">*865 The Commissioner determined income tax deficiencies for the years 1952-1955 as follows: 1952, $ 45,931.93; 1953, $ 25,361.01; 1954, $ 75,569.08; 1955, $ 19,888.19. Petitioner's private yacht was sold in 1955. The issue is whether the yacht was "property held for the production of income" in the taxable years so that expenditures for conservation">*214 and maintenance are deductible under sections 23(a)(2) and 212(2), and allowances for depreciation are deductible under sections 23(1)(2) and 167(a)(2), 1939 and 1954 Codes.
FINDINGS OF FACT.
The petitioner, a resident of the District of Columbia, filed her returns in Baltimore with the district director of internal revenue for the district of Maryland.
The stipulated facts are found as stipulated and are incorporated by reference.
The petitioner continuously owned a private yacht, the Sea Cloud, during the years 1931-1955 until it was sold in 1955. It was built in 1931 for the petitioner at Kiel, Germany, at an initial cost of $ 1,225,000, exclusive of furnishings supplied by petitioner.
The Sea Cloud is a four-masted sailing vessel, barque rigged, constructed of steel and equipped with four diesel-electric engines. Its equipment includes gyroscope, fathometer, direction finder, radar, aerometer, fire detection system, telephone, auxiliary electric power generators, machine tools, electric sail hoists, a sea water evaporator for making fresh water, air conditioning, refrigerators which preserve 35 tons of frozen foods, and water and oil tanks. All equipment was of the ">*215 latest type and up to date in 1951. The four masts carry a spread of 34,000 square feet of sail. The yacht is 316 feet long and has a gross registry of 2,323 tons. Its tanks carry 116,000 gallons of ">*866 fresh water, 186,000 gallons of fuel oil, and 4,200 gallons of lubricating oil. The quarters include dining and drawing rooms, master staterooms and rooms for eight guests, two galleys, a barbershop and a well-equipped hospital.
The United States Navy leased the yacht in 1942, for a nominal rental, for convoy duty and weather patrol. It was returned to petitioner in 1944. It was conditioned for naval duty which included mounting guns on decks. Reconditioning and refurnishing the ship for private use was completed in 1948.
Clyde B. Ault, a marine engineer, supervised the construction of the yacht and has been employed by petitioner as the chief engineer at all times except during World War II.
Prior to World War II, the petitioner took a cruise around the world on the yacht. After the 1948 reconditioning, petitioner used the yacht for cruises to Bermuda, Palm Beach, and through the Caribbean. During August through November 1950, the yacht went on a Caribbean cruise. That">*216 cruise was the last time the Sea Cloud was used for any personal purposes of the petitioner or her family and friends. After 1950, the yacht was not used for sailing, cruising, entertainment, living accommodations, or any other personal uses.
Toward the end of the Caribbean cruise in 1950, Ault flew from the Dominican Republic to Washington for a conference with petitioner at which the future of the yacht was discussed. Petitioner then told Ault that she had decided to sell the Sea Cloud and not to use the yacht again at any time for personal purposes. She directed Ault to tie up the yacht on a permanent basis at Jacksonville, Florida, at the end of the cruise; to proceed to dismiss all of the crew except about four who would be needed to watch and protect the ship from fire and theft; to decommission the yacht; and to prepare for removing her personal belongings and furniture. In accordance with these instructions, the yacht was tied up in Jacksonville at the end of 1950, and Ault told the crew that it was up for sale and the crew would be dismissed except for a few needed for a security watch. Ault began the reduction of the crew and the decommissioning of the yacht">*217 in January 1951. Both were completed by May 1951.
Early in 1951, petitioner offered the Sea Cloud for sale for $ 1,200,000, furnished, or $ 1 million, unfurnished, by listing it with several ship and yacht brokers. She made continuous efforts through agents to sell the yacht until it was sold. On August 15, 1955, petitioner executed a sale agreement whereby she agreed to sell the Sea Cloud on an "as is" basis for $ 500,000 to George W. Gibbs, Jr., the president of Gibbs Corporation in Jacksonville, Florida. Gibbs paid petitioner a deposit of $ 25,000. The sale was completed in August. Petitioner was informed that the yacht was resold to Generalissimo Rafael L. Trujillo of the Dominican Republic for $ 550,000. The agreement with ">*867 Gibbs provided that included in the sale were certain furniture and furnishings, which had been left on the ship, and some additional items of furniture which had been removed which petitioner returned.
