*2475 Losses on sales of securities allowed.
*1006 This proceeding is for the redetermination of a deficiency in income tax asserted by the respondent in the amount of $28,823.07 for the calendar year 1921. The deficiency arises from the disallowance of a deduction of $82,265.89 taken by the petitioner on account of a loss alleged to have been sustained on the sale of certain shares of stock.
FINDINGS OF FACT.
The petitioner is an individual residing at Rosemont, Pa. In the year 1919 he purchased 5,000 shares of the capital stock of the Union Oil Co. at $34 per share, a total of $170,000. In August, 1921, the certificates for said shares of stock were in the possession of West & Co., brokers of Philadelphia, as collateral security for a loan to a friend of the petitioner. They were accompanied by a power of attorney executed by the petitioner so that they could be transferred at any time without any further act by him.
In the latter part of August, 1921, the petitioner, through his son, Jacques*2476 L. Vauclain and his secretary, J. H. Kerst, instructed West & Co., to sell said 5,000 shares of stock of the Union Oil Co. and thereafter to purchase for him 5,000 shares of the same stock at the market. The order was to "sell at the market and buy back as closely as possible," and the purpose was to establish a loss on the sale and to claim the loss in the petitioner's income-tax return for the year 1921.
Sales of said shares of stock were made on the New York Stock Exchange on various dates from August 31 to September 13, 1921, inclusive, through Charles Walbridge, a member of the firm of West & Co., and a member of the New York Stock Exchange. West & Co. had no facilities at the time for clearing their transactions on the New York Stock Exchange and the order to sell was therefore transmitted to their correspondent, Spencer, Trask & Co., who in turn transmitted it to Walbridge. Walbridge sold said 5,000 shares of stock pursuant to the order given him under and in accordance with the rules of the New York Stock Exchange, and purchased a like number of shares for the petitioner, pursuant to the petitioner's order to purchase. The sales and purchases were not made simultaneously, *2477 but when a sale was made, the same number of shares were purchased later the same day. The parties to whom the sales of the petitioner's stock were made and the parties from whom stock was purchased for the petitioner are shown in the following table:
| 1921 | Sold to - | Shares | At - |
| 8/30 | E. F. Hutton & Co | 100 | 16 3/8 |
| 8/30 | Warner Brothers | 100 | 16 1/2 |
| 8/30 | Arthur Lipper & Co | 100 | 16 5/8 |
| 8/30 | E. F. Hutton & Co | 100 | 16 3/4 |
| 8/30 | Arthur Lipper & Co | 100 | 17 |
| 8/30 | E. F. Hutton & Co | 200 | 18 1/2 |
| 8/30 | do | 200 | 18 3/4 |
| 8/30 | Harris, Winthrop & Co | 500 | 16 1/8 |
| 8/30 | Shaeffer Bros | 100 | 16 1/8 |
| 8/30 | Halle & Stieglitz | 100 | 16 1/8 |
| 8/30 | E. F. Hutton & Co | 100 | 15 3/4 |
| 8/30 | do | 100 | 15 3/4 |
| 8/30 | do | 100 | 16 1/8 |
| 8/30 | do | 100 | 16 1/4 |
| 8/31 | S. B. Chapin & Co | 200 | 18 |
| 8/31 | do | 100 | 18 |
| 8/31 | do | 100 | 18 |
| 8/31 | do | 100 | 18 |
| 8/31 | Block, Maloney & Co | 500 | 17 3/4 |
| 8/31 | DeCoppet & Doremus | 100 | 17 7/8 |
| 9/1 | Day & Heaton | 100 | 17 5/8 |
| 9/6 | Simmons & Slade | 100 | 17 3/4 |
| 9/6 | Dominick & Dominick | 100 | 18 1/2 |
| 9/6 | Ruerback, Pollack & Richardson. | 400 | 18 1/2 |
| 9/6 | Floyd Jones | 100 | 18 1/4 |
| 9/7 | Dominick & Dominick | 100 | 18 1/8 |
| 9/7 | Swartout & Appenzellar | 100 | 18 1/4 |
| 9/7 | Floyd Jones | 100 | 18 1/4 |
| 9/7 | do | 100 | 18 1/8 |
| 9/12 | Anderson & Specht | 100 | 17 3/4 |
| 9/12 | Harris, Winthrop & Co | 100 | 18 |
| 9/13 | Bamberger Bros | 200 | 18 |
| 9/13 | J. H. Holmes & Co | 200 | 18 |
| 9/13 | Homans & Co | 100 | 18 1/4 |
| 5,000 |
| 1921 | Bought from - | Shares | At - |
| 8/30 | Prentice & Slepback | 100 | 16 3/8 |
| 8/30 | do | 100 | 16 1/2 |
| 8/30 | do | 100 | 16 5/8 |
| 8/30 | do | 100 | 16 3/4 |
| 8/30 | do | 100 | 17 |
| 8/30 | Wasserman Bros | 200 | 18 1/2 |
| 8/30 | J. M. Amory & Bros | 200 | 18 3/4 |
| 8/30 | Fox Carlebach & Co | 500 | 16 1/8 |
| 8/30 | E. F. Hutton & Co | 100 | 16 1/8 |
| 8/30 | Sutro Bros. & Co | 100 | 16 1/8 |
