
    428 F. 2d 1316
    CHARLES B. WRIGHTSMAN AND JAYNE WRIGHTSMAN v. THE UNITED STATES
    [No. 364-66.
    Decided July 15, 1970]
    
      
      Hugh F. Oulverhome, attorney of record, and W. A. Gartner, for plaintiffs.
    
      Joseph Kovner, with, whom was Assistant Attorney General J ohrmie M. Walters, for defendant. Philip B. Miller and Mark Segal, of counsel.
    Before CoweN, Chief Judge, Laramore, Dtjreee, Davis, ColliNS, Skelton, and Nichols, Judges.
    
   Laramore, Judge,

delivered the opinion of the court :

This is an action to recover alleged overpayments of Federal income taxes paid by plaintiffs for tax years 1960 and 1961 in the amounts of $5,911.20and $21,199.78, respectively, plus assessed interest in the respective amounts of $1,847.25 and $5,352.22, plus statutory interest on the amounts of .recovery. The issue before us involves the deductibility under sectioii 212 of the 1954 Internal Revenue 'Code of certain expenses incurred by plaintiffs with respect to their art collection. Deductibility of such expenses under section 212, in turn, depends upon whether plaintiffs collected the pertinent works of art primarily as investments or, instead, primarily for their personal pleasure and enjoyment. We hold that plaintiffs have failed to establish that their art collection was primarily investment-motivated and, therefore, they are not entitled to recover.

Plaintiff s, Charles B. Wrightsman and-Jayne Wrightsman, were married in' 1944. For the tax years here involved, 1960 and 1961, the Wrightsmans filed joint Federal income tax returns. Plaintiffs, have both participated in the activities incident to the. acquisition- and maintenance of their art collection. The Wrightsmans’ acquisition of works of art commenced in 1947 when, they have conceded, their activities were in the nature of a hobby. In that initial year, plaintiffs’ expenditures for -art objects amounted to $3,741. By the end of 1960, their, purchases totaled $5.2 million and, by the end of 1961, $300,000 more. As of March 31,1967, plaintiffs’ total purchases of works of -art exceeded $8.9 million; the works of art were valued for insurance purposes in excess of $16.8 million.

Mr. Wrightsman had great skepticism with regard to conventional investments in the stock market, an attitude which stemmed from experiences during his youth in observing his father’s disastrous investments in securities. One investment, however, in which Charles was able to combine knowledge and management control, two' factors which he considered requisite to any investment success, was in the Standard Oil Company of Kansas. In 1918, after active service in the United States Navy, Charles moved to Fort Worth, Texas, where he engaged in the oil business as a lease broker and in several oil ventures. He accumulated sufficient funds by 1930 to purchase, and did purchase at private sale, the shares of the largest stockholder of Standard Oil Company of Kansas. He was then elected to the board of directors and, in 1932, became president of that company. He held such office through January 1951, when liquidation of that company, which had commenced in 1949, was concluded. At this time, Charles owned 93.7 percent of the outstanding stock.'

Upon the liquidation, Mr. Wrightsman received a 93.7 percent interest 'in 'all of the properties, including one million dollars in cash distributed to him. With the removal of the corporate structure, his financial position changed from stock ownership to direct ownership of oil-producing properties, which he has continued to operate as an individual under appropriate arrangements with the owners of the 6.3 percent interests. Thus, he commenced and has continued to receive directly a large cash flow, which had previously gone into the corporate coffers.

Aside from his investments in Standard Oil of Kansas, Mr. Wrightsman’s ownership of stock, as well as that of Mrs. Wrightsman, has been quite limited. In 1959, Wrightsman Investment Company was organized, with Mr. Wrightsman as the sole stockholder, owning minor Oklahoma oil'properties contributed by Charles, land on which plaintiffs’ Palm Beach, Florida, home is located, and limited assets previously owned by Charles in New Mexico, Mississippi and Nebraska. Plaintiffs acquired 1,583 shares of Wrightsman Petroleum Company in 1960 and 1961, a company which had been organized by Charles’ father. At the time of the trial of this case, Mrs. Wrightsman was the beneficial owner of a trust for which a bank, as trustee, had purchased stock.

Mr. Wrightsman believed that oil was one of the best possible investments, if selectively made. His trips to the Persian Gulf countries in the mid-1950’s indicated to him, however, that there was a possibility of an oil glut, which caused him to conclude that he should make an effort to hedge his investments in oil with investments of other kinds. He sought advice from qualified employees. The certified public accountant in charge of his accounts recommended purchase of unimproved real estate and stock in corporations not in the oil industry. These recommendations were not followed.

By this time, Mr. Wrightsman had formed the belief that works of art were an excellent hedge against inflation and devaluation of currencies, that they represented portable international currency, since there were no restrictions on export from the United States, and that works of art were appropriate assets for investment of a substantial portion of his surplus cash being generated. These beliefs and investment intent were expressed to numerous friends and associates and the employees of his business office.

Mrs. Wrightsman’s assets have been derived from income through Mr. Wrightsman under community property laws and from funds received from Charles in the form of gifts. Jayne fully shared Charles’ beliefs and intent concerning investment in works of art. Their marriage has been one of constant association and travel together, with common interests and goals.

In their art collecting activities, plaintiffs have specialized in the acquisition of 18th century French works of art. Mrs. Wrightsman is not just a nominal party herein because of the filing of joint returns by the parties. She owns about three-fourths of plaintiffs’ works of art, either by number or by value. Their activities in the acquisition and holding of such works of art have been conducted jointly.

Plaintiffs’ mode of living from 1947 to the present time has been to reside from the latter part of November until late April at their home in Palm Beach, Florida, with occasional trips to New York City or elsewhere. Commencing about the first of May, they live for about 30 days in New York City, staying since 1956 in their Fifth Avenue apartment. From June 1 to the end of September or early October, they are in Europe, where they live exclusively in hotels.

The Wrightsmans have constantly associated with well known experts in the art world. They are art experts in their own right, as recognized by others, particularly in the testimony of Mr. Francis J. B. Watson, Surveyor of the Queen’s Works of Art and Director of the Wallace Collection of London, and Mr. Joseph V. Noble, Vice Director for Administration of the Metropolitan Museum of Art.

In the acquisition by plaintiffs of works of art, each art object has been invoiced, assigned an inventory number, and noted as an approved purchase by one of the plaintiffs. The invoice is sent directly to plaintiffs’ Houston, Texas, business office for payment. There the approved invoice is checked for accuracy, and a check request is prepared, following the usual business procedures employed in Mr. Wrightsman’s investments in oil and gas properties. The check request, a copy of the check, and a copy of the original invoice are retained in the Houston office file. The original invoice, marked paid, with date and check reference, is returned to plaintiffs’ personal files, which follow them from the Palm Beach home to their New York apartment, as the occasion warrants. Each item is reflected in the investment control account of the general ledger maintained in the Houston office. A detailed investment card record is kept with respect to each item in the works of art collection. On each card is noted the original purchase price, the date of purchase, and any items deemed to be of a capital nature requiring capitalization on the investment books of plaintiffs.

