Court Opinion

ID: 6866004
Source: CourtListenerOpinion
Date Created: 2022-07-23 20:54:42.60402+00
Date Added: 2024-06-11T16:05:19.538589
License: Public Domain

SIBLEY, Circuit Judge
(dissenting).
I think the case should be remanded to the Board because it applied a wrong rule of law and did not attempt to find the facts. The Board said: “If any loss resulted from the issue of the 1500 shares of the taxpayer’s stock, it resulted from Hoyt’s breach of contract in which he undertook to deliver certain assets, and remedy would lie in a suit against him for specific performance or damages in lieu thereof. No such action was taken, and the whole matter was compromised by the payment of $22,500 to the taxpayer. The resulting loss, if any, was the difference between the value of the property actually delivered plus $22,-50Ó and the actual value of the consideration received by Iioyt.” The Board then stated that there was no evidence of the true value of the equipment delivered, and that it could not therefore find the amount of the loss, or discover any basis on which the loss was claimed or could be computed. It is true there was no definite value proved of the equipment delivered, but its value was immaterial. The Board had in mind the measure of damages (but inaccurately stated) in case this were a suit for breach of contract against Hoyt. But it is not such a case. Hoyt in writing first sold the refining plant to taxpayer for $150,000. He later verbally agreed to take 1500 shares of stock in payment, and the stock was issued to him. The other 1500 shares of the capital stock were paid for by others at par in cash. There is no reasonable difficulty in determining that the cost of the equipment ought to be taken at $150,000. It was not worth nearly so much, but the Commissioner had rightly held that no deductible loss arose on buying property too dear, albeit with capital. The loss must be realized by some disposition of the property. Approximately half in value of the purchased equipment was delivered and erected, and represents an investment of $75,-000, but its real value is wholly immaterial now for it has not been disposed of and no loss can be deducted as to that property. But the half of the equipment which was never delivered is gone. It became represented by a claim for damages for breach of contract against Hoyt. On that claim $22,500 was paid by the assignee of Hoyt’s stock, but not in satisfaction of Hoyt’s liability, but to get the stock transferred on the taxpayer’s books. The balance of the claim against Hoyt was carefully investigated, ascertained to be wholly insolvent, and charged off. It is a total loss. To me it seems plain that the inquiry is, What was the loss on that part of the equipment bought but not delivered ? Its cost ought to be taken at $75,000, as all the testimony is that about half in value was delivered and half not. The purchase price ought to be apportioned accordingly. What was realized against this cost was $22,500 wrung from a third party. The difference, $43,-500, is the loss claimed by taxpayer. There is plainly a loss. It was realized when the $22,500 was collected and the remainder of the claim charged off. The deduction must be allowed at that date, if ever. The taxpayer is treating the half delivered as representing half of the purchase price, $75,-000, though the evidence suggests that it is worth much less. But its value has nothing to do with the loss here claimed. Taxpayer conceded that it has not yet realized any deductible loss on the equipment which was delivered.