OPINION
DAVIS, Judge:
This personal income tax case (which comes before us on a stipulation of facts) centers on the proper characterization and amount of losses plaintiffs incurred in 1970 and 1974. In a previous opinion in the case, a panel of the court ruled that the 1970 loss should be characterized as an ordinary loss fully deductible under I.R.C. § 165(c)(2). Michtom v. United States, 216 Ct.Cl. ___, 573 F.2d 58 (1978). On application by the Government, we agreed that the full court would now hear argument to allow for possible reconsideration of our previous opinion.1 The court en banc concludes that both the 1970 and 1974 losses should be characterized as capital losses deductible only to the extent allowed by I.R.C. § 165(f). We therefore hold for the Government and vacate the panel decision.
The main facts necessary for our decision are set forth in our prior opinion, Michtom, supra, 216 Ct.Cl. at ___, 573 F.2d at 59-61, and for convenience we repeat them here:2
"Benjamin F. and Hadassah Feil Michtom are husband and wife and were husband and wife during 1970 and 1974. Benjamin F. Michtom is a retired industrialist, having retired in 1969. Hadassah Feil Michtom is a housewife and was a housewife during 1970 and 1974.3 Neither of the plaintiffs were engaged in the business of being a stockbroker, nor had they ever been so engaged.
"Over the years Mr. Michtom had accumulated certain securities and bonds. One of the stockbrokerage houses with which he did business was Hayden Stone, in their White Plains, New York, office. At the solicitation of Hayden Stone, Mr. Michtom entered into a subordination agreement with Hayden Stone on April 11, 1968, effective as of April 30, 1968, under which Hayden Stone could utilize the cash and securities in Mr. Michtom's account to satisfy certain S.E.C. and New York Stock Exchange capital requirements. That agreement was replaced by one dated May 6, 1968, effective as of April 30, 1968. The May 6, 1968, agreement merely increased the minimum-maximum amounts Michtom agreed to subordinate from $55,000-$140,000 to $100,000-$200,000. At that time Michtom placed in the subordinated account cash in the amount of $8,962.62 and securities with a market value of approximately $180,000.
"As owner of the cash and securities before entering into the subordination transaction. Mr. Michtom could trade the securities at will; he also received the interest and dividends payable on the securities. After April 30, 1968, under the provisions of the agreement, Mr. Michtom could still trade the securities in his account at will. He also still received the interest and dividends payable on the securities in the account. In addition, he received interest credits monthly on the cash in the account at the rate of 6 percent per annum and on the value of the securities at the rate of 2 percent per annum. Beginning October 1, 1969, these rates were increased to 8½ percent and 3 percent respectively.4
"By entering into the subordination agreement, Mr. Michtom increased his income on the assets in the Hayden Stone account. At the time Mr. Michtom entered the agreement, he was realizing through dividends and interest a rate of return of slightly less than 2 percent on the value of the securities in his account. The agreement with Hayden Stone assured him of more than doubling the rate of return on the account. At the time Mr. Michtom originally entered the subordination agreement, he considered Hayden Stone, one of the largest stockbrokerage firms, reliable and financially sound.
"Under the agreement, Mr. Michtom agreed to subordinate any claims which he might have against Hayden Stone with respect to his account to the claims of other creditors of Hayden Stone (who were not subordinated lenders). In the event of a determination by certain officials of Hayden Stone that the subordinated accounts were needed to meet the capital requirements of the S.E.C. or the New York Stock Exchange, or to meet maturing obligations of Hayden Stone, or in the event of insolvency of Hayden Stone, or upon the happening of certain events such as the bankruptcy of Hayden Stone, Hayden Stone could liquidate the securities and use the cash in the account as it determined. If such a liquidation occurred pursuant to the agreement, Mr. Michtom was to have a claim against Hayden Stone in an amount equal to the amount realized by Hayden Stone on the sale or liquidation of the securities, less expenses.
"The term of the subordination agreement was indefinite, but the agreement could be terminated by either party by delivery of a written demand. If Mr. Michtom elected to terminate, the agreement ended six months after the end of the month in which the notice was given. If Hayden Stone elected to terminate, the agreement ended two months after the end of the month of such notice.
