Illinois Smelting & Ref. Co. v. Commissioner , 16 B.T.A. 1410 ( 1929 )

ILLINOIS SMELTING & REFINING CO., PETITIONER v. COMMISSIONER OF INTERNAL REVENUE, RESPONDENT.

Illinois Smelting & Ref. Co. v. Commissioner

Docket No. 21180.

United States Board of Tax Appeals

16 B.T.A. 1410; 1929 BTA LEXIS 2383;

July 24, 1929, Promulgated

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">*2383 The petitioner held not to have been the owner of stock sold in 1922 and therefore not taxable with any profit thereon.

O. John Rogge, Esq., for the petitioner.

Arthur Carnduff, Esq., for the respondent.

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SIEFKIN

">*1410 This is a proceeding for the redetermination of a deficiency in income tax for the year 1922 determined by the respondent in the amount of $1,617.57. The only issue involved is whether the petitioner was the owner of certain shares of stock of the Delaware & Hudson Railway Co. sold during the year 1922.

FINDINGS OF FACT.

Petitioner is an Illinois corporation with its office in Chicago. Some time in 1917 or 1918 Maurice Weill, the president of the petitioner, ">*1411 and Lillian Newberg bought on margin from Nast & Co., brokers, 200 shares of Delaware & Hudson Railway Co. stock at $145 a share, and, subsequently, 200 additional shares of $120 per share. The total cost was $53,000 plus brokers' commissions. The market on the stock fell so that the original $3,000 margin put up with the brokers by Weill and Newberg was increased to $15,000, of which Lillian Newberg pur up $3,000 and Maurice Weill put up $12,000. ">*2384 The stock was carried with Nast & Co. until 1919, when interest rates went up to 10 per cent. Mrs. Newberg and Weill determined that because of high interest rates they would borrow the money and carry the stock elsewhere. Weill was president and principal stockholder of the petitioner, which had a large credit at the Continental & Commercial National Bank. He borrowed the sum of $38,363.50 from the bank and gave the note of the corporation signed by him as president and endorsed by him on the back. This transaction occurred on May 7, 1919. The 400 shares of Delaware & Hudson Railway stock were held by the bank as collateral to the note. On the books of the petitioner the amount of $38,363.50 was entered as bills payable to the Continental & Commercial National Bank and the investment account was credited with the same amount showing 400 shares of Delaware & Hudson Railway Co. stock. In 1922 Mrs. Newberg ordered her brokers, Dean, Onatavia & Co., to sell 400 shares of the Delaware & Hudson Railway Co. stock and they executed the order at $128.50 a share, receiving a net amount of $51,287.56 which money was turned over to the Continental & Commercial National Bank which released">*2385 the stock, used the money to pay the loan at the bank and turned the balance over to Weill and Mrs. Newberg.

The respondent treated the transaction as one involving a purchase and sale of Delaware & Hudson Railway Co. stock by the petitioner and determined that a profit had been realized in the amount of the difference between $38,363.50 and the sale price, and determined the deficiency in question based upon a profit of $12,940.50.

OPINION.

SIEFKIN: The only question involved in this proceeding is one of fact and depends upon the ownership of the Delaware & Hudson Railway Co. stock sold in 1922. The proof is overwhelming that the petitioner did not own any such stock, but that its president used the petitioner's credit to purchase the stock on his own account and that of Mrs. Newberg. The determination of the Commissioner that the petitioner made a profit on the sale of the stock, therefore, is erroneous.

Judgment of no deficiency will be entered for the petitioner.