Plaintiffs have consistently catalogued their purchases of works of art. At the time of the trial herein, these catalogues consisted of 26 three-ring binder volumes, requiring a shelf space of about five feet. These catalogues are unique, represent 20 years of work by Mrs. Wrightsman, and have considerable value. Partially on the basis of this extensive cata-loguing, the Metropolitan Museum has published two volumes and is in the process of completing the publication of a five-volume work on the Wrightsman Collection, authored by Mr. Francis J. B. Watson, which will be a treatise on 18th century French works of art.

On their Federal income tax returns for the years 1960 and 1961, plaintiffs claimed deductions for certain ordinary and necessary expenses incurred in the management, conservation and maintenance of investment properties, i.e., works of art, held by them for the production of income, and incurred in the production and collection of income from those properties. These expenses, which were incurred in connection with, and are directly attributable to, plaintiffs’ works of art, represent costs of insurance, maintenance, subscriptions and services, shipping, hotel, travel, entertainment and other miscellaneous expenses. Plaintiffs also claimed as deductions on their 1961 return the alleged cost of acquiring and subsequently releasing a painting due to the inability to obtain an export permit, and part of an alleged capital loss sustained on the sale of certain works of art. Disallowance by the Internal Revenue Service of the claimed deductions, and denial of plaintiffs’ claims for refund of the paid deficiencies issuing therefrom, gave rise to this suit.

Plaintiffs assert that the facts and circumstances in evidence, with which they say their personal declarations of purpose and intent are in complete accord, clearly establish the deductibility of the incurred expenses as primarily investment-motivated. Defendant responds that because of the nature of the properties involved, plaintiffs are entitled to deduct the subject expenses only by showing a physical seg-gregation of the works of art which precludes personal pleasure; a showing which, defendant contends, plaintiffs have failed to make. In the alternative, defendant opposes any recovery here on the ground that plaintiffs have not shown any action on their part inconsistent with the holding of their collection for pleasure, and have thereby failed to satisfy their burden of proof that the pertinent expenses were incurred primarily for an investment purpose. Although we hold that plaintiffs are not entitled to recover, neither of the alternative theories advanced by defendant constititutes, in our view, the proper application of the apposite legal standard upon which we premise our holding.

Section 212 provides, in parts pertinent to this suit:

In the case of an individual, there shall be allowed as a deduction all the ordinary and necessary expenses paid or incurred during the taxable year—
(1) for the production or collection of income;
(2) for the management, conservation, or maintenance of property held for the production of income; or

Treasury [Regulations on income tax, section 1.212-1 (c) imparts, moreover, with, respect to tihe deductible investment expense-nondeductible personal expense dichotomy and the apposite standard for proper classification:

Expenses of carrying on transactions which' * * * are not carried on for the production or collection of income or for the management, conservation, or maintenance, of property held for the production of income, but which are carried on primarily as a sport, hobby, or recreation are not allowable as nontrade or nonbusiness expenses. The question whether or not a transaction is carried on primarily for the production of income or for the man-agementj conservation, or maintenance of property held for the production or collection of income, rather than primarily as a sport, hobby, or recreation, is not to be determined solely from the intention of the taxpayer bat rather from all. the circumstances of the case. [Emphasis supplied.]

It is clear from the above that the burden of proof which plaintiffs must satisfy if they are to prevail is that ás a factual matter, from an objective view of the operative circumstances in suit, they acquired and held works of art during the years here involved primarily for investment, rather than for personal use and enjoyment. Plaintiffs must establish that their investment purpose for acquiring and holding works of art was “principal,” or “of first importance.” See, Malat v. Riddell, 383 U.S. 569, 572 (1966) . And, they must establish this notwithstanding the pleasure-giving quality commonly recognized as inherent in art objects.

The perplexing nature of the issue in suit apparently has caused defendant to seek a narrow rule possessing ease of application and certainty of result. We .are unaware of any authority, however, for the interpretations which defendant places upon the applicable legal standard.. Those cases, cited by defendant with respect to its physical segregation-pleasure preclusion standard do not, in our view, support the interpretation urged. See, R. Foster Reynolds, 4 TCM 837 (1945); George F. Tyler, 6 TCM 275 (1947); Juliet P. Hamilton, 25 B.T.A. 1317 (1932). Neither do they support defendant’s alternative position which turns upon whether there was action on the part of the Wrightsmans inconsistent with the holding of their art collection for pleasure. We prefer to resolve the instant controversy by the more conventional application of the legal standard involved, namely, an analysis of the particular facts and circumstances, and a determination as to plaintiffs’ primary purpose therefrom. A careful review of the entire record with this conventional approach in mind indicates, we think, that plaintiffs have failed to sustain their burden.

Plaintiffs have carefully marshaled a broad array of evidence in support of their declared investment purpose. In this regard, we have no reason to doubt that Mr. Wrightsman was wary of the more traditional forms of investment, or that he recognized an investment-aspect incident to the acquisition and retention of works of art. Indeed, the greatly increased current value of the Wrightsman collection would seem, at least in retrospect, to confirm the financial wisdom of plaintiffs’ purchases. Nor do we doubt that meticulous bookkeeping detail was observed by plaintiffs with respect to the purchase, care, and maintenance of their collection, or that the Wrightsmans devoted considerable time and effort to their collection activities. We fully appreciate, moreover, that because of plaintiffs’ mode of living, much of their time was spent away from their residences wherein the majority of their works of art were maintained. It is our judgment, however, that this evidence, when viewed in proper relationship to the additional evidence below, relegates investment intent to a position of something less than primary among plaintiffs’ purposes for acquiring and holding works of art.

It may fairly be said, and the record so indicates, that plaintiffs’ personal lives revolve around their art collection and related collecting activities. The Wrightsmans, without any prior formal education with respect to works of art, have since the late 1940’s consistently and diligently pursued a course of self-education in that field, visiting major museums and art dealer establishments in the United States and overseas, studying works of art themselves, reviewing auction catalogues and price lists, and engaging in discussions with recognized art experts, such as collectors, museum curators, dealers and others knowledgeable in the world art community. They have reviewed all of the leading art periodicals, and engaged in extensive reading in their chosen field of 18th century French art and related areas. They have 'acquired a substantial art library, and Jayne has engaged in extensive research, while Charles has concentrated on the restoration and conservation of art objects 'and the conditions of the art market. Jayne has educated herself in the use of the French language, to be qualified to engage in discussions and reading of materials in that language concerning 18th century French furniture and works of art. Whether in Palm Beach, New York, or abroad, the major portion of the Wrightsmans’ day-to-day activities throughout each year is devoted to studying works of art. And, the Wrightsmans’ social life in Palm Beach, New York, or abroad involves principally people knowledgeable and interested in the field of art.

