*1203 1. Petitioner held to be engaged in business as a trader in securities, having devoted considerable time to such activities for the purpose of deriving profits therefrom, consummated numerous transactions of purchase and sale, borrowed money, and maintained an officer from which her activities were carried on, and the loss sustained resulted from the operation of a trade or business regularly carried on.
2. Loss sustained from participation in an oil enterprise held to have resulted from an isolated investment not incidental to any trade or business regularly carried on by petitioner and therefore was not a net loss within the meaning of the statute.
*1031 This is a proceeding for the redetermination of a deficiency in income tax for the calendar year 1924 in the amount of $27,006.63. The only error alleged is that the respondent in the determination of this deficiency disallowed the deduction of the sum of $74,082.60, or any part thereof, claimed in petitioner's tax return for 1924 as a statutory net loss for the calendar year 1923.
*1204 FINDINGS OF FACT.
Petitioner is an individual, residing at 111 East 48th Street, New York City.
From 1921 to 1924 petitioner maintained an office from which she carried on her affairs; Her office expenses, including rent, salaries, etc., were $3,918.81 in 1923 and $3,959.62 in 1924.
In November, 1921, Charles E. V. Lenz represented to petitioner that he was the owner of certain oil lesases and drilling equipment in the vicinity of El Dorado, Arkansas; that $100,000 was needed for the exploitation of the field, of which he had $50,000 available for the purpose. Lenz proposed that if the petitioner would contribute $50,000 to the enterprise, he would give her a one-half interest in all the leases, oil properties and driling equipment which he already had or might acquire with said funds. He also agreed to supervise personally the operations in the field and to share with petitioner equally all profits that might be made from the undertaking. With that understanding, petitioner paid $10,000 to Lenz on December 10, 1921, to bind the agreement, and on January 3, 1922, paid him *1032 $40,000 to be employed together with his capital in the purchase of leases and drilling*1205 of wells.
Thereafter the petitioner paid to Lenz the following amounts upon representations by him that they were needed for various purposes such as to sink new wells, deepen wells already sunk, purchase additional leases, and to pay rentals on leases about to expire:
| March 29, 1922 | $20,000 |
| Apr. 12, 1922 | 12,500 |
| Aug. 25, 1922 | 20,000 |
| Aug. 25, 1922 | 50,000 |
| Sept. 23, 1922 | $4,500 |
| Nov. 13, 1922 | 25,000 |
| Dec. 27, 1922 | 5,000 |
On every occasion on which money was paid to Lenz by petitioner, he agreed to put up an amount equal to that advanced by her.
During the early part of December, 1922, petitioner became concerned over the amount of money that she had paid over to Lenz, the fact that he continued to demand additional funds, and the fact that no oil had been produced. Moreover, the strain was becoming too great upon her finances and the enterprise was requiring more of her time, attention, and thought than she wished to devote thereto. Up to this time, at the continued insistence of Lenz, she had not disclosed to anyone her association with him in the oil enterprise, but then decided to engage an agent to make a field investigation of the Lenz operations*1206 in the El Dorado, Arkansas, and Jasper, Texas, fields. Accordingly, she engaged for this purpose Henry B. Patton, who during the spring of 1923 made two trips to the oil fields. The petitioner and her agent, Patton, were in constant communication with one another while he was visiting the oil fields, and on his return they conferred almost daily over a period of several months as to whether she should expend additional sums on the properties in which Lenz had obtained an interest, and which were either in need of development or, as in the case of leases, in need of additional funds for renewals. She finally decided in May or June of 1923 not to expend any more money on the matter.
Lenz organized, in January, 1922, the Lendorr Petroleum Corporation, and about August, 1922, the Lenday Petroleum Corporation, each corporation having been formed for the purpose of facilitating and rendering more convenient the holding and management of certain of the oil interests owned by Lenz and petitioner. The first corporation was used in the El Dorado field, and the second corporation in the Jasper field. Thereafter, Lenz delivered to petitioner certificates of stock representing a minority*1207 interest in each corporation, but such stock was not offered to petitioner and she did not accept it in payment of the monies received by Lenz from her.
