*755 1. Issue (1). Held the petitioner sold securities indirectly to his wife and to his broker and deduction for losses from the sales is allowable upon facts showing (a) purchase of securities by wife with money borrowed from her husband and since partly repaid, and (b) sale to the broker.
2. Issue (2). Held, the facts show that ascertainment of a debt as worthless in 1932 was justified and the loss is deductible.
3. Issue (3). Held, loss on an investment was not proved to have been sustained in 1932 and therefore it is not deductible.
*202 These proceedings, which have been consolidated, involve deficiencies in income tax for the year 1932 in the following amounts for the respective petitioners:
| Arthur B. Hyman, Docket No. 79557 | $4,573.17 |
| William S. Gordon, Docket No. 81080 | 879.28 |
| Bertha M. Gordon, Docket No. 81081 | 879.28 |
In docket No. 79557 the respondent determined the deficiency by disallowing the amount of a claimed capital loss from the sale of securities, and by increasing*756 the petitioner's distributive share of the partnership income of the law firm of Paskus, Gordon & Hyman, by $2,530.21. In docket Nos. 81080 and 81081 the respondent determined the deficiency against the petitioners, who are husband and wife, on their joint return by adding $2,907.78 to the share of the partnership income of Paskus, Gordon & Hyman distributable to the petitioner, William S. Gordon, who is a member of the partnership.
FINDINGS OF FACT.
Arthur B. Hyman, petitioner in Docket No. 79557, at various dates during 1932 turned over to three brokerage houses who were members *203 of the New York Stock Exchange, the following blocks of securities which had been held for two years or more:
| Date sold | Security | Cost | Sale price | Gain | Loss |
| Aug. 8, 1932 | 100 Canadian Pacific | $5,620.00 | $1,460.50 | $4,159.50 | |
| Do | 500 South Penn | 14,918.92 | 7,175.00 | 7,743.92 | |
| Do | 500 Continental Oil | ||||
| Dec. 30, 1932 | 37 Continental Oil | 13,319.47 | 3,745.26 | 9,574.21 | |
| Do | 10 Potrero plus bond | 1,000.00 | 107.80 | 892.20 | |
| Do | 10 M. Russian Government | 1,500.00 | 212.50 | 1,287.50 | |
| Do | 47 New Bradford Oil | 270.25 | 27.14 | 243.11 | |
| Do | 10 Tidewater Oil | 861.25 | 372.10 | 489.15 | |
| Aug. 8, 1932 | |||||
| Dec. 30, 1932 | 155 Federated Stores | 10,201.76 | 1,775.60 | 8,426.16 | |
| Aug. 6, 1932 | 800 Salt Creek | 8,010.00 | 3,853.60 | 4,156.40 | |
| Date not shown | Habershaw Corporation | None | 308.00 | $308.00 | |
| Total | 55,701.65 | 19,037.50 | 308.00 | 36,972.15 | |
| Capital net loss | 36,664.15 |
*757 Prior to disposing of his securities the petitioner discussed the matter with his wife. He told her he intended "selling" the securities to establish losses which he could deduct from income and so reduce his Federal income tax. The petitioner told his wife he thought the securities good investments at the then low prices. Mrs. Hyman owned securities in her own name of a value in excess of $75,000. She already owned some of the same kind of securities Hyman was to dispose of. Her family had founded a company which had issued one of the stocks involved in the contemplated sales. Mrs. Hyman knew something about the securities and agreed it was to her advantage to acquire the stocks Hyman suggested she acquire. However, she did not have cash to buy them. Hyman suggested that the proceeds of his "sales" be credited to her account and that she could repay him at any time and that it would be foolish for her to borrow money from the bank and pay interest.
Hyman and Mrs. Hyman had separate accounts with Ladenburg, Thalmann & Co., Carl H. Pforzheimer & Co., and Walter Pforzheimer. Hyman delivered groups of stocks to these brokers, instructing them to apply the proceeds of the*758 "sale" against the "purchase" to be made by Mrs. Hyman. Disposition of Hyman's securities was made as follows. Group 1. - The proceeds from the sale of 800 shares of Salt Creek, 150 shares of Federated Department Stores, 500 shares of South Penn Oil, 500 shares of Continental Oil, and 100 shares of Canadian Pacific, totaling $17,768.35, were credited to Mrs. Myman's separate accounts with the various brokers. Because of tax and brokerage charges involved in the purchases and sales, the proceeds from Hyman's sales did not cover the total charges to Mrs. Hyman's accounts and she paid by her personal checks the difference of $415.40. Mrs. Hyman acquired the same number of the same securities delivered by Hyman to his brokers at the same prices for which he disposed of them and the credits to his accounts *204 and the debits to her accounts were made on the same date. After these transactions Mrs. Hyman gave her personal demand note dated August 8, 1932, to Hyman in the amount of $17,768.35. In 1935 and 1936 she paid to Hyman by her personal checks $11,000 on this note. New certificates for these stocks were issued in the name of Mrs. Hyman and she has received dividends*759 herself since the time of acquisition. The certificates are kept in the joint safe deposit box of the Hymans.
