9 T.C. 1069">*1069 The Commissioner determined a deficiency of $ 16,009.24 for 1942 and one of $ 17,615.38 for 1943 in the income tax of the estate of Mortimer B. Fuller, deceased. The errors assigned by the petitioners are as follows:

(a) Failure to allow as a deduction from gross income for 1942 and 1943, under sections 162 and 23 (a) (2) of the Internal Revenue Code, the ordinary and necessary expenses paid during said years for the management, conservation or maintenance of property held for the production of income.

9 T.C. 1069">*1070 (b) Alternatively, failure to allow as a deduction from gross income for 1942 and 1943, under section 162 (b) as distributable to beneficiaries, the amounts of such expenses referred to in (a) supra.

(c) Failure to allow as deductions from gross income for 1942 and 1943, under section 23 (a) (1) (A) all the ordinary and necessary expenses paid during said years in carrying on the business of farming.

FINDINGS OF FACT.

Mortimer B. Fuller died on September 7, 1931. His gross estate included stocks and bonds valued at $ 2,357,764.39. One of the deductions claimed was debts in the amount of $ 1,839,783.83. The net estate for estate1947 U.S. Tax Ct. LEXIS 19">*21 tax was reported at a value of $ 1,235,922.15.

He appointed his wife, Kathryn S. Fuller, and his three sons, Edward L., Mortimer B., Jr., and Henry S. Fuller, executors and trustees under his will. They all survived him and were alive during the taxable years 1942 and 1943.

Income tax returns for the estate of the decedent for 1942 and 1943 were filed with the collector of internal revenue for the twelfth district of Pennsylvania.

The executors bought and sold securities from 1931 through 1943 and received income on the securities held. The most valuable securities held during that period were 35,710 shares of International Salt Co. and 2,119 shares of Genesee & Wyoming Railroad Co. Those securities were pledged for the debts of the decedent. The executors also owned during that period various other listed and unlisted securities of substantial value. The total value of securities held has been substantially greater than the debts of the estate at all times. The indebtedness owed to banks and individuals was gradually reduced and on December 31, 1943, amounted to $ 520,822.73. The indebtedness to banks was increased $ 12,553.17 during 1942. No steps, except the reduction of1947 U.S. Tax Ct. LEXIS 19">*22 debts and the payment of some cash bequests, were taken during the period to close the administration. No accounts were filed in the orphans' court.

One of the sons of the decedent is president, one is treasurer, and the third is assistant sales manager and all are directors of International Salt Co. They are also officers and/or directors of Genesee & Wyoming Railroad Co. The stock owned by the estate and by the individuals who are executors, although a minority interest, gives the Fullers working control of International Salt Co. and enables them to control the dividend and other policies of the company and to retain their jobs with the company.

Paragraph 4 of the will of the decedent was as follows:

I give and bequeath to my wife, Kathryn S. Fuller, for and during the term of her natural life, all the furniture, pictures or other articles contained in my home 9 T.C. 1069">*1071 situate in the Borough of Dalton and Township of North Abington, County of Lackawanna, or elsewhere, also all horses, cattle, or other animals, carriages, harnesses, and motor vehicles owned by me at the time of my death. I also give, devise and bequeath to my wife for and during the term of her natural life1947 U.S. Tax Ct. LEXIS 19">*23 my said home in the Borough of Dalton and Township of North Abington, together with the grounds and other appurtenances thereto and the equipment thereof.

All of the residue of his estate he gave the trustees upon the following trusts:

(a) To separate and set aside from the rest of my estate one portion thereof sufficient to produce an income of fifty thousand ($ 50,000.00) dollars annually, and to use said income or so much thereof as may be needed for the maintenance and operation of my home known as "Overlook" situate partly in the Borough of Dalton and partly in the Township of North Abington, as aforesaid, including the grounds and other appurtenances and all things incident thereto, for and during the term of the life of my wife, Kathryn S. Fuller. It shall be so maintained and conducted after the death of my wife out of said fund also as long as any one of my sons may so desire; but if one of my three sons should not desire it so maintained and conducted only two-thirds (2/3) of said fund shall be used annually for said purpose and the remainder shall become part of the trust funds hereinafter mentioned; and if two of my three sons do not desire it so maintained and conducted1947 U.S. Tax Ct. LEXIS 19">*24 only twenty-five ($ 25,000.00) dollars of said income shall be used annually for said purpose and the remainder shall become part of the trust funds hereinafter mentioned;

