DocketNumber： Docket No. 15210.
Citation Numbers： 12 B.T.A. 831, 1928 BTA LEXIS 3454
Judges： Siefkin
Filed Date： 6/25/1928
Status： Precedential
Modified Date： 11/20/2020
*3454 An operating loss sustained by a taxpayer, incorporated during the calendar year 1919, from the date of incorporation to December 31, 1919, is not a legal deduction from gross income in an income-tax return for the calendar year 1920.
*831 This is a proceeding for the redetermination of deficiencies in income and profits taxes for 1920 and 1921 of $730.62 and $67.85, respectively.
*832 The only issue raised relates to the disallowance of a deduction of $2,234.73 for expenses in the return of the petitioner for 1920, or the refusal of the respondent to allow a deduction from 1920 income on account of a net loss of $2,234.73 alleged to have been sustained in the period July 15 to December 31, 1919. The facts were stipulated.
FINDINGS OF FACT.
The respondent disallowed a deduction taken on the petitioner's income and profits-tax returns for 1920 in the sum of $2,234.73, made up of the following:
1. Organization expenses - $350 - attorneys' fee and license fee paid to the Secretary of State in connection with the petitioner's*3455 incorporation in 1919, paid in 1919.
2. Advertising expenses - $600 - paid in 1919.
3. Advances paid in 1919 to a solicitor for developing business - $1,284.73.
The petitioner was organized as a corporation in 1919, opened its books of account on June 20, 1919, and recorded the above items on its books in 1919. It filed a corporation income and profits-tax return for 1919 showing no income and no expenses. In November, 1919, it moved into its place of business and began contracting for delivery of its product in 1920. During 1919, it did not produce any of its product. Its returns were on the accrual basis. The solicitor to whom the above amount of $1,284.73 was paid in 1919 was employed under a contract by which he was to receive one-third of the net proceeds of contracts negotiated by him, and the sum paid to him in 1919 represented advancements against such contracts. He is now dead.
OPINION.
SIEFKIN: Because the petitioner had no income in the first six months of its incorporation against which to deduct organization expenses and advance commissions it seeks to deduct those amounts in the next year. Ordinarily such a situation is provided for by the net*3456 loss provisions but in this proceeding that is not possible, not only because the petitioner did not show a net loss on its return for the period July 15, to December 31, 1919, but also because the Revenue Act of 1918 recognized the application of a net loss to a later year only after it had been applied against the prior year. See ; ; ; .