Respondent contends that the circumstances surrounding the purchase and ownership of the BNB stock demonstrate that it was "property held for investment," and, therefore, that the interest on the loan used to purchase the stock constitutes "investment interest." Petitioner contends that the stock was not "property held for investment," but, rather, that it was property held in the trade or business of banking because Milbro's stock ownership enabled petitioner to become president of BNB. In this context, petitioner cites Corn Products Refining Co. v. Commissioner, 350 U.S. 46">350 U.S. 46 (1955), and its progeny for the proposition1978 U.S. Tax Ct. LEXIS 99">*110 that stock may constitute property held in connection with a taxpayer's trade or business rather than as an investment where it is intrinsically related to the conduct of the trade or business.

In resolving this issue it is helpful to note the abuse which Congress sought to prevent by the provision in question. Section 57 was originally enacted by the Tax Reform Act of 1969, Pub. L. 91-172, sec. 301, 83 Stat. 487, 581-583. At that time, Congress was concerned with abuses resulting from the prevalent use of borrowed money to purchase investment assets. ³ A congressional report described these abuses in the following terms:

The itemized deduction presently allowed individuals for interest, makes it possible for taxpayers to voluntarily incur substantial interest expenses on funds borrowed to acquire or carry investment assets. Where the interest 70 T.C. 448">*454 expense exceeds the taxpayer's investment income, it, in effect, is used to insulate other income from taxation. For example a taxpayer may borrow substantial amounts to purchase stocks which have growth potential but which return small dividends currently. Despite the fact that the receipt of the income from the investment1978 U.S. Tax Ct. LEXIS 99">*111 may be postponed (and may be capital gains), the taxpayer will receive a current deduction for the interest expense even though it is substantially in excess of the income from the investment. [H. Rept. 91-413 (Part 1) (1969), 1969-3 C.B. 200, 245.]

1978 U.S. Tax Ct. LEXIS 99">*112 The original version of the Tax Reform Act of 1969 approved by the House contained a provision limiting individuals' current deductions for investment interest. ⁴ The Senate, acting chiefly in response to criticism of the House approach by the Treasury Department, ⁵ deleted the House provisions and added the parts of section 57 presently before us which made excess investment interest an item of tax preference. The Senate Report explained its reasons for these changes as follows:

The Treasury Department, however, recommended to the committee that the interest limitation be deleted pending further study. It noted that there is an abuse in this area which results from the possibility of acquiring growth property with borrowed funds, deducting the interest expense against ordinary income, and then treating the ultimate gain on the property as a capital gain. It believes, however, that the House provision did not correct many of the problems in this area. Particularly it expressed concern that the provision would affect the taxpayer who has only earned income more severely than an individual who also has investment income.

In view of this, the committee believes this provision 1978 U.S. Tax Ct. LEXIS 99">*113 of the House bill should be deleted pending further study of this problem. However, investment interest expense in excess of investment income is an item included in the base for the minimum tax on preference income which is provided in the committee amendments. [S. Rept. 91-552 (1969), 1969-3 C.B. 423, 617.]

1978 U.S. Tax Ct. LEXIS 99">*114 The Conference Committee restored the House provision limiting deductions for investment interest (with changes not relevant here), but only for years beginning after December 31, 1971. This provision is currently section 163(d). The Senate provision making excess investment interest an item of tax 70 T.C. 448">*455 preference was retained, but made applicable only to years beginning before January 1, 1972. Conf. Rept. 91-782 (1969), 1969-3 C.B. 644, 657-658, 659.

Thus, section 57, like section 163(d), attempts to deal with an abuse which is present whenever interest is incurred to obtain or maintain property held with sufficient investment intent for the gain on its disposition to constitute capital gain. Such property is investment property and the interest on funds borrowed to finance its purchase is investment interest. We, therefore, must look to the stock purchased by Milbro with the borrowed funds to determine whether the stock was held with sufficient investment intent to make it a capital asset.

In W. W. Windle Co. v. Commissioner, 65 T.C. 694">65 T.C. 694, 65 T.C. 694">714 n. 15 (1976), appeal dismissed 550 F.2d 43">550 F.2d 43 (1st Cir. 1977),1978 U.S. Tax Ct. LEXIS 99">*115 cert. denied 431 U.S. 966">431 U.S. 966 (1977), this Court noted that "stock is normally a capital asset" owned for investment purposes, ⁶ and held that only where the "original purpose of [the] acquisition and the reason for continued retention are both devoid of substantial investment intent should the stock be treated otherwise." Subsequently we applied this substantial investment intent test in Continental Ill. Nat. Bank v. Commissioner, 69 T.C. 357">69 T.C. 357 (1977), and in Bell Fibre Products Corp. v. Commissioner, T.C. Memo. 1977-42, appeal dismissed F.2d (7th Cir. 1977). ⁷ This test is also applicable here to determine whether the BNB stock was "held for investment." If the stock was held with sufficient investment intent to result in a capital gain upon its disposition, then the abuses resulting from the use of borrowed money to acquire capital assets, which Congress sought to prevent in enacting section 57, are present. Applying a different standard requiring a greater degree of investment intent for purposes of the minimum tax on tax preferences would frustrate congressional policy. The minimum tax would1978 U.S. Tax Ct. LEXIS 99">*116 be inapplicable to a loan incurred to purchase property which, because of the owner's substantial investment intent, would produce capital gains upon disposition.

