Commissioner of Int. Rev. v. Coastwise Transp. Corp., 2692.

• Decision Date: 17 December 1932
• Docket Number: No. 2692.,2692.
• Citation: 62 F.2d 332
• Parties: COMMISSIONER OF INTERNAL REVENUE v. COASTWISE TRANSP. CORPORATION.
• Court: U.S. Court of Appeals — First Circuit

62 F.2d 332 (1932)

COMMISSIONER OF INTERNAL REVENUE v. COASTWISE TRANSP. CORPORATION.

No. 2692.

Circuit Court of Appeals, First Circuit.

December 17, 1932.

Francis H. Horan, Sp. Asst. to Atty. Gen. (G. A. Youngquist, Asst. Atty. Gen., Sewall Key and Wm. Cutler Thompson, Sp. Assts. to Atty. Gen., and C. M. Charest, Gen. Counsel, Bureau of Internal Revenue, and W. R. Lansford, Sp. Atty., Bureau of Internal Revenue, both of Washington, D. C., on the brief), for Commissioner of Internal Revenue.

Harris H. Gilman, of Boston, Mass. (Allan H. W. Higgins, of Boston, Mass., on the brief), for Coastwise Transp. Corporation.

Before BINGHAM, WILSON, and MORTON, Circuit Judges.

WILSON, Circuit Judge.

This is a petition for review of a decision of the Board of Tax Appeals holding that there was no taxable income derived from the purchase by the corporation of its outstanding bonds or notes at less than the amount at which they were issued. The facts were agreed to and were summarized by the Board as follows:

"Coastwise Transportation Corporation, the petitioner, is a corporation organized under the laws of the State of Maine, and has a usual place of business at 100 Milk Street, Boston, Massachusetts.

"The petitioner acquired a fleet of ships from American Hawaiian Company in 1922, and in part payment of the purchase price thereof it gave its serial notes of the face value of $608,400, dated February 20, 1922, which notes were secured by a mortgage on said fleet of ships.

"During the year 1924 the petitioner purchased for $75,000 and retired two of its said serial secured notes of the face value of $76,050 each (total $152,100) which would have matured in February, 1925 and 1926.

"During the year 1925 the petitioner issued $375,000 face value of 7 percent serial gold bonds secured by mortgage on its said fleet of vessels in consideration of the return to it for retirement of the remainder of its said serial secured notes to the face value of $456,300, which were retired when received by the petitioner.

"The petitioner duly filed within the period prescribed by law and regulations then in force and effect its Federal income tax return for the year 1925. This tax return showed net income of $5,633.58, and had attached thereto schedules in which it claimed it was entitled to take as a deduction from its 1925 income the amount of its alleged 1924 net loss. The schedules showed that a net loss of $100,338.25 was reported on an amended tax return for the year 1924. The alleged net loss of $100,338.25 for the year 1924 was taken as a deduction on the petitioner's 1925 tax return.

"The Commissioner of Internal Revenue recomputed the net loss for the year 1924 and reduced it from $100,338.25 reported on the amended tax return to $23,238.25. The sole reason for the reduction in net loss was that the Commissioner found a profit of $77,100 from the purchase by the taxpayer of two of its serial notes of a face value of $76,050 each (total $152,100) for $75,000. The profit so found he deducted from the loss claimed on the amended return.

"The amount of $81,300 was included by the Commissioner in his computation of the net income for the year 1925 as a profit derived from the issue of $375,000 face value serial gold bonds in consideration of the surrender of $456,300 face value of secured notes."

Upon these findings of fact, following a line of decisions based on Bowers v. Kerbaugh-Empire Co., 271 U. S. 170, 46 S. Ct. 449, 70 L. Ed. 886, from Appeal of Independent Brewing Co. of Pittsburgh, 4 B. T. A. 870, down to Consolidated Gas Co. of Pittsburgh v. Commissioner, 24 B. T. A. 331, the Board held that any gain from the purchase by a corporation of its notes or bonds for less than the...