*976 Respondent has made a determination of deficiency in income tax for 1928 of $7,508.77, which petitioner attacks on the sole ground of respondent's refusal to allow a capital loss in the amount of *977 $60,079, claimed to have been sustained upon the sale of certain stock.
FINDINGS OF FACT.
Petitioner, an attorney at law, is a resident of Boston, Massachusetts. In each of the years 1924 and 1925 he made purchases of the stock of Mason, Inc., a Rhode Island corporation, acquiring 800 shares of preferred and 500 shares of common stock at a total cost of $80,000. On December 12, 1928, at a public auction conducted by the brokerage firm of R. L. Day & Co., petitioner sold all of this stock for a net price of $19,921. On his return for 1928 he claimed the difference between selling price and cost - $60,079 - as a capital loss. Respondent's disallowance of that claim gives rise to the deficiency herein.
R. L. Day & Co. was a member of the New York and Boston Stock Exchanges and maintained offices in both cities. For many years it had conducted*1065 in Boston weekly auction sales of unlisted securities, preceding the auctions with newspaper advertisements giving notice of the time of sale and a list of the securities to be offered. The stock sold by petitioner was listed in each advertisement published in at least three newspapers, and the auction at which it was sold was fairly well attended. Remittance for proceeds of the sale of the stock was made to petitioner by check of the brokerage firm.
The stock was purchased at the auction sale by petitioner's wife, Martha R. Peters, and was bid in for her by one of the employees of the Day Co. There were no other bids on the stock. Neither petitioner nor Mrs. Peters was present at the sale. Mrs. Peters possessed separate property, both real and personal, the bulk of which came to her from sources independent of her husband. At this time she owned 100 shares of common stock of Mason, Inc. She was told by petitioner that he intended to dispose of his stock in the company and there was some discussion between them concerning its value and the possibilities of making a profit in the stock. Mason, Inc., at that time owned all the stock of a yarn-manufacturing company which had*1066 substantial assets, and had previously done a profitable business. Mrs. Peters instructed Day & Co. to make one bid for her - $20,000, no more, no less.
Petitioner endorsed in blank the certificates representing his stock and delivered them to Day & Co. Thereafter they were presented to Mason, Inc., which canceled them and issued new certificates in the name of Mrs. Peters, by whom the stock was still owned and held up to the time of this trial. The details of the transaction were recorded on the books of account of both petitioner and his wife. Mrs. Peters filed a separate return for the year 1928.
*978 OPINION.
GOODRICH: It may be fairly inferred from the records that petitioner, perhaps because discouraged concerning the prospects of profitable continuance of Mason, Inc., decided to liquidate his investment in a stock which had depreciated in value in order that he might, by application of the loss thus sustained, reduce his income, and consequently his tax thereon. But, if incurred in a bona fide transaction, a loss is not to be disallowed merely because it was deliberately sustained as a means of reducing tax liability. *1067 ; ; ; . Respondent suggests that because of the relationship existing between vendor and purchaser, the transaction here was not a valid, effective and bona fide sale, and therefore the loss resulting from the purported disposition of the property should not be recognized nor allowed as an offset against petitioner's income. It is true that transactions between persons closely related offer an opportunity for fraud and for that reason the circumstances surrounding their dealings must be closely scrutinized, , but we are satisfied that there is no merit in respondent's suggestion respecting the case at bar. This transaction was not effected by a secret arrangement between husband and wife. This was a sale of stock at an open auction, conducted by a recognized dealer after public advertisement. While it is true that the wife knew the stock was to be sold and discussed with her husband the advisability of buying it, the proof is that her*1068 purchase resulted from the acceptance of a bid for the stock made for her at the auction by a representative of the firm conducting the sale, and that if her offer had been exceeded, the higher bidder would have obtained the stock. We are convinced that petitioner intended to, and did, part company with his property, with no strings attached by which to retrieve it, and that, so far as concerns the bona fides of the transaction, he effected a valid disposition of the stock, regardless of the identity of the purchaser. .