The specifications and equipment of the Sea Cloud equaled the standards of a seagoing yacht and a modern transatlantic liner. Its structure met the requirements of Lloyd's Registry of Shipping for a commercial vessel of the same">*218 size and draft. Lloyds gave it a 100-A-1 rating. It met the requirements of the Convention for Safety of Life at Sea. Her boat decks carried 2 lifeboats with a capacity of 52 persons each, and 4 motor launches. Her cruising radius is 20,000 miles.
While devoted to the petitioner's use, the owner's quarters were furnished in the manner of a comfortable home. In the salon were a library and a marble fireplace. The living room was furnished richly in English style. The dining room was decorated like an old sailing ship with hand hewn oak beams, was furnished in walnut, and rare paintings of seascapes were hung on the walls. The owner's staterooms were furnished with French period furniture; the bath was of rose marble with gold-plated fixtures. Each guest stateroom was handsomely furnished, had an electric heat fireplace, and a tile bath.
Decommissioning the "Sea Cloud." -- In January 1951, the petitioner gave orders to remove from the yacht all of her personal belongings and various articles of furniture and furnishings. She visited the yacht in March 1951 to give further directions to the same effect. During January 1951 a number of paintings were removed, and in March">*219 and April personal belongings were removed from the staterooms, guestrooms, smoking room, living room, dining room, hallway, wine cellar, and steward's pantry. Approximately 250 items and sets were removed at this time, including 10 cases of silverware. A few items were removed in 1952. Many items were packed and crated so as to be ready for removal immediately upon the sale of the ship. Such crates and packages of goods were left on the yacht because petitioner did not know then just where she wanted to send them. Petitioner wanted to be ready to immediately remove articles then left on the yacht in the event a purchaser was found who wished to take delivery of the ship within a short time and did not want to purchase any of such goods. None of petitioner's personal belongings ever had been removed before, except clothing, except when the yacht was leased to the Navy.
The full crew of the Sea Cloud, such as was employed in 1950, consisted of about 72 men. Ault laid off permanently 50 percent of the crew during January 1951. The first to be dismissed were the captain, second mate, third engineer, refrigerating engineer, the able-bodied seamen, and most of the steward's">*220 department. Those retained proceeded with the decommissioning. By mid-February, only 10 members ">*868 of the crew remained. By May, only four men remained the security crew. At the end of February, the second galley was shut down. By May, all rooms on the yacht had been closed and only two or three rooms, which were used by the security crew, were left open. In 1951, petitioner reduced the insurance on the Sea Cloud from full coverage to port risk insurance on the hull and against strikes and riots.
The decommissioning of the yacht which began in January 1951, involved the following: The rigging, sails, and upper yardarms were taken down; 30,000 square feet of sail and 9 miles of rope were stored in one of the forecastles; the deckhouses were covered with canvas for protection against the weather, heat, and humidity. All mirrors, paintings, and furniture were sprayed with protective preparations and covered with French cloth for protection against the humidity. All of the linens were laundered and put away in sealed packages. The stoves in the two galleys were dismantled; the cooking utensils were greased and put into lockers; the refrigerators were disassembled, ">*221 galvanized, and stored; the upper and lower decks were covered with canvas; the motorboats were disconnected; a coat of oil was put on the engines of the motor launches; the deck furniture was removed; the air-conditioning equipment was emptied and sealed; the radio antennas and radarscopes were taken down; all pumps and motors, except those needed to turn over the propellers, were disconnected; and the pumps and the boiler were blown out, cleaned, and sealed. The main generators remained in operating condition in order to turn over the propellers at 2-week intervals so that they would not remain set in one position. The tanks were emptied of all fuel oil except what was needed to run periodically the auxiliary engines to keep them from deteriorating. The oil was sold for $ 5,273, and no fuel oil was purchased thereafter for use in the main engines. The electrical elements, plates, switches, and other items subject to deterioration from moisture and humidity were taken out. This had never been done before during any period of layup.
