1937 BTA LEXIS 755 | B.T.A. | 1937
Lead Opinion
There are three issues in these proceedings. The first is involved only in Docket Ho. 79557 in which the petitioner is Arthur B. Hyman, and concerns the deductibility of losses from alleged sales of securities. The other two issues are common to all three docket numbers and concern the deductibility from the distributive shares of partnership income of a certain alleged bad debt and a certain alleged loss -of the partnership.
Issue (1).—The respondent has disallowed claimed capital losses in the amount of $36,664.15 from the sale of securities by the petitioner in the taxable year upon the ground that the transactions through which such losses were allegedly sustained did not constitute bona fide sales. If the petitioner gave to his wife the securities upon which he claims losses, he could not take deductions under section. 23 (e) (2) of the Revenue Act of 1932. If the “purchases” in the name of Mrs. Hyman were in fact repurchases by the petitioner, he would not be entitled to a deduction-under the wash sales provision of the statute, section 118 of the Revenue Act of 1932. The burden of proof is on the petitioner to show that the claimed deduction is allowable.
It is admitted that the petitioner’s motive in disposing, of the securities involved was to establish a loss for tax purposes. Such transactions as here involved have been viewed unfavorably. Congress, in the Revenue Acts of 1934 and 1936, section 24 (a) (6), has expressly provided that no deductions shall be allowed in respect of losses from sales or exchanges of property, directly or indirectly, between members of a family. However, the Revenue Act of 1932 did not contain such provision and this issue must be determined
With respect to the disposition of the securities listed in group 1 of the findings of fact, it is clear that Hyman sold these securities indirectly to his wife. There was a bid to buy for her account at the market placed by Hyman as his wife’s agent, and an offer to sell from his account at the market placed with the same broker in each instance. Mrs. Hyman borrowed almost all the necessary money from the petitioner and gave her note to him. She has since made substantial payments on her note. There are no facts before us to show that the note was not bona fide. Therefore, it is held that Hyman sold indirectly to his wife the securities listed in group 1. The transaction relating to the securities in group 1 is distinguishable from the transactions in D. A. Belden, 30 B. T. A. 601; Joseph Blumenthal, 30 B. T. A. 125; and George E. Morse, 34 B. T. A. 943, since, in this case, the wife gave her note for the money advanced by her husband and has made substantial repayments on the note by her personal checks so that we are persuaded she did purchase the securities. The wife here did possess sufficient independent means to make such purchases or to get loan of money to enable such purchases. This proceeding with respect to the group 1 transactions is not distinguishable from Charles F. Fawsett, 31 B. T. A. 139, and Thomas W. Behan, 32 B. T. A. 1088; affd., 90 Fed. (2d) 609.
With respect to the group 2 securities the facts show that Hyman sold these to Ladenburg, Thalmann & Co.; his account was credited with the proceeds and they were not transferred to Mrs. Hyman’S account. Mrs. Hyman had a separate account with Ladenburg, Thalmann & Co., which shows that she held other securities in it besides the group 2 securities she acquired. She had credit with this broker, who carried her personal account on margin. At the end of 1932 are owed this broker over $6,000, considerably in excess of what she owed for the group 2 securities. Cf. George E. Morse, supra.
The petitioner is entitled to deduction for loss from the sale of group 1 and group 2 securities and the respondent is reversed in disallowing the deduction claimed under this issue.
Issue (2).—From the facts we have found it appears that the Nungesser debt was ascertained to be worthless and charged off in 1932, and from the uncontradicted evidence before us the ascertainment seems to have been made in good faith and to be justified by the facts. Although the note had been held for a long period, we do not think, in view of the partnership’s belief in the debtor’s ability to pay, that they should have written the debt off in an earlier year. We therefore hold the deduction for this bad debt allowable in the year 1932.
Bertha Gordon and William S. Gordon filed a joint income tax return for the year 1932 and a deficiency notice was addressed to them jointly. Mrs. Gordon filed a separate petition with this Board, Docket No. 81081. The deficiency set forth in the deficiency notice
Decision will be entered under Rule 50, in Docket Nos. 79557 and 81080. Decision of no deficiency will be entered in Docket No. 81081,