*2298 On March 1, 1913, the petitioner was the owner through agents of certain leases of oyster lands in Narragansett Bay. The leases ran for a term of 10 years. By custom the lesee had the right to indefinitely renew the lease. The petitioner had invested from $100 to $200 per acre in cleaning the lands covered by the leases for oyster culture. The March 1, 1913, value of the leases held by the petitioner through his agents was not less than $100 multiplied by the number of acres covered by the lease. After March 1, 1913, the lands became polluted with industrial wastes to such an extent that they could not be profitably operated as oyster farms and the leases became valueless. In the fiscal years ended June 30, 1921, and June, 30, 1922, the petitioner canceled certain leases since they had become worthless. Held, that the petitioner is entitled to deduct from gross income of the fiscal years ended June 30, 1921, and June 30, 1922, $5,625 and $65,489.07, respectively, representing the petitioner's loss of investment in certain oyster leases canceled in those years.
*906 This is a proceeding for the redetermination of deficiencies in income tax for the fiscal years ended June 30, 1921, and June 30, 1922, of $9,722.10 and $16,517.32, respectively. The point in issue is the right of the petitioner to deduct from gross income of each year certain amounts representing his investment in the improvement of certain lands in Narragansett Bay covered by leases renewable forever which had become worthless by reason of the waters of the bay having become polluted to such an extent that the lands covered thereby were worthless for oyster culture.
FINDINGS OF FACT.
The petitioner is a resident of Westerly, R. I. Under the name of H. C. Rowe & Co. he began in 1898, while a resident of New Haven, Conn., extensive operations for the culture of oysters in *907 Narragansett Bay. He was at that time a large grower of oysters in Long Island Sound.
The statutes of Rhode Island provided that only residents of that State could secure leases for acreage for oyster culture in Narragansett Bay. It was possible, however, for a nonresident to employ residents of Rhode Island to lease lands and hold them*2300 for the benefit of the nonresident owner. The petitioner made such arrangements with certain residents of Rhode Island who leased the lands which he desired. By a custom universally recognized, a lessee had the right to renew indefinitely the leases, which were granted by the Shell Fish Commission of Rhode Island. The lessee was required to pay a small filing fee and an annual rental for the oyster lands, which varied from $5 to $10 per acre during the period 1913 to 1922.
The lands which the petitioner leased through his agents were located in lower Narragansett Bay, south of Conimicut Point. They had never been planted previously. It was necessary for the petitioner to invest large sums of money in cleaning the lands which he desired to use for oyster culture. The cost of cleaning averaged not less than $100 per acre.
After the setting of oysters is obtained on a bed a period of from four to seven years elapses before the oysters are large enough for market. During this period it is necessary for the oyster culturist to protect the beds, rake them for the removal of star fish, and, if the oysters are planted too thick, to thin them out.
Oyster culture in Narragansett*2301 Bay from 1898 to about 1915 was very profitable. The lessees of certain lands sold their leases on or about March 1, 1913, at a price of from $50 to $500 per acre. In other words, if the lease covered 10 acres and the sale price was on the basis of $100 per acre, the entire lease would be sold at a price of $1,000. The state authorities never raised any question as to the right of a lessee to sell or assign his lease, and by reason of this fact the right of a lessee to a renewal of the lease was universally recognized. The petitioner's leases were of choice lands and the March 1, 1913, fair market value of those leases was at the rate of $100 multiplied by the number of acres covered by each lease.
The petitioner carried on its operations in Marragansett Bay with increasing success from 1898 until about 1913. In about 1911, pollution of the waters in Providence River and upper Narragansett Bay made it impossible to get satisfactory settings for oysters. In 1913 1914, and 1915 the pollution which had appeared earlier in the Providence River and upper Bay spread over the lower Bay and gradually destroyed the productivity of the oyster lands under lease by the petitioner and*2302 the value of his capital investment in the oyster lands covered by the leases was destroyed.
*908 The petitioner voluntarily canceled leases during the fiscal year ended June 30, 1922, as follows:
| Lease No. | Renewed | Acres |
| 1828 | Aug. 7, 1915 | 96.2 |
| 2227 | Apr. 14, 1919 | 33.5 |
| 2228 | Apr. 24, 1919 | 97 |
| 1699 | Apr. 20, 1924 | .4 |
| 1702 | do | 13.6 |
| 1852 | Dec. 29, 1915 | 73.3 |
| 1851 | Dec. 29, 1915 | 103.9 |
| 1850 | do | 190.1 |
| 1968 | May 21, 1916 | 132.4 |
| Total | 740.4 |
Leases canceled during the fiscal year ended June 30, 1921, were:
| Lease No. | Renewed | Acres |
| 2209 | Jan. 3, 1919 | 38.6 |
| 2306 | Mar. 26, 1920 | 14 |
| 1531 | do | 26.5 |
| 1962 | May 8, 1916 | 14.9 |
| Total | 94.0 |
The following leases were canceled in the fiscal year ended June 30, 1922:
| Lease No. | Renewed |
| 2248 | Sept. 14, 1919 |
| 2247 | Sept. 14, 1919 |
| 2355 | Oct. 5, 1920 |
| 2354 | Oct. 5, 1920 |
| 1675 | July 18, 1919 |
| 1676 | July 18, 1919 |
The aggregate acreage canceled in the fiscal year ended June 30, 1922, was 820.4 acres.