From the time the Sea Cloud was decommissioned in 1951 until she was sold, she was never moved under sails or her own power. The yacht was laid">*222 up alongside a storage wharf in the Jacksonville shipyards. Most of the electricity was supplied from on shore. She was not anchored in midstream. If that had been done, a larger crew would have been required.
The yacht has a steel hull. Steel in salt water deteriorates rapidly below and above the waterline unless it is kept painted because salt water corrodes the steelplates and the salt air, humidity, and sun also corrode the steel. It was impossible to "moth-ball" the yacht completely. It was necessary to keep the yacht in salable condition. ">*869 During the period March 1951 to August 1955, necessary preservation work was done on the yacht for which it was moved by tugboats to drydocks, and men were hired from shipyards and elsewhere to do such necessary maintenance work as the four-man crew could not do.
During the years 1952-1955, petitioner warranted in applications for hull and machinery insurance that the yacht would remain laid up at a dock at the Jacksonville shipyard.
The layup of the Sea Cloud during 1951-1955 was as extensive and complete as was possible and consistent with preservation and maintaining it in salable condition, and was more extensive and">*223 complete than any layup prior to 1951. During the 1948-1950 semilayup, the reduced crew consisted of 30 men; the crew's quarters were not closed; dishes and utensils were not put away; and the time in port was spent primarily in overhauling the ship in preparation for the next cruise. Precautions taken then for protection against deterioration during idle months were not as complete. During semilayup periods, men who were laid off were told that it was temporary and that they would be called back when preparations for the next cruise began. That was necessary because men capable of manning a square-rigged sailing ship cannot be hired through ordinary channels. For the same reason, the officers, mates, and the most dependable men had been retained during temporary layups as the permanent part of the crew. Some of them had served on the yacht since 1931. None of these arrangements were adhered to in 1951-1955. The petitioner had never laid off all of the crew except four men at any time before 1951, except when she leased the yacht to the Navy.
During 1952-1955, petitioner maintained residences in Washington, D.C., New York City, and Palm Beach, which is 250 miles from Jacksonville. ">*224 Petitioner visited the Sea Cloud only once, in 1953, after the visit in March 1951 when she arranged for the removal of personal belongings. In 1953 she went to give final instructions about removing some remaining belongings. Most of the items removed in 1953 were pictures and furniture in the owner's and guests' quarters. A few more items were removed in 1955.
Ault remained in charge of the Sea Cloud. He was advised by petitioner's New York office that prospective purchasers would inspect the yacht, and he accompanied them on their tours. Unauthorized persons were not permitted to go aboard. A 24-hour watch was maintained. The door on the gangway was locked and a signal bell was installed. Prospective buyers could inspect the yacht only by appointment and upon obtaining permission. During 1951 to August 1955, many prospective buyers inspected the Sea Cloud.
In 1954 the yacht was inspected by Lloyd's of London and received a 100-A-1 rating. In order to put the ship to sea in 1955 another and different inspection would have been required.
">*870 The procedure followed to sell the "Sea Cloud." -- In order to arrive at an offering price, petitioner, in ">*225 April 1951, requested a retired naval officer to make an estimate of the then reconstruction cost of a similar yacht. He made and delivered such estimate.