(b) If at any time during the life of my wife, Kathryn S. Fuller, she and all my sons shall desire that said home, together with the grounds and appurtenances and things incident thereto, be sold, she and my trustees shall sell the same and the proceeds of said sale shall become part of my trust funds hereinafter mentioned, in the same proportions as hereinafter set forth;

(c) If after the death of my wife at any time my three sons, or they or he then surviving, shall decide to sell said home and grounds and appurtenances and things incident thereto, my trustees shall sell the same and divide and distribute the proceeds equally among my son or sons then living and the children of any surviving son or sons per stirpes;

(d) The remainder of my estate, real, personal and mixed, shall be divided and held by my trustees in eight (8) separate and equal parts. The income from five (5) of said parts shall be paid to my wife, Kathryn S. Fuller, during the term of her natural life. My three sons shall each receive during1947 U.S. Tax Ct. LEXIS 19">*25 the life of my wife, the income of one of said other three (3) parts of my trust estate. Should any of my said three sons die before me or before their mother, the income which would be paid to him if living shall be paid, during the life of my wife, to his children, share and share alike, if any, otherwise said income shall be paid to the other son or sons surviving, and the issue of any deceased son per stirpes. On the death of my wife, Kathryn S. Fuller, the principal and unpaid income of all of said eight (8) separate trusts shall be distributed, transferred and conveyed absolutely to any of my said three sons that may be then living, and to the children of any deceased son or sons, if any, equally and per stirpes.

One of the assets owned by the decedent at the time of his death was his home mentioned in paragraph (4) of his will. It was a country estate called "Overlook." It had been the family home since 1905, 9 T.C. 1069">*1072 when his father acquired it. It consisted of about 518 acres, divided as follows:

The main house on the property 1947 U.S. Tax Ct. LEXIS 19">*26 is large. A flower conservatory is attached to the house. The house has been occupied, at all times material hereto, by the decedent's widow. All of the decedent's three sons are married. They, with their families since their marriages in 1929, 1932, and 1934, have occupied 3 other houses on the property separate from the main house. No rent is paid by any of the four, who are executors. Another house on the property has been rented to an employee of International Salt Co. at $ 40 per month. There are also a number of houses and living quarters for employees and servants, a large trophy house, an indoor heated swimming pool, a Japanese tea garden, a frame boat house, a tennis court, and farm buildings on the property. There are 3 miles of 14-foot improved hard roads on the property.

The operation of Overlook during the life of the decedent and thereafter has always cost a substantial amount over and above the small income from the property.

The Fullers pay the expenses of their own households, such as food bills and servants' wages. The three brothers were respectively 36, 40, and 43 years of age in June 1947.

The executors paid the following amounts during the taxable years1947 U.S. Tax Ct. LEXIS 19">*27 in connection with the Overlook property:

The totals shown above were not claimed as deductions on the returns filed for the estate for the years 1942 and 1943.

The expenses relating particularly to the farming operations on Overlook included in the figures shown above were as follows: 9 T.C. 1069">*1073

1947 U.S. Tax Ct. LEXIS 19">*28 Income from rentals and sales of produce and junk in the amount of $ 1,055.33 for 1942 and $ 2,352.13 for 1943, together with depreciation on farm buildings and equipment in the amount of $ 2,580.23 for 1942 and $ 2,589.83 for 1943, was used in connection with the farm expenses listed above to arrive at a net farm loss of $ 23,013.25 for 1942 and one of $ 20,647.55 for 1943, which were deducted on the returns filed for the estate. The Commissioner, in determining the deficiencies, disallowed those losses, with the explanation that the loss from the operation of the farm was a personal expense not deductible for income tax purposes.

The principal farming activity on Overlook has been to provide pasture and other food for a herd of dairy cows. The herdsman was given all of the revenue from the sale of dairy products, including that sold to the Fullers. He took care of the herd and also spent some time working on the farm. He was not paid any wages. Most of the dairy products produced by the herd have been bought by the Fullers and their families from the herdsman at market prices. Excess dairy and farm products, if any, were sold to the public. The Fuller family usually took 1947 U.S. Tax Ct. LEXIS 19">*29 about 75 per cent and about 25 per cent was usually sold to the public.