Title to a part of the oil properties which were owned by petitioner and Lenz was held in the name of the Lendorr and Lenday Corporations, *1033 but petitioner and Lenz continued to treat such property as jointly owned property and not as the property of the corporations. The title to other of the properties acquired by Lenz for himself and petitioner was not transferred to these corporations. Less than half of the leases acquired were transferred to these corporations. A large part of the equipment was retained by Lenz in his own name; Only a small part of the money advanced by petitioner to Lenz for drilling operations was actually expended by the Lendorr and Lenday Corporations.
Petitioner discovered irregularities in Lenz's conduct of the oil development. These irregularities he refused to correct. Petitioner thereupon brought suit against Lenz, his attorney, and the Lendorr and Lenday Corporations. The properties proved to be worthless. Petitioner was advised by her counsel that Lenz was judgment-proof, and*1208 she terminated her suit against him by an exchange of general releases on November 9, 1923, for a consideration of $1. As a result of the transactions with Lenz, petitioner incurred a loss of $187,000.
During the years 1919, 1920, 1921 and 1922 petitioner had transactions in stocks of oil companies and other corporations and other transactions connected with oil enterprises. A schedule of such transactions is hereinafter set out as "Exhibit A."
Petitioner's income-tax return for 1923 shows that she had income from oil interests as follows: (1) Income from the Shell Trading & Transport Company in the amount of $3,132.26, and (2) income from oil investments received through the Farmers Loan & Trust Company, New York City, in the amount of $4,835.35, or a total income from investments in oil enterprises of $7,967.61.
Petitioner's income-tax return for 1923 shows that she had five stock exchange transactions in that year, involving a total of $53,016.50.
Exhibit A includes the transactions of petitioner in connection with properties known as the "Pugh Lease," which embraced various oil properties in the Bull Bayou Cistrict of Louisiana. Petitioner purchased various fractional*1209 interests in this property to aggregate a 1/64 undivided interest therein, at a total cost of $243,482.04.
Petitioner received annual income from the "Pugh Lease" as follows:
| 1920 | $22,138.11 |
| 1921 | 9,138.51 |
| 1922 | 9,952.00 |
| 1923 | 4,835.35 |
| 1924 | 3,796.00 |
There are included in Exhibit A the transactions of petitioner in connection with properties known as the "Langston Lease," which *1034 represented a combined interest held by a number of individuals in various oil leases in Louisiana. Petitioner paid $49,000 for an interest in this lease. In 1920 she sold 61/100 of her interest for $74,072.03, and in 1922 she sold the remaining 39/100 of her interest for $4,747.50.
By January 1, 1923, petitioner had put $187,000 into the Lenz enterprise, and $243,482 into the "Pugh Lease," or a total of $430,482, and, in addition, approximately $30,000 into stocks in oil corporations which she still retained;
During 1922, 1923, and 1924 petitioner's activities in financing various enterprises had necessitated the borrowing of large amounts of money, and at one time during this period her outstanding loans amounted to as much as $460,000. During 1923 her loans averaged*1210 $250,000.
During the period 1921 to 1923, inclusive, petitioner devoted a considerable part of most days to some phase of the activities heretofore described, but the greater part of her time was devoted to the Lenz transactions. Among the matters which received petitioner's attention and required her time were (a) conferences with Lenz on the occasion of petitioner's first outlay of money to Lenz, and on each subsequent occasion when he stated that more money was required of petitioner in the oil developments theretofore undertaken, and consideration and study of the representations orally made by him and supplemented by maps, blue prints, geological surveys, and other writings; (b) the raising of money for each payment to Lenz, which in most instances required considerable time and negotiation on part of petitioner; (c) conferences and correspondence with Lenz and his representatives in reference to progress in the development of the El Dorado and Jasper oil fields; (d) engaging an agent to visit the oil fields, outlining to him petitioner's past connection with, knowledge of, and negotiations with Lenz, and correspondence and many conferences with said agent on the subject of*1211 whether petitioner should make additional outlays of money to protect the properties in which she had become interested, or to continue with development work, and conferring and corresponding with said agent in connection with the suit which was brought against Lenz, the Lendorr Petroleum Corporation and the Lenday Petroleum Corporation and others, and the ultimate discontinuance thereof; (e) in connection with petitioner's expenditures for and receipts from the disposition of securities and/or interests in oil properties which she acquired and/or disposed of, as shown in Exhibit A, petitioner regularly studied financial publications, conferred with bankers and brokers, and made an almost daily examination of published stock quotations.
