*1381 A decedent was the principal owner of the stock of a preserving company and gave one-half of his time to serving this company as president, treasurer, general manager and director. He was active and spent about one-fourth of his time in the purchase and sale of stocks listed on the New York Stock Exchange and bonds. He did not sustain a statutory net loss when he sold all of his stockholdings in the preserving company.
*17 The Commissioner determined a deficiency of $16,062.86 in the income-tax liability of Jefferson Livingston for the year 1924. The only issue is whether the petitioner sustained a net loss in 1923.
FINDINGS OF FACT.
The petitioners are the duly appointed executor and executrices of the estate of Jefferson Livingston. Jefferson Livingston was an individual, who filed his income-tax return for the calendar year 1924 with the collector of internal revenue for the second district of New York. On his return for the year 1924 he deducted an amount representing "1923 loss carried forward" in excess*1382 of his net income for the year 1924. His loss for 1923 resulted from the sale in that year of the preferred and common stock of the T. A. Snider Preserve Company. The Commissioner disallowed the deduction of the 1923 loss in determining the deficiency for 1924.
In 1884 Jefferson Livingston entered the employ of the T. A. Snider Preserve Company, a corporation. In 1909 he had acquired all of the capital stock of that corporation. The corporation was dissolved in 1911 and the petitioner continued the business as a sole proprietorship under the name of T. A. Snider Preserve Company until August, 1920. The business consisted of the operation of twelve plants engaged in the packing and canning of food products. In 1920 he acquired the charter of another corporation called T. A. Snider Preserve Company, and transferred to the corporation *18 assets of the business, together with certain securities, in exchange for all of its capital stock. From 1920 until 1923 Livingston tried unsuccessfully to sell all of his holdings of T. A. Snider Preserve Company stock. He purchased no stock of this company in 1923. Prior to the sale he had given some of his stock to employees. In*1383 1923 he sold his remaining stock in this corporation, consisting of 4,000 shares of preferred stock and 5,000 shares of common stock, at a loss. The amount of this loss was in excess of his net income from all other sources for that year and the excess is greater than his net income for 1924 computed without deducting this excess of 1923 loss.
Livingston was president, treasurer, general manager, and a director of the corporation until he sold his stock in 1923. After the sale he continued with the corporation for some time in an advisory capacity. For many years he had been very active in the business conducted under the name of T. A. Snider Preserve Company. For many years prior thereto, and until the sale of his stock in 1923, he devoted about one-half of his time to the business of the T. A. Snider Preserve Company. During this same period he devoted about one-fourth of his time to the purchase and sale of stocks and bonds. The rest of his time was principally devoted to horse racing. Until he sold the stock his only office was that of the corporation. After he sold his stock in the T. A. Snider Preserve Company in 1923, he retired as an officer of the company, changed*1384 his residence from Chicago to New York, and thenceforth divided his time about equally between horse racing and the purchase and sale of stocks and bonds. His purchases of stocks and bonds were always outright purchases and never on margin. He confined his stock purchases to high-grade stocks listed on the New York Stock Exchange. At all times during 1923 he had about $1,000,000 invested in stocks and bonds. His purchases and sales averaged about three or four a week. He very seldom sold more than 100 shares at any one time. In connection with his purchases and sales he consulted the stock market quotations almost every day.
Schedule "C" of his return for 1923 was in part as follows:
| 1923 | |||
| JEFFERSON LIVINGSTON | |||
| Schedule "C" | |||
| Date Acquired | Cost | Sold For | Gain or Loss |
| Bonds Liberty | $17,550.00 | $17,618.40 | $68.40 |
| Bonds Liberty | 1,314.90 | 1,328.94 | 14.04 |
| Bonds Liberty | 391.20 | 390.80 | [red] .40 |
| Bonds Liberty | 195.00 | 195.76 | .76 |
| Stock dividend of 3-888/1000 | |||
| Shares T. A. Snider Preserve Co. sold | 336.70 | 336.70 | |
| 1,000 Shares Owen Bottle Mach. Co | 29,000.00 | 42,340.00 | 13,340.00 |
| 1,000 Shares Owen Bottle Mach. Co | 29,000.00 | 42,015.00 | 13,015.00 |
| 25 Shares Stacey Storage & Whse. Co. Pref | |||
| 10 Shares Stacey Storage & Whse. Co. Com | 2,500.00 | 2,200.00 | [red] 300.00 |
| 1,200 Shares American Ldy. Mach. Co. | $23,700.00 | $39,821.75 | $16,121.75 |
| 100 Shares A. C. Allyn & Co. Pref | |||
| 10 Shares A. C. Allyn & Co. Com | 10,126.00 | 11,144.44 | 1,018.44 |
| 100 Shares Proctor & Gamble | 12,800.00 | 12,675.00 | [red] 125.00 |
| 50 Shares Libbey Owen Sheet Glass Co | 5,000.00 | 6,988.00 | 1,988.00 |
| 245 Shares Libbey Owen Sheet Glass Co | 20,000.00 | 28,077.00 | 8,077.00 |
| 200 Shares Owen Bottle Mach. Co | 5,800.00 | 8,830.50 | 3,030.50 |
| Stromberg Carburator Co. | 81,184.99 | 85,572.50 | 4,387.51 |
| 400 Shares Owen Bottle Mach. Co | 11,600.00 | 18,086.00 | 6,486.00 |
| 200 SharesU.S. Steel Corporation | 19,580.00 | 18,962.00 | [red] 618.00 |
| 600 Shares Owen Bottle Mach. Co. | 17,400.00 | 25,729.00 | 8,329.00 |
| 500 Shares General Motors | 5,837.50 | 7,280.00 | 1,442.50 |
| 300 Shares Owen Bottle Mach. Co | 8,700.00 | 12,852.00 | 4,152.00 |
