*708 1. Petitioner sold securities through a broker and his wife purchased the same kind of securities. Each had a separate brokerage account through which the securities were handled; the petitioner gave the wife the proceeds of his sales and she used that money to pay for her purchases, but she had sufficient funds of her own available to cover her purchases. Held that the sales by petitioner were bona fide and he is entitled to deduct the losses sustained thereon.
2. Securities sold by petitioner were registered in the names of himself and wife as joint owners. Held, that the securities were his individual property and he is entitled to deduct the full amount of the losses sustained on the sale of them.
*475 In this proceeding the respondent determined a deficiency in income tax for 1932 in the amount of $1,093.87 and a fraud penalty in the amount of $546.94. The disallowance of an expense item in the amount of $500 is not questioned by the petitioner. The one other adjustment made by the respondent, namely, *709 the disallowance of a claimed loss of $20,272.42 on the sale of securities is contested. The propriety of the assertion of the fraud penalty is also in issue.
*476 FINDINGS OF FACT.
The petitioner and his wife, Agnes J. Porter, are residents of Baltimore, Maryland. It has been their practice, with some exceptions, to have their property including securities, real estate, and bank accounts in their joint names.
In 1929 and 1930 the petitioner had an account in his own name with A. W. Lanahan & Co., stock brokers, of Baltimore, Maryland. Through that account he purchased between August 23, 1929, and April 30, 1930, the following corporate stock:
| Corporation | Shares | Cost |
| Eastern Rolling Mills | 1 100 | $3,651.00 |
| American Super Power | 100 | 6,830.00 |
| Commercial Solvents | 100 | 6,567.50 |
| Do | 100 | 3,227.50 |
| Mid-Continent Petroleum | 100 | 3,065.00 |
| Total cost | 23,341.00 |
The account through which the above shares, and a number of others were purchased was a margin account. It was closed out in October 1930.
The five certificates for the above shares were issued in the joint names*710 of petitioner and his wife as joint owners. The shares were in fact the separate property of the petitioner. In 1932 the five certificates were deposited by petitioner with the Equitable Trust Co. of Baltimore as part collateral for a loan of $3,400. In the latter part of 1932 the petitioner decided to sell the above shares, which were then worth less than cost, in order to establish a loss for income tax purposes. He discussed the matter with his wife, and, as they thought there was a chance of the stocks enhancing in value, Mrs. Porter decided to buy an equal number of the same shares. Early in December the petitioner addressed three letters to the Equitable Trust Co., one of which read as follows:
Please deliver Messrs. W. W. Lanahan & Co.
100 shrs. Eastern Rolling Mills
100 shrs. American Superpower
which you are carrying on my loan and receive from them
100 shrs. American Superpower
100 shrs. Eastern Rolling Mills
in the name of Agnes J. Porter.
The other two letters were similar, one relating to the Commercial Solvents stock and the other to the Mid-Continent Petroleum stock. *477 Delivery of the certificates was made, and, on orders of the petitioner*711 the brokerage firm sold the shares on the dates and at the prices as follows:
| Stock | Delivered | Sold | Sale price |
| Eastern Rolling Mills | Dec. 1 | Dec. 2 | $266.00 |
| American Super Power | Dec. 1 | Dec. 2 | 399.29 |
| Commercial Solvents | Dec. 5 | Dec. 6 | 1,868.79 |
| Mid-Continent Petroleum | Dec. 12 | Dec. 12 | 534.50 |
| Total | 3,068.58 |
On December 16, 1932, the brokerage firm delivered to petitioner its check for $3,072.35 ($3,068.58 plus $3.77 interest) and his account was thereupon balanced and closed.
In December 1932 Agnes J. Porter, wife of the petitioner, purchased through W. W. Lanahan & Co. the same number of shares in the same corporations as were sold by the petitioner. The orders for the purchases were given by Mrs. Porter. The details of her purchases are as follows:
| Stock | Shares | Date purchased | Price |
| Eastern Rolling Mills | 100 | Dec. 2 | $280 |
| American Super Power | 100 | Dec. 5 | 405 |
| Commercial Solvents | 200 | Dec. 6 | 1,865 |
| Mid-Continent Petroleum | 100 | Dec. 15 | 545 |
| Total | 3,095 |
On December 16 Mrs. Porter settled her account with Lanahan & Co. by paying $3,098.45 ($3,095 plus $3.45 interest). Settlement was made in this way: *712 The petitioner cashed the check he received from Lanahan & Co. and made a gift of the proceeds to his wife, who paid the cash so received, $3,072.35, over to Lanahan & Co. The difference, $26.10, she paid from her own funds. At that time the petitioner and his wife had joint savings accounts in two banks, the deposits in which exceeded several times the price of the securities purchased by Mrs. Porter.
