*2438 NET LOSS. - A loss sustained by the petitioner in 1921 on account of certain stock becoming worthless in said year, held to be a net loss within the meaning of section 204(a) of the Revenue Act of 1921 and therefore deductible as provided in section 204(b) of said act.
*263 Respondent determined deficiencies of $16,747.94 and $20,161.12 for the calendar years 1922 and 1923 respectively. Petitioner alleges that he regularly carried on the business of a promoter of business enterprises, engaging in market pools and participating in underwriting syndicates, and that in 1921 he sustained a net loss of $171,247.27 in such business and that respondent erred in not allowing such net loss as a deduction from net income for 1922 and the excess, if any, in computing net income for 1923. Respondent contends that the net loss did not result from a trade or business regularly carried on by the petitioner.
FINDINGS OF FACT.
The petitioner is an individual with his principal office at 42 Broadway, New York City. Immediately after leaving school he began*2439 his business life in Wall Street as an office boy and, after serving in many minor capacities, became a partner in several brokerage and financial firms operating in Wall Street, on the New York Stock Exchange, and on the Curb, until about 1914, when he ceased doing business as a broker.
In 1907 petitioner founded the "Magazine of Wall Street," a monthly financial publication. It was first known as the "Ticker" and was owned by him individually, but subsequently it became incorporated. Petitioner was the owner of all of the stock, was president of the company and editor of the magazine until 1926. This magazine became quite profitable and petitioner drew a salary therefrom of $12,000 per year until 1918, and $18,000 per year thereafter and through the taxable years.
In 1911 petitioner started an advisory business, known as the "Trend Letter," in connection with the magazine. This grew into a separate organization and was incorporated as the "Wyckoff Analytical Staff." Its business was that of furnishing business and financial advice and information to subscribers. Petitioner owned *264 all the stock of this corporation and managed it until 1926, when, because of illness, *2440 he turned it over to certain of his employees and associates. He drew a salary of $30,000 a year from this corporation, including the years in controversy.
During the taxable years and for several years before and after, the petitioner was a trader in stocks and bonds on the New York market on his own account. In 1916 he entered into 68 transactions involving 8,450 shares; in 1917, 956 transactions, 98,855 shares; in 1918, 600 transactions, 101,191 shares and $155,000 bonds; in 1919, 1,443 transactions, 431,014 shares and $113,100 bonds; in 1920, 402 transactions, 67,799 shares and $258,000 bonds; in 1921, 24,215 shares and $20,000 bonds; and in 1922, 389 transactions, 59,078 shares and $83,000 bonds. For several subsequent years his operations were equally extensive. His trading included many popular speculative stocks and some in which he was interested as a promoter. Some of his transactions were for investment purposes, but most were on margin and speculative.
In 1907 petitioner became associated with James R. Keene in obtaining subscribers to a syndicate to acquire control of the patents and property of the United States Graphotype Co., for which he was paid a commission. *2441 From that time to 1915 he engaged in several promotion activities which were unimportant. Beginning in 1915 and through the taxable years he was consulted frequently and his assistance requested for the organization and promotion of various business enterprises requiring financial assistance in the way of loans, marketing of their securities, and interesting people in them to the extent of investing their money in them in the form of stock or otherwise. During that period he became connected with, as promoter, organizer and financial adviser, or he investigated the following business enterprises: Metalock Manufacturing Co., tags; Shea Electric Co., electric motors; Winnemucca Mining Co., Bonanza Mining Co., Nevada mines; Coronet Cork & Seal Co. and allied companies, Metal Seal & Decorating Co., and Edgar Metal Decorating Co., corks and seals; Nacozari Consolidated Mining Co., Mexican mines, Union mines, North Carolina mines; Motor Economy Corporation, motors; option on 300,000 acres Texas oil lands; Silver King of Arizona, mining; Montezuma Mining Co. of California, mining; Pennsylvania Lead Mines, mining; petitioner and one O'Shaughnessy, syndicate to operate in Mexican and Central*2442 American petroleum; Federal Mining Co., Arizona copper mines; Burrell-Oberfell charcoal process, gasoline; Cast Steel Ship, ship construction; Hill Engineering Co., rotary motor; River & Rail Transportation Co., unit system freight transportation; Larsen Air Navigation, Inc., airplanes; Mexican Oil, curb transaction; Eastman Quarry Corporation, *265 Vermont quarry; underwriting and marketing stocks of American Steel Foundries, Ohio Cities Gas, Simms Petroleum, Benedict Stone, the Alvarado & Mexican Seaboard; Haitian Corporation of America; refinancing Better Tires Co.; Benbow building blocks; ice cream manufacturing merger involving $35,000,000; Savold Tire Co., auto tires; Cerbat Silver Mining Co.; Gotham Vending Co., automatic machines; and Emerson Phonograph Co., phonographs and records.
