Court Opinion

ID: 4593561
Source: CourtListenerOpinion
Date Created: 2020-11-20 19:11:04.097236+00
Date Added: 2024-06-11T07:51:05.261453
License: Public Domain

MRS. R. B. LAWLER, EXECUTRIX, ESTATE OF R. B. LAWLER, PETITIONER, v. COMMISSIONER OF INTERNAL REVENUE, RESPONDENT.Lawler v. CommissionerDocket No. 19395.United States Board of Tax Appeals17 B.T.A. 1083; 1929 BTA LEXIS 2192; October 25, 1929, Promulgated *2192  The taxpayer held to be entitled to a deduction of $80,000 from gross income for the year 1923 on account of a loss sustained in that year from the transaction involved herein.  H. H. Barker, Esq., for the petitioner.  Brooks Fullerton, Esq., for the respondent.  MARQUETTE *1084  This proceeding is for the redetermination of a deficiency in income tax asserted by the respondent for the year 1923 in the amount of $15,018.78.  The deficiency arises from the disallowance of a deduction of $80,000 taken by the taxpayer on account of a loss claimed to have been sustained in the taxable year.  FINDINGS OF FACT.  The petitioner is the duly appointed, qualified, and acting executrix of the estate of R. B. Lawler, who died February 10, 1925, and she brings this proceeding as such executrix.  R. B. Lawler was for many years engaged in farming.  He also speculated in cotton and real estate.  Except for some speculation he retired from business prior to the year 1923.  Lawler and his wife had no children.  Walter Oberst, their grandnephew lived with them as a child in Clarksdale, Miss., and later in Memphis, Tenn.  They also had a nephew, John*2193  Scott.  Oberst and Scott were considered as members of the Lawler family.  In March, 1923, Lawler had on deposit with banks and with his broker more than $150,000 which he desired to invest.  After discussing the matter of investing this money with his wife and with Oberst and Scott, he purchased the Swan Lake Plantation in Coahoma County, Miss., on March 7, 1923, from C.G. and B. K. Bobo.  The purchase price was $250,000, of which Lawler paid $80,000 in cash.  For the balance of the purchase price he assumed the payment of mortgage notes to James A. Darden in the amount of $72,000 and gave to the Bobo brothers his own notes in the amount of $98,000, secured by a second mortgage.  The following day Lawler deeded Swan Lake Plantation in equal parts to his nephews Scott and Oberst.  The deed recited the assumption by the nephews of the two mortgages aggregating $170,000 and "$10.00 natural love and affection." At the same time Scott and Oberst agreed to repay to Lawler the $80,000 he had paid on the plantation, together with interest at the rate of 6 per cent.  Scott and Lawler had a disagreement in the fall of 1923 and Scott withdrew from the venture and went away, and on November 7, 1923, he*2194  deeded back to Lawler his interest in Swan Lake Plantation.  Scott owned nothing before or after the transaction.  Lawler was much concerned about his obligation on the two mortgages on Swan Lake Plantation, and he offered to reconvey the plantation to the Bobo brothers and forfeit the $80,000 payment he had made if they would release him from his obligation on the mortgages.  The Bobo brothers at first refused to consider the proposition.  They finally agreed to take back the property and release Lawler from his obligation on the mortgages provided he would forfeit the *1085  $80,000, and would produce some one who would purchase the plantation from the Bobo brothers for $170,000, the purchaser to make a cash payment of $36,000.  The Bobo brothers were in need of ready money at that time.  On November 14, 1923, Oberst reconveyed his interest in the plantation to Lawler and on December 4, 1923, Lawler reconveyed the entire plantation to the Bobo brothers, forfeited the payment of $80,000 theretofore made by him, and was released from his obligation on the mortgages.  Oberst negotiated a new first mortgage of $75,000, and with $72,000 of the proceeds thereof he paid off the*2195  original first mortgage to J. A. Darden.  With the remaining $3,000 and $33,000 of his own money he paid $36,000 of the second mortgage to the Bobo brothers and they conveyed the entire plantation to him.  The Bobo brothers included the forfeited payment of $80,000 in their income for 1923.  In his income-tax return for 1923 Lawler deducted said amount of $80,000 as a loss sustained in that year.  The respondent disallowed the deduction.  OPINION.  MARQUETTE: The petitioner claims that the decedent Lawler sustained a loss of $80,000 in the year 1923 on the Swan Lake Plantation transaction, and that he is entitled to deduct that amount from his gross income for that year.  The respondent takes the position that the $80,000 paid by Lawler on the plantation represented a gift made by him to Oberst and Scott, and, if it was not a gift, that Lawler did not enter into the transaction for profit.  It is clear that the transaction with respect to the Swan Lake Plantation was completed in the year 1923, and that Lawler was $80,000 poorer at the end of that year as the result of the transaction.  The testimony of Oberst, Scott and Mrs. Lawler is that Lawler did not intend to make a gift*2196  to Oberst and Scott, that he had a large amount of money on deposit that he wished to invest, that he paid for the Swan Lake Plantation for Oberst and Scott, and that they agreed to assume the mortgages thereon and to repay Lawler the amount of $80,000, together with interest at 6 per cent.  It is true that the payment of $80,000 was not recited in the deeds from lawler to Oberst and Scott, and that the transaction between Oberst and Scott, on one hand, and Lawler, on the other, was not consummated with the care and attention to details that would ordinarily obtain in a transaction between individuals not bound together by family ties.  However, we are satisfied from the evidence that Lawler did not make, or intend to make, a gift to Oberst and Scott; that he entered into the transaction with a view to profit, and that he sustained a loss of $80,000 thereon in they year 1923.  The deduction should be allowed.  Judgment will be entered under Rule 50.