sideration of $800,000 cash, which represented, within a fraction of a point, the price then prevailing as reflected by sales upon the exchange on that day. The purchase was made by Mrs. Kunau through her brokers, payment being made by their check, and delivery was made to them by the corporate trustee of the trust, all through the Equitable Trust Company of New York. There was no understanding, agreement or intimation that the trust would subsequently repurchase these stocks. It was Mrs. Kunau's plan to dispose of them on the market in small blocks at a profit. The trust, through its brokers, immediately purchased 10,000 shares of Simmons stock, the price of which advanced almost at once, and on December 9, 1929, the trust sold its holdings of Simmons at a substantial profit. It was then desired to repurchase for the trust its former holdings of Niles-Bement-Pond and United Aircraft. While the quotations of these securities were somewhat advanced over the prices prevailing on December 6, it was improbable that the market could have absorbed at the prevailing prices such amounts of these stocks and as Mrs. Kunau was willing to sell provided she did not sustain a loss, she agreed to sell back to the trust these stocks at the same price she had paid for them, $800,000. Accordingly the trust purchased them from her on December 9, 1929, the transaction being consummated through brokers and banks. Respondent has refused to allow as a deduction from income of the year 1929 the loss claimed upon the sale by the trust of its stocks of the Niles-Bement-Pond Company and United Aircraft and Transport Corporation to Mrs. Kunau. OPINION. GOODRICH: The question for our determination is largely one of fact—whether the trust actually sold its stocks to Mrs. Kunau, and, if so, whether the sale was made without any understanding or agreement concerning repurchase or other incident such as would prevent it from being a fully consummated and bona fide transaction between the parties. Respondent points out that we must also determine another question of fact, namely, whether the trust was engaged in buying and selling securities as a trade or business, for, unless it was, the loss claimed is not deductible under section 23 (e) (2) of the Revenue Act of 1928, because of the provisions of section 118 of the same act, prohibiting the deduction of losses sustained upon sales of securities in cases where the same or similar property is acquired by the seller within thirty days of such sale. If the trust was so engaged the loss is deductible as one incurred in its trade or business, notwithstanding the fact that the same amount of identical securities was repurchased a few days after the sale. (I. T. 2523, IX-1 C. B. 145.) From the evidence we have determined and found as a fact that the trust at the time here material was engaged in business as a trader in securities. (See Harriet Pullman Schermerhorn, 26 B. T. A. 1031, and cases there cited.) Consequently, we revert to our inquiry concerning the bona fides of the sale. We fully recognize the necessity for close scrutiny of transactions between persons related by blood, marriage, or community of interest in order to be sure that their dealings are in fact what they, on face, purport to be as to their validity, effect and finality. Such scrutiny here shows us nothing to indicate that the sale by the trust to Mrs. Kunau was other than an arm's-length, valid, transaction, bona fide in all respects. The trustees were trading for profit; their purchases were selected with a view to immediate market activity; their sales were made to realize a profit; they were trading as rapidly as possible for those ends. The fact that they believed the Simmons stock offered a better possibility for a quick, profitable turnover was a sufficient and compelling reason for their disposal of the Niles and United stocks, and the probabilities of adversely affecting the market by offering such large blocks of these latter stocks was sufficient reason for seeking a private purchaser. We are convinced that Mrs. Kunau's trading activities were carried on upon her own initiative, free from the domination of her husband, and that her purchase of these securities was upon her own volition and unaccompanied by any agreement or understanding concerning the reacquisition of the stocks by the trust. Her decision to sell back the stocks to the trust we think was likewise the result of her independent judgment. The transactions were carried out not privately, but through ordinary business channels, and, in view of the testimony before us concerning the prevalence of the practice, particularly during the year 1929, of private trading in listed securities at prices varying widely from market quotations, we can not but be convinced that the consideration for which these securities were sold was fair and adequate. Respondent, relying mainly upon Harold B. Clark, 2 B. T. A. 555, urges that Mrs. Kunau should be regarded as an accommodation purchaser, rather than a bona fide purchaser. In the cited case it was admitted that securities were sold solely to establish a loss thereon to be taken as a deduction from income and, in the circumstances of that case, there were ample grounds for the inference that the purchaser bought with the expectation of later being called upon to resell the stock and that there was lacking the mutual intention of completing a bona fide sale. Here, we have no such circumstances; indeed, the evidence is to the contrary and convinces us that Mrs. Kunau bought not as an accommodation purchaser with the expecta tion of later reselling the stocks to the trust, but for her own account and purposes, and that both she and the trustees intended that the transaction should be a valid and bona fide sale. Cf. Harold F. Seymour, 27 B. T. A. 403. We hold, therefore, that respondent erred in refusing to deduct from petitioner's income for the year 1929 the loss sustained upon the sale of 10,000 shares of stock of the Niles-Bement-Pond Company and a like amount of stock of United Aircraft and Transport Corporation. Judgment will be entered under Rule 50. CHARLES F. MOSSER, PETITIONER, V. COMMISSIONER OF INTERNAL REVENUE, RESPONDENT. Docket