1931 BTA LEXIS 1974 | B.T.A. | 1931
Lead Opinion
A number of errors are alleged in the petition, but the substance of them is that the respondent erred in refusing to allow a deduction of $100,000 either as a loss sustained or a debt ascertained to be partially worthless in 1924. It is obvious from the facts in this case, and it is not denied by the respondent, that at the end of 1924 Park was out of pocket something over $100,000. This, however, does not establish that he is entitled to a deduction. For tax purposes only those losses are allowable that are specified by statute and are, in the order, set out in section 214(a) of the Revenue Act of 1924, losses incurred in trade or business, losses incurred in transactions entered into for profit, and losses arising from casualties.
It is plain that the loss was not the result of a casualty as contemplated by the statute, and no claim is made that it was such a loss. It is almost equally evident that a loss of this kind is not one incurred in trade or business, as it is not a part of the trade or business of the president and directors of a corporation to make good the latter’s losses. “A director of a corporation is not engaged in the business of the corporation.” Snider B. Ward, 18 B. T. A. 326, 328.
The principal claim of petitioner is that the loss was incurred in a transaction entered into for profit. We can agree with the argument that when a business man becomes president and director of a bank it is probably with an eye to the profit that will inure to him
Petitioner might have taken his loss by permitting the bank to be liquidated. In that ease he would have been permitted his deduction. He chose instead to put more funds into the venture, giving it new life. This new investment can scarcely be termed a loss as the term is used in the revenue act, despite the compelling circumstances under which the funds were paid over to the corporation. While these funds left the hands of petitioner, they went to enrich a corporation in which he was a substantial stockholder. Until the result of his investment in this stock is determined by a sale or liquidation of the corporation, it can not be known whether there will be gain or loss.
About the only distinction between the facts in the two cases is that in the Vaughcm case there was a double liability on the part of stockholders, and here there was none. But, as pointed out above, Vaughan met this liability and in addition paid in a substantial sum ’ in securities, and so this attempted distinction vanishes. We think this case is ruled by the decision in the Vaughan case, and on authority of that case we hold that Park sustained no deductible loss by reason of his payment to the bank in 1924.
We are also of the opinion that the claim for a bad debt deduction can not be allowed. This deduction is sought on the ground that the bank’s claims against Berker and Finn which were assigned to Park turned out to be partially bad before the close of the year, a comparatively small amount having been collected within the year. The answer to this is that the money put up by Park was not a loan and there was no “debt,” in the sense used in the Revenue Act, owing to him.
Decision imU T>e entered for the respondent.