| 8/30 | W. J. Hoey & Co | 100 | 15 3/4 |
| 8/30 | Sutro Bros. & Co | 100 | 15 3/4 |
| 8/30 | Fox Carlebach & Co | 100 | 16 1/8 |
| 8/30 | Whitehouse & Co | 100 | 16 1/4 |
| 8/31 | McDonnell & Co | 200 | 18 |
| 8/31 | do | 100 | 18 |
| 8/31 | Harris, Winthrop & Co | 100 | 18 |
| 8/31 | W. J. Wollman & Co | 100 | 18 |
| 8/31 | do | 500 | 17 3/4 |
| 8/31 | Thomson & McKinnon | 100 | 17 7/8 |
| 9/1 | Logan & Bryan | 100 | 17 5/8 |
| 9/6 | Logan & Bryan | 100 | 17 3/4 |
| 9/6 | Louckheim, Minton & Co | 100 | 18 1/2 |
| 9/6 | E. F. Hutton & Co | 400 | 18 1/2 |
| 9/6 | Dominick & Dominick | 100 | 18 1/4 |
| 9/7 | DeCoppet & Doremus | 100 | 18 1/8 |
| 9/7 | H. F. Bachman | 100 | 18 1/4 |
| 9/7 | E. F. Hutton & Co | 100 | 18 1/4 |
| 9/7 | Clark, Childs & Co | 100 | 18 1/8 |
| 9/12 | McDonnell & Co | 100 | 17 3/4 |
| 9/12 | S. B. Chapin & Co | 100 | 18 |
| 9/13 | Logan & Bryan | 200 | 18 |
| 9/13 | E. F. Hutton & Co | 200 | 18 |
| 9/13 | W. J. Wollman & Co | 100 | 18 1/4 |
| 5,000 |
*2479 *1007 Each sale and purchase between Walbridge and the specialists or broker with whom he dealt was recorded by each on his pad. These memoranda or written slips under the rules of the New York Stock Exchange constitute a purchase and sale. The sales appearing on Walbridge's slips were reported by telephone from the Exchange to the office of Spencer, Trask & Co., who in turn telegraphed them to West & Co. in Philadelphia. In accordance with the rules of the New York Stock Exchange, after each sale Spencer, Trask & Co. sent to the purchasing broker a confirmation slip or clearance ticket with the proper transfer stamps attached, and after each purchase Spencer, Trask & Co. received from the selling broker a confirmation slip or clearance ticket with the proper transfer stamps attached. The purchaser in each case confirmed the clearance ticket, at the same time canceling the stamps. Each day Spencer, Trask & Co. also sent written confirmations of both sales and purchases to West & Co. All of said sales and purchases were cleared through the clearing house pursuant to the rules of the New York Stock Exchange. The petitioner paid West & Co. the usual brokerage commissions*2480 and also the necessary transfer stamp tax on all sales, and he also paid the usual brokerage commissions on all purchases. West & Co. sent to the petitioner written confirmations of all sales *1008 made on the different dates and also sent to him written confirmations of the purchases made for him. After the sales of the 5,000 shares were completed and on December 12, 1921, West & Co. remitted to the petitioner the net proceeds of such sales, amounting to $87,734.11, which amount was deposited to the credit of the petitioner with the Philadelphia Trust Co.
The petitioner sustained a loss of $82,265.89 on the sale of said 5,000 shares of capital stock of the Union Oil Co. and in his income-tax return for the year 1921 he deducted the amount thereof in computing his net income. The respondent disallowed the deduction.
OPINION.
MARQUETTE: The sales involved herein took place prior to the effective date of the Revenue Act of 1921, and if they were bona fide the petitioner is entitled to deduct in computing his net income for 1921 the amount of the resulting loss, even though they were made with the intention of establishing such loss. Pennsylvania Company for Insurance*2481 on lives and ; ; .
We are satisfied from the evidence that the sales in question were bona fide made, that the petitioner sustained a loss thereon in the amount of $82,265.89, and that he is entitled to deduct that amount from gross income for 1921. It is true that the petitioner purchased the same amount of stock that he sold, and that at the close of each day's transaction was the owner of the same number of shares as at the beginning, but that fact does not reflect on the petitioner's good faith or affect the validity of the sale. The sales and purchases were not on any day made to and from the same broker, and when the petitioner's stock was sold he took the risk of not being able to buy back the same amount at the same or a lower price. That he was able to do so was due to the skill of the broker who handled the transactions on the floor of the Exchange.
Reviewed by the Board.
Judgment will be entered under Rule 50.