Court Opinion

ID: 4625917
Source: CourtListenerOpinion
Date Created: 2020-11-21 02:58:08.487658+00
Date Added: 2024-06-11T07:56:47.480958
License: Public Domain

AUGUSTUS TRASK ASHTON, PETITIONER, v. COMMISSIONER OF INTERNAL REVENUE, RESPONDENT.Ashton v. CommissionerDocket No. 89434.United States Board of Tax Appeals39 B.T.A. 888; 1939 BTA LEXIS 956; May 18, 1939, Promulgated *956  In 1934 taxpayer liquidated certain shares of building and loan association stock and suffered a loss thereby.  The shares had been held for more than two years but had not matured.  Held, that the transaction constituted a distribution in partial liquidation within the meaning of section 115 of the Revenue Act of 1934 and resulted in a capital loss to the taxpayer and the amount of his deductible loss is limited by section 117:d) of the Revenue Act of 1934.  Henderson v. United States,22 Fed.Supp. 206. Dudley T. Easby, Jr., Esq., for the petitioner.  T. F. Callahan, Esq., for the respondent.  BLACK *888  The Commissioner has determined a deficiency of $946.84 in income tax against petitioner for the year 1934.  The deficiency results from the disallowance by the Commissioner of losses of $2,390.10 claimed by petitioner in his 1934 income tax return.  The Commissioner in disallowing the losses stated as follows in his deficiency notice: A loss of $2,390.10 claimed under schedule 11 is disallowed.  Of this amount $320.00 represents a loss incurred January 18, 1935, and not applicable to the year 1934.  The loss of $2,070.10*957  resulting from your withdrawal as a shareholder in the Business Men's Building and Loan Association is disallowed as an ordinary loss.  It is held that the loss is subject to the limitations of section 117 of the Revenue Act of 1934, which limitation has been claimed under schedule 8, in connection with other transactions.  Petitioner by an appropriate assignment of error contests the action of the Commissioner in disallowing the $2,070.10 Business Men's Building & Loan Association loss as an ordinary loss and in holding that it was a capital loss subject to the limitations of section 117:d) of the Revenue Act of 1934.  This presents the only issue which we have to decide.  *889  FINDINGS OF FACT.  The facts were stipulated and we adopt the agreed statement of facts as our findings of fact.  We state such of the facts herein as we deem necessary to an understanding of our decision.  The petitioner, Augustus Trask Ashton, is an individual residing at Philadelphia, Pennsylvania, who filed his Federal income tax return for the tax year involved with the collector of internal revenue at Philadelphia, Pennsylvania.  In April 1920 petitioner became a member of the Business*958  Men's Building & Loan Association, a Pennsylvania corporation, at which time book No. 2898, for 10 shares of the 52d series, was issued to him.  In April of 1921 book No. 3255 for 6 shares of the 54th series was issued to petitioner, and in October 1923 book N0. 3796 for 20 shares of the 59th series was issued to him.  Petitioner continued as a member of the association until 1934, when he voluntarily withdrew.  During the term of his membership petitioner paid into the treasury of the association monthly a sum which up to the date of his withdrawal aggregated $5,172.  Petitioner's shares were never pledged with the association as collateral for any loan.  Building and Loan Code of 1933, and section 6 of article II of the Building and Loan Code of 1933, and section 6 of article ii of the bylaws of the association, petitioner gave written notice of his intention to withdraw voluntarily from the association.  Due to depreciation in the value of the association's assets, it was difficult to determine accurately the exact withdrawal value of petitioner's shares, and following negotiations with the secretary of the association petitioner orally signified his willingness to accept*959  60 percent of the amount paid in by him in full settlement of his claim as a withdrawing member.  This offer was based upon advice from the secretary of the association that an appraisal of the assets would show them to have depreciated approximately 40 percent.  Such an appraisal was made as of October 30, 1934, and the report of the accountants showed the capital to be impaired to the extent of 40 percent.  This offer was accepted by the association at its meeting held on October 8, 1934, the minutes of which read in part as follows: Augustus T. Ashton has books in for withdrawal and stated that he was very much in need of funds.  He stated he would accept 60% of the amount paid in in full settlement of his books if paid at once.  After discussion by the Board, they felt that the Assets of the Association, if appraised at this time, would be impaired 40% and the offer, therefore, was accepted.  Thereafter, the association delivered its check in the amount of $3,101.90 to petitioner in full settlement of his claim as a withdrawing member.  *890  Following the report of the accountants referred to above, the association, at its meeting held on December 10, 1934, unanimously*960  resolved to reduce its liability to shareholders in accordance with section 621 of the Pennsylvania Building and Loan Code of 1933.  