*1206 1. In 1924 petitioners and other ice companies acquired all the stock of the Louisville Ice and Storage Company. Held, the evidence establishes that that stock became worthless in 1930 and petitioners are entitled to a loss deduction for that year in the amount of the cost of the stock.
2. From 1926 to 1929 petitioners contributed certain amounts to the Louisville Ice and Storage Company to pay off its indebtedness incurred in the purchase of stock of the American Ice and Storage Company. The assets of the latter company were auctioned off in 1929 but title was not conveyed until 1930. Held, no loss was sustained in 1929. Held, further, the stock became worthless in 1930 and petitioners are entitled to loss deductions for that year in the amounts contributed toward the purchase of the stock.
*1347 These are proceedings for the redetermination of deficiencies for the years and in the amounts as follows:
| 1929 | 1930 | |
| Falls City Ice & Beverage Company | $1,315.27 | $1,353.35 |
| Polar Ice & Coal Company | 1,396.88 | 1,392.90 |
| B & B Ice & Coal Company | 3,884.05 | 3,532.97 |
| Independent Ice & Coal Company | 2,117.58 | 2,673.94 |
| Parkland Ice & Coal Storage Company | 858.71 | 909.31 |
*1207 For the year 1929 petitioners claim loss deductions growing out of alleged worthlessness of the stock of the American Ice & Storage Company, which stock they claim to have owned. For 1930 they claim loss deductions on account of worthlessness of stock of the Louisiville Ice & Storage Company which they purchased in 1924.
No evidence was offered to support a loss alleged in Docket No. 61435 to have been sustained on the abandonment of saloon fixtures.
FINDINGS OF FACT.
Petitioners are Kentucky corporations engaged in the manufacture and sale of ice in Louisville. In 1924 the petitioners and eleven other ice companies in Louisville purchased all the capital stock of the Louisville Ice & Storage Company, hereinafter called the Louisville Company, which was engaged in the same business in that city. During periods of high temperatures in summer months ice companies had difficulty in supplying the requirements of their customers, and so in order to have additional ice available at such times the sixteen companies, including the five petitioners, acquired control of the Louisville Company. The stock was to be paid for by each of the purchasing companies paying in two cents*1208 per block of ice sold by each. This agreement ran for five years, expiring June 23, 1929, at which time the sixteen companies had paid a total of $170,384.37, the amounts paid by the petitioners being as follows:
| B & B Ice & Coal Company | $23,113.92 |
| Polar Ice & Coal Company | 9,897.84 |
| Independent Ice & Coal Company | 21,970.43 |
| Parkland Ice & Cold Storage Company | 5,679.66 |
| Falls City Ice & Beverage Company | 6,643.85 |
The plant of the Louisville Company was found to be expensive to operate. It was so located that it was flooded in times of high water, and the ice had to be hauled up a steep incline to the loading platform. Because of these conditions, and the advent of mechanical refrigeration which decreased the demand for ice, the operation of the Louisville Company plant was discontinued in 1926. The plant and equipment were sold in 1930 to a junk dealer for $9,500. *1348 At December 31, 1930, the Louisville Company's assets amounted to $85,643.34 and its liabilities, exclusive of capital stock, to $94,006.74, leaving a deficit of $8,363.40. Capital stock liability was carried at $170,384.37, the amount paid in by the sixteen companies. The Louisville*1209 Company did not surrender its charter in 1930.
In 1926, upon finding that the Louisville Company could not be economically operated, twelve of the group of sixteen companies above mentioned, including the five petitioners, arranged to acquire control of the American Ice & Storage Company, hereinafter called the American Company, which was likewise engaged in the ice business in Louisville. The plant of this company had a better location and was more readily accessible than that of the Louisville Company. The stock of the American Company was not purchased by the group of companies that desired to control it, but by the Louisville Company, and was issued to and held by one Emil Peter, trustee. The transaction was effected in this way: The purchase price of the American Company stock was agreed upon at $210,195.70, and the Louisville Company borrowed that amount at the National Bank of Kentucky, giving its note therefor in that amount. The Louisville Company had no credit at the bank, and as security for its note it turned over to the bank the notes of the group of twelve ice companies in amounts aggregating $210,195.70. The notes of these companies were payable to the Louisville*1210 Company. The notes executed by petitioners in this transaction were as follows:
| B & B Ice & Coal Company | $29,432.93 |
| Polar Ice & Coal Company | 13,129.86 |
| Parkland Ice & Cold Storage Company | |
| Independent Ice & Coal Company | 33,418.40 |
| Falls City Ice & Beverage Company | 5,461.75 |
It appears to have been agreed that on the joint note of the Parkland Ice & Cold Storage Company and the Independent Ice & Coal Company, the Parkland Company was liable for $8,354.60 and the Independent Company for $25,063.80. The several companies agreed to pay to the Louisville Company five cents for each block of ice sold, such payments to be applied against the liability on the notes. However, because of a falling off of business, the companies found it impossible to pay the amount agreed upon and paid only three cents per block. Collections were made on the fifteenth of each month, the amounts collected being deposited by the Louisville Company to its credit, and on the twentieth of each month it paid over to the National Bank of Kentucky the amount collected in curtailment of its note given in connection with the purchase of the American Company stock.
