Huxford v. Commissioner

*39 This is a proceeding for the redetermination of a deficiency in income tax for 1922 in the amount of $1,090.32. The question involved is whether a loss sustained by the petitioner of his investment in stock of a corporation which was liquidated in 1921 is a net loss as provided in the statute deductible in 1922 in excess of 1921 income.

*40 FINDINGS OF FACT.

The petitioner is an individual residing in Mobile, Ala. During the taxable years 1921 and 1922 he was engaged in the naval stores business with headquarters at Atmore, Ala. In 1915 he organized a corporation known as the Atmore Trading Co., with a paid-up capital stock of $6,000. Said corporation was organized for the purpose of operating a store at Atmore principally for the benefit of petitioner's employees. It was the headquarters for the petitioner in his naval stores*2216 operations. He had his office and did all his bookkeeping there. Prior to 1921 he acquired all of the stock of this corporation and had the entire responsibility of managing it. There were no minute books and no meetings of stockholders or directors. The petitioner actually managed the store and was there a part of every day, except when he was out of town, the balance of his time being devoted to his naval stores business. He had three turpentine farms located in the vicinity of Atmore. He had from 250 to 300 employees in his turpentine business and these men traded mostly at his store. Three-fourths of the business of the store was done with petitioner's employees. This was a material advantage to the petitioner in connection with his turpentine business. It afforded the employees the advantage of credit and an accessible place to purchase goods.

The Atmore Trading Co. was dissolved in 1921 and the petitioner sustained a loss on the stock of that company in that year in the amount of $3,250 and the respondent has computed a total net loss for 1921 in the amount of $12,736.60. In arriving at petitioner's statutory net loss, however, the respondent has excluded $1,663.96, *2217 being the difference between the loss sustained on the stock of Atmore Trading Co., $3,250, and the net income from sources outside of his business, $1,586.04.

The respondent held that the loss sustained in 1921 on account of the Atmore Trading Co. was not a loss resulting from the operation of a trade or business regularly carried on in order to entitle the petitioner to a deduction in 1922 with respect thereto.

OPINION.

TRAMMELL: The only question presented in this case is whether the loss sustained by the petitioner on the stock of the Atmore Trading Co. in 1921 was a loss sustained from the operation of a trade or business regularly carried on in order to be deductible under the net loss provisions of the statute.

In this case we are convinced that the stock loss in the Atmore Trading Co. was a loss resulting from the operation of a trade or *41 business regularly carried on. The corporation was organized by the petitioner and was operated by him, not as a separate enterprise from his naval stores business, but in a very substantial sense as a part of it and for the better operation thereof. It afforded the petitioner a central location accessible to his three*2218 naval stores operations. It afforded his employees advantages and afforded the petitioner advantages in connection with his naval stores business. Aside from the naval stores business, the corporation would have had no existence. The petitioner, himself, managed the store and kept his books in connection with his naval stores business there.

We do not consider that the investment in the stock of this corporation was an investment in a separate outside business, but was to further and benefit petitioner's naval stores business. It was merely incidental and beneficial to that business. We think that the situation here brings this case within the scope of our decisions in , and .

In view of the foregoing, it is our opinion that the loss sustained on the stock in the Atmore Trading Co. was a net loss within the meaning of section 204 of the Revenue Act of 1921 and is deductible in determining the taxable net income of the petitioner for 1922.

Judgment will be entered under Rule 50.