As to the place and manner in which the Wrightsmans have held their collection, the record reveals that, except for occasional displays of items at other locations, plaintiffs have kept their works of art in their New York apartment, their Palm Beach home, and in the Metropolitan Museum on loan for display by that institution. As of March 31, 1967, about 77.8 percent of such objects (on an insurance evaluation basis) was in the New York apartment, about 17.7 percent in the Palm Beach home, and about 4.5 percent in the Metropolitan Museum. The works of art are on display, or in use as in the case of such items as French period furniture, in the New York apartment and the Palm Beach home, except that a small amount of furniture is stored in one room at Palm Beach.

Plaintiffs have provided air conditioning and humidity controls, considered necessary for the preservation of works of art, similar to those employed in the Metropolitan Museum. In this respect, the New York apartment is 'better equipped, accounting for the concentration of works of art there. Such apartment occupies the entire third floor of the.building. Storage facilities for works of art have-not been readily available to provide the required atmospheric controls especially needed for paintings, and. furniture..

The record also reveals extensive, .personal use by the Wrightsmans of various parts of their collection.-, 18th centúry oriental wallpaper had'been installed by the previous nwner on the walls of plaintiffs’ Palm Beach residence-which had been acquired as 'a.-completely furnished home.. 18th century French parquet flooring hias been installed .by plaintiffs in their Palm Beach home, and in .their New York apartment. Plaintiffs’ paintings -are never stored but, instead, •a limited number are hung on the walls of their Palm Beach home, with most of them- on the-walls of their New-.York apartment..Mr.- Wright'smam’s bedroom in their apartment is furnished with 1,8th century French furniture -and fixtures, and his bedroom in their Palm Beach home contains aFrench commode. Mrs. Wrightsman-’s bedroom in their apartment- is. furnished completely with Louis XV matching-furniture and fixtures. Plaintiffs’ apartment also has other rooms' which contain other works of art from their collection in the form of matching furniture and furnishings. -.

In' sum,, what -we wish to make clear from the‘foregoing: is that we recognize as established an investment purpose.for. plaintiffs’ collection. To .be sure, many of:the above-detailed facts and circumstances: are entirely consistent with investment intent. .On balance,, however, the-evidence does not establish investment, as ¡ tKe -: most prominent . purpose, for plaintiffs’ acquiring and holding, works of art. The-complete record does establish, to the contrary,, personal pleasure or satisfaction as plaintiffs’primary purpose. ■ ■'.

Plaintiffs place much reliance upon George F. Tyler, supra, wherein a loss sustained on the sale of part of a stamp collection was held deductible under section 23 of the 1939 Internal Revenue Code as having been incurred in a trans-action entered into for profit. The precise factual issue before the court was- whether the stamp collection was held primarily for profit or primarily as ia hobby.-In finding the former purpose to be primary, the Tax Court emphasized that the taxpayer from the outset undertook stamp collecting' as an investment; that he 'consummated all purchases through a professional philatelist, who stressed the investment feature of stamps; that he purchased stamps only upon the philatelist’s recommendation; that he exhibited scant interest in or knowledge of stamps; and that he participated little in-those activities generally associated with stamp hobbyists. Thus it was found that although the collection and possession of stamps afforded the taxpayer some pleasure, such activities were undertaken primarily for profit.

- The great disparity in facts and circumstances between Tyler and the instant case compels the conclusion, we think, that the Tyler decision in no sense advances plaintiffs’ current cause. The actual importance of the Tyler case, for'our purposes, lies in the standard there applied:

* * * The difficulty, then reduces itself to the task of ascertaining whether petitioner has sustained his burden of proving that the desire to make a financial profit was the most important motive which led him to acquire the components of his collections. [6 TCM at 280]

The Tax Court determined, in the factual context of the Tyler case, that the taxpayer had sustained his burden of proof. We hold, in the factual context of the case before us, that the instant plaintiffs have not.

Also easily distinguished from the case at hand are Juliet P. Hamilton, supra, and R. Foster Reynolds, supra, to which we are referred by defendant. The Hamilton case involved the denial of a deduction for a loss sustained on the sale of a single painting which the taxpayer had acquired by specific bequest from her deceased father. Prior to its sale, the painting had been kept by the taxpayer in her home, except that, on several occasions, without profit to the taxpayer, the painting was placed on exhibition for inspection by art students and lovers of art. While in the taxpayer’s home, the painting was sometimes made available, by special arrangement, for free inspection, 25 B.T.A. at 1317-1318. The Reynolds case, on the other hand, involved the allowance of a deduction for a loss sustained on the sale of certain jewelry which the taxpaj^er had acquired by inheritance from his deceased aunt. The jewelry, which was sold for the taxpayer by Cartier, Inc., of New York had been kept in a safe deposit box and at no time had been nsed by the taxpayer or any member of his family. 4 TCM at 838. We have no quarrel with the rule or reason of the Hamilton and Reynolds eases. We feel constrained to point out, however, that the rather conspicuous absence of any investment-type activity in the former or personal use in the latter serves to emphasize the appreciably more complex nature of the present controversy.

While the cases cited by the parties afford only minimal guidance for the resolution of the issue in suit, they do affirm as proper the analysis undertaken herein. That is to say, where the issue in question turns upon a taxpayer’s state of mind, courts can best treat with such an issue through traditional principles of inference-drawing from an objective view of surrounding facts and circumstances, necessarily on a case-by-case basis. This, despite defendant’s urging that “the issue [must] not be left to a miscellaneous assortment of factors for varying judgment in each case.” Clearly, we think, by the nature of the issue it must.

In accordance with such principles, and for the reasons detailed above, we hold that plaintiffs have failed to sustain their burden of proving the primacy of their investment purpose. Plaintiffs are, therefore, not entitled to recover in this action, and their petition is dismissed.

ColliNs, Judge,

dissenting:

I cannot agree with the court’s conclusion in this case, and reluctantly I must dissent. At the outset, it should be stated that I regard this as a very difficult and a very close case. Very simply stated, my disagreement with the majority is that I feel that plaintiffs have sustained their burden of proof in showing that they acquired and held works of art primarily for investment rather than for personal enjoyment.

The majority have cited a number of facts and circumstances which they claim support their position that plaintiffs were engaged in the collection of art primarily for personal pleasure. As I view these same facts and circumstances, they could just as easily support a position favoring investment intent. Consequently, I feel that tbe factors relied upon by tlie court could be applied with equal weight to either side. If these facts were the only points to consider, I would have to agree with the majority since I would conclude that this would not be sufficient to satisfy plaintiffs’ burden of proof.

