Smith v. Helvering, 8423.
Decision Date | 14 February 1944 |
Docket Number | No. 8423.,8423. |
Citation | 141 F.2d 529,78 US App. DC 342 |
Parties | SMITH v. HELVERING, Commissioner of Internal Revenue. |
Court | U.S. Court of Appeals — District of Columbia Circuit |
Mr. Stanley Suydam, of Washington, D. C., for petitioner.
Mr. Harry Baum, of Washington, D. C., of the Bar of the Court of Appeals of the State of New York, pro hac vice, by special leave of court, with whom Assistant Attorney General Samuel O. Clark, Jr., and Messrs. Sewall Key and A. F. Prescott, Special Assistants to the Attorney General, were on the brief, for respondent. Messrs. J. P. Wenchel, Chief Counsel, and Rollin H. Transue, Special Attorney, Bureau of Internal Revenue, both of Washington, D. C., also entered appearances for respondent.
Before GRONER, Chief Justice, and MILLER and ARNOLD, Associate Justices.
The Commissioner determined a deficiency against the taxpayer for the calendar year 1937. The Board of Tax Appeals affirmed. The facts are not in dispute; instead, the taxpayer accepts the evidentiary findings of the Board and challenges the conclusion which it draws therefrom that: "The shares of stock owned by petitioner in San-I-Sal Laboratories, Inc. became worthless prior to the calendar year 1937."; as well as its decision approving the Commissioner's determination. The sole question of the case is whether the Board applied the correct legal test in deciding that the taxpayer's loss was not sustained in the year 1937; when, it is agreed, the outstanding liabilities of the corporation having been liquidated, application for a certificate of dissolution was made and the dissolution occurred. Without more, this was an identifiable event sufficient to satisfy the requirements of the law.
The findings of the Board showed that the corporation's business was suspended and discontinued early in 1929 to the extent that, thereafter, it filed no federal income tax return, and it had no full-time employees. However, the Board found, also, that after 1929 the corporation disposed of most of its equipment piecemeal; that most of the business of the corporation after 1929 consisted of casual sales on orders received; that its gross sales amounted to $1624.70 in 1929 and in each of the years 1930 to 1937, inclusive, averaged approximately $350, which was less than the cost of the goods sold. It found, also: Italics supplied We may assume, therefore, that although the corporation was insolvent, it nevertheless continued in existence until 1937. The Board, in its opinion, expressly concedes: "The company managed a bare existence through small sums paid into it each year by petitioner."
The test applied by the Board was stated in the following terms: "The loss must be taken in the year in which it is sustained and at no other time and this means the year in which these shares in every substantial and realistic way become worthless." Italics supplied We think the decision of the Board too severely restricted the taxpayer and sets too high a standard of industrial performance; especially in light of the remarkable industrial developments often achieved by courageous and optimistic American businessmen, who refused to be dissuaded when bankers and other conservative citizens advised that their enterprises were worthless in "every substantial and realistic way." Henry Ford is a striking example. Even though, perhaps, a businessman should not be encouraged to be an incurable optimist, if he is one, nevertheless, and continues to express his optimism by putting money into an insolvent organization, he should be given the benefit of the doubt. This would seem to be particularly true where, as here, the suspension of business occurred in 1929, the year of the great panic, and the transfusions administered by the taxpayer occurred during the period of the most severe depression ever experienced in this country.
The case which comes closest in its facts to the present case is Rassieur v. Commissioner.1 The nub of the decision appears in the following language: "So long as taxpayer was willing to protect or pay the company debts and to advance funds for its current expenses, no one could say that any `identifiable events' had occurred which finally determined the worthlessness of the stock."2 The language of that opinion which immediately precedes the statement quoted is remarkably apt: 3 Italics supplied
The test proposed by the Board in the present case is a highly objective one which disregards what the taxpayer may think of his investment, how much of an optimist he may be, or what he may consider to be the possibilities of future successful operation, or of eventual recoupment. An examination of the cases persuades us that the subjective appraisal of the taxpayer is of much greater importance. The Supreme Court said as much in United States v. S. S. White Dental Mfg. Co.4 In Forbes v. Commissioner,5 Judge Parker, speaking for the Court of Appeals of the Fourth Circuit and reversing a decision of the Board in a similar case, used the following language: ...
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