Shoenberg v. Commissioner of Internal Revenue

• Decision Date: 19 April 1935
• Docket Number: No. 10079.,10079.
• Citation: 77 F.2d 446
• Parties: SHOENBERG v. COMMISSIONER OF INTERNAL REVENUE.
• Court: U.S. Court of Appeals — Eighth Circuit

77 F.2d 446 (1935)

SHOENBERG v. COMMISSIONER OF INTERNAL REVENUE.

No. 10079.

Circuit Court of Appeals, Eighth Circuit.

April 19, 1935.

James W. Beller, of Washington, D. C., for petitioner.

Lucius A. Buck, Sp. Asst. to Atty. Gen. (Frank J. Wideman, Asst. Atty. Gen., and James W. Morris, Sp. Asst. to Atty. Gen., on the brief), for respondent.

Before STONE, GARDNER, and VAN VALKENBURGH, Circuit Judges.

STONE, Circuit Judge.

This is a petition to review a redetermination of the income taxes of petitioner for the year 1930. The matter in issue concerning these taxes is the refusal of the Commissioner (affirmed by the Board of Tax Appeals) to permit a deduction of $191,886.30 claimed by petitioner to represent a loss occurring in that year through the sale of certain corporate stocks.

There is no dispute as to the facts here involved, though there is disagreement as to some essential inferences to be drawn therefrom. The evidence clearly shows the following: In 1929 and 1930, petitioner purchased "300 shares of Lehman Corporation, 1,000 shares of Texas Corporation, 565 shares of Chase National Bank, 2,352 shares of National Dairy Products, 466 shares of Liquid Carbonic, 1,061 shares of Electric Bond & Share Company, 1,000 shares of Irving Trust Company," for which he had paid a total price of $502,383.17. He owned all of these shares on December 5, 1930. After consultation with an accountant and with the purpose of showing a taxable deduction, he instructed a stock broker, upon the above date, to sell all of these shares on the New York Stock Exchange at current prices. At the same time he instructed the same broker to purchase the same number of shares in the same companies upon the above exchange for the Globe Investment Company. Under the above instructions, on December 5th, the broker sold and bought the shares in the National Dairy Products, Liquid Carbonic, Electric Bond & Share Company, and Irving Trust Company; on December 10th, the shares of the Texas Corporation and Chase National Bank, and on December 22d, the shares in the Lehman Corporation. Eliminating the commissions of the broker, the price at which the stock of petitioner was sold and the price at which the same stock was bought for the Globe Investment Company was exactly the same amount, both as to total ($311,752.50) and also as to items. At various times in January and February, following, and upon dates which narrowly exceeded thirty days after the sale and purchase transactions above, petitioner bought from the Globe Investment Company the shares it had purchased as above, paying therefor the then market price on the day of purchase by him in a total sum of $304,593.87.

The Globe Investment Company was a corporation wherein petitioner owned over 70 per cent. of the capital stock and his mother, a widow, owned the balance. Something more than a year before the above transactions he had been empowered by the directors of the company to act very broadly with reference to buying and selling for the company, and petitioner testified that "since his father's death, nine years previously, he had had the exclusive handling of the affairs of the company, and that it was his practice for years to enter into transactions for the company."

He did not consult with his mother about the above transactions.

He further testified, as follows:

"That he had asked his accountants whether or not it would be proper for him to sell the stock for the purpose of registering a loss, so that he could take a deduction in his income tax return, and they told him he could sell it through a broker. Upon being asked whether or not he had discussed with his accountants the question of whether or not it would be better to sell this stock on the open market, or whether it would be proper for him to sell it to the Globe Investment Company which he controlled, he replied that at the time he sold these stocks, the Globe Investment Company had sufficient funds of its own on hand to go in the open market and buy securities; that he was familiar with these stocks, and it was at a time when the market conditions were rather unsatisfactory and uncertain; that he considered the purchase by the Globe Investment Company of these stocks would at that time be perfectly proper for the investment of its money, and in taking a loss he would receive sufficient funds to enter into other financial investments. He testified further that he asked his accountants if it would be perfectly proper for the Globe Investment Company to buy stocks like those he sold, and was advised that it would be proper; that there would be no objection to the Globe Investment Company purchasing the stocks on the open market.

"In response to a question as to whether or not he had loaned any money, or had repaid any money to the Globe Investment Company just prior to December 5th, the witness stated that he had not loaned the company any money, but that he had repaid them between $110,000.00 and $120,000.00; that he did not think this amount, plus the amount the Globe Investment Company had on hand, was substantially the amount which the company paid to the broker for these stocks; that it was a part of the amount which they approximately had on hand; that he presumed they needed some money, but whether or not it was approximately the amount he repaid he did not recall. Upon being asked again as to whether or not he had discussed with his accountants the question of reacquiring the securities from the Globe Investment Company, the witness stated that he had not done so at the time he sold this stock; that, as he recalled it, he discussed the matter of taking a deductible tax loss for the year 1930 with his accountants in regard to the selling of these securities, and subsequently he asked the accountants whether it would be perfectly proper for the Globe Investment Company to make the purchase of like securities, and the accountants stated it was perfectly proper for it to do so. Witness stated that he recalled having a conversation with his accountants regarding his right to buy those securities from the Globe Investment Company, but that he was unable to recall the exact date when it occurred. Witness stated that he had not discussed the sale of these securities by the Globe Investment Company in January, 1931, with any of the directors of that company; that during his supervision of the company for many years, he was empowered to handle its financial transactions to the best of his ability. He stated that there was neither much loss nor gain to the Globe Investment Company in the purchase and sale of this stock."

The question to be answered is whether, in view of the entire situation and transactions above set forth, petitioner is entitled to a deduction for a loss sustained by the sale of his stock.

The Revenue Act here involved (Act of 1928, 45 Stat. 791, 26 USCA § 2001 et seq.) as well as earlier and later Revenue Acts permit deductions of losses from taxable net income. It requires such losses to be "realized" by some closed and completed "identifiable event" (United States v. S. S. White Dental Co., 274 U. S. 398, 401, 47 S. Ct....