Court Opinion

ID: 4624221
Source: CourtListenerOpinion
Date Created: 2020-11-21 02:54:42.076021+00
Date Added: 2024-06-11T08:30:09.635494
License: Public Domain

WALTER E. TEMPLEMAN, PETITIONER, v. COMMISSIONER OF INTERNAL REVENUE, RESPONDENT.Templeman v. CommissionerDocket No. 20463.United States Board of Tax Appeals20 B.T.A. 493; 1930 BTA LEXIS 2105; August 6, 1930, Promulgated *2105  Certain corporation stock became worthless in the taxable year and the petitioner sustained a loss thereby of $39,340.25.  Charles H. Garnett, Esq., for the petitioner.  P. M. Clark, Esq., for the respondent.  LANSDON *493  The respondent has asserted a deficiency in income tax for the calendar year 1922 of $4,538.18.  The deficiency arises from the respondent's disallowance of a deduction of $39,340.25 alleged to represent the cost of corporate stock which became worthless in the taxable year.  FINDINGS OF FACT.  Sometime in 1918 the Templeman Oil Corporation was organized under the laws of Oklahoma.  Ninety-five per cent of its stock was owned by the petitioner, who is an individual residing at Tulsa.  In 1920 the Templeman Oil Corporation of Delaware was organized under the laws of that State, the petitioner being one of the principal organizers and becoming its president and a director.  All the property of the Oklahoma company and certain individual property of the petitioner was transferred to the Delaware company *494  in exchange for all of its capital stock, amounting to 5,997,000 shares of a par value of $1.  Shortly thereafter*2106  the petitioner sold all the stock, except 944,176 shares, at various prices, which equaled or exceeded the cost of 4 1/6 cents per share.  The shares of stock were sold by petitioner at private sale and the price ranged up to 25 cents per share.  The sale of the Delaware company stock was underwritten by a concern in Denver, the first block to sell at 25 cents, the next at 30 cents, and so on up to 65 cents per share, but none was sold for more than 25 cents.  The stock had a fair market value on the date received of at least 4 1/6 cents per share.  In the latter part of 1920 or early in 1921 a controversy arose between petitioner and one Frantz, on the one hand, and certain other officers and directors who resided in Denver, hereinafter sometimes referred to as the Denver group.  The latter attempted to transfer all of the lease properties of the Delaware company to the Producers and Refiners Corporation, of which they had control, and in which the petitioner and Frantz had no interest.  A bitter controversy arose between the two factions over the control of the property.  The Denver group procured the filing of an involuntary petition in bankruptcy against the company and, at the*2107  same time, purporting to represent the corporation, admitted insolvency and confessed bankruptcy.  Late in 1921 the petitioner and Frantz obtained a vacation of the adjudication in bankruptcy, on the ground that the use of the names of the petitioning creditors had been unauthorized, that the admission of insolvency and bankruptcy had been irregular, and that the whole proceeding disclosed collusion.  The appointment of a receiver was then procured by petitioner and Frantz through the Oklahoma District Court, and the receiver proceeded to operate the business of the corporation.  Numerous other suits were filed by and against petitioner, Frantz, and the corporation.  Throughout 1921 the receiver had funds available and kept up rental payments on the oil and gas leases, which constituted approximately 99 per cent of the corporation's assets.  In 1922 no funds were available in the hands of the receiver, and petitioner and Frantz were without money with which to continue the litigation.  Being unable to meet rental payments when they became due most of the leases lapsed and were canceled in the taxable year.  The corporation owed local creditors approximately $85,000 and had almost*2108  no funds with which to pay.  OPINION.  LANSDON: We think the petitioner has established worthlessness in the taxable year of his stock in the Templeman Oil Corporation of Delaware, and that the basis for determining his loss is 4 1/6 cents *495  per share, which we have found represented cost of the property exchanged for the stock.  We have also found that the fair market value of the stock on the date exchanged for property was at least 4 1/6 cents per share.  The respondent has determined that the stock became worthless in 1921, apparently upon the ground that the company was declared a bankrupt in that year.  The evidence is clear, however, that the adjudication in bankruptcy was irregular, and that it was vacated.  Throughout 1921 the petitioner was expending time and money in an effort to save the corporation, and he must have had hopes of realizing something from his investment.  In 1922 it was clear that his stock was worthless and he so determined when he deducted the amount on his income-tax return for that year.  The respondent erred in disallowing the deduction claimed.  Cf. *2109 . Decision will be entered for the petitioner.