author: Turner:

text:
    Merchants Bank Building Company, Petitioner, v. Commissioner of Internal Revenue, Respondent.
    Docket No. 69474.
    Promulgated August 1, 1935.

      W. H. Oppenheimer, Esq., for the petitioner.

      E. L. Oorbin, Esq., for the respondent.
   OPINION.

Turner:

Petitioner contends that since the Merchants National Bank, the predecessor corporation, in keeping with its books oí account, did not deduct the taxes in question on its 1928 return and under an office ruling of the Bureau of Internal Revenue, which was not changed until December 30, 1929, Minnesota real estate taxes were not considered deductible until the year following that for which they were paid, and since by that time the property had been acquired by the petitioner through a nontaxable reorganization and the said taxes were, in fact, paid during the taxable period by the petitioner, which kept its books of account on the cash receipts and disbursements basis, the respondent has erred in disallowing the deduction in respect thereto.

The petitioner does not contend that the previous office ruling, revoked on December 30, 1929, was correct, but argues that since under that ruling the Merchants National Bank could not, at the time its 1928 return was made, have taken the deduction for 1928 taxes on its real estate, the respondent should not now be permitted to refuse the deduction to the petitioner on its return for 1929. We see no merit in this argument. The petitioner is entitled to the deduction only if the statute so provides, and no such right can arise from an erroneous ruling by the respondent with reference to the rights of a former owner of the property. We have previously held, in Leamington Hotel Co., 26 B. T. A. 1004, that Minnesota property taxes become a liability on May' 1 of the year for which they are imposed and are not deductible by a taxpayer which acquires the property in the month of June following.

The petitioner contends, however, that this case is different from that in which the property is acquired for a cash consideration, and relies particularly on the stipulated fact that the property in question was acquired through á nontaxable . reorganization. Great stress is placed on the provisions of section 113 (a) (7) of the Revenue Act of 1928, which provides that in the case of property acquired in a reorganization “ the basis shall be the same as it would be in the hands of the transferor * * The same argument was made in Texas Coca-Cola Bottling Co., 30 B. T. A. 736, and we there held that the liability for property taxes accruing on a specific date is to be determined by the ownership ■ of the property on that date and tbe payment of taxes on property acquired by the taxpayer subsequent to the date the taxes accrued constitutes a part of the cost of the property and is not deductible under section 23 (c) of the Revenue Act of 1928, which is also the statutory provision controlling in the instant case. The petitioner here, as in Texas Coca-Cola Bottling Co., supra, is undertaking to base its right to a deduction, for taxes paid, on the reorganization provisions of the statute, which have to do with the question of recognition of gain or loss in connection with certain exchanges of property, and on the provisions prescribing the basis for determining gain or loss from a subsequent disposition of property received in reorganization. The obvious answer to such an argument is that we do not have before us a question of recognition of gain or loss in a reorganization. Neither do we have a case involving the disposition of „ property received in reorganization, but a question of deduction from gross income for taxes paid, which, as we have pointed out, is governed by an altogether different and unrelated provision of the statute.

The petitioner also places great reliance on the fact that it kept its books on the cash receipts and disbursements basis. We have previously pointed out that payments such as we have here constitute a part of the cost of the property, and it is this fact that results in their nondeductibility and not the manner in which the books of account are kept. Cf. Grand Hotel Co., 21 B. T. A. 890, and Falk Corporation, 23 B. T. A. 883; affd., 60 Fed. (2d) 204.

Decision will be entered for the respondent.


source: Caselaw Access Project

author: Sea well :

license: Public Domain

text:
    Elwood W. McGuire, Petitioner, v. Commissioner of Internal Revenue, Respondent. Charles A. McGuire, Petitioner, v. Commissioner of Internal Revenue, Respondent.
    Docket Nos. 75537, 75538.
    Promulgated August 2, 1935.

      Robert A. Littleton, Esq., for the petitioners.

