire prize received on a winning ticket in*996 the Irish Sweepstakes, (2) whether he is wholly exempt from tax on the ground the ticket was acquired by gift, and (3) whether he may deduct the expenses of a trip to Ireland to collect the prize.
FINDINGS OF FACT.
Petitioner and his wife conducted a bakery in Springfield, Massachusetts, having leased the premises from one Edward Carey, a retired policeman. They had frequently asked Carey, who was an old friend, to get them a ticket in the Irish Sweepstakes. In the latter part of 1936, Carey sent his sister-in-law in Ireland some money and directed her to buy some tickets on the Sweepstake races to be run in March 1937. The tickets, by Carey's direction, were bought in the name of Max Silver, the petitioner. In January 1937 Carey visited petitioner and his wife, Pauline L. Silver, in their home and threw on the table at which they were sitting twelve tickets on the forthcoming Sweepstakes, stating that he was giving the tickets to both of them. He refused to take any money for the *462 tickets and never received any. Both petitioner and Mrs. Silver understood that the tickets were being given to both of them. Carey paid approximately $25 for the twelve tickets.
*997 Thereafter Mrs. Silver put the tickets in the safe in their house. She sold some of them to friends. The stubs of the tickets were kept in Ireland in petitioner's name.
One of the tickets given to petitioner and his wife and which they had retained won a prize of $73,298.43. Petitioner went to Ireland to collect the money and in so doing incurred traveling and other expenses of $1,360. Wishing to conceal their good fortune from friends and relatives in Springfield, petitioner had the prize money converted into two drafts, one for $4,300 drawn on the Guaranty Trust Co. of New York, and one for $68,998.43 (American money) on the Bank of Nova Scotia of Toronto, Canada. He brought these drafts back with him and, with the consent of Mrs. Silver, eventually deposited them in his own name in the Guaranty Trust Co. in New York.
The following sums out of the prize money were used to buy securities for Mrs. Silver:
| Japanese bonds | $11,140.79 |
| Japanese bonds | 8,336.00 |
| Miscellaneous stocks | 3,038.71 |
| Standard Acceptance Corp. stock | 3,200.00 |
| Total | 25,715.50 |
The Japanese bonds were bearer bonds and did not have Mrs. Silver's name on them. She kept them in the*998 safe at their house, and later put them in a safety deposit box in the Springfield National Bank, which box was held by her jointly with her husband. She clipped the interest coupons herself and gave them to petitioner that he might use them to pay part of the premiums on new policies of insurance taken out for her sole benefit after receipt of the prize money. The Standard Acceptance Corporation stock, though bought for her, was in petitioner's name, since the charter of the corporation did not permit it to have additional stockholders. Petitioner, but not his wife, was already a stockholder. Dividends on her stock were also used to defray the premiums on the new insurance policies, in order that these might not be a drain on the bakery business. All the remaining stock, thus purchased, was in her name.
Petitioner deposited the dividends and interest on Mrs. Silver's securities in his own account and drew on this account to pay the insurance premiums.
*463 In addition to being used to buy securities for Mrs. Silver, the prize money was also applied to her benefit as follows:
| Federal income taxes and other items | $6,000.00 |
| State income taxes | 1,147.63 |
| Son's confirmation party | 1,300.00 |
*999 The total of the above amounts spent by and for Mrs. Silver is $34,163.13. In addition, petitioner gave or allowed her to spend smaller sums of undisclosed amount. Every check drawn in paying out the prize money for the benefit of Mrs. Silver was signed by petitioner.
Mrs. Silver sold some of the Japanese bonds and kept the proceeds. She retained all her stock. She never required an exact accounting of the prize money from petitioner.
The winning ticket was acquired as a gift by both petitioner and Mrs. Silver. The proceeds of the prize were reported by petitioner and Mrs. Silver in their separate returns, one-half by each.
OPINION.
LEECH: The principal issue in this case is one of fact: Did Carey give the ticket to petitioner and Mrs. Silver, or to petitioner alone? Although there is some conflict in the evidence, namely, that petitioner and Mrs. Silver both stated in their separate returns that the winning ticket was "purchased" by both of them and that a revenue agent testified that petitioner stated on one occasion he had acquired the ticket himself, we are inclined to believe the testimony of petitioner and Mrs. Silver, which is supported by the evidence of*1000 Carey, a disinterested third party. We think it is also sufficiently demonstrated by the evidence that petitioner and Mrs. Silver treated the prize money as belonging one-half to each. It is shown that $34,163.13, plus smaller sums of undisclosed amount, was spent for Mrs. Silver's benefit. The fact that some of the stock was not in her name is plausibly explained. The fact that she gave the income on her securities to petitioner to use for insurance premiums does not contradict her ownership of the securities themselves.
Since the winning ticket belonged to both petitioner and his wife, one-half of the prize money, less one-half the cost of the ticket, is taxable to each. ; .
Petitioner makes the somewhat novel contention that, since the tickets were acquired by gift, the prize money is exempt from taxation *464 also. He quotes the definition of income contained in , in support of his position. The Court there said:
* * * "Income may be defined as the gain derived from capital, from labor, or from both combined, *1001 " provided it be understood to include profit gained through a sale or conversion of capital assets * * *.
Petitioner argues that the receipt of the prize money in the premises does not fall within that definition.
In this we think petitioner is in error. All that he and his wife received by way of gift was a ticket costing approximately $2.50. It thereupon became part of their capital. When the race was run, prize money was realized on a capital asset acquired by gift, and it constituted income taxable not only under the rule of the Macomber case and the cited authorities, but also under the express language of section 22(b)(3) of the Revenue Act of 1936, which reads as follows:
SEC. 22. GROSS INCOME.
* * *
(b) EXCLUSIONS FROM GROSS INCOME. - The following items shall not be included in gross income and shall be exempt from taxation under this title:
* * *
(3) GIFTS, BEQUESTS, AND DEVISES. - The value of property acquired by gift, bequest, devise, or inheritance (but the income from such property shall be included in gross income).
See also *1002 ; sec. 111, Revenue Act of 1936.
Finally, petitioner may not deduct the expenses incurred in the collection of the prize money. Assuming without deciding that they were ordinary and necessary, they were not incurred in carrying on any trade or business and hence are not allowable. Sec. 23(a), Revenue Act of 1936; .
Decision will be entered under Rule 50.