Court Opinion

ID: 6874802
Source: CourtListenerOpinion
Date Created: 2022-07-23 21:06:14.821058+00
Date Added: 2024-06-11T16:05:28.526310
License: Public Domain

BIGGS, Circuit Judge
(dissenting).
The question presented for our determination is whether the taxpayer may deduct from its gross income the sum of $27,442.51 as loss upon stocks sold by the taxpayer upon December 29, 1932, to Fort Pitt Bedding Company for the sum of $10,120, and repurchased by it forty-.seven days later at an identical price.
The Commissioner contends that the Board of Tax Appeals erred in holding the loss occasioned by the sale to be deductible, claiming that the record discloses that the sales and repurchases were not genuine business transactions of the kind intended by law to form the basis for deductible losses; in short, that the losses sustained were not business losses within the meaning of subsection (f) of section 23 of the Revenue Act of 1932, c. 209, 47 Stat. 169, 26 U.S.C.A. § 23(f).
Section 118 of the Revenue Act of 1932, 26 U.S.C.A. § 118, provides that no deductions as losses from “wash sales” of stock may be taken from the taxpayer’s income under the provisions of section 23(e) (2) or section 23(f) of the Act, 26 U.S.C.A. § 23(e) (2), (f), where it appears that " * * * within a period beginning' 30 days before the date of such sale or disposition and ending 30 days after such date, the taxpayer has acquired * * * or has entered into a contract or option so to acquire, substantially identical stock or "securities * * *
In Shoenberg v. Commissioner, 8 Cir., 77 F.2d 446, 450, certiorari denied 296 U.S. 586, 56 S.Ct. 101, 80 L.Ed. 414, where a similar statutory provision viz., section 118 of the Revenue Act of 1928, c. 852, 45 Stat. 826, 26 U.S.C.A. § 118, note, was under discussion, it was held that the statutory provision prohibiting a deduction of loss on a sale of stock from taxable net income where the taxpayer repurchases stock sold within thirty days did not serve to validate repurchases after thirty days, where such were part of an original plan involving the sale made the basis of the claimed loss. See, also, Commissioner v. Neaves, 9 Cir., 81 F.2d 947, 949, and St. Louis Union Trust Company v. United States, 8 Cir., 82 F.2d 61, 66. The conclusion that because the repurchase of stock takes place more than thirty days after the sale that that fact alone serves to exempt the taxpayer from the provisions of subsection (f) of section 23 of the Revenue Act; providing for the deduction of business losses from -gross income, in my opinion is untenable.
In the case at bar we must determine whether there was a real sale or only a fictitious or pretended sale. In arriving at a decision upon this question the transactions involved must he considered as a whole and not piecemeal. Shoenberg v. Commissioner, supra; Ahles Realty Corp. v. Commissioner, 2 Cir., 71 F.2d 150, 151, certiorari denied Ahles Realty Corp. v. Helvering, 293 U.S. 611, 55 S.Ct. 141, 79 L.Ed. 701.
Viewed in this light, I can distinguish no substantial difference between the principle governing the case at bar and that enunciated by this court in Commissioner v. Riggs, 3 Cir., 78 F.2d 1004, certiorari denied 296 U.S. 637, 56 S.Ct. 171, 80 L.Ed. 453. True that in the Riggs Case the consideration for the transaction of purchase took the form of notes which were cancelled at the time of the repurchase, while in the case at bar actual cash passed from the taxpayer to the Fort Pitt Company and back again. It should be borne in mind, however, that the sole stockholders of the taxpayer and Fort Pitt were.W. L. Trimble and C. P. Trimble. The money in effect was passed *858from one corporate pocket of the Trimbles to another. The stock itself was taken' from one corporate strong box of the Trimbles to another and was never beyond their reach or control. At no time was there any danger of loss occurring to the stockholders of the taxpayer, the Trimbles, by reason of the sales made.
In my opinion we are justified in disregarding the corporate entities of the taxpayer and the Fort Pitt Company in order to arrive at what constitutes the substance of the transactions between' the two corporations. Ossorio v. United States, Ct. Cl., 18 F.Supp. 959, certiorari denied 302 U.S. 713, 58 S.Ct. 32, 82 L.Ed. -; Asiatic Petroleum Co. v. Commissioner, 2 Cir., 79 F.2d 234, certiorari denied 296 U.S. 645, 56 S.Ct. 248, 80 L.Ed. 459.
The transactions in the case at bar were not bona fide business sales and repurchases. They were not such transactions by which a taxpayer might reduce his taxes as the statute intended.
As was stated in the Riggs Case (page 1005), “* * * it is clear that while motive to escape taxation may be of no importance, if the methods used are in reality those intended by the law, it is not always enough that the letter of the taxing statute is followed. -The decisive thing is whether or not what has been done is ‘the thing which the statute intended.’ The taxpayer must bring himself within the intent of the statute upon which he relies, and in the case at bar the taxpayers did not do so.” A similar principle was enunciated in Commissioner v. Dyer, 2 Cir., 74 F.2d 685, certiorari denied 296 U.S. 586, 56 S.Ct. 97, 80 L.Ed. 114, and Commissioner v. Troup, 7 Cir., 75 F.2d 1010, certiorari denied 296 U.S. 586, 56 S.Ct. 98, 80 L.Ed. 414.
The opinion of the Board of Tax Appeals joints out that there is no proof of any option or agreement for repurchase between the taxpayer and the Fort Pitt Company. Such a finding is pertinent as to whether or not loss from a wash sale is within the provisions of subsection (a) of section 118 of the Revenue Act of 1932, but it is not material upon the question of whether the sales made in the case at bar were bona fide. When the stock of two corporations is totally owned by the two same stockholders, the circumstances of ownership render agreement unnecessary that one corporation will purchase from and then resell shares of stock to the other. The burden of proof of the bona fides of the transactions must be borne by the taxpayer if it is to avail itself of the provisions of subdivision (f) of section 23, The ruling of the Commissioner to the effect that the transactions were not bona fide business transactions is prima facie correct. Nichols v. Commissioner, 3 Cir., 44 F.2d 157; United States v. Anderson, 269 U.S. 422, 46 S.Ct. 131, 70 L.Ed. 347; United States v. Mitchell, 271 U.S. 9, 46 S.Ct. 418, 70 L.Ed. 799. The. taxpayer has not rebutted this presumption by any proof that those who dominated the two corporations did not intend at the time of the sales that there should be first sales and then repurchases.
Under the circumstances I am constrained to the conclusion that the loss is not deductible because -it was not incurred by the taxpayer in a bona fide’ business transaction.
The question presented is reviewable. It is one of law and was so treated by this court in the Riggs Case, and by the Circuit Courts of Appeals of the Second and Seventh Circuits respectively in Commissioner v. Dyer, supra, and Commissioner v. Troup, supra. The Supreme Court ruled to similar effect in Helvering v. Rankin, 295 U.S. 123, 55 S.Ct. 732, 79 L.Ed. 1343. But if the question be deemed to be one of an ultimate finding by the Board, then the question is one of mixed law and fact and is also subject to our review. Helvering v. Tex-Penn Oil Co., 300 U.S. 481, 57 S.Ct. 569, 81 L.Ed. 755.
For the reasons given I must dissent respectfully from the majority decision of the court. The cause should be remanded to the Board of Tax Appeals with instructions to redetermine the tax of the respondent for the year 1932, striking from the computation of net income the loss allowed by the Board to the 'taxpayer in the sum of $27,442.51.