      Elden McFarland, Esq., and G. R. Marshall, Esq., for the respondent.
   OPINION.

Sea well :

The petitioners contend that the gain resulting to them from the sale by each of the 40 shares of stock to Dille and McGuire Manufacturing Company is the difference between the amount received and the cost basis, as provided by Section 113 of the Revenue Act of 1928; and the profit realized is taxable at the rate of 12%% (capital gain tax).”

The respondent insists that what the petitioners received as a result of the sale of said stock, redeemed and canceled, was “ essentially equivalent to the distribution of a taxable dividend ”, and that the amount so distributed in redemption or cancellation of the stock, to the extent that it represents a distribution of earnings or profits accumulated after February 28, 1913, should be treated as a taxable dividend. The correct determination of the issue thus presented depends upon whether or not the transactions involving the sales of stock to the company were in point of time and manner such as to make the distribution, redemption, and cancellation, in whole or in part, essentially equivalent to the distribution of a taxable dividend, within the meaning of section 115 (g) of the Revenue Act of 1928, which provides:

If a corporation cancels, or redeems its stock (whether or not such stock was issued as a stock dividend) at such time and in such manner as to make the distribution and cancellation or redemption in whole or in part essentially equivalent to- the distribution of a taxable dividend, tbe amount so distributed in redemption or cancellation of tbe stock, to the extent that it represents a distribution of earnings or profits accumulated after February 28, 1913, shall be treated as a taxable dividend. In tbe case of tbe cancellation or redemption of stock not issued as a stock dividend this subsection shall apply only if tbe cancellation or redemption is made after January 1, 1926.

Tbe respondent’s determination being against petitioners’ contention and presumptively correct, the burden of proof, of course, is on the petitioners to show that the facts do not bring the transactions within the purview of the provisions of the section quoted. Cf. Shelby H. Curlee, Trustee, 28 B. T. A. 773; affd., 76 Fed. (2d) 472; Leopold Adler, 30 B. T. A. 897; George Hyman, 28 B. T. A. 1231; affd., 71 Fed. (2d) 342; certiorari denied, 293 U. S. 570.

The various sections of the Bevenue Act of 1928 relied on by petitioners to sustain their insistence, for the sake of brevity, are not herein quoted, but merely cited. Briefly stated, petitioners contend that the result of the purchase of 40 shares from each of them was a distribution in partial liquidation in complete redemption and cancellation of part of the company’s stock within the meaning of section 115 (c) and (h) of the Bevenue Act of 1928 and that the amount of gain to them as distributees, resulting from the exchange of their stock for the securities which they received, should be determined under sections 111 and 112 of the Act of 1928 and upon the basis provided in section 113 (sec. 113 (a)(2) and (b)(2)), and that such profit may properly be reported as capital net gain (sec. 101), subject to the tax upon Capital net gains (sec. 101 (a)), or, in the alternative, the transactions were in fact purchases by the corporation from them of its own stock and the amounts received were in payment of the purchase price thereof.

The purpose and principles underlying the sections of the Bevenue Act of 1928 above mentioned and corresponding provisions of prior revenue acts and the interpretations placed thereon are set forth in numerous decided cases, some of which are Pearl B. Brown, Executrix, 26 B. T. A. 901; affd., 69 Fed. (2d) 602; certiorari denied, 293 U. S. 579; James D. Robinson, 27 B. T. A. 1018; affd., 69 Fed. (2d) 972; Harry A. Koch, 26 B. T. A. 1025; Annie Watts Hill, 27 B. T. A. 73; affd., 66 Fed. (2d) 45; Henry B. Babson, 27 B. T. A. 859; affd., 70 Fed. (2d) 304; certiorari denied, 293 U. S. 571; James A. Connelly, 30 B. T. A. 331; Alfred E. Fuhlage, 32 B. T. A. 222; Girard Trust Co. et al., Administrators, 32 B. T. A. 926; Hyman v. Helvering, supra; Commissioner v. Cordingley, 78 Fed. (2d) 118 (C. C. A., 1st Cir.); Commissioner v Quackenbos, 78 Fed. (2d) 156 (C. C. A., 2d Cir.); David J. Champion, 27 B. T. A. 1312; affd., 78 Fed. (2d) 513 (C. C. A., 6th Cir.).

