Crane v. Commissioner

T. I. CRANE, PETITIONER, v. COMMISSIONER OF INTERNAL REVENUE, RESPONDENT. Crane v. Commissioner Docket No. 27769. United States Board of Tax Appeals 17 B.T.A. 720; 1929 BTA LEXIS 2251; September 30, 1929, Promulgated *2251 Losses sustained by petitioner in the year 1921 on a loan and sales of stock, were incurred in a business regularly carried on by him and may be used in computing a net loss under section 204 of the Revenue Act of 1921. Laurence Graves, Esq., for the petitioner. Hartford Allen, Esq., for the respondent. ARUNDELL *720 Proceeding for the redetermination of a deficiency of $7,949.74 in income tax for the year 1922. The issue is whether petitioner sustained a net business loss in the year 1921, and if so, the amount allowable as a deduction from gross income in the succeeding year. FINDINGS OF FACT. The petitioner was for many years prior to 1916, a member of the firm of Pilling & Crane, which was engaged in the sale of coal and iron on commission and the promotion and financing of corporations. In 1916 the partnership was dissolved, but petitioner continued as an individual the business of financing and supervising the operations of mining and mining equipment corporations. Some of the corporations which he became interested in were practically defunct and some were new ventures. His usual practice was first to make loans to the corporations, *2252 and if the enterprise proved successful, to acquire capital stock. In a few cases petitioner acted as a salaried official of such corporations, but in most cases he held no salaried position but closely supervised the management of the corporations. He maintained an office in the Widener Building, Philadelphia, Pa., and employed a stenographer, bookkeeper, and secretary to assist him in the handling of his affairs. In 1918 he loaned the corporations in which he was interested $353,201.77, in 29 loans; in 1919 he loaned $36,562.77, in 28 loans; in 1920 he loaned $41,345.63, in 32 loans; and in 1921 loaned $22,052.66, in 17 loans. During the taxable year petitioner spent on the average of four days a week in his office. The balance of the week was usually spent in New York in checking up on different corporations in which he was interested. He received a salary of $24,000 from the Northern Iron Co., of which he was president, and $1,800 from the Big Bend Coal Mining Co., of which he was an officer. He devoted approximately one-half day a week to the affairs of these two corporations. *721 He received no salaries from the other corporations in which he was interested. *2253 Petitioner became interested in the affairs of the Alaska Mines Corporation in 1917, making 19 loans in all to this corporation, involving a total of $104,125, for which he received unsecured notes. Although he made large cash advances to this corporation in 1917 and 1918, he acquired no substantial amount of its stock until in 1919. The Alaska Mines Corporation became bankrupt in 1921, its assets were sold by the receiver, and the unsecured creditors, including petitioner. received nothing. Petitioner was actively interested in the Benson Mines Co. and during the years 1918 to 1921, inclusive, he made 46 different loans to it, aggregating $95,717.50. Petitioner was also a substantial stockholder in that company and during the year 1921 he sustained a loss on the sale of its stock in the sum of $33,662.31. Petitioner was also interested in the Dodge Steel Co. and through the sale of some of its stock in 1921 he suffered a loss of $862.50. In his return for the year 1921, petitioner reported gross income of $79,330.36, after deducting $6,098.24 as a loss from business or profession, and $34,524.81 as a loss sustained on three sales of stock of the two corporations mentioned*2254 above, and claimed as a deduction therefrom, the sum of $107,389.88, consisting of $1,824.38 for taxes on petitioner's home, $1,440.50 for contributions, and $104,125 for bad debts, being loss on the Alaska Mines Co., leaving a loss of $28,059.52. The item of $6,098.24 represents the cost of maintaining petitioner's office. Petitioner did not include in his return the sum of $2,762.50 representing interest received free from taxation. OPINION. ARUNDELL: Section 204(a) of the Revenue Act of 1921 defines the term "net loss" as one resulting from the operation of a trade or business regularly carried on by the taxpayer. We have held that it is not necessary that the loss result solely from the carrying on of a taxpayer's principal business, but it is sufficient if the loss results from the operation of any business if that business be one regularly carried on by the taxpayer. , and . In , the court adopted with approval the following definition of the term "business": *2255 "Business is a very comprehensive term and embraces everything about which a person can be employed." Black's Law Dict. 158, citing . "That which occupies the time, attention, and labor of men for the purpose of a livelihood or profit." 1 Bouvier's Law Dict. p. 272. *722 See also . The above quoted definition of what constitutes a business, was followed by the Board in the cases of , and Respondent's position is that petitioner's sole business for the year 1921 was that of a salaried executive officer of various corporations. In reaching such a conclusion we think respondent failed to give sufficient consideration to petitioner's other activities. The evidence satisfies us that petitioner was engaged in the business of financing mining and related corporations, and such financing involved thorough investigation as a preliminary, and regular supervision subsequent to the advancing of the money. This work took up all of his time with the exception*2256 of about one-half day a week, which was spent performing his duties as a salaried officer of two corporations. Petitioner derived profits from his business in two ways; first, the receipt of interest upon his loan, and, second, the receipt of dividends upon and profits from the sale of capital stock. His losses resulted from the failure of debtor corporations to repay loans and from the sale of stock at a loss. From the foregoing it appears that during the year 1921 petitioner's business was not only that of a corporate executive officer, as conceded by respondent, but he regularly carried on the business of financing mining and related corporations, which financing sometimes took the form of loans and at other times the acquisition of stock in the company, the method followed being determined by the circumstances. The losses of $104,125 and $34,524.81 sustained by petitioner in 1921 on loans made to the Alaska Mines Corporation, and the sale of stocks, should be taken into account in determining his net loss for that year under section 204 of the, revenue Act of 1921. Petitioner concedes that the claimed net loss of $28,059.52 should be reduced to $23,856.52 on account of*2257 nontaxable income not reported in his return as income, and contributions allowed as a deduction. The respondent contends that in the event we hold petitioner suffered a net loss, the amount allowable as a deduction from gross income in 1922 should not only be reduced by the above mentioned items, but by the sum of $1,824.38 for taxes paid by petitioner on his home. There is no evidence before us to establish that the property on which the taxes were paid was used by petitioner in any business regularly carried on by him. Accordingly, the sum of the claimed net loss should also be decreased by the amount of this item. Reviewed by the Board. Judgment will be entered under Rule 50.