Court Opinion

ID: 4490062
Source: CourtListenerOpinion
Date Created: 2020-01-17 22:02:10.472321+00
Date Added: 2024-06-11T15:03:56.024907
License: Public Domain

Murdock,
dissenting: I dissent from the prevailing opinion in this case. This Board has frequently held that a stockholder in a corporation who, for one reason or another, makes a contribution in cash to the corporation, is not entitled to deduct as a loss or otherwise, the amount of his contribution, but that amount is to be considered an additional cost of his stock. Harry E. Lutz, 2. B. T. A. 484; John G. Paxton, 7 B. T. A. 92; W. R. Ranney, 16 B. T. A. 1399; Henry Adamson et al., 17 B. T. A. 17; B. Estes Vaughan, 17 B. T. A. 620. Cf. Winthrop Ames, 1. B. T. A. 63; Warren E. Burns et al., 11 B. T. A. 524; Lesh & Matthews Lumber Co., 17 B. T. A. 58. What difference then does it make if a stockholder contributes a part of his stock in the corporation to or for the benefit of the corporation? If he is not entitled to deduct the cash which he contributes, there would certainly be no greater reason to allow him to deduct any amount to represent the cost or value of his stock which he contributes. Whether he contributes cash or gives up part of his stock as here, his reason for so doing is to protect and make more valuable the stock which he continues to own. A relationship between the stock he gives up and that he continues to hold is thus established and he can have no loss on the one, when contributed, but must wait until he finally disposes of the other, for at that later time it may develop that he has a gain on the whole transaction. But even if he has a loss finally, nevertheless that loss can not be computed until such final disposition. Cf. Edith Scoville, 18 B. T. A. 261.
The present petitioner, along with other stockholders of the company, made his contribution with the understanding that it was to compensate a new manager for his future services to the company. The petitioner must have believed that the benefits which he thus secured were as valuable or more valuable than the stock which he gave up, otherwise, he would hardly have made the contribution. *474In giving up his stock he did not realize a loss. On the contrary, he was trying to avoid a loss, and to make his investment in this company’s stock more valuable. He should wait to see the result of his move to avoid loss and to realize a gain.
Tkammell agrees with this dissent.