DocketNumber： Docket No. 22431.
Citation Numbers： 22 B.T.A. 1239, 1931 BTA LEXIS 1987
Judges： Lansdon
Filed Date： 4/20/1931
Status： Precedential
Modified Date： 11/20/2020
*1987 When a stockholder of a corporation assumes and pays an obligation due such corporation for the purpose of protecting it from suit and probable bankruptcy, such payment is not a deductible loss in the year in which it is made.
*1239 The respondent asserts a deficiency in income tax for the year 1922 in the amount of $666.35. The petitioner alleges that respondent has erroneously disallowed a deduction from gross income as a loss sustained in the taxable year.
FINDINGS OF FACT.
The petitioner is an individual residing at Omaha, Nebr. In the taxable year he was a stockholder, director and officer of Cox, Jones and Van Alstine, a corporation, hereinafter called the corporation, which deals in livestock on a commission basis and negotiates cattle *1240 loans for farmers and drovers engaged in the production and marketing of livestock.
Several years prior to 1922, the corporation secured a large loan for J. R. Tollman and J. M. Rogers, who were then engaged in the cattle business on a ranch in Wyoming. The money for the loan was obtained from the Stock Yard*1988 National Bank of Omaha, hereinafter called the bank, by discounting a note secured by a chattel mortgage on cattle which was executed by Tollman and Rogers. This note, originally in excess of $140,000, was endorsed by the corporation and later, when renewed in 1921, was additionally endorsed by J. C. May, S. R. Cox, and the petitioner, who were the owners of a large part of the capital stock of such corporation in proportions not disclosed by the record. Payments were made on the loan in question by the original makers thereof, which reduced the principal amount to about $77,000. In the fall of 1922 such notes were further reduced to $43,000.
Shortly after the reduction of the notes to $43,000 the bank notified the endorsers that the balance must be paid at once. The corporation was without sufficient funds to meet this demand and a suit to enforce collection would have forced it into bankruptcy and its business would have been destroyed. The petitioner, May and Cox thereupon gave their joint personal note to the bank in payment of the unliquidated balance of the Tollman and Rogers note. This new note was secured by mortgage on the property of the Big Creek Cattle Company, *1989 a partnership business owned in equal parts by petitioner, May and Cox. This note was paid in full, but some of the payments thereon were not made until 1926. Each member of the partnership ultimately paid the bank $14,510.03 as his share of the principal and interest of the note that was given the bank in 1922 to close out the balance then due on the Tollman and Rogers paper.
OPINION.
LANSDON: The petitioner contends that in the circumstances set out above he sustained a loss in 1922 in the amount of $14,510.03. The respondent has disallowed this deduction on the theory that the payment, having been made by a stockholder of the corporation for the purpose of protecting his interest therein, must be regarded as additional cost of the petitioner's stock. Upon authority of prior decisions of the Board we must hold that this view is correct. ; ; ; ; ; *1990 ; and .