*150 Decision will be entered under Rule 50.
Between 1935 and 1943, petitioner entered into agreements with stockholders of a corporation holding defaulted farm mortgages. The agreements provided that the stockholders would endorse their shares in blank and give them to petitioner for the purpose of compelling the management of the corporation to liquidate. If successful, petitioner was to receive a percentage of the amounts paid to the shareholders in liquidation. If unsuccessful, he was to return the shares to the stockholders.
(1) The sums received by petitioner in 1943, 1944, and 1945 as the percentage of dividends in liquidation stipulated in his agreements with the stockholders held compensation for his services in bringing about the liquidation and taxable to him as ordinary income. Expenses incurred in 1943 in connection therewith determined.
(2) Business expenses incurred by petitioner in 1943, 1944, and 1945, in connection with his employment as an agent to sell the corporation's farm properties, determined.
*1301 Respondent determined deficiencies in petitioner's income tax liability for the taxable years 1943, 1944, and 1945 in the respective amounts of $ 722.92, $ 738.81, and $ 2,357.76. These deficiencies involve three issues raised by the pleading:
(1) Whether payments received by petitioner in the above years in the respective amounts of $ 4,478.20, $ 5,602.10, and $ 6,545.56 constitute compensation for services and thus are taxable as ordinary income as determined by respondent, or whether these amounts constitute a return of capital as claimed by petitioner.
(2) Whether respondent properly disallowed the*152 following portion of business expenses claimed by petitioner in the above years:
| Year | Claimed | Allowed |
| 1943 | $ 1,423.27 | $ 1,107.31 |
| 1944 | 3,802.52 | 1,541.38 |
| 1945 | 3,721.58 | 1,541.38 |
(3) Whether petitioner incurred any deductible expenses in connection with the receipt of taxable income in the amount of $ 2,794.38 from certain grain sales in 1945. This issue was abandoned by petitioner on brief.
*1302 FINDINGS OF FACT.
Petitioner is an individual residing at Billings, Montana. His income tax returns on the cash receipts and disbursements method for the years here involved were filed with the collector of internal revenue at Helena, Montana. The returns were prepared for him by a firm of certified public accountants in Billings. Previous to 1943, petitioner did not file any tax returns because he did not have the required amount of income.
The Midwest Land Co. (hereinafter referred to as Midwest) was a Delaware corporation, with its principal office at Billings, Montana. It was organized shortly after World War One by R. B. Ballard to acquire farm mortgages or farm mortgage bonds in exchange for its stock. Farm mortgages were then in default in large numbers throughout*153 the northwest. Ballard thought the slump in farm land values was temporary and conceived the idea of acquiring defaulted mortgages and holding them until a return of farm values would make foreclosure profitable.
The stock of Midwest consisted of class B, the full voting stock, most of which was owned by the Ballard family, and class A stock, which had a preference on liquidation and could vote only on the question of liquidation. The class A stock was widely held. A majority of both A stock and B stock was required to liquidate the company.
In 1935 a small group of class A stockholders approached petitioner, who was then living in LaCrosse, Wisconsin, and asked if he would be willing to investigate the affairs of Midwest to determine whether anything could be salvaged from their investment. Petitioner had previously been successful in liquidating a debenture loan in another matter for these shareholders and because of his success in this matter they thought he might help them realize something from their investment in Midwest. After a preliminary investigation, petitioner agreed to carry out the project and to contact other stockholders to secure their cooperation.
Between the*154 years 1935 and 1943, petitioner located most of the class A stockholders of Midwest, principally in the states of Wisconsin, North Dakota, and Montana, and was successful in entering into agreements with the majority of them to assign their shares in blank and turn them over to him for the purpose of bringing about a liquidation. The agreement with the stockholders provided that if petitioner were successful in bringing about a liquidation he would receive a stipulated percentage of the amount paid to each of the shareholders in liquidation. If unsuccessful, he was to return their shares. In the majority of cases the agreements provided that petitioner would receive 35 per cent of the amount received in liquidation, but the percentages varied in other agreements from 10 per cent to 40 per cent.
