Court Opinion

ID: 4604745
Source: CourtListenerOpinion
Date Created: 2020-11-20 19:34:52.950926+00
Date Added: 2024-06-11T08:00:05.883674
License: Public Domain

E. S. LEE, PETITIONER, v. COMMISSIONER OF INTERNAL REVENUE, RESPONDENT.Lee v. CommissionerDocket No. 16307.United States Board of Tax Appeals15 B.T.A. 1213; 1929 BTA LEXIS 2703; April 2, 1929, Promulgated *2703  Petitioner in 1919 paid $11,300 for stock in a corporation which, in October, 1920, decided to liquidate and in that year sold one-third of its assets.  In the early part of 1921, it succeeded in disposing of the other two-thirds of its assets, but with the result that nothing whatever was realized for stockholders, nor would anything have been realized for stockholders had the entire assets been disposed of in 1920.  Held, petitioner sustained a loss in 1920 of the cost of his stock, $11,300.  J. S. McElroy, Jr., Esq., for the petitioner.  Frank S. Easby-Smith, Esq., for the respondent.  LITTLETON*1213  The Commissioner determined a deficiency in income tax of $1,713.54 for 1921.  Petitioner claims the Commissioner erred in refusing to allow him to deduct in 1921 a loss of $11,300 on stock of the Integrity Oil Co.  The Commissioner held that the loss was sustained in 1920.  The facts are stipulated.  FINDINGS OF FACT.  Petitioner is a resident of Covington, Ky.  In 1919 he paid $11,300 for and received stock in the Integrity Oil Co., which was organized the same year, with its principal office in Fort Worth, Tex.  It had *1214 *2704  an authorized capital stock of $300,000, of which $175,000 was subscribed for and issued.  It was organized for the purpose of developing certain oil property, a lease on property located in Stephens County, Texas, being acquired in 1919 for $50,000.  Machinery and equipment were purchased for $55,000.  The drilling of a well was completed in October, 1920, which produced a flow of oil for about 17 hours.  On October 25, 1920, owing to unsuccessful attempts to eliminate salt water from the oil well, it was decided to abandon the project and liquidate the affairs of the company, its outstanding debts totaling $24,000.  The officers were authorized to dispose of the machinery and equipment.  Prior to December 31, 1920, approximately one-third of the assets was sold for $12,000.  Had the two-thirds of the assets been disposed of in 1920, they would not have brought more than $5,000.  Between January 1, 1921, and March, 1921, the officers disposed of the remaining two-thirds for approximately $5,000.  The corporation during the years 1919 and 1920 expended in its operation the entire consideration received for its stock.  The amount of approximately $17,000 received on account of*2705  the sale of its machinery and equipment being insufficient to pay its obligations, the stockholders failed to realize anything on their investment in the corporation.  Several of the stockholders took deductions for losses on the stock of the Integrity Oil Co. in their 1920 returns, which the Commissioner allowed.  The petitioner deducted, as a loss in his return for the year 1921, the total cost of his stock in the amount of $11,300, which the Commissioner refused to allow, upon the ground that such loss was sustained in 1920.  OPINION.  LITTLETON: The petitioner contends that the loss of $11,300 was sustained and should be allowed as a deduction from gross income for 1921, and that the Commissioner erred in not so allowing it.  The fact shows that on October 25, 1920, the corporation decided to liquidate and on the same date it was ascertained that there were outstanding debts totaling $24,000.  Petitioner contends that it was not known and could not have been known in 1920 for what amount the remaining assets of the Integrity Oil Co. might be sold in 1921 and, therefore, he could not know in 1920 what loss he would sustain on his investment of $11,300 in the stock of the*2706  oil company.  It is true petitioner may not have known in 1920 what would be realized from the sale of the remaining assets of the oil company in *1215  1921, but it is also true that it was known in 1920 that there were outstanding debts of the oil company amounting to $24,000 and that the assets sold in 1920 brought only $12,000.  It is stipulated that if the assets sold in 1921 had been sold in 1920, they would have brought no "more than $5,000." The facts stipulated, therefore, show that the stock of petitioner was, in fact, worthless in 920.  The value of the entire assets of the oil company was insufficient in either year to pay the outstanding indebtedness of $24,000, thus leaving nothing for the stockholders.  The sustained loss and not his ascertainment is the statutory factor.  ; . In , the Board said: Some point was made at the hearing that the definite ascertainment of the worthlessness of the stock was not until after the close of 1920, but as petitioner properly points out, the statute does not*2707  make the loss deduction dependent upon the time of ascertainment but rather upon the time when the loss is truly sustained.  . See also . Furthermore, even if ascertainment were necessary to support the deduction, it may fairly be said that such ascertainment occurred in 1920 and that subsequently further investigation was made to determine the extent of the deficit and the demands upon the petitioner which the liquidation would make.  This subsequent investigation corroborated the petitioner's judgment of 1920.  It appears evident that on October 25, 1920, the stock of the oil company was worthless and events subsequent to that date only confirmed the fact.  Judgment will be entered for the respondent.