The minutes of that meeting read in part as follows: The report of the accountants shows that after giving effect to the appraisements, as modified above, the capital of the Association which is to bear the loss, will be impaired to the extent of forty :40%) per cent.  After full discussion and careful consideration of the entire matter, it was the unanimous opinion of the Directors that the Losses of the Association, resulting from a depreciation of its assets, aggregate such an amount that the fair value of the assets of the Association is less than the total amount due creditors and shareholders; and it was therefore RESOLVED unanimously that the liability of the Association to its shareholders, including all shareholders whose shares have matured and/or who have heretofore given notice of withdrawal, drawal, but who still remain unpaid, shall be reduced by forty (40%) per cent of the amount paid in to the Association by said shareholders and that the officers of the Association be, and they are hereby, directed to do all things necessary to secure*961  the approval of the said reduction of the Association's liability to its shareholders by the Department of Banking of the State of Pennsylvania; and thereafter to present on behalf of the Association a petition to the Court of Common Pleas of Philadelphia County, requesting a formal order reducing the Association's liability as aforesaid, in accordance with and as authorized by Sec. 621 of the Building and Loan Code of Pennsylvania.  Pursuant to the resolution a petition was filed with the Court of Common Pleas No. 4 for Philadelphia County, as of December Term 1934, No. 4742, praying for a 40 percent reduction in the liability of the association to its shareholders, the prayer of which petition was granted by decree of the court entered March 26, 1935.  In his Federal income tax return filed for the year 1934 petitioner subtracted the sum received in settlement of his claim as a withdrawing shareholder, $3,101.90, from the total amount of dues or installments paid by him to the association, $5,172, and claimed the resulting loss of $2,070.10 as an ordinary loss from a transaction entered into for profit.  Petitioner entered into the transaction here involved for profit and was*962  not compensated by insurance or otherwise for the loss so sustained therein.  Petitioner was a shareholder of the Business Men's Building & Loan Association at the time he withdrew and was not a creditor of the association.  Petitioner's loss resulting from his withdrawal was a capital loss and not an ordinary loss.  OPINION.  BLACK: Petitioner, in support of his contention that the loss which he suffered in 1934 by reason of his withdrawal as a shareholder of the Business Men's Building & Loan Association was an ordinary loss *891  and not a capital loss, cites Hale v. Helvering, 85 Fed.:2d) 819; ; . Those cases would undoubtedly sustain petitioner in his claim if his status when he withdrew from the Building & Loan Association had been that of a creditor.  To the above cited cases might be added the recent Supreme Court decision in . In the latter case the Supreme Court held that redemption of bonds before maturity by the issuing corporation is not a sale or exchange of capital assets within the meaning*963  of section 208:a):1) of the 1926 Act and section 101:c):1) of the 1928 Act.  Therefore a bondholder's gain from surrender of bonds for retirement was not capital gain.  If petitioner had been a bondholder or otherwise a creditor of the Building & Loan Association the above decision of the Supreme Court and the other named cases would be applicable.  But petitioner was not a creditor of the association.  He was a shareholder.  In ; , the Supreme Court of Pennsylvania, among other things, said: association as that term in usually understood. are ; , and Steinon v. Great Oak Building & Loan Association :Sup. Ct. of Pa.), . Section 1074-5098 of Purdon's Pennsylvania Statutes, title 15, page 458, reads as printed in the margin. 1*964 When shares of stock which are capital assets within the applicable revenue act are redeemed, the resulting gain or loss is a capital gain or loss as the case may be.  ; . The identical question which we have here to decide was before the United States District Court for the Eastern District of Pennsylvania in , and was decided for the Government.  We think that case was decided correctly.  Cf. . Under the authorities above cited, we affirm the Commissioner.  Decision will be entered for the respondent.Footnotes1. B. Holders of matured shares, or holders of shares which have been voluntarily or involuntarily withdrawn, or holders of shares who have not assented to or have dissented from a merger or a consolidation, shall be entitled to notice of, and to vote at, any meeting of shareholders, until they shall have been paid in full the amount lawfully due them on account of their shares.  The exercise of such right to vote at a meeting shall not constitute waiver of, or in any way affect, any rights granted by law to such shareholders by virtue of the maturing of their shares, or of their withdrawal from the association, either voluntarily or involuntarily, or of their failure to assent to, or their dissent from, a plan of merger or consolidation. ↩