Court Opinion

ID: 4480619
Source: CourtListenerOpinion
Date Created: 2020-01-16 21:14:26.398152+00
Date Added: 2024-06-11T14:53:09.776397
License: Public Domain

Drennen-, /., dissenting. I disagree with the conclusion of the majority that petitioner sustained a loss, during the taxable year, incurred in a transaction entered into for profit. My reasons are basically the same as those which formed the basis for Judge Murdock’s dissenting opinion in George M. Wright, 18 B.T.A. 471, 473. I realize that the conclusion reached by the majority on this point finds support in some of the older cases cited but, as noted in the majority opinion here, the opinions in those cases do not clearly demonstrate why the conclusions reached were correct. I respectfully suggest that the majority opinion here does not do so either, except in a somewhat negative fashion. One example of the murkiness in decisions concerning the allowance of losses in transactions similar to this one is in pinpointing just when the “transaction entered into for profit” commenced. It would seem that it should be when petitioner originally bought the stock, with the profit motive being inferred from the mere nature of the asset purchased, because his expenditure at that time forms the basis for his loss. If such is the case we should look to the transaction here involved (the transfer of the stock to Wootten) only to determine whether there was a closed transaction with respect to the particular stock involved which gave rise to a realized loss at that time, and, if so, whether the loss was ordinary or capital in nature. If such is the proper approach, then under circumstances such as those involved here, as said by Judge Murdock, “A relationship between the stock he gives up and that he continues to hold is thus established” and he can have no loss until he disposes of the stock he retained. On the other hand, the cases seem to emphasize, possibly to avoid the implication that the transfer in a case like this was a gift, that the anticipated profit would arise from the increment in value of petitioner’s retained stock expected to result from the services to be rendered by the recipient of petitioner’s largess. This in turn suggests that the “transaction entered into for profit” was the transfer of the stock to Wootten in this case. If this is true I do not think the transaction is closed until it can be determined whether the anticipated benefits will be realized, i.e., upon the sale or other disposition of petitioner’s remaining stock. Otherwise it would be difficult to characterize the transfer as a “transaction entered into for profit,” because if we cut it off there the transferor knows that he will suffer a loss, rather than a profit, out of this particular transaction, the loss being of his investment or basis in the stock transferred which, according to the majority, was greater than the consideration received for the stock. If petitioner expected Wootten’s services to increase the value of his remaining stock to the point where he could at least recover his entire investment in the corporation, then he realized no loss on the transfer. If he expected Wootten’s services to have a lesser value, then he was not entering into this transaction for a profit, but rather to avoid or reduce his losses. Withey, Pierce, and Forrester, agree with the dissent.