*988 The petitioner, engaged in the business of buying and selling securities dealt in on the New York Stock Exchange, is entitled to deduct losses sustained during the taxable year under the provisions of section 23(e)(1) of the Revenue Act of 1928 upon the sales of securities purchased and held on margin, notwithstanding, immediately after the execution of orders of sales, purchase orders were executed for the repurchase of the same kinds and numbers of shares so disposed of.
*134 The respondent having determined a deficiency in income tax of $58,441.85 for the taxable year 1929, the petitioner brings this proceeding for the redetermination thereof, variously alleging error on the part of the respondent in the disallowance of certain losses sustained in the operation of a marginal trading account. Though the error alleged to have been committed has been pleaded in various forms, the question for our determination is whether a deductible loss was sustained under the provisions of section 23(e)(1) of the Revenue Act of 1928 upon sales of securities through*989 margin accounts where shortly after such sales, to wit, on the same day, he purchased other shares of the same kind and in the same quantities.
*135 The parties have entered into a rather lengthy stipulation of facts in which the procedural handling of the transactions in controversy under the rules of the New York Stock Exchange and of the New York Stock Clearing Corporation has been treated in great detail, and though we incorporate said stipulation herein by reference, a summary thereof will suffice for our present purposes.
FINDINGS OF FACT.
The petitioner is an individual, with his principal place of business at 24 Broad Street, New York, who, during the taxable year, was a member of the New York Stock Exchange and was engaged exclusively in the business of buying and selling securities dealt in on said Exchange. He was a trader on said Exchange, clearing all of his transactions through the brokerage firm of Bramley & Smith, also members of said Exchange, and also of the New York Stock Clearing Corporation, and bound by the constitution and bylaws of said organizations.
On the first day of January 1929, petitioner owned, or was "long of" stock dealt in on said*990 Exchange of the cost of $3,171,562.50. If, upon the decision of the points of law involved in this proceeding, the petitioner is entitled to the loss he has heretofore claimed in his income tax return, the following statement of his position will apply: During the said year petitioner purchased additional stocks of the cost of $15,943,661.01 and sold other stocks of the cost price of $16,653,259.25, and on December 31, 1929, petitioner owned, or was "long of" stocks of the cost price of $2,461,964.26. If, on the other hand, upon the decision of the points of law involved in this proceeding the petitioner is not entitled to the loss claimed in his income tax return, the following statement will apply: During the year petitioner purchased additional stocks of the cost of $15,943,661.01 and sold other stocks of the cost price of $16,363,765.09, and on December 31, 1929, petitioner owned, or was "long of" stocks of the cost price of $2,751,458.42.
All of the foregoing purchases and sales were executed on the floor of the Exchange, either by the petitioner or by specialists, at his order, and the details connected therewith were handled by his said firm of brokers, Bramley & Smith, *991 and were settled and cleared in accordance with the rules of the said Clearing Corporation.
In those instances where the petitioner gave selling and buying orders to specialists he instructed such specialists to execute the selling order for the stock in question before executing the purchase order for other stock of the same kind and quality. In those instances where he executed the orders for his own account he executed the selling order of the stocks in question before he executed the purchasing order for others of the same kind and quantity. In every *136 instance it was his intention to sell the stocks which he had acquired through earlier purchases. None of the stock shares which the petitioner sold either directly or through the specialists were repurchased by him or for his account, but the purchases were made from other brokers than those to whom the stocks were sold.
In every instance where stocks were sold, admittedly for the purpose of establishing a deductible loss for tax purposes, either by petitioner himself or by specialists at petitioner's instance, it was petitioner's intention that the sale should be a sale of stock shares already owned by him or*992 of which he was "long" and that the purchases should reacquire for him an amount of each kind of stock equal to that which he had sold.
All of the petitioner's purchases were made from brokers other than the brokers to whom similar stock shares were sold.
At no time during December 1929, was the petitioner's margin with Bramley & Smith sufficient to permit further commitments before the execution of selling orders for the shares which he then held "long."
The petitioner at no time had physical possession or control over the certificates representing shares which he purchased, but the same were at all times in the possession of Bramley & Smith and used by them, according to their needs, to secure brokers' loans and all of such shares were evidenced by certificates in the name of that firm. His only evidence of ownership was the customary book entries. There was no identification of any of his shares, the same being carried and used according to the custom of the trade.
