*2271 1. Loss allowed on the sale of securities to a corporation of the stock of which the petitioner owned 51 per cent in his own name and 49 per cent as trustee, where it appears that the sale was genuine.
2. Where the petitioner fails to show which of several lots of bonds he sold and which he retained, the Commissioner's determination that he sold those first acquired is approved.
*604 The Commissioner determined a deficiency of $314.10 in the petitioner's income tax for the calendar year 1923. The petitioner alleges that the Commissioner erred (1) in refusing to allow a loss of $3,274.63, occasioned by the sale of certain bonds by the petitioner to the Auxiliary Realty Co.; (2) in refusing to allow the taking of profits of only $318.33 on the sale of five Market Street Railway bonds bought May 10, 1922, for $4,507.50 and sold March 13, 1923, for $4,825.83, and forcing the petitioner to take profits as if he had sold five others of the same bonds, which, in 1921, had cost $3,624.47, thus increasing income by $883.04.
FINDINGS OF FACT.
The*2272 petitioner is an individual residing in Baltimore, Md.
On or about November 30, 1923, he was the owner of 5 Iowa Central bonds and of 5 Minneapolis & St. Louis bonds, each of the par value of $1,000. These 10 bonds had cost the petitioner $4,710.
*605 On or about the above-mentioned date the petitioner was treasurer of the Auxiliary Realty Co. This company had been incorporated in Maryland in 1897 and its charter had been amended in 1908 to enable it to deal in "mortgages, bonds, stocks, notes, and other personal and mixed property of every kind and description." On or about November 30, 1923, the petitioner owned 51 per cent of the stock of this company individually and held legal title to the remainder of the stock as trustee.
The petitioner had used the Auxiliary Realty Co. for his own convenience in the early days of its existence in connection with his real estate transactions and in later years for his convenience in other ways. The corporation had no office other than the petitioner's office. It had a separate bank account. The only salary paid by the corporation was $100, which it paid annually to the petitioner. The corporation made annual reports to*2273 the State of Maryland and also made income-tax reports to the Federal Government, but up to and including the taxable year it had never paid any Federal income tax. The petitioner controlled this corporation. Records of certain of its transactions were kept in the same book in which the petitioner kept records of his individual transactions or of the transactions of his law office.
On November 30, 1923, the five Iowa Central bonds and the five Minneapolis and St. Louis bonds above mentioned were in the possession of W. W. Lanahan & Co., a brokerage firm in Baltimore. On the above-mentioned date the petitioner, as treasurer of the Auxiliary Realty Co., drew a check for $1,515 on that company's bank account, payable to W. W. Lanahan & Co. He gave this check to W. W. Lanahan & Co., and thereupon received the bonds in question, which he placed in an envelope labeled "Auxiliary Realty Co." and then placed the envelope in a safe-deposit box, where the bonds remained until after the end of the taxable year. W. W. Lanahan & Co. endorsed the check and on December 3, 1923, credited the petitioner's account with $1,515. In the following year the petitioner returned the bonds to W. W. *2274 Lanahan & Co. as his own property, having given the Auxiliary Realty Co. an amount slightly in excess of $1,515 at or about the time he removed the bonds from the envelope in the safe-deposit box above mentioned.
The Commissioner disallowed a loss of $3,195 claimed by the petitioner on the sale of these bonds.
At the beginning of the year 1923 the petitioner owned 15 Market Street Railway bonds, each of the par value of $1,000. Five of these bonds he had purchased at some time in 1921 for $3,624.47, another 5 he had purchased in 1921 for $3,624.48, and the remaining 5 bonds he had purchased in 1922 for $4,507.50. These bonds were all coupon bonds and were not registered. They had been purchased *606 for the petitioner by W. W. Lanahan & Co., which had never delivered them to the petitioner. On March 12, 1923, the petitioner, through W. W. Lanahan & Co., sold 5 of these bonds for $4,750.14, and on March 13, 1923, in the same way he sold 5 more for $4,825.83.
