*2111 1. Certain stock acquired by the petitioner in the sale of his farm did not have a readily realizable market value at the time it was received.
2. The sum of a bonus charged by a financial institution for making a loan to petitioner and included in the notes given to evidence the loan, is not deductible from gross income, since petitioner was on the cash basis of accounting and no part of the bonus appears to have been paid in the taxable year.
*456 Proceeding for the redetermination of deficiencies of $3,342.55 and $222.54 for the years 1922 and 1923. The issue for 1922 is whether respondent erred in including in petitioner's income the sum of $21,972 as profit realized on the sale of a parcel of land, and the issue for 1923 is whether the sum of $7,350, representing a bonus charged by the lender for making a loan to petitioner, is deductible from gross income.
FINDINGS OF FACT.
The petitioner, an individual engaged in the farming business and having his principal office at Peters, Fla., in 1922 sold his 94-acre farm located near*2112 Peters to the Di Giorgio Fruit Corporation, hereinafter referred to as the corporation, for $2,500 cash, two notes - one for $2,000 and the other for $3,000, and 125 shares of the preferred stock and 850 shares of the common stock of the corporation. Petitioner paid a commission of $2,000 to brokers for negotiating the sale. The depreciated cost of the farm on January 1, 1922, was $13,028. At about, but prior to, the time of the above-mentioned sale, Thomas J. Peters, petitioner's employer since 1909, acquired 1,400 shares of preferred and 10,417 shares of common stock of the corporation in a sale of his farm to the corporation.
The corporation was organized in December, 1920, with an authorized capital stock consisting of 100,000 shares of preferred stock, par value $100 each, and 500,000 shares of common stock of no par value, for the purpose of acquiring fruit-growing, marketing and related businesses theretofore developed and conducted by Joseph Di Giorgio, the corporation's president, and his associates. The corporation thereafter acquired property consisting of the capital stock of a number of corporations, a number of orchards, groves, leasehold, marketing contracts, *2113 packing houses, warehouses, mills for the manufacture of packing boxes, a cannery, a fruit drier, steamships, and other property necessary for the handling of fruit and produce. The corporation also, directly or through one or more subsidiary corporations, owned all or the controlling interest of the capital stock of thirty subsidiary corporations. The land owned, leased or under marketing contracts by the corporation and its subsidiaries amounted to 57,278 acres. The corporation and its subsidiaries, having their places of business or properties in California, Oregon, Washington, *457 New York, Idaho, Florida, Louisiana, Maryland, Cuba, Jamaica, and the District of Columbia, were prepared to grow fruit and handle it to consuming markets.
The number of stockholders, the surplus, and the number of outstanding shares of stock of the corporation at the close of 1921 and 1922 were as follows:
| 1921 | 1922 | |
| Stockholders | 2,500 | 7,150 |
| Surplus | $ 241,964.12 | $ 68,506.44 |
| Preferred stock | 81,084 | 88,719 |
| Common stock | 463,074 | 487,042 |
In his computation of the amount of profit realized by the petitioner on the sale of his farm to the corporation, the respondent*2114 placed a value of $12,500 on the preferred and $17,000 on the common stock of the corporation acquired by the petitioner in the transaction. Such stock had no readily realizable market value at the time it was acquired by petitioner.
In 1923 petitioner obtained a loan from the Union Home Builders Association, St. Louis, Mo., for which the lender retained the sum of $7,350 as a bonus for making the loan. The loan and the bonus were evidenced by 50 notes, each in the amount of $1,000, secured by a mortgage on a farm and payable at the rate of $492 per month, including interest.
OPINION.
ARUNDELL: The single point in dispute under the issue raised for the year 1922 is whether the stock acquired by the petitioner in the sale of his farm had a readily realizable market value, the petitioner having determined that it had a value of $29,500.
In 1922 and 1923 the petitioner and Peters endeavored, without success, to locate a market for their stock. For this purpose petitioner made two or three visits to the offices of the corporation and talked to Di Giorgio and other officers of the corporation. Peters directed his inquiries to not only officers of the corporation, but to*2115 his attorney in New York City and H. W. Dubiske & Co., a brokerage concern having 85 offices in the principal cities of the United States, which was endeavoring to dispose of a large quantity of the stock it had acquired from Di Giorgio at the time of the corporation's organization. The inquiries made and conferences had developed that the stock was not listed on any exchange and did not enjoy a regular and ready market; that the only sales being made were on a market open only to H. W. Dubiske & Co.; that no effort would be made *458 to create a market for the stock until H. W. Dubiske & Co. had disposed of its holdings, which had not been accomplished as late as October, 1923, and that H. W. Dubiske & Co. was not interested in handling additional shares of the stock. The fact that it was able through its large organization to place a limited amount of the stock it had acquired does not seem to us sufficient to establish that the stock had a readily realizable market value. Petitioner made repeated efforts, but could not market his stock, and the only benefit he appears to have obtained from its ownership was to use it in 1925 as additional collateral on a loan he had theretofore*2116 made. His stock, when sold upon his failure to pay the indebtedness to the bank, realized only $20 per unit of one share of preferred and three shares of common. We think the evidence before us sustains the claim of petitioner that at the time of its acquisition the stock did not have a readily realizable market value.
Under the other issue petitioner's counsel concedes in his brief that the petitioner was on the cash receipts and disbursements basis of accounting. In the absence of proof that any payments were made on the notes given to evidence the loan and the bonus charged for making the loan, the respondent's action in disallowing the bonus as a deduction must be sustained. . See , affirming ; cf. .
Decision will be entered under Rule 50.