In his income-tax returns for the fiscal years ended June 30, 1921, and June 30, 1922, the petitioner claimed as deductions from gross income $5,625 and $65,409.07, *2303 respectively, said sums claimed to represent the March 1, 1913, value of certain oyster leases canceled by the petitioner during the fiscal years ended June 30, 1921, and June 30, 1922. The Commissioner disallowed these deductions from gross income in determining the deficiencies involved herein for the fiscal years ended June 30, 1921, and June 30, 1922.
The losses claimed to have been sustained by the petitioner in the taxable years were not compensated for by insurance or otherwise.
OPINION.
SMITH: The only question presented by this proceeding is the right of the petitioner to deduct from gross income in his income-tax returns for the fiscal years ended June 30, 1921, and June 30, 1922, $5,625 and $65,489.07, respectively, on leases of oyster lands in Narragansett Bay canceled during the taxable years. The respondent has disallowed the deductions upon the grounds that the petitioner had no enforceable rights in the leases canceled and that no deductible losses can be allocated to the taxable years.
*909 The Revenue Act of 1921 provides that an individual in making income-tax returns may deduct from gross income, among other items:
Losses sustained during*2304 the taxable year and not compensated for by insurance or otherwise, if incurred in trade or business. (Sec. 214(a)(4)).
Section 202(b) of the Act provides:
The basis for ascertaining the gain derived or loss sustained from the sale or other disposition of property, real, personal, or mixed, acquired before March 1, 1913, shall be the same as that provided by subdivision (a); but -
* * *
(2) If its fair market price or value as of March 1, 1913, is lower than such basis, the deductible loss is the excess of the fair market price or value as of March 1, 1913, over the amount realized therefor; * * *
The record of this action shows that the petitioner, through his agents, held leases of oyster lands in Narragansett Bay on March 1, 1913; that in the preparation of the lands for oyster culture he had spent in excess of $100 per acre; that the leases on March 1, 1913, had a fair market value of not less than $100 multiplied by the number of acres covered by each lease; that the oyster lands became polluted with manufacturing wastes subsequent to March 1, 1913, which rendered them valueless for purposes of oyster culture; that during the fiscal year ended June 30, 1921, he canceled*2305 leases covering 94 acres of land and in the fiscal year ended June 30, 1922, he canceled leases on 820.4 acres.
The disallowance by the respondent of the deductions claimed was based principally upon the fact that the evidence before the respondent did not show that the petitioner had investments in the leases or any valuable rights in them on March 1, 1913. The basis for the latter contention was apparently that the petitioner was a nonresident of Rhode Island in 1913, and that the leases were in names of residents of the State of Rhode Island whom the State authorities recognized as being the owners of the leases. The evidence shows, however, that the lessees had entered into agreements with the petitioner to hold the lands for him and that it was a common practice for nonresident persons to cultivate oyster farms in Narragansett Bay under the same conditions as the petitioner cultivated his oyster farms. The leases in respect of which the petitioner claims to have sustained losses in the taxable years under review were held by agents for him. In these circumstances and upon the record we are of the opinion that the petitioner had equitable title to the leases in question*2306 and that he is as much entitled to deduct a loss upon the cancellation of them as he would have been had he been a resident of the State of Rhode Island in 1913.
The evidence further shows that the petitioner had an investment in the leases of $100 multiplied by the number of acres covered by *910 each lease. This represented the minimum amount for the preparation of the beds for oyster culture.
In our opinion the only material question for decision is the year in which the losses were sustained by the petitioner and the amount of the loss allocable to each of the taxable years. In , the principle was laid down that losses may be claimed as deductions from gross income in those years where they are "fixed by identifiable events."
The evidence in this proceeding shows that oyster culture in Narragansett Bay was less and less profitable from about the year 1912. Many oyster culturists began abandoning their leases in about 1915 or 1916, owing to successive failures in obtaining settings of young oysters. The petitioner continued the oyster culture after many others had ceased. He continued to*2307 pay rentals to the State of Rhode Island upon the oyster lands up to the date that the leases were canceled. Even after settings could not be obtained in the waters of the Bay, oysters brought from Long Island Sound were fattened on the oyster farms held by the petitioner. In these circumstances, we think that the cancellation of the leases is an identifiable event by which certain losses may be allocated to the years 1921 and 1922.
As above indicated, the record shows the cancellation of leases on 94 acres of land in the fiscal year ended June 30, 1921. The loss of investment in leases on those lands was at least $5,625, the amount claimed as a deduction from the gross income in the petitioner's return for the fiscal year ended June 30, 1921. We therefore hold that amount as a legal deduction from the gross income of the petitioner for the fiscal year involved.
In the fiscal year ended June 30, 1922, the petitioner canceled leases on 820.4 acres. The record amply supports petitioner's claim that his investment in those leases approximated $100 per acre and at least the amount of $65,489.07, the amount claimed by the petitioner as a loss sustained by him in the fiscal year*2308 ended June 30, 1922, upon the cancellation of the leases by reason of the pollution of the waters of Narragansett Bay by manufacturing and other wastes. This was at the rate of less than $100 per acre for the lands covered by the leases. The evidence all goes to show that the pollution of the waters had proceeded to an extent in the fiscal year ended June 30, 1922, which proved to the petitioner that the payment of further rentals upon the oyster leases would be unprofitable. We therefore conclude that the petitioner was entitled to deduct from the gross income of the fiscal year in question the claimed amount of $65,489.07.
Judgment will be entered under Rule 50.