Court Opinion

ID: 4628946
Source: CourtListenerOpinion
Date Created: 2020-11-21 03:04:24.233139+00
Date Added: 2024-06-11T07:57:18.102300
License: Public Domain

WILLIAM D. SHAFFER, PETITIONER, v. COMMISSIONER OF INTERNAL REVENUE, RESPONDENT.Shaffer v. CommissionerDocket No. 29931.United States Board of Tax Appeals20 B.T.A. 908; 1930 BTA LEXIS 2007; September 22, 1930, Promulgated 1930 BTA LEXIS 2007">*2007  Stock in a corporation, operated unsuccessfully, was exchanged in 1922 for stock in another corporation which proved to be insolvent and its stock worthless in 1923.  There being no evidence that the stock acquired in 1922 was then or thereafter of any value, no deduction from gross income can be allowed therefor in 1923.  William D. Shaffer, Esq., pro se.  J. Arthur Adams, Esq., for the respondent.  SEAWELL20 B.T.A. 908">*908  The Commissioner determined a deficiency in income tax for the year 1923 in the amount of $1,389.59.  In computing such deficiency he included income which had been reported in the return of the petitioner's wife and depletion allowable on cost of certain oil interests, disallowed a loss claimed by petitioner on an alleged investment in certain stock, and also disallowed a claimed deduction of a certain donation.  However, the only alleged error now insisted upon by the petitioner is the disallowance of an alleged loss of $2,330.11 in a stock investment, all other alleged errors assigned being abandoned.  The case is submitted on the pleadings, testimony of witnesses, stipulations and exhibits.  FINDINGS OF FACT.  The petitioner is1930 BTA LEXIS 2007">*2008  a resident of Brea, Calif., with his principal place of business in said town.  In August, 1920, petitioner entered into an agreement with one William Rhoades, trustee, who held a lease on 40 acres of oil-producing land upon which he proposed to operate for oil for a period of 10 years, doing business as the Rhoades Oil Co.  The said agreement so entered into recognized the rights and interest of several others in the oil that might be produced and the petitioner under his contract acquired only a one-tenth interest or part of all moneys which said Rhoades might receive as his share under his oil-lease contract, "excepting a one-tenth (1/10) part of the developing and running expense for and during the term and life" of said oil-production contract.  For said one-tenth interest so acquired by the petitioner he agreed to pay said Rhoades $2,500.  He paid him $2,200 in cash and gave a note for $300, on which in 1920 or 1921 he paid $225, leaving a balance thereon of $75 which has never been paid, no demand for payment having ever been made.  The 20 B.T.A. 908">*909  only money returned or paid to petitioner on account of his aforesaid investment was $169.89, paid before the Rhoades Oil Co.1930 BTA LEXIS 2007">*2009  ceased operations in 1922.  Said Rhoades, operating as the Rhoades Oil Co., not meeting with success as such, ceased operations in 1922 and the same year organized the Rhoades Oil Producing Co., a Delaware corporation, with $2,500,000 capital stock, par value of shares being $100 each.  Said stock was issued to Rhoades, but its value, if any, is not satisfactorily shown by the evidence.  On June 19, 1922, petitioner assigned his interest in the agreement he had with said Rhoades to the Rhoades Oil Producing Co. in consideration of the issuance to him by said Rhoades of stock in the Rhoades Oil Producing Co. of the par value of $2,500, which was done on August 14, 1922.  There is no evidence indicating that the stock received in exchange for petitioner's transfer of his interest in the aforesaid oil-production agreement or lease had, at the time of the exchange, any readily realizable market value or any value at all, nor does the evidence show what value, if any, petitioner's interest so transferred had.  In July, 1923, the Rhoades Oil Roducing Co. was insolvent and made an assignment to trustees for the benefit of creditors.  Its stock was then worthless.  OPINION.  SEAWELL: 1930 BTA LEXIS 2007">*2010  The only alleged error insisted upon by the petitioner is the disallowance of a claimed loss of $2,330.11 in 1923, growing out of the $2,500 stock transaction detailed in our findings of fact.  The evidence shows that the petitioner in 1920 paid on Rhoades $2,425 for an interest in an oil-production lease from which, as a return thereon, he received in 1922 or prior thereto only $169.89, the venture, as stated by the petitioner, resulting in failure.  In 1922 Rhoades organized a corporation, the Rhoades Oil Producing Co., petitioner assigning to the same his interest in the oil-production lease or agreement with Rhoades and receiving from him 25 shares of the stock, of a par value of $100 each.  It is on this $2,500 par value stock that the petitioner asserts he suffered the alleged loss of $2,330.11 in 1923, when the Rhoades Oil Producing Co. made an assignment to trustees for the benefit of its creditors, its stock being then worthless.  The evidence, however, fails to show when the stock became worthless, whether it became so in 1922 or 1923 or whether it ever in fact had any real value at the time of its issuance in 1922.  One of the trustees under the assignment made by1930 BTA LEXIS 2007">*2011  the Rhoades Oil Producing Co. in 1923 testified, basing his statement on his 20 B.T.A. 908">*910  knowledge of the corporate books of the company, that the stock never had any real value, because the company was insolvent at the time the stock was issued.  The petitioner, in writing a revenue agent relative to his (petitioner's) original investment and the alleged loss of $2,330.11 in the "Rhoades Oil Company," made the statement - sworn to - that "the venture was a failure" and that Rhoades organized the Rhoades Oil Producing Co. and issued stock to him in the amount of $2,500, par value, to recompense, according to Rhoades' claim, him "for the loss on the original venture." That petitioner sustained a loss approximating the amount he claims is evident and, taking into consideration all the facts and circumstances, we can see there may very well have been some doubt and confusion in the mind of the petitioner as to how and when he should claim he sustained the loss.  Viewing the matter in the most favorable light for the petitioner, and considering that he experienced no gain or loss when he assigned or exchanged his interest in the oil-production agreement which he had with Rhoades for1930 BTA LEXIS 2007">*2012  the stock of $2,500 par value in the Rhoades Oil Producing Co., the evidence is wholly lacking to show that such stock, if it then had any value, did not become worthless in 1922 instead of 1923, when the petitioner claims his alleged loss.  If the stock never had any value, petitioner's loss was sustained prior to 1923.  The Commissioner disallowed the claimed loss on said stock as occurring in 1923, and there being no evidence to overcome the correctness of his action in that respect, his determination of deficiency in tax is approved.  Judgment will be entered for the respondent.