*1035 Petitioner's gross income for the calendar year 1923 was shown on her return as follows:
| Salaries, Wages, Commissions, etc | $170.00 |
| Interest on Bank Deposits, Notes, Mortgages and | |
| Corporation Bonds | 3,389.02 |
| Income from Partnerships, Fiduciaries, etc | 13,902.97 |
| Rents and Royalties | 6,147.26 |
| Dividends on Stock of Domestic Corporations | 146,742.00 |
| Other Income | 3,132.26 |
| $173,483.51 | |
| Deduct: Loss from sale of Real Estate, Stocks, Bonds, etc | 17,271.20 |
| Total Income | $156,212.31 |
*1212 Of the income above listed, $3,132.26 was received from the Shell Trading and Transport Company as a dividend, and $4,835.35 was received from petitioner's interest in the "Pugh Lease." No part of the balance of this income arose from gains or profits derived from trade or business.
The loss of $17,271.20 was the net loss arising from the sale during 1923 of (1) stock of Remington Typewriter Company at a loss of $1,234, and (2) stock of the Standard Oil Company of Indiana at a profit of $145.25, and (3) stock of the Pullman Company at a loss of $6,842, and (4) stock of the Consolidated Gas Company of New York at a profit of $493.55, and (5) stock of the Astra Oil & Gas Company at a loss of $10,000, and (6) U.S. Savings Stamps at a profit of $166, or a total net loss of $17,271.20.
In her 1923 income-tax return, the petitioner claimed the following deductions:
| Interest paid | $15,121.52 |
| Taxes paid | 19,779.28 |
| Loss on operation of fruit orchard | 4,475.30 |
| Office expenses | 3,918.81 |
| Loss on oil investment | 187,000.00 |
| Total deductions | 230,294.91 |
Petitioner received no interest during the calendar year 1923 which was free from taxation, and makes no claim to*1213 a depletion deduction with respect to any mine or oil or gas well.
Petitioner claimed a deduction of $74,082.60 in her 1924 income-tax return as a statutory net loss for the calendar year 1923. This deduction has been disallowed by respondent and from this action results the deficiency here in controversy.
| EXHIBIT "A" | ||||||
| [Referred to above] | ||||||
| Transactions Involving Expenditures | ||||||
| Total Transactions | Stocks other than | Stocks of Oil | ||||
| Oil Corporations | Corporations | |||||
| Year | No. | Amt. | No. | Amt. | No. | Amt. |
| 1919 | 59 | $394,985.82 | 46 | $301,365.00 | 13 | $93,620.82 |
| 1920 | 30 | 447,021.34 | 18 | 127,404.30 | 5 | 25,135.00 |
| 1921 | 37 | 61,545.29 | 36 | 51,545.29 | ||
| 1922 | 10 | 225,420.00 | 1 | 25,315.00 | 1 | 23,105.00 |
| Yearly average | 34 | $282,243.11 | 25 | $126,407.40 | 5 | $35,465.20 |
| EXHIBIT "A" | |
| [Referred to above] | |
| Transactions Involving Expenditures | |
| Oil Interests other than Stock | |
| No. | Amt. |
| 7 | $294,482.04 |
| 1 | 10,000.00 |
| 8 | 177,000;00 |
| 4 | $120,370.51 |
| Transactions Involving Receipts | |||||
| Total Transactions | Stocks other than | Stocks of Oil | |||
| Oil Corporations | Corporations | ||||
| Year | No. | Amt. | No. | Amt. | No. |
| 1919 | 48 | $274,166.97 | 35 | $210,388.33 | 13 |
| 1920 | 53 | 554,036.09 | 40 | 435,946.10 | 12 |
| 1921 | 65 | 243,204.26 | 65 | 243,204.26 | |
| 1922 | 13 | 99,486.89 | 12 | 94,739.39 | |
| Yearly Average | 45 | $292,723.55 | 38 | $246,069.52 | 6 |
| Transactions Involving Receipts | ||
| Stocks of Oil Corporations | Oil Interests other than Stock | |
| Amt. | No. | Amt. |
| $63,778.64 | ||
| 44,017.96 | 1 | $74,072.03 |
| 1 | 4,747.50 | |
| $26,949.15 | 1 | $19,704.88 |
Explanation: Details of oil transactions by the taxpayer other than the purchase and sale of stock of oil corporations as contained in the above statement are as follows:
| Expenditures | Receipts | |
| 1920 | ||
| Langston Lease | $49,000.00 (one payment) | $74,072.03 (net) |
| Pugh Lease | 243,482.04 (five payments) | |
| Royalty Trust | 2,000.00 (one payment) | |
| $294,482.04 | ||
| 1921 | ||
| Lenz Transactions | $10,000.00 (one payment) | |
| 1922 | ||
| Lenz Transactions | $177,000.00 (eight payments) | $4,747.50 |
