*19 Decisions will be entered under Rule 50.
1. Petitioners were devised undivided life interests in coal lands in West Virginia, under the law of which they became vested with legal title. The lands were, under the facts, not subject to payment of the testator's debts. Held, that loss sustained upon sale and execution of deed by the petitioners of their life interests was that of the petitioners, and not of the testator's estate, and was a capital loss.
2. Petitioner paid an attorney a lump sum for legal advice in connection with a condemnation proceeding and for procuring a loan. Held, that the expense of legal advice in procuring the loan is not deductible as ordinary and necessary expense of business, and, the amount paid not being divisible, the entire amount is disallowed as a deduction.
*336 Petitioner in Docket No. 1145 contests the determination of a deficiency in income tax for the calendar year 1940 in the amount of *20 $ 2,663.85. In the deficiency notice the Commissioner added the sum of $ 16,495.63 to petitioner's net income, describing the adjustment as an "Increase in fiduciary income" and offering therefor the following explanation:
It is held that the loss on sale of coal lands by the Estate of W. F. Harman does not constitute an allowable deduction in computing your net taxable income.
The correctness of the Commissioner's determination in this respect presents the sole issue in Docket No. 1145; none of the other adjustments made by the Commissioner was assigned by petitioner as error.
Petitioner in Docket No. 1146 contests the determination of a deficiency in income tax for the calendar year 1940 in the amount of $ 4,043.34. As in Docket No. 1145, the Commissioner, in the deficiency notice, adjusted petitioner's net income by adding thereto the sum of $ 16,495.62, thus presenting for decision in Docket No. 1146 the same issue as that involved in Docket No. 1145. Another issue is also presented in Docket No. 1146, namely, whether petitioner, who inherited a life interest in certain farm lands under the will of his father, whose estate was still in the process of administration during *21 the taxable year herein involved, is entitled to deduct from his gross income sums in the amount of $ 755 paid to an attorney for legal advice in connection with (a) condemnation proceedings regarding rights of ways across these farm lands and (b) the securing of a loan for the purpose of purchasing livestock to place on this farm. All other assignments of error in Docket No. 1146 have been abandoned. The two proceedings were consolidated for trial and, from the evidence adduced, we make the following findings of fact.
FINDINGS OF FACT.
Petitioner Sayers F. Harman (Docket No. 1145) is an individual residing at Yukon, West Virginia, and his return for the calendar year 1940 was filed with the collector for the district of West Virginia.
Petitioner C. Henry Harman (Docket No. 1146) is an individual residing at Tazewell, Virginia, and his return for the calendar year 1940 was filed with the collector for the district of Virginia.
On January 15, 1924, W. F. Harman died testate. The fourteenth clause of his will, dated November 16, 1923, provided in part as follows:
I give, devise and bequeath, * * * to my two sons, C. Henry Harman and Sayers F. Harman, during their natural lives, one-half*22 to each during his natural life, the following property, to-wit:
(a) All my farming lands in Tazewell County, Virginia, which I may own or be entitled to at the time of my death;
* * * *
*337 (c) All my interest in lands in McDowell County, West Virginia, lying on Dry Fork and its waters and leased to the Yukon-Pocahontas Coal Company, together with all rents, issues and royalties therefrom;
* * * *
The will contained other clauses relating to the coal lands devised by the fourteenth clause. By the twenty-first clause of his will W. F. Harman empowered his sons "to jointly lease for such term or terms of years as they may see proper, any and all coal or mineral lands * * * including the lands mentioned in clause Fourteen of this will, * * *" and devised and bequeathed to them "one-half to each during his natural life, all the rents and royalties received from the leases * * *." By a codicil dated November 23, 1923, W. F. Harman authorized his sons "to jointly make such exchange or exchanges * * * of any of my coal lands * * * in McDowell County, West Virginia * * * for coal lands * * * adjoining any leasehold or leaseholds in which my coal lands * * * are included * * *; and*23 any and all properties received in any exchange or exchanges herein by this clause of this codicil to my will authorized are to be held the same as the property so exchanged is directed by my will to be held * * *." The twenty-second clause of W. F. Harman's will provides as follows:
The rents, issues, profits, royalties and dividends from my properties mentioned or referred to in clause Fourteen * * * which I have hereinbefore given my said two sons, or either of them, during their respective lives, are intended to be, and are, given them absolutely, and said rents, issues, profits royalties and dividends accruing during their respective lives shall not go and pass under clauses Fifteen and Sixteen of this will; * * *
The twentieth clause of this will authorizes Sayers F. Harman and C. Henry Harman to jointly sell and transfer in fee simple all properties bequeathed and devised to them for life except the properties set forth in clause fourteen.
