Wright v. COMMISSIONER OF INTERNAL REVENUE, Docket No. 24851.

• Decision Date: 11 December 1929
• Docket Number: Docket No. 24851.
• Citation: 18 BTA 471
• Parties: GEORGE M. WRIGHT, PETITIONER, v. COMMISSIONER OF INTERNAL REVENUE, RESPONDENT.
• Court: U.S. Board of Tax Appeals

18 B.T.A. 471 (1929)

GEORGE M. WRIGHT, PETITIONER, v. COMMISSIONER OF INTERNAL REVENUE, RESPONDENT.

Docket No. 24851.

Board of Tax Appeals.

Promulgated December 11, 1929.

O. G. Maxwell, Esq., for the petitioner.

T. M. Mather, Esq., for the respondent.

This is a proceeding for the redetermination of a deficiency in income tax for the year 1922 in the amount of $1,453.35. The only question at issue is the disallowance of a deduction in that year in the amount of $13,100 alleged to have been a loss upon the disposition of certain stock in the year 1922.

FINDINGS OF FACT.

Petitioner is a resident of Danville, Ill. In 1902 he purchased 257 shares of stock of the American Hominy Co. for which he paid $100 per share. In 1922 the company was in financial difficulties and the bankers who had been furnishing the company funds informed the stockholders that they would not furnish any more funds and would be obliged to throw the company into bankruptcy unless the stockholders would surrender 51 per cent of their stock to the bankers. In accordance with this offer the petitioner surrendered 131 shares in 1922. All of the stock so surrendered by the petitioner and other stockholders was given to a new manager of the American Hominy Co., selected by the bankers, as compensation for his services in further conducting the business. The purpose of the bankers was known to the stockholders at the time they surrendered the stock. The business of the American Hominy Co. was continued under the new manager until 1924, when a receiver was appointed and the affairs of the company were wound up. The stockholders received nothing upon dissolution of the company in that year.

The cost of the stock surrendered by the taxpayer in 1922, 131 shares, was $13,100, which sum was claimed as a loss in his return for that year; the cost of the remaining shares, or $12,600, was claimed as a deduction by the petitioner in his return for 1924.

The March 1, 1913, value of the stock in the American Hominy Co. was $100 per share.

The respondent disallowed the deduction of $13,100 for the year 1922, and determined the deficiency in question.

OPINION.

ARUNDELL:

The only question to be determined in this proceeding is whether there was a closed transaction in 1922 with respect to 131 shares of stock in the American Hominy Co. which petitioner surrendered in that year to the bankers of the company, and which in turn the bankers paid over to a new company manager of their selection. If the stock had been merely surrendered to the company so that the proportionate representation of stockholders remained mained the same, a different question would be presented (see Edith Scoville, 18 B. T. A. 261), but it is clear from the stipulated facts that such was not the case, the stock being released to the bankers and by them turned over to the new manager, who became the majority stockholder, and the petitioner definitely parted with 131 shares of stock which cost him $13,100, and which had a value of that amount on March 1, 1913. We are of opinion petitioner is entitled to the loss claimed.

Reviewed by the Board.

Judgment will be entered under Rule 50.

MURDOCK, dissenting:

I dissent from the prevailing opinion in this case. This Board has frequently held that a stockholder in a corporation who, for one reason or...