*2465 Loss sustained by petitioner in the year 1921, as the result of certain dealings in wool, was a net loss from the operation of a business regularly carried on by him, as defined by section 204(a) of the Revenue Act of 1921.
*1019 Respondent has determined a deficiency of $4,051.27 in income tax for the year 1922, in connection with which petitioner alleges he erred in disallowing as a deduction under section 204 of the taxing act, a net loss for the preceding year.
FINDINGS OF FACT
Petitioner is a citizen and resident of Great Britain, with his principal office in Boston, Mass.
From 1906 until 1913, inclusive, petitioner was engaged in the business of buying and selling wool, combing wool into tops, and combing wool for others on a commission basis, under the firm name of Victoria Mills. During those years he also did an extensive business *1020 buying, combing, and selling wool for his own account, and occasionally sold wool without combing it.
Commencing in 1914 and continuing until the fall of 1919, a period during which he resided*2466 continuously in England, petitioner confined his business to the combing of wool for others on a commission basis. During petitioner's absence from this country he enlarged his plant, located at Thornton, R.I., and installed additional machinery therein.
In the fall of 1919, when the wool business was emerging from conditions resulting from the war, petitioner purchased, at a total cost of $112,696.25, four lots of raw wool for immediate and future delivery to comb and make into tops. Petitioner's principal purpose in making these purchases was to maintain the production of his plant on a uniform basis and to hold his employees together. At that time petitioner employed about 300 men in his mill. During January and February, 1920, petitioner made ten more purchases of raw wool at a total cost of $211,342.61. Petitioner than discontinued his purchases of raw wool, due to delays in shipping, freight embargoes and the rapid decline in the wool market.
Petitioner's business of combing wool on a commission basis declined in 1920 to such an extent that at one time there was a complete shut down of his plant. The unsatisfactory condition of the wool market in 1920, commencing*2467 the latter part of February or the first part of March, was due to overstrained credits, a large surplus of wool and the sale of surplus wool by the United States Government at bid prices.
All of the wool purchased by petitioner in the fall of 1919 and the first two months of 1920 was delivered at his mill, where it was worked into various grades, carded, scoured and combed. From 50 to 100 men and a large amount of machinery and equipment were employed and used by petitioner to prepare the wool purchased by him for the market. In the years 1920, 1921, and 1922 petitioner expended the following sums on the wool for manufacturing costs and other charges: 1920, $69,449.31; 1921, $17,943.43; 1922, $7.14 - a total of $87,399.88.
The finished wool was sold by petitioner as follows:
| 1920, 20 sales, consisting of 33 lots | $84,894.44 |
| 1921, 15 sales, consisting of 21 lots | 95,265.80 |
| 1922, 8 sales, consisting of 20 lots | 16,107.67 |
| Total | 196,267.91 |
Approximately 325 bookkeeping entries were made in connection with the various sales. The entries were made in books kept separate and distinct from the accounting records maintained by petitioner for his business of combing*2468 wool for others on a commission basis.
*1021 The closing inventories for the finished wool for the years 1920 and 1921 amounted to $226,491.28 and $17,101.20, respectively. In the year 1921, petitioner sustained a loss of $132,067.71 on the wool purchased by him in 1919 and 1920.
During the years 1919, 1920, 1921, and 1922 the fact that petitioner was buying, combing, and selling wool for his own account was not generally known by petitioner's customers who were engaged in the business of buying and selling wool. Petitioner withheld the information from his customers because of the fact that some of them did not like to do business with a mill engaged in the business of combing wool for its own account.
In determining petitioner's income-tax liability for the year 1922, respondent allowed, as a deduction from gross income, a net loss of $59,846.64 sustained by petitioner in 1921 in his business of combing wool on a commission basis, but declined to allow him a deduction for the loss of $132,067.71 incurred by petitioner during the same year as the result of dealings in wool for his own account.
OPINION.
ARUNDELL: Respondent has declined to allow the loss of*2469 $132,067.71 as a part of the net business loss sustained by petitioner in the year 1921, on the ground that the "transaction" was not connected with any business regularly carried on by him. We think that the respondent has taken too narrow a view of the matter.
The findings, in our opinion, establish the fact that during the year 1921 the business of the petitioner was that of combing wool for others on a commission basis, and buying, combing and selling wool for his own account. This was petitioner's regular method of conducting his business during the period from 1906 to 1914. It is true that he did not buy, comb and sell wool for his own account during his absence in England, but upon his return to this country in the year 1919 he resumed his former practice of so doing. During the fall of 1919 and the first two months of 1920 he purchased 14 lots of raw wool at a cost of $324,038.86. During the years 1920 and 1921 he expended on the wool a total of $87,392.74 for manufacturing and other charges. In the years 1920 and 1921 he made 35 sales of the finished product. Petitioner's activities in the buying, combing and selling of wool on his own account were not isolated transactions, *2470 as determined by respondent, but were sufficiently numerous in the year 1921 to constitute a business regularly carried on by him, within the meaning of section 204(a) of the Revenue Act of 1921. If we are wrong in treating the operations of petitioner as two departments of a single business, we would nevertheless be of the opinion that the loss sustained on the buying, combing and selling of wool for *1022 petitioner's own account was a net loss within the meaning of the statute, as such loss is not limited to one suffered in taxpayer's principal business, but in any business regularly carried on by him. , and .
Judgment will be entered under Rule 50.