Throughout each of the years 1951-1955, petitioner engaged various brokers and agents in New York, Texas, California, and elsewhere to find a buyer. The yacht was listed with several brokers for sale. These included John H. Wells, marine brokers in New York; Perry-Cox & Stevens, Inc., yacht brokers and designers in New York; Victor B. Bendix, Inc., a shipbroker in New York; John G. Alden, Inc., yacht brokers in Boston and New York; Philip L. Rhoades, a naval architect; George Michaud Co., yacht brokers in Los Angeles; Sparkman & Stevens, yacht and shipbrokers in New York; W. A. White, Jr.; and Mary Van Zandt-Williamson in Fort Worth. Petitioner's business manager, William R. Wood, corresponded with brokers. Photographs and description of the Sea Cloud were given to them and those who made inquiries. Petitioner offered the yacht for sale for $ 1,200,000 furnished, or $ 1 million unfurnished. The following illustrates petitioner's and her agents' efforts to sell the Sea Cloud:
In March 1951, petitioner received an offer">*226 through John H. Wells to purchase the yacht for $ 450,000. It was made on behalf of Generalissimo Rafael L. Trujillo. The offer was rejected by petitioner after making an investigation of the required steps and the laws and regulations of the United States Government involved in order to consummate the sale of a yacht to a noncitizen of the United States.
In a letter dated September 13, 1951, addressed to Wood, petitioner (who was then Mrs. Joseph E. Davies) received a conditional offer of $ 1 million for the Sea Cloud through Perry-Cox & Stevens, which was made on behalf of Aristotle Onassis, the Greek shipping magnate, a client of Aldo Ermini in New York City. By a letter dated September 21, 1951, petitioner's attorney notified Perry-Cox that the offer was satisfactory, as follows: "We are advised by Mrs. Davies that the offer is satisfactory and you are authorized to notify Mr. Aldo Ermini, representing the purchaser, that she is prepared to enter into a contract to carry out the sale of the said Yacht, * * *." A draft of a contract of sale was submitted to petitioner on behalf of Onassis. Petitioner's attorneys prepared a contract, based on the draft, for execution. Representatives">*227 of Onassis inspected the yacht in November 1951, and he inspected it, with Ermini and a marine surveyor, in February 1952. Onassis did not buy the Sea Cloud.
During 1951 petitioner was advised that the best market for a luxury yacht was probably in England. On September 4, 1951, petitioner had a form for authorization of sale prepared, which was sent to representatives in England, which stated as follows, in part:
">*871 We, the undersigned, hereby agree as follows, that: If, within six months from date (unless an extension hereof is hereafter agreed upon) you secure a purchaser for the barque, Sea Cloud, as described in the Lloyd's Registry of Yachts, and if a sale is completed to such purchaser within the above time, we will, from such consideration as is received, pay you for services as follows: 1. If the yacht is sold -- unfurnished -- for a sum not less than One Million Dollars ($ 1,000,000) a commission of five per cent will be paid to you from and as payment received. 2. If the yacht is sold -- furnished -- for a sum not less than One Million Two Hundred Thousand Dollars ($ 1,200,000), in addition to the commission of five per cent for the first million, a commission">*228 will be paid to you as above of ten per cent on the Two Hundred Thousand Dollars ($ 200,000). 3. If the yacht is sold for any sum in excess of these amounts, a bonus of fifty per cent of such excess will be paid to you, in addition to the five per cent and ten per cent commissions on the first Million Two Hundred Thousand Dollars as aforesaid.
In 1952, 1953, and 1954, petitioner's business manager had correspondence and discussions with the brokers and individuals above mentioned, all of which related to persons or Governments who expressed an interest in buying the Sea Cloud; and interested persons examined the yacht. Perry-Cox wrote petitioner, "I continually have in mind that you are anxious for a sale." The offering price was as stated above for the most part, but in 1953, the offering price was $ 1 million furnished, and $ 800,000 unfurnished, and early in 1955 the price was reduced to $ 600,000 unfurnished. Finally, in August 1955, the price was reduced to $ 500,000 partly furnished. Among those who expressed interest in buying the yacht were the following: Fulgencio Batista, President of Cuba; the Crown Prince of Saudi Arabia; Axel L. Wenner-Gran, a Swedish industrialist">*229 living in the Bahamas; and representatives of the Governments of Iran, Portugal, and Argentina.
The yacht was not offered for charter and no attempt was made to charter it in 1951-1955.
