Court Opinion

ID: 9644268
Source: CourtListenerOpinion
Date Created: 2023-08-22 20:51:39.791134+00
Date Added: 2024-06-11T18:11:10.681871
License: Public Domain

HUTCHESON, Circuit Judge
(dissenting).
I cannot agree with the majority that because the deduction was not allowed when claimed in 1930 it must be allowed when claimed in 1932. The facts are without dispute. The issue they present is a simple one. Petitioner in 1925 purchased real estate in Orlando for $35,000. In 1930 it transferred this property by deed to Umatilla Groves, Inc., a holding company, whose stock except for certain shares was all owned in the same proportion by the two individuals who owned petitioner’s stock. As consideration for the transfer Umatilla gave petitioner its promissory note for $4,-000 and assumed an existing mortgage for $2,000. Neither of these obligations as such were ever paid by Umatilla. In its income tax return for 1930 petitioner sought to claim the deduction of a loss of $29,000 on account of this sale, but it was advised by the Revenue Agent at Jacksonville that since the stock of petitioner and of Umatilla was wholly owned by the same individuals, “no loss for tax purposes could be taken until the property had been sold to an outside interest.” After this advice which was given in 1931, an entry was made on the books of the corporation, purporting to transfer the property back. Nothing, however, was done to effectuate this, and in 1932 for the purpose of taking property which was to be given in trade for the property in question, petitioner organized a company, Clermont Groves, Inc., the stock of which was held by the same persons, and in the same proportions as the stock of petitioner, and of Umatilla. The trade was accomplished by having Umatilla deed the property to the purchaser, having Clermont issue its stock to Umatilla on the basis of $6,000, and having Umatilla assign the stock to petitioner. In the same year its stockholders purchased the stock from petitioner for $6,000, and it is upon this sale of the stock that the loss of $29,000 is claimed. The Commissioner and the Board concluded that the loss occurred in 1930 when the property was deeded to Umatilla and not in 1932 when the stock sale occurred. I think they were right. The fact that the stock of petitioner and of Umatilla was owned by the same persons in no manner prevents the sale made in 1930 from being effective to establish the loss as of that time. The fact that the revenue agent advised that because of the stock ownership there was no taxable transaction is not material in determining whether or not there was. Neither is the fact that the notes were not paid by Umatilla or that entries were made in its books in the following year with the intention of effecting a transfer back. No transfer occurred. The property remained in its name and was sold by it. The consideration, though assigned to petitioner, was received by Umatilla at the value of exactly that of the notes it executed and assumed. Under these circumstances to permit the taxpayer to disregard and deny the verity of the corporate structure it created, in order to claim a loss in a year different from *876that in which it in fact occurred, would be to introduce confusion into a system which constructed on a yearly basis must function on such basis. As regards taxation, members of a corporation and a corporation itself are essentially different. The whole structure of the Federal Taxing System is based on a recognition of and an exact compliance with this difference. Planters’ Cotton Oil Co. v. Hopkins (C.C.A.) 53 F.(2d) 825, 826. The Commissioner and the Board were right in refusing to permit the taxpayer to claim a loss in a year in which it did not occur. The fact that petitioner was discouraged by advice erroneously given in 1931 from pressing his deduction claim to a final decision created no contract with the Government either by agreement or by estoppel that deductions which ought to have been taken for 1930 could be taken in any other year. I think the Board’s order was right, I dissent from its reversal.