dissenting: I dissent from the majority opinion wherein it holds that a loss of $30,950 which petitioner incurred in its fiscal year 1945 on the payment of a guaranty which it had made was not deductible as an ordinary loss but must be taken as a long term capital loss subject to the limitations prescribed by the statute.
The facts show that at various times during its fiscal years 1944 and 1945, petitioner sold 50,000 shares of 6 per cent special preferred stock of S. H. Kress & Company which it owned. Petitioner’s gain on the sale of these shares is not in dispute nor is it disputed that petitioner’s gain from the sale of these shares is taxable as long term capital gain. In connection with the sale of these 50,000 shares petitioner gave to Brown Brothers, Harriman & Company, through which the shares were sold, a guaranty which contained, among other things as illustrated in the case of the shares which it sold for $12.25 per share, the following provision:
* * * Should redemption of the stock occur at such a time that the dividends paid or accrued to the Purchasers shall have amounted to less than $1.25 per share, we agree to pay you for the account of your clients the amount by which such dividends paid or accrued to the Purchasers fail to equal $1.25 per share.
On December 14, 1944, the preferred stock of S. H. Kress & Company was redeemed at $11 per share and as a result of the guaranty which petitioner had made it had to pay out in fulfillment of such guaranty, $30,950. This loss it took as an ordinary loss in the taxable year in which it was incurred and I think it was entitled to do so under the applicable provisions of the Internal Revenue Code.
Section 23 (g) (1), I. R. C. reads: “Losses from sales or exchanges of capital assets shall be allowed only to the extent provided in section 117.” (Emphasis added.) Was petitioner’s loss of $30,950 which it incurred in the payment of its guaranty a loss from the sale or exchange of capital assets within the meaning of the applicable statute ? I do not think so. When petitioner sold the five different blocks of stock aggregating 50,000 shares during its fiscal years 1944 and 1945, it realized capital gains on each of these sales. The sales were complete when made and the fact that petitioner gave a guaranty with these sales did not postpone in the least petitioner’s obligation to report gain from the sales. When subsequently Kress & Company redeemed the shares at $11 per share and petitioner incurred the loss in question in the fulfillment of its guaranty, it was not a loss which was occasioned by the sale or exchange of any capital asset. In fact petitioner incurred no loss in the sale of the 50,000 shares of stock in Kress & Company at any time. It incurred a gain in each of these sales. Its loss was from the fulfillment of its guaranty and that loss was a transaction entirely separate from the sales of stock and, in my judgment, should be separately treated. Petitioner’s loss in the fulfillment of its guaranty was, of course, related to its prior sales of Kress stock but not “from sales or exchanges of capital assets.” Inasmuch as this loss does not fall within the definition of a capital loss as provided in the statute, I think petitioner is entitled to deduct the loss as an ordinary loss.
I, therefore, respectfully dissent from the majority opinion.
AruNdell, JohnsoN, and Tietjens, JJ., agree with this dissent.