Court Opinion

ID: 4475807
Source: CourtListenerOpinion
Date Created: 2020-01-16 21:11:42.367699+00
Date Added: 2024-06-11T15:04:26.425478
License: Public Domain

Muedock, J., dissenting: The petitioner sold some stock in 1945 which had a basis to him of $4,971.88. He received $25,441.50 from the purchaser. However, he was required by law as a result of that transaction, together with a subsequent purchase of additional shares on December 31, 1945, to pay $12,659 to United Drug, Inc. He actually paid that amount on April 8, 1946. It was then not too late to file an amended return for 1945. The two transactions were inseparable for tax purposes. The amount which he had to pay to the company reduced for tax purposes the amount realized from the sale so that the net result of his transaction was a long term capital gain during 1945 of $7,810.62. If the payment to the company required by law had been made in 1945 when the obligation arose, a proper report for that year would have been a long term capital gain of $7,810.62. It is taken for granted in the majority opinion that the petitioner, by making the payment to the company in 1946, in that year had a deductible business expense, a loss incurred in trade or business within section 23 (e) (1) or a loss sustained in a transaction entered into for profit within section 23 (e) (2). The evidence does not show that the payment was an ordinary and necessary expense of any business carried on by the petitioner,- was connected with any trade or business carried on by him, or was connected with any transaction entered into for profit other than the sale of the securities. Since the sale of securities, even after the payment to the company, still resulted in a gain, it is difficult to see how section 23 (e) would apply. Thus, if the repayment is to be considered a separate transaction, it is not apparent that any provision of the Code provides for its deduction, and the only way it could be deducted would be to consider it a part of the 1945 sale from which the net result in 1945 was a long term capital gain of f 7,810.62 since $12,659 of the amount received from the purchaser did not belong to the petitioner but within the year was payable to United Drug, Inc. The tax result should not be different or more favorable to the taxpayer merely because the petitioner delayed making the required payment to the- company. The delay would not make the payment. a loss where previously it had been merely a reduction of the amount realized as a profit in a sale. However, if the payment had some tax significance in 1946, it would have to be upon the theory that an excessive long term gain had been reported for 1945 and a balancing of accounts with the Commissioner would require an offsetting capital loss for 1946. But whatever the proper treatment under the Internal Bevenue Code may be, it is not in violation of public policy under the facts of this case. VaN FossaN, /., agrees with his dissent.