1942 BTA LEXIS 659 | B.T.A. | 1942
Lead Opinion
We have for determination two questions: (1) Whether the petitioner should report the income and gain received or realized and deduct the losses sustained in transactions in and operations relating to the Waterhouse assets, and (2) whether it is entitled to deduct the losses sustained by it in removing from the portfolios of certain trusts and estates bonds of the Honolulu Bond & Mortgage Co. The petitioner has filed no brief and its contentions are disclosed only in its petition and statements made by counsel at the time of the hearing.
With respect to the first question, it is the claim of the petitioner that by reason of the merger it acquired all of the assets of Water-house and succeeded to all of its liabilities and obligations in a nontaxable transaction and that it should therefore in each year thereafter report as its own all of the income, gains, and losses therefrom in the same manner and on the same basis as Waterhouse would have done had it continued. The difficulty with that proposition is that it did not succeed to the unfettered ownership of the Waterhouse assets. It acquired those assets subject not only to the liabilities of Water-house generally but also to the rights of the special noteholders, after the satisfaction of which it was entitled to the gain, if any, that might be realized therefrom or thereon. Until the assets were liquidated, leaving nothing-for the special noteholders, or until the special noteholders should be paid off, the petitioner had no right to apprópriaté ór .use the Waterhouse assets or proceeds therefrom for its own purposes. It is argued that the value, of the Waterhouse
In determining the deficiency herein, the respondent not only disallowed as deductions the excess of sustained losses over the income and gain realized on the Waterhouse assets, but in addition added to petitioner’s income a further sum of $81,610.97, representing interest and rent accrued on petitioner’s books against said assets. These additions were not reported as income, nor claimed as deductions by petitioner in its income tax return, and such treatment of the items in question was obviously correct. The petitioner has no right, under its agreement with Waterhouse originally or with' the special note-holders, to any such charges on the Waterhouse assets or operations.
With respect to the amounts expended by petitioner in removing the-bonds of the Honolulu Bond & Mortgage Co. from the portfolios of certain estates and trusts.for which it acted as fiduciary, the respondent argues that the petitioner is entitled to no deduction for losses sustained or for any of the amounts expended, on the ground that the-acquisition of the bonds from the trusts and estates and their subsequent disposition was not in the nature of a transaction or transactions' entered into for profit. The statute grants to corporations the right to deduct ordinary and necessary expenses paid or incurred during the taxable year in carrying on any trade or business; also losses- sustained
Decision will be entered wider Bule SO.