Court Opinion

ID: 4615312
Source: CourtListenerOpinion
Date Created: 2020-11-21 02:32:05.383195+00
Date Added: 2024-06-11T07:54:55.523698
License: Public Domain

ISADORE FINKELSTEIN, PETITIONER, v. COMMISSIONER OF INTERNAL REVENUE, RESPONDENT.Finkelstein v. CommissionerDocket No. 25551.United States Board of Tax Appeals10 B.T.A. 585; 1928 BTA LEXIS 4073; February 7, 1928, Promulgated *4073  Upon liquidation in 1922 of a corporation in which petitioner was a stockholder, he sustained a loss of $14,165.24 upon his investment.  Held, that such loss was not incurred by him in a trade or business regularly carried on and may not be carried forward and deducted from income for the year 1923 under the provisions of section 204 of the Revenue Act of 1921.  L. E. Renard, Esq., for the petitioner.  J. L. Deveney, Esq., for the respondent.  LITTLETON*586  The Commissioner determined a deficiency of $80.18 for the calendar year 1923.  Petitioner claims that the Commissioner erred in refusing to allow as a deduction from income for the year 1923, a loss of $7,080.02 which he claims to have sustained in the year 1922.  The facts are stipulated.  FINDINGS OF FACT.  For many years prior to 1922 and during 1922 and 1923 the petitioner and one Aaron Goldberg were doing business in the City of Scraton as partners under the trade name of the Imperial Cigar Co., and were engaged in selling tobacco, cigarettes, cigars, candy, and tobacco users' supplies in job lots.  In this enterprise the partners shared the gains and losses equally.  In 1919*4074  the petitioner and Aaron Goldberg opened a branch store in the City of Buffalo, N.Y., and therein sold the same line of goods and in the same manner as they were sold in the City of Scranton.  The partners shared in the profits and losses of this store equally.  In 1921 the petitioner's son and Aaron Goldberg's son were taken into the Buffalo store as partners and thereafter the four partners shared the profits and losses equally, after the payment of reasonable salaries to the sons for operating the store.  In the year 1919 the petitioner and his two sons opened a store in Syracuse, N.Y., engaged in a similar business and handling the same line of goods as were sold in the City of Scranton and the City of Buffalo.  In this business the partners each shared one-third of the gains and one-third of the losses after the payment of a reasonable sum as salary to one of the sons.  In the year 1921 the petitioner and Aaron Goldberg formed a corporation under the laws of the State of New Jersey, known as the Empire Tobacco Co., Inc., which conducted a store in Newark, N.J., in the business of selling the same line of goods and in the same manner as they were sold in all of the above-named*4075  stores.  In the formation of the corporation known as the Empire Tobacco Co., Inc., the total capital stock issued was $40,000, of which Aaron Goldberg bought and paid for in cash the sum of $16,000 and the petitioner bought and paid for in cash the sum of $24,000.  The Empire Tobacco Co., Inc., was legally dissolved on March 20, 1922, and showed an operating loss for the years 1921 and 1922 of $23,608.76.  The petitioner's loss upon the liquidation of the corporation was $14,165.24, which he took as a deduction in his income-tax return for 1922.  In March, 1923, the petitioner and Aaron Goldberg caused to be incorporated under the laws of Delaware the business conducted at Scranton and Buffalo under the name of the Imperial Tobacco Co., *587  and during the balance of the year 1923 received a salary from said corporation, as disclosed in his income-tax return.  During the years 1922 and 1923 the petitioner devoted all of his time to conducting the above-described businesses and during such time he had no income from any source (other than $16 received each year as dividends on bank stock).  The petitioner's income-tax return for the year 1922 as corrected by the*4076  Commissioner of Internal Revenue after an examination by an Internal Revenue agent showed a loss of $7,080.02, made up as follows: Item1.  Imperial Cigar Co., Scranton, Pa$6,913.254.  Imperial Cigar Co., Scranton, Pa2,215.65Empire Tobacco Co., Syracuse, N.Y1,146.08Empire Tobacco Co., Buffalo, N.Y-1,950.136.  Liquidation of Empire Tobacco Co., Inc-14,165.247.  Dividends on bank stock16.0012.  Interest paid1,247.2813.  Local personal taxes8.35Total-7,080.35For the year 1923 the petitioner's income-tax return as corrected by the Commissioner of Internal Revenue after an examination by an Internal Revenue agent and after the disallowance of the deduction for the net loss of 1922 was as follows: Item1.  Imperial Cigar Co., Scranton, Pa$1,625.00Imperial Tobacco Co., Scranton, Pa4,835.004.  Imperial Cigar Co., Scranton, Pa98.68Empire Tobacco Co., Syracuse, N.Y1,574.50Empire Tobacco Co., Syracuse, N.Y-1,139.817.  Dividends16.0011.  Interest paid1,014.2012.  Local personal taxes8.3415.  Contributions to religious, etc., organizations898.02Net income5,088.91OPINION.  *4077  LITTLETON: From the evidence in this proceeding, the Board is of the opinion that the question involved differs in no material respect from similar questions involved in other cases wherein the Board held that losses arising from investments in stock of a corporation are not losses arising from the operation of a trade or business regularly carried on within the meaning of the statute and may not be carried forward and deducted from income for the succeeding taxable year.  ; ; ; ; . *588  We are of the opinion that the Commissioner correctly declined to include the amount of $14,165.24 in determining whether a net loss had been sustained in the year 1922 which might be carried forward and deducted from 1923 income.  Reviewed by the Board.  Judgment will be entered for the respondent.