MOOCK ELECTRIC SUPPLY COMPANY v. COMMISSIONER OF INTERNAL REVENUE, Docket No. 96284.
| Decision Date | 21 May 1940 |
| Docket Number | Docket No. 96284. |
| Citation | 41 BTA 1209 |
| Parties | THE MOOCK ELECTRIC SUPPLY COMPANY, PETITIONER, v. COMMISSIONER OF INTERNAL REVENUE, RESPONDENT. |
| Court | U.S. Board of Tax Appeals |
Wendell Herbruck, Esq., and Albert B. Arbaugh, Esq., for the petitioner.
DeWitt M. Evans, Esq., W. W. Kerr, Esq., and Thomas F. Callahan, Esq., for the respondent.
This proceeding was brought for a redetermination of deficiencies in petitioner's income and excess profits tax for the taxable year ended January 31, 1936 in the sums of $990.90 and $360.54, respectively.
The only question upon which evidence was submitted at the hearing was whether petitioner was entitled to a loss, limited by the capital loss provisions, on the sale of certificates of participation in assets segregated on the reorganization of a bank in which petitioner was a depositor.
FINDINGS OF FACT.
On October 21, 1931, The George D. Harter Bank of Canton, Ohio, was closed upon the director's resolution asking the Superintendent of Banks of the State of Ohio to take charge of the institution. On the date of closing petitioner had on deposit the sum of $50,000, upon which $2,361.10 interest was due.
After the bank's closing a plan was formulated for its reopening; sufficient depositors, including petitioner, agreed to the plan for it to become effective, and on August 24, 1932, permission having been obtained from the Superintendent of Banks and the Court of Common Pleas of Stark County, Ohio, the bank was reopened.
Pursuant to the plan of reopening petitioner surrendered its certificate of claim against the bank which it had received from the Superintendent of Banks on making proof thereof, and received a certificate of deposit in the new bank for 65 percent of the claim, or $34,434.71, and a certificate of participation in The Harter Holding Co., a subsidiary of the bank organized to hold and liquidate the segregated assets for the benefit of the depositors, for 35 percent of its claim, or $18,326.39.
At the time the certificate of participation was received it had a market value of 10 percent of its face value, or $1,832.64.
On September 16, 1935, petitioner sold its certificate of participation in the face amount of $18,326.39 for $6,232.97.
In 1931 The George D. Harter Bank of Cleveland, Ohio, closed its doors. In 1932 the bank reopened under an agreement of the type now familiar, whereby certain of its assets were segregated in a subsidiary corporation and depositors agreed to look to the latter for satisfaction of a portion of their claims. Petitioner, as a depositor in the bank, accepted the new arrangement and received for its $50,000 certificate of deposit in the bank a partially restricted deposit claim of 65 percent and a "certificate of participation" against the subsidiary corporation for the remaining 35 percent. It is stipulated that at that time this certificate had a fair market value of 10 percent of its face.
In 1935, petitioner sold this certificate for about 30 percent of its face amount and claimed the difference as a loss, limited to $2,000 by the capital loss provisions.
Respondent disallowed the deduction and charged petitioner with income representing the difference between the fair market value of the certificate in 1932 and the amount realized in 1935. The deficiency resulting is the subject of this controversy.
Although petitioner has filed no brief, its position at the hearing was that the certificate was received in 1932 in a nontaxable reorganization; that gain or loss thereon was postponed until disposition or some other identifiable event created a taxable result; and that that occurred in 1935 when the certificate was sold.
Respondent's position continues to be that taken in the deficiency notice, that since petitioner...
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