| Langston Lease |
Transactions involving $574,966.66 annually.
OPINION.
GOODRICH: The fact that this petitioner in 1923 sustained losses which in the aggregate exceeded her income by the amount of $74,082.60 is not in dispute, but, before she may offset that amount against her income for the year 1924 as a statutory net loss under the provisions of section 206(f) of the Revenue Act of 1924 and section 204(a) and (b) of the Revenue Act of 1921, it must appear clearly that*1215 the claimed net loss resulted "from the operation of any trade *1037 or business regularly carried on by the taxpayer." Part of the losses sustained by petitioner in 1923 which she claims were in connection with her business resulted from sales of various stocks and the remainder resulted from the transaction with Lenz and was designated upon her return as "loss on oil investment."
We are satisfied that in 1923 and prior thereto petitioner was engaged with some regularity in trading in securities. She devoted considerable time to investigation, followed market reports, borrowed money with which to carry on her activities, consummate numerous transactions of purchase and sale, and maintained on office for these purposes. While the evidence discloses that she was the recipient of substantial income of certain trusts established for her benefit, from which we may infer that she did not engage in trading as a means of livelihood, it is not denied that petitioner carried on these activities in the hope of profit, and, under the circumstances of this case, that is sufficient to constitute a trade or business. *1216 ; ; ; ; .
We conclude that the losses sustained in 1923 upon stock sales resulted from the operation of a trade or business regularly carried on by the taxpayer.
With respect to the loss sustained from the transaction with Lenz, we reach to opposite view. We regard that venture not as one entered into in the course of, or incidental to, petitioner's business, but as an isolated transaction accurately described upon her return as "loss on oil investment." Petitioner urges that during the years 1919 to 1923, inclusive, she was regularly engaged in (a) business as a trader and promoter, (b) the oil business, or (c) the oil-development business in partnership with Lenz. We have concluded that petitioner was engaged in the business of buying and selling securities, but we do not find that her business included trading in leases or other interests in oil lands. In the Lenz transaction she bought, or thought she was buying, an interest in certain*1217 leases. There is no evidence here that she purchased her interest with the expectation of selling it within a reasonable time thereafter, and thus derive a profit from trading in the lease interest; On the contrary, the inference is that she made her purchase with the expectation of retaining her interest and subsequently receiving her share of the profits to be derived from the development of the properties under Lenz's management. As we see it, her intention was to make an investment, not a trade. She was buying to hold, not to sell. Nor had she been trading in oil leases. In 1920 she purchased the Langston lease, the Pugh lease, and an interest in a royalty trust. A part of her interest in the Langston lease she sold later in the same year at a profit, retaining *1038 the balance of her interest until 1922. So far as this record discloses she still owns the Pugh lease, from which she derived income annually up to and including the year here involved, and the interest in the royalty trust. Clearly, her activities in connection with oil leases were isolated and occasional and did not assume a continuity and importance which would characterize them as incidental to a*1218 business in which she was regularly engaged. (See ) In other words, the fact that she purchased four oil leases, or interests in them, and sold one, in our opinion, does not adequately support her contention that she was regularly engaged in the business of buying and selling them.
