*98 Decision will be entered for respondent.
Petitioner paid $ 25,000 for an option to purchase certain corporate stock with the expectation that another corporation, not obligated so to do, would take over and exercise the option and not only reimburse petitioner for the purchase price of the option but also pay it a commission on purchase of the optioned stock. The option was not so taken over and was not exercised. The purchase price of $ 25,000 was forfeited in petitioner's tax year ended October 31, 1944, thus entailing a loss to petitioner in such amount in that tax year. Petitioner had no capital gains in such tax year. Held, petitioner as principal and not as agent purchased the option and that the loss it sustained was a short term capital loss under section 117 (g) (2) of the Internal Revenue Code. Held, further, that since petitioner had no capital gains in the tax year involved no deduction is allowable for the loss sustained. Section 117 (d) (1) of the Code.
*220 The respondent determined deficiencies for petitioner's fiscal year ended October 31, 1944, as follows:
| Income tax | $ 1,883.37 |
| Declared value excess-profits tax | 843.51 |
| Excess profits tax | 18,093.87 |
The questions raised by the pleadings are as follows:
(1) Is the petitioner entitled to a deduction of $ 25,000 representing the payment for an option to buy certain capital stock which was forfeited during the fiscal year ended October 31, 1944?
(2) Did respondent err in determining that petitioner is entitled to a deduction of $ 7,584.90 for traveling and entertainment*100 expenses instead of $ 9,584.90, as claimed?
(3) Did the respondent err in determining that the petitioner was entitled to a deduction of only $ 125 for capital stock tax instead of $ 250, as claimed?
FINDINGS OF FACT.
Petitioner is a corporation organized and existing under the laws of the State of New York. It filed its tax returns for the year involved on a fiscal year basis ended October 31, 1944, with the collector *221 of internal revenue for the third district of New York. Robert A. Nordblom, who has been engaged in the brokerage business for 30 years, was general manager and assistant treasurer of petitioner during the period in question.
In early 1943, while on business in Tulsa, Oklahoma, Nordblom met the general counsel and vice-president of Barnes Oil Co. He advised Nordblom that an attorney named Lemann, who was counsel for Chalmette Petroleum Corporation located in New Orleans, Louisiana, hereinafter referred to as Chalmette, represented some of the shareholders of Chalmette who were interested in selling their holdings in that corporation. The general counsel of Barnes Oil Co. thought petitioner might be interested in trying to find a purchaser for such stock.
*101 Nordblom first met Lemann relative to the above mentioned proposition in April 1943. Lemann told him at that time that the sales price for the stock of Chalmette would be around $ 2,000,000.
Nordblom first attempted to interest a Howard Cowden of the National Consumers Cooperative Co. of Kansas City in the purchase of Chalmette. Cowden expressed interest and requested facts and figures as to the financial structure and operations of Chalmette. Petitioner, acting through Nordblom, engaged another broker named Potter of Minneapolis, Minnesota, to assist him in its dealings with Cowden and the cooperatives interested in purchasing Chalmette.
By the end of 1943 Potter and Nordblom had interested several other persons in the purchase of Chalmette. During early 1944 Nordblom, through Potter's efforts, met one Baskerville, president of Western Fuel & Oil Co. and Western Oil Barge Transportation Co. Baskerville expressed interest, saying that he thought Western Fuel & Oil Co., hereinafter referred to as Western, might be interested in the purchase of Chalmette. He also requested facts and figures as to the financial structure and operations of Chalmette.
Nordblom attempted to obtain*102 the requested information but he was advised by Lemann that a firm offer with a deposit would have to be made before such data would be disclosed. In connection with that request of Nordblom, Lemann directed him to an investment broker in New Orleans named D'Antoni who represented some of the shareholders of Chalmette.
D'Antoni stated that if either petitioner or Baskerville, on behalf of Western, would deposit $ 25,000 for an option, he would give the information concerning the operations and financial structure as requested and would undertake to secure the necessary preferred and common stock of Chalmette. D'Antoni promised that in the event that the necessary shares of stock could not be acquired, he would see to it that that amount was returned to the depositor.
*222 Nordblom then told Baskerville of this proposal. Baskerville said that he could not put up the $ 25,000 on behalf of Western as he did not have any authority from his board of directors to act in respect to the purchase of the securities of Chalmette. He said to Nordblom that he was sure the deal was going through so far as Western was concerned and asked Nordblom if he would not use petitioner's funds for*103 the purpose of depositing the required $ 25,000. Relying upon this statement, petitioner, acting through Nordblom, early in May decided to put up the $ 25,000. An agreement was entered into between petitioner and D'Antoni of New Orleans on May 3, 1944. That agreement is incorporated herein by this reference.
The agreement recited that for a valuable consideration paid, $ 25,000, receipt of which was acknowledged, D'Antoni gave and granted to petitioner (thereinafter referred to as "Purchaser") an option to purchase a certain number of shares of stock of Chalmette and that unless exercised on or before June 13, 1944, such option would terminate, and the $ 25,000 paid would be forfeited.