The last will and testament and the codicil thereto of W. F. Harman were duly probated on February 19, 1924, in the Circuit Court of Tazewell County, Virginia. C. Henry Harman and Sayers F. Harman were appointed executors of the estate*24 of W. F. Harman, deceased, and have continued to act in that capacity from that time throughout the taxable year 1940. A copy of the will and of the codicil thereto and of the certificate of probate by the Circuit Court of Tazewell County, Virginia, were admitted to probate in the County Court for McDowell County, West Virginia, on July 10, 1925. The estate of W. F. Harman, deceased, was still in the process of administration during 1940, the taxable year herein involved.
At the time of the death of W. F. Harman the coal lands covered by the fourteenth clause of the will were leased under an agreement dated January 12, 1911, to Yukon-Pocahontas Coal Co. (hereinafter sometimes referred to as the coal company). The rights under this *338 lease were assigned on March 15, 1929, by the coal company to Yukon Pocahontas Fuel Co. (hereinafter sometimes referred to as the fuel company). The lease dated January 12, 1911, was for a period of 96 years, from December 1, 1910, to November 30, 2006, and the lessee agreed to pay the lessors as rental 10 cents per ton for each and every ton of 2,240 pounds of coal to be used for any other purpose than the manufacture of coke for shipment, *25 and 15 cents per ton for each and every ton of 2,240 pounds of coke manufactured from coal taken from the premises. This lease further provided, inter alia, that "the lessee shall be relieved from mining any part of the coal on said lands which * * * can not be mined at a profit, by reason of the thinness of the vein, or the unmerchantable character of the coal [clause two] * * *" and that "when all the merchantable coal has been mined and removed from said lands, which * * * can be mined at a profit, by reason of the thinness of the vein or the unmerchantable character of the coal, then the payment of royalties shall cease under this lease contract and in that event said lease contract shall terminate [clause fifteen] * * *."
In 1911, at the time of the lease to the coal company, W. F. Harman owned 50 percent of the stock of the coal company; and in 1929, at the time of the assignment of the lease to the fuel company, the estate of W. F. Harman, Sayers F. Harman, and C. Henry Harman were all stockholders in both the coal company and the fuel company.
Part of the coal lands devised by W. F. Harman by the fourteenth clause of his will to his sons Sayers F. Harman and C. Henry *26 Harman for life included a four-ninths interest in fee in approximately 3,191 acres of coal land. These 3,191 acres of coal land were included in and constituted a part of item No. 13 of schedule A in the return for Federal estate tax (Form 706) filed in January 1925 by the executors of the estate of W. F. Harman. Item No. 13 reads in part as follows:
D. G. Sayers, Dry Fork and Slate Creek lands, McDowell County, West Virginia, 4/9 undivided interest in whole area containing 4139 acres, and, if conveyance by Mrs. Harman valid, 2/9 undivided interest in addition in part estimated at 1000 acres, making W. F. Harman's interest 2006 2/9 acres common and undivided. * * *
| Actual Value on day of decedent's death | $ 100,311.11 |
The fuel company continued to operate the coal lands covered by clause fourteen of the will until 1939. The average annual production of the coal company for the 10 years prior to January 15, 1924, was 166,686.81 gross tons. The total production from 1924 to 1940 was 2,560,867.77 net tons of coal.
