Jones v. Commissioner of Internal Revenue

• Decision Date: 18 February 1930
• Docket Number: 16901,22289.,Docket No. 16847,16902
• Parties: B. B. JONES, PETITIONER, v. COMMISSIONER OF INTERNAL REVENUE, RESPONDENT. ELLIOTT L. JONES, PETITIONER, v. COMMISSIONER OF INTERNAL REVENUE, RESPONDENT. ROBERT L. JONES, PETITIONER, v. COMMISSIONER OF INTERNAL REVENUE, RESPONDENT. ESTATE OF MONTFORT JONES, PETITIONER, v. COMMISSIONER OF INTERNAL REVENUE, RESPONDENT.
• Court: U.S. Board of Tax Appeals

18 B.T.A. 1225 (1930)

B. B. JONES, PETITIONER, v. COMMISSIONER OF INTERNAL REVENUE, RESPONDENT.

ELLIOTT L. JONES, PETITIONER, v. COMMISSIONER OF INTERNAL REVENUE, RESPONDENT.

ROBERT L. JONES, PETITIONER, v. COMMISSIONER OF INTERNAL REVENUE, RESPONDENT.

ESTATE OF MONTFORT JONES, PETITIONER, v. COMMISSIONER OF INTERNAL REVENUE, RESPONDENT.

Docket Nos. 16847, 16901, 16902, 22289.

Board of Tax Appeals.

Promulgated February 18, 1930.

Louis Loeffler, Esq., and J. E. Thrift, Esq., for the petitioners.

Phil M. Clark, Esq., and L. A. Luce, Esq., for the respondent.

This proceeding seeks a review of the acts of the respondent in his determination of income-tax deficiencies for 1921, in the cases consolidated for hearing as follows:

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                                       Taxpayer                    | Docket No. |  Deficiency
                ---------------------------------------------------|------------|------------
                B. B. Jones ______________________________________ |    16847   |  $24,676.16
                Elliott L. Jones _________________________________ |    16901   |    2,833.41
                Robert L. Jones __________________________________ |    16902   |    1,848.07
                Montfort Jones ___________________________________ |    22289   |   20,305.57
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In each of these appeals error is alleged on the part of the respondent in disallowing, as deductions from 1921 income, certain alleged losses claimed to have been sustained by the petitioners in the sale of securities in the taxable year. In the appeals of Robert L. Jones, Docket No. 16902, and Elliott L. Jones, Docket No. 16901, it is further alleged that the respondent was without jurisdiction to make further assessment because of the running of the statute.

FINDINGS OF FACT.

The petitioners are the sole owners of all of the capital stock of the Bermont Oil Co., a Delaware corporation, hereinafter called the corporation, which throughout the time here involved they held in the following amounts and proportions:

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                                                      | Shares |   Par value
                --------------------------------------|--------|------------------
                B. B. Jones _________________________ | 437½ |   $43,750.00
                Montfort Jones ______________________ | 437½ |    43,750.00
                E. L. Jones _________________________ | 78 1/8  |     7,812.50
                R. L. Jones _________________________ | 46 7/8  |     4,687.50
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In 1917, the petitioners had combined credits with the corporation of approximately $4,000,000. Sometime during said year the corporation issued its checks in payment for a quantity of Federal and municipal bonds in the total amount of $3,014,505. The totals of such checks the corporation charged against the credits of these petitioners by making debit entries in its books against their respective personal accounts, in amounts proportionate to their stockholdings in the corporation.

On December 31, 1917, the corporation, by book entries, took these securities into its property account under recitals showing a sale thereof as of said date by the petitioners to it, and by corresponding entries credited the personal account of each of the petitioners with amounts equal to the charges made against them when the securities were purchased. On January 3, 1918, the corporation dropped these securities from its property account by book entries, showing a sale back to the petitioners for the same price recorded in the December transaction which in amounts as there shown, it charged against their respective personal accounts. By similar process and book entries of identical import, the corporation recorded transfers from the petitioners to it; and from it back to them of all of these securities (excepting as to a part of the municipal bonds, hereinafter noted), for the years 1918, 1919, 1920, and 1921.

On December 22, 1920, the petitioner, Montfort Jones, sold $250,000 par value of the municipal bonds involved in these transactions, the cost of which was $246,760.64, to the First National Bank of Oklahoma City for the sum of $212,650.

Early in January, 1921, there was a marked decline in the market prices of securities, similar to these involved, and such prices failed to recover to any appreciable extent during the year. On December 15, 1921, the corporation, according to book entries, again took into its property account the remainder of these securities at a price, for which it gave credit to the petitioners, as follows:

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                                                       |               |   Account
                                                       |  Account of   |   Oklahoma
                                                       | First Liberty |  City Water
                                                       |   bonds to    | Works bonds
                                                       |    credits    |   credits
                ---------------------------------------|---------------|-------------
                B. B. Jones __________________________ | $990,829.22   |  $262,788.75
                M. Jones _____________________________ |  990,829.22   |    27,788.75
                E. L. Jones __________________________ |  176,933.79   |    46,926.57
                R. L. Jones __________________________ |  106,150.27   |    28,155.93
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The amount for which the corporation issued its checks in 1917 was carried forward in all of these transactions between it and the petitioners, except the last, as the selling or cost price of the securities sold; and in each instance the charges or credits made by the corporation in its books affecting the individual accounts of the petitioners were fixed at such amounts. These amounts, as shown by the corporation's books of record, which evidence the last transfer of January 3, 1921, from it to the petitioners are shown to be as follows:

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                                                       |               |   Oklahoma
                                                       | First Liberty |  City Water
                                                       |    bonds      |  Works bonds
                ---------------------------------------|---------------|-------------
                B. B. Jones __________________________ | $1,042,904.94 |  $275,940.08
                Montfort Jones _______________________ |  1,042,904.94 |    29,179.44
                E. L. Jones __________________________ |    186,233.20 |    49,275.02
                R. L. Jones __________________________ |    111,739.92 |    29,564.82
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In their respective income-tax returns filed for the taxable year each of these petitioners claimed, as a deductible loss from his gross income for the year, an amount equal to...