No. 55399. Promulgated January 6, 1933. A payment made to procure the withdrawal of a partner, whose Fred A. Woodis, Esq., for the petitioner. The Commissioner determined a deficiency of $725.93 in the petitioner's income tax for 1927. The only issue is whether a payment. of $15,000 to procure the withdrawal of a partner from a copartnership of which the petitioner was a member, is deductible from petitioner's gross income as an ordinary and necessary business expense. FINDINGS OF FACT. The petitioner is a resident of Allentown, Pennsylvania. During the taxable year 1927 he was a member of a copartnership known as W. F. Mosser & Son, engaged in the business of founders and machinists. This copartnership was formed on December 31, 1925, under articles of agreement entered into between the petitioner, Joseph F. Mosser, Harold J. Bogert, and William F. Mosser, and was to continue for a term of five years commencing January 1, 1926. The capital of the copartnership consisted of $50,000 and the respective interests of the partners were as follows: Charles F. Mosser---- Harold J. Bogert William F. Mosser-- % or $20,000 14 or 12,500 14 or 12,500 fo or 5, 000 In addition to his capital interest in the copartnership, the petitioner owned the plant in which the firm conducted its business. Prior to December 31, 1927, it became apparent that the affairs of the copartnership were not being conducted to the mutual satisfaction of all the partners. The activities of Harold J. Bogert, petitioner's son-in-law, were damaging the business of the firm, and, being unable to get Bogert to desist from his activities, the petitioner paid him $15,000 to withdraw from the copartnership. Bogert's interest in the copartnership was purchased by Joseph F. and William F. Mosser, who, with their father, the petitioner herein, formed a new copartnership to continue the business under the firm name of W. F. Mosser & Son, with a capital of $50,000, of which the petitioner and Joseph F. Mosser each contributed two-fifths and William F. Mosser contributed one-fifth. In his income tax return for 1927, the petitioner deducted the $15,000 which he paid to Bogert as a loss sustained by him by reason of his having been obliged to pay that sum to secure Bogert's consent to the cancellation of the copartnership agreement. The respondent disallowed the deduction in determining the deficiency. OPINION. SMITH: The petitioner claims that the expenditure of $15,000 is deductible either as a loss or as an ordinary and necessary expense of carrying on business. Obviously, the amount is not deductible as a loss, but the record shows that the payment to Bogert had a direct relation to and was made to preserve the copartnership business; it was not made in payment for Bogert's interest in the copartnership. Bogert demanded the payment of $15,000 in addition to his capital investment before he would consent to the dissolution of the copartnership. The petitioner testified as to the activities of Bogert which were directly injuring the business of the firm and it was in order to be relieved of the possible consequences of Bogert's activities that the petitioner procured his withdrawal from the copartnership. A payment in excess of a retiring partner's investment was allowed as a deductible expense in A. King Aitkin, 12 B. T. A. 692, where the retiring partner demanded a similar payment before he would consent to the dissolution of the firm. We there said: The payment which these petitioners made to protect themselves against the future actions of Dippy was directly connected with and proximately resulted from their business. No capital asset was acquired. The situation is not unlike that presented to the Supreme Court in Kornhauser v. United States, 276 U. S. 145; 48 S. C. 219; 6 Am. Fed. Tax Rep. 7358, where expenses of defending an action for an accounting, instituted by a former partner, were allowed as a deduction from income as ordinary and necessary business expenses. We are of the opinion that the Commissioner erred in refusing to allow the deductions claimed. That case is not distinguishable from the instant proceeding, and the $15,000 here involved should be allowed as an expense deduction, since it directly benefited this petitioner's business. See also H. M. Howard, 22 B. T. A. 375; North American Investment Co., 24 B. T. A. 419; A. Harris & Co. v. Lucas, 48 Fed. (2d) 187. Cf. Bert L. Davis, 26 B. T. A. 218. Judgment will be entered for the petitioner. GANSON DEPEW, PETITIONER, v. COMMISSIONER OF INTERNAL REVENUE, RESPONDENT. Docket No. 50860. Promulgated January 6, 1933. Held, that the transaction relating to the sale of petitioner's stock was consummated in the year 1926 and loss suffered thereby was deductible in that year. Ralph M. Andrews, Esq., and W. W. Grimes, Esq., for the petitioner. George D. Brabson, Esq., for the respondent. This proceeding was brought to redetermine a deficiency in the income tax of the petitioner for the year 1926 in the sum of $2,750.92. The issue presented by the petitioner is whether or not a loss sustained by him from the sale of certain common and preferred stock of the Rogers-Brown Iron Company should be deducted from his gross income for the calendar year 1926. He asserts that it should. The respondent contends that the transaction from which the alleged loss arose was fully consummated in 1925, and, further, that the worthlessness of the Rogers-Brown Iron Company's stock was not established and the consideration for its sale was nominal and not actual. The facts were stipulated and, so far as material, are as follows: FINDINGS OF FACT. Prior to March 1, 1913, the petitioner acquired 250 shares of the common stock of Rogers-Brown Iron Company, a New York corporation, with its principal office in the City of Buffalo, New York, paying for said stock $100 per share. Thereafter, and on May 19, 1922, the petitioner acquired 50 shares of the preferred stock of said Rogers-Brown Iron Company, paying therefor $100 per share. The said Rogers-Brown Iron Company was engaged in the manufacture of pig iron. Prior to 1920, it was a prosperous corporation. Beginning with the years 1920 and 1921, increased taxes and freight |