Bohm v. Commissioner

Richard Bohm, Petitioner, v. Commissioner of Internal Revenue, Respondent Bohm v. Commissioner Docket No. 71030 United States Tax Court 34 T.C. 929; 1960 U.S. Tax Ct. LEXIS 85; August 31, 1960, Filed *85 Decision will be entered for the respondent. Funds advanced and repaid in full in British pounds, held, on the facts, to give rise to no deductible loss notwithstanding that the rate of exchange of the pound was lower on the date of repayment. Lincoln Orens, Esq., for the petitioner. Herbert Rothenberg, Esq., for the respondent. Opper, Judge. OPPER *929 A deficiency in income tax for 1952 of $ 2,075.42 is in controversy. The sole issues are whether petitioner is entitled to deduct an alleged loss incurred when a loan in British pounds was repaid, and if so, the nature of the loss. FINDINGS OF FACT. Petitioner is an individual residing at 687 Lexington Avenue, New York City. He filed his individual income tax return for the year 1952 with the director of internal revenue, Upper Manhattan District, New York. In 1938, petitioner*86 was a resident and subject of Great Britain. During the latter part of 1938, petitioner and his two cousins formed Exe Supplies Limited, a British corporation, hereinafter referred to as Exe, for the purpose of engaging in the hat business. *930 The capitalization of Exe was # 500 (500 pounds). In addition, each of the three shareholders advanced as loans to Exe # 1860 9s. 1d. (1,860 pounds, 9 shillings, and 6 pence). Petitioner came to the United States in August 1940, and shortly thereafter became a United States resident. In 1952, Exe repaid to petitioner his loan of # 1860 9s. 1d. The British funds were deposited to petitioner's account with Hartzell Company, bankers in London, England. The funds were then transferred to petitioner's account at the Manufacturers Trust Company, New York City. On petitioner's 1952 individual income tax return, under miscellaneous itemized deductions, petitioner claimed a deduction of $ 3,424.12 as "Loss on Exchange on repayment of debt." Petitioner based this alleged loss upon the difference in the rates of exchange of pounds sterling and dollars in 1938, the date of the loan, and 1952, the date of repayment. Respondent disallowed the deduction. *87 OPINION. As petitioner correctly insists, this loss, if there was one, did not flow from a bad debt. The debt was paid in full. See B. F. Goodrich Co., 1 T.C. 1098. But other losses are deductible by an individual only if resulting from a casualty or sustained in a trade or business, or in a transaction entered into for profit. Sec. 23(e), I.R.C. 1939. There are, of course, other special instances, like "war losses," section 127, I.R.C. 1939, but no claim is made that this is such a case. These facts bring petitioner's situation within none of the specified loss deductions. Had he remained a British resident, there could have been no claim of any loss. It was his removal to the United States which created the only justification for even suggesting that he was worse off. And this was not, and certainly has not been shown to be, a profit-oriented undertaking. See Commissioner v. Flowers, 326 U.S. 465. Still less could it partake of the nature of a casualty. Where there are collateral transactions in foreign exchange integrated with business operations, it is, of course, possible for a loss to be suffered and to*88 be deductible as a result of the foreign exchange operation itself. Willard Helburn, Inc., 20 T.C. 740, affd. (C.A. 1) 214 F. 2d 815; Wool Distributing Corporation, 34 T.C. 323. But even then, there must be a completed transaction, such as a purchase and sale. Cf. B. F. Goodrich Co., supra.Here, there was no such completed transaction and no direct connection between petitioner's business and his loss, if any. We find no ground upon which to sustain the claimed deduction. Decision will be entered for the respondent.