*1187 A taxpayer acquired stock from his daughter-in-law. He paid her more than the stock was worth at the time in order to help her out of financial difficulties. Later he sold the stock for less than he had paid for it and for less than it was worth at the time he acquired it. The Commissioner allowed him a deduction representing the difference between the amount received for the stock and the fair market value of the stock at the time it was acquired. The taxpayer was not entitled to any greater deduction.
*65 The Commissioner determined a deficiency of $2,824.21 in income taxes of Donald McDonald, Sr., for 1922. The only issue is whether or not the decedent sustained a larger loss in 1922 from the sale of B. F. Avery & Sons stock than the Commissioner allowed.
FINDINGS OF FACT.
Donald McDonald, Sr., died on June 3, 1924. His son, Donald McDonald, Jr., had been his sole administrator, had been discharged before receiving the notice of deficiency, but had never notified the Commissioner of the termination of his fiduciary capacity.
Donald*1188 McDonald, Jr., was chairman of the board of directors of B. F. Avery & Sons. The son and his wife, Juliet Avery McDonald had been acquiring B. F. Avery & Sons stock for a number of years. The wife had borrowed money to buy her stock. In the latter part of 1920 and during 1921 the son and his wife were extremely hard pressed for money with which to pay interest on their loans. The son told his father of the situation. The father advanced some money at once and agreed to take from his daughter-in-law, B. F. Avery & Sons common stock at the cost of the stock to her, which they agreed averaged $80 per share. Donald McDonald, Sr., advanced cash to Juliet Avery McDonald from time to time as her need for cash became urgent, and at such times or later she delivered shares of her stock to her father-in-law. The final event in this series of transactions took place in May 1922, when Juliet Avery McDonald delivered 30 shares and received $3,000.
Donald McDonald, Sr., thus acquired 292 shares of the stock and paid to his daughter-in-law $23,960. Donald McDonald, Sr., owned other shares of the same kind of stock. On June 7, 1922, Donald McDonald, Sr., transferred to his son Donald McDonald, *1189 Jr., 488 shares of B. F. Avery & Sons common stock. In payment for the stock and for a previous loan of $1,000, he accepted his son's non-interest-bearing promissory note for $20,520. This note bore no due date and was to be paid when the son was able to pay. In the settlement of the father's estate some adjustment was made on account of interest on this note. Included in the 488 shares sold were the 292 shares acquired from Juliet Avery McDonald. The father and son had had no agreement that any of the shares acquired from the daughter-in-law would be transferred to the son.
The amount received by Juliet Avery McDonald from Donald McDonald, Sr., was greatly in excess of the fair market value of the shares at the times money was advanced and at the times certificates for shares were delivered. The fair market value of the stock did not exceed $50 per share at any time in 1921 and did not exceed $40 at any time in 1922 up to June 7.
*66 The Commissioner disallowed a part of the loss claimed on the return for 1922 as sustained on the sale of the 488 shares of B. F. Avery & Sons stock. Part of this disallowance is not contested. The Commissioner allowed a loss of $2,620*1190 on the 292 shares acquired from Juliet Avery McDonald. In arriving at this loss he held that the cost of the 292 shares was the same as their fair market value, i.e., $50 per share for 262 shares acquired in 1921 and $40 per share for 30 shares acquired in 1922.
OPINION.
MURDOCK: A jurisdictional question was suggested by the Board Member at the hearing and the parties were requested to clear it up by proof of all pertinent facts. The petitioner had been the sole administrator of his father's estate but had been discharged before receiving the notice of deficiency. The question was whether he had ever notified the Commissioner of the termination of his fiduciary capacity. See section 281(a) of the Revenue Act of 1926. The notice of deficiency would indicate that he had not and counsel for the respondent said there was nothing in his files to indicate that such notice had been given. The petitioner was questioned on the subject, but did not know whether or not a notice had been given. His counsel made no further answer to our question, but now urges us to dismiss the proceeding for lack of jurisdiction. We hold that we have jurisdiction. *1191 .
The petitioner contends for a loss deduction of $12,280 as a result of the sale of the 292 shares of stock which the decedent acquired from his daughter-in-law. The Commissioner allowed a deduction of only $2,620 on the loss resulting from the sale of those particular shares. A theory advanced in the notice of deficiency and still relied upon by the respondent is that the excess of the purported purchase price of the stock over the fair market value of the stock at the time of acquisition represented a gift and was not a part of true cost. Some support for this theory is found in two cases cited by the respondent, , and . Furthermore, the present case is an appropriate one for the application of such a theory, if the theory is sound in principle. The decedent could have purchased the stock for less money. He paid more than market only that thereby he might aid his son and his daughter-in-law. Adverse interests can be relied upon to fix a proper cost for tax purposes, but where, as here, the interests of the parties*1192 are not adverse, the terms agreed upon may require closer scrutiny.
The respondent suggests other grounds to support his determination. One is that the loss was not sustained in a transaction entered into for profit. The loss in question was not incurred in trade or business. Neither was it a loss from casualty or theft. *67 Therefore, the petitioner must rely upon section 214(a)(5) of the Revenue Act of 1921, which allows as a deduction "Losses sustained during the taxable year and not compensated for by insurance or otherwise, if incurred in any transaction entered into for profit, though not connected with the trade or business." Obviously the decedent did not enter into this transaction for the sole purpose of making a profit. The making of a profit was not even his primary purpose. Indeed the facts do not indicate that he gave any consideration to the question of probable profit or loss. He advanced his money in order to relieve his son and his daughter-in-law from their difficulties. If the transaction can not be divided so that in part it was one entered into for profit and in part was not one entered into for profit, the petitioner would not be entitled to*1193 any deduction, since he could not show that the transaction as a whole was one entered into for profit. Furthermore the loss resulting from the excessive price paid for the stock must have been compensated for by the personal satisfaction which he derived from coming to the aid of his family. Probably the legislators, when they enacted the provision in question, had in mind only compensation of a material kind. However that may be, we think that they did not intend to allow a deduction for that part of the loss which resulted in this case from paying more than a fair price for the stock. The excess cost was paid for personal reasons, would not have been paid otherwise, and can not be the basis of a loss.
Decision will be entered for the respondent.