*760 1. The petitioner in years prior to 1931 took dollars into Germany when the rate of exchange was 4.198 marks to the dollar, and used the money to purchase German mortgages at less than face value. Some of the mortgages were paid off during the taxable year between July 12 and December 31, and the petitioner's agent received from the mortgagors more marks than the mortgages had cost the petitioner. The marks so received were blocked, so far as the petitioner was concerned, so that they could not be removed from Germany either physically or by way of credit during the remainder of the taxable year. Held, that for Federal income tax purposes the petitioner realized no gain from those transactions during 1931.
2. The agents of the petitioner received similar payments during the first part of 1931, and at the time of receipt the marks were not restricted but were freely negotiable, convertible, and transferable. Held, that the gain on those transactions measured in dollars at the current rate of exchange was income, and, held, further, that such income was not reduced and no loss was sustained due to the fact that some of those marks may have been allowed to remain*761 in German banks until they became blocked on July 13.
*187 The Commissioner determined a deficiency in income tax of $34,607.02 for the year 1931. One issue for decision by the Board is whether $203,908.98, or any lesser amount, should be included in the petitioner's income representing the excess of the proceeds received in repayment of mortgages during the period from July 13 to December 31, 1931, over the cost of those mortgages. The petitioner at the close of the hearing further amended his petition to assign as error the action of the Commissioner "In failing to find that of the proceeds of repayments on the aforesaid German nortgages, which the petitioner received from January 1, 1931, to and including July 12, 1931, a balance of approximately 1,720,091 R.M. was on deposit with German banks at the time the blocking of accounts for a foreigner was ordered by the aforesaid German law."
FINDINGS OF FACT.
The petitioner is a corporation, organized and existing under the laws of Maryland. Its income tax*762 return for the year 1931 was filed with the collector of internal revenue for the second district of *188 New York. It reported on that return, among other items, $333,826.45 representing profit on the repayment of the mortgages. The Commissioner in determining the deficiency made no change in that item.
The petitioner raised a large amount of money by the sale of its capital stock and bonds. It took this money into Germany and purchased mortgages on German property during the years 1926 to 1930, inclusive. It bought the mortgages at less than their face value. The mortgages were to mature in from one to five years, and the plan was that as the mortgages would be repaid by the debtors the petitioner would pay off its bonded indebtedness, distribute any profits to its stockholders, and dissolve. The mortgages were recorded in the name of its German agents. Its business progressed satisfactorily until July 1931, at which time there was a banking crisis in Germany and a number of banks were closed. Before the banks were reopened a law was passed on August 1, 1931, generally known as "Devisen Ordnung", which prohibited the transfer out of Germany of marks received on*763 repayment of capital sums without permission of the German Foreign Exchange Office. It was followed by other ordinances or decrees further limiting and restricting the use of such marks. Violations of the law were punishable with imprisonment.
Mortgages which had cost the petitioner 3,352,398.29 reichmarks, when reichmarks had an exchange value of 4.198 to the dollar, were repaid to the petitioner's agents in Germany during the period July 13 to December 31, 1931, in the amount of 4,208,408.21 reichmarks. The excess of 856,009.92 reichmarks was translated into dollars at the rate of 4.198 reichmarks to the dollar and reported as part of the petitioner's income for 1931.
Mortgages which had cost the petitioner 2,146.677.15 reichmarks, when reichmarks had an exchange value of 4.198 to the dollar, were repaid to the petitioner's gents in Germany during the period from January 1 to July 12, 1931, inclusive, in the amount of 2,692,070.68 reichmarks. The excess of 545,393.53 reichmarks was translated into dollars at the rate of 4.198 reichmarks to the dollar and reported as part of the petitioner's income for 1931.
The balance due the petitioner on deposit with German banks*764 on July 13, 1931, was about 1,720,000 reichmarks.
The agents of the petitioner in Germany, after July 12, 1931, were unable to pay over or credit to the petitioner any of the amounts received in payment of mortgages in such a way that the petitioner could obtain or use the money outside of Germany. No exceptions to the general rule applied to the petitioner, and it did not get permission at any time during 1931 to transfer out of Germany any of the marks representing repayments of mortgages received after July 12. The petitioner could not obtain permission and was unable to *189 transfer out of Germany any of the marks on deposit with German banks on July 13, 1931.