From a consideration of the foregoing cases and others therein cited, it is evident that whether certain transactions fall within or without the provisions of section 115 (g), supra, must be determined upon their particular facts and circumstances. In the instant proceedings the record shows that when the company was incorporated it had an authorized capital of only $9,000, which was never increased but in 1930 was reduced to $5,000, the par value of the stock all the time being $50 per share.

During the taxable year involved and for some years prior thereto the petitioners owned all of the stock of the company except one share owned by the wife of one petitioner and mother of the other petitioner. The evidence shows that the authorized capital of $9,000 was never adequate for carrying on the business of the company and that the earnings or profits from the business were very largely utilized in operating and developing the business of the company, which, as shown by our findings of fact, was in its latter years very successful, very substantial dividends being declared and paid out of the large earnings or profits of the business, a portion of which earnings, however, for several years prior to 1930 were, according to the testimony of the company’s president, conserved with a view to the establishment of a manufacturing plant in one of the New England States, though the record fails to show that any official resolution to effect such a purpose was ever taken by the stockholders or directors of the company. Such failure, however, in our opinion, in view of facts shown in the record, does not warrant the conclusion that the action of the company in conserving its earnings for several years as stated was availed of for the purpose of preventing the imposition of the surtax upon its shareholders through the medium of permitting its gains and profits to accumulate instead of being distributed as dividends. In other words, in the light of the record, we think the company did conserve its earnings with the intent and purpose on the part of the petitioners, practically sole owners of the company, to establish a manufacturing plant in the eastern states, and abandoned the idea only after the depression struck in 1929 and it appeared unwise and inadvisable' to do so. Notwithstanding such fact, it does not, in our opinion, necessarily follow that, when fairly viewed, the transactions in question fail to make the distribution to the petitioners, as described, “ essentially equivalent to the distribution of a taxable dividend ” falling within and governed by the provisions of section 115 (g) of the Revenue Act of 1928, as contended by the petitioners.

It has been held, and we think properly, that the contention that payments made by a corporation in exchange for its stock are taxable as dividends, except when made in pursuance of a plan for complete liquidation of the corporation, can not be sustained. See Commissioner v. Brown, supra; Commissioner v. Babson, supra; Commissioner v. Cordingley, supra.

The statute clearly contemplates that stock dividends may be issued and redeemed; it makes explicit provision as to the taxation of sums paid in such redemption; it recognizes that the capitalization of earnings by means of stock dividends is not a distribution of earnings and is not taxable. (Sec. 115 (f).) “The statute does not provide that every cash redemption of shares shall be treated fer se as a dividend but only those which because of some circumstance of time and manner are in fact the essential equivalent of a dividend.” Commissioner v. Brown, supra. See also Hyman v. Helvering, supra.

The record shows that the authorized capital stock of $9,000 was exceedingly small for the company, which was doing annually over a million dollar business. It further shows that a large surplus had been accumulated from earnings since February 28, 1913, partially, if not solely, conserved with a view to the establishment of a plant in an eastern state, but that in the latter part of 1929 the petitioners and the company abandoned such purpose and reached the conclusion that the large surplus should be distributed for petitioners’ use. There is no evidence indicating there was ever any idea of ceasing operations, all the evidence indicating the purpose to carry on the business.

