Before LUMBARD, Chief Judge, and MOORE and HAYS, Circuit Judges.
This is a petition for review of a decision of the Tax Court determining a deficiency in income tax for the year 1955. The Tax Court, sustaining a ruling of the Commissioner, held that a loss incurred by petitioners on the sale of real property was not deductible as a loss incurred in a trade or business or in a transaction entered into for profit, within the meaning of § 165 of the Internal Revenue Code of 1954 (26 U.S.C.A. § 165).*fn1
The Tax Court found that the property involved "was purchased by petitioners primarily for a residence and secondarily to make a profit." Petitioners contend that, since the word "primarily" does not appear in the statute, and since the Tax Court found that the transaction was entered into for profit, the deduction must be allowed. The Tax Court, they say, has no power to classify petitioners' motives as primary or secondary; once it is established that realizing a profit was a motive for purchase of the property the requirements of the statute have been met.
But the position for which petitioners contend would not provide a workable interpretation of § 165. It is true generally of people who buy property for residential purposes that they are interested in making potentially profitable purchases. The statute makes no provision for the apportionment of the loss when a transaction is entered into both to satisfy a personal or family need and to make a profit. A primary motive of acquiring a family residence brings the purchase within the ambit of § 262 of the Internal Revenue Code, 26 U.S.C.A. § 262, which provides that "no deduction shall be allowed for personal, living, or family expenses." The logical interrelation of § 165 and § 262 requires a decision as to which of the two motives was dominant, so that one or the other section can be applied. And the decisions of the Supreme Court and of this court have been consistent with this result. In Helvering v. National Grocery Co., 304 U.S. 282, 289 note 5, 58 S. Ct. 932, 936, 82 L. Ed. 1346 (1938), the Supreme Court said: "[The] deductibility of losses under [§ 165(c)]*fn2 may depend upon whether the taxpayers' motive in entering the transaction was primarily profit."*fn3 This court has repeatedly held that, in determining the deductibility of a loss, the primary motive must be ascertained and given effect. Arata v. Commissioner, 277 F.2d 576, 578-579 (2d Cir. 1960); Ewing v. Commissioner, 213 F.2d 438, 439-440 (2d Cir. 1954); Meurer v. Commissioner, 221 F.2d 223 (2d Cir. 1955). Cf. Gevirtz v. Commissioner, 123 F.2d 707 (2d Cir. 1941).
However petitioners also assert that the Tax Court's finding as to motive is a "legal conclusion," and that as such it is not subject to Rule 52(a) of the Federal Rules of Civil Procedure, 28 U.S.C.A., which requires that findings of fact be upheld unless "clearly erroneous." It is contended that this court is free to draw from the undisputed evidentiary facts legal conclusions different from those drawn by the Tax Court. The Supreme Court has recently ruled against this contention. In Commissioner v. Duberstein, 363 U.S. 278, 80 S. Ct. 1190, 4 L. Ed. 2d 1218 (1960) the dispositive issue was whether certain property was "acquired by gift" within the meaning of § 102(a) of the Internal Revenue Code which excludes the value of gifts from taxable income.*fn4 The Tax Court had sustained the Commissioner's ruling that it had not been so acquired. The Sixth Circuit, treating the Tax Court decision as a legal conclusion not within the ambit of Rule 52(a), drew a contrary inference from the evidentiary facts and found for the taxpayer.*fn5 The Supreme Court reinstated the Tax Court decision. Mr. Justice Brennan, for the Court, stated the reasons for applying the "clearly erroneous" test to the findings of the Tax Court:
"Decision of the issue presented in these cases must be based ultimately on the application of the fact finding tribunal's experience with the mainspring of human conduct to the totality of the facts of each case. The nontechnical nature of the statutory standard, the close relationship of it to the data of practical human experience, and the multiplicity of relevant factual elements, with their various combinations, creating the necessity of ascribing the proper force to each, confirms us in our conclusion that primary weight in this area must be given to the conclusion of the trier of fact. * * *
"One consequence of this is that appellate review of determinations in this field must be quite restricted. * * * Where the trial has been by a judge without a jury, the judge's finding must stand unless 'clearly erroneous.' Fed.Rules Civ. Proc. 52(a). * * * The rule itself applies also to factual inferences from undisputed basic facts * * * as will on many occasions be presented in this area * * * And Congress has in the most explicit terms attached the identical weight to the findings of the Tax Court. I.R.C. § 7482(a)."*fn6
The Court expressly disapproved prior authority to the contrary.*fn7
We are thus required to affirm the Tax Court's finding unless "on the entire evidence [we are] left with the definite and firm conviction that a mistake has been committed." United States v. United States Gypsum Co., 333 U.S. 364, 395, 68 S. Ct. 525, 92 L. Ed. 746 (1948).
The evidence from which the Tax Court drew its conclusions as to motive is essentially uncontroverted. In brief summary the facts are as follows:
In and before 1949, petitioner James E. Austin and his family resided in Riverside, Connecticut, within commuting distance of New York City. Austin was an executive of two affiliated manufacturing corporations which maintained joint executive offices in New York City. In 1949, the directors of both companies decided that, upon construction of a suitable building, the joint offices would be moved to Poughkeepsie, New York, the location of one of the manufacturing plants. There were certain practical inconveniences involved in the maintenance of executive offices distant from New York City and a minority group in the management opposed the move for this reason. Austin believed that the decision would be reversed if the minority group gained control of the management of the corporations.
In the meantime, however, it was necessary for Austin to find a residence within commuting distance of Poughkeepsie. Since it was his thought that the move might be temporary, and since he had previously realized a profit on the purchase and sale of a house, Austin decided to buy property in the Poughkeepsie area which he was likely to be able to resell at a profit when the occasion arose. In August 1950, eighteen months after the executive decision to move to Poughkeepsie, but before the move had been effected, Austin found a property which he thought could be resold at a profit - 220 acres with a house and some smaller buildings in Millbrook, New York. He purchased this property for $28,000 and immediately undertook to make certain alterations on the main house. The cost of the alterations ultimately amounted to about $40,000.
In November, 1950, Austin sold his home in Riverside, Connecticut, but since the prospective corporate move had not yet been effected, he and his family ...