*3042 The petitioner did not sustain any loss in the year 1920 on the transaction involved herein.
*13 This proceeding was brought for the redetermination of a deficiency in income tax asserted by the respondent for the year 1920 in the amount of $2,284.82. W. L. Dunn died since the petition was filed, and upon motion duly granted, W. Mark Durley and Minnie Dunn, executors of his estate, have been substituted as petitioners. The errors alleged are that the respondent disallowed a deduction of $16,132.40 taken by W. L. Dunn in his income-tax return for 1920 on account of a loss claimed to have been sustained in that year, and a deduction of $938.99 taken on account of a debt claimed to have become worthless in that year.
FINDINGS OF FACT.
During the years 1919 and 1920 W. L. Dunn was a resident of Oxnard, Calif. He died in 1927 and W. Mark Durley and Minnie Dunn were appointed and qualified as executors of his estate.
In the year 1919 C. M. Dunn, son of W. L. Dunn, and James R. Canterbury, formed a partnership known as the Dunn-Canterbury Motor*3043 Co. W. L. Dunn furnished the capital for this firm by *14 endorsing its notes and turning over to it certain stocks. The exact amount of notes Dunn endorsed for the firm is not shown by the record herein.
The Dunn-Canterbury Motor Co. was not successful, and during the year 1920 it became unable to meet its obligations. W. L. Dunn thereupon requested the company to transfer its assets to him, he to assume all of its liabilities. On November 30, 1920, the partnership transferred to W. L. Dunn all of its assets in consideration of the assumption by Dunn of all of the partnership liabilities. The liabilities of the partnership at that time were $83,866.27, including the notes that Dunn had endorsed and a debt of $938.99 due him from the partnership, and the book value of the assets was $66,794.88. Neither C. M. Dunn nor James Canterbury had property other than his interest in the partnership.
W. L. Dunn continued to operate the business taken over from the Dunn-Canterbury Motor Co. until March, 1922. He did not pay the notes he had endorsed for the partnership until subsequent to the year 1920. His books of account were kept on the accrual basis.
In his income-tax*3044 return for 1920 W. L. Dunn deducted as a loss sustained in that year $16,132.40, the amount by which the partnership liabilities, less the amount of $938.99 due Dunn from the partnership, exceeded the book value of the partnership assets. The respondent disallowed the deduction.
OPINION.
MARQUETTE: It is now claimed by the petitioners that in computing the net income of W. L. Dunn for the year 1920 there should be deducted the amount of $16,132.40 as a loss sustained by Dunn in endorsing the notes of the Dunn-Canterbury Motor Co. and subsequently taking over its assets, and the amount of $938.99 on account of the debt due Dunn from the company.
We are unable to agree with the petitioner that Dunn was entitled to deduct any amount in computing his net income for 1920 as a result of the transaction in question. The conveyance to him of the partnership assets was either what it purported to be, a sale of the assets in consideration of the assumption by him of the partnership debts, or in the nature of an assignment for the benefit of creditors, or to indemnify Dunn for the amounts he might be called upon to pay on the notes he had endorsed. If it was a sale the cost of the*3045 assets to Dunn was the amount of liabilities he assumed, and any gain or loss from the purchase was not realized or sustained until he sold or otherwise disposed of the assets. If the conveyance was in the nature of an assignment for the benefit of creditors or to indemnify Dunn, he sustained no loss until he disposed of the assets *15 and ascertained the amount by which the obligations he might be required to pay exceeded the amount realized from the assets. The book value of the assets is not conclusive of their actual cash value, and it is not inconceivable that Dunn might have realized sufficient money from their sale to meet the obligations he assumed. In fact the record fails to show that he did not.
Judgment will be entered for the respondent.