Case Name: Appeal of LEO J. GOLDBERGER
Court: United States Board of Tax Appeals
Jurisdiction: United States
Decision Date: 1924-12-29
Citations: 1 B.T.A. 249
Docket Number: Docket No. 243
Parties: Appeal of LEO J. GOLDBERGER.
Judges: Before Ivms, Korner, and Marquette.
Reporter: Reports of the United States Board of Tax Appeals
Volume: 1
Pages: 249–251

Head Matter:
Appeal of LEO J. GOLDBERGER.
Docket No. 243.
Submitted December 8, 1924;
decided December 29, 1924.
Theodore Phillips, jr., Esq., for the taxpayer.
Robert A. Littleton, Esq. (Nelson T. Hartson, Solicitor of Internal Revenue) for the Commissioner.
Before Ivms, Korner, and Marquette.

Opinion:
OPINION.
Ivins :
It is apparent that the Commissioner in making the determination appealed from, misunderstood the brokers' statements and took the taxpayer's debit balance thereon as his net loss for the year. The taxpayer on the other hand took the statement of the brokers that his net loss was $9,093.96, added thereto the interest charges and regarded the sum as his deductible loss on stock transactions. In doing this, he overlooked the fact that the brokers had not taken into consideration the stock dividends on Sinclair Consolidated, and had treated dividends and Victory note interest like other credits, which may have been perfectly proper bookkeeping from the point of view of the relations between broker and customer but which did not constitute a proper basis for the computation of income taxes.
In order to compute the income tax we have analyzed the transactions as follows:
(A) Victory notes. — The taxpayer had on deposit with the brokers at the beginning of the year $5,000 of Victory notes and added thereto during the year $9,000 more, and had left on deposit at the end of the year $4,000. The other $10,000 of these notes which had cost him $10,000 were sold on May 3 for $9,831.04, showing a loss of $168.96.
(B) Sinclair Consolidated. — The taxpayer had on January 1 three hundred shares which had cost him $14,445 in 1919. He sold 100 shares of this on April 28 for $3,581, a loss of $1,234. On May 13 he bought 100 shares for $3,515, after which transaction he had altogether 300 shares which had cost him $13,145. Upon these 300 shares and before he sold any of them, he received stock dividends of 12.12 shares, so for purposes of computing gain or loss 312.12 shares cost a total of $13,145, an average price of $42.11%. This average price, applied to the 300 shares sold in December, gives a cost for them of $12,634.50. They were sold for $6,768, a loss of $5.866.50. At the close of the year he still had on hand 12.12 shares to which is attributable a cost of $510.50.
(O) Philadelphia Company. — The taxpayer purchased 200 shares of Philadelphia Co. in April for $8,130 and sold them in August and December for an aggregate of $6,816, showing a loss of $1,314. He also acquired 100 shares on December 30 which he still held at the close of the year. The 1918 law contained no provision such as that contained in section 214(a)5 of the 1921 law, affecting wash sales, so we need not regard the stock purchased on December 30 as substituted for the stock sold on the same day.
(D) Interest paid.• — The brokers charged the taxpayer interest on current balances at call money rates which aggregated $1,129.70 during the year. This amount, of course, is a proper deduction and might be reported either as part of the loss in stock transactions or as a separate item of interest paid. The results will be the same either way.
(E) Dividends and interest received. — During the year the brokers credited the taxpayer with dividends on Philadelphia Co. stock of $225 and with interest on Victory notes of $142.50. They treated them as ordinary credits going to reduce the taxpayer's debit balance, but for tax purposes they should be handled separately for the reason that the income represented, by them is subject to surtax but not to normal tax.
Having determined the various items, we are now in a position to compute the taxpayer's deficiency. The loss on stock transactions reported by the taxpayer at $10,845.50 should be reduced to $9,713.16, made up as follows:
Loss on Victory notes- $168. 96
Loss on 100 shares of Sinclair Consolidated- 1, 234. 00
Loss on 300 shares Sinclair Consolidated- 5, 866.50
Loss on Philadelphia Co_1,314. 00
Interest charges-1,129. 70
9, 713.16
To the difference of $632.34 should be added the item of $110, disallowed contributions which the taxpayer concedes, making a net increase of income subject to both normal and surtax of $742.34.
The income subject to surtax only should be increased by the item of $512.66 conceded by the taxpayer, and the further items of dividends $225 and Victory bond interest $142.50, making a net increase of income subject to surtax of $880.16.
Upon these increased amounts of net income the taxes should be computed at 1920 rates in order to determine the deficiency.