*2291 An association operating under a Massachusetts deed of trust, which deed of trust has not been canceled, sustained a net loss in the year 1921. The petitioner, a corporation which was organized to take over the business of the association, is not entitled to deduct such net loss from its net income for 1922, even though its stock was held by the same parties and in the same proportions as the shares of the association.
*945 The Commissioner determined a deficiency of $884.07 in the petitioner's income tax for the calendar year 1922, of which amount $756.73 is contested. The only allegation of error is that the Commissioner erroneously disallowed the deduction of a net loss sustained by the West Point Marion Coal Works in the year 1921 in computing the petitioner's tax liability for 1922.
The facts are taken from the stipulation of the parties.
*946 FINDINGS OF FACT.
The petitioner is a corporation existing under the laws of Pennsylvania, with its principal place of business in Dilliner, Pa. It had a capital stock of $160,000. The petitioner*2292 was granted its charter on December 8, 1921, application therefor having been made on November 30, 1921. The petitioner was formed to take over the business of the West Point Marion Coal Works, an association operating under a Massachusetts deed of trust. The predecessor business was organized October 1, 1914, with a capital of $15,000, and the trust agreement was recorded in Greene County, Pennsylvania. The members of the association were Asa M. Sterling, John B. Moore, and Harold M. Conn. Asa M. Sterling died in August, 1921, and the attorneys for the estate were unfamiliar with the operation of an association granted under a Massachusetts deed of trust and advised the surviving members that it would be expedient to incorporate. Steps were immediately taken to incorporate, which was accomplished on December 8, 1921. It was the intention to continue the business of the association, effective January 1, 1922. During April, 1922, the exact date not now known, a meeting of the stockholders of the petitioner was held, in which stock was to be issued to the shareholders of the association in proportion to their respective interests therein upon the conveyance to the corporation*2293 of all property of the association. The shares of the association were owned as follows:
| Asa M. Sterling, 55% | $8,250 |
| John B. Moore, 40% | 6,000 |
| Harold M. Conn, 5% | 750 |
| Total | 15,000 |
After incorporation of the association, the shares of stock of the corporation were owned as follows:
| Asa M. Sterling (estate), 55% | $88,000 |
| John B. Moore, 40% | 64,000 |
| Harold M. Conn, 5% | 8,000 |
| Total | 160,000 |
The assets of the association were transferred by deed to the corporation on May 1, 1922, and recorded on May 11, 1922. The bank account was not changed to the corporation's name until April 16, 1923. The deed of trust under which the association carried on its business has not as yet been canceled.
The corporation continued the books used by the association just as if no change in organization had taken place. An entry therein showed that the capital account of the association was closed out and *947 the capital stock account of the corporation was opened on January 1, 1922.
During the year 1921 the association sustained a net loss of $6,053.84. The petitioner deducted this amount from its net income for 1922. The respondent disallowed the*2294 deduction.
OPINION.
MURDOCK: The petitioner contends that it is entitled to deduct the net loss sustained by the West Point Marion Coal Works in 1921 from its net income in 1922. Section 204 of the Revenue Act of 1921 in paragraph (a) provided in part that "the term 'net loss' means only net losses resulting from the operation of any trade or business regularly carried on by the taxpayer * * *." In paragraph (b) this section further provided:
If for any taxable year beginning after December 31, 1920, it appears upon the production of evidence satisfactory to the Commissioner that any taxpayer has sustained a net loss, the amount thereof shall be deducted from the net income of the taxpayer for the succeeding taxable year; * * *.
The petitioner is not entitled to the deduction claimed under this section because it sustained no net loss in the year 1921. See . Its existence and the operation of any business by it from which a loss might have resulted did not begin until some time in 1922. See *2295 . This result is not altered by the identity of the petitioner's stockholders and the holders of the shares of the predecessor association. The petitioner corporation is a taxable entity separate and distinct from its stockholders and separate and distinct from its predecessor. See ; , and cases there cited.
Judgment will be entered under Rule 50.