| 400 Shares Owen Bottle Mach. Co | 11,600.00 | 17,686.00 | 6,086.00 |
| 36 Shares Owen Bottle Mach. Co | 1,044.00 | 1,560.24 | 516.24 |
| 500 Shares Corn Products | 68,350.00 | 77,855.00 | 9,505.00 |
| 600 Shares Owen Bottle Mach. Co | 17,400.00 | 26,004.00 | 8,604.00 |
| * 500 Shares T. A. Snider Preserve Co. Pref | 50,000.00 | 45,000.00 | [red] 5,000.00 |
| 3,500 Shares T. A. Snider Preserve Co. Pref | 350,000.00 | 326,250.00 | [red] 23,750.00 |
| 5,000 Shares T. A. Snider Preserve Co. Com | 338,018.12 | 121,250.00 | [red] 216,768.12 |
| 1,138,091.71 | 998,049.03 | [red] 140,042.68 | |
*19 For the year 1923 he reported having received dividends from the following companies: Owen Bottle Company; A. C. Allyn & Company; U.S. Steel Corporation; Cincinnati & Hamilton Traction Company; Procter & Gamble Company; American Laundry Machine Company; Libby Owens Sheet Glass Company; William Stacey Storage Company; Corn Products Company; Philadelphia Company; Western Union Telegraph Company; Studebaker Auto Company; T. A. Snider Preserve Company; General Motors, Inc.; Foundation Company; and General Baking Company.
OPINION.
MURDOCK: The parties agree that if the decedent sustained a net loss within the meaning of section 204(a) of the Revenue Act of 1921, the amount of the loss was ample to wipe out income for 1924 so there would be no deficiency for the year. The taxpayer has paid no tax. Our only question is to determine whether or not the facts in this case establish a "net loss" within the meaning of section 204(a) of the Revenue Act of 1921, which is made applicable by section 206(f) of the Revenue Act of 1924. Section 204(a) provides that "the term 'net loss' means only net losses resulting from the operation*1386 of any trade or business regularly carried on by the taxpayer (including losses sustained from the sale or other disposition of real estate, machinery, and other capital assets, used in the conduct of such trade or business)." The Commissioner has held that the loss of 1923 was not a business loss within the meaning of the above section. *20 The petitioners contend that it was a loss sustained by the decedent in his business on either one of the two following theories: (1) It was a loss sustained by decedent in carrying on and winding up the T. A. Snider Preserve Company business, or (2) it was a loss sustained by the decedent in the course of his business of buying and selling securities for profit regularly carried on by him over a period of years.
The decedent's loss did not result from the operation or winding up of the T. A. Snider Preserve Company business, nor was this business regularly carried on by him in 1923. The corporation carried on its own business. It was engaged in the business of packing and canning food products. The decedent's loss did not result from the business of packing and canning food products, but resulted from the sale of some stock. *1387 His was a capital investment loss. The corporate entity may not be disregarded in this connection. The corporation, for all we know, may have had a profitable year in 1923, but in any event, the loss in question did not result from the operations of that company during the year. The decedent may not have his net loss carried over on this first theory. , ; cf. ; ; ; .
The petitioners next contend that the loss was sustained by the decedent in the course of his business of buying and selling securities for profit, which was a business regularly carried on by him over a period of years. We will assume, since we need not decide, that the decedent's activities in buying and selling securities for profit were a business regularly carried on by him during the year 1923. The statute requires, in addition, that the net loss result from*1388 the operation of the business. It may include losses sustained from the sale of capital assets used in the conduct of such trade or business. The decedent's ownership of the T. A. Snider Preserve Company stock was quite unlike his ownership of other stocks. He did not acquire or own the Preserve Company stock for the same purposes which he acquired and owned the other stock. He was not an ordinary stockholder in the Preserve Company as he was in the other companies. He was the principal, if not the sole owner of the company, its president, treasurer, and general manager. He was the principal person in the company and conducted its business affairs for it. The decedent, in his stock market activities, purchased only securities listed on the New York Stock Exchange; seldom sold securities in blocks larger than 100; was prompted in his purchasing and selling by market *21 considerations; and traded actively. He made no effort to sell the Preserve Company stock in small blocks. It was not listed on the New York Stock Exchange. He did not buy and sell it depending upon market fluctuations. He made no effort to sell less than all of his stock in this company, i.e., either*1389 complete ownership of the corporation or at least a majority interest. The Preserve Company stock was not an asset used in the conduct of the business of buying and selling stocks and bonds, but was an asset quite apart from that business and held for an entirely different purpose and under different circumstances. It had no relation whatever to that business. Some of the capital assets used in the conduct of that business were shares of stock similar to the Preserve Company stock, but there the similarity ends. Under such circumstances we hold that the loss did not result from the operation of a business of buying and selling securities regularly carried on by the decedent.
Judgment will be entered for the respondent.
Footnotes
*. See Schedule Attached for make up. ↩