Appeal of McCandless

*1118OPINION.

The amounts paid for surveys of the Pearl City tract and the Waimalu Lands, as described in findings 1 and 2, are clearly capital expenditures and can not be deducted as ordinary and necessary business expenses. Appeal of Consolidated Mutual Oil Co., 2 B. T. A. 1067.

The important question involved in this appeal is whether the taxpayer was guilty of fraud with intent to evade tax when he sought to deduct a loss of $42,500 on the purported sale of 100,000 shares of stock of the corporation. The taxpayer admitted that his sole purpose in transferring this stock was to write off a loss from his income for 1921. Whether he is entitled to deduct the loss depends on whether the transaction between him and Bockus on December 15, 1921, was a sale. If it was, the deduction was proper; if it was not, the deduction can not be allowed.

The Commissioner denies that the transaction between the taxpayer and Bockus was a sale and asserts that it was a mere pretense. The taxpayer declared that he sold the stock to Bockus, and that subsequently, at his request, Bockus sold the stock to Martin. Bockus in his testimony corroborates the taxpayer. However, the accompanying details and circumstances must be considered in interpreting the purpose and intent of the transaction with respect to the taxing law.

Stripped to bare essentials, the history of the taxpayer’s deals with Bockus and Martin is as follows: The taxpayer, who was the owner of a large number of shares of stock of the corporation, agreed to “ sell ” 100,000 shares thereof to Bockus in return for a note or an I O U. When he discovered that Martin wanted the stock, the tax-. *1119payer was so anxious that his bookkeeper should have it that he agreed to pay Bockus a broker’s commission for destroying his note or I O TJ and accepted Martin’s note in its place. This second note was allowed to repose in the office safe where Martin had ready access to it. Later on, and after the taxpayer had filed his income-tax return with the $42,500 deducted as a loss therein, Martin decided that he did not want to pay an assessment on the stock. The taxpayer with apparent willingness, and without any apparent consideration of the fact that the sale of the stock by the corporation to satisfy the assessment would be Martin’s loss and not his, permitted Martin to take the note from the safe and destroy it, accepted return of the stock certificate, and paid the assessment to the company. The results of these transactions were that Bockus received a commission and was relieved of his obligation on the note, Martin was permitted to escape all liability on his note, and the taxpayer had his stock returned to him, paid an assessment thereon, and deducted a loss which, had it not been challenged by the Commissioner, would have enabled him to escape taxation for the year 1921.

The salient features of the transaction are not indicative of good faith therein. They do not indicate a sale which can be recognized under the revenue acts. The admitted intent to deduct a loss appears to be supported by a motive to take the loss without regard to the method employed. By a circuitous process the taxpayer sold the stock to himself for $250. This is a condition not dissimilar from, hut more flagrant than, the condition developed in Appeal of James Dobson, 1 B. T. A. 1082.

On the evidence submitted in this appeal, we are not warranted in overturning the action of the Commissioner in denying the deduction. Nor can we, when confronted with such a peculiar situation, disturb the Commissioner’s finding of fraud.

Judgment will be entered on SO days' notice, winder Rule 50.

dissenting: While the transactions recited above are not free of suspicion, I have reached the conclusion, after hearing and weighing the testimony of the witnesses and considering the circumstantial evidence, that the record in this appeal, which is one step in the proceedings to impose a penalty for a criminal act, is insufficient to meet the requirement of the common law that commission of the crime must be established beyond a reasonable doubt.

The transactions, on their face, were regular. The testimony of the parties is that a sale was made and that there was no collateral agreement or secret understanding with respect to the stock. The *1120sales price represented the fair market value of the stock and there is nothing to indicate that Bockus and Martin were unable to meet their notes. In fact, the testimony indicates the contrary. The exaction by Bockus of a commission as a condition of the sale to Martin would not seem unusual if, as taxpayer contends, Bockus was then the owner of the stock, nor are the facts with reference to the subsequent re-acquisition of this stock unusual.

I am unwilling to adjudge this taxpayer guilty of the crime charged on suspicion alone, when the suspicious circumstances in the record are susceptible of an innocent interpretation, and for that reason I must dissent from the conclusion reached.