Court Opinion

ID: 8139218
Source: CourtListenerOpinion
Date Created: 2022-09-09 19:01:24.951572+00
Date Added: 2024-06-11T16:39:29.000243
License: Public Domain

Johnson, J., dissenting: As the trier of the facts I cannot agree with the majority opinion. It gives undue emphasis to the so called option and the part that it played in the transaction. This appears to be due to a failure to consider the entire record upon which the transaction is based. Its premise that “amounts expended by petitioner” were “in consideration of an option to buy property” apparently rests alone upon sentences quoted from the documentary evidence, and no consideration appears to have been given to the other facts and circumstances surrounding and causing the execution of the instruments and the results flowing therefrom. In determining tax liability, the record as a whole should be considered. Undoubtedly the basis of the option contract and the overall consideration which prompted its execution and the resultant expenditures by petitioner were due solely to petitioner’s preparation to secure a supply of gas to enable it to fill its anticipated contract with the Chicago corporation and its affiliates. That the option contract was secondary and subject to obtaining the Chicago contract is evidenced by recitals in the enabling resolution that the option was “to be executed only in the event this company is successful in the purchase” of the lines and customers, etc., of the Nueces corporation, etc., (affiliates of Chicago corporation) and furthermore, that the option “shall be exercised only in the event such gas covered by such option shall have been actually sold or contracted to sell by this company.” While this provision does not apppear in the option contract, petitioner and the Gas Company were closely affiliated corporations, having largely the same officers, and it is reasonable to infer that both parties knew, when the option contract was executed, that the option to purchase would be exercised only if the Chicago contract were secured. Petitioner and the Gas Company were both engaged in the sale of gas, and it would have been to their, mutual benefit to procure the Chicago contract. That the Gas Company did not regard the improvement of the wells by petitioner as the paramount or inducing cause of its contract with petitioner is evidenced by the fact that the contract did not obligate petitioner to expend any sum whatever; it was solely within the discretion of petitioner as to what sum, if any, it would expend for this purpose. Furthermore, under the evidence the Gas Company would have given petitioner the option to buy gas at the price stipulated in the contract without any obligation on the part of petitioner to do anything with reference to the wells. Considering the record as a whole, we question the soundness of the premise upon which the majority opinion rests. But regardless of the part the expenditures may have played, if any, in the purchase of the option, we unequivocally differ with the majority’s conclusion that petitioner’s loss was “attributable” to its “failure to exercise its option to buy.” The option was merely the right to buy gas at a price shown to be the market price in that field, and hence petitioner could not have sold the option at a profit. And furthermore, it was without dispute that petitioner’s only market for the gas was in the event of its acquirement of the Chicago contract. Hence, if petitioner had exercised its option and bought the gas, it would not have averted or diminished, but rather increased its loss. The fact that an option to buy or sell property is involved in a transaction will not make the loss resulting therefrom a short term capital loss within the meaning of section 117 (g) (2), unless such loss is directly attributable to the failure to exercise the option. Alvin J. Spring, 4 T. C. 248. Cf. Seth M. Milliken, 15 T. C. 248. We agree with the majority that it would be too narrow an interpretation of the section in dispute to say that it “applies only to losses attributable ‘solely’ to a failure to exercise an option,” but we do think a reasonable interpretation would require that the “proximate” cause of the loss was attributable to the failure to exercise the option, which is not the case here.