*2411 Evidence examined and transaction in Italian lire held not deductible in 1919, and proper net income determined.
*380 A deficiency of $9,053.61 in income and profits taxes for 1919 was assessed against the petitioner by the respondent. The principal error complained of arises from the disallowance of a claim for deduction on account of a loss in the sale of Italian lire on the ground that the loss was sustained in 1920 and not in the taxable year. Petitioner admits that the loss was not sustained in 1919, but claims respondent erred in computing net income after such disallowance.
FINDINGS OF FACT.
The petitioner is a New York corporation with its principal office at 438 Broome Street, New York City. It is a small close corporation engaged in the tobacco business, catering especially to the Italian trade in this country. Paolo Cannizzaro is the principal stockholder and president.
*381 In the summer of 1919 petitioner determined to purchase large quantities of supplies in Italy and in order to*2412 finance the purchases arranged to buy 400,000 Italian lire at a cost of approximately $45,000. On account of unsettled business and political conditions in Italy during 1919 and 1920, the proposed purchases of merchandise were not made and about February 1, 1920, the lire were sold at a loss of $25,042.10.
The facts relative to the purchase and sale of the lire are as follows: On July 18, 1919, the petitioner purchased from the Italian Discount & Trust Co. of New York 200,000 lire for the sum of $23,148.16. On the same day it paid on account thereof the sum of $5,787.04 and executed its note to the Trust Co. for the balance of $17,361.12. On August 6, 1919, it purchased an additional 200,000 lire from the same bank for $22,727.27, and on that day paid $5,727.27 on account thereof and executed its note for the balance of $17,000. This made a total purchase of 400,000 lire at a cost of $45,875.43. The lire were entered on the books of the Trust Co. in the individual name of Paolo Cannizzaro, but were held by the Trust Co. at all times until their sale in its possession, or that of its agents in Italy, as collateral security to the two loans of the petitioner above indicated. *2413 Paolo Cannizzaro made an assignment in writing of the lire as security and petitioner added other security to the loans. This condition continued unchanged throughout 1919 and until about February 1, 1920, when the lire were sold for $20,833.33 and the notes were paid off.
From its organization through the taxable year, petitioner's books were kept on a single-entry plan by an inexperienced bookkeeper. After the taxable year a new system of bookkeeping was instituted by a competent accountant and the old books were destroyed or lost. The only information is contained on the balance sheets of petitioner for December 31, 1918, and December 31, 1919, the tax returns for 1919, and the records of the Trust Co. The original return for 1919 was prepared by petitioner's bookkeeper, and an amended return by an accountant. The original return filed showed a net income of $4,951.88 and the amended return a net income of $6,522.56, the difference resulting from the deduction of income tax of $1,570.68 in the first return, which was properly excluded as a deduction in preparing the amended return.
In February, 1920, Paolo Cannizzaro instructed petitioner's bookkeeper to throw the lire*2414 transaction into petitioner's accounts and 1919 tax return so as to take the loss for that year.
After an audit respondent disallowed the loss of $25,042.10 on sale of Italian lire, because not a completed transaction in 1919, and *382 added this amount to the net income of $6,522.56 shown on the amended return, and increased petitioner's net income to $31,564.66, upon which he found a deficiency in tax of $9,053.61.
OPINION.
BLACK: There have been three hearings of this case, at two of which evidence was heard, and on the hearing of various motions a number of affidavits have been filed. On account of the destruction or loss of the books and the inexperience of the bookkeeper, there has been some confusion of the facts, and this has been added to by the change of theory of the petitioner.
In its tax returns and original and amended petitions and at the first hearing, the petitioner contended that it was the owner of the 400,000 lire, that the decline in value occurred before December 31, 1919, and that it was entitled to take the loss in 1919. As an alternative it contended that if it was not entitled to the loss it should not be charged with the sum of $20,833.33, *2415 receipts from sale of lire.
At the final hearing petitioner changed its position as to the ownership of the lire and contended that petitioner did not own them at all, but that Paolo Cannizzaro owned them in his individual capacity and that therefore all reference to lire should be stricken from the accounts and returns and when so stricken the net income would be $10,689.23.
Without repetition of the facts or discussing the evidence, we are clearly of the opinion that the petitioner owned the lire and that Cannizzaro had no interest therein except as a stockholder in petitioner. There is no evidence that he ever paid a cent of the cost. He is not introduced as a witness, but in an affidavit filed herein September 18, 1928, plainly states that the transaction was a company transaction and does not claim that he was the owner of the lire. It was not shown why the lire were placed in his name on the Trust Co.'s books, but we regard it as immaterial. The petitioner paid for the lire and we think that the evidence establishes that the lire belonged to it. This being the case, we do not think the respondent erred in refusing to allow the loss on the sale of the lire, amounting*2416 to $25,042.10, which petitioner sought to deduct from the 1919 income-tax return. The loss on the lire did not occur until 1920 and therefore was not deductible in 1919. The deduction would have to be taken for 1920.
Decision will be entered for the respondent.