The certificates covering the shares purchased by Mrs. Porter were issued in her name. At her direction the certificates were delivered to the Equitable Trust Co. and held there as security for the petitioner's loan. She executed and filed with the trust company an undated authorization to so hold the shares. The petitioner paid off his loan in 1936, at which time the certificates were handed to him. He in turn delivered them to Mrs. Porter, who placed them in a jointly owned safe deposit box. All dividends on the shares since *478 their purchase by Mrs. Porter have been received by her and used for her personal expenditures. In the present year she has used some of the shares as collateral for the purchase of other securities through Lanahan & Co.
Prior to the purchase*713 of the shares here involved Mrs. Porter had had an account with Lanahan & Co. She had purchased stock through that account in 1930.
In his income tax return for 1932 the petitioner claimed a loss of $20,272.42 on the sale of the above securities.
The petitioner did not within thirty days of the sale of the above securities acquire or enter into a contract or option to acquire substantially identical stock. The petitioner's return for 1932 was not false or fraudulent with intent to evade tax.
OPINION.
ARUNDELL: The pleadings in this case raise two questions: Whether or not the petitioner made a bona fide sale of stock in December 1932, and whether or not there was fraud in his claim of a loss on the transaction.
There is little, if any, room for doubt as to the actuality of the sale by the petitioner of his shares in December 1932. He gave orders to sell to an established stock brokerage firm; his orders were executed by the firm in the regular way that sales are made on the stock exchanges; the sales were reflected in petitioner's separate account, and the petitioner received the sale price of his shares. These matters are established by the testimony of not only*714 the petitioner, but representatives of the brokerage firm, and the testimony is substantiated by written contemporaneous records. The sales so made divested petitioner of all title and control over the property sold. See ; affd., .
As affecting the bona fides of the sales the respondent points to the marital relation of the buyer and seller, the gift of the proceeds of the sales and the use thereof to make the purchase, and the use of the wife's stock as collateral for the petitioner's indebtedness to the bank. We have frequently said that transfers between members of a family should be subjected to searching scrutiny in order to determine whether they are actual, valid, bona fide sales. See . Under this rule, we have carefully examined the several matters urged by the respondent and we do not find in them anything to vitiate the petitioner's sales nor anything to support the view that the purchases by the wife constituted a reacquisition by either the petitioner or the marital community. *479 Some of the elements of this case were also present*715 and discussed in the Behan case, supra. In that case, husband and wife bought and sold securities; upon a sale by one the other bought; the purchases were paid for out of the proceeds of sales which were transferred from the seller to the buyer for that purpose. The Circuit Court in its opinion considered particularly the matter of the transfer of funds from one spouse to the other, and held that as each was financially able to buy out of his or her own estate the transfer of funds was "but a convenience; not a necessity without which the purchases were impossible." It is further pointed out in the Behan opinion that the transfer of funds, considered as a gift, was not a gift of the securities because the securities were not transferred to the donee, but, on the contrary, were sold on the market for their fair market value. The transfer of funds after the sales the court said "in no way affected the scope or finality of the severance of property rights which resulted from the sales." The only feature which on its face appears to distinguish the Behan case from this one is that in the present case the new certificates were devoted to the same use as the old, namely, *716 as collateral for the husband's loan. But this is not, in fact, a distinction, for the new certificates were the property of the wife and the use to which she put them does not change the fact of the prior sale by the husband. We accordingly hold the sales of securities by the petitioner to have been actual, bona fide sales, and the resulting loss to be allowable.
Counsel for the respondent in his brief advances the proposition that, because the securities sold were in the joint names of petitioner and his wife, only one-half of the loss is in any event allowable to the petitioner. Ownership of shares is not necessarily determined by the name on the stock certificates. The evidence here is to the effect that these shares were purchased by the husband through his individual brokerage account and they were regarded by both petitioner and his wife as his separate property. We do not consider the registry in the joint names, under the circumstances here, sufficient to establish joint ownership. We are satisfied, and have found as a fact, that the shares were the separate property of the petitioner. We accordingly hold that the loss sustained is allowable to petitioner in full.
*717 The respondent's charge of fraud is based solely on the stock sales. That matter being decided for the petitioner, the assertion of fraud falls with it.
Decision will be entered under Rule 50.
Footnotes
1. One and 90/100 shares of this block was a stock dividend. ↩