Tаxpayers’ petitions for review, like those in Lynch v. Commissioner, 2 Cir., 1959,
Since the general nature and purpose of the plan have been discussed in the cases cited and a full statement of the facts and claims is contained in the opinion of the Tax Court, it will suffice here to outline the transaction in summary form:
(1) On April 6, 1953, Becker, through Marks, his accountant, placed an order with Livingstone to buy $5,000,000 U. S. Treasury 1%% notes maturing March' 15, 1954.
(2) Livingstone, as Becker’s agent, ordered C. F. Childs & Co. to deliver these Treаsury notes to Livingstone’s account at Guaranty Trust Company of New York. The price was 99-9/32, or a principal sum of $4,964,062.50, plus accrued interest оf $4,296.87, for a total of $4,968,359.37.
(3) Becker paid Livingstone $10,000 by check. For the balance he executed a non-recourse note for $4,958,359.37, bearing intеrest at the rate of 2%%, and payable March 15, 1954, to Seaboard Investment Associates, Inc. Seaboard was a dummy of Livingstone’s similar to Gail Finance Corporation described in Lynch, and the note was also similar in its provisions for pledge of the Treasury notes, prepayment with penalty interest, absence of personal liability except from the proceeds of the collateral, etc.
(4) Simultaneously Bеcker directed Livingstone to deliver the Treasury notes to Seaboard against payment by Seaboard of $4,958,359.37, which he instructed Seaboard to make.
(5) Livingstone directed Guaranty, first, to receive delivery of the $5,000,000 Treasury notes from Childs for Livingstone’s account against payment to Childs of $4,968,359.37 (see item (1)) to be chаrged to his account and, second, to redeliver the notes to Childs for $4,967,-578.12 to be credited to his account. Delivery and redelivery were made and ap~ *148 propriate checks drawn. Livingstone also issued a confirmation slip to Seaboard stating that as its agent he had sold $5,000,000 of Treasury notes for $4,967,578.12 less Livingstone’s commission of $6,250, or $4,961,328.12 net. Neither Becker nor Marks had given an order for this sale.
(6) Late in September, 1953, Seaboard submitted а statement to Becker in care of Marks showing a balance of $22,-587.08 of interest due. Marks had ascertained the market value of the Treasury notes had increased sufficiently that Seaboard would advance Becker another $22,500 without recourse and thought it desirable in view оf supposed tax advantages that Becker make an interest payment in 1953. Seaboard issued a check to Becker for $22,500. Becker executed a promissory note in that amount to Seaboard upon the same terms as his note of April 7, and issued his check for $22,587.08 to Seаboard in payment of interest.
(7) Late in October, the notes having appreciated to 100 or fractionally more, Marks placed а sell order with Livingstone. Livingstone told Marks that Seaboard was short of the notes, could not cover and was financially irresponsible.
(8) On Decеmber 7,1953, a settlement was arranged as follows:
(a) Becker sold $5,000,000 Treasury notes to Livingstone who assumed his “principal” indebtedness to Seaboard in the sum of $4,976,562.50, i. e., the original note of $4,958,359.37 (item (3)) minus the prepaid interest item of $4,-296.87 included therein (item (1)) plus the second note of $22,500 (item (6)).
(b) Becker remаined liable to Seaboard for interest of $27,224.83 and a prepayment penalty of $3,386.78 or a total of $30,611.61. This, however, was reduced by a credit of accrued interest on the Treasury notes of $15,763.11, leaving a balance of $14,848.50. Becker paid $6,461.72 by check dated December 10, 1953, and signed negotiable notes, dated December 7, 1953, for $8,386.78. These notes, bearing interest at the rate of 4%, were payable and paid January 4, 1954, thе total payment on them being $8,412.-87.
(c) Livingstone paid Becker $17,162.-50 in 1953.
(d) Becker paid an attorney’s fee of $725, also in 1953.
When all this was finished, Becker was out of pocket on this $5,000,000 transaction as follows:
Initial payment to Livingstone (item (3)) ......$10,000.00
Excess of October, 1953, payment to Seaboard
over loan (item (6))....................... 87.08
December, 1953, payments to Seaboard (item
(8) (b)) ................................. 6,461.72
January, 1954, payments to Seaboard (item
(8) (b)) ................................. 8,412.87
Attorney’s fee (item (8) (d)) ................ 725.00
$25,686.67
Less payment from Livingstone (item (8) (c)) 17,162.50
$ 8,524.17
Until the attempted sale in lаte October, 1953, the transaction was similar to that in Lynch save that Becker did not prepay the interest, thereby reserving judgment whether he would tаke the interest deduction in 1953 or 1954 or partly in each, and that the $5,000,000 Treasury notes journeyed from C. F. Childs & Co. to Guaranty Trust Co. and back. It was identical with that in Good-
*149
stein v. Commissioner, supra. We hold here, as was held in those eases, that the taxpayer was not entitled to a deduction for interеst on his notes pursuant to § 23 (b) of the 1939 Internal Revenue Code, 26 U.S.C.A. § 23(b), for “interest paid or accrued * * * on indebtedness,” since in fact “no money was used or forborne.” Lynch v. Commissioner, 273 F.2d at pages 871-872. Becker seeks to distinguish that holding because of his momentary liability to Childs & Co. as undisclosed principal; but any such liability was immediately discharged by the resale. As said by the First Circuit in Goodstein,
Becker contends that if the interest deductiоn is disallowed, he should be permitted to deduct his loss of $8,524.17 under § 23(e)(2) of the 1939 Code permitting the deduction of losses incurred by an individual “in any transaction entered into for profit, though not connected with the trade or business.” The Commissioner answers that the transaction was not “entered into for profit” but solely for the purpose of achieving an interest deduction. Becker denies this, pointing to the almost certain appreciation of the Treasury notes as their maturity approached. We need not pass on this controversy. For the nature of Becker’s loss is clearly delineated by § 117(g)(2) of the 1939 Code, 26 U.S.C.A. § 117(g)(2), which prescribes that “gains or losses attributable to the failure to exercise privileges or options to buy or sell property shall be considered as short-term capital gains or losses.” As intimated by the First Circuit in Goodstein v. Commissioner, suрra,
Taxpayers’ pеtitions to review are granted to the limited extent of remanding the case to the Tax Court for a re-determination of deficiencies on this basis.
Notes
. In view of our decision herein there is no occasion to do more than mention the protective cross-petition filed by the Commissioner.