On May 29, 1940, these 3,191 acres of the coal lands were conveyed in fee simple to Pond Creek Pocahontas Co., of which neither the estate of W. F. Harman nor Sayers*27 F. Harman nor C. Henry Harman was a stockholder at the time of the conveyance. The deed of conveyance *339 was signed on behalf of the vendors not only by Sayers F. Harman and C. Henry Harman, both individually and as executors of the estate of W. F. Harman, deceased, but also by all of the other devisees and legatees who had any vested or contingent interest in the estate of W. F. Harman, deceased, and by the coal company, the fuel company, and the Hall Mining Co. The deed of conveyance recited that 3 tracts of coal lands, totaling 3,237 acres, were being sold. Tract No. 1 was divided into 2 parts as follows: (1) A 708-acre tract in which according to the deed of conveyance the W. F. Harman estate owned a five-ninths undivided interest, C. Henry Harman owned individually a one thirty-sixth undivided interest, and Sayers F. Harman owned individually a one-eighteenth undivided interest; (2) a 2,452-acre tract in which the W. F. Harmon estate owned a four-ninths undivided interest, C. Henry Harman owned individually a one thirty-sixth undivided interest, and Sayers F. Harman owned a one-eighteenth undivided interest. Tract No. 2 consisted of approximately 31 acres and tract*28 No. 3 consisted of approximately 46 acres. The cash consideration recited in the deed was $ 12,400, and it covered all 3 tracts. The deed of conveyance, in explanation of the individual interests of C. Henry Harman and Sayers F. Harman, recites in part as follows:
* * * The said C. Henry Harman acquired his interest therein [the tracts of land conveyed by the will of W. F. Harman] (other than life estate) by inheritance from his mother, Amelia G. Harman, who died intestate on the 28th day of January 1937. Sayers F. Harman acquired one-half of his interest therein * * * by a joint deed from Amelia G. Harman dated April 16, 1931, * * * and the said Sayers F. Harman acquired his remaining interest therein (other than life estate) by inheritance from his mother, Amelia G. Harman * * *
The deed of conveyance dated May 29, 1940, was approved and confirmed by the County Court of McDowell County, West Virginia, on June 17, 1940, and each individual's share of the proceeds was determined by that court. Sayers F. Harman and C. Henry Harman each received $ 1,608.20 as his share. The sale was induced by the fact that it had become unprofitable to mine the coal due to its dirty and unmerchantable*29 quality. This fact was first observed in 1937 and 1938 and later proved by various tests. Prior to reaching this unmerchantable coal the mine was always operated at a profit.
Sayers F. Harman and C. Henry Harman, as executors of and on behalf of the estate of W. F. Harman, filed a fiduciary income and defense tax return (Form 1041) for the calendar year 1940. In that return, they deducted from gross income the sum of $ 32,991.25 representing net loss from the sale of 3,280 acres of coal land ("property other than capital assets"). These 3,280 acres include the 3,191 acres which had been devised to Sayers F. Harman and C. Henry Harman *340 for life by the fourteenth clause of the will of W. F. Harman and which were part of the property transferred by the deed of conveyance dated May 29, 1940. The computation of the loss is set forth in schedule F, "Gains and losses from sales or exchanges of property other than capital assets," as follows:
| 1. Kind of Property | 2. Date | 3. Gross | 4. Cost or |
| Acquired | Sales Price | other basis | |
| Interest in 3.234 a. Coal Land | 1924 | $ 14,640.39 | $ 82,662.23 |
| Coal Land 46 a | 1924 | 176.18 | 860.00 |
| Loss |
| 1. Kind of Property | 5. Expense | 6. Depletion | 7. Gain |
| of sale | Allowed | or Loss | |
| Interest in 3.234 a. Coal Land | $ 407.50 | $ 36,121.91 | $ (32,307.43) |
| Coal Land 46 a | $ (683.82) | ||
| Loss | $ (32,991.25) |
*30 The following is a summary of page one of the fiduciary income and defense tax return for 1940 filed by the estate of W. F. Harman, showing the deduction of the $ 32,991.25 from the estate's income:
| INCOME | |
| 1. Dividends | $ 36,491.60 |
| 2. Interest | 492.71 |
| 6. Rents and Royalties | 4,358.97 |
| 7. (c) Net loss from sale of property other than capital assets | (32,991.25) |
| 10. Total Income | $ 8,352.03 |
| DEDUCTIONS | |
| 12. Taxes | $ 1,960.84 |
| 13. Other deductions authorized by law | 2,978.98 |
| 14. Total deductions | 4,939.82 |
| 15. Balance | $ 3,412.21 |
| 16. Less amount distributable to beneficiaries | $ 3,412.21 |
| 17. Net income (taxable to fiduciary) | $ None |
Item No. 6, designated rents and royalties, included, according to schedule C, net profit from "Coal Land" in the sum of $ 3,803.97. The loss of $ 32,991.25 was reported in the fiduciary return of the estate because that transaction was carried on the books of the estate.