About sixty acres of Overlook were sold at some time not disclosed by the record for about five or six thousand dollars. No sustained effort was ever made to sell any of the remainder of the property and no offer to buy any of it was ever received.

OPINION.

The parties agree in their briefs that no deduction is allowable under section 162 upon the theory that any part of the amounts in question were distributed, paid, or credited to any beneficiary. Henry Bradley Plant, 30 B. T. A. 133; affd., 76 Fed. (2d) 8. The petitioners, on the returns, claimed deductions of $ 23,013.25 and $ 20,647.55 as losses from the operation of the farm for 9 T.C. 1069">*1074 1942 and 1943. The Commissioner disallowed those losses. The petitioners, in an amended petition, claim larger deductions which include, in addition to the expenses of operating the farm, expenses incident to the upkeep and use of Overlook. They contend not only that the expenses and losses of the farm are deductible as business expenses or losses, but also that the total expenditures for each year were deductible1947 U.S. Tax Ct. LEXIS 19">*30 under section 23 (a) (2) as ordinary and necessary expenses of the executors paid for the management, conservation, and maintenance of property held for the production of income.

The respondent first points out that the executors were not holding Overlook for the production of income; indeed, were not holding it at all, since, as real estate not needed for the payment of debts of the decedent, it did not come into the hands or the jurisdiction of the executors under the laws of Pennsylvania, but was held by the widow of the decedent, who was given a life estate in it, and the remainder was either in the sons or the trustees and not in the executors. The petitioners state in their brief that "the remainder was devised to the trustees." The Commissioner concludes that any expenditures made by the executors in connection with the property could not be ordinary and necessary expenses of the executors paid in managing, conserving, or maintaining any property which they held as executors for the production of income. He argues further that, regardless of who held Overlook, nevertheless, it was not held for the production of income, but was held rather as a country residence to provide1947 U.S. Tax Ct. LEXIS 19">*31 the four individuals with comfortable homes, and none of the expenditures in question is deductible under section 23 (a) (1) or (2). He calls attention to section 24 (a) (1) which provides that personal, living, or family expenses are not deductible.

The decedent gave the executors no duty to manage, conserve, or maintain Overlook and they acquired no jurisdiction over it up to and including 1943 under the laws of Pennsylvania. The decedent gave his widow a life estate in Overlook. That did not depend upon any act of the executors. They had no right to interfere with her use of the property where, as here, the personal property was ample for the payment of all debts of the decedent. They say they had to maintain and conserve it for possible use in paying debts of the decedent, but the record shows that the value of the personal property was, at all times material hereto, substantially in excess of the debts. If they managed Overlook they did so as agents for the widow and not in their official capacity as executors of the decedent. Wolfe v. Lewisburg Trust & Safe Deposit Co., 305 Pa. 583">305 Pa. 583; 158 A. 567; In re Morrison's Estate, 196 Pa. 80">196 Pa. 80;1947 U.S. Tax Ct. LEXIS 19">*32 46 A. 257. The expenses were not ordinary or necessary expenses of the estate under section 23 (a) (2).