On January 11, 1930, a stockholders’ meeting was held, at which the chairman called attention to the fact that the charter of the corporation would expire December 11, 1930, and it would be necessary to reorganize the corporation, and that, so anticipating, a thorough and complete audit of the books of the company had been made. At that meeting resolutions were adopted, set out or described in our findings of fact, providing for the purchase by the company of 40 shares of its capital stock from each of the petitioners at its book value,' such shares to be held “ as the property of and in the treasury of the Company until the capital stock of the Company can be reduced to one hundred shares of the par value of fifty dollars each and that the officers take such action as may be necessary to effect such purchase.” At the same meeting the capital stock was reduced to $5,000, subject to the approval of the Secretary of the State of Indiana (which was promptly given) and immediately after the adjournment of the stockholders’ meeting the directors, the petitioners herein, met and ordered that $12,000 per share be paid for 40 shares of the company’s stock to be purchased from each of the petitioners. Thereafter, shares of stock were purchased from petitioners as contemplated and paid for and certain old certificates surrendered and canceled as set forth in the findings of fact, the capital of the company being reduced, as stated, from $9,000 to $5,000, and the company’ was granted a charter for perpetual existence. The reduction in capital stock is not shown to have been necessary in order to obtain, under the Indiana General Corporation Act, a charter of perpetual existence. It was not necessary to reduce the capital in order to effect a distribution, of the accumulated surplus.

The reduction in the capitalization of the company was not to bring the capitalization to a figure more nearly the approximate value of the assets or to create a surplus. The .company did not contract its business. There was no shrinkage in the business comparable to the reduction in capital. (Cf. T. Pierre Champion, 27 B. T. A. 1312.) There was no impairment of the company’s capital. No intention of winding up its affairs. The fact that the petitioners elected to report certain gain or profit from the transactions in question and be taxed thereon at capital gain rates is not determinative. Whether a corporation is in liquidation is a question of fact. (Cf. Fred T. Wood, 27 B. T. A. 162, 161, and cases therein cited.) If the earned surplus, accumulated after February 28, 1913, had been distributed direct to the stockholders of the company in the taxable year in issue, it would, undoubtedly, have been taxable as an ordinary dividend (see 115 (a), Revenue Act of 1928).

Did not what was done by the company, which was controlled and practically owned absolutely by the two petitioners, produce the same result as would have a distribution by the company direct to its stockholders of its surplus in an amount equal in value to what they received under the method pursued?

The distribution made to the stockholders, in our opinion and we so hold, was made at such time, under such circumstances, and in such manner as to make the transaction with respect to the 80 shares of the company’s stock essentially equivalent to the distribution of a taxable dividend. ■ In reaching such détermination, it is not necessary that we should find or conclude that the original intent in conserving earnings of the company was not to establish- another plant, or was a scheme or artifice to evade payment of,the proper tax.

Whatever may have been the intent or purpose of the company in accumulating and conserving during several years the earned surplus shown to exist in a large amount in 1930, the time and manner of its disposition; the reduction of the company’s already small capital of $9,000 to $5,000; and the purchase .from the petitioners of 80 of its shares at $12,000 per share (par value being $50 per share), in connection with other facts and circumstances disclosed by the record, in our opinion, bring the case within the intent of section 115 (g), supra, whether or not there was originally any attempt or purpose on the part of the company or the petitioners to evade the payment of any tax.

We have cited herein numerous decisions, some holding that the distributions and cancellations described were essentially equivalent to distributions of taxable dividends within the meaning of section 115 (g), supra, and others that they were distributions in complete or partial liquidation of corporations and were within the intent of section 115 (c) and (h), suprg, each as heretofore indicated depending on its particular facts and circumstances.

We think this case is distinguishable from those falling under section 115 (c) and (h), supra, and properly falls under section 115 (g), supra, and should be dealt with accordingly, being controlled by the principles enunciated and applied in Hyman v. Helvering, supra, and in other cases cited herein.

