*821 A taxpayer was the owner of certain shares of stock and sold them on the New York and Philadelphia stock exchanges in the taxable year in order to register losses which he could take as deductions on his income tax return for the taxable year. On the same days that such sales were made, the taxpayer purchased for his own beneficial ownership, in the name of his secretary, the same number of shares in the same corporations, as were sold, thus bringing into play the operation of the wash sales provisions contained in section 118, Revenue Act of 1928. Taxpayer in his income tax return for the taxable year claimed a deduction for the loss resulting from the sale of the shares of stock and did not disclose that on the same days as the stocks were sold he had purchased an identical number of shares of the same classes of stock in the same corporations in the name of his secretary. Held, taxpayer's income tax return was false and fraudulent with intent to evade tax and the statute of limitations has not run to bar assessment and collection of the deficiency.
*822 *851 On March 2, 1937, the Commissioner of Internal Revenue determined a deficiency against Edward S. Weyl, executor, estate of Maurice N. Weyl, deceased, of $4,865.67 in income tax for the year 1930.
A petition contesting this deficiency was filed by petitioners as executors and trustees of the estate of Maurice N. Weyl, deceased, on March 25, 1937. The petition assigned two errors but the only one now relied upon by petitioners is that the statute of limitations had run prior to the mailing of the deficiency notice and therefore assessment and collection of the deficiency are barred.
Respondent in his answer affirmatively alleged facts upon which he based the charge that the income tax return filed by petitioners' decedent for the taxable year 1930 was false and fraudulent, with intent to evade tax, and that the Commissioner was without knowledge of the falsity of the said return and was deceived thereby and therefore the statute of limitations had not run at the time the deficiency notice was mailed.
The Commissioner did not add a 50 percent fraud penalty to the deficiency because of the death of decedent prior to the mailing of the deficiency notice. At the hearing*823 both parties agreed that the only issue for the Board to determine was whether or not the income tax return filed by decedent, Maurice N. Weyl, was false and fraudulent with intent to evade tax.
Respondent agrees that if we determine the fraud issue against him, then the statute of limitations has barred the assessment and collection of the deficiency and the judgment of the Board should be in favor of petitioners.
On the other hand, the petitioners agree that if the Board sustains the Commissioner's affirmative allegations of fraud, then the statute of limitations has not run and the Board should give judgment in favor of the Commissioner for the amount of the deficiency determined in the deficiency notice.
Upon the issue of fraud, the Commissioner at the hearing assumed the burden of proof.
*852 FINDINGS OF FACT.
The petitioners are the executors and trustees of the estate of Maurice N. Weyl, deceased.
Maurice N. Weyl, during the year 1930, which is the year in controversy, was president of Edward Stern & Co., Philadelphia, Pennsylvania, and Margaret M. Halbert was his secretary.
On March 10, 1931, he filed his Federal income tax return, in which he reported*824 a net income of $41,421.31, after deducting the sum of $29,254.50, which the taxpayer represented to the Commissioner constituted losses in connection with the disposition by sale during the taxable year 1930 of certain corporate stocks, as follows:
100 shares Deere & Co.
300 shares Budd Manufacturing Co.
800 shares International Nickel Co.
300 shares Chrysler Corporation
100 shares Central States Electric Co.
75 shares International Railways of Central America
100 shares Pullman, Inc.
Prior to the dates hereinafter mentioned, Maurice N. Weyl was the owner of the foregoing shares of stock and the Commissioner concedes that these stocks had a cost basis to him of the amounts used in making up his income tax return for the year 1930.
On December 5, 1930, the brokerage firm of Toland, Trimble & Co. received an order to sell for the account of Maurice N. Weyl, 100 shares of Deere & Co.
On December 8, 1930, Toland, Trimble & Co. was ordered to sell for the account of Maurice N. Weyl the following securities:
300 shares Budd Manufacturing Co.
300 shares Chrysler Corporation
100 shares Central States Electric
75 shares International Railways of Central America
*825 800 shares International Nickel Co.
100 shares Pullman, Inc.
All the foregoing stocks were sold at or about the dates mentioned through Lipper & Co. on the New York Stock Exchange, except the 300 shares of stock in Budd Manufacturing Co., which were sold through Jones & Miller, brokers, on the Philadelphia Stock Exchange. On December 10, 1930, Toland, Trimble & Co. paid to Maurice N. Weyl its check for $36,462.75 in settlement of the proceeds received from said sales.
On the same dates as Toland, Trimble & Co. received orders from Maurice N. Weyl to sell the foregoing stocks, they also received orders to purchase similar quantities of the same securities for the account of Margaret M. Halbert. The stocks so ordered purchased were purchased for the account of Margaret M. Halbert, through *853 Lipper & Co. on the New York Stock Exchange, except the 300 shares of stock in the Budd Manufacturing Co., which were purchased through Jones & Miller, brokers, on the Philadelphia Stock Exchange.