Sayers F. Harman and C. Henry Harman each reported the receipt of $ 1,706.10 from the estate of W. F. Harman in their respective individual income tax returns for 1940, an amount equal to one-half of the sum of $ 3,412.21 reported by the estate of W. F. Harman*31 as "distributable to beneficiaries."
At the time of his death, January 15, 1924, W. F. Harman owned real estate valued at $ 339,174.05 stocks and bonds valued at $ 268,558.67, mortgages, notes, cash, and insurance valued at $ 4,567.51, and other jointly owned miscellaneous property valued at $ 631,364.55. Funeral expenses and administration expenses including executors' fees, attorneys' *341 fees, and other miscellaneous items totaled $ 31,343.02, and the decedent's debts equaled $ 80,777.15.
C. Henry Harman (petitioner in Docket No. 1146) became associated with his father in the coal business in 1910. Upon his father's death in 1924, C. Henry Harman, who was then 35 years old, became president of the coal company and continued in that capacity until 1935, supervising its operations. He was also president of the Buchanan Coal Co. from 1920 to 1936 and of the Sayers Pocahontas Coal Co. from 1917 throughout 1940, as well as being a member of the board of directors of Banner Raven Coal Co. since 1925. He devoted from one-half to three-quarters of his time to the coal business during the operating period. During the calendar year 1940 he received salaries from Yukon-Pocahontas*32 Coal Co., Sayers Pocahontas Coal Co., and Buchanan Coal Co.
C. Henry Harman also engaged in the business of farming during the calendar year 1940, and he was operating for profit two large dairies as well as raising grain, cattle, and hogs. In connection with his 1940 income tax return, he claimed a loss as a result of his farm operations in the amount of $ 8,387.51. In Form 1040-F, attached to his income tax return for 1940, C. Henry Harman listed as one of his farm expenses for the taxable year an item in the amount of $ 1,358, which he described as "Legal Expenses -- State road condemnation & other matters about the farm." Of this amount of $ 1,358, the sum of $ 755 was paid during 1940 to an attorney for legal services rendered in connection with two matters. The first of these matters was the successful effort in causing a proposed state highway to be diverted from the location, upon the farm devised to petitioners by W. F. Harman, originally intended for it, to a new location which, though upon the same farm, was less detrimental and expensive to the farming operations. The second of these matters was the obtaining of a loan from the Abingdon Production Credit Corporation*33 of approximately twenty to twenty-five thousand dollars for the purpose of purchasing livestock for the farm. The money was obtained and used for farming purposes. The farm lands upon which C. Henry Harman conducted his farming operations consisted of about 2,500 acres of land in Virginia which he and his brother, Sayers F. Harman, inherited in equal shares for life under the will of their father, W. F. Harman.
OPINION.
The first issue presented for decision is the right of each of the petitioners to deduct from their income as increased by the Commissioner the amount of a loss incurred upon the sale of certain *342 coal lands which they inherited for life under the will of their father. This issue suggests the following questions:
1. Was the loss that of the individual taxpayers or that of the estate of W. F. Harman?
2. What is the amount of the loss?
3. Is the loss capital or ordinary?
In seeking the solution to the first problem we must start with the premise, as enunciated by the Supreme Court in the case of Helvering v. Stuart, 317 U.S. 154">317 U.S. 154, that "Grantees under deeds, wills and trusts, alike, take according to the rule of the state*34 law." The coal lands here in question being located in West Virginia, the law of that state must control our decision as to whether these coal lands were part of the estate of W. F. Harman, or belonged to petitioners. In the case of Tyler v. Reynolds, 121 W. Va. 475">121 W. Va. 475; 7 S. E. (2d) 22 (1939) the Supreme Court of Appeals of West Virginia stated that, "The devisees, under the will of F. M. Reynolds, became vested with the legal title to parcels of real estate devised to them respectively, but subject to the provisions of Code, 44-8-3, which made these properties assets for the payment of the debts of the testator; and subject also to the provision of the will which authorized the executors to sell and convey these properties. Having the legal title, they had the right to redeem them from the debts of the testator * * *. In this cause the devisees * * * were parties to this suit as individuals, and in their capacity as such had the right to appeal from the decree which directed the sale of property, the legal title to which was vested in them under the will. * * *" (Italics supplied.) Reference is made to "Code, *35 44-8-3" in the material quoted above. This provision is the same as section 3 of chapter 86 of the 1923 edition of the West Virginia Code, which provides as follows:
§ 3. Liability of estate for debts. -- All real estate of any person who may hereafter die, as to which he may die intested, or which, though he die intestate [sic], shall not by his will be charged with or devised subject to the payment of his debts, or which may remain after satisfying the debts with which it may be so charged, or subject to which it may be so devised, shall be assets for the payment of the decedent's debts and all lawful demands against his estate, in the order in which the personal estate of a decedent is directed to be applied.