The yacht's original cost was not less than $ 1,225,000. The book value of its furnishings, supplied by petitioner, was $ 267,528 at the end of 1951. From 1946 through 1950, petitioner spent $ 3,145,188 to rehabilitate the yacht after its war service and for maintenance and operations, as follows: 1946, $ 1,144,431; 1947, $ 980,333; 1948, $ 455,214; 1949, $ 218,964; 1950, $ 346,246. In 1951 the total expenses were $ 73,047.
In 1952-1955, petitioner spent for the yacht's preservation and maintenance, including wages, laundry, insurance, fuel, wharfage, pilotage, towing, and sundries, as follows: 1952, $ 42,993.11; 1953, $ 44,935.38; 1954, $ 71,909.10; 1955, $ 40,677.50. It is stipulated that these amounts were ordinary and necessary in the event it is held that deductions are allowable. It is further stipulated that if it is held that depreciation deductions are allowable, the annual allowances are $ 42,857.14 for each year, 1952-1954, and $ 28,568.57 for 1955.
">*872 The stipulated facts are">*230 found as stipulated and are incorporated herein by this reference.
OPINION.
The petitioner contends that during 1951 she took affirmative action which converted the status of her yacht, the Sea Cloud, from that of property held for personal use to that of "property held for the production of income," within the meaning of the nonbusiness expense and depreciation provisions of the Codes, and that therefore she is entitled to deductions in the years 1952-1955, inclusive, for the ordinary and necessary expenses paid for the conservation and maintenance of such property and for depreciation. The respondent's position is that the actions taken by the petitioner were not sufficient to satisfy the statutory requirement.
In the event the petitioner's contention is sustained, it is agreed that the amounts of the deductions now claimed may be allowed. 1 No question is presented about the amounts of allowances for depreciation, and the respondent does not contend that the nature and amounts of the expenses were not ordinary and necessary.
">*231 The claim for deductions for nonbusiness expenses is made under sections 23(a)(2) and 212(a) of the 1939 and 1954 Codes, respectively; the depreciation deductions are claimed under sections 23(1)(2) and 167(a)(2) of those Codes. For convenience, references are made to the 1939 Code. 2 The regulations relating to nonbusiness expenses are Regulations 118, section 39.23(a)-15, and Income Tax Regulations under the Internal Revenue Code of 1954, issued in 1957, section 1.212-1. Consideration is given first to petitioner's claim for the expense deductions.
Personal expenses are not deductible">*232 and expenses incurred in maintaining and preserving property devoted to personal use fall within that class. Sec. 24(a)(1), 1939 Code; sec. 262, 1954 Code. In order to come within the scope of the statutory provisions permitting ">*873 the deduction of nonbusiness expenses there must be conversion of property which has been held for personal use to a different status, that of a holding for the production of income. In the chief authorities dealing with the same issue, the property involved usually has been property which at some time was used as a residence. Mary Laughlin Robinson, 2 T.C. 305">2 T.C. 305; Warren Leslie, Sr., 6 T.C. 488">6 T.C. 488; William C. Horrmann, 17 T.C. 903">17 T.C. 903; Charles F. Neave, 17 T.C. 1237">17 T.C. 1237; Clarence B. Jones, 22 T.C. 407">22 T.C. 407, reversed on another issue 222 F.2d 891. See, however, Marcell N. Rand, 34 T.C. 1146, involving expenses of maintaining a small yacht during certain seasons, and Estelle G. Marx, 5 T.C. 1273">5 T.C. 1273.
This case is unusual in ">*233 that the property involved is a yacht, and the yacht itself is unique. Another unusual aspect is that the petitioner contends that it was not feasible to charter (rent) the Sea Cloud and that there was no market for its charter.
Both parties rely on the regulations, as amended. Petitioner argues that subparagraph (h) of section 39.23(a)-15, Regulations 118, which first was promulgated as an amendment by T.D. 5331, 1944 C.B. 98">1944 C.B. 98, is favorable to her contentions. That amended regulation was carried forward in subparagraph (h) of section 1.212-1 of the Income Tax Regulations under the 1954 Code. All of the nonbusiness expense provisions in Regulations 118 were carried forward into the 1954 Code regulations. However, in the latter in subparagraph (c), there is an addition to section 39.23(a)-15(b). The amended regulations have been considered. For convenience, references are made to the 1954 Code regulations.
