141 F.2d 529 | D.C. Cir. | 1944
Lead Opinion
The Commissioner determined a deficiency against the taxpayer for the calendar year 1937. The Board of Tax Appeals affirmed. The facts are not in dispute ; instead, the taxpayer accepts the evidentiary findings of the Board and challenges the conclusion which it draws therefrom that: “The shares of stock owned by petitioner in San-I-Sal Laboratories, Inc. became worthless prior to the calendar year 1937.”; as well as its decision approving the Commissioner’s determination. The sole question of the case is whether the Board applied the correct legal test in deciding that the taxpayer’s loss was not sustained in the year 1937; when, it is agreed, the outstanding liabilities of the corporation having been liquidated, application for a certificate of dissolution was
The findings of the Board showed that the corporation’s business was suspended and discontinued early in 1929 to the extent that, thereafter, it filed no federal income tax return, and it had no full-time employees. However, the Board found, also, that after 1929 the corporation disposed of most of its equipment piecemeal; that most of the business of the corporation after 1929 consisted of casual sales on orders received; that its gross sales amounted to $1624.70 in 1929 and vn each of the years 1930 to 1937, inclusive, averaged approximately $350, which was less than the cost of the goods sold. It found, also: “From 1925 to 1937, inclusive, petitioner advanced to or paid in behalf of the corporation sums aggregating $76,649.06. Of this amount $55,696.51 represented payments on accounts which petitioner had guaranteed. Other expenditures in behalf of the corporation went for operating expenses. In the fall of 1937, the outstanding liabilities of the Delaware corporation having been liquidated, an application for a certificate of dissolution was made and, on December - 18, 1937, the Secretary of the State of Delaware issued a certificate of dissolution.” [Italics Supplied] We may assume, therefore, that although the corporation was insolvent, it nevertheless continued in existence until 1937. The Board, in its opinion, expressly concedes': “The company managed a bare existence through small sums paid into it each year by petitioner.”
The test applied by the Board was stated in the following terms: “The loss must be taken in. the year in which it is sustained and at no other time and this means the year in which these shares in every substantial and realistic way become worthless.” [Italics supplied] We think the decision of the Board too severely restricted the taxpayer and sets too high a standard of industrial performance; especially in light of the remarkable industrial developments often achieved by courageous and optimistic American businessmen, who refused to be dissuaded when bankers and other conservative citizens advised that their enterprises were worthless in “every substantial and realistic way.” Henry Ford is a striking example. Even though, perhaps, a businessman should not be encouraged to be an incurable optimist, if he is one, nevertheless, and continues to express his optimism by putting money into an insolvent organization, he should be given the benefit of the doubt. This would seem to be particularly true where, as here, the suspension of business occurred in 1929, the year of the great panic, and the transfusions administered by the taxpayer occurred during the period of the most severe depression ever experienced in this country.
The case which comes closest in its facts to the present case is Rassieur v. Commissioner.
The test proposed by the Board in the present case is a highly objective one which disregards what the taxpayer may think of his investment, how much of an optimist he may be, or what he may consider to be the possibilities of future successful operation, or of eventual recoupment. An examination of the cases persuades us that the subjective appraisal of the taxpayer is of much greater importance. The Supreme Court said as much in United States v. S. S. White Dental Mfg. Co.
We are mindful of the injunction that the “judicial function is exhausted when there is found to be a rational basis for the conclusions approved by the administrative
On argument, in the present case, the Government did not deny the taxpayer’s argument that under the facts as they existed here the taxpayer would have been unable to establish proof of loss in any year preceding 1937. His inability to do so resulted from the fact that he underwrote the corporation’s liabilities and financed its operations—even though on a “bare existence” basis—during each year until 1937. It is one thing to say, casually, that the loss actually occurred, contrary to petitioner’s contention, long before 1937; it is quite another to suggest a specific year. We think the tax law was not intended to trap the taxpayer in such a hopeless dilemma, merely because he was optimistic and hopeful as to the future. So far as concerns his burden of proving an identifiable loss, that was fully satisfied by proof of dissolution of the corporation in 1937.
Reversed.
8 Cir., 129 F.2d 820.
Rassieur v. Commissioner, 8 Cir., 129 F.2d 820, 826. See, also, Ewing-Thomas Converting Co. v. McCaughn, 3 Cir., 43 F.2d 503, 504, 505.
Rassieur v. Commissioner, 8 Cir., 129 F.2d 820, 825, 826.
274 U.S. 398, 403, 47 S.Ct. 598, 71 L.Ed. 1120. See also, Rosing v. Corwin, 2 Cir., 88 F.2d 415.
4 Cir., 62 F.2d 571.
Forbes v. Commissioner, 4 Cir., 62 F.2d 571, 574.
280 U.S. 445, 449, 50 S.Ct. 202, 74 L.Ed. 538, 67 A.L.R. 1010.
Id., 280 U.S. at page 451, 50 S.Ct. at page 203, 74 L.Ed. 538, 67 A.L.R. 1010.
Id., 280 U.S. at page 452, 50 S.Ct. at page 204, 74 L.Ed. 538, 67 A.L.R. 1010.
See also, Lewellyn v. Electric Reduction Co., 275 U.S. 243, 247, 48 S.Ct. 63, 64, 72 L.Ed. 262: “There is nothing in the findings from which we could conclude that the respondent in 1918 had ceased to regard his rights under the contract as having value or that there was then reasonable ground to suppose that efforts to enforce them would he fruitless.’''
2 Cir., 70 F.2d 719.
Rochester Tel. Corp. v. United States, 307 U.S. 125, 146, 59 S.Ct. 754, 765, 83 L.Ed. 1147.
Dobson v. Commissioner, 64 S.Ct. 239, 246.
Ibid.
Mahnich v. Southern S. S. Co., 64 S.Ct. 455, 457: “Here, however, both courts below, bolding 'themselves bound by The Pinar Del Rio, supra [277 U.S. 151, 48 S.Ct. 457, 72 L.Ed. 827], have, on the facts found, held, as a matter of law that the staging was seaworthy despite its defect. That conclusion of law is renewable here.” [Italics supplied in part]
Dissenting Opinion
(dissenting).
I am in sympathetic accord with the conclusion in this case and would gladly go along, if I felt free to apply what seem to me to be the equities of the situation. For it is admitted that petitioner sustained a deductible loss in some year, and it is equally clear that in the hope of avoiding or postponing it, he stood by the ship to the very last. Whether, in this respect, enough was shown to identify the particular year of loss is, by established rule, a question of fact as to which the decision of the Tax Court is final where it has, as it has in this case, “ ‘warrant in the record’ and a reasonable basis in the law.” Dobson v. Commissioner, 320 U.S. 489, 64 S.Ct. 239. The Tax Court having found that petitioner has not borne the burden, which was his— Burnet v. Houston, 283 U.S. 223, 51 S.Ct. 413, 75 L.Ed. 991; Squier v. Commissioner, 2 Cir., 68 F.2d 25, we are, as I think,' foreclosed and must affirm.