Bauer v. Comm'r of Internal Revenue, Docket Nos. 24393

• Decision Date: 14 December 1950
• Docket Number: Docket Nos. 24393,24394.
• Citation: 15 T.C. 876
• Parties: FREDERICK R. BAUER AND RUTH R. BAUER, HUSBAND AND WIFE, PETITIONERS, v. COMMISSIONER OF INTERNAL REVENUE, RESPONDENT.MARY STEWART VIVIAN, PETITIONER, v. COMMISSIONER OF INTERNAL REVENUE, RESPONDENT.
• Court: U.S. Tax Court

15 T.C. 876

FREDERICK R. BAUER AND RUTH R. BAUER, HUSBAND AND WIFE, PETITIONERS,

v.COMMISSIONER OF INTERNAL REVENUE, RESPONDENT.MARY STEWART VIVIAN, PETITIONER,

v.COMMISSIONER OF INTERNAL REVENUE, RESPONDENT.

Docket Nos. 24393

24394.

Tax Court of the United States.

Promulgated December 14, 1950.

Petitioners received distributions in liquidation from a corporation and paid the amount of a judgment against the corporation in a later year. Held, the amounts so paid are ordinary and not capital losses to petitioners in the year of payment. Stanley Switlik, 13 T.C. 121. George R. Sheriff, Esq., for the petitioners.

Rigmor O. Carlsen, Esq., for the respondent.

The respondent determined deficiencies in the petitioners' income tax liabilities for the year 1944 as follows:

+------------------------------------------------------+
                ¦Docket No.  ¦Petitioner                    ¦Amount    ¦
                +------------+------------------------------+----------¦
                ¦24393       ¦Frederick R. and Ruth R. Bauer¦$14,251.41¦
                +------------+------------------------------+----------¦
                ¦24394       ¦Mary Stewart Vivian           ¦8,057.10  ¦
                +------------------------------------------------------+
                

The issue is whether a judgment paid by petitioners for a liquidated corporation, of which they were transferees, was a capital loss or an ordinary loss to them in the year of payment.

The proceedings were consolidated and submitted on a stipulation of facts, with exhibits attached. The stipulated facts are so found and are incorporated herein by this reference.

FINDINGS OF FACT.

Petitioner, Mary Stewart Vivian, is an individual residing in Plainfield, New Jersey, and her income tax return for the year 1944 was filed with the collector of internal revenue for the second district of New York. She was the wife of Davenport Pogue, who died on September 17, 1937. She married Leslie L. Vivian some time subsequent to 1940.

Petitioners, Frederick R. Bauer and Ruth R. Bauer, are husband and wife, residing at Lakeville, Connecticut. Their joint return for the year 1944 was filed with the collector of internal revenue for the second district of New York.

A corporation, known as Bauer, Pogue & Co. Inc., was organized in April 1933 under the laws of the State of Delaware. One-half of the stock of the corporation was issued to Frederick R. Bauer, and one-half to Davenport Pogue. Upon the death of Davenport Pogue on September 17, 1937, one F. Donald Arrowsmith was appointed executor of his will and the 50 per cent share of the stock of the corporation belonging to Pogue was transferred to his estate.

The corporation began the first of a series of distributions in complete liquidation on or about December 15, 1937, and made further distributions in liquidation in the years 1938, 1939, and 1940. The last of the distributions in complete liquidation was made in 1940. All such distributions were made as follows: one-half thereof to Frederick R. Bauer, petitioner herein, and the other one-half, representing the shares formerly owned by Davenport Pogue, was distributed in 1937 and 1938 to the Estate of Davenport Pogue, deceased, and in 1939 and 1940 to his widow, Mary Stewart Pogue (now Vivian), petitioner herein, as heir of the Pogue estate.

In the case of the 50 per cent interest formerly owned by Davenport Pogue, no report of the liquidating dividend for 1937 was shown in the return of the Estate of the Davenport Pogue, deceased, for the year, but the distribution for the year 1938 was reflected in the income tax return of the Estate of Davenport Pogue, deceased, for that year. For the years 1939 and 1940 the liquidating dividends representing the Pogue interests paid to Mary Stewart Pogue (now Vivian) were reflected in her income tax returns.

The total liquidating distributions paid to each of the petitioners Vivian and Bauer, during the years 1937 to 1940, inclusive, exceeded the sum of $47,963.25.

On or about June 8, 1939, an action was commenced in the Supreme Court of the State of New York by Adele D. Trounstine as Ancillary Executrix of the Last Will and Testament of one Norman S. Goldberger as plaintiff, against Bauer, Pogue & Co., Inc., Frederick R. Bauer, and F. Donald Arrowsmith as Executor of the Last Will and Testament of Davenport Pogue, as defendants. This proceeding was transferred to the District Court of the United States for the Southern District of New York because of diversity of citizenship. The suit resulted in a judgment in favor of the plaintiff therein, which decision was subsequently affirmed on appeal by the Circuit Court of Appeals in and for the Second Circuit. Trounstine v. Bauer, Pogue & Co., 144 Fed.(2d) 379. Certiorari was thereafter applied for and denied. Bauer, Pogue & Co., v. Trounstine, 323 U.S. 777.

Thereafter, on December 11, 1944, after the judgment in the above proceeding had become final, each of the petitioners herein, Vivian and Bauer, was required to, and did, pay one-half of the judgment. The net amount of the judgment, after certain credits and adjustments, was in the amount of $95,926.52, inclusive of interests and costs.

The distributions of liquidating dividends of the corporation to petitioner Frederick R. Bauer were reflected in his income tax returns for the years 1937, 1938, 1939, and 1940 as capital transactions.

The distributions of liquidating dividends of the corporation to the Estate of Davenport Pogue, deceased, in 1938, and to Mary Stewart Pogue (now Vivian) in 1939 and 1940, were reflected in the income tax returns of each of the distributees of said years,...