The American Company plant*1211 was put in operating condition in 1926, but was never operated, due to lack of demand for ice. At *1349 meetings of stockholders and directors of the Louisville Ice Company held on November 19, 1929, it was voted to sell the American Company's assets at public auction. The auction took place on December 30, 1929, and the assets of the company, including real estate, were sold for a total of $15,900. Of this sum the purchaser paid $1,500 at the time, and $3,500 on January 14, 1930, when he obtained a deed to the property. For the balance, $10,900, the purchaser gave three notes payable in one, two, and three years. The proceeds of the sale were received by the Louisville Ice Company and were credited by it to the notes of the group of twelve ice companies above mentioned. The credits to petitioners from this source were as follows:
| Falls City Ice & Beverage Company | $493.33 |
| Polar Ice & Coal Company | 1,185.90 |
| B & B Ice & Coal Company | 2,656.41 |
| Independent Ice & Coal Company | 2,261.75 |
| Parkland Ice & Cold Storage Company | 755.18 |
The payments made by the several petitioners on their notes, accrued interest, and balance at December 31, 1929, were as follows: *1212
| Payments | Balance | Accrued interest | Balance including interest | |
| Falls City Ice & Beverage Company | $6,517.76 | $ (1,056.01) | $570.18 | $ (480.83) |
| Polar Ice & Coal Company | 8,857.07 | 4,272.79 | 1,955.70 | 6,228.49 |
| B & B Ice & Coal Company | 22,979.93 | 6,453.00 | 4,141.50 | 10,594.50 |
| Independent Ice & Coal Company | 25,025.25 | 8,393.15 | 4,668.00 | 13,061.15 |
| Parkland Ice & Cold Storage Company |
The sums in parentheses are overpayments of principal and interest made by the Falls City Ice & Beverage Company on its note.
None of the petitioners ever deducted any interest paid on their notes in any income tax returns prior to the calendar year 1929. All of the petitioners kept their books and made their income tax returns on the accrual basis.
OPINION.
ARUNDELL: The petitioners claim a loss for 1929 on the ground that the stock of the American Company became worthless in that year. The respondent resists the allowance of a deduction, arguing that any loss on the sale of the American Company's assets was the loss of that company alone; that the Louisville Company - and not the petitioners - owned the stock of the American Company; and that in any event the*1213 sale of assets was not consummated in 1929 so as to support a loss deduction in that year.
The theory underlying petitioners' claim is that they were the beneficial owners of the American Company stock and that the *1350 Louisville Company was acting merely as their agent in acquiring the stock. There is nothing in the record to establish the creation of an agency except the testimony of one witness that that was the intent. If the Louisville Company was acting only as agent it is not likely that it would have obligated itself to pay $210,195.70 as it did by giving its note in that amount. The fact is that the Louisville Company was the purchaser and owner of the American Company stock and the only interest of petitioners in the stock was the indirect one of stockholders in the Louisville Company.
Furthermore the evidence does not satisfy us that the sale of the American Company's assets was consummated in 1929. While the company had agreed to sell, and a deposit was made by the purchaser in 1929, title was not transferred until 1930. In this case, as in *1214 , "the title and right of possession remained" in the vendor at the close of 1929, and "unconditional liability of vendee for the purchase price was not created in that year." See also . We, accordingly, hold that petitioners are not entitled to a loss deduction in 1929 on the American Company transaction.
It does not follow, however, that the petitioners may not be entitled to a loss in 1930 when the American Company disposed of its assets. True, the petitioners did not own the stock, but they contributed to the Louisville Company to enable it to buy the American Company stock. They therefore had a capital investment in the Louisville Company to the extent of the cost of their stock therein plus the amounts paid in to reimburse that company for its purchase of American Company stock. Consequently, when the American Company disposed of all of its assets that fact would be reflected in the investment of petitioners in the Louisville Company.
The evidence satisfactorily establishes that the stock of both the Louisville and American Companies became worthless*1215 in 1930. Both of them disposed of their plants and equipment in that year. It appears from the balance sheets that the Louisville Company retained some receivables, but they were exceeded by the liabilities. Both companies had ceased to exist as operating concerns and there was no hope of the stockholders receiving any return on their investment after 1930. It is our opinion, and we so hold, that petitioners sustained a deductible loss in 1930 in the amount of the original cost to them of the Louisville Company stock and the amounts contributed by them to that company and used by it in the purchase of the American Company stock. The amounts so deductible are not established clearly enough for us to say definitely what they were For instance, the Parkland Ice & Coal Company was a joint maker of a note with the Independent Ice & Coal Company, but it appears *1351 that the Parkland Company never paid anything. If it was released from liability it, of course, would not be entitled to a deduction. We cannot agree with the contention of petitioners that, because they failed to deduct interest currently, it should be included in the amount of the investment. Interest was deductible*1216 in the year of accrual and may not be added to the principal. Cf. ; affd., . The amount of the capital investment by each petitioner may be shown by the parties in the recomputation that will need to be made.
Decision will be entered under Rule 50.