Case Name: Appeal of HAROLD B. CLARK
Court: United States Board of Tax Appeals
Jurisdiction: United States
Decision Date: 1925-09-09
Citations: 2 B.T.A. 555
Docket Number: Docket No. 1707
Parties: Appeal of HAROLD B. CLARK.
Judges: Before Ivins, Maequettb, and Morris.
Reporter: Reports of the United States Board of Tax Appeals
Volume: 2
Pages: 555–558

Head Matter:
Appeal of HAROLD B. CLARK.
Docket No. 1707.
Submitted May 11, 1925.
Decided September 9, 1925.
Percy W. Grane, Esq., for the taxpayer.
E. G. Lake, Esq., for the Commissioner'.
Before Ivins, Maequettb, and Morris.

Opinion:
OPINION.
Ivins:
The losses should be allowed as to the securities sold to the Columbia Trust Co. and Charles H. Jones & Co. Appeal of the Pennsylvania Co. for Insurance on Lives and Granting Annuities. 2 B. T. A. 48; Appeal of Benjamin T. Britt, 2 B. T. A. 53.
The transaction with the Columbia Trust Co. was on the border line, but the taxpayer's evidence establishes, prima facie, a tona fide sale, and no evidence to rebut it has been presented by the Commissioner. The fact that the taxpayer was a director in the trust company may have influenced the resale by it to the taxpayer, but we have nothing on which to base a belief that he knew or expected that the trust company would resell to him without charging him a profit on the transaction.
We are not convinced, however, as to the good faith of the sale to Miller. That transaction rather falls within the category of such situations as are illustrated by Appeal of W. C. Bradley, 1 B. T. A. 111; Appeal of James Dobson, 1 B. T. A. 1082; and Appeal of P. B. Fouke, 2 B. T. A. 219. Miller testified on cross examination as follows:
Q. What was your purpose in buying it? A. My purpose in buying it was the fact that we have transactions of this kind in the office, and Mr. Taylor came to me and asked me if X would buy 54 shares of the stock at $5.00 a share, and I said, Yes, go ahead. That is my recollection of the conversation, something of that kind.
Q. Now, you state that the deal for the 54 shares was closed? A. Correct.
Q. And then when did you sell the 54 shares? A. November 23rd — I have forgotten the year — 1921.
Q. Then the purpose in buying this stock and selling it the same day was to accommodate Mr. Taylor, who had approached you about it? A. Correct.
Q. And you knew what Mr. Taylor's purpose was in asking you to get in the transaction? A. Not necessarily.
Q. Did you have any information about what his purpose was? A. As to this specific transaction, I think not.
Q. It was a practice tliere in the office to commonly indulge in, handling these matters in this way, wasn't it? A. It was.
Q. What was the purpose? A. What was the purpose of what?
Q. Of handling these transactions in this way A. The purpose as I understood it was because of income taxes.
Q. And the sole purpose, so far as you know, was for the purpose of establishing losses for income tax purposes? A. Correct.
It is apparent from this testimony that Miller might be fittingly described as an " accommodation " purchaser, as distinguished from a bona fide purchaser. He was familiar with the common and prevalent practice in his business circles of registering losses for taxpayers. He knew that he was " buying " solely with the expectation of later being called upon to " resell " to his employer. To him the legal passing of title was a mere technicality which required satisfaction in order to benefit his employer. Instead of being a willing buyer, he was, rather, an agreeable employee, acceding to the request of his superior as called upon in emergency. The payment of a price and the delivery of certificates do not constitute the sole requisite of a valid sale. The parties must make a bona fide transfer as persons dealing at arm's length would do — the seller for the purpose of absolutely getting rid of the stock and the buyer for the purpose of absolutely acquiring it as his own Avithout any condition covering its later return to the seller. Receiving a credit for the price and the mere indicia of ownership, without the mutual element of intent on both sides to complete an absolute sale, can not constitute a basis for a deduction for loss under the provisions of the tax law. A loss to be deductible must be a, reality.
AruNdell not participating.