Scherman v. Helvering, 96.
| Citation | 74 F.2d 742 |
| Decision Date | 14 January 1935 |
| Docket Number | No. 96.,96. |
| Parties | SCHERMAN v. HELVERING, Commissioner of Internal Revenue. |
| Court | United States Courts of Appeals. United States Court of Appeals (2nd Circuit) |
Harry J. Leffert, of New York City (Cohen, Cole, Weiss & Wharton, of New York City, of counsel), for appellant.
Frank J. Wideman, Asst. Atty. Gen., and Sewall Key and Berryman Green, Sp. Assts. to Atty. Gen., for appellee.
Before MANTON, L. HAND, and CHASE, Circuit Judges.
The question in this case is whether Scherman, the taxpayer, shall be allowed to deduct a loss from his income tax for the year 1929, arising from the following facts: He was the originator of a scheme for selling books, known as The Book of the Month Club; it was incorporated and four hundred shares of common stock were issued of which he got one hundred and eighty-nine and his wife, one; Haas, and Haas's wife, owned the rest. He and Haas, finding themselves at odds about the management of the company, agreed that it would be desirable to bring in another person, and decided upon one, Wood. The venture had been amazingly profitable, and Wood was not content with a salary of $20,000, unless he got twenty-five shares in addition, with a guarantee of dividends from the company. To furnish the added inducement Scherman sold ten, and Haas fifteen, shares to Wood at very much less than their value at the time. Scherman deducted as a loss from his gross income the difference between their cost to him and what Wood paid him, and paid a tax calculated on the balance. The Commissioner disallowed the deduction and the Board affirmed his ruling. The question is whether it was a loss under section 23 (e) (1) or section 23 (e) (2) of the Revenue Act of 1928 (26 USCA § 2023 (e) (1, 2).
The transaction between Scherman and Wood, reduced to its legal form was as follows: Scherman sold his shares to Wood in consideration of the money received and of Wood's promise to serve the corporation at a salary which he would not otherwise have been willing to accept. An obligation resulted which Scherman might have enforced, negatively, perhaps by injunction, for the evidence allows the inference that Wood was especially, probably uniquely, available for the service of the company at just that juncture. It can make no difference that Wood's promise was to serve the company and not Scherman himself; or that he was to enter into a contract with the company in performance of his contract with Scherman. The loss suffered by this "disposition" of the shares, if there was a loss, fell within section 23 (e) (1) because it was "incurred in trade or business," or within section 23 (e) (2) because "entered into for profit." Indeed, we do not understand that this is disputed; the trouble is that...
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Frantz v. Comm'r of Internal Revenue
...manager to induce him to continue to perform services for the corporation was a contribution to capital. But cf. Scherman v. Helvering, 74 F.2d 742 (2d Cir. 1935). 16. One commentator has suggested that the rationale, although not necessarily the mechanical tests, of section 302 should be a......
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Frantz v. C.I.R.
...F.2d 395 (3d Cir.1932); Wright v. Commissioner, 18 B.T.A. 471 (1929), modified, 47 F.2d 871 (7th Cir.1931); see also Scherman v. Commissioner, 74 F.2d 742 (2d Cir.1935) (allowing immediate deduction for loss relating to transfer of shares to employee of the corporation); Tilford v. Commissi......
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Downer v. Comm'r of Internal Revenue
...that the instant situation does not qualify as a ‘transaction entered into for profit’ under section 165(c) (2). Scherman v. Helvering, 74 F.2d 742 (C.A. 2, 1935); Kress v. Stanton, 98 F.Supp. 470 (W.D. Pa. 1951), affirmed per curiam 196 F.2d 499 (C.A. 3, 1952); Berner v. United States, 282......
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Berner v. United States
...pattern almost exactly analogous to this was presented to the Court of Appeals for the Second Circuit in the case of Scherman v. Helvering, 2 Cir., 1935, 74 F.2d 742. There, the taxpayer sought to deduct as a loss from his gross income the difference between what the shares originally cost ......