Taylor v. Commissioner , 19 B.T.A. 1057 ( 1930 )

D. P. TAYLOR, PETITIONER, v. COMMISSIONER OF INTERNAL REVENUE, RESPONDENT.

MRS. D. P. TAYLOR, PETITIONER, v. COMMISSIONER OF INTERNAL REVENUE, RESPONDENT.

Taylor v. Commissioner

Docket Nos. 31198, 31199.

United States Board of Tax Appeals

19 B.T.A. 1057; 1930 BTA LEXIS 2265;

May 23, 1930, Promulgated

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When a trustee in bankruptcy for the estate of a husband, reporting his income on the community property basis, sold assets belonging to the bankrupt estate at a loss, held, for lack of proof, that the loss is not deductible under the provisions of section 206(b) of the Revenue Act of 1924.

Frank L. Hatch, Esq., for the petitioners.

John E. Marshall, Esq., for the respondent.

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MCMAHON

In these proceedings which have been consolidated for hearing and decision, the petitioners seek a redetermination of their income-tax liabilities for the years 1924 and 1925, for which years the respondent has determined deficiencies of $242.55 and $35.05, respectively, as to both D. P. Taylor and Mrs. D. P. Taylor.

The petitioners are husband and wife, reporting their income on the community property basis, and allege that the respondent erred in disallowing to each, as a deduction from gross income of the calendar years 1924 and 1925, one-half of the net losses sustained by reason of the involuntary bankruptcy of the husband in 1922 and 1923 in accordance with the net loss provisions of the Revenue Acts of 1921 and 1924.

FINDINGS OF FACT.

The proceedings were submitted on the following stipulation of facts:

The petitioners are residents of Wichita Falls, Tex., and during all the years involved were married and living as husband and wife in the State of Texas. Their separate income-tax returns were made upon the community property basis for the calendar years 1924 and 1925.

The respondent proposed additional assessments of $242.55 for the calendar year 1924, and $35.05 for the calendar year 1925, as against each of the petitioners.

D. P. Taylor, the husband, was forced into involuntary bankruptcy, in the United States District Court for the Northern District of Texas, in August, 1922; and on September 14, 1922, he was duly adjudicated a bankrupt and a trustee in bankruptcy appointed by the said court.

During the year 1923 the said trustee in bankruptcy disposed of certain assets of the petitioner, designated as "#77 Ranch" and "Rooming House on Travis Street" at a loss of $62,181, one-half of which said loss each of the petitioners carried over into his or her income-tax returns for the calendar years 1924 and 1925 under the provisions of section 206 of the Revenue Act of 1924.

The respondent disallowed each of said deductions. Petitioners' income-tax returns for the calendar years 1924 and 1925 were admitted in evidence.

OPINION.

MCMAHON: Section 206 of the Revenue Act of 1924 provides as follows:

(a) As used in this section the term "net loss" means the excess of the deductions allowed by section 214 or 234 over the gross income, * * *

(b) If, for any taxable year, it appears upon the production of evidence satisfactory to the Commissioner that any taxpayer has sustained a net loss, the amount thereof shall be allowed as a deduction in computing the net income of the taxpayer for the succeeding taxable year (hereinafter in this section called "second year"), and if such net loss is in excess of such net income (computed without such deduction), the amount of such excess shall be allowed as a deduction in computing the net income for the next succeeding taxable year (hereinafter in this section called "third year"); the deduction in all cases to be made under regulations prescribed by the Commissioner with the approval of the Secretary.

(c) (1) If in the second year the taxpayer (other than a corporation) sustains a capital net loss, the deduction allowed by subdivision (b) of this section shall first be applied as a deduction in computing the ordinary net income for such year. If the deduction is in excess of the ordinary net income (computed without such deduction) then the amount of such excess shall be allowed as a deduction in computing net income for the third year.

(2) If in the second year the taxpayer (other than a corporation) has a capital net gain, the deduction allowed by subdivision (b) of this section shall first be applied as a deduction in computing the ordinary net income for such year. If the deduction is in excess of the ordinary net income (computed without such deduction) the amount of such excess shall next be applied against the capital net gain for such year and if in excess of the capital net gain the amount of that excess shall be allowed as a deduction in computing net income for the third year.

(d) If any portion of a net loss is allowed as a deduction in computing net income for the third year, under the provisions of either subdivision (b) or (c), and the taxpayer (other than a corporation) has in such year a capital net gain or a capital net loss, then the method of allowing such deduction in such third year shall be the same as provided in subdivision (c).

(e) If for the taxable year 1922 a taxpayer sustained a net loss in excess of his net income for the taxable year 1923 (such net loss and net income being computed under the Revenue Act of 1921), the amount of such excess shall be allowed as a deduction in computing net income for the taxable year 1924 in accordance with the method provided in subdivisions (b) and (c) of this section.

(f) If for the taxable year 1923 a taxpayer sustained a net loss within the provisions of the Revenue Act of 1921, the amount of such net loss shall be allowed as a deduction in computing net income for the two succeeding taxable years to the same extent and in the same manner as a net loss sustained for one taxable year is, under this Act, allowed as a deduction for the two succeeding taxable years.

The stipulation of facts simply shows that D. P. Taylor was forced into involuntary bankruptcy in 1922 and that the trustee in bankruptcy sold certain assets in 1923 at a loss of $62,181. The only other evidence as to the alleged net losses of the petitioners in 1922 and 1923 consisted of their returns for the calendar years 1924 and 1925. From an examination of the above quoted provisions of section 206 of the Revenue Act of 1924, it becomes evident that there are lacking vital elements of proof necessary to sustain the petitioners' claimed deductions in 1924 and 1925 of alleged net losses of 1922 and 1923.

No evidence was introduced as to the income of either of the petitioners for the years 1922 and 1923, so that we are unable to determine whether or not they sustained any losses in those years, or if they did, whether these were net losses within the meaning of section 206. We can not, from the evidence, determine whether these losses, if any, were sustained from business regularly carried on.

We quote from , as follows:

* * * So far as the second contention is concerned, there is no basis on which the net loss could be computed. The petitioner reported a net loss of $42,356.95 on his return for 1923. But the computation of income or loss on the return is based on income and deductions which do not enter into the computation of net losses as defined in section 206. . The income or loss is computed on the return for 1923 under sections 212, 213, and 214 of the Revenue Act of 1921. The net loss for 1924 is not computed under those sections but under section 206 of the Revenue Act of 1924. The two are radically different.

Accordingly, the determination of the respondent should be sustained.

Judgment will be entered for the respondent.