What the Finance Committee of the Senate, having under consideration the Internal Revenue Bill of 1926, stated in its report with reference to section 201 (g) of the Revenue Act of 1926 throws light upon the intent and purpose of. Congress in reenacting identically the same section as 115 (g) in the Revenue Act of 1928. In that report it was stated as follows:

Section 201 (g) : It lias been contended that under existing law a corporation, especially one which has only a few stockholders, might, without resorting to the device of a stock dividend, be able to make a distribution to its stockholders which would have the same effect as a taxable dividend. For example: Assume that two men hold practically all the stock in a corporation, for which each had paid $50,000 in cash, and the corporation had accumulated a surplus of $50,000 above its cash capital. It is claimed that under existing law the corporation could buy from the stockholders, for cash, one-half of the stock held by them and cancel it without making the stockholders subject to any tax. Yet this action, in all essentials, would be the equivalent of a distribution through cash dividends of the earned surplus. The subdivision as rewritten by the House bill is intended to make clear' that such a transaction is taxable and the committee approves the provision, which obviously does not apply in cases of complete liquidation of all the stocks of the corporation.

We think it immaterial that the stockholder owning only one share could not participate in the distribution or dividend. Northern Trust Co., Trustee, 20 B. T. A. 866; affd., 54 Fed. (2d) 289; certiorari denied, 285 U. S. 558, and cases therein cited; Joseph Goodnow Co., 5 B. T. A. 1154; F. G. Lamb, 14 B. T. A. 814. The basis of redemption was uniform to those participating. (Cf. James D. Robinson v. Commissioner, supra.) See Leopold Adler, supra; Shelby H. Curlee, supra.

In our opinion, and we so hold, the payments made in 1930 in securities owned by the company, to the petitioners represent, in the circumstances of the instant case, taxable income whether considered distributed as a dividend or as a consideration for tlie acquisition of the 80 shares of stock. Cf. Peabody v. Eisner, 247 U. S. 347; United States v. Phellis, 257 U. S. 156; Rockefeller v. United States, 257 U. S. 176; United States v. Fuller, 42 Fed. (2d) 471; Security First National Bank of Los Angeles, Executor, 28 B. T. A. 289, 311; George F. Baker, Jr., Executor, 28 B. T. A. 704.

We are further of the opinion- and hold that the securities received by Elwood W. McGuire were properly valued by the respondent at their fair market value at the time of receipt rather than at par or face value as reported by Elwood W. McGuire on his tax return. Arthur Curtiss James, 13 B. T. A. 764; affd., 49 Fed. (2d) 707; United States v. Fuller, supra; art. 627, Regulations 74.

We are further of the opinion and hold that the respondent did not err when, in determining the fair market value of Liberty bonds received by Elwood W. McGuire in 1930 from the company in the amount of $490,316.67, he added the accrued interest to date the bonds were received, or $5,666.67, and reduced the interest, $26,674, reported by McGuire, by the amount of accrued interest and determined the taxable interest on Liberty bonds to be $21,007.33.

We are, therefore, of the opinion and hold that the respondent’s determination in each of the cases herein is correct and is accordingly approved.

Reviewed by the Board.

Decision in each docket will be- entered for respondent.

Matthews dissents.


author: Murdoch :

text:
    Thomas W. Behan, Petitioner, v. Commissioner of Internal Revenue, Respondent.
    Docket No. 75428.
    Promulgated August 2, 1935.

      Paul L. Holden, Esq., for the petitioner.

      George D. Brabson, Esq., for the respondent.
   OPINION.

Murdoch :

The Commissioner determined a deficiency in the petitioner’s income tax for the year 1931 in the amount of $6,718.27. He further determined that the petitioner was liable for a penalty of 50 percent of the deficiency under section 293 (b) of the Revenue Act of 1928. The facts of record were presented in an “Agreed Statement of Facts.” The assignments of error contained in the petition are as follows:

A. The Commissioner erred in allowing to the petitioner no deduction for loss suffered by him on certain sales of stock within the taxable year in the following amounts:
Losses taken as ordinary deductions_$7, 219.35
Losses taken as capital net loss_ 52,172.82
B. The Commissioner erred in determining that the petitioner’s return was fraudulent with intent to evade tax, thereby incurring the penalty imposed by section 293 (b) of the Revenue Act of 1928.