However, there are a few other factors mentioned by the court which point directly to an investment intent. These include plaintiffs’ desire to find an investment which would act as a hedge against inflation, plaintiffs’ meticulous bookkeeping system, and the fact that they spent so little time at their homes where the large majority of their works of art were kept. (They spend 30 days a year in their New York apartment where 77.8 percent of their art objects are located.) These factors are the ones which, to me, tip the scales in favor of an investment intent.

I am further influenced by the fact that Commissioner Hogenson, who conducted the trial and heard the testimony of all the witnesses, found that plaintiffs had met their burden of proof and were engaged in the collection of art primarily for investment purposes. I feel that, in a case which is as close and as difficult as this one, some weight should definitely be attached to this advantage of the commissioner to observe demeanor and judge credibility.

I conclude, therefore, that the weight of the evidence presented is in favor of showing that plaintiffs were engaged in the collection and maintenance of art objects primarily for investment reasons rather than for their own personal pleasure and enjoyment. I would adopt the commissioner’s findings of fact (which has been substantially done by the court) and his recommended opinion.

FINDINGS OF FACT

The court, having considered the evidence, the report of Trial Commissioner Boald A. Hogenson, and the briefs and argument of counsel, makes findings of fact as follows:

1. Plaintiffs, Charles B. Wrightsman and Jayne Wrights-man, are and have been husband and wife since their marriage on March 28, 1944.

2. In March 1947, plaintiffs acquired a completely furnished home, which they still own, at 513 North County Road, Palm Beach, Florida.

3. Since 1956, plaintiffs have owned the third floor of an apartment house located at 820 Fifth Avenue, New York, New York.

4. Plaintiffs filed their joint federal income tax returns for the calendar years 1960 and 1961 with the District Director of Internal Revenue, Austin, Texas, and paid the tax shown to be due thereon, in the amounts of $5,050.60 and $3,607.29 respectively.

During 1960 and 1961, plaintiffs’ business address was 1805 First City National Bank Building, Houston, Texas 77702.

5. Charles Bierer Wrightsman was born in Pawnee, Oklahoma, on June 13, 1895. His father, Charles John Wrights-man, moved to the Oklahoma Territory in 1890, and in a short time had one of the largest law practices in the Territory.

6. In addition to his law practice, Mr. Wrightsman’s father engaged in numerous oil ventures, and throughout the years made several fortunes through the sale of oil properties, which he promptly lost through investments in the stock market.

In this regard, Mr. Wrightsman’s father did on several occasions, sell out his interests in his oil ventures for about a million dollars, and thereafter, moved to New York City, where he would promptly lose his recently acquired fortune through investments in the stock market.

7. Mr. Wrightsman, throughout his youth, was exposed to his father’s ventures in the stock market. As the result of this exposure which he considered a “very shattering experience,” he has had no faith or confidence in securities as a form of investment. He developed a fear of stock of any company unless he had knowledge of the industry and had something to say in the management of the company. As a consequence, he never owned any substantial amount of stock, except Standard Oil Company of Kansas.

Stock interests of the plaintiffs include the Wrightsman Investment Company of which Mr. Wrightsman has been sole stockholder since its organization in 1959. This company owns some minor oil properties in Oklahoma and the land on which the plaintiffs’ home in Palm Beach,. Florida, is situated. For estate purposes, it acquired limited assets owned by Mr. Wrightsman in the states of Oklahoma, New Mexico, Mississippi and Nebraska.

At the time of trial, Mrs. Wrightsman was the owner of a trust, for which a bank, acting as trustee, had purchased some stock.

Plaintiffs acquired 1,583 shares of the Wrightsman Petroleum Company in 1960 and 1961. This company had been organized by Mr. Wrightsman’s father.

8. Mr. Wrightsman’s college education consisted of attendance at Stanford University at Palo Alto, California from 1914 to 1916, at which time he transferred to Columbia University. While attending Columbia University, he resided with his parents at the Plaza Hotel in New York City, and it was during this period that he was most forcefully exposed to his father’s disastrous activities in the stock market.

9. In March 1917, Mr. Wrightsman left Columbia University, and was commissioned an ensign in the United States Naval Beserve. In 1918, Mr. Wrightsman was demobilized and moved to Fort Worth, Texas, where he entered the oil business as a lease broker. Thereafter, he engaged in several oil ventures. Through shrewd and intelligent investments in oil, by June 19, 1930, he had amassed sufficient funds to purchase at private sale the shares of the largest stockholder of the Standard Oil Company of Kansas.

10. In 1930, Mr. Wrightsman was elected to the board of directors of Standard Oil Company of Kansas, and in 1932, he was made its president. He continued to hold the latter office through the first month of 1951, when the liquidation of the Standard Oil Company of Kansas (commenced in 1949) was concluded.

11. In 1932 when Mr. Wrightsman was engaged in a proxy fight, he owned 20 percent of the outstanding stock of Standard Oil Company of Kansas, and at the time of liquidation he owned 93.7 percent of such stock.

12. At the time of liquidation in 1951, Mr. Wrightsman, in return for his 93.7 percent stock interest in the Standard Oil Company of Kansas, received $1,000,000 in cash and a 93.7 percent interest in all of the physical assets, producing leases, and producing royalties of Standard Oil Company of Kansas, which were then located in ten states. From 1951 until the present time, Mr. Wrightsman has owned 93.7 percent of these assets and has continued to operate the producing properties, under arrangements with the owners of the 6.3 percent interests.

18. The result of the liquidation of Standard Oil Company of Kansas, aside from placing its properties in Mr. Wrights-man’s hands individually, was to cause a generation of a considerable annual cash flow. Previously, this cash flow had gone into the corporate coffers and, accordingly, had been invested by the corporation. After the liquidation, 93.7 percent of this cash flow came directly to Mr. Wrightsman.

14. In 1960 and 1961, Mr. Wrightsman, for tax purposes, considered his principal occupation to be that of “oil producer,” as stated on the tax returns. The plaintiffs’ returns also stated that they were investors in works of art.

15. Mr. Wrightsman had several courses in economics in college, and has endeavored to keep abreast of economic trends by engaging in discussions with people knowledgeable in that field. His economic beliefs, first crystalized in 1953, were that cash was the worst possible type of investment; that the trend of worldwide economics was toward an ever increasing inflationary spiral; that world currencies would be continually devalued; and that any investment opportunities he would seek to take advantage of would have to take into account all of these factors.

16. Mr. Wrightsman has observed the devaluation of several foreign currencies, and considered the financial effect of such devaluation. These experiences solidified his belief that investments should be made in items with a (universal appeal, which would not be pegged to any currency, but would automatically adjust in value.

