Ryder v. Commissioner , 2 B.T.A. 1060 ( 1925 )

APPEAL OF GEORGE C. RYDER.

Ryder v. Commissioner

Docket No. 2129.

United States Board of Tax Appeals

2 B.T.A. 1060; 1925 BTA LEXIS 2171;

October 28, 1925, Decided Submitted May 5, 1925.

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Receipt, in 1922, by a taxpayer reporting on a cash basis, of a liquidating dividend, can not constitute the basis of a deduction from 1921 income of a loss measured by the difference between cost and the liquidating dividend.

Arthur E. Weil, Esq., for the taxpayer.

B. G. Simpich, Esq., for the Commissioner.

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IVINS

Before IVINS, ¹ MARQUETTE, and MORRIS.

This appeal is from the determination of a deficiency in income tax for the year 1921 in the amount of $2,045.90. From the evidence and exhibits the Board makes the following

FINDINGS OF FACT.

The taxpayer resided in Drexel Hill, Pa. He acquired 250 shares of stock in the J. P. Draper Co., dealers in wool, at a cost of $25,000, during the years 1919 and 1920. In the year 1921 it was decided to liquidate the affairs of the corporation over the period of time during which wool held by the corporation could be disposed of by sale, and to divide the proceeds of sale from time to time among the stockholders as liquidating dividends.

The taxpayer made his return for the year 1921 on a cash receipts and disbursements basis. Certain wool was sold by the corporation in 1921 and shortly after January 1, 1922, the taxpayer received a check for $11,375 to apply against 175 shares of the stock held by him in the corporation, and those shares were delivered to the corporation and canceled.

In his tax return for 1921, the taxpayer claimed as a loss on the sale of stock $13,625, or the difference between $25,000 (the cost of 250 shares) and the $11,375 received for the 175 shares.

The taxpayer now admits error and claims a loss for 1921 of the difference between $17,500 (the cost of 175 shares at $100 each) and the $11,375 received, or $6,125. During the years 1922 and 1923, the taxpayer received further payments on the remaining 75 shares in the total amount of $5,610.

The Commissioner disallowed the deduction, and, by reason of other adjustments, determined a deficiency in tax for the year 1921 in the amount of $2,045.90. From that determination the taxpayer duly appealed.

DECISION.

The determination of the Commissioner is approved.

OPINION.

IVINS: The taxpayer kept his accounts and filed his return on a cash basis. The liquidating dividend on the 175 shares was not received by the taxpayer until 1922. The sale of the wool by the corporation in 1921 did not constitute a receipt by the stockholder. It was but a necessary step preliminary to a later liquidation distribution.

The taxpayer knew nothing of the sale of the wool until he received the check in January, 1922, and he thereafter forwarded his stock certificate for the 175 shares to the corporation. No loss should be deducted against 1921 income for that transaction.

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Footnotes

• 1. This decision was prepared by Mr. Ivins during his term of office. ↩