Day v. Commissioner

*446 The Commissioner determined a deficiency of $2,783.40 in the petitioner's income tax for the year 1933. The only issue for decision is whether or not the Commissioner erred in disallowing a loss of $23,628 claimed on the return as a capital net loss from the sale of 400 shares of Locomotive Fire Box stock.

FINDINGS*1037 OF FACT.

The petitioner is an individual. He was associated during the taxable year with the brokerage firm of Foster, Marvin & Co. of New York. He was married and had four children - three daughters and one son. One daughter, Virginia, was 23 years of age in 1933. The other three children were minors. The youngest was about 17 years of age in 1933. The son was attending a preparatory school. The daughters lived with their father.

The petitioner was the owner of 400 shares of Locomotive Fire Box stock on December 1, 1933. He had owned the stock for more than two years at that time. This stock was not listed on any exchange, but had been dealt in by the firm of Charles H. Jones & Co. The value of the stock in December 1933 was very much lower than the cost of the stock to the petitioner.

The petitioner formed a plan for the purpose of realizing a loss on the stock during 1933 for income tax purposes. He knew that there was practically no market for the stock. His plan was to dispose of the stock himself and have it acquired by his four children. He discussed this matter with a representative of the firm of Charles H. Jones & Co. to determine the probable fair market*1038 value of the stock and what commission or compensation Charles H. Jones & Co. would want for handling the transaction. The petitioner and *447 Charles H. Jones & Co. understood that when the petitioner disposed of the stock the children were to acquire it. Each of the petitioner's four children had an account with Foster, Marvin & Co., but none had an account with Charles H. Jones & Co. After he reached an understanding with Charles H. Jones & Co., he notified that firm to sell 400 shares of the stock for his account, and at the same time he notified the firm to buy for the account of each of his four children 100 shares of the stock. Charles H. Jones & Co. received the petitioner's certificates on December 8, 1933. They had transfer stamps attached. The firm then drew its check for $1,600 to the order of Foster, Marvin & Co. The latter received the check and credited $1,600 to the account of the petitioner on its books on that same day. The petitioner, at some time not shown, gave to his daughter Virginia his check in an amount sufficient to purchase the 400 shares of stock for the four children. Virginia gave her check to Foster, Marvin & Co. at some time not shown. *1039 The latter credited the amount of the check on its books to the accounts of the four Day children. It delivered its check to Charles H. Jones & Co. on December 8, 1933, in payment for the 400 shares of stock at 4 1/8 per share. Charles H. Jones & Co., a few days later, had a certificate for 100 shares issued in the name of each of the petitioner's four children.

The four children thereafter retained the certificates and have always treated them as their own. The three daughters still have their certificates. The son sold his shares in April 1937 for about $22 a share. The petitioner had no agreement with his children to reacquire the stock from them and he has never reacquired the stock from them.

The balance in Virginia's checking account, prior to the deposit of the check received from her father on December 8, 1933, was in excess of $400. Each minor child had funds in a savings account or in some other bank account on December 8, 1933, in excess of $400.

The petitioner, prior to making the transactions in question, discussed those transactions with his four children and told them that by this plan each would become the owner of 100 shares of the stock.

The petitioner*1040 did not make a bona fide sale of the 400 shares of stock.

OPINION.

MURDOCK: The Commissioner has disallowed the loss for the reason that in his opinion the petitioner made a gift of 100 shares of the stock to each of his four children. The petitioner has attempted to show that he sold the stock to a third party and his children purchased the stock from that third party. It is apparent from the testimony that Charles H. Jones & Co., the third party, acted only *448 to accommodate the petitioner, and received the stock only for the limited purpose of immediately transferring it to the petitioner's children. It acted in accordance with its prior agreement with the petitioner, which agreement also fixed its compensation. A valid sale may be made to a purchaser which, at the time of purchase, has contracted to sell to another, but where, as here, the entire agreement is between two parties, essentials of a sale may be missing. The petitioner furnished the money to be used in the transaction. His daughter could not have used that money for any other purpose. The petitioner never received any consideration for the stock. He never intended to receive any. The determination*1041 to have the children acquire the stock was his, not theirs. They never had any dealings with Charles H. Jones & Co. The petitioner gave the order to buy and sell. The evidence does not indicate that Charles H. Jones & Co. was in law a purchaser of the stock. The introduction of that firm was to color the gift in order to make it look like a sale. The essentials of a bona fide sale are missing. The transaction was not a sale but was, as determined by the Commissioner, a gift. The petitioner did not realize a loss which was deductible for income tax purposes. Cf. ; .

Decision will be entered for the respondent.