17. Oil, Mr. Wrightsman believed, was one of the best investments possible. The return on investments in oil, if selectively made on the basis of considerable experience, was one of the best obtainable. However, trips to the Persian Gulf countries by him in the mid 1950’s indicated to him that there was a possibility of an oil glut; and that as a consequence he should make some effort to hedge his investments in oil with investments in other areas.

18. In 1955 Mr. Wrightsman requested that three of his employees make recommendations about diversifying his investments. Mr. Emmett Day, a certified public accountant, in charge of Mr. Wrightsman’s accounts, recommended buying stock in corporations not in the oil industry and purchasing real estate. These recommendations were not followed.

19. Mr. Wrightsman believed that art was an excellent hedge against inflation and an excellent hedge against devaluation of major world currencies. In addition, he believed that works of art represented a portable international currency. Thus, Mr. Wrightsman was convinced that works of art were appropriate for investment of a substantial portion of his surplus cash funds. The intent to invest in works of art was expressed to friends and employees.

20. Mrs. Wrightsman’s formal education ceased after leaving high school before graduation. Except for some infrequent modeling activities, she has never been gainfully employed on a regular basis.

21. At the time of her marriage to Mr. Wrightsman in 1944, Mrs. Wrightsman did not have any income of any sort. As a result of her marriage, Mrs. Wrightsman has over the years received income through her husband under the community property laws and has received funds from her husband in the form of gifts.

22. Plaintiffs’ mode of living from 1947 to the present time has been to reside from the latter part of November until late April at their home in Palm Beach, Florida, with occasional trips to New York City or elsewhere. Commencing about the first of May, they live for about 30 days in New York City, staying since 1956 in their Fifth Avenue apartment. From June 1 to the end of September or early October, they are in Europe, where they live exclusively in hotels.

23. During their stays in Palm Beach, Florida, plaintiffs periodically have two or three couples for house guests. Some of these house guests in 1960 were: Francis J. B. Watson (Surveyor of the Queen’s Works of Art and Director of the Wallace Collection in London); Jack McGregor (on the staff of the Metropolitan Museum of Art in New York) ; and Mr. Redmond and Mr. Dauterman of the Metropolitan Museum. Douglas Dillon has dined with the plaintiffs once a year at their Palm Beach, Florida, home. Joseph P. Kennedy, a neighbor, has dined periodically with the plaintiffs at their Palm Beach home. The Shah of Iran and Mr. and Mrs. John F. Kennedy were also entertained by plaintiffs at their Palm Beach home. When any one of some 86 important people in the international art world (who are known to the plaintiffs, socially as well as professionally) who lives in Europe comes to New York, plaintiffs entertain such person at a small dinner party.

24. During their summer stays in Europe, the Wrightsmans would invite people who were knowledgeable in the world of art for luncheon and for dinner.

Some of the well-known world personalities entertained on different occasions by the Wrightsmans during their stay in Europe in the summer of 1961 were: Baron Guy deRothschild (one of the leading bankers of France); Mr. Gavin (U.S. Ambassador to France); Mr. Alphand (French Ambassador to the United States); Mr. Finletter (U.S. Ambassador to NATO); Governor Adlai Stevenson, and Stavros Niarchos (steamships and tankers). Other people who were entertained by the Wrightsmans during this same time were: Mr. Woodfin L. Butte (Middle East representative of Standard Oil of New Jersey); Peter Thomeycroft (British Minister of Air); Whitney Straights (Chairman of Rolls Royce); Leonard Warren (British Foreign Office)-; Gordon Richardson (head of Schroeders Bank); General de Rouge-mont (Cabinet Minister in Algeria) Bordeaus Sroult (French industrialist); Kermit Roosevelt (vice-president of the Gulf Oil Company); Mr. Gianni Agnelli (head of Fiat); the Annenbergs (owners of the Philadelphia Inquirer); Mr. C. Caramanli (Prime Minister of Greece), and Baron Thyssen (Germanindustrialist).

Also entertained by the Wrdghtsmans during their summer stay in Europe in 1961 were: the Francis Watsons; the Jack McGregors; the John Walkers (director of the National Gallery of Art), and John Pope Hennessey of the Boyal Victoria and Albert Museum, London.

25. As established by expert testimony in this case, the key to learning the value of art is to study the established international ait market. The price structure of the international art market is set primarily by the price brought for items traded through three leading auction houses, those being Sotheby’s, Christie’s and Parke-Bernet. The catalogues of these auction houses are the basic study material for anyone who invests in works of art.

26. To get a feeling for the quality of art, to appreciate its beauty, and to be able to distinguish between first quality items and those of inferior quality, one must continually visit leading museums and peruse exhibits in various auction houses and dealers’ establishments. The visits to dealers accomplish the additional purpose of backing up the knowledge of the art market gained through visits to the leading auction houses and reading their catalogues and price lists.

27. In addition to visiting auction houses, dealers and museums, some of the greatest educational experiences with respect to works of art can be derived through conversations with leading art dealers, art experts, museum directors, and other individuals knowledgeable in the art world, either as collectors or as investors.

28. Since Mr. and Mrs. Wrightsman have had no formal education with respect to art, or the investment qualities of works of art, of necessity they have had to teach themselves all they could before placing any large sum of money in this area. They have, ever since the late 1940’s, continued on a dedicated course of self-education in art. Plaintiffs have consistently studied works of art and the art market and gained and retained their expertise in the field by:

(a) Studying the auction catalogues and price lists of the leading international art auction houses;
(b) studying the works of art .themselves by visits to almost every major museum in the world, including those in several Iron Curtain countries;
(c) studying works of art through continued visits to leading auction houses and art dealer establishments throughout the world;
(d) conversations with recognized art experts such as leading collectors, museum curators, dealers, and in general, individuals who have established themselves as experts in the world art community;
(e) extensive reading in their chosen field of 18th century French art as well as other related areas; and
(f) further current reading of all the leading major art periodicals either subscribed to or purchased by them on a regular basis.

Most of the reading and the research in the plaintiffs’ library is done by Mrs. Wrightsman, while Mr. Wrightsman has concentrated more on the restoration and conservation of objects and in the conditions of the art market.

29. Whether in Palm Beach, New York, or abroad, the major portion of the Wrightsmans’ day to day activities throughout every year is devoted to studying works of art. In addition, the Wrightsmans’ social life in Palm Beach, New York, or abroad centers around people knowledgeable and interested in the field of art.

30. In addition to all of these educational activities which were pursued with vigor by both Mr. and Mrs. Wrightsman, Mrs. Wrightsman also educated herself in the use of the French language. Since their chosen area of expertise was in French 18th century furniture and works of art, it was advantageous to be well qualified in the speaking and reading of French.