*1303 The following form of agreement was drawn up by petitioner and given by him to the shareholders who authorized him to represent them in bringing about a liquidation:
AGREEMENT
Received of assignment of ( ) Shares Series Stock of the Midwest Land Co. for the purpose of liquidating if possible. It being understood that if liquidated, I am to receive*155 % of the amount of such liquidation. In case of no liquidation the said stock to be returned to the original owner.
Signed
In 1936 petitioner had entered into the above described agreements with the holders of approximately 75 per cent of the outstanding class A stock. He then went to the home office of Midwest in Billings and requested of E. A. Seitz, then president of Midwest, that the stock which had been assigned to him in blank be reissued in his own name. He did not represent himself as being the owner of the shares. Upon the advice of the attorney from Midwest, Seitz refused to transfer the stock unless he received a guarantee that the signatures of the original stockholders were genuine.
Petitioner thereafter secured from the stockholders with whom he had agreements proxies giving him the right to vote for them the number of shares represented by their stock certificates. Subsequently, Seitz offered to reissue the stock certificates in petitioner's name if petitioner would pay the documentary stamp tax and transfer fees on the shares to be so transferred. Petitioner was short of funds, however, and decided to continue using the proxies rather than to*156 have the stock transferred to his own name. As a majority of both A stock and B stock was required to bring about the liquidation, petitioner was unable to compel a liquidation as long as Seitz, who controlled the majority of class B stock under proxies from the Ballard family, was opposed to it. Late in 1942 Seitz finally agreed to call a joint meeting of the class A and class B stockholders with a view toward liquidation. This meeting was held on February 26, 1943, and a resolution was passed directing the creation of the Midwest Land Co. Liquidating Trust (hereinafter referred to as the trust), to which all the corporation's assets were transferred, as a more practical way of liquidating. Seitz was named as trustee of the trust and petitioner was employed to sell the assets. It was provided that petitioner was to arrange for the sale of the properties transferred to the trust and was to receive a 5 per cent commission on all sales, plus an expense allowance of $ 100 per month, to be paid him by the trust. Petitioner reported as taxable income the $ 100 per month and the 5 per cent commission received by him from his sales of trust property during the years in question.
*1304 *157 The plan of liquidation provided that all the outstanding stock of Midwest should be turned in for cancellation and that the trustee should issue corresponding certificates of beneficial interest to the stockholders.
Petitioner had previously entered into an arrangement with the LaCrosse Trust Co. to act as a depository during the liquidation period, for which he agreed to pay LaCrosse 5 per cent of the amounts which he would receive pursuant to his contract with the stockholders. Petitioner had deposited with LaCrosse the shares then in his possession. Pursuant to the liquidation plan, LaCrosse sent in the stock certificates deposited with it and received in exchange the certificates of beneficial interest issued by the trust.
LaCrosse received one partial distribution in liquidation under its contract with petitioner and paid petitioner his share of the distribution after deducting its 5 per cent commission as a depository. Petitioner became dissatisfied with the arrangements made with LaCrosse and canceled the agreement with it by having the individual stockholders withdraw their certificates of beneficial interest.
Shortly thereafter, petitioner obtained an authorization from*158 all of the shareholders whom he represented, providing as follows:
To Mr. E. A. Seitz Trustee
or his successor in The
Liquidation of the Midwest
Land Company a Delaware
Corporation.
For services rendered by Frank Hodous in representing my [or] our interests in connection with the Liquidation of the Midwest Land Company, it is understood and agreed that he shall receive % of all such dividends paid on Beneficial Certificate No. for class A Units or shares, and this shall be the authority for you to make such deduction subject to the order of the above mentioned Frank Hodous.