Petitioner's activities and interest in these enterprises were manifested in different ways. In some he invested his own funds, and in others assisted in raising money by subscriptions to stock, or creating a market for their securities on the curb market by trading therein, and in interesting others to invest. His services were obtained for the purpose of organizing a business and to*2443 make it a going concern. In some he acted as an officer and took part in the management. He was treasurer, director and manager of the Emerson Phonograph Co. from 1915 until 1918, and gave a good deal of his time to its affairs at its office, but also carried on continuously his activities on the stock market, and his business as the publisher of the Magazine of Wall Street, and the management of the Wyckoff Analytical Staff.
Some of the above named enterprises were rejected after examination. Petitioner had in his employ for several years. Harry J. Wolf, a mining engineer, for the purpose of examining and reporting on mining projects offered.
Petitioner's compensation was sometimes for an agreed cash consideration, sometimes a commission, and in some cases a part of the capital stock. About one-third of petitioner's time from 1915 to 1926 was devoted to his promoting activities, and from 1915 to 1919 he made more profit from them than from all other sources, but from 1920 to 1923 only about half as much.
The petitioner was regularly engaged in and carried on the business of a promoter in the taxable years 1921, 1922, and 1923; also, he was regularly engaged in and carried*2444 on the business of buying and selling stocks and bonds in each of said years, mostly of a speculative nature.
The loss complained of herein and which was not allowed as a net loss under section 204, Revenue Act of 1921, by the respondent resulted from petitioner's promotion of the Emerson Phonograph Co., and is covered by the following stipulation of facts, which we adopt:
1. During the year 1915 the petitioner received 68,000 shares of capital stock of the Emerson Phonograph Co. as compensation for his services performed and to be performed in connection with the organization and promotion of the said company; during the year 1915 petitioner sold 17,900 shares of said stock.
*266 2. The said shares of capital stock had, as determined by the Commissioner of Internal Revenue, a fair market value of $5 per share when received by the petitioner in 1915.
3. All of the stock of the said Emerson Phonograph Co. became worthless in 1921 and the petitioner sustained in that year a loss in the amount of $200,500 on account of the remaining shares of said stock then owned by him.
4. The respondent determined that the aforesaid loss of $200,500 was not a loss resulting*2445 from the operation of a trade or business within the meaning of section 204 of the Revenue Act of 1921.
5. If the loss in the amount of $200,500 determined by the respondent to have been sustained by the petitioner in 1921 on account of the petitioner's shares of said capital stock of the Emerson Phonograph Co. was a loss resulting from the operation of a trade or business within the meaning of section 204 of the Revenue Act of 1921, the net loss of the petitioner for the calendar year 1921 within the meaning of section 204 of the Revenue Act of 1921 is in the amount of $171,247.27.
6. In determining the deficiency for the calendar year 1922, the respondent determined that the petitioner's net taxable income was $72,769.08, and in determining the deficiency the respondent determined that the petitioner's net taxable income for 1923 was $98,613.62.
7. In determining that the petitioner's net taxable income for 1922 was $72,769.08 and for 1923 was $98,613.62, the respondent did not allow as a deduction from or credit against gross income any amount on account of the aforesaid loss for the year 1921.
Respondent allowed the loss for 1921, but disallowed it as a net loss*2446 to be applied against income for the two succeeding years. Petitioner paid income tax for 1915 on the Emerson Phonograph stock received by him at a valuation of $5 per share.
OPINION.
BLACK: The only question for determination is whether petitioner suffered a net loss for the year 1921, which is deductible for the years 1922 and 1923, as provided in section 204(a)(b) of the Revenue Act of 1921, which reads as follows:
SEC. 204. (a) That as used in this section the term "net loss" means only net losses resulting from the operation of any trade or business regularly carried on by the taxpayer (including losses sustained from the sale or other disposition of real estate, machinery, and other capital assets, used in the conduct of such trade or business) * * *
(b) If for any taxable year beginning after December 31, 1920, it appears upon the production of evidence satisfactory to the Commissioner that any taxpayer has sustained a net loss, the amount thereof shall be deducted from *267 the net income of the taxpayer for the succeeding taxable year; and if such net loss is in excess of the net income for such succeeding taxable year, the amount of such excess shall be*2447 allowed as a deduction in computing the net income for the next succeeding taxable year.
The facts in this case amply establish that the petitioner was actively engaged in three branches of trade or business - (1) as owner and editor of the Magazine of Wall Street and the allied financial advisory service, the Wykoff Analytical Staff; (2) as a trader on his own account in securities on the New York market, and (3) as an organizer and promoter of business enterprises, commonly known as a promoter.
The loss of $200,500 sustained by petitioner in 1921 on account of his ownership of shares of the capital stock of the Emerson Phonograph Co. was a loss sustained by him in his business as a promoter, which was a business regularly carried on by him, and was not a loss sustained by him in an isolated transaction.
It follows that the net loss of $171,247.27 sustained by petitioner in 1921 was a net loss within the meaning of section 204, Revenue Act of 1921, and should be deducted from petitioner's net income for the succeeding taxable year 1922, and that the excess, if any, should be allowed as a deduction in computing the net income of petitioner for the next succeeding taxable year*2448 1923.
Cf. ; ; ; ; ; and .
Judgment will be entered under Rule 50.