The petitioner alleged certain facts which were intended to show that he is entitled to the claimed deductions for losses. The Commissioner’s answer is in the form of a general denial. It does not contain a statement of any facts upon which the Commissioner relies to sustain the fraud issue, in respect of which issue the burden of proof has been placed upon the Commissioner by statute. See section 601 of the Revenue Act of 1928 amending section 907 (a) of the Revenue Act of 1924, as amended, and Rule 14 of the Board’s rules' of practice. Since the Commissioner’s answer contained- no statement of facts to sustain the fraud issue, the petitioner was not required to file a reply. See Rule 15. Counsel for the Commissioner moved at the time of the hearing that he be permitted to amend his answer to include a statement of facts supporting the fraud issue. Counsel for the petitioner objected. Counsel for the Commissioner was unable to give any good reason why such an amendment should be permitted upon the day set for hearing. His motion to amend was denied. He did not propose to offer any evidence to sustain his burden of proof on the fraud issue except such as might be contained in the agreed statement of facts. The agreed statement of facts fails to show that any part of the deficiency was due to fraud with intent to evade tax. Thus, even though there is a deficiency in tax, there are at least two reasons why the Commissioner’s action in imposing the penalty must be reversed; that is, he has not only failed properly to plead, but he has also failed to prove that any part of the deficiency was due to fraud with intent to evade tax.

The? Commissioner, in determining the deficiency, disallowed $7,-219.35 claimed as a loss on the sale of securities, and decreased a claimed capital net loss by $52,172.82. The petitioner now concedes that he is not entitled to deduct $3,375 claimed as a loss upon the disposition of 40 shares of capital stock of the First National Bank of Binghamton. The only issue in the case for decision by the Board, which is properly raised by the pleadings, is whether or not the petitioner is entitled to the remaining deductions for losses which he claims. The Commissioner disallowed the deductions because they represented “ losses incurred in sales between husband and wife which are not considered bona fide" The Commissioner’s argument to the Board is that the transactions were not bona fide sales. In support of his argument he calls particular attention to the fact that when the husband sold securities he transferred the proceeds of the sales to his wife and she bought a corresponding amount of the same kind of securities. The respondent would have the Board infer that the purchases which the wife made were in fact and in law made for and on behalf of the husband. The question must be decided upon the facts as stated by the parties in their “Agreed Statement of Facts.”

The agreed statement of facts need not be set forth here in full. The petitioner’s wife during 1931 owned “ in her own right ” property having a value in excess of $250,000. The petitioner and his wife maintained separate bank accounts and filed separate income tax returns. At various times during 1931 the petitioner delivered certain securities to his brokers with instructions to sell on the market. The brokers thereupon sold the securities at market. Thereafter, the petitioner received from the brokers the proceeds of the sales. Whenever. the petitioner gave an order for his broker to sell, his wife, who had her own separate account with the same broker, ordered the broker to buy for her account at market the same number of shares of the same kind of stock which her husband had on that same day ordered the broker to sell. The broker made the purchases for the wife in accordance with her orders, and received a check upon her own bank account for the stock which he purchased for her. Before the wife gave her check to the broker in payment for the securities purchased for her, certain amounts were transferred to her bank account from the bank account of the petitioner. The following quotation from the agreed statement of facts covering one of the items in controversy seems to be typical of all — at least the Commissioner has made no argument based upon any difference which there may have been between this particular transaction and any of the others:

(c) On October 21, 1931, petitioner delivered to J. S. Bache & Co., brokers at Binghamton, New York, with directions to sell on the market:
25 shares of Anaconda Copper Co.,
which said stock was on the said date sold by the said broker at the market price of 16 to Carlisle & Co., brokers. On the same day petitioner’s wife ordered the said broker, J. S. Bache & Co., to buy for her account at the market price; the same number of shares of the same stock sold by her husband, and accordingly the said broker purchased for her from Carlisle & Co., and delivered 25 shares of the said stock at I614 per share, which was the market price thereof. The petitioner on October 26,1931, received payment for the said stock from the said broker in the amount of $396.36, which represented the proceeds after the deduction of commission and tax. The said proceeds were given by petitioner to his wife and were deposited in her bank account October 26th. Likewise, on October 26, 1931, petitioner’s wife paid to the said broker by check upon her bank account the purchase price of the said stock, to-wit, $109.38. On the said date Mrs. Behan had a balance in her bank account of $915.38.