In the instant proceedings, the assets of the estate of W. F. Harman that consisted of personal property were more than sufficient to pay the decedent's debts and other lawful demands against the estate of W. F. Harman. It is also to be noted that the provisions of the will of W. F. Harman expressly except the coal lands devised by the fourteenth clause from the property as to which the executors are given a power of sale in the twentieth clause. The real estate herein*36 involved was, therefore, under the law of West Virginia, not subject under the facts to the payment of the debts of decedent. Dearing v.*343 , 50 W. Va. 4">50 W. Va. 4; 40 S. E. 478 (cited in 24 C. J. § 594); Reid v. Stuart, 13 W. Va. 338">13 W. Va. 338 (cited in 69 C. J. § 2459). Cf. also George v. Brown, 84 W. Va. 359">84 W. Va. 359; 99 S. E. 509; Arbenz v. Arbenz, 114 W. Va. 804">114 W. Va. 804; 173 S. E. 881; Harris v. Eskridge (W. Va. 1942), 20 S. E. (2d) 465.
We are, therefore, of the opinion that legal title to a life estate in the coal lands devised by the fourteenth clause of the will of W. F. Harman passed under that will to the taxpayers. That life interest was sold by the petitioners, by deed.
In Amy H. DuPuy, 32 B. T. A. 969, we considered a situation very similar to that herein involved; for there the petitioner, as here, was bequeathed a life estate in real estate as well as personalty, and, as did the will in this case, in effect, *37 the will therein provided that the "rents, issues, income and profits thereof accruing during her life" should be "her absolute property" (the language in the Harman will being that the "rents, issues, profits, royalties and dividends * * * are given them absolutely * * *"). We held that gains realized from the sale of certain securities were taxable to the petitioner. The executors sold the securities. As in the instant case, no trust was set up. Cf. William R. Todd, 44 B. T. A. 776 (784), where petitioner was bequeathed the life estate in personal property, including securities, with right to income during life, and where we held under the law of Ohio that gains from the sale of the securities were not properly included in the petitioner's gross income. We there distinguished Amy H. DuPuy, supra, on the ground that in that case the right to profits as well as income, rents, and issues was given during the life estate; also that the rents, issues, income, and profits went to the beneficiary "as her absolute property," which was not found in the Todd case. Since in the instant case the devisees not only received*38 the "profits," but such rents, issues, profits, royalties, and dividends were "given them absolutely," the parallel of the DuPuy case herein is accented by William R. Todd, supra.See also Arrott v. Heiner, 92 Fed. (2d) 773; Abbot v. Welch, 31 Fed. Supp. 369; Guaranty Trust Co. of New York, Executor, 30 B. T. A. 314. The loss was sustained during the taxable year and incurred in a transaction entered into by petitioners for profit, within the meaning of section 23 (e) (2), Internal Revenue Code. Any loss sustained upon such sale of the life interests is deductible by the petitioners.
The respondent cites the following cases in support of his contention that the loss, if any, is deductible by the estate of W. F. Harman: Abell v. Tait, 30 Fed. (2d) 54; T. Rosslyn Beatty, 28 B. T. A. 1286; Peoples National Bank of Charlottesville, Virginia, Administrator, 39 B. T. A. 565; J. Cornelius Rathborne, 37 B. T. A. 607; affd., 103 Fed. (2d) 301;*39 and DeVer H. Warner, Trustee, 7 B. T. A. 1292; affd., 26 Fed. (2d) 1023. All these cases are distinguishable from the instant *344 proceedings for the reason that the property involved in the cases cited by the respondent was personal property, title to which was in the estate or trust without question at the time the loss was incurred.
