*50 Decision will be entered for the respondent.
Petitioner in the taxable year was chairman of a committee to promote the sale of war bonds. There was a shortage of cash accounted for by the employees of the committee in comparison with the amount of bonds sold. Petitioner, together with the secretary of the committee, made up the shortage from their own funds and claimed a deduction from taxable income therefor on the grounds that his failure so to do would have injuriously affected his businesses of operating a cocktail lounge and selling real estate. Held, the campaign to sell war bonds did not have any relationship to either of petitioner's businesses and the voluntary payment to make up the shortage is not deductible.
*686 The respondent determined a deficiency in the income tax of petitioner for the calendar year 1944 in the amount of $ 560.17. The sole question involved is whether or not the petitioner is entitled to deduct from his gross income the amount of $ 1,732.09 which he paid in the year 1944 to make good a portion of a cash shortage incurred by a committee, of which he was chairman, in connection with the sale of war bonds.
FINDINGS OF FACT.
Petitioner is an individual who was a resident of Detroit, Michigan, during the taxable year 1944.
In his 1944 income tax return, filed with the collector of internal revenue at Detroit, Michigan, petitioner reported a net income of $ 9,214.64 after a deduction of $ 1,732.09 claimed as a loss from "fire, storm, shipwreck or other casualty, or theft." The claimed loss deduction was disallowed by the respondent.
The main source of Nicholson's income was a cocktail lounge, from which he reported $ 12,040.94, representing half the net profits of the business. He engaged also in a proprietorship real estate business under the name of the Argonne Realty Co., reporting therefrom a net profit of $ 302.79.
The*52 American Hellenic Education Progressive Association is a national fraternity of persons of Greek descent, with headquarters in Washington, D. C., and is generally referred to as the "Ahepa Society." During World War II this society was authorized by the Federal Reserve System to act as an issuing agent for the sale of United States war bonds.
Petitioner, during 1943 and 1944 and several years prior thereto, was a member of the Detroit chapter of the Ahepa Society.
*687 Sometime in August 1943 the national headquarters of the Ahepa Society requested its Detroit chapter to organize a committee for the purpose of conducting a campaign in Detroit as a part of the society's then current war bond sales campaign.
During August 1943 petitioner was appointed by the president of the Detroit chapter as chairman of the Detroit war bond sales campaign mentioned above, which campaign began in August or September 1943 and ended in March or April 1944. He organized a central committee to conduct the campaign, and named Nicholas Becharas as treasurer thereof, and organized also subcommittees in other Greek communities in Detroit.
Petitioner and Becharas spent a great amount of their personal*53 time during the campaign in promoting and making war bond sales, all without compensation, but with some expense to each of them.
The campaign committee maintained an office at 107 Davenport Street, Detroit, Michigan, the Detroit chapter headquarters of the Ahepa Society. A paid clerk stayed at the office, sold and wrote bonds, and carried on the other clerical work, and was assisted by women volunteers. However, this clerical assistance was not competent and did not handle the affairs of the office in a businesslike way.
More than $ 1,500,000 in bonds was sold, and all the sales in this campaign were completed in 1943, most of which were made at the campaign office. The solicitors brought in the money and the bonds were filled out in the office.
Petitioner did not handle any of the receipts from the bond sales, but Becharas, the treasurer, took care of all such funds and deposited them daily in a special bank account in the name of the Ahepa Society and payment to the Federal Reserve System for bonds sold by the committee was made from this account.
Records were kept of the bonds and the sales thereof, but these records were in a very confused state and the entire matter was loosely*54 and carelessly handled.
On the third or fourth day of this war bond sales campaign the petitioner and the treasurer, in checking the books, bonds, and cash on hand, discovered a shortage of the chapter's cash in the amount of $ 2,732.09. This shortage was due to a combination of poor organization and careless management, in addition to the incompetency and unfamiliarity with accounting on the part of the office help. There was an instance of a purchaser having paid $ 37.50 for a $ 50 bond, and getting a $ 500 bond.
Soon after the loss was discovered in 1943, petitioner and Becharas discussed the matter with a few of the leading members of the chapter, and these leaders expressed the opinion that, since the petitioner and Becharas were in charge of the campaign, they should make up the shortage. At the time of final settlement of the campaign accounts in *688 1944 with the Federal Reserve System, an accountant who was called in by petitioner verified the loss, but, due to the confusion of the records, was unable to attribute the loss to any individual. Although petitioner felt he was not obligated to make good the loss, he considered he was morally responsible. In 1944 he*55 issued his checks to the Detroit chapter -- one for $ 1,000, and one for $ 732.09 -- and the treasurer paid the balance of $ 1,000.