Nor do we find in the facts before us any support for her contention that she was engaged in business as a promoter. Even should we regard her as the promoter of the oil developments planned by Lenz, this one isolated attempt to promote such an enterprise would not warrant our finding that her promoting activities constituted a business regularly carried on. Her dealings in oil properties, or corporations, were not so broad that it may be said that they constituted her trade or business (see ). The distinction between petitioner's activities in connection with the Lenz proposition, which, she contends, made her a promoter of oil developments, and the activities of those taxpayers who have been held to be engaged in the business of organizing, developing, financing, or promoting business enterprises, appears so clearly*1219 from the decisions as to make discussion here unnecessary. See ; ; ; .
We are not inpressed with petitioner's claim that she was in the oil business, She was not engaged in producing, transporting, refining, buying, or selling oil. The fact that she owned leases, or interests therein, embracing oil lands and received upon one of them a return of some sort (we presume royalties paid by an operating company) does not put her in the oil business, nor does the fact that, as a trader in securities, she bought and sold stock (the majority of them listed on the exchange) of various corporations engaged in one or more of the several enterprises included in the "oil business," as the term is commonly used. True, as pointed out by counsel upon brief, she devoted considerable time to conferences and examinations of maps and reports, but that was in connection with supplying money to Lenz to be used, according to his statements in the purchase and development of oil leases. But, so far as this record shows, she*1220 was not in the business, planning or directing the development or the acquisition of territory. She was examining maps and reports and holding conferences in connection with Lenz's representations that more money was needed, and she was supplying *1039 more money to assure, if possible, the success of the venture and, consequently, the safety of her original investment and the realization of her hoped-for profit thereon. Again, the distinction between the situation of this petitioner and that of those taxpayers who have been held to be engaged in various lines of enterprises, because of their control, management, or participation in the activities of corporations or businesses, is clearly shown by the decisions. See ; , reversing ; ; ;; *1221 ; ;
Finally, petitioner contends that she was in the oil-development business in partnership with Lenz and that the loss of $187,000 arose from the operations of that partnership. Even conceding that petitioner's agreement with Lenz constituted a contract of partnership, we have no direct proof that the partnership was regularly engaged in the oil-development business. We have before us little more than a recital of the representations made by Lenz upon which he induced petitioner to advance money to him. We may infer that Lenz, or even that the partnership, owned an interest in leases upon oil lands and some drilling equipment, but we have no proof of any development, or attempts at development by Lenz himself or by the partnership, either by contract or through the use of Lenz's own equipment. No oil had been produced before the end of 1922 - that fact appears - but as to any unsuccessful attempts to develop the lands and produce oil we have no facts. In short, the record as stipulated does not show that either Lenz or the alleged partnership*1222 was in any way engaged in the business of developing oil properties and under the circumstances stances in this case, we are not justified in finding, by inference, that such development was carried on. A fortiori, we can not, by inference, find that the assumed partnership, or petitioner as a member thereof, was regularly engaged in the oil-development business, and that the loss claimed resulted from the operation of that business. Moreover, the loss may have resulted directly from Lenz's "irregularities," which were discovered by petitioner in 1923, and as to the nature of which we are not advised.
We conclude that petitioner, either individually or as a member of a partnership, was not regularly engaged in the business of buying and selling, or promoting or developing leases of oil lands, nor in the oil business, that her participation in the transactions with Lenz was as an investor, not as a trader, and that it was an isolated transaction, not connected with any trade or business regularly carried on by her. Consequently, the loss sustained by her upon her transaction with Lenz is not a net loss within the meaning of the statute.
Judgment will be entered under*1223 Rule 50.