Court Opinion

ID: 4498131
Source: CourtListenerOpinion
Date Created: 2020-01-23 18:15:47.370322+00
Date Added: 2024-06-11T15:04:30.551016
License: Public Domain

Murdock,
dissenting: The Commissioner disallowed the deduction for 1934 on the ground that the stock was not worthless even at the end of that year. The statement which his counsel made at the hearing was entirely consistent with the determination and did not put the petitioner upon notice that the Commissioner was changing his ground in any respect. An examination of the notice of deficiency and of the pleadings would naturally lead one to believe that the only difference between the parties was whether the stock had lost all of its value by the end of 1934 or whether it still retained some value at that time. The petitioner introduced evidence showing that the stock was worthless at the end of 1934 and the respondent no longer contends that the stock had any value at that time. The petitioner has thus established that the basis upon which the Commissioner made his determination was incorrect. Counsel for the Commissioner now argues that the stock was worthless prior to 1934. Not only is this argument entirely inconsistent with the ground upon which the deficiency was determined, but it is made for the first time in the Commissioner’s brief.
Furthermore, the facts do not support the argument of the Commissioner that the stock became absolutely worthless in 1933. An appraisal of the assets of the bank indicated that it was insolvent in April 1933. A similar appraisal at that time of the assets of many other corporations might have shown that they too were insolvent, yet many of those institutions recovered from that period of depression and went on to new success. The bank was still in possession of its properties and was still in operation, although to a limited extent. This situation continued up to February 1934. The prevailing opinion holds that a plan to rehabilitate the bank “was abandoned shortly prior to December 15, 1933, and a plan for a new bank and the liquidation of the old bank was inaugurated. That event definitely extinguished any potential value the old bank stock may have had from April to December 1933.” It is true that one plan was abandoned about that time and a new plan was suggested, but no plan was adopted until February 9, 1934. Thus any potential value the old bank stock may have had from April to December 1933, was not definitely extinguished until a plan was actually adopted. The plan finally adopted was one under which the old stockholders could hope to benefit only from the liquidation of the assets rather than from the continuation of a bank which had once been successful and might again be successful.
AruNdell, Smith, Yak Fossah, Black, and Mellott agree with this dissent.