The respondent also relies upon section 24 (d) of the Internal Revenue Code. 1 However, he fails to cite in his brief any authorities in support of his position that section 24 (d) and the Commissioner's regulations expressly prohibit such a deduction as is claimed by the petitioners, and we have been unable to find any. Section 24 (d) first appeared in section 215 (b) of the Revenue Act of 1921. House of Representatives Report No. 350, 1st sess., 67th Cong., dated August 16, 1921 (C. B. 1939-1 (Part 2) p. 177) explained this provision in the following terms:
Sec. 219: Under existing law persons receiving by gift, bequest, devise, or inheritance a life or other terminable interest in property, frequently capitalize the expected future income, set up the value of this expectation as *40 corpus or principal, and thereafter claim a deduction for exhaustion of this so-called principal on the ground that with the passage of time the "principal" or corpus is gradually shrinking or wasting. This section explicitly provides that no such deduction shall be recognized.
See also Senate Report No. 275, 1st sess., 67th Cong., dated September 26, 1921 (sec. 215) (C. B. 1939-1 (Part 2), pp. 191, 192). A reading of the Congressional Reports, section 19.24-7 of Regulations 103, and section 24 (d) itself convinces us that section 24 (d) of the Internal Revenue Code should not be extended by judicial interpretation to cover the case of a loss sustained by the life tenant upon the sale of property acquired by inheritance. Caroline T. Kissel, 15 B. T. A. 705 (709). We conclude, therefore, that section 24 (d), Internal Revenue Code, does not operate to prevent the deduction claimed by petitioners in the instant cases.
*41 Having decided that the petitioners herein are entitled to deduct the amount of their loss upon the sale of these coal lands, the next inquiry is concerned with the amount of that loss. The evidence in this respect leaves much to be desired. However, the burden of proof is upon petitioners and any omissions or inconsistencies in the evidence are to be resolved against them. Each petitioner claims the right to deduct $ 28,086.93. This figure is arrived at by subtracting from the *345 sum of $ 52,154.43, which petitioners contend represents the fair market value 2 of each of the life estates which they inherited under the will of their father, the sum of $ 22,478.73 representing depletion, and the additional sum of $ 1,608.20 which each petitioner received as his share of the proceeds of the sale of these coal lands. This figure of $ 52,154.43 can not be accepted because it assumes that, because the average annual production from these coal lands for the 10 years prior to January 15, 1924, was 166,686.81 gross tons, the average annual production for the remainder of petitioners' lives will be 166,686.81 gross tons. No competent evidence has been introduced to show that*42 these coal lands possessed sufficient coal to produce 166,686.81 gross tons annually over the lives of the petitioners, each of whom, under the stipulation of the parties, had a life expectancy of 31.8 years. Petitioner sought to establish this fact by offering in evidence, over respondent's objection, a letter dated April 14, 1924, from the Deputy Commissioner of Internal Revenue addressed to A. T. Henderson & Co., Accountants, Lynchburg, Virginia, attached to which was a copy of a report made by the Coal Valuation Section. The taxpayer involved in that communication was the coal company, the then lessee of these coal lands. In that report, made "strictly in accordance with agreement arrived at in conference" (italics supplied), it is stated in paragraph 2 that "In protest dated December 1923, taxpayer establishes values and coal en bloc at the basic dates as follows: * * * Tons en bloc at acquisition approximately 73,722,766 N. T. * * *." (Italics supplied.) Ruling having been reserved, we now rule that this communication is inadmissible in evidence. Cf. Henry Wilson, 16 B. T. A. 1280. (The same ruling of inadmissibility is made as to exhibits*43 8, 9, and 10, offered by petitioner, as to which ruling was reserved.)
