Wener v. Comm'r of Internal Revenue

• Decision Date: 29 June 1955
• Docket Number: 39560.,Docket Nos. 39559
• Citation: 24 T.C. 529
• Parties: HAROLD WENER, PETITIONER, v. COMMISSIONER OF INTERNAL REVENUE, RESPONDENT.MOLLY WENER, PETITIONER, v. COMMISSIONER OF INTERNAL REVENUE, RESPONDENT.
• Court: U.S. Tax Court

24 T.C. 529

HAROLD WENER, PETITIONER,

v.COMMISSIONER OF INTERNAL REVENUE, RESPONDENT.MOLLY WENER, PETITIONER,

v.COMMISSIONER OF INTERNAL REVENUE, RESPONDENT.

Docket Nos. 39559

39560.

Tax Court of the United States.

Filed June 29, 1955.

Franklin K. Lane III, Esq., and Robert M. Himrod, Esq., for the petitioners.

John J. Burke, Esq., for the respondent.

The petitioners, as of February 1, 1947, executed a bill of sale of their respective interests in a partnership, with an initial payment to be made within 30 days and the remainder to be paid in 3 installments, 2 in 1948 and 1 in 1950. Later in 1947, and before any of the installments had become due, they entered into negotiations with the purchasers which resulted in a complete and final closing of the transaction for a present cash payment which was less than the aggregate of the installments which would have become due and payable in the later years. Held, that the losses sustained by petitioners were capital losses within the meaning of the statute, and subject to the limitations therein provided.

The respondent determined deficiencies in income tax against the petitioners, Harold Wener and Molly Wener, of $5,279.53 and $238.59 for the taxable year 1947. The only question for determination is whether certain losses sustained by them in the taxable year were or were not capital losses within the meaning of the statute.

FINDINGS OF FACT.

Some of the facts have been stipulated and are so found.

The petitioners are husband and wife, and filed individual income tax returns for the year 1947 with the collector of internal revenue for the sixth district of California.

Prior to and during 1946 the petitioners were members of a partnership doing business as the Boreva Sportswear Company in Chicago, Illinois, and Stoughton, Wisconsin, sometimes referred to hereafter as Boreva. The partners other than petitioners were Leon A. Smoler and his wife, Dorothy J. Smoler, and Allan A. Joseph and his wife, Margaret Joseph. Harold Wener, Leon A. Smoler, and Allan A. Joseph were general partners and their wives were limited partners.

In 1946, differences arose between the petitioners, on the one hand, and the four other partners, on the other. As a result of these differences, the partners, on September 6, 1946, executed an agreement, entitled ‘Dissolution Agreement of Limited Partnership,‘ whereunder it was agreed that the petitioners should retire and withdraw from the partnership as of January 31, 1947, and that the other partners should purchase the interests of the petitioners. The sums to be paid for the interests were to be book value as of the severance date, and were to be computed ‘according to the Company's customary accounting procedure, it being agreed in such event that the value of the good-will or of the firm name shall not be included as an asset for such purpose, plus the sum of $13,768.50.’ In arriving at book value, an actual inventory was to be taken at the lower of cost or market and any real estate that might be owned by the partnership was to be conformed to ‘the value as of the severance date.’

It was provided in the above agreement that the payments for the interests of petitioners were to be made in installments. Fifty per cent of the purchase price, less fifty per cent of the withdrawals of the petitioners after August 31, 1946, was to be paid on or before 30 days from January 31, 1947, forty per cent of the balance on or before January 31, 1948; thirty per cent of such balance on or before April 15, 1948, and the remainder on or before April 15, 1950. Interest was to run at 4 per cent, except as to the initial payment.

Under date of February 1, 1947, the petitioners, by a writing entitled ‘Bill of Sale,‘ and in consideration of the covenants and undertakings of the other four partners, assigned and conveyed to the latter their interests in Boreva as of the close of business on the preceding day.

An audit was made as theretofore specified, whereby the respective partners' interests were determined as of January 31, 1947, and as of that date, the balance in the capital account of Harold Wener was found to be $49,924.63, and that of Molly Wener $25,206.49. Against these balances, charges were made under an indemnity agreement theretofore made, whereby the petitioners were obligated to indemnity the other four partners against certain contingent liabilities. The aggregate of the charges was in the amount of $1,177.58. ¹ The initial payments computed under the dissolution agreement and made to the petitioners pursuant thereto in April of 1947, were $10,428.28 to Harold Wener and $5,265.13 to Molly Wener, leaving the balances due them to be paid in installments on January 31, 1948, April 15, 1948, and April 15, 1950.

Subsequent to their agreement to withdraw from Boreva, the petitioners moved to California, where they established a sportswear manufacturing company in Westminster, California.

On or before August 25, 1947, and before any further payments were due from the sale of their interests in Boreva, petitioners entered into negotiations with the purchasers with respect to the balances which were thereafter to become due and payable. On August 25, 1947, and in consideration of immediate payment, as against later payment on the installment dates theretofore specified and agreed upon, the petitioners agreed to accept, and did accept, $35,000 in complete satisfaction of the aggregate amounts which...