After section 23(a)(2) was added to the 1939 Code by section 121(a) of the 1942 Revenue Act, Regulations 103, section 19.23(a)-15(b), were amended by T.D. 5196, 1942-2 C.B. 96, 99, to cover">*234 the nonbusiness expense provisions. That amendment of the regulations provided, in part, that the ordinary and necessary expenses of conserving and maintaining property used as a residence, or acquired for such use, were not deductible --
even though the taxpayer makes efforts to sell the property at a profit or to convert it to income-producing purposes, and even though the property is not occupied by the taxpayer as a residence unless prior to the time that such expenses are incurred the property has been rented or otherwise appropriated to income-producing purposes by some affirmative act and has not been reconverted. [Emphasis added.]
In 2 T.C. 305">Mary Laughlin Robinson, supra, the reasoning and conclusion were based partly upon the language of the part of the regulation which is emphasized above. The Commissioner at first did not acquiesce in the Robinson case. 1943 C.B. 38">1943 C.B. 38. However, in 1944, his nonacquiescence was withdrawn; acquiescence was announced (1944 C.B. 23">1944 C.B. 23); T.D. 5331, supra, was promulgated; and it retroactively ">*874 amended the">*235 regulations so as to delete the disjunctive requirement of affirmative appropriation to income-producing purposes, emphasized above. The amended provisions, subparagraph (h) of the pertinent regulations, supra, are set forth below. 3
The petitioner places considerable stress upon the present wording of subparagraph (h), arguing that the "change in the regulations evidently left open in each case the question whether the facts therein indicated that the property was no longer held for use as a residence [personal use] but was held for the production of income">*236 through rental, efforts to sell, or otherwise." She also contends that it is significant that no reference is made in the amendment of the regulations "to property which was not held for use as a residence but was held for the production of income by sale." Petitioner's arguments dealing with the amended regulations lead to her contentions that the Leslie, Sr. case, on which respondent relies, gave no consideration to the amendments to the regulations or their relationship to the acquiescence of the Commissioner in the Robinson case, and that either the Leslie, Sr. case is distinguishable from the instant case on its facts, or there was error in the reasoning due to the interpretation of what petitioner refers to as "obsolete provisions of the regulations."
The petitioner's contentions are, first, with respect to the facts, that she permanently abandoned the Sea Cloud for personal use in 1951 (by moving off furniture and the layup), and converted it into property held for the production of income by her efforts in 1951 and thereafter to sell it at the highest price possible; and, second, with respect to the law, that the pertinent statutory provisions permit the deduction">*237 of maintenance expenses paid on property held solely for sale, provided it is not used for personal purposes or held for such possible use in the future; and that it is not necessary either to offer the property for rent or to rent it in order to meet the statutory requirements. In other words, petitioner contends that where there is abandonment of personal use of property and the offering of such property for sale and holding it solely for sale, the property qualifies as property held for the production of income.
The respondent takes issue with the petitioner's chief fact contention about permanent abandonment in 1951, and he argues that if at any time from the date of the layup until the yacht was sold, the petitioner had decided to resume using it for personal purposes, she could have done so, in spite of the cost of returning the yacht to seagoing condition, the factor of cost not being a problem to the petitioner; ">*875 and that even if she had abandoned it for personal use, that fact is not sufficient under the statute because the yacht remained available for her personal use. With respect to the question of law, it is the respondent's position that there must be ">*238 an unmistakable conversion of property to income-producing purposes, that efforts to sell and offering for sale are not sufficient to appropriate property to the required status of property held for the production of income; and that this rule has been established in the Leslie, Sr. and Horrmann cases. Finally, the respondent argues that the Sea Cloud was not held in the taxable years for the production of income because the highest asking price was less than petitioner's cost, there never was any possibility that she would derive any gain from the sale, and, consequently, since the yacht was not otherwise held for the production of income, the holding for sale was a holding to minimize personal loss, which does not constitute holding property for the production of income. He argues, further, that it was relevant and material for petitioner to introduce evidence about why, after nearly 20 years of personal use, petitioner wanted to sell and finally sold her yacht.