Group 2. - The following securities were delivered by Hyman to Ladenburg, Thalmann & Co: 1M Potrero Sugar; 37 Continental Oil; 10M Russian 6 1/2 percent 1919; 47 New Bradford Oil; 10 Potrero Sugar; 10 Tidewater Oil; 5 Federated Department Stores; and he received credit for the sale of these securities in his account. On the same day Mrs. Hyman's account was debited with charges for the same securities at the same market prices as Hyman's credits. Mrs. Hyman's account was not credited with the proceeds of Hyman's transaction and she did not pay for these securities in 1932. Instead, the securities were carried in her margin account with this broker.
The petitioner did not retain any legal interest in any of the securities he disposed of and has not made any agreement with Mrs. Hyman for reacquiring the securities and she has not given any of the securities back to him. Hyman and Mrs. Hyman filed separate income tax returns.
At all times here involved the petitioner, Hyman, had a 28 percent interest and the petitioner, William S. Gordon, had a 34 percent interest*760 in the law partnership of Paskus, Hyman & Gordon. Bertha Gordon is the wife of William S. Gordon.
In 1916 Martin Paskus on behalf of the partnership loaned to one Nungesser $500 on his personal note payable one month after date with interest at 6 percent. The note was not paid nor was the interest, but the partnership was continuously assured that it would be paid. Nungesser was an accountant and was employed by a client of the partnership continuously from the time of the loan through 1932. He owned some real estate. The members of the partnership up until 1932 believed that any time they chose to put sufficient "pressure" on Nungesser through his employer he would be able to discharge his indebtedness. In 1932, however, Hyman talked to the president of the company which employed Nungesser and was informed that Nungesser's financial affairs had become involved, that the company had taken a lien on his real estate, and further that his work had become unsatisfactory so that the company would probably not retain him after the current year. He was discharged at the close of 1932. The partnership ascertained the debt to be worthless in 1932 and charged it off as uncollectible.
*761 *205 In 1925 and 1926 the firm of Paskus, Gordon & Hyman paid $1,750 for an interest in a moving picture camera lens designed to create third-dimension perspective, which an inventor, one Ludwig Dietrich, was attempting to perfect. At the time of the investment Dietrich had a contract with the Pathe Moving Picture Co. for the exploitation of his invention but the contract was subsequently abrogated before 1930. In 1930 the partnership learned that Dietrich had gone to California and they were informed by the attorney through whom they had originally dealt that Dietrich would continue work on his invention. In that year and in 1931 the partnership attempted to communicate with Dietrich directly and through his former attorney to ascertain the status of the invention. Upon inquiry by the partnership in 1932, Dietrich's former attorney informed the partnership that he did not think the invention was a success, and that they might as well write it off as a loss. The loss was not sustained in 1932.
OPINION.
HARRON: There are three issues in these proceedings. The first is involved only in Docket No. 79557 in which the petitioner is Arthur B. Hyman, and concerns the*762 deductibility of losses from alleged sales of securities. The other two issues are common to all three docket numbers and concern the deductibility from the distributive shares of partnership income of a certain alleged bad debt and a certain alleged loss of the partnership.
Issue (1). - The respondent has disallowed claimed capital losses in the amount of $36,664.15 from the sale of securities by the petitioner in the taxable year upon the ground that the transactions through which such losses were allegedly sustained did not constitute bona fide sales. If the petitioner gave to his wife the securities upon which he claims losses, he could not take deductions under section 23(e)(2) of the Revenue Act of 1932. If the "purchases" in the name of Mrs. Hyman were in fact repurchases by the petitioner, he would not be entitled to a deduction under the wash sales provision of the statute, section 118 of the Revenue Act of 1932. The burden of proof is on the petitioner to show that the claimed deduction is allowable.
It is admitted that the petitioner's motive in disposing of the securities involved was to establish a loss for tax purposes. Such transactions as here involved*763 have been viewed unfavorably. Congress, in the Revenue Acts of 1934 and 1936, section 24(a)(6), has expressly provided that no deductions shall be allowed in respect of losses from sales or exchanges of property, directly or indirectly, between members of a family. However, the Revenue Act of 1932 did not contain such provision and this issue must be determined *206 upon the facts and upon the decisions of this Board and the courts under the Revenue Act of 1932.
