*1331 1. All deductions to which either husband or wife filing a joint return is entitled may be deducted from their aggregate gross income. Frank B. Gummey,26 B.T.A. 894">26 B.T.A. 894, followed.
2. A loss sustained by a husband upon the sale of stock to his wife, with the mutual intention in good faith of transferring ownership, the wife having a substantial estate of her own and having paid therefor with her own money, is deductible by the husband.
*399 This is a proceeding for the redetermination of an asserted deficiency in income tax and surtax for the year 1925 in the amount of $9,144.44. This proceeding was consolidated with the proceeding of the Estate of William C. Brumder, Docket No. 51222, and that of Albert C. Elser, Docket No. 51223, for hearing only.
It is alleged in the petition that the Commissioner erred in failing and refusing to allow a deduction in the amount of $74,250 for a loss sustained by petitioner on the sale of stock during the year 1925; This is denied in the answer.
FINDINGS OF FACT.
The petitioner is an individual, *1332 residing in Milwaukee, Wisconsin. He is a business man, with diversified business interests. He has been buying and selling securities for over thirty years.
The petitioner from time to time acquired a total of 10,000 shares of preferred stock of Eline's Incorporated, hereinafter referred to as Eline's, for which he paid $100 per share. Such purchases were made for profit. On or about February 18, 1924, the petitioner acquired 1,000 shares of the preferred stock of such company, represented *400 by certificate No. 27 issued by the company under date of February 18, 1924, for which he paid $100 per share. On or about December 30, 1925, he transferred 750 shares of these 1,000 shares to his wife, Ilma Vogel Uihlein. This transfer was recorded on the books of the company and a certificate for 750 shares issued to Mrs. Uihlein under date of December 30, 1925, and a certificate for 250 shares under the same date was issued to the petitioner, in lieu of the original certificate for 1,000 shares. The petitioner sent a statement to his wife under date of December 30, 1925, billing her for the 750 shares of stock. The petitioner received a check of the Elmwood Co. of Wisconsin*1333 under date of December 30, 1925, payable to his order in the amount of $750, on the back of which a statement appeared as follows: "Purchase of 750 shares of Eline's Pfd. Stock at $1,00 per Share for Acc't of Mrs. Ilma Uihlein." Receipt of payment for such stock is noted on the above mentioned statement sent to petitioner's wife. Mrs. Uihlein had at that time an account with the Elmwood Co., a Vogel family corporation, of which family she is a member, Her account with that company at that time showed a credit balance. The petitioner never had any account with that company. Mrs. Uihlein has a substantial estate of her own, separate and distinct from that of her husband, operates her own properties, and takes her own profits and losses. Her personal books of account are located at the office of the Elmwood Co. of Wisconsin and are kept by an employee of that company. The above transaction was entered upon her books of account under date of December 31, 1925, as a purchase from the petitioner of 750 shares at $1 per share. The personal books of account of the petitioner are located at the office of the Uihlein family, which office is not in the same building as that of the Elmwood*1334 Co., and are kept by the bookkeeper employed by the various members of the Uihlein family. The bookkeeper recorded the above transaction as a sale of 750 shares of stock to Ilma Uihlein on the books of account of the petitioner,
The 750 shares so transferred to Mrs. Uihlein have been and still are a part of her separate estate. The petitioner and his wife had no understanding or agreement that she was to hold the stock for him as his property, nor that he was to repurchase the stock from her, nor that he was to reimburse her for the amount paid by her therefor. Subsequent to this transaction no payment was made by the petitioner to Mrs. Uihlein as reimbursement for the $750, nor has he repurchased from her at any price the 750 shares transferred to her. Petitioner did not intend to make her a gift of this stock. Neither Mrs. Uihlein nor the petitioner purchased or acquired any stock of Eline's Incorporated within 30 days prior to or within 30 days after the above transaction.
*401 During the year 1925 and at other times Mrs. Uihlein purchased securities of other corporations from her husband, and took losses on some of them.
These 750 shares of stock were transferred*1335 to his wife at a price of $1 per share, as heretofore set forth, with the mutual intention of placing the ownership thereof in her.
The fair market value of this stock at the time of the sale did not exceed $1 per share.
In connection with this transaction the petitioner took into consideration that he would thereby establish a loss for tax purposes, but his purpose was to dispose of the stock.
Joseph E. Uihlein filed a joint return with his wife for the calendar year 1925 and therein claimed a deduction for $74,250, representing the difference between the amount of $75,000, paid by him for the 750 shares, and $750 received by him upon the alleged sale thereof to his wife. The net joint income reflected on such return is $12,831;12.
The respondent disallowed the claimed deduction upon the ground, as stated in the notice of deficiency, that:
* * * when a husband and wife file a joint return such return, in accordance with the provisions of section 223(2) of the Revenue Act of 1926, is to be treated as a taxable unit and the income disclosed therein is subject to tax as though the return were of a single individual. In such cases, therefore, a loss sustained by the husband*1336 from the sale of stock to his wife, or vice versa, may not be taken as a deduction in the joint income tax return, as an individual can not sell property to himself. See Income Tax Unit Ruling 1997, Cumulative Bulletin III-1, page 149.
At the time of the hearing there were no tax disputes involving other years pending between petitioner and respondent.
OPINION.