There is no direct evidence in the record of the value of the life estate in the 3,191 acres herein involved. Article 15 of Regulations 63 (1922 Ed.), relating to estate tax under the Revenue Act of 1921, covers the "Valuation of annuities, and of life and remainder interests." It provides that "where the decedent was entitled to receive the entire income of certain property during the life of another person * * * [and] where the rate of annual income is not determinable * * * a hypothetical annuity at a rate of 4 *44 percent of the value of the property should be made the basis of the calculation." Table A, which is part of article 15, gives the present value of $ 1 due *346 at the end of each year during the life of a person of 35 years of age as $ 16.14437. Using article 15 of Regulations 63 as a guide, it would be possible to compute the value of the life estate of each of the petitioners provided the evidence establishes the value of the fee in these 3,191 acres as of January 15, 1924. The 3,191 acres are undoubtedly included in the 4,139 acres referred to in item No. 13 of schedule A of the return for Federal estate tax. The actual value as of January 15, 1924, of the four-ninths interest which W. F. Harman possessed at the time of his death in these 4,139 acres together with a questionable two-ninths interest in approximately 1,000 acres more is stated in the return for Federal estate tax as $ 100,311.11. The 3,191 acres herein involved are also part of, if not in fact identical with, the 3,234 acres found in schedule F of the 1940 fiduciary income and defense return, and in the fiduciary return the "cost or other basis" of the 3,234 acres is stated as $ 82,662.23. The more reliable*45 of these figures -- $ 100,311.11 and $ 82,662.23 -- appears to be that of $ 82,662.23 because we know that the deed of May 29, 1940, transferred 3 tracts and that of these 3 tracts, tracts Nos. 1 and 2 totaled 3,191 acres and tract No. 3 contained 46 acres. We also know that schedule F purports to cover the same coal lands conveyed in fee by the deed of May 29, 1940. Inasmuch as schedule F treats the loss sustained upon the sale of the 46 acres separately, the inference is that the 46 acres are the same as tract No. 3 and that the 3,234 acres cover tracts Nos. 1 and 2 (3,191 acres, in fact). We, therefore, adopt $ 82,662.23 as the value of the fee in the 3,191 acres herein involved as of January 15, 1924. Multiplying $ 82,662.23 by .04, then multiplying the result thus obtained by 16.14437, and then dividing that result by 2, equals $ 26,690.59, which is the unadjusted basis 3 to be used by each petitioner in computing his loss upon the sale of the 3,191 acres sold during the taxable year. In order to obtain the adjusted basis 4 for determining that loss, we subtract from $ 26,690.59 the sum of $ 18,060.96, which is one-half of the depletion allowed since January 15, 1924, *46 according to schedule F of the fiduciary return. Thus, the adjusted basis for each petitioner is $ 8,629.63. From the sum of $ 8,629.63, we further subtract the sum of $ 1,608.20, which each petitioner received as his share of the proceeds from the sale, leaving as the net loss of each petitioner the sum of $ 7,021.43.
Having determined that each petitioner sustained a loss upon the sale of the 3,191 acres of coal land to the extent of his life interest therein in the amount of $ 7,021.43, we are required because of section *347 23 (g) (1) of the Internal Revenue Code5 to determine whether this loss was a capital loss. Section 117 (a) (1) of the Internal Revenue Code, effective during the taxable year 1940, reads as follows:
SEC. 117. CAPITAL GAINS AND LOSSES.
(a) Definitions. -- As used in this chapter --
(1) Capital assets. -- The term "capital assets" means property held by the taxpayer (whether or not connected with his trade or business), *47 but does not include stock in trade of the taxpayer or other property of a kind which would properly be included in the inventory of the taxpayer if on hand at the close of the taxable year, or property held by the taxpayer primarily for sale to customers in the ordinary course of his trade or business, or property, used in the trade or business, of a character which is subject to the allowance for depreciation provided in section 23 (l); * * *
We are of the opinion that the life estates in these 3,191 acres of coal lands were held by the taxpayers herein primarily for investment and not for sale and that these life estates do not come within any of the three exceptions to the meaning of the term "capital assets" as defined by the statute set forth above. Therefore, we hold that petitioners' life estates in these coal lands are capital assets. It follows that each petitioner may deduct only one-half of the sum of $ 7,021.43 or $ 3,510.72, since the loss herein involved was a long term capital loss within the meaning of that term as it is defined in section 117 (a) (5), Internal Revenue Code. Estate of Johnson N. Camden, 47 B. T. A. 926; affd., 139 Fed. (2d) 697;*48 Bell v. Commissioner, 137 Fed. (2d) 454, reversing 46 B. T. A. 484.