D'Antoni was then instrumental in having the directors of Chalmette meet for the purpose of passing upon Nordblom's request that the data asked for by Western pertaining to Chalmette's operations and financial structure be made available. He also worked toward getting together the required shares of stock of Chalmette for sale. When the option was about to expire Baskerville informed Nordblom that the interest which he represented was not ready to consummate the agreement to purchase the Chalmette*104 stock. Nordblom then sought an extension of the option, but D'Antoni and Lemann would not grant any further extensions until a further deposit was made. Potter then put up $ 5,000 for an extension of the option for an extra 30 days. Western shortly thereafter deposited to its account at the Whitney Bank in New Orleans the sum of $ 1,500,000 together with $ 25,000 to be paid to petitioner at the time of the completion of the contract for the purchase and sale of the stock of Chalmette.
A short time prior to the expiration date of the option as extended Western withdrew from further participation in the proposed transaction. The option was not exercised and the $ 25,000 which petitioner paid for the option was forfeited. Petitioner had no capital gains in the taxable year.
Petitioner, on its return for the taxable year, claimed the $ 25,000 loss due to "forfeiture of down payment, Chalmette Petroleum Corporation." The Commissioner disallowed this deduction.
The Commissioner also disallowed $ 2,000 of the $ 9,584.90 which petitioner claimed for traveling and entertainment expenses and disallowed a deduction of $ 125 of the $ 250 claimed as a payment of capital stock tax for the *105 fiscal year ended October 31, 1944.
*223 OPINION.
The first question is whether the loss of $ 25,000 from the failure to exercise the option is deductible as an ordinary and necessary business expense under section 23 (a) (1) (A) of the Internal Revenue Code, as petitioner contends, or whether the deduction, if any, which may be allowable in respect of such loss is determinable under section 117 (g) (2) of the Code, as respondent contends. Section 117 (g) (2) provides as follows:
(g) Gains and Losses From Short Sales, Etc. -- For the purpose of this chapter --
* * * *
(2) gains or losses attributable to the failure to exercise privileges or options to buy or sell property shall be considered as short-term capital gains or losses.
Section 117 (d) (1) provides that "In the case of a corporation, losses from sales or exchanges of capital assets shall be allowed only to the extent of gains from such sales or exchanges." For a discussion of the legislative history of section 117 (g) (2) see Alvin J. Spring, 4 T.C. 248">4 T. C. 248; G. C. M. 23677, 1943 C. B. 370.
The terms of the statute are clear. If a corporation*106 taxpayer incurs a loss through the failure to exercise an option, it is to be treated as a short term capital loss and deductible only to the extent of capital gains. In the case at bar petitioner, acting through Nordblom, deposited $ 25,000 with a New Orleans broker for the purpose of giving to petitioner an option to purchase on or before June 13, 1944, certain stock of Chalmette. The agreement provided that unless the option was exercised by petitioner as purchaser on or before June 13, 1944, the option was to be terminated and the money paid therefor forfeited. Through some impediment not explained in the record Western did not go through with the deal on or before June 13, 1944. So, the option was extended 30 days for a consideration of an additional payment of $ 5,000, which was made by Potter, one of the other brokers involved. Finally, and before the transaction was consummated, Baskerville, acting on behalf of Western, notified petitioner and the other parties to the deal that Western would not purchase the shares of stock. The option was not exercised and the purchase price thereof was forfeited.
It is certain, so far as the record shows, that petitioner at no time*107 had any authority to act for Western since neither Western's board of directors nor any officer of that corporation acting on behalf of the board ever gave any such power to petitioner. It and not Western was the purchaser of the option, and through its failure to exercise its rights under it the purchase money was forfeited. It is apparent, then, that petitioner comes squarely within the terms of section 117 (g) (2). In accordance with the above we hold that the loss in question *224 is a short term capital loss within the meaning of section 117 (g) (2), as respondent contends, and since it is not shown that petitioner had capital gains in the taxable year no part of such loss is deductible.
The petitioner asserts that the amount in question is deductible as an ordinary and necessary business expense under the provisions of section 23 (a) (1) (A). It states that a contrary result would be harsh and not within the intent or purpose of Congress in placing section 117 (g) (2) in the Code. We have reviewed carefully the legislative history of that section and can not find there any indication that Congress did not intend that a brokerage corporation which lost the money paid*108 for an option which it purchased but did not exercise should be exempted from its provisions. See Conference Report No. 1385, 73rd Cong., 2d Sess., page 23, 1939-1 C. B. (Part 2) 627, 633; G. C. M. 23677, supra; Alvin J. Spring, supra. If we held in accordance with petitioner's theory, under the circumstances of this case, this Court would be stepping beyond its judicial function into the field of legislation.
It follows that respondent's determination as to this issue is sustained.
The respondent also disallowed as deductions $ 2,000 of the $ 9,584.90 which petitioner claimed as traveling and entertainment expenses under section 23 (a) (1), and $ 125 of the $ 250 claimed for capital stock tax paid during the year involved. At the hearing counsel for petitioner stated as follows with respect to both of these questions:
Mr. Epworth: O. K., sir. No further questions at the moment. Your witness.
If your Honor please, if I may interrupt, the question of the other expenses, disallowance of the other expenses, are of no real significance in this action so far as I am concerned.
*109 The Court: I did not get that.
Mr. Epworth: There were three elements involved in this thing.
The Court: Oh, yes. Are you conceding some of them?
Mr. Epworth: I am not conceding that, but I would prefer to cover that in a brief, rather than testimony.
The Court: All right.
No argument or evidence, however, was presented as to either issue. We therefore sustain the respondent's determination.
Decision will be entered for respondent.