*1146 No deduction for loss or bad debts may be taken by an individual for the last taxable period during his life in respect of the cost of shares in a corporation and loans made to it from time to time until his death, the worthlessness of which was occasioned by his death.
*1407 This is a proceeding for the redetermination of a deficiency of $20,464.73 in income tax against the executors of Edwin N. Squier, deceased, for the period January 1 to November 9, 1926. Petitioners claim deductions as bad debts of the amount of certain loans made by the decedent to two corporations, and as a loss of the amount invested by the decedent in shares of the corporations. The facts are stipulated.
FINDINGS OF FACT.
The petitioners are the executors of the last will and testament of Edwin N. Squier, deceased, who died on November 9, 1926, a resident of Rahway, New Jersey. During the years 1914 to 1919, inclusive, the decedent acquired 985 of the 2,000 issued and outstanding shares of the stock of the Shur-Loc Elevator Safety Co., Inc., a New York corporation, *1147 at an aggregate cost of $40,500. The operations of the company, which consisted of the construction and installation of certain elevator safety devices, were consistently unsuccessful throughout the entire period of its activity, its profit and loss account showing a loss each year from August 14, 1914, to November 30, 1926.
The company frequently required moneys to enable it to continue its operations and effort successfully to market its products. No other source of financial assistance being available, advances in varying amounts were made to it by the decedent from time to time, from 1917 until November 5, 1926, aggregating $356,100. For these advances he took the company's six per cent demand notes.
During 1926 to the date of his death, November 9, he advanced $52,950, the last item of which was advanced on November 5, four days before his death. He was a director of the company and was active in its management.
*1408 The balance sheet of the company as of November 30, 1926, showing assets and liabilities as carried on the books, and the probable actual realizable value of the assets, is as follows:
| Book Value | Probable Actual | |
| Realizable Value | ||
| Assets | ||
| Cash, Accounts Receivable, Materials, etc | $39,576.40 | $18,480.33 |
| Machinery, Equipment, etc., Less Depreciation | 4,727.23 | 954.00 |
| Amount due from Shur-Loc Company of Illinois | 31,760.28 | 1.00 |
| Patents | 63,000.00 | 1.00 |
| Organization Expense | 16,000.00 | |
| Capital Stock Discount | 59,000.00 | |
| Deferred Charges | 198.08 | |
| 214,261.99 | 19,436.33 | |
| LIABILITIES | ||
| Current Accounts and Loan Payable, Contract | ||
| Credits, etc | 21,370.62 | 21,370.62 |
| Notes Payable (Advances by Stockholders) | 363,450.00 | 363,450.00 |
| Capital Surplus | 10,000.00 | 10,000.00 |
| Capital Stock | 200,000.00 | 200,000.00 |
| Operating Deficit | 380,558.63 | 380,558.63 |
| Realization Deficit | 194,825.66 | |
| Apparent Deficiency of Capital | 170,558.63 | 365,384.29 |
*1148 In 1915, a principal shareholder of the company caused the incorporation in Illinois of the Shur-Loc Company of Illinois, to act as sales agent in an effort to market the New York company's products. The decedent became a nominal shareholder of the Illinois company in 1921, when he received one share to enable him to qualify as a director.
The Illinois company was in frequent need of moneys to enable it to continue, and no other source of financial aid was available to it. Between August 25, 1921, and November 3, 1926, six days before his death, the decedent made periodical advances to the Illinois company in the aggregate amount of $98,000, and took its notes.
At September 30, 1925, the Illinois company had an operating deficit of $135,584.39, and there was an apparent capital deficit of $78,584.39. Its financial condition had not improved between that date and November 30, 1926.
The decedent took an active part in the affairs of both companies up to the time of his death. Both companies ceased to operate when the death of the decedent terminated his financial support.
The executors of the decedent acquired upon his death the aforesaid shares and notes of both corporations.
*1149 The decedent maintained an office at 111 Broadway, New York, N.Y. His sole occupation was the management of his investments and acting as director in certain banks and manufacturing corporations. He employed no clerk or assistant. He kept no books or records of account other than the entries of deposits and withdrawals *1409 in his check books and a memorandum book showing his advances to both companies and the notes received therefor. His income-tax returns were made for calendar years. He was in good health and actually attended to his affairs and his office until November 5, 1926. He was taken ill with pneumonia on November 6, 1926, and died on November 9, 1926.
The surrogate's appraiser, on December 29, 1926, valued as of the date of decedent's death, the shares of the New York corporation at one dollar, and the one share of the Illinois corporation at the same figure. The notes of both corporations were appraised as nil.
On December 31, 1926, the executors wrote off, as of November 9, 1926, in the memorandum book kept by the decedent, the total of all the advances made by the decedent to both companies.
The executors filed an income-tax return for the*1150 decedent for the period January 1, 1926, to November 9, 1926. In that return they deducted as bad debts $98,000, the aggregate amount of the advances the decedent had made to the Shur-Loc Company of Illinois from August 5, 1921, to November 3, 1926. They also deducted, as "other deductions authorized by law," the sum of $40,500, the amount invested by the decedent in the capital stock of the Shur-Loc Elevator Safety Co., Inc., and the sum of $52,950, the amount advanced by the decedent to the latter company in the year 1926. The respondent disallowed all of the foregoing deductions.
OPINION.
STERNHAGEN: The petitioners have in effect stipulated, and unequivocally adopt as a premise for their argument, the fact that the death of decedent was the occasion of worthlessness of the shares and the debts. They assert that if the decedent had attempted to establish a fiscal period ending prior to his death and to take these deductions on the return for such period, he would have failed because the worthlessness could not have been demonstrated. Cf. *1151 ; ; ; . The respondent agrees with this both in the stipulation and his argument. Upon such an uncontested factual basis there seems to be no room for doubt that the worthlessness did not occur until after the decedent's death, and hence whatever deductions there may be in respect thereof are assignable to the later period of the estate and not to the period of the individual before his death. This is the only period which we are permitted in this proceeding to consider. For such period, therefore, the respondent's determination must be sustained.
Judgment will be entered under Rule 50.