31. Over the years the Wrightsmans have acquired an extensive and complete library on works of art. A full and complete listing of all their works of art reference books and books of general interest with respect to works of art is contained in a closely typewritten 76 page exhibit. An indication of the extent of the plaintiffs’ contacts with people in the art world with whom the plaintiffs consult and correspond with respect to works of art and with whom they converse about works of art is set out in a document containing the names of approximately 89 people.

32. Plaintiffs have followed the educational paths of experts, people well known and renowned in the art world, and hare been admitted into the fraternity of the art world as experts in their own rights. Their expertise was testified to by such individuals as Mr. Francis J. B. Watson and Mr. Joseph Y. Noble (Vice-Director for Administration of the Metropolitan Museum), who are eminent and recognized art experts.

33. In 1947, the plaintiffs began to purchase and hold as a hobby 18th century French works of art. These were bought for use in their Palm Beach, Florida, home. In the years from 1948 on, the Wrightsmans made selective purchases of works of art on an ever increasing basis, as their expertise, experience and confidence grew. The following is a schedule of these purchases, and the cumulative total:

34.Except for occasional displays of items at other locations, plaintiffs have kept their woi’ks of art in their New York apartment, their Palm Beach home, or in the Metropolitan Museum of Art on loan for display by that institution. As of March 31,1967, about 77.8percent of such objects (on an insurance evaluation basis) was in the New York apartment, about 17.7 percent in the Palm Beach home, and about 4.5 percent in the Metropolitan Museum. The works of art are on display, or in use as in the case of such items as French period furniture, in the New York apartment and the Palm Beacli home, except that a small amount of furniture is stored in one room at Palm Beach.

Plaintiffs have provided air conditioning and humidity-controls, considered necessary for the preservation of works of art, similar to those employed in the Metropolitan Museum of Art. In this respect, the New York apartment is better equipped, accounting for the concentration of works of art there. Storage facilities for works of art have not been readily available, to provide the required atmospheric controls, especially needed for paintings and furniture.

35. One of the plaintiffs’ items, 18th century oriental wallpaper, had been installed on the walls of ¡their Palm Beach home by its previous owner. Another of the plaintiffs’ items, 18th century French parquet flooring, has been installed by plaintiffs in the floors of their Pahn Beach home, and in the floors of their New York apartment. The plaintiffs’ paintings are never stored but are himg on the walls in small quantity in their Palm Beach home, with most of them on the walls of their New York apartment.

36. Mrs. Wrightsman owns as her separate property approximately three-fourths (both by number as well as by value) of the plaintiffs’ collection of works of art.

37. The Wrightsmans have always kept a detailed record of where each work of art is located. As an indication of the top quality of their works of art, the Wrightsmans have over the years had numerous pieces on display at the Metropolitan Museum of Art, and at other museums around the world. Plaintiffs have displayed their works of art at The Hague; and their works of art were scheduled to be displayed in the early part of 1968 at the Boyal Academy in London, as part of that Museum’s exhibition of 18th century French works of art. Such displays enhance the value of the plaintiffs’ art acquisitions.

38. Mr. Wrightsman’s bedroom in their apartment is furnished with 18th century French furniture and fixtures. His bedroom in their Palm Beach home contains a French commode, but otherwise the extensive bedroom furniture there is all modern. Mrs. Wrightsman’s bedroom in their apartment is furnished completely with Louis XV matching furniture and fixtures. The plaintiffs’ apartment also has other rooms which contain, other works of art from their collection in the form of matching furniture and furnishings.

39. The Wrightsmans’ purchases of works of art were cata-logued as purchased and continuously updated in extensive detail by Mrs. Wrightsman. These catalogues at the time of trial consisted of 26, three-ring binder volumes, that took up a space of approximately five feet. These volumes are one of a kind and have considerable value, and represent almost 20 years’ work. A typical item in this catalogue would include a detailed description of the work of art as well as commentaries on its history and its use.

40. Partially on the basis of this extensive cataloguing, the Metropolitan Museum has published two volumes and is in the pi’ocess of completing the publication of a five-volume work on the Wrightsman Collection. These volumes became, upon their publication, more than a catalogue, but in fact a treatise and reference book on 18th century French works of art.

41. Plaintiffs’ works of art have appreciated considerably in value, and had at the date of trial reached a point where items purchased for a sum total of $8,919,535 had been valued for insurance purposes, at $16,862,540.

42. The quality of plaintiffs’ collection is comparable to that of the great museums of French 18th century art in Europe and in the United States.

43. Plaintiffs’ cash flow is substantial enough to permit them to purchase almost any object they desire without the necessity of selling off their pieces to acquire the funds to do so; and they have only on rare occasions been required to borrow funds to make a purchase. Once such borrowings have been made, they have been repaid over a relatively short period of time.

44. Although plaintiffs have no definite or concrete plans for selling their collection, they would do so if they needed the money. They would also sell their collection if world conditions changed, if their business activities changed, or if the market were higher.

45. If the plaintiffs were to sell their collection, they would be inclined to sell only such part at public auction as would bring them the money they required. They would put a reserve price on each, individual item, below which, they would not allow the item to be sold. This reserve price would be a value which the plaintiffs thought each individual item was worth in the current market.

46. In 1961, plaintiffs did sell 16 items of porcelain statuary which they had acquired between 1949 and 1950 at a loss of approximately one-third of the sum of the cost of the items and sales expenses. At the time of trial the total sales of plain tiffs’ works of art (all of which occurred since 1960) resulted in an overall gain of $60,643.06 or a gain of 55.95 percent on an investment of $108,378.92.

47. Each of the plaintiffs has executed a last will and testament. Mrs. Wrightsman’s will would dispose of her works of art by providing that the same should go first to her husband if lie outlives her, and if he does not outlive her, then a part of the works of art would go to the Metropolitan Museum of Art with the remainder to be sold. Mr. Wrights-man’s will would dispose of his works of art by first selling such portion thereof as was necessary to cover inheritance and estate taxes, with the remainder of the works of art to go to a charitable foundation known as the Wrightsman Foundation.

48. On September 17, 1956, Mr. Wrightsman was elected to the Board of Trustees of the Metropolitan Museum of Art in New York, and was made a member of its Purchasing Committee, and a Trustee-Visitor of its Department of Conservation. He was subsequently made a member of the Museum’s Executive Committee. On March 25, 1963, both plaintiffs were made members of the President’s Council of Advisors of New York University’s Institute of Fine Arts.

49. In Mr. Wrightman’s capacity as a member of the Purchasing Committee of the Metropolitan Museum of Art, he along with his co-members, is required to pass on acquisitions of both purchases and gifts involving many millions of dollars annually. This activity of the Museum’s Purchasing Committee is not a passive one, but continually requires an inquiring mind and a knowledge of a panorama of the art world. Mr. Wrightsman regularly attends Board meetings at the Metropolitan Museum of Art.

