DocketNumber: Docket No. 26382
Citation Numbers: 22 B.T.A. 366
Judges: Lansdon
Filed Date: 2/25/1931
Status: Precedential
Modified Date: 10/17/2022
The petitioner’s contention as to the first error alleged is that he purchased the stock of the Company, as set forth in our findings of fact, at $1.75 a share and that the additional 25 cents a share paid by him to the vendors at date of purchase was an advance by him representing dividends which all understood would soon be declared. In effect, he contends that he loaned the Company $36,-968.25 with which to pay dividends yet to be declared and to that extent his receipt of dividends at April 15, 1922, was the repayment of such loan, or a return of capital and, therefore, not taxable. The facts of record as set out above do not sustain this contention. It is undisputed that the dividend of 25 cents a share was declared and paid after the petitioner became the owner of the stock. Undoubtedly the price paid for the stock was based upon the known or anticipated amount of earnings available or soon to be available for the payment of dividends, but this by no means establishes the contention of the petitioner. On this issue the determination of the respondent is affirmed. Julius S. Rippel et al., 12 B. T. A. 438.
The claimed deduction for bad debts and/or loans relates to both taxable years involved but for convenience this issue as to 1923 will be first discussed and recorded. The loss claimed in the amount of $10,945 appears to represent petitioner’s obligation as guarantor of his brother’s debt to the Company. This obligation was assumed in 1923, but nothing was paid thereon until 1924, and therefore this loss, if any, was sustained in that year as the petitioner reported his income on a cash basis. The action of the respondent in disallowing this amount as a deduction from income in 1923 is affirmed. Morris Sass, 12 B. T. A. 156.
In 1922, petitioner accepted a demand note from his brother in the amount of $25,000 and as endorser or guarantor, paid another note given to the bank by his brother in the amount of $20,000. The first note was a direct promise to pay petitioner the amount thereof on demand. On the second transaction the petitioner contends that by the payment of the guaranteed note at the bank he became his brother’s creditor by subrogation. This may be conceded without in any way affecting the issue. Two questions are involved here, viz.: (1) Were there any debts within the contemplation of law? (2) If the amounts petitioner advanced to his brother were debts, were such debts ascertained to be worthless in 1922? Transactions between persons closely related by blood should be scrutinized with
Decision will be entered for the respondent.