Neither party has cited any case having substantially similar facts, and we find none. This case is distinguishable on its facts from the leading cases cited above in that those cases involved residential">*239 property, whereas here the property was designed for petitioner's pleasure and recreation; for entertainment, vacations, and travel; and, in a broad sense, it constituted a hobby. See the dissenting opinion of Judge Disney in the Leslie, Sr. case, 6 T.C. 488">6 T.C. 497, where the distinction of property which is a "mere hobby" from residential property was noted. In Marcell N. Rand, supra, the following was noted, inter alia, "the question whether property is held primarily for the production of income or primarily as a sport, hobby, or recreation is not determined solely from the intention of the taxpayer but rather from all of the circumstances of the case." We there cited with approval another part of the regulations dealing with the nonbusiness expense provisions in the Codes, which we think cannot be ignored here and it is quoted in material part below. 4
">*240 ">*876 The meaning of the term "income" in the phrase "held for the production of income" has been considered with some frequency, within the context of the facts of each case, and in the regulations. 5 See the Robinson case, 2 T.C. 305">2 T.C. 306-307, 309; H. Rept. No. 2333, pp. 74-76, and S. Rept. No. 1631, pp. 87-88, 77th Cong., 2d Sess., 1942-2 C.B. 429-430, 570-571. The petitioner contends that it is not material that in view of the large cost of the Sea Cloud, she could not have realized any profit from the sale. Reference is made by petitioner to the committee reports, in this respect, supra.
">*241 The regulations (see footnotes 4 and 5) incorporate the language of the report of the Ways and Means Committee. The Sea Cloud was not property held for rent or investment, and the examples given in both of the committee reports and in the regulations, namely, a building devoted to rental purposes and investment property, are inapposite. Rather, the references in the committee reports and regulations to expenses of carrying on transactions carried on primarily as a sport, hobby, or recreation are material. Thus, in both the committee reports and the regulations it is stated that the expenses of carrying on a transaction which does not constitute a trade or business and is not carried on for the production of income or for the maintenance of property held for the production of income, but is carried on primarily as a sport, hobby, or recreation are not allowable as nonbusiness expenses. We think it is material here in the consideration of the issue that the property involved, the Sea Cloud, had been held primarily for recreation and that its cost was so large that no gain could be realized from its sale. In this respect, petitioner's contention, under all of the facts, ">*242 that such factors are immaterial is not valid.
In the matter of the alleged abandonment of all personal use of the Sea Cloud in 1951, the evidence shows that petitioner gave up the use of the yacht for all personal purposes and never resumed such use, and that the layup of the yacht in 1951 (which has been referred to ">*877 herein as the "decommissioning" of the ship) was as substantial, complete, and thorough as possible, consistent with the preservation thereof, and was more extensive than ever had been done before, except when the yacht was turned over to the Navy. In 1951, petitioner had her personal belongings and furnishings packed and prepared for removal, and a substantial quantity was moved and taken away in 1951 by a commercial moving concern, and thereafter.
In 17 T.C. 903">William C. Horrmann, supra at 907, we said:
The mere abandonment of such use [as a personal residence] does not mean that thereafter the property was held for the production of income. But when efforts are made to rent the property as were made by petitioner herein, the property is then being held for the production of income and this may be so even though no income is in">*243 fact received from the property, * * * and even though the property is at the same time offered for sale.
In the case of 17 T.C. 1237">Charles F. Neave, supra at 1243, it was stated that a taxpayer who owns and occupies property as his own residence is not allowed deductions for depreciation unless he abandons the property as his residence and converts it to income-producing use; and that such conversion is not accomplished by listing the property for sale but could be accomplished by offering it for rent or renting it under circumstances indicating that it was not to be occupied further as a residence.