On December 10, 1930, Toland, Trimble & Co. received a check in the sum of $36,975.85 in payment for the securities purchased for the account of Margaret M. Halbert. The books of*826 Toland, Trimble & Co. do not show by whom this check was signed.
On January 22, 1931, Toland, Trimble & Co., upon order, sold the following securities for the account of Margaret M. Halbert.
100 shares Deere & Co.
300 shares Budd Manufacturing Co.
800 shares International Nickel Co.
300 shares Chrysler Corporation
100 shares Central States Electric
75 shares International Railways of Central America
100 shares Pullman, Inc.
Said sales were all made on the New York Stock Exchange except the 300 shares of Budd Manufacturing Co. stock which were sold on the Philadelphia Stock Exchange. On the same date, upon order, Toland, Trimble & Co. purchased the same quantities of the same securities for the account of Maurice N. Weyl. All the securities so purchased were purchased on the New York Stock Exchange except the 300 shares of Budd Manufacturing Co. stock which were purchased on the Philadelphia Stock Exchange.
On January 23, 1931, a check was drawn by Toland, Trimble & Co. for the sum of $32,011.50 to pay for the stocks sold January 22, 1931, for the account of Margaret M. Halbert, which check was made payable by endorsement to the order of Margaret M. Halbert. *827 Said check was endorsed by Margaret M. Halbert over to Maurice N. Weyl.
The sales of stocks in December 1930 for the account of Maurice N. Weyl were completed sales, executed as we have found through brokers in New York and Philadelphia, and resulted in the transfer of stocks to unknown purchasers. The purchases of stocks for the account of Margaret M. Halbert in December 1930 were executed, as we have found, through brokers in New York and Philadelphia, and resulted in the acquisition of stocks from unknown sellers. The sales of stocks in January 1931 for the account of Margaret M. Halbert were completed sales, executed as we have found through brokers in New York and Philadelphia, and resulted in the transfer of stocks to unknown purchasers. The purchases of stocks for the account of Maurice N. Weyl in January 1931 were executed, as we have found, through brokers in New York and Philadelphia, and *854 resulted in the acquisition of stocks from unknown sellers. The sales and purchases detailed in these findings, although of similar quantities of similar stocks, were in each case of different lots.
The shares of stock purchased for the account of Margaret M. Halbert*828 on December 5, 8, 9, and 10 and the shares of stock sold for her account January 22, 1931, as detailed in our foregoing findings, were in reality the purchases and sales of Maurice N. Weyl and at no time was Margaret M. Halbert the beneficial owner of any of said shares of stock. Margaret M. Halbert merely permitted to Maurice N. Weyl the accommodation use of her name in the several transactions for the purpose of putting through transactions which Maurice N. Weyl represented to her would enable him to reduce his taxes for the year 1930.
Margaret M. Halbert put up no funds of her own or securities to help finance the several transactions. All finances that were needed to put through the transactions were either furnished or arranged for by Maurice N. Weyl.
Maurice N. Weyl, in schedule C of his income tax return for the year 1930, listed as having been sold on "12/5/30", "12/8/30", and "12/10/30" the shares of stock detailed in our findings. In that schedule he gave the cost to him of the several stocks and the selling prices thereof, none of which the Commissioner contests, and as a result of this computation claimed a loss resulting from the sale of said stocks of $29,254.50*829 and deducted this loss from his gross income for 1930.
Maurice N. Weyl did not disclose on his income tax return for 1930 that on the same days that he sold said stocks he acquired in the name of his secretary, Margaret M. Halbert, the identical quantities of the same stocks sold.
The income tax return of Maurice N. Weyl for the taxable year 1930 filed by him March 10, 1931, was false and fraudulent with intent to evade tax.
OPINION.
BLACK: The only issue in this proceeding is whether or not the income tax return of Maurice N. Weyl for the year 1930, filed March 10, 1931, was false and fraudulent with intent to evade tax. If it was not, then the statute of limitations has run and bars the assessment and collection of the deficiency. If it was filed with a false and fraudulent intent to evade tax, then the statute of limitations has not run. See sec. 276(a), Revenue Act of 1928.
The burden of proof to sustain fraud is upon the Commissioner, and he assumed that burden at the hearing and offered evidence to *855 sustain it. Counsel for respondent argues in his brief that the decedent, Maurice N. Weyl, did not make a bona fide sale of the securities in question*830 in December 1930 and therefore his claim for losses on sales which were not really made amounts to fraud and deceit and establishes that decedent's income tax return was false and fraudulent with intent to evade tax.
Although we have found in our findings of fact that the income tax return of Maurice N. Weyl was false and fraudulent with intent to evade tax, we do not agree with respondent that decedent did not make sales of the stocks in question in December 1930. He unquestionably did make these sales on the dates set out in our findings, but on the very same days that the stocks were sold decedent purchased like quantities of the same stocks through the use of the name of his secretary, Margaret M. Halbert.