50. As friends of the Metropolitan Museum and through their knowledge of the facilities of the Museum available for examination of works of art, plaintiffs have been able not only to add to their knowledge of art, but also to use its facilities to help avoid the pitfall of purchasing a fake or heavily restored work of art.

51. Mrs. Wrightsman not only was chosen to assist Mrs. John F. Kennedy in redoing the White House during the term of President Kennedy, but has also been appointed to a committee of ten to arrange for the celebration of the 100th anniversary of the Metropolitan Museum of Art; and further, she has been elected a member of the Board of the Metropolitan Opera Association. In the latter capacity she was a member of a committee of six that decorated the new Opera House in Lincoln Center, New York City.

52. Each work of art, when it has been invoiced, is immediately assigned an inventory number, and is noted as an approved purchase by either Mr. or Mrs. Wrightsman; then the invoice is sent directly to their Houston business office for payment. There the approved invoices are checked for clerical accuracy, and a check request is prepared, following the usual business procedures for the Wrightsmans’ investments in oil and gas. The check request, a copy of the check, and a copy of the original invoice are retained in the Houston office file. The original invoice, marked paid, with date and check reference is returned to the Wrightsmans’ personal files, which follow them from their Palm Beach residence to their New York apartment, as the occasion warrants. Each item is reflected in the investment control account of the general ledger maintained in the Houston office. Further, a detailed investment card record is kept with respect to each item in the works of art collection. On these cards is noted the original purchase price, the date of purchase, and any items deemed to be of a capital nature, which, accordingly, require capitalization on the investment books of the plaintiffs.

53. Art has been recognized to be an investment by all leading art connoisseurs, and has been utilized by some of the wealthiest and shrewdest businessmen in the world as an investment activity. The use of art as an investment has been a published and notorious fact for years.

54. Dr. Richard H. Rush, a witness in this case, has written an entire book on art as ¡an investment. Dr. Rush testified with respect to the conclusions reached hi this book. The conclusions in general terms were that art not only is an appropriate area of investment, but is an excellent investment. Creation by Dr. Rush of an index for paintings and furniture similar to ¡an index for stocks is fully documented hi this volume. The basis for the creation of this index was a statistical analysis utilizing recognized statistical and economic studies of the international art market which are fully documented and supported. This economic survey and market analysis of the international art market concluded that an art index would reveal the following:

(a) Art prices in general (paintings only) increased over 1200 percent from 1947 to 1967 as compared to an increase in prices of selected representative stocks of a little over 700 percent.
(b) Whereas stock prices as measured by the Dow Jones Industrial Index and Standard and Poor’s 500 Stock Index were shown to have increased no more than 163 percent from 1960 to 1967, art prices increased 225 percent over the same period; and French works of art in general increased 232 percent over the same period.

55. Every expert witness presented by the plaintiffs testified not only that art was a worldwide recognized investment area, but that they personally have invested in works of art, and as a result of their investments had reaped a truly phenomenal return.

56. The predictable rise in art prices is based in part upon the law of supply and demand. The items purchased by plaintiffs are unique. Museums are going up in great numbers, and existing museums are purchasing more works of art each year. The demand grows each year for works of art like those owned by plaintiffs, and the supply, being fixed, becomes more and more limited. Such a situation is bound to drive prices for such works of art to higher levels.

57. On their income tax return for the year 1960, plaintiffs reported a net income from oil and gas royalties of $1,320,-668.57, after taking a depletion allowance of $656,094.71. They reported, for their principal business activity of “Crude Oil and Gas Production,” a net loss of $1,223,617.10, on total receipts of $1,598,388, after taking a depletion allowance of $398,564.03 and deductions for business expenses for “Lease Bentals” of $183,627.50, “Intangible Development Costs” of $366,936.82, and “Dry Hole Expense” of $593,926.61. They reported on the 1960 tax return “Lease Rental and Miscellaneous” income of $159.62 for the year 1960.

58. On their income tax return for the year 1960, plaintiffs claimed a deduction for certain ordinary and necessary expenses incurred in the management, conservation and maintenance of investment properties, works of art, held by them for the production of income and in the production and collection of income from those properties. These expenses were in the total amount of $9,094.15 for the year 1960.

59. Under date of April 8,1966, the Acting Chief, Appellate Branch Office of the Internal Revenue Service, Houston, Texas, issued a statutory notice of deficiency to plaintiffs, in which it was determined that the deduction claimed as “Insurance and other expenses in regard to Works of Art Investments” totaling $9,094.15 for the year 1960 was not allowable and that, accordingly, additional federal income taxes were due and owing by the plaintiffs in the amount of $4,959.30 for that year.

60. Under date of August 5, 1966, plaintiffs paid to the District Director of Internal Revenue, Austin, Texas, the amount of $7,821.38 in payment of the deficiency, stated above, in income tax determined for the year 1960, plus interest computed to August 5, 1966, for that deficiency in the amount of $1,897.73.

61. Under date of August 8,1966, the plaintiffs filed Treasury Form 843, Claim for Refund, for the year 1960, in the amount of $5,911.20, plus interest of $1,847.25, together with such other or greater amount as may be legally refundable. That claim alleged that the disallowance of the $9,094.15 deduction for insurance and other expenses in regard to works of art investments was erroneous. That claim for refund pertaining to the year 1960 was disallowed by the Commissioner of Internal Revenue on or abojut August 12, 1966.

62. On their income tax return for the year 1961, plaintiffs reported a net income from oil and gas royalties of $541,101.47, after taking a depletion allowance of $354,652.18. They reported for their principal business activity of “Oil and Gas Producer” a net loss of $445,015.01 on total receipts of $2,301,863, after taking a depletion allowance of $619,384.95, and deductions for business expenses for “Lease Rentals” of $129,869.03, “Intangible Development Costs” of $347,737.58, and “Dry Hole Expense” of $368,593.13. They reported “Miscellaneous” income of $550.91 for the year 1961.

63. On their income tax return for the year 1961, plaintiffs claimed deductions for certain ordinary and necessary expenses incurred in the management, conservation and maintenance of investment properties, works of art, held by them for the production of income and in the production and collection of income from those properties. These expenses were in the total amount of $30,258.67 for the year 1961.

64. Under date of April 8,1966, the Acting Chief, Appellate Branch Office of the Internal Revenue Service, Houston, Texas, issued a statutory notice of deficiency to plaintiffs, in which it was determined that additional federal income taxes were due and owing by plaintiffs in the amount of $21,199.78 for the year 1961 on account of the following adjustments:

(a) The determination was made that the deduction claimed as insurance and other expenses in regard to works of art investments and the expense incurred in acquiring and subsequently releasing a painting due to inability to obtain an export permit, totaling $30,258.67, for the year 1961, were not allowable.
(b) The determination was made that the plaintiffs were not entitled to the capital loss of $4,693.41, restricted to a claimed deduction of $1,000, as claimed on their return for the year 1961 from the sale of certain works of art, on the basis that it was not a loss incurred in a transaction entered into for profit within the meaning of section 165 of the Internal Revenue Code.

