115 F.2d 194 | 5th Cir. | 1940
George S. Jones in his 1936 income tax return took deductions in full of a loss sustained by his stock in Standard Realty Company having become valueless and its having been surrendered by him; and the further loss of a debt of about $1,000 against Standard Realty Company having been ascertained to be worthless and charged off during the year. The deductions were denied, additional taxes were assessed and paid, and a suit in the district court to recover them did not succeed.' This appeal followed.
Jones owned one-fourth of the capital stock of Standard Realty Company which had cost him in the year 1929 $12,588. The Company owned only a block of city stores, originally worth $80,000, and its only business was the renting of them. The stores were mortgaged, the balance due in December, 1936, being about $21,-875, and the mortgage note was indorsed by Jones and two other stockholders and by W. E. Dunwoody and S. T. Coleman. The Company also owed bank notes for $3,550 similarly indorsed, and it owed its stockholders for advances made in propor
Jones undoubtedly suffered a loss both of his investment in the stock and of his debt against the Company, for he had neither after Dec. 31, 1936, and nothing tangible in place of them. But not every loss can be deducted. Deductions are not a matter of constitutional right but of legislative grace. They can be taken only when and to the extent the statute allows. This taxpayer had held his stock since 1929, it was a capital asset, and if his loss, finally realized by his parting with it, was by a “sale or exchange”, only $2,000 could be deducted, which the Commissioner allowed. Revenue Act of 1936, Sect. 117 (d), 49 Stat. 1648, 26 U.S.C.A. Int.Rev. Acts, page 875. If we read only the minutes of Dec. 31, 1936, of Standard Realty Company, it might be thought the stock had been given to the Company as worthless. Jones was not present at the meeting, and the correspondence above recited shows that no transaction occurred between him and the company. The negotiation was with Dunwoody and Coleman as individuals. The agreement the parties reached was not that the stock should be surrendered to the Company for nothing, but that it was to be transferred to Dun-woody and Coleman for a valuable consideration moving from them. Jones was to be relieved from his share of large indorsements, as between him and his coindorsers his share being one-fourth, and Dunwoody and Coleman were to take his place. Whether this transfer of obligation amounted to over $6,000, or was really nothing because the Company was possibly solvent, may be a question, but because
The debt Jones held against the Company' was worthless or not according as the Company had assets in excess of the mortgage or not. Nothing happened to the Company itself to show the final worthlessness of the debt. On Nov. 20 Jones and his associates were wishing to retain their claims against the Company as of some value. They parted with them along with their stock .in order to get release from their indorsements. They charged them off at last not on the ground of worthlessness but because for a valuable consideration they had agreed to. They disabled themselves from afterwards by possibility collecting them and making a returnable profit, as may be done when a debt is simply charged off as worthless. We do not think a deduction was due on account of this debt under Revenue Act of 1936, Sect. 23(k), 49 Stat. 1648, 26 U.S.C.A.Int.Rev.Acts, page 828.
Judgment affirmed.