The extent to which investment rather than business oriented considerations motivated the purchase of BNB stock is an 70 T.C. 448">*456 "essentially factual" question. Corn Products Refining Co. v. Commissioner, 350 U.S. 46">350 U.S. 46, 350 U.S. 46">51 (1955). Since Milbro purchased and owned 1978 U.S. Tax Ct. LEXIS 99">*117 the stock, borrowed the money, and incurred the interest expense in question, we look to that partnership's motives. See sec. 1.702-1(b), Income Tax Regs.; Podell v. Commissioner, 55 T.C. 429">55 T.C. 429 (1970); Rosenthal v. Commissioner, 48 T.C. 515">48 T.C. 515 (1967), affd. 416 F.2d 491">416 F.2d 491 (2d Cir. 1969). The weight of the evidence requires us to conclude that investment-oriented considerations constituted a substantial, and in fact, a dominant motive for the purchase and retention of BNB stock.

Milbro's Federal income tax partnership information returns list its principal business activity as investment, and it apparently believed its investment motive to be sufficiently significant to justify reporting its gains on sales of BNB stock as capital gains. Furthermore, Milbro reported the interest in question as a tax preference item under the heading for excess investment interest.

We are also persuaded that Milbro could reasonably expect a profit only from the eventual sale of the stock. It generated only $ 14,929 in 1970 from rents, commissions, and service fees, while incurring $ 65,428 interest and other expenses. 1978 U.S. Tax Ct. LEXIS 99">*118 Even after the $ 56,240 in BNB salaries contributed by petitioner and Earl is considered, Milbro's current return on its almost $ 900,000 worth of stock was marginal. By contrast, it received a profit of $ 751,622 in 1973 when it sold the stock. ⁸ This intent to realize a profit through the eventual sale of the property is indicative of an investment motive. See Dearborn Co. v. United States, 195 Ct. Cl. 219">195 Ct. Cl. 219, 444 F.2d 1145">444 F.2d 1145 (1971).

1978 U.S. Tax Ct. LEXIS 99">*119 We realize that payment of a premium price above market value has been noted as an indication that the stock was not held for investment purposes. Such premium makes it more unlikely that an eventual profit will be made upon resale and indicates a special need for the stock not shared with other investors. See 65 T.C. 694">Dearborn Co. v. Commissioner, supra. However, although Milbro70 T.C. 448">*457 paid approximately 60 percent in excess of book value for the BNB stock, there is no indication that this constituted a premium above market value. As the sales by Milbro in 1970 and 1973 indicate, market value was consistently in excess of book value.

The evidence also indicates that BNB was run by petitioner, as president, and Milbro, as majority shareholder, so as to maximize its eventual resale value. Cf. 48 T.C. 515">Rosenthal v. Commissioner, supra at 530. During the period between 1969 when Milbro bought the majority of BNB's stock, and 1973 when it sold the stock, BNB's capital structure including both undivided profits and capital surplus increased from $ 875,000 to $ 1,300,000, and the value of BNB stock rose steadily as indicated by the sales made during 1969, 1970, 1978 U.S. Tax Ct. LEXIS 99">*120 and 1973. Yet, at least in 1970, petitioner reported only $ 6 of dividend income from BNB and Milbro reported no dividends. Petitioner also stated that his primary task as president was to seek new business for the bank thus enabling it to grow.

This emphasis on capital growth, coupled with the dim prospects for current net income, the sale in 1973, and Milbro's reporting of its interest expense and stock sale gains as excess investment interest and capital gains respectively, lead us to conclude that a substantial investment motive prompted the acquisition and retention of the BNB stock by Milbro. Indeed we believe the stock was purchased predominantly for investment motives.

The importance of the investment motives is also borne out by the motives of the individual partners. Undeniably, Earl's sole motive must be characterized as investment rather than business oriented. Petitioner admitted at trial that Earl possessed no interest in banking as such and invested solely to help in the financing. His lack of interest eventually resulted in his discharge from the vice presidency of BNB due to pressure from bank regulatory officials.

While petitioner undoubtedly had mixed business1978 U.S. Tax Ct. LEXIS 99">*121 and investment motives, the preponderance of the evidence points to the significance (and, indeed, the dominance) of his investment motives. Petitioner's share of the partnership's liability on Milbro's loan exceeded $ 600,000. He personally gave $ 100,000 and his Prom Motor Hotels stock to be used as security for the loan, and his share of the 1970 partnership interest expense 70 T.C. 448">*458 totaled $ 50,087. By comparison to this large capital investment and current interest expense, his BNB salary for 1970 amounted to only $ 41,600. Such large disparity between capital investment and salary income indicates the importance of the investment motive. We find it unlikely that petitioner would risk such a large amount and incur substantial interest expenses for the salary he received.