Witness
Signed
Pursuant to this authorization, petitioner received his share of the remaining distributions in liquidation directly from Seitz. The following sums were received by petitioner as his share of distributions upon liquidation:
| 1943 | $ 4,478.20 |
| 1944 | 5,602.10 |
| 1945 | 6,545.56 |
Petitioner, on his income tax returns for those years, claimed that these sums were a return of capital and that his right to share in the liquidating distributions had a total cost basis of $ 18,060.79 because of capital expenditures which he claimed to have incurred as follows: *1305 *159
| Travel, | Automobile | Total | |
| Year | legal, etc. | depreciation | |
| 1935 | $ 1,697.80 | $ 159.68 | $ 1,857.48 |
| 1936 | 1,909.30 | 273.75 | 2,183.05 |
| 1937 | 2,231.80 | 281.38 | 2,513.18 |
| 1938 | 2,080.90 | 300.32 | 2,381.22 |
| 1939 | 2,052.90 | 300.32 | 2,353.22 |
| 1940 | 1,422.00 | 1,422.00 | |
| 1941 | 1,425.00 | 1,425.00 | |
| 1942 | 2,030.00 | 2,030.00 | |
| 1943 | 1,895.64 | 1,895.64 | |
| Total | 16,745.34 | 1,315.45 | 18,060.79 |
Petitioner kept a record of the above expenses in a car expense booklet and a daily memorandum book. He turned these records over to the certified public accountant who prepared his income tax return in 1943. Petitioner lost these records, however, in 1947.
During the years 1935 to 1943, petitioner was financially unable to maintain a home for his family. They lived with his wife's brother in Dawson County, Montana, until January, 1944, when petitioner was then able to set up a home for his family in Billings, Montana.
In the years from 1935 to 1943, petitioner did not earn over $ 300 per year. To finance his traveling expenses, he borrowed approximately $ 4,600 from his sister and other sums from a brother and an attorney. In 1935 he traveled approximately 25,000 miles on business connected*160 with the prospective liquidation of Midwest and in 1936 approximately 30,000 miles. When away from home, he spent approximately $ 1.75 per day for hotel bills and $ 2 a day for meals.
In February, 1940, petitioner lost his automobile to a finance company and thereafter borrowed and rented automobiles and used bus and train transportation in contacting the Midwest shareholders during 1940, 1941, and 1942. He was not on the road as much in 1940, 1941, and 1942 as he had been in prior years. In 1943 petitioner made several long trips in connection with the stockholders' meetings relative to the proposed liquidation of Midwest. He traveled by train or bus throughout most of the year, as he did not own an automobile until the last few weeks of that year. In 1943, 1944, and 1945 petitioner traveled widely throughout North and South Dakota in order to arrange for the sale or other disposition of the farm properties held by the trust. He traveled approximately 50,000 miles in his own automobile in 1944.
Petitioner sustained deductible expenses in connection with the business of selling and disposing of the farm properties held by the trust in the amount of $ 1,278.27 in 1943, $ 2,780.28*161 in 1944, and $ 2,957.08 in 1945.
Petitioner sustained deductible expenses in bringing about the liquidation of Midwest in the amount of $ 1,200 in 1943.
*1306 OPINION.
The principal issue here is whether the amounts paid to the petitioner by the liquidating trust in the years 1943, 1944, and 1945 constituted a return of capital and, therefore, were not taxable income to the petitioner, or whether such amounts constituted compensation for services rendered by petitioner in bringing about the liquidation of the Midwest Land Co.
Between 1935 and 1943, petitioner entered into agreements with a number of stockholders of Midwest by the terms of which he was authorized to vote their holdings in order to bring about a liquidation of the company. For this purpose the stockholders first assigned their shares in blank, turned them over to petitioner, and later gave him proxies to vote their shares. The stockholders agreed that, if petitioner were successful in bringing about a liquidation of Midwest, they would pay him a certain percentage of the amounts they received upon liquidation. If unsuccessful, petitioner was obligated to return their shares to them.
The crux of petitioner's *162 contention is that, following the agreements with the shareholders of Midwest whereby they entrusted their shares to him endorsed in blank, he then became the equitable owner of these shares and thus acquired a capital asset. He further contends that the amounts which he expended for travel, legal fees, etc., in securing from the stockholders authority to act in their behalf constituted expenditures which should be capitalized to determine the cost basis of such capital asset.