With respect to the disposition of the securities listed in group 1 of the findings of fact, it is clear that Hyman sold these securities indirectly to his wife. There was a bid to buy for her account at the market placed by Hyman as his wife's agent, and an offer to sell from his account at the market placed with the same broker in each instance. Mrs. Hyman borrowed almost all the necessary money from the petitioner and gave her note to him. She has since made substantial payments on her note. There are no facts before us to show that the note was not bona fide. Therefore, it is held that Hyman sold indirectly to his wife the securities listed in group 1. *764 The transaction relating to the securities in group 1 is distinguishable from the transactions in ; ; and , since, in this case, the wife gave her note for the money advanced by her husband and has made substantial repayments on the note by her personal checks so that we are persuaded she did purchase the securities. The wife here did possess sufficient independent means to make such purchases or to get loan of money to enable such purchases. This proceeding with respect to the group 1 transactions is not distinguishable from , and ; affd., .
With respect to the group 2 securities the facts show that Hyman sold these to Ladenburg, Thalmann & Co.; his account was credited with the proceeds and they were not transferred to Mrs. Hyman's account. Mrs. Hyman had a separate account with Ladenburg, Thalmann & Co., which shows that she held other securities in it besides the group 2 securities she acquired. *765 She had credit with this broker, who carried her personal account on margin. At the end of 1932 she owed this broker over $6,000, considerably in excess of what she owed for the group 2 securities. Cf.
The petitioner is entitled to deduction for loss from the sale of group 1 and group 2 securities and the respondent is reversed in disallowing the deduction claimed under this issue.
Issue (2). - From the facts we have found it appears that the Nungesser debt was ascertained to be worthless and charged off in 1932, and from the uncontradicted evidence before us the ascertainment seems to have been made in good faith and to be justified by the facts. Although the note had been held for a long period, we do not think, in view of the partnership's belief in the debtor's ability to pay, that they should have written the debt off in an earlier year. We therefore hold the deduction for this bad debt allowable in the year 1932.
*207 Issue (3). - The record does not establish in what year the Dietrich loss actually occurred. The money was invested in the invention of Dietrich's in 1925 and 1926, but before 1930 the contract*766 with the Pathe Moving Picture Co. for exploitation of the invention was abrogated. In 1930 the partnership learned that Dietrich had left New York to go to California. In 1930 and in 1931 the partnership attempted to ascertain the status of the invention from Dietrich's former attorney and by writing Dietrich himself but could get no information. In 1932 the partnership again inquired into the matter from Dietrich's former attorney in New York and although so far as the record shows he had received no communication from Dietrich, he expressed it as his opinion that the invention was unsuccessful, that there were no future possibilities in it, and that the partnership might as well write off its investment as a loss. On the basis of these facts the partnership claims that it incurred the loss of its investment in 1932. The Commissioner has determined the fact to the contrary and the burden is on the petitioners to show that his determination is incorrect. We think they have failed to sustain their burden of proof on this point. It has been pointed out often that the statute makes a difference in the time for deduction of a bad debt and for the deduction of a loss. A bad debt*767 is deductible in the year in which it is "ascertained" to be bad, which means the year in which the taxpayer exercising the judgment of a reasonably prudent business man determines that the debt is worthless. On the other hand a loss is deductible only in the year in which it is sustained, which means the year in which the loss occurs, irrespective of when the taxpayer actually ascertains or learns of its occurrence. Here the petitioners clearly confess their lack of knowledge of the status of their investment from 1930 on. They were unable to establish any communication, either directly or indirectly, with the inventor, who alone could inform them of the progress of his work. Even in 1932 the sole information on which they based their claim of loss was an opinion expressed by the inventor's former attorney, apparently without any factual basis except that the Pathe contract had been abrogated before 1930 and that so far as he knew no other company had taken up the invention. The loss may have occurred in 1930 or 1931, or if the inventor was still working on the invention in good faith and had prospects of selling it, no loss may have occurred at all. The respondent has determined*768 that no loss occurred in 1932 and his determination is sustained for failure of proof to the contrary.
Bertha Gordon and William S. Gordon filed a joint income tax return for the year 1932 and a deficiency notice was addressed to them jointly. Mrs. Gordon filed a separate petition with this Board, Docket No. 81081. The deficiency set forth in the deficiency notice *208 arises out of an increase in the income of William S. Gordon from his law partnership asserted by the respondent. Mrs. Gordon is not a member of the law partnership and the deficiency determined by the respondent does not arise out of her income. It has been held that "spouses are not jointly and severally liable for a deficiency arising entirely out of the separate income of one of them." ; . Since none of the deficiency is attributable to the income of Bertha Gordon, she is not individually liable for any part of the deficiency and it is held that there is no deficiency in the petition of Bertha Gordon.
Decision will be entered under Rule 50, in Docket Nos. 79557 and 81080. Decision of no deficiency*769 will be entered in Docket No. 81081.