A taxpayer who operates a farm primarily for his own recreation or pleasure rather than on a commercial basis for the purpose of making 9 T.C. 1069">*1075 a profit is not entitled to deduct annual farm losses as ordinary and necessary expenses of a business or as losses incurred in a business. Regulations 111, art. 29.23 (e) (5). Reginald C. Vanderbilt, 5 B. T. A. 1055; affd., 23 Fed. (2d) 975, sub nom. Deering v. Blair; Union Trust Co., Trustee, 18 B. T. A. 1234; affd., 54 Fed. (2d) 199; Louise Cheney, 22 B. T. A. 672; Thacher v. Lowe, 288 F. 994. The petitioners cite A. R. R. 249, 3 C. B. 145. The Committee on Appeals and Review was there considering a case where a decedent had operated a farm as a hobby and not as a commercial enterprise. The executor, after the death of the decedent, was compelled to operate the farm until it could be sold. 1947 U.S. Tax Ct. LEXIS 19">*33 The Committee held that the executor was entitled to deduct any ordinary expenses incurred during the period of administration in operating the farm. That ruling may be proper, although no cases are cited to support it, i. e., where an executor is forced to take over and operate a farm for a reasonable period of time while he is endeavoring to dispose of it or to complete his administration of the estate, it may be proper to allow him to deduct expenses or losses incurred in connection with the operation of the farm during that period. But could executors, beneficiaries under the will, move onto the property with their families, occupy it as a comfortable country estate, and keep on deducting farm losses and expenses of maintenance paid from the income from personal property of the estate, although they did not operate the farm for profit or make any effort to dispose of the farm or the property or to limit the expenditures to those necessary to conserve and maintain the property for some use incident to administration of the estate? The evidence does not indicate that any effort was ever made to operate this farm profitably or that any executor was interested in such an effort. 1947 U.S. Tax Ct. LEXIS 19">*34 Even if the executors had some duty towards Overlook, nevertheless, necessary expenses of administering an estate and of conserving the properties of the estate can not be used as a cloak for expenses which are not for those purposes but are for the quite different purpose of providing a country estate as a comfortable living place for the four individuals who are also executors. The amounts in question would not be deductible if these same people had paid them as trustees under the decedent's will. Union Trust Co., Trustee, supra.The following quotation from the opinion of the Board in that case is apposite:

There is nothing in the terms of the trust agreement indicating that the farm should be operated on a commercial basis, except the fact that the enterprise is called a farm. Neither is there evidence that the farm was operated as a business for profit. The stipulated facts rather indicate that the 500 acres of land were kept as a country estate, a place of rest and recreation and amusement for the beneficial owners. The fact that, while occupying the premises without rental charge to them, the children of the settlor should, under the terms1947 U.S. Tax Ct. LEXIS 19">*35 of the trust, personally pay their own servant hire and house-supply bills, does not change the indicated situation.

9 T.C. 1069">*1076 The petitioner has not cited any cases holding that the Overlook expenses or the farm losses would be deductible.

If the total expenditures were to be deductible under section 23 (a) (2), there should be evidence that they were actually made for the production or collection of income or for the management, conservation, or maintenance of property held for the production of income. The Court can not assume that the expenditures were made for those purposes merely because they were made by executors who are said to have some duty to maintain and conserve the property. The evidence in this case tends to show that the expenditures were made for the benefit of the executors as individuals to provide them homesteads rather than to carry out any duty as executors to produce income or to manage, conserve, or maintain any property which they held for the production of income. The expenditures here in question include those made in connection with the use of a swimming pool, a tennis court, a Japanese tea garden, a trophy room, riding horses, and an expensive 1947 U.S. Tax Ct. LEXIS 19">*36 farming operation which was not at all necessary to conserve the value of the property. The cost of filling a swimming pool, of keeping the water free of dirt and debris, of purifying the water, of scrubbing the pool between fillings, expenses of dragging, watering, rolling, and marking a tennis court for play, and the expenses of operating at a loss and not for profit a farm in which the widow had a life estate, not only in the farm itself but also in the farm animals and machinery, could not fairly be regarded as ordinary and necessary expenses of executors of producing income or of managing, conserving, or maintaining property held for the production of income. Cf. Bingham's Trust v. Commissioner, 325 U.S. 365">325 U.S. 365. The expenses seem to be due largely to the enjoyment, use, and occupancy of the property by the executors as individuals. Those expenditures are not limited to those necessary to maintain property coming into the hands of executors over a reasonable period of time until they could make the disposition of the property contemplated under the will. The petitioner does not suggest the propriety of any allocation. There is no segregation1947 U.S. Tax Ct. LEXIS 19">*37 of the expenses to show those due primarily to the occupancy and enjoyment of the property by the executors and their families and those, if any, primarily to preserve the property for some other uses. Thus, even if it appeared that the executors had some duty to maintain Overlook in order to carry out administration, yet no basis for any allocation appears in the record. Therefore, this is not a proper case in which to apply the principle of Cohan v. Commissioner, 39 Fed. (2d) 540. The Commissioner did not err.

Decision will be entered for the respondent.