The respondent's deficiency notice lists the following securities and the dates upon which they were purchased and sold:
| Kind of stock | Date | Date | Number of |
| acquired | sold | shares | |
| Chrysler | Dec. 6 | Dec. | 1,100 |
| Kroger | Dec. 6 | Dec. 6 | 1,100 |
| American Rolling Mill | Dec. 6 | Dec. 6 | 800 |
| Radio | Dec. 9 | Dec. 9 | 400 |
| Columbia Graphophone | Dec. 9 | Dec. 9 | 2,500 |
| Kroger | Dec. 9 | Dec. 9 | 200 |
| Columbia Graphophone | Dec. 10 | Dec. 10 | 2,300 |
| American Rolling Mill | Dec. 10 | Dec. 10 | 500 |
| Radio | Dec. 11 | Dec. 11 | 200 |
| Columbia Graphophone | Dec. 11 | Dec. | 500 |
| Columbia Graphophone | Dec. 12 | Dec. 12 | 700 |
*993 and he says with respect thereto:
You contend that the shares sold can not be identified and therefore the costs of stocks acquired prior to December 6, 1929 should be used as the bases. It is stated in your protest that it was your intent to sell the stocks you owned and to repurchase other stocks.
The rules of the New York Stock Exchange require that all stocks bought and sold on the Exchange must be cleared through the Stock Clearing Corporation. All transactions in the same securities are balanced by this corporation.
*137 No evidence has been submitted to show whether the sales or the purchases were made first. In accordance with the rules of the Stock Clearing Corporation the purchases and sales referred to were netted down and no securities were received or delivered. It is apparent that the stocks sold could not have been any of the shares which were "long" in your account on the dates of the sales.
OPINION.
MORRIS: The respondent's original position in this matter appears to have been that the stocks which the petitioner sold were not those already held by him in his margin account when his orders to sell were executed in December 1929, but were*994 those shares which he purchased on the same day that the said sales were executed. While the ultimate effect of that point of view survives, the respondent's position now seems to be, not that the petitioner sold the stock which he purchased on the same day, but that because of the clearing house regulations requiring that purchases made within the same trading period be "off-set" by sales of similar stock, thereby obviating the necessity for physical delivery of the certificates purchased or sold, thus leaving the petitioner's broker in the possession of the same shares which he already held and which he was not required to deliver because of such rules, he was in the same "long" position as he had been theretofore. The effect being, of course, to preclude him from deducting a loss measured by the cost of the shares then owned and the selling price.
The stipulation of facts refutes the original proposition advanced by the respondent. It shows clearly that all sales by the petitioner were required to be and that they in fact were executed prior to the repurchase by him of similar shares. Although the sales were admittedly made in order to claim the accrued "paper" losses for*995 tax purposes the parties have stipulated that they were made in perfect good faith and without reservation. Nor is there any contention on the part of the respondent that such sales constituted "wash sales" under the provisions of section 118 of the Revenue Act of 1928. In fact the parties agree that the petitioner was engaged in the business of buying and selling securities, rendering that provision inapplicable.
The respondent's position, viewed from any angle whatsoever, seems wholly untenable. The facts which justify the deduction in our opinion, are that the petitioner carried a large amount of securities during 1929 upon which there had accrued large paper losses but which he had no right to take as a deduction for tax purposes. Being desirous of taking his said losses for tax purposes, he instructed his broker to sell certain of them. At or about the same time he placed orders with specialists, to be executed through his brokers, for the purchase of an equal number of the same shares sold. He instructed his brokers that the orders to purchase should not be *138 executed prior to the execution of his orders of sale, which we are satisfied was done. There is no*996 contention by the respondent that the petitioner chose an erroneous basis for the computation of his aggregate loss by reason of having chosen the wrong stocks already on hand upon which to compute his loss. Indeed, the respondent admits that if the purchases and sales in question had been executed on different dates there would have been no question about the deductibility of the loss here claimed. His basis being, as we have already shown, the mechanical handling of the sales by the clearing house, i.e., because his sale order was, in effect, negatived by his purchase order, hence no change in his position.
A simple illustration, if, indeed, such be necessary, will serve to bear out that losses were sustained. Granting that the petitioner was "long" the same number of shares of the same stock at the close of the day upon which the sales and purchases were made, and granting also that because of the clearing practices it became unnecessary to "deliver" the certificates evidencing the shares purchased or shares sold, his position, from an economic or financial viewpoint, was very materially changed. For instance, assuming the stock owned on January 1, 1929, to have cost $5,000*997 - that would be the amount he would be charged with on the books of his broker when the purchase was made. On December 5 of that year, his stock having declined in value from the original purchase price to $3,000, he instructed his broker to sell said shares, which he did, at that price. His account was, accordingly, credited with $3,000. After this transaction, if nothing else had transpired, he would have, as the respondent confesses, sustained a deductible loss of $2,000. But, at or about the same time, he instructs his broker to repurchase a like number of those shares, after the sale has been completed, at the same figure, $3,000, which he does. His brokerage accounts is now charged with that amount. After the completion of those transactions his account reads:
| Debit | Credit |
| $ 5,000 | |
| 3,000 | $ 3,000 |
which, when analyzed, shows a debit balance of $5,000, representing:
| Present market value of security purchased | $3,000 |
| Deficit in account occasioned by sale at less than cost | 2,000 |
| Balance of account | 5,000 |
We are of the opinion that the respondent's determination is incorrect and we so hold. See *998 .
Reviewed by the Board.
Judgment will be entered under Rule 50.
TURNER dissents.