Prior war bond sales campaigns of the Detroit chapter of the Ahepa Society had been conducted without shortages.
The 1943 war bond sales campaign of the Ahepa Society was in no way connected with petitioner's business enterprises and no losses resulted to these enterprises by reason of the payments in connection with the shortage in the war bond campaign funds.
OPINION.
The petitioner contends that the amount of $ 1,732.09 paid by him in 1944 is deductible under the provisions of section 23 (e) of the Internal Revenue Code. This section permits an individual to take deductions for losses, (1) if incurred in trade or business; or (2) if incurred in any transaction entered into for profit; or (3) of property not connected with the trade or business, if the loss arises from fires, storms, shipwreck, or other casualty, or from theft.
Petitioner makes no contention that the transaction resulting in the payment in question was a transaction entered into for profit, and on brief concedes that subdivision (3) of section 23 does not apply because he sustained*56 no loss from property damage and the evidence does not show that the payment made by him resulted from theft or embezzlement. He relies upon the provisions of subdivision (1) and urges that we should allow him to deduct the payment of $ 1,732.09 as a loss incurred in trade or business.
Cases such as this are difficult to decide, because the heart goes one way and the law the other. Petitioner, undoubtedly influenced by patriotic motives, accepted a position as chairman of the Ahepa Society war bond issuing agency, and as a result of carelessness, inefficiency, or mistakes of others a shortage occurred. Feeling that he was morally responsible for this shortage, although the treasurer handled the funds collected, he voluntarily paid a substantial part of the shortage. Because of the nature of the work on which petitioner was engaged and the fact that while so engaged he sustained this loss through the negligence of others, our inclination would be to allow the claimed deduction if our decision could be based upon purely equitable considerations. Unfortunately for the petitioner, the statute does not grant us this leeway, and the matter of deductions from income "depends upon legislative*57 grace, and only as there is clear provision *689 therefor can any particular deduction be allowed." Deputy v. Dupont, 308 U.S. 488">308 U.S. 488.
In arguing that he sustained a business loss, petitioner cites and relies upon Peter Frees, Jr., 12 B. T. A. 737. In that case the taxpayer operated a substation post office in connection with his drug store business. He received compensation of $ 400 per annum for operating the substation. The work incidental to the operation of the substation was performed by two girls who were paid by petitioner. They also acted as cashiers for the drug store. Because of his connection with a post office the taxpayer was persuaded by a Liberty Loan committee to receive, without compensation, payments on Liberty bonds. All of the payments on the bonds were received by petitioner's cashiers, and they embezzled a part of the collections. The Liberty Loan committee sought to collect the amount misappropriated from the taxpayer, who denied liability. In 1920, prior to trial of a suit instituted by the committee, a compromise settlement was reached and the taxpayer paid $ 1,250, which he deducted*58 in computing his 1920 income tax. The disallowance of this deduction by the Commissioner was the basis of most of the deficiency determination. The Board approved the taxpayer's deduction.
The difficulty with this case as an authority for petitioner here is that the question which is before us at bar, i. e., whether the loss was incurred in trade or business, was not before the Court in the Frees case. In that case the Court said "The respondent does not deny that the loss was sustained," and thereafter it devoted no attention to the deductibility of the loss. The decision confines itself to the question of whether or not the loss was incurred in 1919, when the embezzlement occurred, or in 1920, when the reimbursement was made. The facts therein disclose that the installment payments which were embezzled by the taxpayer's employees were "payable at any post office." Therefore, it may well be that the installment collections involved in the Frees case, for subscriptions which the taxpayer therein volunteered to take as an agent for the Liberty Loan committee, were taken as a part of the taxpayer's official duties as postmaster. At any rate, the issue which is before us*59 was not discussed in the Frees case and that case therefore can not be accepted as an authority for the petitioner.
While there was some relationship between the business of the taxpayer and the loss sustained in the Frees case, it is obvious in the instant proceeding that engaging in a campaign to sell war bonds did not have the remotest relationship to either the petitioner's cocktail lounge or his real estate business.
The respondent did not err in determining that the deduction claimed by petitioner is not allowable under the provisions of section 23 (e) of the code.
Decision will be entered for the respondent.