The ground upon which respondent based his determination and upon which he now maintains his position is that, under the laws of the Commonwealth, a married woman is under the common law disability respecting her power to contract with or receive property from her husband and, consequently, this transaction is a void attempt by petitioner to transfer property to his wife and did not effect a disposition of the stock upon which a loss may be recognized. He tells us that the law of Massachusetts respecting the matter is well settled; that there a married woman may not contract with her husband, nor*1069 transfer to him, nor receive from him, any property, *979 whether real or personal, except as a gift under certain circumstances and in a limited amount; that, as between husband and wife, the common law disabilities of the married woman prevail, and attempted contracts and transfers between them are void, citing sec. 2, ch. 209, General Laws of Massachusetts; ; ; .
But an examination of the Massachusetts statutes and of the decisions of her courts reveals that the strict bar against transfers of property between husband and wife does not now exist as respondent would have us believe, but has been largely removed by legislative enactment since the decision in , upon which he much relies. Chapter 304, Acts of 1912, provides that "husband and wife may make conveyances of real estate to each other * * * as if unmarried," and chapter 478, Acts of 1920, provides that "gifts of personal property between husband and wife shall be valid to the same extent as if they were sole." The section*1070 preceding that which respondent, upon brief, calls to our attention, namely, section 1 of chapter 209, General Laws, provides in part:
* * * a married woman may receive, receipt for, hold, manage and dispose of property, real and personal, in the same manner as if she were sole. Section 3 of the same chapter provides that "gifts of personal property, and conveyances of real estate * * * between husband and wife, shall be valid to the same extent as if they were sole." Clearly, the restrictions formerly existing and upon which respondent relies, prohibiting the transfer of property between husband and wife, have been done away with, and it remains to be determined whether the transaction here involved was a contract between such parties, which is still barred, or a disposition of property such as the law of the Commonwealth would permit.
Petitioner contends that the transaction was a completed and valid sale of stock between husband and wife. A sale is defined by the statute as "an agreement whereby the seller transfers the property in goods to the buyer for a consideration called the price" (sec. 3, ch. 106, General Laws of Massachusetts). Section 4 of the same chapter provides: *1071 "The capacity to buy and sell shall be determined by the general law concerning the capacity to contract and to transfer and acquire property." In view of these statutory provisions it is apparent that, if this transaction was a contract between husband and wife, it was void, for husband and wife may not contract, but that if it was a transfer of property between them - a sale - it was valid.
In our opinion, the transaction was a sale, a transfer of property, as distinguished from an executory contract to sell, and was not void. *980 The effect and finality of a completed transfer of property directly between husband and wife, whether by sale or by gift, has been recognized. ; ; ; , reversing ; ; ; young v. *1072 ; . This is particularly true of shares of stock - see , and . This was a case arising in Massachusetts and involving the determination of Federal estate tax liability, wherein the validity of stock transfers made directly from husband to wife was upheld, the court saying:
Because of the peculiar nature of corporate shares it has generally been held that the transfer of the certificate, followed by a transfer on the books of the corporation, and the issuance of a new certificate in the name of the transferee was sufficient to invest the latter with full title to the shares transferred.
Here, the proof is that the several acts enumerated in the decision cited were accomplished and, under the rule of that case, which we consider controlling, petitioner effected a valid transfer of the stock to his wife. See also sec. 27, ch. 155, Massachusetts General Laws (Uniform Stock Transfer Act). Since the transfer was made for a valuable consideration which was paid, it was a sale of the stock, upon which the loss sustained*1073 must be recognized.
Moreover, even if transfers of property directly between husband and wife were still prohibited as respondent contends, nevertheless, this transfer would be made effective by novation - by the intervention of a third party, either the broker or the corporation reissuing the certificates. ;; ;; .
We conclude that petitioner effectively disposed of his shares of the stock of Mason, Inc., in a valid, bona fide sale. The amount of the loss sustained therefrom is not in dispute, nor is the fact that petitioner had held the stock for more than two years. Therefore the capital loss should be applied as provided in section 101, Revenue Act of 1928.
Judgment will be entered for the petitioner.