Opinion ID: 296319
Heading Depth: 1
Heading Rank: 3

Heading: Loss Deductible as Sustained on a Transaction Entered Into for Profit

Text: 24 The only intention of taxpayer here was the expectation of compensation received directly, as payment for the availability of taxpayer's securities. This transaction was plainly one entered into for profit. 9 25 Any citation of judicial precedent should make reference to Ansley v. Comm'r, 217 F.2d 252 (3d Cir. 1954), because there is some similarity on the facts 10 and the reasoning in the opinion parallels ours. 11 The difficulty with Ansley's weight as authority is that it preceded Putnam and the Government argues that it does not survive Putnam. A recent Tax Court opinion contains a reference, in passing, that expresses doubts as to the continuing vitality of Ansley in the wake of Putnam. 12 On its own facts the vitality of Ansley is doubtful,-- impaired by Stratmore, supra,-- for the taxpayer was a stockholder, and indeed had majority stock ownership, in the corporation whose finances he protected. However, insofar as a loan agreement not referable to any existing debt or investment is concerned we think the reasoning of Ansley has merit and survives Putnam for the reasons we have already stated. That reasoning establishes the deductibility of the loss before us as one sustained on a transaction entered into for profit. 26 We do not believe that our ruling ignores the legislative purposes underlying 166. Congress limited what had been the general deductibility of 'bad debts,' at least in part because of abuses by taxpayers in situations that were structured as 'debts' but in reality were in the nature of gifts. 13 There is no indication that bailment transactions, which may, as in this case, be entered into for profit, lend themselves to this kind of abuse. In any event the only abuse which Congress reached was in the domain of bad debts. In other transactions the taxpayer remained under the burden of establishing that the loss was incurred, e.g., in a transaction entered into for profit. 27 It may well be that in the interests of consistency a rule could be devised providing that any action by an individual taxpayer which either gives credit or facilitates the obtaining of credit by a corporation, be it guaranty, loan, indemnity or bailment, should be given capital loss treatment if financially unsuccessful. But the Congress has not so provided and the Supreme Court did not purport to speak so broadly in Putnam. In the absence of a clear indication, either by Congress or the Supreme Court, that 166(d) is to be given such a broad reading, we think it sound to apply Putnam in accordance with its expressed reasoning of subrogation, at least where the taxpayer has no prior stake in the corporation. 14 28 Taxpayer's loss is not deductible under 165(c)(1) since it bore no proximate relationship to her trade or business, that of a music teacher. Whipple v. Comm'r, 373 U.S. 193, 201, 83 S.Ct. 1168, 10 L.Ed.2d 288 (1963). However, it is cognizable under 165(c)(2) as a loss incurred in a 'transaction entered into for profit, though not connected with a trade or business.' 29 Affirmed.