Source: https://openjurist.org/283/us/223
Timestamp: 2019-04-26 14:26:02+00:00

Document:
The Attorney General and Mr. G. A. Young-quist, Asst. Atty. Gen., for petitioner.
Mr. Wm. Clarke Mason, of Philadelphia, Pa., for respondent.
The respondent, in making his tax return for 1920, claimed a loss incurred in a transaction entered into in the year 1906, by which he acquired certain rights of the character, and in the manner, hereafter stated. The Commissioner of Internal Revenue disallowed the claim, and his determination was sustained by the Board of Tax Appeals upon the ground that the taxpayer had failed to show the value of the rights as of March 1, 1913. J. I. R. Henry v. Commissioner of Internal Revenue, 13 B. T. A. 279. Upon a petition for review, the Circuit Court of Appeals upheld the claim and reversed the action of the Board of Tax Appeals. 39 F.(2d) 351.
The following are the facts: In 1906, owing to excessive loans made to Adolph Segal, the Real Estate Trust Company of Philadelphia closed its doors, and a receiver was appointed. Segal had deposited collateral, which possessed an 'uncertain value,' and could not readily be liquidated. A plan of reorganization was proposed by the receiver, which, among other things, contemplated the creation of a fund of $2,500,000 to be subscribed by directors of the company to guarantee a value of $3,000,000 for the Segal collateral-designated in the plan, 'Segal matters.' The subscribers to the fund were to receive and excess over the amount of $3,000,000 which might be realized from the administration of the 'Segal matters.' No limit of time was put upon the administration, or upon the final disposition, of the assets embraced by the 'Segal matters.' The plan became effective, and the company resumed business on November 1, 1906; and thereafter, and until December 30, 1920, the 'Segal matters' were administered under the exclusive direction of the president of the company, who theretofore had been the receiver.
The respondent, a director of the company, was a subscriber to the fund in the sum of $305,000. At the time of the subscription, respondent believed that the 'Segal matters' had a potential value which could be converted into a sum sufficient to repay the subscribers the amount of their subscriptions with interest, and possibly some profit. The president, then receiver, expressed to the directors the same belief.
In 1920, the parties concerned having concluded that the remaining Segal assets would not soon increase in value, the subscribers entered into agreements providing for complete liquidation of the 'Segal matters,' and thereupon, for the distribution of one-fourth of the Pennsylvania Sugar Company stock to the subscribers in proportion respectively to the amounts of their subscriptions, in full satisfaction of all agreements relating thereto. Respondent, accordingly, received 222 shares of Pennsylvania Sugar Company stock, the fair market value of which was $150 per share. Upon that basis, respondent, in 1920, wrote off his books a loss of $271,700, a sum arrived at by deducting $33,300, the value of the stock received, from $305,000, the amount of his original subscription. In his return for 1920 the amount was deducted as a loss.
Under this provision, it is necessary to consider, not only the cost of the interest acquired by respondent in 1906, but also its fair market price or value as of March 1, 1913; and whichever of these is found to be the lower must be taken as the basis for determining the loss resulting from the final disposition of the property. In other words, the effect of the provision in respect of value on March 1, 1913, is to limit the deductible loss by that value if it be less than the original cost. This is the effect of the prior decisions of this court. United States v. Flannery, 268 U. S. 98, 103, 45 S. Ct. 420, 69 L. Ed. 865; and cases cited; Heiner v. Tindle, 276 U. S. 582, 587, 48 S. Ct. 326 72 L. Ed. 714, and see Nichols v. Smith, (C. C. A.) 35 F.(2d) 938, 939; Bloch v. Commissioner, 16 B. T. A. 425, affirmed (C. C. A.) 42 F.(2d) 1013.
We cannot agree that the impossibility of establishing a specific fact, made essental b y the statute as a prerequisite to the allowance of a loss, justifies a decision for the taxpayer based upon a consideration only of the remaining factors which the statute contemplates. The definite requirement of section 202(a)(1) of the act is not thus easily to be put aside. The impossibility of proving a material fact upon which the right to relief depends simply leaves the claimant upon whom the burden rests with an unenforceable claim, a misfortune to be borne by him, as it must be borne in other cases, as the result of a failure of proof. Compare Underwood v. Wing, 4 De Gex, M. & G. 632, 660; Newell et al. v. Nichols et al., 75 N. Y. 78, 90, 31 Am. Rep. 424; Estate of Ehle, 73 Wis. 445, 459, 460, 41 N. W. 627; 2 Chamberlayne, Modern Law of Evidence, § 970.
Neither can the presumption be indulged that the cost of respondent's interest in 1906 was the value of that interest in 1913, for non constat that such cost was the value even in 1906.
Moreover, we think the record is far from demonstrating the impossibility of supplying evidence from which the required fact might be found. The 7,268 shares of stock in the Pennsylvania Sugar Company, the distribution of which in 1920 closed the transaction, had been received by the Real Estate Trust Company as early as 1912. This stock, together with certain bonds, not otherwise described, constituted on March 1, 1913, the entire available assets remaining of the original 'Segal matters.' There seems to have been no difficulty in ascertaining the value of the stock in 1920; and it is hard to see why its value, as well as the value of the bonds, could not have been, at least approximately, determined as of March 1, 1913, and, consequently, the approximate value of the contingent interest of each of the subscribers to the fund ascertained as of that date. No reason is suggested by the record or otherwise, and none occurs to us, for not seeking light on the subject from those who had been in charge of the liquidation of the 'Segal matters.' We cannot assume that such an effort, would have been fruitless. Respondent was bound to produce the best available evidence of value which the circumstances and nature of the transaction permitted. It does not, appear that he made any attempt to do so.

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 § 970