Other factors also indicate the strength of his investment motive. Petitioner believed his investment motive to be sufficiently significant that he reported the gains from his sales of BNB stock in April 1970 as capital gains. We note that he purchased this stock in January 1969 (the same month Milbro began purchasing BNB stock). As previously noted, he apparently directed BNB's management policies 1978 U.S. Tax Ct. LEXIS 99">*122 while acting as its president towards capital growth. He also spent substantial amounts of time working for Miller Pontiac and received a $ 50,000 salary from it in 1970 -- a salary which exceeded that received from BNB. Furthermore, unlike several cases finding corporate stock to be noncapital assets under the Corn Products doctrine, ⁹ the purchase of BNB stock was consistent with petitioner's prior investments in banks, and was itself a good investment as evidenced by the sales to acquaintances of petitioner who he testified were interested in its investment potential and as also evidenced by the 1973 sales price received by Milbro. Continental Ill. Nat. Bank v. Commissioner, 69 T.C. 357">69 T.C. 357 (1977). ¹⁰

1978 U.S. Tax Ct. LEXIS 99">*123 In opposition to our conclusion, petitioner presents two basic arguments. Petitioner argues that Milbro "was a qualified bank holding company from the time of its creation and was restricted" to ownership of stock in banks and bank holding companies and to providing services related to banking by the Bank Holding Company Act of 1956 (codified in 12 U.S.C. sec. 1841, et seq.). From this he concludes that Milbro was in the trade or business of banking and the stock was a necessary part of this business. Petitioner errs in three respects with this argument. Milbro, since it was a partnership, was specifically excluded from the definition of a bank holding company by 12 70 T.C. 448">*459 U.S.C. section 1841(b) until its amendment by Pub. L. 91-607, 84 Stat. 1760, 1762. That amendment was not approved until December 31, 1970. Also, the Act does not automatically put bank holding companies in the business of banking for tax purposes. It is a strictly regulatory measure which permits the use of partnerships as vehicles for investment in qualified property -- the use to which petitioner and Earl put Milbro. Cf. Continental Ill. Nat. Bank v. Commissioner, 69 T.C. 357">69 T.C. 357 (1977).1978 U.S. Tax Ct. LEXIS 99">*124 Finally, petitioner's argument fails to recognize the distinction between the ownership of stock in banks for investment, and the trade or business of banking.

Petitioner's second argument relies entirely upon a document prepared by the staffs of the Joint Committee on Internal Revenue Taxation and the Committee on Finance entitled "Summary of H.R. 13270, The Tax Reform Act of 1969 (As Passed by the House of Representatives)." In discussing the House provision limiting deductions for investment interest (noted supra) the report lists four arguments favoring its adoption and four against. As one of the reasons against adoption, the report states on page 45:

Additionally there are difficulties in distinguishing between investment interest and business interest which this provision may not adequately deal with. An example of this is the case where the taxpayer purchases 100 percent of the stock in a corporation. Although the limitation would appear to apply to this situation, it is questionable whether the purchase of the stock is made for investment purposes rather than for business purposes.

Petitioner contends that this proves that section 57 was never intended to cover1978 U.S. Tax Ct. LEXIS 99">*125 purchases of controlling interests in companies. We disagree.

Initially we note that the report states on its cover: "NOTE. -- This document has not been reviewed by the committee." It is not clear that committee ever focused on the report, or this aspect of the report. Even if they reviewed the matter, nothing in the statute or legislative history suggests that they considered it a problem, or proposed and adopted any solution. ¹¹

We also note that petitioner does not fall within1978 U.S. Tax Ct. LEXIS 99">*126 the example 70 T.C. 448">*460 in the report of a purchaser of 100 percent of a corporation's stock, but that even if he did, the report states that the proposed limitation on investment interest "would appear to apply." We therefore do not feel that the document is an appropriate part of the legislative history, or that even if it is, that it throws any light on the problem we confront.

In conclusion, we note that both petitioner and respondent have framed some of their arguments in reliance upon proposed regulation section 1.51-2(b) (35 Fed. Reg. 19766-19768 (Dec. 30, 1970), reproposed 36 Fed. Reg. 12023-12024 (June 24, 1971)). While we believe that our decision accords with section 1.51-2(b)(2)(i) of these proposed regulations, we do not rely upon it as authority since regulations which have not yet been formally adopted "carry no more weight than a position advanced on brief by the respondent." F. W. Woolworth Co. v. Commissioner, 54 T.C. 1233">54 T.C. 1233, 54 T.C. 1233">1265-1266 (1970).

Decision will be entered for the respondent.