McMAHON: The first contention of the respondent, that, where a husband and wife living together file a single joint return of income, such husband and wife become a single taxing unit and, consequently, a loss sustained by the husband from the sale of stock to his wife, or vice versa, may not be taken as a deduction in the joint income tax return, as an individual can not sell property to himself, was considered in Frank B. Gummey,26 B.T.A. 894">26 B.T.A. 894, wherein the Board, resolving such contention adversely to the respondent, stated as follows:
* * * Where a husband and wife exercise the statutory right to file a single joint return gross income and deductions are listed as though they belonged to the one making the return, but in reality they represent the combined receipts and deductions of each. To*1337 reach the aggregate net income, on which the tax is computed, consideration must be given to the transactions *402 of each. In no other way can the combined taxable income be determined. The respondent has recognized this condition by the promulgation of regulations under section 51 of the 1928 Act providing that where husband and wife file a single joint return "all deductions to which either is entitled shall be taken from such aggregate income." A like regulation was in force under prior acts containing provisions similar to section 118 of the 1928 Act. Art. 401, Regulations 62, 65 and 69.
If the theory being advanced by the respondent here were carried out to its logical conclusion, a loss sustained by a husband or wife in a transaction between them would not be deductible under the statute on the ground that a person can not enter into a transaction with himself. A loss sustained by the husband in a transaction with his wife has been allowed as a deduction from gross income reported in their single joint return. *1338 Fleitmann et al.,22 B.T.A. 1291">22 B.T.A. 1291. The acquiescence of the respondent in the decision is shown in C.B. X-2, 214.
Had the petitioner and his wife filed separate returns, there would be no question about the deductibility of the losses sustained by each. In filing a single joint return they lost none of such rights; each remained an individual, and as such, a taxpayer, within the meaning of section 118 of the statute. See also Robert E. Binger,22 B.T.A. 111">22 B.T.A. 111; Carl P. Dennett,30 B.T.A. 49">30 B.T.A. 49; W. E. Brochon,30 B.T.A. 404">30 B.T.A. 404, also decided this date; and Frida Hellman Cole,29 B.T.A. 602">29 B.T.A. 602.
The remaining question to be considered is whether the transfer of 750 shares of the stock of Eline's by the petitioner to his wife constituted a sale made in good faith.
The petitioner testified that the reduction of taxes was also considered, although his purpose was to dispose of the stock. Even though the sale involved herein was carried out with the express purpose of avoiding tax liability, such motive is not ground by itself for the denial of the allowance of the claimed loss. The courts and the Board have*1339 held that a loss sustained from a sale made in good faith with the sole purpose of decreasing tax liability is deductible if effected by legal means. United States v. Isham,17 Wall. 496">17 Wall. 496; Nace Realty Co.,28 B.T.A. 467">28 B.T.A. 467; Theron E. Catlin,25 B.T.A. 834">25 B.T.A. 834; and cases cited.
In Wiggin v. Commissioner, 46 Fed.(2d) 743, the court stated:
The test of the validity of these contracts is not whether the motive therefor, perhaps even the dominant motive, may not have been to reduce Wiggin's income taxes; the test is whether the transaction was real, the contract valid, as between him and the corporation.
While transactions involving members of the same family or those bearing a confidential relation to each other should be carefully scrutinized, Benjamin T. Burton,28 B.T.A. 1242">28 B.T.A. 1242; James L. Robertson,20 B.T.A. 112">20 B.T.A. 112; Charles S. Hempstead,18 B.T.A. 204">18 B.T.A. 204; Albert W. Finlay,17 B.T.A. 828">17 B.T.A. 828; Royal Wet Wash Laundry, Inc.,14 B.T.A. 470">14 B.T.A. 470; and *1340 P. B. Fouke,2 B.T.A. 219">2 B.T.A. 219, "their recognition may not be denied when by proper evidence they are shown to be actual." Benjamin T. Burton, supra.
*403 Section 246.03 of the Wisconsin Statutes of 1925 provides as follows:
Any married female may receive by inheritance or by gift, grant, devise, or bequest from any person, hold to her sole and separate use, convey and devise real and personal property and any interest or estate therein of any description, including all held in joint tenancy with her husband, and the rents, issues and profits thereof in the same manner and with like effect as if she were unmarried, and the same shall not be subject to the disposal of her husband nor be liable for his debts. Any conveyance, transfer, or lien executed by either husband or wife to or in favor of the other shall be valid to the same extent as between other persons.
As to the effect of this statute, the Wisconsin Supreme Court in Bradley v. Selden,228 N.W. 494">228 N.W. 494, stated: "The statute now places the wife on the same legal basis as any other person, changing the rule which prevailed under the earlier decisions."
*1341 The testimony of the petitioner and his wife is unequivocable and uncontradicted. They testified that an actual bona fide sale, and not a gift, was intended; that no agreement or understanding existed between them that the stock was to be held by the wife as the property of the petitioner or the purchase price was to be returned by the petitioner to the wife; that the purchase price was paid by the wife to the petitioner out of her own separate estate, which was substantial; that the transaction was treated as a sale upon the individual books of account of both the petitioner and his wife; that the stock transferred to the wife has been, ever since its transfer to her, a part of her separate estate; and that the petitioner never reacquired the stock from his wife.
The stock was transferred on the books of the corporation and a new certificate therefor issued to the wife. The bookkeeper of the petitioner and the bookkeeper of the petitioner's wife testified that the transaction was treated as a sale by the petitioner and a purchase by his wife and so recorded in their respective books of account.
We have found that the fair market value of Eline's preferred stock, at the time*1342 of the sale in question here, did not exceed $1 per share.
Upon the whole record in this proceeding it is our opinion that the sale in question was made in good faith, and we cannot agree with respondent's contention, on brief, that it was an accommodation sale and not a bona fide sale. See Commissioner v. Hale, 67 Fed.(2d) 561, and Carl P. Dennett, supra, Cf. W. E. Brochon, supra.
The loss in question here is deductible.
Reviewed by the Board.
Decision will be entered under Rule 50.