*2708 1. An amount paid by petitioner to his attorney for services rendered in appearing before certain legislative committees in connection with certain proposed legislation affecting petitioner's business held to be an ordinary and necessary business expense and deductible from gross income in the taxable year.
2. In 1921 petitioner exchanged stock which he owned in a corporation for stock in another corporation which took over the assets of the first corporation, and the stock so received by petitioner having a value of less than the cost to him of the stock exchanged, held that no deductible loss was sustained under section 202 of the Revenue Act of 1921.
*1225 The Commissioner determined a deficiency in income tax for 1920 and 1921 in the amount of $12,826.07.
Petitioner alleges that the Commissioner erred in disallowing as an ordinary and necessary business expense $7,750 paid a lawyer for certain legal services and in refusing to deduct the sum of $17,839.98, an alleged loss sustained on the exchange of stock of the Woco*2709 Oil Co. of Alabama for stock in the Wofford Oil Co. of Delaware.
The facts are stipulated.
FINDINGS OF FACT.
During 1920 and 1921, G. T. Wofford was engaged, in the State of Alabama, in the business of buying and selling gasoline, oils, greases, benzol, and in selling a motor fuel consisting of benzol and gasoline, known as Woco Pep. He was the first person in the State of Alabama, and possibly in the United States, to introduce the motor fuel known as Woco Pep. Because of the ingredients of Woco Pep, the standard test applied to gasoline can not be applied thereto. In 1919 or 1920 the Governor of Alabama called a special session of the Legislature, one of the purposes of such session being the enactment of legislation covering motor fuel and gasoline, with provision for an inspection fee or charge.
Wofford knew that an inspection bill fixing standards of motor fuel for the State of Alabama based on tests of high-grade gasoline would prohibit the sale of Woco Pep. Realizing that if a bill such as mentioned above were passed by the State of Alabama he would be put out of business, he employed George W. Yancey, of the law firm of London, Yancey and Brower, for the purpose*2710 of forestalling, to the best of his ability, the adverse proposed legislation.
*1226 As a consequence of his employment, George W. Yancey drafted an inspection bill containing such regulations and provisions as would permit the sale of Woco Pep in the State of Alabama. Yancey appeared before the Governor and the Attorney General of the State of Alabama in behalf of the bill drafted by him. He also appeared before various committees of the Legislature of the State of Alabama to whom the bill drafted by him was referred, and explained and advocated the passage of such bill.
In 1920 Wofford paid Yancey $7,750 for his services rendered in connection with the legislation pertaining to the standards of motor fuel sold within the State. The amount paid Yancey was a reasonable fee for the services rendered.
Prior to December 31, 1921, Wofford owned and controlled more than 90 per cent of the stock of the Woco Oil Co. of Birmingham, Ala., incorporated in 1919, and dealing in gasoline and oils. On December 31, 1921, Wofford organized the Wofford Oil Co. of Delaware, which corporation took over the stock and/or assets of the Woco Oil Co. at the net worth shown by its books, *2711 together with other individual and corporate holdings of Wofford. In exchange therefor Wofford received about $22,160.02 in stock of the Wofford Oil Co. of Delaware for his Woco Oil Co. stock, which was $17,839.98 less than the amount which he paid for such Woco Oil Co. stock. The records of the Wofford Oil Co. of Delaware show that the company issued its capital stock in the amount of $359,700 in exchange for the various properties and/or stock described above taken over by it, of which amount Wofford received $330,000, approximately 94 per cent.
OPINION.
LITTLETON: The first question is whether, in the circumstances of this case, the petitioner should be allowed to deduct as an ordinary and necessary expense in carrying on its business the amount of $7,750 paid to his attorney in 1920 for services rendered in the matter of preparation and advocacy before the legislative committees of the State of Alabama of certain legislation which would permit the continued sale in that State of a certain motor fuel being sold by petitioner. We think this was a proper deduction as a business expense.
A special session of the Legislature of Alabama had been called by the Governor and*2712 one of the purposes of such session was the passage of a bill covering motor fuel and gasoline, with provision for an inspection fee or charge. Petitioner knew that an inspection bill fixing the standards of motor fuel for the State of Alabama based on tests of high-grade gasoline would prohibit the sale of Woco Pep, which was the principal product of his business and, in order *1227 to keep his business alive, he employed an attorney to protect his interest in connection with the legislation. The expense was an ordinary and necessary one and the services which the attorney was employed to render were entirely legitimate. The deduction is allowed. ; ; .
The second question is whether the petitioner is entitled to a deduction from gross income for the year 1920 of $17,839.98 as a result of an exchange by him of stock of the Wofford Oil Co. of Birmingham, Ala., for stock of the Wofford Oil Co. of Delaware. It is stipulated that the stock of the Wofford Oil Co. of Delaware, received in exchange for the stock*2713 of the Alabama corporation, had a value of $17,839.98 less than the amount which the petitioner paid for the stock of the Alabama corporation. We think the Commissioner correctly held that this transaction falls within the provision of section 202 of the Revenue Act of 1921 and resulted in no deductible loss. See . Petitioner contends that the loss should be allowed in the year 1921 for the reason if it is not permitted as a deduction in that year he will never be able to get the benefit of same and that, therefore, the loss should be allowed on equitable grounds. The stock of the Delaware corporation took the place of stock of the Alabama corporation and upon a subsequent disposition thereof by the petitioner, the basis for the determination of gain or loss will be the cost to the petitioner in 1919 of his stock in the Alabama corporation. The claim of the petitioner that the difference between the cost of the stock of the Alabama corporation and the value of the stock of the Delaware corporation received in exchange therefor should be allowed as a deduction in 1921 is not well taken.
Judgment will be entered*2714 under Rule 50.