*1036 This is a proceeding for the redetermination of a deficiency in income tax for the calendar year 1922 in the amount of $1,748.20. Only a portion of the deficiency is contested.
FINDINGS OF FACT.
The petitioner is a citizen of the United States, and a resident of Macon, Ga. In filing his income-tax return for 1922 he claimed, among other deductions, a deduction of $3,796.02 and in explanation thereof made the following statement in his return:
Fee, and expenses and additional tax paid in John E. Smith Cotton Manufacturing Company case, $3,796.02. Said corporation liquidated, paid liquidating dividend and surrendered charter. Was compelled to pay additional tax and same is a complete loss to me.
In the audit of the return by the respondent this deduction was disallowed and on December 22, 1926, the respondent mailed to the petitioner a notice of deficiency in the amount of $1,748.20.
*1037 During 1919 and prior thereto the petitioner was the owner of practically all the capital stock of the John E. Smith Cotton Manufacturing Co., a corporation, *2546 which in the year 1919 liquidated by reducing all of its assets to cash, paying all of its then known debts, and distributing the remaining cash to its stockholders as liquidating dividends. The petitioner in filing his 1919 Federal income-tax return reported no profits from this liquidating dividend nor did he claim any loss.
During the year 1922 the respondent finally determined that an additional tax of $3,245.83 was due from the John E. Smith Cotton Manufacturing Co. for the year 1918 and so notified the company.
During 1922 the petitioner contested this additional tax found due from the corporation but finally on September 20, 1922, he paid to the collector of internal revenue at Atlanta, Ga., the sum of $3,245.83, representing the aforesaid additional tax found due from the corporation; also, $146.06 representing interest on the aforesaid additional tax.
In connection with the petitioner's protest of the additional tax found by the respondent to be due from the corporation, the petitioner in 1922 made the following expenditures:
| Fee to Monroe Ogden, professional services | $250.00 |
| Expenses of taxpayer and Ogden to Washington, D.C | 125.85 |
| Additional expenses to Ogden | 23.28 |
| Stenographic service, Washington, D.C | 5.00 |
| Total | 404.13 |
| Additional tax plus interest | 3,391.89 |
| 3,796.02 |
*2547 The petitioner in filing his income-tax return for all years reported his income on the basis of cash receipts and disbursements.
At the time of the liquidation of the John E. Smith Cotton Manufacturing Co. in 1919, the amount which the petitioner received as liquidation was less than the cost or the March 1, 1913, value of the stock in the said corporation. The corporation kept its books of account on the accrual basis.
OPINION.
TRAMMELL: The question here presented is whether the amount of additional taxes together with fees for professional services and expenses in connection with the contesting thereof which were paid by the petitioner in 1922 are deductible in determining the petitioner's taxable income for that year. The respondent has denied the deduction on the theory that the loss occurred in 1919 and *1038 should have been deducted in that year, when the corporation was liquidated.
We see no substantial difference in principle between this case and the case of . In that case the corporation was finally liquidated in 1921 and its assets distributed to the stockholders. In 1923 the stockholders were*2548 required to pay additional amounts on account of the corporation taxes for previous years. There we said:
The payment made by Barker in 1923 on account of the corporate taxes was not an obligation incurred or a loss sustained by him in 1923, but was a repayment by him of corporate assets paid to him to which he had no equitable title. It was in the nature of a repayment of money received under a mistake of fact upon which a trust had been impressed and, to the extent to which the amount received was subject to the trust, was not income. Appeal of . The amounts received by him in liquidation of the corporation should be reduced by the amount returned in payment of taxes of the corporation, the amount so returned being set off against the latest distributions received by the taxpayer.
Following the principles set forth in the above case, the amount which the petitioner received in liquidation of the corporation in 1919 should be reduced by the amount of the additional corporation taxes which he was required to pay in 1922. In other words, the loss that he sustained in 1919 was further increased by the additional amount required to*2549 be paid in 1922. The payment in 1922 was not an obligation incurred or a loss sustained by the petitioner in that year. The effect of the whole transaction is that the petitioner received the assets of the corporation in 1919, which amount he held in trust for the benefit of creditors, and the additional amount that he was required to pay in 1922 had the effect merely of reducing the amount that he was actually entitled to receive in liquidation in 1919. It is our opinion, therefore, that the petitioner did not suffer a deductible loss in 1922 on account of the additional payment of corporate taxes and interest in that year. However, in 1922, the petitioner actually paid out $404.13 in expenses contesting the tax liability asserted in that year against the corporation. These expenses were actually incurred in defending the petitioner against an asserted liability against him, as he was liable for any additional tax liability of the corporation. In view of this fact, we think that the petitioner is entitled to the deduction in 1922 of the amount of $404.13, the expenses incurred in that year in connection with the matter.
Reviewed by the Board.
Judgment will be entered*2550 under Rule 50.