Goldsborough v. Burnet , 46 F.2d 432 ( 1931 )

NORTHCOTT, Circuit Judge.

Petitioner is a citizen of Baltimore, Md. His mother-in-law resided in his home and was considered a member of his household during the period of ten years prior to the year 1925. During the time of the residence of his mother-in-law with petitioner, she had no income or revenue of any kind other than the amount of approximately $311 a year, which was derived from investments valued at or about $6,000. This income she used as far as it would go towards her maintenance and support; the balance, a much larger amount necessary for such purposes, was supplied by the petitioner, who had, however, never claimed any deduction from income taxes for such aid given to his mother-in-law. During the year 1922, the said mother-in-law, solely at the instance of the petitioner, purchased certain corporate securities, and at the time of the purchase the petitioner stated to his mother-in-law that should she sustain a loss by reason of such purchase he (the petitioner) would reimburse her for the amount so lost. During the year 1922, petitioner’s mother-in-law sustained a loss as a result of said purchase, and the petitioner, in accordance with his promise, paid his mother-in-law the sum of $5,757.25. The petitioner deducted from his income as a loss in said year 1922 the said sum of $5,757.25, which deduction was disallowed by the Commissioner of Internal Revenue. Prom this action of the Commissioner petitioner applied to the Board of Tax Appeals for redeternfmation of the deficiency. Upon hearing before the Board of Tax Appeals that Board sustained the action of the Commissioner, and refused to allow, the deduction in question from petitioner’s gross income, from which action of the Board of Tax Appeals petitioner brought this petition to review.

The statute does not permit the deduction from gross income of all losses which a taxpayer may suffer. Section 214(a) of the Revenue Act of 1921 (42 Stat. 239) specifically designates the kind of losses which may be deducted as follows:

“Sec. 214. (a) That in computing net income there shall be allowed as deductions: * * *

“(4) Losses sustained during the taxable year and not compensated for by insurance or otherwise, if incurred in trade or business;

“(5) Losses sustained during the taxable year and not compensated for by insurance or otherwise, if incurred in any transaction entered into for profit, though not connected with the trade or business; * * *

“(6) Losses sustained during the taxable year of property not connected with the trade or business * * * if arising from fires, storms, shipwreck, or other casualty, or from theft, and if not compensated for by insurance or otherwise. * * * ”

It is clear that if the deduction is permitted at all it must come under paragraph 5 of section 214(a). It is contended on behalf of petitioner that he entered into the transaction for profit, because of the fact that if his mother-in-law had gained from the transaction he (the petitioner) would have been correspondingly benefited, because, as his mother-in-law’s income increased, the amount he would have to contribute to her maintenance and support would decrease. However commendable we may feel was petitioner’s course in reimbursing his mother-in-law for her loss, we cannot but reach the conclusion that the benefit that would have accrued to him had his mother-in-law gained in the transaction is too vague and indefinite to amount to a profit. The profit in the transaction, if there had been any profit, would have gone directly to petitioner’s mother-in-law and not to the petitioner, and the petitioner would have benefited only in an indirect way.

Profit has been defined as “the advantage or gain resulting from the investment of capital, or the acquisition of money beyond the amount expended; a pecuniary gain.” Brooks Bros. v. Cassebeer, 157 App. Div. 683, 142 N. Y. S. 781, 782. See, also, Vidal v. South American Securities Co. (C. C. A.) 276 F. 855, 871, and People v. Keys, 178 App. Div. 677, 165 N. Y. S. 863. The treasury rulings have been consistent with this definition. See A. R. R. 398, 4 C. B. 156.

As stated in Read v. Tidewater Coal Exchange, Inc., 13 Del. Ch. 195, 210, 116 A. 898, 904, profit “must be something of a tangible or pecuniary nature. Intangible benefits not capable of measurement in definite terms, though of value to the recipients, cannot bo called profits.”

The same principle in different connections has been recognized by the Supremo Court, which on numerous occasions has said that taxation is eminently practical and not concerned with theoretical concepts. Tyler v. United States, 28.1 U. S. 497, 503, 50 S. Ct. 356, 74 L. Ed. 991, 69 A. L. R. 758; Eisner v. Macomber, 252 U. S. 189, 211, 40 S. Ct. 189, 64 L. Ed. 521, 9 A. L. R. 1570; Weiss v. Stearn, 265 U. S. 242, 254, 44 S. Ct. 490, 68 L. Ed. 1001, 33 A. L. R. 520; and Weiss v. Weiner, 279 U. S. 333, 49 S. Ct. 337, 73 L. Ed. 720. In accordance with that principle, a diminution of a loss is not income. See Bowers v. Kerbaugh-Empire Co., 271 U. S. 170, 46 S. Ct. 449, 70 L. Ed. 886.

It is argued oú behalf of petitioner that the transaction was a joint venture, but we do not think so. Joint venture was fully discussed by this court in Dexter & Carpenter, Inc., v. Houston et al., 20 F.(2d) 647, 651, and it was there held that a “joint venture” was a “special combination of two or more persons, where in some specific venture a profit is jointly sought without any actual partnership or corporate designation. * * * ”

Here there was no venture for the joint profit of the petitioner and his- mother-in-law in the legal sense of the word profit.

The amount claimed as a deduction by petitioner is not allowable, and the decision of the Board of Tax Appeals is affirmed.