The petitioner maintained certain personal account sheets. On one of these sheets he listed the securities which he owned on January 1, 1923, and also those which he bought later. In regard to the Market Street*2275 Railway bonds, this account sheet is as follows:
| Securities | Cost | Sold | Profit |
| Market Street Railway | $3,624.47 | ||
| Do | 3,624.48 | $4,750.14 | $1,125.66 |
| Do | 4,507.50 | 4,825.83 | 318.33 |
The Commissioner determined that the petitioner's profit from the sale of Market St. Railway was $883.02 more than reported by the petitioner.
OPINION.
MURDOCK: The petitioner claims he sustained a loss of $3,274.63 upon the sale by him of the Iowa Central and the Minneapolis & St. Louis bonds for the Auxiliary Realty Co. The Commissioner, in his deficiency notice, does not refer to this loss, but merely states that the report of an internal revenue agent has been reviewed and approved. In this report an alleged loss of $3,195 was disallowed. It related to the bonds and the transactions now in question. The report contained a statement that the transaction appeared to be colorable, for the reason that the company was owned entirely by the taxpayer, was used by him for a convenience, and was not authorized to deal or speculate in stocks or bonds. Counsel for the respondent made no statement before the taking of testimony, but from his statements during the course of the*2276 trial and his argument and brief thereafter, it appears that his principal reason for objecting to the allowance of the alleged loss deduction is that the transaction was colorable, due to the petitioner's ownership of stock in the corporation and his control of the corporation. The petitioner offered proof of the fact that the corporation was authorized to buy and sell bonds, that it was a corporation, and that the petitioner owned 51 per cent of its stock in his own name and held the remainder as trustee for beneficiaries whose identity is not disclosed by the record. He admitted that he had used the Auxiliary Realty Co. for his own convenience and for the convenience of his business, and stated that that was the reason he had had it incorporated many years ago. Neither the respondent nor any of those acting under him have ever contended that the *607 price received by the petitioner was other than the fair market value of the bonds at the time this transaction took place. The petitioner offered no proof on this point and, under the circumstances, we will not question the genuineness of the transaction merely because we do know how the amount of $1,515 compared with the*2277 fair market value of these bonds on November 30, 1923.
Ordinarily, where an individual sells securities to a corporation at less than the cost of the securities, the sale establishes the amount of the individual's loss for income-tax purposes. It has been shown in this case that the petitioner sold his securities to a corporation for less than those securities cost him. Why then should he not have a deduction for a loss? The respondent says he should not have it because the transaction was colorable, but what was there about the transaction to indicate that it was not genuine? The petitioner was the only witness and he testified quite frankly in regard to all matters about which opposing counsel questioned him. He stated that he owned 51 per cent of the stock of the corporation in his own name and that he owned the remainder of the stock as trustee, but neither counsel inquired as to who the beneficiaries of the trust were. The petitioner admitted that he did what he did in order to take a loss on his income-tax return, but of course it is not reprehensible to take lawful steps which will entitle one to a loss on one's income-tax return. It may well be that the petitioner*2278 was in a position, due to his control of the corporation, to commit a fraud on the Government in order to take an unsustained loss on securities, but there is no evidence to indicate that any of his acts lack genuineness. We therefore hold that the Commissioner erred in disallowing a loss in the amount of $3,195.
On the second issue, our judgment is for the respondent who determined that the petitioner sold the first two lots of Market Street Railway bonds which he bought. The profit on these bonds should be computed as follows:
| Sale price | $9,575.97 | |
| Cost | $3,624.47 | |
| Cost | 3,624.48 | |
| 7,248.95 | ||
| Profit | 2,327.02 |
The petitioner contends that he did not sell the first two lots of these bonds but, on the contrary, sold the last lot purchased by him and one of the other two lots. However, he failed to prove that such was the case. As a matter of fact, we do not know what particular bonds he sold and perhaps no one knows, since the petitioner never had possession of any particular bonds and there is nothing to show what bonds the broker held or what bonds the broker sold. *608 In the case of sales of stock which are not identified, we have approved*2279 the Commissioner's determination that it will be deemed that the vendor first sells or disposes of those shares which he first acquired. . This same rule has been laid down by the District Court for the Southern District of New York in , and more recently by the United States District Court for the District of Connecticut in . We think that for the sake of uniformity and for lack of a better rule, the same rule should apply here in regard to the sale of unidentified bonds.
Judgment will be entered under Rule 50.