This fact decedent did not disclose in his income tax return filed March 10, 1931. If he had done so, it would immediately have brought into play section 118 of the Revenue Act of 1928, which reads as follows:
In the case of any loss claimed to have been sustained in any sale or other disposition of shares of stock or securities where it appears that within thirty days before or after the date of such sale or other disposition the taxpayer has acquired (otherwise than*831 by bequest or inheritance) or has entered into a contract or option to acquire substantially identical property, and the property so acquired is held by the taxpayer for any period after such sale or other disposition, no deduction for the loss shall be allowed under section 23(e)(2) of this title; nor shall such deduction be allowed under section 23(f) unless the claim is made by a corporation, a dealer in stocks or securities, and with respect to a transaction made in the ordinary course of its business. If such acquisition or the contract or option to acquire is to the extent of part only of substantially identical property, then only a proportionate part of the loss shall be disallowed.
Now of course it is perfectly true that if Margaret M. Halbert had been the real purchaser of these stocks for her own beneficial ownership on the dates in December 1930 detailed in our findings, decedent Maurice N. Weyl would have been entitled to take the losses claimed on his return and certainly he would not have been guilty of any fraud, because, as we have already pointed out, he made bona fide sales of these stocks through the New York and Philadelphia stock exchanges to purchasers who*832 are unknown to us.
But Margaret M. Halbert was not the real purchaser of the stocks which were purchased in her name. She was a witness at the hearing and the substance of her testimony is that, at or about the time decedent made the sales of the stocks in question, he told her that he was wanting to make some sales to reduce his taxes and asked her for the use of her name in helping to put through the transactions. *856 To this she gave her consent. She testified that she did not put up any of her own money; that Weyl provided the money with which the stocks were purchased; and that when the same stocks were sold for her account, on January 22, 1931, the check for $32,011.50 which was received from the brokers in settlement of the proceeds from the sale was immediately endorsed over by her to Maurice N. Weyl. That check is in evidence and corroborates Miss Halbert's testimony. Unfortunately Weyl is dead and we do not have the benefit of his version of the transactions. Cf. . We are convinced however that Miss Halbert's testimony was truthful and that, notwithstanding that the shares of stock were purchased in her name, she*833 was not the real beneficial owner thereof; that the real purchaser was Maurice N. Weyl, himself, and this fact he did not disclose to the Commissioner in his income tax return for 1930.
Counsel for petitioners concedes that under the facts established at the hearing, section 118 of the Revenue Act of 1928, known as the wash sales provision, would prevent petitioners' decedent from taking a deduction for any loss on the sales in question, but he contends that is a technical provision of the law with which respondent has not proved decedent was familiar and that bad faith should not be imputed to decedent because he did not disclose on his income tax return the complete facts, citing in support of his contention a memorandum opinion of the Board which was based upon , and .
We are not impressed by this argument, in view of all the facts which are before us. The facts show that on January 22, 1931, shortly after the 30-day period prescribed in section 118 had expired, the transactions of December 5, 8, and 10, 1930, were reversed and the stocks were sold in the name of Margaret M. Halbert*834 and the same number of shares in the same corporations were acquired by Maurice N. Weyl. This indicates to our satisfaction that Maurice N. Weyl was well aware of the provisions of section 118 of the Revenue Act of 1928. As we have already stated, if the purchases made in the name of Margaret M. Halbert had been purchases for her own individual ownership, then section 118 of the Revenue Act of 1928 would not apply and decedent would be entitled to the loss deduction claimed. But on the facts we hold that Margaret M. Halbert's so-called purchases in December of 1930, engineered and put through by Weyl himself, were not what they purported to be and Weyl was the real purchaser of the stocks and not Margaret M. Halbert, and therein the taxpayer runs afoul of the fraud provisions of the statute.
*857 A taxpayer has the right to minimize his taxes by every legitimate means open to him, but he must not endeavor to do it by transactions which are not what they purport to be. In , we said:
While it is of course lawful for taxpayers to use means and methods which are legal and not tainted with fraud to avoid taxes, cf. *835 ; , it is never lawful for taxpayers to use methods of concealment and deception to evade taxes. It is on the use of the latter methods that taxpayers run afoul of the fraud penalties * * *.
On the evidence, we must conclude that the reason for the decedent's acquiring the same number of shares in the same corporations as the ones he sold, in the name of his secretary, Margaret M. Halbert, instead of his own name, was to evade the application of section 118 of the Revenue Act of 1928, the wash sales provision of the act. This action on his part, we think, amounts to fraud, and his failure to disclose the complete facts in his income tax return for 1930 amounted to the filing of a false and fraudulent return, with intent to evade tax. Cf. ; ; affd., ; .
The authorities cited by petitioners in their brief, we think, are distinguishable on their facts.
Decision will be entered for the respondent.*836