Petitioner's predominant motive in advancing funds to National during the calendar year 1967 was to protect his investment in National rather than to protect the salary he would receive as an employee of National.
Petitioner did not acquire the Itasca property in a profit-motivated transaction, nor did he subsequently convert the property to profit-oriented uses.
OPINION
1. Loans to National.
Petitioner and one William Cutler formed the Chicago National Professional Soccer League Club, Inc. in August 1966. The corporation's principal business was the operation of a professional soccer team called the Chicago Spurs.
Cutler owned two-thirds of National's stock, and petitioner owned the remaining one-third, for which he paid $40,000. Petitioner as president of National was a salaried employee.
During 1967 petitioner advanced $69,646 to National. This debt became worthless in 1968, and on petitioner's and his wife's joint return for 1968 they deducted the advances as business bad debts.
Respondent contends that the advances petitioner made to National during 1967 are nonbusiness*27 bad debts within the meaning of section 166(d), and we agree.
In this case petitioner occupied a dual status with respect to National. He was both an employee and a shareholder. His employee status constitutes a trade or business so that a loss proximately related to his employment would constitute a fully-deductible business loss. Section 1.166-5, Income Tax Regs. However, shareholder status does not constitute a trade or business, so advances made to protect petitioner's investment would, on becoming worthless, be nonbusiness bad debts deductible only as short term capital losses. Whipple v. Commissioner,373 U.S. 193">373 U.S. 193, 202 (1963). "In determining whether a bad debt has a 'proximate' relation to the taxpayer's trade or business * * *, the proper measure is that of dominant motivation, and * * * significant motivation is not sufficient." United States v. Generes,405 U.S. 93">405 U.S. 93, 103 (1972). We have found as a fact that petitioner's dominant motive*29 in advancing funds to National was to protect his investment.
We recognize that the salary from National was petitioner's only income at the time he was working for the company. This fact alone is not enough to prove that his dominant motive in making the loans was to protect his job. Roy E. Knoedler,33 T.C.M. (CCH) 443">33 T.C.M. 443, 448, 43 P-H Memo. T.C. par. 74,085 at 74-417 (1974).
While the question is not free from doubt, based on the record as a whole we conclude that petitioner has failed to carry his burden of proving that his dominant motive in making loans to National was to preserve his job rather than to preserve his investment.
2. Sale of Itasca Residence.
In May 1965 petitioner*31 acquired a residence in Itasca, Illinois, in trade for some apartment buildings he owned. Petitioner renovated the residnce, including installing a swimming pool, and sold it in 1968 for a $15,870 loss. Petitioner's family occupied this house as their residence from October 1965 until September 1968.
Petitioner claimed an ordinary loss deduction on his 1968 return for the loss on the sale of the residence. Respondent contends the loss is a nondeductible personal loss, and we agree.
Presumably most home buyers eventually plan to resell their house for a profit. Dupuy G. Warrick,44 B.T.A. 1068">44 B.T.A. 1068 (1941). The question is whether petitioner's profit motive was dominant when he purchased and occupied the house or whether it was acquired and held primarily for a residence. Austin v. Commissioner,298 F. 2d 583, 584 (2d Cir. 1962), affg. 35 T.C. 221">35 T.C. 221 (1960). Petitioner, who has the burden of proof, has not established that his acquisition and retention of the Itasca property were primarily prompted by a concern for profit.
The mere fact that petitioner acquired the residence in trade for property held for a profit does not convert a residence into for-profit property. Petitioner has not established that the residence was continuously listed for sale. Petitioner*33 at no time attempted to rent the premises. There is no showing that the renovations were made for resale as opposed to adapting the home to the needs and desires of petitioner's wife and children. Petitioner's family apparently permanently abandoned their prior home when they moved into the Itasca property, and the Itasca property remained their sole residence for approximately 3 years. Petitioner contends his family lived in the home solely to prevent vandalism. However, renting the property would also have deterred vandalism and would have been a course of action more consistant with a profit motive than occupying the house personally. The record does not indicate the extent or type of vandalism petitioner had to contend with. Finally, petitioner never took any depreciation deductions on the Itasca premises, although he did on other for-profit property. Phipps v. Helvering,124 F. 2d 292, 295 (D.C. Cir. 1941), affg. a Memorandum Opinion of this Court.
We conclude on the record as a whole that petitioner held the property primarily as a residence at the time of sale, and the loss from the sale is a nondeductible personal expense.
Decision will be entered*34 under Rule 155.
Footnotes
1. Respondent also determined additions to tax under section 6651(a) of $79.75 for 1968 and $248.66 for 1969. Petitioner has not contested these adjustments, and therefore they are deemed conceded.↩
2. All section references are to the Internal Revenue Code of 1954, as in effect during the years in issue.↩
2a. Petitioner's 1967 income tax return was not submitted into evidence.↩
3. Section 166(a) provides:
(1) Wholly worthless debts.--There shall be allowed as a deduction any debt which becomes worthless within the taxable year.
(2) Partially worthless debts.--When satisfied that a debt is recoverable only in part, the Secretary or his delegate may allow such debt, in an amount not in excess of the part charged off within the taxable year, as a deduction. ↩
4. Section 166(d) provides:
(1) General rule.--In the case of a taxpayer other than a corporation--
(A) subsections (a) and (c) shall not apply to any nonbusiness debt; and
(B) where any nonbusiness debt becomes worthless within the taxable year, the loss resulting therefrom shall be considered a loss from the sale or exchange, during the taxable year, of a capital asset held for not more than 6 months.
(2) Nonbusiness debt defined.--For purposes of paragraph (1), the term "nonbusiness debt" means a debt other than--
(A) a debt created or acquired (as the case may be) in connection with a trade or business of the taxpayer; or
(B) a debt the loss from the worthlessness of which is incurred in the taxpayer's trade or business.↩
5. Petitioner stated that his oral employment agreement provided in addition to salary a guarantee of "20 percent of the gross profit on the gate." There apparently was no gross profit. We conclude there is insufficient evidence to establish the 20 percent guarantee. Petitioner did not call Cutler to testify. Petitioner's testimony was imprecise and sometimes contradictory. We conclude that petitioner, who had the burden of proof, has failed to establish this aspect of the oral employment agreement.↩
6. Section 165(c) provides:
Limitations on Losses of Individuals.--In the case of an individual, the deduction under subsection (a) shall be limited to--
(1) losses incurred in a trade or business;
(2) losses incurred in any transaction entered into for profit, though not connected with a trade or business; and
(3) losses of property not connected with a trade or business, if such losses arise from fire, storm, shipwreck, or other casualty, or from theft. A loss described in this paragraph shall be allowed only to the extent that the amount of loss to such individual arising from each casualty, or from each theft, exceeds $100. * * * ↩