Court Opinion

ID: 4590620
Source: CourtListenerOpinion
Date Created: 2020-11-20 19:03:59.527382+00
Date Added: 2024-06-11T07:50:30.415036
License: Public Domain

HARRY H. NEUBERGER, PETITIONER, v. COMMISSIONER OF INTERNAL REVENUE, RESPONDENT.Neuberger v. CommissionerDocket No. 78919.United States Board of Tax Appeals37 B.T.A. 223; 1938 BTA LEXIS 1070; January 28, 1938, Promulgated *1070  1.  Where a petitioner shares in partnership profits, which were derived by it from the sale of noncapital assets, he may not offset such share of profits by losses personally sustained in the sale of similar assets in computing his individual net taxable income.  2.  Commissions paid upon the purchase and sale of securities by one who is a trader in that business, are deductible as ordinary and necessary business expenses.  Following Winmill v. Commissioner, 93 Fed.(2d) 494, reversing the Board on this point.  W. H. Friedman, Esq., for the petitioner.  J. R. Johnston, Esq., for the respondent.  ARNOLD *223  The respondent having determined a deficiency in income tax of $9,021.24 for the taxable year 1932, the petitioner brings this proceeding for the redetermination thereof, claiming error by reason of (a) the erroneous disallowance of a loss upon the sale of securities held less than two years and, in the alternative, (b) the erroneous disallowance of taxes and commissions paid in connection with the purchase and sale of securities and, also in the alternative, (c) the erroneous disallowance of a loss of $327 sustained*1071  on a certain commodity transaction.  FINDINGS OF FACT.  The petitioner, an individual, resident of New York, New York, was a member of the New York Stock Exchange.  He was engaged in the business of trading in securities on the floor of the Exchange for the partnership of Hilson & Neuberger, of which he was a member, executing orders on behalf of customers of the partnership and for his individual account.  During the taxable year the petitioner sustained a net loss, from his individual trading, from sales or exchanges of stocks and bonds which were not capital assets (as defined in section 101 of the Revenue Act of 1932), in the aggregate sum of $25,588.93.  In computing such loss he deducted stock transfer taxes and commissions on sales of securities from the selling price and he added commissions paid upon the purchases of securities to the cost and treated them as a part of the cost of securities sold.  Federal and New York stock *224  transfer taxes on such sales amounted to $2,779.69.  Commissions paid during the year upon purchases and sales, respectively, were $2,133.63 and $2,306.98.  These taxes and commissions - the latter having been paid to the aforesaid firm*1072  of Hilson & Neuberger and reported by it for income tax purposes in its return for that year - were not separately deducted in the petitioner's return for 1932.  The petitioner's firm derived a profit of $142,802.29 in the taxable year from the sale of stocks and other securities which were not capital assets of the type hereinbefore indicated.  It had other income (including commissions received) of $170,830.65 and deductions of $203,981.78, or net income of $109,651.06 [.16].  The petitioner's distributive share of said profits amounted to $36,000 of the first $94,000 and 45 percent of the remainder.  In addition to the above and foregoing the parties have stipulated the following: During the calendar year 1932, petitioner incurred a loss of $327 upon the sale of a grain futures contract held less than two years.  This loss was disallowed by the Commissioner in the determination of the deficiency here involved, but is now conceded as not being within the limitations set forth under Section 23(r) of the Revenue Act of 1932, and this loss may now be allowed on the Rule 50 computation.  Petitioner's distributive share of the partnership profits for 1932 was increased by the*1073  Commissioner by $488.38, which item is not in dispute.  The petitioner now claims the right to deduct from taxable income for the year 1932, the aforesaid loss of $25,588.93 from individual trading in stocks and other securities, which deduction has been disallowed by the Commissioner; and in the alternative, the petitioner now claims the right to deduct the taxes and commissions referred to * * *.  OPINION.  ARNOLD: The first error complained of by the petitioner relates to a loss sustained by him, personally, in the disposition of securities which were not capital assets as defined in section 101 of the Revenue Act of 1932, disallowed by the respondent as an offset against, and in the reduction of, partnership profits, to which he was entitled, and which were derived by it from the sale of noncapital securities.  This question is now well settled and must be resolved in favor of the respondent, upon the authority of ; affd., ; certiorari denied, , and *1074 , affirming the Board at , on this point.  The respondent now concedes the petitioner's right to deduct stock transfer taxes paid by him to the Federal and State Governments during the taxable year, amounting to $2,779.69.  So that the sole remaining question is whether or not the petitioner is entitled to deduct commissions paid upon purchases and sales of securities, as *225  ordinary and necessary expenses incurred in his business as a trader in securities, under section 23(a) of the Revenue Act of 1932, or whether he must treat such commissions on the former as a part of cost and on the latter as an offset against the selling price, as provided in article 282 of Regulations 77, and prior regulations.  This identical question was before us in , wherein we sustained the action of the respondent under his regulations and denied the contention of the petitioner.  In its opinion, upon appeal, the Second Circuit reversed the Board on this point, holding commissions paid on both purchases and sales, by one engaged as a trader in the business of*1075  buying and selling securities, to be ordinary and necessary business expenses, applying the same principles to a trader in securities as heretofore applied to other businesses in ; also, ; ; and ; affd., . The Board having failed to find, as a fact, whether or not the petitioner there was a trader in the business of buying and selling securities, the court remanded the proceeding for that purpose and directed that if so found such commissions should be allowed as deductions.  Complying with the mandate of the court, the Board so found and entered its order on December 31, 1937, directing recomputations by deducting from taxable income the commissions upon purchases and sales of securities.  We have found, from the nature of the petitioner's business and the volume of transactions entered into by him, individually, that he was a trader in the business of buying and selling securities.  This, it would seem, the respondent has never*1076  disputed.  The respondent's determination shall be modified accordingly.  Reviewed by the Board.  Judgment will be entered under Rule 50.