1928 BTA LEXIS 3641">*3641 The Commissioner's action in disallowing as a deduction from gross income for the years 1921 and 1922 of losses alleged to have been sustained in those years, is approved.
11 B.T.A. 1311">*1311 This proceeding is for the redetermination of deficiencies in income tax for the calendar years 1921 and 1922, in the amounts of $595.15 and $304.24, respectively. The sole issue presented is whether the Commissioner, in determining the deficiencies, erred in disallowing as deductions for the years in question amounts alleged to represent losses sustained on the sale of stock in those years.
11 B.T.A. 1311">*1312 FINDINGS OF FACT.
The petitioner, Thomas S. Hemenway, was during the years 1921 and 1922, and prior thereto, president of the Metal & Alloy Specialties Co. (hereinafter referred to as the Metal Co.).
In November, 1920, the Erickson Manufacturing Co. went into the hands of a receiver. With this company the Metal Co. had transacted approximately 60 per cent of its business and January, 1921, found the Metal Co. in bad shape financially. It had sustained a net loss in 19201928 BTA LEXIS 3641">*3642 of approximately $5,800, and in 1921 it sustained a net loss of approximately $19,000.
On January 1, 1921, there was owing to petitioner for salary from the Metal Co. the amount of $8,875. In order to liquidate this amount the Metal Co., on February 8, 1921, gave to petitioner a check for $8,500, although at that time it did not possess cash in that amount. On the next day, petitioner deposited to the credit of the Metal Co. the amount of $9,500 and there was issued to petitioner 87 shares of the stock of the Metal Co., each of the par value of $100. The stock thus issued to petitioner was in liquidation of the accrued salary owing by the Metal Co.
On May 1, 1921, petitioner transferred to his brother the 87 shares of stock received under the circumstances above described, taking in return therefor a promissory note for $2,200. The original certificate of stock issued to petitioner was canceled and a new certificate was issued to his brother. On September 26, 1922, the petitioner canceled the note and received from his brother the 87 shares of stock. The note for $2,200 received in exchange for the stock was never pledged, discounted or used in any way by the petitioner.
1928 BTA LEXIS 3641">*3643 In his return for 1921 petitioner deducted the amount of $6,500, representing the difference between the par value of the 87 shares of stock and the face of the note, which amount, it is alleged, constituted a deductible loss sustained on the sale of the stock. The Commissioner disallowed the deduction.
The petitioner on December 22, 1920, received 100 shares of stock of the Metal Co., par value $100, in exchange for his equity in certain real estate, and on June 18 1922, petitioner transferred to his brother the 100 shares of stock taking in exchange therefor a promissory note for $4,100. The original certificate of stock issued to petitioner was canceled and a new certificate was issued to his brother. On September 26, 1922, petitioner canceled the note for $4,100 and received from his brother the 100 shares of stock which had theretofore been transferred to him in consideration of the note. The note for $4,100 was never pledged, discounted or used in any way by petitioner.
In his return for 1922 petitioner deducted the amount of $5,900 as a loss alleged to have been sustained in that year by reason of the 11 B.T.A. 1311">*1313 transaction wherein he transferred the 100 shares1928 BTA LEXIS 3641">*3644 of stock to his brother in exchange for a note for $4,100. The Commissioner disallowed the deduction. The alleged sales above set out were not in fact sales in good faith.
OPINION.
LOVE: The petitioner contends that the Commissioner erred in disallowing as deductions from gross income for the years 1921 and 1922, the amounts of $6,500 and $5,900, respectively, alleged to represent losses sustained on the sale of the Metal Co.'s stock to his brother under the circumstances set forth above. The Commissioner, however, denies that the sales of the stock in question were made in good faith and further denies that, under such circumstances, any losses were sustained. We are, therefore, confronted with the question as to whether the sales in question were bona fide.
Without reviewing the evidence in detail, we are satisfied, upon consideration of it, that the transfers of the stock in question by the petitioner to his brother in exchange for promissory notes which were subsequently canceled, and which at no time were used for any purpose, did not constitute bona fide sales thereof. We approve, therefore, the Commissioner's action in disallowing the alleged losses.
In his1928 BTA LEXIS 3641">*3645 brief, petitioner discusses the value of the stock at the time received by him and at the time of the sales. The Commissioner raised no question as to the value of the stock at the time of the sales, but only as to the good faith thereof. The pleadings raise no issue with respect to the value of the stock at the time of its acquisition by petitioner. Consequently, the discussion is irrelevant to the issue presented.
Judgment will be entered for the respondent.