COLLIMS v. COMMISSIONER

*210 In this proceeding the petitioner seeks a redetermination of his income-tax liability for the calendar year 1924, for which year the respondent has determined a deficiency in tax of $1,393.88. The petition alleges the following errors: (1) That the Commissioner erroneously disallowed as a deductible item in determining the taxable net income of the petitioner the sum of $1,000 representing a loss on the sale of an automobile used exclusively for business purposes, and (2) that the Commissioner disallowed as a deduction in determining the taxable income of the petitioner the sum of $26,000 representing a loss on stock of the Hampton Roads Sand & Gravel Corporation.

FINDINGS OF FACT.

The petitioner is an individual residing at Norfolk, Va. During the calendar year 1924 he was the*1900 president of the Hampton Roads Sand & Gravel Corporation. On or about March 12, 1925, he filed his individual income-tax return with the collector of internal revenue at Richmond, Va. The return shows as income:

*211 The petitioner acquired the Marmon automobile in 1922 at a cost of $4,400, which was paid by the allowance*1901 on an old car and $3,600 in cash, and in 1924 petitioner sold the automobile for $1,250. The car was used exclusively by the petitioner in connection with his duties as president of the Hampton Roads Sand & Gravel Corporation, under an agreement by which the corporation was to bear all the expense of maintenance and operation. The corporation never reimbursed the petitioner for any of the depreciation sustained on this car.

The Hampton Roads Sand & Gravel Corporation was organized in 1921, at which time the petitioner purchased for cash $1,000 worth of stock, the certificates for which were issued to him. In 1923 a reorganization of the corporation was effected, at which time its capital stock was increased from $100,000 to $200,000. A first mortgage bond issue of $250,000 and a second mortgage bond issue of $125,000 were sold. The additional $100,000 of capital stock could not be sold to the public, so the petitioner and one John W. Fox, the principal stockholders, entered into an agreement for the purchase of the additional stock. During the years 1923 and 1924 deductions were made from the petitioner's salary in the amount of $100 a week, to the total amount of $7,600, *1902 in payment of stock subscribed for by him. In 1924 the petitioner turned over to the corporation in return for stock subscribed for by him his equity in the following plant equipment:

No stock was ever issued to the petitioner in return for either the $7,600 or $17,400 payments. Petitioner's equity in the property turned over to the corporation was worth the amounts claimed by petitioner.

In December, 1924, an involuntary receivership proceeding was started and a receiver appointed for the Hampton Roads Sand & Gravel Corporation. It was apparent to the petitioner that there were only one or two persons who could buy the company's property and that it would not sell for enough to pay the creditors. He then realized that his stock was worthless. The second mortgage bonds were foreclosed and the creditors ultimately received 10 or 12 per cent dividends. Nothing was left for the stockholders. The petitioner, believing his stock to be worthless, filed no claim with the receiver. The stock became entirely worthless in 1924. *1903 The books *212 of the corporation were all turned over to the receivers and were not available for this proceeding.

OPINION.

BLACK: The petitioner alleges that the respondent erred in refusing to allow an alleged loss of $1,000 on the sale of an automobile. On his income-tax return for the year in question petitioner reported a profit of $50 from the sale of the automobile, computed as follows:

On the same return petitioner also claimed a deduction of $1,000 from gross income which he explained as "used Marmon touring car in business, therefore the $1,000 deduction." It is evident that the $1,000 deducted from gross income was intended to represent a deduction for current depreciation on the automobile during the taxable year up to the date it was sold in 1924. We have found that the automobile was used exclusively by the petitioner in connection with his duties as president of the Hampton Roads Sand & Gravel Corporation. He did not use this car for family purposes, but had another car, a seven-passenger sedan, which was used by the family. In *1904 Ernest E. Lloyd,8 B.T.A. 1029, we said: "We are further of the opinion that the loss was 'incurred in trade or business' in that the furtherance of the business of the company of which he was the president was legally and logically his business." Since petitioner was engaged in a trade or business he would be entitled to a deduction from gross income for the amount of depreciation sustained on the automobile used in the business. No evidence was introduced in regard to the amount of depreciation sustained during the taxable year, nor what time of the year the automobile was sold. Hence the respondent's determination disallowing any depreciation on the car for 1924 is sustained. On his return the petitioner in computing the gain did not take into consideration the $800 he had paid on the purchase price of the automobile by trading in his old automobile. But at the hearing petitioner proved that the car cost $4,400 instead of $3,600 as he had used in his original return. The gain or loss recomputed on this basis results in a deductible loss of $750 shown as follows:

*1905 *213 Petitioner suffered a loss of $750 on the sale of his automobile instead of a profit of $50 as entered in his original return.

From the record it is apparent that the petitioner had the $26,000 invested in the stock of the Hampton Roads Sand & Gravel Corporation, consisting of his initial investment of $1,000, for which stock certificates were issued, $7,600 representing the weekly deductions from salary and applied to the payment of stock, and $17,400, representing petitioner's equity in plant equipment turned over to the corporation in return for stock. No stock was actually issued to the petitioner in return for either the $7,600 or $17,400 payments. The respondent has denied petitioner's deduction of $26,000 alleged to represent a loss on stock determined to be worthless in the taxable year. We do not think that the fact that no stock certificates were issued for the $7,600 or $17,400 payments is controlling. In Chaffin v. Cummings,37 Me. 76, the court held that if one has subscribed for stock and agreed to pay for it in a particular manner, and has paid for it and has attended the meetings of the corporation and has admitted himself to*1906 be a member, these facts are sufficient to prove him to be such without the issued of a stock certificate.

It is apparent to us that the worthlessness of the stock was known to the petitioner as soon as the receivership proceedings were instituted on December 9, 1924. He then realized that there were no assets to be distributed to the stockholders. It was clear that the stockholders would receive nothing. Since the stock became wholly worthless in 1924, the petitioner is entitled to the deduction claimed in that year with respect thereto. See John H. Lang,12 B.T.A. 435.

Judgment will be entered under Rule 50.