*2581 Loss FROM SALE OF CORPORATE STOCKS. - In 1903 the petitioners purchased both the preferred and common stock of a corporation at par. In 1923 the corporation went into voluntary bankruptcy and petitioners thereupon sold their stock, both preferred and common, at $1 per share. Upon the record it is determined that the March 1, 1913, value of the preferred stock was the same as cost, par, and that at the same date the value of the common stock was less than par. Loss deductions allowed on the basis of valuations so determined.
*844 These proceedings are for the redetermination of deficiencies in income tax for the year 1923 amounting as follows: for Alfred C. Thompson, $2,200.26; for Sudie F. Thompson, $39.95. The petitioners allege error in that deductions for losses attributable to the sales of certain corporate stocks have not been allowed.
Upon motion duly made and granted the appeals were consolidated for purposes of hearing and decision.
FINDINGS OF FACT.
The petitioners are individuals with the same post-office*2582 address of Equitable Building, Baltimore, Md.
In 1903 the petitioners acquired capital stock in a corporation known as the Anderson Phosphate & Oil Co. as follows: Alfred C. Thompson acquired 58 shares of preferred stock at a cost of $5,800 and 70 shares of common stock at a cost of $7,000. Sudie F. Thompson acquired 7 shares of preferred stock at a cost of $700, and 8 shares of common stock at a cost of $800. The said corporation was engaged in the business of manufacturing and selling sulphuric acid and high-grade fertilizers, with its principal place of business at Anderson, S.C. In addition the corporation owned and operated a number of cottonseed-oil mills and ginneries.
The net profits of the corporation, according to audit reports introduced in evidence without objection for the four fiscal years preceding 1913, amounted as follows:
| Fiscal years ended May 31 - | |
| 1909 | 1 $4,057.61 |
| 1910 | 24,676.26 |
| 1911 | 2 82,362.33 |
| 1912 | 2 60,067.91 |
Amended returns on the basis of Calendar years, prepared*2583 from and in agreement with the books, were filed in 1917 by the corporation at the instance of a revenue agent, reporting taxable net income as follows:
| 1909 | $14,523.89 |
| 1910 | 49,045.79 |
| 1911 | 84,266.65 |
| 1912 | 60,316.61 |
| 1913 | 23,174.43 |
*845 The corporation paid 4 per cent dividends on the par value of the preferred stock on January 2, 1911, July 1, 1911, and January 1, 1912.
The balance sheet of the corporation, according to the books, as of May 31, 1912, reflected the following:
| ASSETS | ||
| Cash | $75,567.55 | |
| Accounts receivable | 268,040.48 | |
| Notes receivable | 352,434.44 | |
| Inventories | 184,091.94 | |
| Corporation stocks owned | 1,000.00 | |
| Prepaid expenses | 9,519.19 | |
| Doubtful accounts receivable (per auditor) | 3,958.37 | |
| Property account, plant and equipment | 320,300.28 | |
| Total | 1,214,912.25 | |
| LIABILITIES AND CAPITAL | ||
| Accounts payable | $55,879.52 | |
| Notes payable | 642,350.83 | |
| Capital stock: | ||
| Common stock 2,648 shares | $264,800 | |
| Preferred stock 2,648 shares | 264,800 | |
| 529,600.00 | ||
| Sub-total | 1,227,830.35 | |
| Deduct: | ||
| Profit and loss account (deficit) | 12,918.10 | |
| Net | 1,214,912.25 |
The fair market value as of March 1, 1913, of*2584 the capital stock of the said corporation was $100 per share for the preferred stock and $3.80 per share for the common stock. At this time the outstanding stock amounted to 2,648 shares of preferred stock and 2,648 shares of common stock, and the net worth of the corporation amounted to at least $274,862.40.
On May 8, 1923, the corporation filed a voluntary petition in bankruptcy and it was adjudicated bankrupt on the same day.
In 1923 the petitioners sold their stockholdings in the corporation at a price of $1 per share, the proceeds amounting as follows: to Alfred C. Thompson, $128; to Sudie F. Thompson, $15.
The petitioners filed separate income-tax returns for 1923 claiming therein as deductions from income losses attributable to the sale of the corporation's stock amounting as follows: for Alfred C. *846 Thompson, $12,672; for Sudie F. Thompson, $1,485. In determining the deficiencies the respondent has not allowed the deduction of any amounts of losses whatever from the sale of the stock.
OPINION.
TRUSSELL: The appeals involve the same issue. The petitioners claimed deductions in their returns for losses through the sale of certain corporation stock, *2585 basing their claims upon the entire amount of the original cost. The stock was acquired by purchase for cash prior to March 1, 1913. Section 202(b)(2) of the Revenue Act of 1921 provides with respect to property acquired prior to March 1, 1913, that the basis for ascertaining the deductible loss from sale of the property is the lower of cost or fair market value on March 1, 1913. The cost of the stock to the petitioners and the amounts of the proceeds of the sales are undisputed. The sole question for decision is the value, if any, of the stock on March 1, 1913.
There is no evidence of market transactions in the stock here under consideration at any time subsequent to the purchases by the petitioners. Nevertheless, after an analysis of all of the evidence in this case we are satisfied that there existed during 1912 and 1913 a substantial net worth of the corporation which contributed intrinsic value to the stock as of March 1, 1913, and the petitioners are entitled to loss deductions based upon a fair valuation of the net worth. We believe that at least a minimum fair market value of the stock may fairly be determined from the record. We are unable to recognize a proper basis*2586 in this case for the use of the several computations of average values in combination with book values suggested by the petitioners or for the acceptance of the full unadjusted book values.
It is true, however, that during the four fiscal years immediately preceding March 1, 1913, the corporation had enjoyed very good profits; the preferred stock had been the recipient of three semiannual dividends of 4 per cent, and a balance sheet starting with the book values at the end of the fiscal year May 31, 1912, discloses, after adjustments by way of conservative allowances for uncollectible accounts and for accumulated depreciation of plant and equipment a minimum net worth, which in our opinion was at least $274,862.40. The stock then in the aggregate was worth at least $274,862.40.
Profitable operations continued for the remainder of 1912 and during 1913, and we see no reason for a conclusion that the stock was worth less on March 1, 1913, than on May 31, 1912. We conclude that the fair market value of the stock as of March 1, 1913, was $100 per share for the preferred stock and $3.80 per share for the common stock.
*847 Since the respondent has allowed no deductions*2587 whatever for the losses claimed in the taxable year, our findings are decisive of the issue. The value of the preferred stock equals cost; that of the common stock is less than cost. The deficiencies should be recomputed allowing deductions for losses based upon the values here found for the stocks as of March 1, 1913.
Judgment will be entered pursuant to Rule 50.