65. Under date of August 5, 1966, plaintiffs paid to the District Director of Internal Revenue, Austin, Texas, the amount of $26,552 in payment of the deficiency, stated above, in income tax determined for the year 1961, plus interest computed to August 5,1966, for that deficiency in (the amount of $5,479.13.

66. Under date of August 8,1986, plaintiffs filed Treasury Form 843, Claim for Refund, for the year 1961, in the amount of $21,199.78, plus interest of $5,352.22, together with such other and greater amount as may be legally refimdable. That claim alleged that the disallowance of the $20,258.67 deduction for insurance and other expenses in regard to works of art investments was erroneous, that the disallowance of the $10,000 expense incurred in the acquisition and release of an investment painting for inability to obtain an export permit, and for other investment-related purposes, was erroneous, and that the disallowance of the capital loss of $4,693.41, restricted to a claimed $1,000 deduction, incurred on the sale of works of art, was erroneous. That claim for refund pertaining to the year 1961 was disallowed by the Commissioner of Internal Revenue on or about August 12,1966.

67. The parties agreed that the following expenses were incurred in connection with, and are directly attributable to plaintiffs’ works of art:

YEAR 1960
Item Amount
Insurance___$3,953.48
Maintenance - 3, 057.00
Subscriptions and Services- 200. 63
Miscellaneous -•- 1, 074.91
Total_ 8,286.02
YEAR 1961
Insurance _ $5,433. 65
Maintenance - 11,307. 05
Subscriptions and Services. 286.99
Expenses and Shipping-2, 033.16
Miscellaneous - 310. 69
Total_19,371. 54

68.The plaintiffs contend that in addition to the amounts set out above, they incurred the following expenses which were directly attributable to their works of art:

69. The $10,000 item originally designated solely as an expense of obtaining and subsequently releasing a Goya painting is claimed to be an approximation of that portion of the expenses of plaintiffs’ “Foreign Administrative Expense” account properly allocable to the “Works of Art” account.

70. Mr. Wrightsman usually designated whether a particular expense would be charged to the Foreign Administrative Expense account or to one entitled “Works of Art.” Such designation was often made by a note on a support for a voucher, and in the case of expenses designated “Works of Art,” there was often a separate note clipped onto the voucher.

71. A portrait of the Duke of Wellington by Goya was sold at auction in London in June of 1961, and the Wrightsmans arrived there early to study the painting before bidding. Although Mr. Wrightsman was the high bidder at $392,000, the English press attacked the removal of a national treasure to America. The English government refused to grant an export permit, and Mr. Wrightsman sought to be free of a painting which he could not transport by offering to sell it for the amount for which he was liable. This amount of $392,000, for which he was in fact reimbursed, did not reflect any expenses incurred in traveling to Europe or in studying the painting. The time span involved was June 6 to 15.

72. The invoices and check requests were placed in evidence to establish the validity of the estimation that at least $10,000 of the $39,588.76 claimed as foreign administrative expenses on the plaintiffs’ 1961 tax return constituted expenses properly deductible under section 212 of the Internal Revenue Code of 1954. Except for the Goya transaction, no other specific reason was given to relate any particular European expense with a specific investment activity.

The testimony of Mr. William Edward Will (the office manager of Mr. Wrightsman’s Houston office) focused on the abortive purchase of the Goya.

73. Mr. Wrightsman testified that Mr. and Mrs. Francis Watson and Mr. and Mrs. John Walker provided gratuitous assistance in the inspection of the painting. No other explanation was given for those entertained in Europe.

74. The following expenses were incurred in whole or in part in London:

75. A notation on the bill for Sofia Bros., Inc. (see finding 68) indicates that the expense was incurred for the transportation of the Wrightsmans’ El Greco painting to the art restorers.

76. A memorandum attached to voucher #12-43 (see finding 68) indicates that Mr. Francis Watson and Mr. Jack McGregor came to Palm Beach to appraise the Wrightsmans’ collection.

77. A notation attached to voucher #4-204 (see finding 68) indicates that Messrs. Hauterman and Redmond were examining the Wrightsmans’ works of art and that Mr. Roy Cox was present for a business conference.

78. In the year 1961, plaintiffs incurred a loss on the sale of 14 items of porcelain and a pair of Meissen figures of Louis XV with ormulu bases, computed as follows:

Gross sales price-$8,121. 88
Less: Cost_ 11,765.60
Expenses of sale_ 1, 049. 69
12, 815. 29
Loss_ 4,693.41

CONCLUSION OF LAW

Upon, tbe foregoing findings of fact and opinion, which are adopted by the court and made a part of the judgment herein, the court concludes as a matter of law that plaintiffs are not entitled to recover, and the petition is dismissed. 
      
      We are Indebted to Trial Commissioner Roald A. Hogenson for his findings of fact, which have been adopted In their near entirety, and for his recommended opinion, though we have substituted our own in reaching a different result.
     
      
      A11 citations to Code sections hereinafter are, unless otherwise indicated, in reference to the Internal Revenue Codé of 1954.
     
      
       Also involved in this suit is plaintiffs’ claim of entitlement to deduction of $1,000 as part of a capital loss sustained on their sale in 1961 of certain works of art. Defendant- has conceded that plaintiffs are entitled to recover in this regard if it be determined they were investors in their works of art.
     
      
       For convenience, Mr. and Mrs. Wrightsman will hereinafter sometimes be referred to individually as Charles and Jayne, respectively.
     
      
       Section 262 provides as follows:
      “Except as otherwise expressly provided in this chapter, no deduction Shall be allowed for personal, living, or family expenses.” ,
     
      
       The Supreme Court stated in Malat v. Riddell, supra, at page 572:
      “* *, *’We hold that, as used in §1221(1), (primarily’ means ‘of, first importance’ or ‘principally’.” ...
      Although the Court was addressing itself to a Capital gain provision, we ¿re of the opinion that its definition of the term “primarily”'for tax purposes is equally applicable to, and most appropriate in,, the context in which the term is here encountered.
     
      
      At the time of oral argument on April 8, 1970, defendant made and filed a motion to reopen the record for the purpose of Introducing additional evidence. Plaintiffs have timely filed a response in opposition to defendant’s motion. Upon due consideration by the court, defendant’s motion is denied. Judge Davis would grant the motion.
     
      
       would not adopt that portion of Commissioner Hogenson’s recommended opinion allowing only two-thirds of the expenses relating to items actually used by plaintiffs. I feel that the percentage should be higher (possibly 80 to 85 percent).
     