*3719 The facts in this case fail to establish that a loss sustained by reason of corporate stock becoming worthless was sustained in 1923.
*810 This proceeding is for the redetermination of a deficiency in income tax for the year 1923, in the amount of $3,942.50.
Petitioner assigns one error, to wit:
The disallowance of $45,610.58 representing the cost of stock in the Lone Star Cotton Mills, claimed by petitioner in his return for the calendar year 1923, as a loss on account of having become worthless in that year, the Commissioner holding that said loss was not definitely determined until the year 1924.
FINDINGS OF FACT.
Petitioner is an individual who formerly resided in San Antonio, Tex., but at date of hearing resided in El Paso, Tex. In 1922 he owned stock in the corporation known as the Lone Star Cotton Mills, located in San Antonio, which stock cost the petitioner $45,610.58. The corporation, in 1922, was found to be losing money in its operations, and by order of court was placed in the hands of a receiver on May 27, of that year. It continued*3720 to operate for several months at a loss. Between the dates of May 27, 1922, and February 11, 1924, several pieces of real estate and some of the personal property had been sold. On February 11, 1924, all the remaining assets of the corporation were ordered by the court to be sold by the receiver. On March 15, 1924, the receiver made report to the court that in pursuance of its orders of February 11, he had sold all the remaining assets of the Lone Star Cotton Mills corporation for $198,000. That sale was approved by the court. The receiver made a balance sheet which was attached to petitioner's return for 1923, in support of his claim for the deduction of the loss in question, which balance sheet showed as follows:
| Lone Star Cotton Mills statement of assets and liabilities as at December 31, | |||
| 1923. | |||
| ASSETS. | |||
| Current: | |||
| Cash | $13,798.05 | ||
| Accounts receivable | 607.62 | ||
| Notes receivable, customers' | 956.18 | ||
| Notes due from stockholders | 1,200.00 | ||
| Notes due from employees | 150.00 | ||
| Accounts due from employees | 79.54 | ||
| Sundry advances | 175.00 | ||
| Receiver's drawing account | 3,843.33 | ||
| Prepaid insurance | 1,925.70 | ||
| $22,705.42 | |||
| Fixed: | |||
| Land, outside | 24,990.42 | ||
| Land | 45,000.00 | ||
| Buildings, outside | 23,199.00 | ||
| Buildings, cotton mills | $268,539.92 | ||
| Buildings, general | 14,685.42 | ||
| Sundry equipment and construction | 18,337.07 | ||
| Machinery and equipment, cotton mills | 444,877.23 | ||
| Office furniture and fixtures | 2,577.50 | ||
| Stocks and bonds | 5.00 | ||
| Equipment for sale | 80,734.98 | ||
| Deficit | 520,721.83 | ||
| $1,443,668.37 | |||
| $1,466,373.79 | |||
| LIABILITIES | |||
| Notes payable, banks | 126,303.95 | ||
| Notes payable, land notes | 9,650.00 | ||
| First-mortgage bonds | 140,000.00 | ||
| Second-mortgage bonds | 37,500.00 | ||
| Accounts payable | 51,032.09 | ||
| Deferred list: | |||
| Reserve for depreciation on plant, machinery, and probable losses | 118,934.26 | ||
| Accruals: | |||
| Accrued interest on bonds | 14,062.70 | ||
| Accrued interest, bank notes | 17,330.58 | ||
| Accrued interest, sundry notes | 1,660.21 | ||
| 516,473.79 | |||
| Capital stock | 949,900.00 | ||
| 1,466,373.79 |
*3721 NOTE. - Total indebtedness exclusive of administrative expense of receivership is $397,539.53.
REMARKS. - The values as shown in above statement are purely "Book Values," the major portion of which do not reflect correct worth of this date. With few exceptions values shown are greatly in excess of market value of property covered.
The company's complete holdings can be purchased for $300,000, which is roughly $100,000 less than its outstanding indebtedness. The unsecured claims against this company are of doubtful value while the stock is totally of no worth.
E. A. DUBOSE,Receiver Lone Star Cotton Mills.
*811 OPINION.
LOVE: The only contested issue involved in this proceeding is whether or not the loss was sustained by the petitioner in 1923 or 1924. That the loss was sustained, was not controverted. The Commissioner contended that the loss was not sustained until the sale was made of the assets of the corporation in the early part of 1924, at which sale the assets brought less than the outstanding obligations of the corporation.
The petitioner was not present and did not testify at the hearing. If there were any efforts made to sell the stock*3722 here involved in *812 1923, there is no evidence in the record of such an effort. The receiver's balance sheet, dated as of December 31, 1923, gives the book value of the assets as $922,946.54 with liabilities aggregating the amount of $516,473.79, leaving a margin of $406,472.75, which amount, or any part thereof over and above subsequent expenses of the receivership proceedings, would become available for dividends on stock.
It is true that the receiver served notice that the book values were inflated, and that such assets would not sell for the values shown by the books. However, that conclusion of the receiver falls short of the definite character of proof required in cases of this kind. We can not deal in speculations or mere possibilities. A conservative business man may have been justified, in 1923, in arriving at the conclusion that those assets would not sell for their book value, or in his judgment would not sell for the amount of the indebtedness, and yet that is not sufficient proof to determine, judicially, that they would not sell at a proper future date for enough to pay off the debts, with something left to be applied to stock.
Under the evidence as*3723 disclosed by the record, the petitioner failed to overcome the legal presumption of the correctness of the Commissioner's determination and we therefore approve such determination.
Judgment will be entered for the respondent.