Commonwealth, Inc. v. COMMISSIONER OF INTERNAL REVENUE, Docket No. 88264.

• Decision Date: 11 November 1937
• Docket Number: Docket No. 88264.
• Citation: 36 BTA 850
• Parties: COMMONWEALTH, INC., PETITIONER, v. COMMISSIONER OF INTERNAL REVENUE, RESPONDENT.
• Court: U.S. Board of Tax Appeals

36 B.T.A. 850 (1937)

COMMONWEALTH, INC., PETITIONER, v. COMMISSIONER OF INTERNAL REVENUE, RESPONDENT.

Docket No. 88264.

Board of Tax Appeals.

Promulgated November 11, 1937.

Herbert L. Swett, Esq., and Roscoe C. Nelson, Esq., for the petitioner.

T. G. Histon, Esq., for the respondent.

In this proceeding the respondent determined a deficiency in income tax for the calendar year 1934 in the amount of $1,332.39. The petitioner contests only so much of the deficiency as arises out of the Commissioner's action in limiting a loss on real estate to $2,000 under the capital loss provisions of the Revenue Act of 1934. The petitioner claims that there was an abandonment of the property because of worthlessness and that it is entitled to deduct the full amount of the loss sustained.

FINDINGS OF FACT.

The petitioner, an Oregon corporation, in 1934 was the owner of a parcel of real estate improved by a dwelling in Portland, Oregon. This property had been mortgaged by a prior owner, Rudolph Christman, in 1926 to the New York Life Insurance Co., for the principal sum of $15,000. The mortgage loan carried 6 percent interest, payable semiannually and was to be curtailed at the rate of $450 semiannually, beginning in December 1929. In 1931 Christman sold the property subject to the mortgage to petitioner's wholly owned subsidiary, the Union Holding Co. In 1932 the Union Holding Co. dissolved and conveyed the property to the petitioner by a deed dated November 4, 1932. This deed made no mention of the mortgage.

The last installment of principal paid on the mortgage was paid in December 1932, and the last interest payment was made in December 1933, which payment cleared the interest on the mortgage to December 31, 1933. Taxes were allowed to accumulate unpaid after 1930. No other payments were made with respect to the property except slight expenditures for miscellaneous items such as caring for the lawn, trimming shrubbery, and water service. The last such expenditure by the petitioner was made on November 22, 1934.

In January 1934 the petitioner offered to convey title to the property to the mortgagee, New York Life Insurance Co., without consideration. The mortgagee requested the petitioner to continue to hold title until later in the year and in the meantime to attempt to dispose of the property. No disposition being made, the petitioner in September 1934 again offered to deed the property to the mortgagee. Through its Portland counsel, the mortgagee advised the petitioner that it would accept title in lieu of foreclosure. The mortgagee, without request or suggestion from the petitioner, paid to the petitioner the sum of $50. This sum, while stated to be consideration for the conveyance of the realty, was understood by the parties to the transaction to cover the costs of revenue stamps and recording fees and to be consideration for certain personal property on the premises such as shades and linoleum, which the petitioner agreed not to remove. On November 23, 1934, the petitioner executed a deed to the property to the mortgagee. That deed, in addition to reciting a consideration of $50, set forth that as a part of the consideration the mortgagee released the petitioner and the original mortgagors from the covenants and agreements of the mortgage executed in 1926. The balance due on the mortgage at the time of conveyance to the mortgagee was $11,400, plus interest from December 31, 1933.

In its return for 1934 the petitioner claimed a loss in the amount of $12,632.23 arising out of the above transaction. The respondent allowed $2,000 as a capital loss and disallowed the balance of the amount claimed. The petitioner's basis for gain or loss on the property in 1934 was $8,988.85.

OPINION.

ARUNDELL:

There is no issue in this case as to the petitioner's having sustained a deductible loss in...