The petitioner had the burden of proving that the respondent's determination was erroneous. She did not sustain that burden simply by showing that the Sea Cloud was listed for sale at a definite price and that efforts were made to effect a sale.
In explanation of the absence of making efforts to charter the yacht, Ault's testimony was that it was not feasible to offer it for charter or negotiate a charter party because the monthly charge for a charter would have been large and there was not a market therefor. However, it is admitted that petitioner did not ">*244 wish to charter the yacht, and it was not offered for charter in 1951 before the decommissioning, the taking down of the equipment, and the discharge of the full crew because of petitioner's disinclination to offer it for charter. Obviously, there would not have been as great cost to have prepared the yacht for charter late in 1950, after the cruise that year, or early in 1951, as there would have been after the ship was decommissioned and the crew dismissed, which Ault testified would have cost about $ 189,500, at least, after the ship had been decommissioned for 1 year.
Petitioner did not testify. The record does not show to what extent, if any, the fact that the yacht's furnishings consisted of petitioner's personal belongings entered into her lack of inclination to offer the Sea Cloud for charter before it was decommissioned. If she had wanted to offer it for charter, and had prepared it for that use, which might have involved substituting average furnishings for her antiques ">*878 and personal possessions (since a chartered ship must be presented fully equipped), there probably would have been the required conversion to income-producing use. But upon consideration ">*245 of all of the facts and circumstances, we believe that petitioner merely laid up the Sea Cloud and removed belongings not to be sold with it and that in so doing, she did not make the conversion of the yacht to that of property held for the production of income. We are unable to find and conclude that the amended regulations which apply to the issue, or the committee reports, provide support for petitioner's contentions, or that the facts here establish that the Sea Cloud was converted and devoted to the production of income during the taxable years.
In each case, the question whether the statutory requirement is met depends upon the taxpayer's proof of conversion to income-producing uses. The test, "held for the production of income," is to be applied within the limitations of the related statutory restriction which denies the deduction of personal expenses. In this case, there is the unusual factor that the kind of property involved, a sea-going luxury yacht, required substantial maintenance expenses under all circumstances as long as it was owned by petitioner. Petitioner reduced the costs of holding the property by the steps taken in 1951 below the amount ordinarily">*246 expended when the ship was laid up in between cruises, but that action did not serve to convert the property from personal and recreational property to property held for the production of income, even though a substantial amount of the petitioner's furnishings were removed in 1951 and succeeding years. Nor is the question whether the statutory test is met established solely by petitioner's intention to sell the property. Petitioner did not testify. Intent is a subjective matter. The record does not show why petitioner wanted to sell the Sea Cloud. That question, where the property has been devoted at all times to recreational purposes, must be determined from all of the circumstances of each case rather than any formula. In our opinion, the petitioner did not make a definitive conversion of the property to income-producing purposes by reducing maintenance and preservation expenses and laying up the yacht. Such reduction of expenses was a relative matter because the property ordinarily was not continuously used by the petitioner whether or not she desired to make a sale, and such desire is not sufficient proof, under the circumstances here, to convert the property to income-producing">*247 purposes. From all of the facts and circumstances, we believe it is clear that petitioner's desire to sell the yacht was for the purpose of reducing her loss on the cost of property she had purchased for purely personal reasons. Although the statutory provision was intended to provide some relief where expenditures were not part of carrying on a business, Elsie B. Gale, 13 T.C. 661">13 T.C. 661, 13 T.C. 661">668, affd. 191 F.2d 79, it may not be applied to extend such relief ">*879 merely because of the difficulties of making the required conversion which are chiefly inherent in the type and nature of the property and the expenses involved. The Robinson, Horrmann, and other cases relied upon by the petitioner are on their facts distinguishable. We are unable to find as an ultimate fact, after taking into consideration all of the circumstances of this case, that the Sea Cloud was held for the production of income during the taxable years. Deductions claimed for maintenance expenses and depreciation are denied.
The respondent has conceded that payments to the Florida Unemployment Compensation Fund were taxes paid and, therefore, are deductible.
">*248 Decision will be entered under Rule 50.