"On April 23, 1970, Michtom notified Hayden Stone of his desire to terminate the agreement and receive back the cash and securities in his account. On July 10, 1970, Hayden Stone notified Michtom that it had sold the securities in all subordinated accounts and that Michtom then had an interest-bearing claim against Hayden Stone for the amount represented by the proceeds from the sale of the securities, less expenses, in the amount of $112,774.04. The amount of the interest-bearing claim ultimately rose to $127,764.55.
"In the summer of 1970 Hayden Stone found itself in an impossible financial position. Because of its difficult financial position, Hayden Stone negotiated the sale of most of its business operations and the name Hayden Stone to Cogan, Berlind, Weill & Levitt, Inc., another stockbrokerage firm.5 To consummate the proposed transaction, however, it was necessary to obtain the agreement of 108 subordinated lenders to withhold exercise of any claims until such time as Hayden Stone arranged for payment of all public customers and, further, to subordinate their claims to that of Cogan, Berlind, Weill & Levitt, Inc. Consequently, Hayden Stone, together with the Committee of Subordinated Lenders, recommended that all subordinated lenders agree to the proposed transaction with Cogan, Berlind, Weill & Levitt, Inc., to withhold exercising their claims and, further, to accept one share of $6 Senior Preferred Stock in H. S. Equities, Inc., for each $100 aggregate principal amount of all outstanding indebtedness of the corporation to the undersigned as a subordinated lender to the corporation in exchange for and in lieu of all the claims of the undersigned against the corporation. Pursuant to this arrangement, Michtom signed the agreement and consent and exchanged his claim against Hayden Stone for 1,277.65 shares of the $6 Senior Preferred Stock. Michtom held the preferred stock until 1974 when he sold his shares to an unrelated party for $2,500 cash.
"On their 1970 joint federal income tax return, plaintiffs claimed an ordinary loss deduction for the difference between Mr. Michtom's tax basis for the securities in his subordinated account and the fair market value of the preferred stock of H. S. Equities, Inc., he received in exchange for claims against Hayden Stone. On audit of that return, the Internal Revenue Service disallowed the ordinary loss deduction, contending that the loss was a capital loss with only $1,000 deductible against ordinary income in 1970. As a result, the Internal Revenue Service issued a deficiency notice for additional income tax due, interest, and penalty. Plaintiffs paid the amounts assessed and filed a timely claim for refund."
"On their 1974 joint federal income tax return, plaintiffs claimed a long-term capital loss for the difference between the $2,500 cash received upon the sale of the 1,277.65 shares of $6 Senior Preferred Stock in H. S. Equities and the value of the preferred stock shown on the 1970 return. The plaintiffs later claimed that this loss was ordinary rather than capital and, accordingly, filed a timely claim for refund for overpayment of their 1974 income taxes."
When Mr. Michtom exchanged his subordination agreement rights for the preferred stock in 1970, Hayden Stone had 108 subordinated lenders under a number of different agreements. After our prior Michtom ruling, the Tax Court and the Second Circuit considered a suit brought by other subordinated lenders and reached a result different from the one plaintiff says is mandated by the law and our previous opinion. Lorch v. Commissioner, 70 T.C. 674 (1978), affirmed, 605 F.2d 657 (2d Cir.1979), cert. denied, 444 U.S. 1076, 100 S.Ct. 1024-25, 62 L.Ed.2d 759 (1980). Defendant argues that Lorch raises serious questions about the approach we earlier followed here.6 Plaintiff contends that reconsideration of our previous decision would bring us into direct conflict with the District of Columbia Circuit's holding in Stahl v. United States, 142 U.S.App.D.C. 309, 441 F.2d 999 (1970). We first explore those separate propositions, and then take up directly the question of the characterization of plaintiffs' losses in 1970 and 1974.
In Stahl7 the Government argued that the taxpayer's loss was a nonbusiness bad debt deductible under I.R.C. § 166(d) as a short term capital loss. It contended that (1) a debt was created by implication when the taxpayer deposited the securities with the broker, or, alternatively, (2) a debt was created when the broker sold the securities. Judge Leventhal, writing for the court, held...