The last issue for consideration presents the question of the right of C. Henry Harman, under section 23 (a) (1) (A) and section 23 (a) (2), Internal Revenue Code, 6 to deduct from his gross income the sum of $ 755 paid to an attorney during the taxable year for legal advice in connection with (a) condemnation proceedings regarding a right of way across the farm lands which he inherited for life under the will of *348 his father and (b) the securing of a loan for the purpose of purchasing livestock to place on this farm. We are of the opinion that the amounts paid to the attorney by petitioner for his services in procuring*49 the loan from the Abingdon Production Credit Corporation to petitioner are not deductible by petitioner as an ordinary and necessary business expense in the year in which paid, but are in the nature of a capital expenditure. Emil W. Carlson, 24 B. T. A. 868; M. P. Klyce, Administrator, 41 B. T. A. 194 (197). Cf. also I. N. Burman, 23 B. T. A. 639 (643). This being so, it is impossible to allow the petitioner, C. Henry Harman, any part of the $ 755 claimed as a deduction under section 23 (a) (1) (A) or section 23 (a) (2), because there is no evidence in the record as to how much of the $ 755 was paid to the attorney for the latter's services solely in procuring the loan. It would, therefore, be futile and we do not consider it necessary to decide whether the amounts paid by the petitioner to the attorney for the latter's services in connection with the condemnation proceedings are deductible. On this issue, namely, the deductibility by the petitioner in Docket No. 1146 of the sum of $ 755 under section 23 (a), Internal Revenue Code, we sustain the Commissioner.
*50 Decisions will be entered under Rule 50.
Murdock, J., dissenting: The enjoyment of a life estate through the receipt of income, profits, or gain of any kind is subject to income tax in its entirety. Irwin v. Gavit, 268 U.S. 161">268 U.S. 161. The sale of a life estate is but the anticipation of that taxable income. Any loss from the sale is at most the loss of anticipated income which would have been subject to tax if received. That kind of a loss can not be turned into a deductible loss. It is inconsistent with Irwin v. Gavit to allow a life tenant to deduct any basis upon the sale of his property where, as here, he has acquired that property by devise without paying out any cost for it. Cf. Estate of F. S. Bell, 46 B. T. A. 484; reversed, 137 Fed. (2d) 454.
Moreover, if the petitioners are entitled to a basis for gain or loss, then that basis should be determined in accordance with section 19.113 (a) (5)-1, (f) of Regulations 103. A life estate exhausts ratably with the life upon which it is limited. Thus, the life estate which is sold is a shorter estate than the life*51 estate which was acquired at the death of the father. The life tenant has enjoyed a part of it. The regulation takes this into consideration and is the most satisfactory solution for this difficult question which has come to my attention.
Footnotes
1. SEC. 24. ITEMS NOT DEDUCTIBLE.
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(d) Holders of Life or Terminable Interest. -- Amounts paid under the laws of any State, Territory, District of Columbia, possession of the United States, or foreign country as income to the holder of a life or terminable interest acquired by gift, bequest, or inheritance shall not be reduced or diminished by any deduction for shrinkage (by whatever name called) in the value of such interest due to the lapse of time, nor by any deduction allowed by this chapter (except the deductions provided for in subsections (l) and (m) of section 23↩) for the purpose of computing the net income of an estate or trust but not allowed under the laws of such State, Territory, District of Columbia, possession of the United States, or foreign country for the purpose of computing the income to which such holder is entitled.
2. SEC. 113 [I. R. C.]. ADJUSTED BASIS FOR DETERMINING GAIN OR LOSS.
(a) Basis (Unadjusted) of Property. -- The basis of property shall be the cost of such property; except that --
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(5) Property transmitted at death. -- If the property was acquired by bequest, devise, or inheritance, or by the decedent's estate from the decedent, the basis shall be the fair market value of such property at the time of such acquisition. * * *↩
3. Sec. 113 (a) (5), I. R. C.↩
4. Sec. 113 (b) (1) (B), I. R. C.↩
5. SEC. 23. DEDUCTIONS FROM GROSS INCOME.
In computing net income there shall be allowed as deductions:
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(g) Capital Losses. --
(1) Limitation. -- Losses from sales or exchanges of capital assets shall be allowed only to the extent provided in section 117↩.
6. SEC. 23. DEDUCTIONS FROM GROSS INCOME.
In computing net income there shall be allowed as deductions:
(a) Expenses. --
(1) Trade or business expenses. --
(A) In General. -- All the ordinary and necessary expenses paid or incurred during the taxable year in carrying on any trade or business, * * *
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(2) Non-trade or non-business expenses. -- In the case of an individual, all the ordinary and necessary expenses paid or incurred during the taxable year for the production or collection of income, or for the management, conservation, or maintenance of property held for the production of income.↩