A regulation was adopted in Germany on December 30, 1931, providing that the owner of restricted marks, known as blocked marks, after obtaining written consent of the Foreign Exchange Office, might reinvest the blocked marks in Germany on a long-term basis, provided that repayments would be turned into a blocked account.
There was no market in 1931 for the restricted marks, and no one could form an opinion as to their value at that time. A sporadic market for blocked marks developed about the middle of*765 1932, due to the adoption of regulations whereby foreigners could pay 20 per cent of the purchase price of German goods in blocked marks. Owners of blocked marks were thus able to dispose of some of their marks at a discount. The petitioner never received permission to dispose of any of its blocked marks until 1934 and 1935. The marks which it disposed of in those years were disposed of at large discounts.
OPINION.
MURDOCK: The Commissioner filed no brief but stated in a memorandum filed at the hearing that he relied upon the cases of , and ; affd., ; certiorari denied, , in which it was held that restrictions on the sales of stock did not establish the absence of fair market value of the shares. Since the hearing, however, the Supreme Court has decided the case of , in which the Court held that certain shares of stock restricted as to sale had no fair market value, saying: "In the peculiar circumstances of this case, the shares of Transcontinental stock, regard being*766 had to their highly speculative quality and to the terms of a restrictive agreement making a sale thereof impossible, did not have a fair market value, capable of being ascertained with reasonable certainty, when they are acquired by the taxpayers." The petitioner's contention is that the repayments of mortgages received by its agents in Germany from July 13 to the end of the year were not unqualifiedly available and were not constructively received by it for Federal income tax purposes, thus, the excess in marks over the cost of the mortgages in marks was not income received by the petitioner in 1931.
The petitioner in years prior to 1931 took dollars into Germany. The rate of exchange at that time was 4.198 marks to the dollar. It used the money to purchase German mortgages at less than their face value. Some of those mortgages were paid off during the taxable year between July 12 and December 31, and the petitioner's *190 agents received from the mortgagors more marks than the mortgages had cost the petitioner. Measured in marks, the petitioner had income from its business in Germany, but income for our Federal income tax purposes is measured only in terms of dollars. *767 ; ; ; ; affd., ; certiorari denied, . The excess of amount realized over cost of the mortgages during that period was not measurable in terms of dollars. None of the marks received by the petitioner's agents representing repayment of mortgage principal could be removed from Germany either physically or by way of credit during the remainder of the taxable year. The dollar equivalent of those marks could not be obtained. The petitioner did not have unrestricted use and enjoyment of the marks. It had a claim against its agents for the amount of the marks but it could not remove the credit or the marks from Germany. It could not use the marks to retire its bonds as it desired to do. Just at the end of the year there was a regulation passed which permitted reinvestment under certain circumstances. But proceeds of such reinvestment would likewise be blocked and the*768 regulation in no way benefited the petitioner during 1931. The petitioner had no way of obtaining these funds during 1931. It tried to have the funds released, but was unable to have any of them released until a number of years later. Thus it appears that these particular marks during 1931 were subject to a very serious restriction and were in no sense the equivalent of free marks. It was, therefore, improper to compute a gain to the petitioner from the repayment of the mortgages by translating the excess marks received into dollars at the rate of exchange applicable to free marks. The petitioner had no gain during 1931 from the receipt of the blocked marks.
The situation in regard to the funds received prior to July 13, representing repayment of mortgages, is entirely different. The marks received in payment of those mortgages were not restricted at the time received, but were freely negotiable, convertible, and transferable. The petitioner could have removed them from Germany had it so desired. The transactions were complete, the gain was actually realized by the taxpayer, and it properly reported that gain. After the gain was realized, some of the marks were apparently*769 allowed to remain in German banks until they became blocked on July 13, but that is no reason for holding that the gains were not realized. Once income is earned and realized, it must be reported as income. Money deposited in a bank may be lost. If it is lost, a deduction is allowed *191 for loss. But the owner of the deposit can not go back and claim that income deposited in the account was not income in the first place because it was subsequently lost. The blocking of the marks on deposit on July 13 might have resulted in a loss to the taxpayer. But the evidence before the Board does not show that there was any loss to the taxpayer in 1931 from the blocking of its deposit accounts in the German banks. The pleadings on this point are not satisfactory, but even if they were, it appears that the petitioner properly reported its income from payments made prior to July 13 and is not entitled to any deduction on account of deposits in the banks on July 13.
Reviewed by the Board.
Decision will be entered under Rule 50.