The difficulty with petitioner's argument is that his own testimony and the other evidence clearly refute the notion that he ever owned any shares of stock in Midwest. The agreements with the shareholders of Midwest did not give the petitioner any property right. He was entrusted with the shares solely for the purpose of using the voting control thus amassed to compel the management of Midwest to liquidate. His right to compensation was contingent upon his success in forcing a liquidation. Until he did in fact bring about the desired liquidation, he had no means of reimbursement for the expenses that he had incurred. When liquidation of Midwest was finally agreed upon and the liquidating trust was set up*163 to accomplish it at the stockholders' meeting on February 26, 1943, petitioner began to receive his share of the distributions in liquidation, as provided for in the various agreements which he had with the stockholders. The amounts which he so received were clearly compensation for the services which he had undertaken to perform. It is manifest that he was at no time a stockholder in Midwest and that he possessed no property right or investment recognizable as a capital asset. Cf. Martin *1307 , 1 T. C. 1160; affd., 147 Fed. (2d) 459 (CCA-2); see also Thurlow E. McFall, 34 B. T. A. 108.
Since we have determined that petitioner acquired no capital asset, the expenditures which he sought to capitalize for the years 1935 to 1943 must be considered ordinary expenses deductible, if at all, only in the years in which they were paid or incurred. Sec. 23 (a) (1), I. R. C.; Regulations 111, secs. 29.23 (a)-1, 29.23 (a)-2; Irvine F. Belser, 10 T.C. 1031">10 T. C. 1031; affd., 174 Fed. (2d) 386 (CA-4). Of the expenditures which he sought*164 to capitalize, only those for the year 1943 in the claimed amount of $ 1,895.64 are here before us. While the evidence of his expenditures was neither detailed nor complete, petitioner explained that the memorandum books in which he kept a record of his expenses had been lost and that the accountant who had prepared his 1943 tax return had since died. This testimony was corroborated by another accountant who prepared petitioner's subsequent returns. Petitioner, however, could not state except in a very general way the nature of his expenditures in 1943 in bringing about the liquidation of Midwest. He testified that he made several long trips in connection with stockholders' meetings, but he gave no explanation of the type of expenses he thereby incurred or their approximate amount. On the basis of the available evidence, we have, under the principle of the Cohan case, 1 determined that petitioner incurred expenses in 1943 in bringing about the liquidation of Midwest in the amount of $ 1,200. Since petitioner has urged on brief that he was not engaged in the trade or business of liquidating corporations, we may assume his position without deciding this question. The above*165 expenses for 1943 may nonetheless be deducted as nonbusiness expenses incurred for the production of income. Sec. 23 (a) (2), I. R. C.; Regulations 111, sec. 29.23 (a)-15.
The second issue raised by petitioner concerns the deductibility of expenses incurred by him in the years 1943, 1944, and 1945. These expenditures were made by petitioner in connection with his services as an employee of the liquidating trust which was formed to sell the farm properties of Midwest and to distribute the proceeds to the Midwest shareholders. Petitioner was paid a commission of 5 per cent on all the sales which he consummated and was further given an expense allowance of $ 100 per month by the liquidating trust. Respondent allowed as deductible expenses only the amount of the expense allowance, plus depreciation on petitioner's automobile, out of the total expenses which were claimed on his returns. Here, again, petitioner had no record of his*166 expenditures and was unable in his testimony to itemize them with any particularity. Several of the expenditures claimed on his returns for the above years were of the *1308 type that would be nondeductible as business expenses without additional explanation, and petitioner failed to furnish any explanation of them.
From the evidence before us, we have determined that petitioner's deductible expenses in connection with his employment by the trust amounted to $ 1,278.27 in 1943, $ 2,780.28 in 1944, and $ 2,957.08 in 1945.
Decision will be entered under Rule 50.
Footnotes
1. Cohan v. Commissioner↩, 39 Fed. (2d) 540 (CCA-2).