It will be noted that this statement of facts which both parties have agreed upon recites that the petitioner’s securities were “ sold by the broker ” and that the securities purchased for the wife were “ purchased for her ” by the broker. The petitioner “ received payment ” for the stock which he had sold and the wife “ paid ” the broker for the securities purchased for her “by check upon her own bank account.” Furthermore, the amount deposited in the wife’s bank account was “ given ” by the husband to his wife. The sales were made to entitle the petitioner to deductions from income. The statement further recites that none of the stocks now involved herein were subsequently reacquired by the petitioner. The wife in all cases received new certificates registered in her own name, separate records were maintained by the petitioner and his wife identifying the securities owned by each, and the securities of each were held in the separate custody of the separate owners. The wife received all dividends and interest on the securities acquired by her and returned those items in her separate income tax returns for all years subsequent to the date of acquisition. The petitioner, an engineer and head of a large manufacturing business, has been accustomed for many years to turn over to his wife all income received by him except his salary and bonus, which in 1931 amounted to approximately $31,000.

The record thus shows that the petitioner did not sell any of his securities to his wife. His sales were made to third parties through an established brokerage house. His wife’s accounts were separate and she had a separate estate sufficient to meet her obligations. Cf. Charles F. Fawsett, 31 B. T. A. 139. The securities which the wife acquired belonged to her absolutely and were in no sense the property of or under the control of the petitioner. Since the petitioner never reacquired the securities and did not sell with an option to repurchase, the “ wash sales ” provision (sec. 118, Revenue Act of 1928) has no application. Cf. Commissioner v. Dyer, 74 Fed. (2d) 685. Although in this case, as in a number of others in which similar losses have been allowed, the couple, consisting of husband and wife, can be said to have suffered no real loss since one of the two still owned the securities, nevertheless the two members of that couple are separate taxpayers, owning their property separately, and may not be denied their separate losses merely because of the circumstance that they are husband and wife. If the- transfer of funds from the petitioner to his wife were unexplained, that would not afford sufficient reason in this case for denying the losses to the petitioner. Frank M. Arguirabau, 31 B. T. A. 604. Here the parties have stipulated, however, that the petitioner made certain gifts of money to his wife. There is a companion case to this one wherein the wife is claiming deductions for losses under similar circumstances. The statement of facts in that case shows that she returned to her husband some of the amounts which he advanced to her and also at times transferred funds from her bank account to his bank account apparently for the purpose of enabling him to make contemporaneous purchases of securities. The fact that this husband and wife aided one another in this way is not, in view of the other facts in the case, a reason for denying the petitioner deductions for his losses.

The petitioner not only intended to cease to be the owner of the securities involved herein, but he actually deprived himself of all ownership by a real sale. There can be no doubt either of the legitimacy or of the reality of the petitioner’s losses from the facts as agreed to by the parties themselves.' Circumstances such as are present in this case require careful and exhaustive scrutiny to determine whether or not an actual loss has been realized. But where, as here, it appears that actual losses have been realized, there is no valid reason for denying the deductions. Benjamin T. Burton, 28 B. T. A. 1242; Edmund S. Twining, 32 B. T. A. 600. After due consideration of all of the circumstances, the Board has concluded that the petitioner sustained the losses which he claims. No other reason has been suggested by the respondent why the deductions should not be allowed. Therefore the petitioner is entitled to them.

Reviewed by the Board.

Decision will he entered under Rule 50.

Black, Seawell,' and TurNer dissent.