Goldsborough v. Commissioner

PHILLIPS LEE GOLDSBOROUGH, PETITIONER, v. COMMISSIONER OF INTERNAL REVENUE, RESPONDENT. Goldsborough v. Commissioner Docket No. 24818. United States Board of Tax Appeals 18 B.T.A. 181; 1929 BTA LEXIS 2102; November 12, 1929, Promulgated *2102 LOSSES. - Petitioner's mother-in-law, solely at the instance of petitioner, purchased certain securities, at which time petitioner stated to her that should she sustain a loss by reason of such purchase he would reimburse her accordingly. Held that under the loss provisions of section 214 of the 1921 Act, the petitioner is not entitled to deduct the amount he paid his mother-in-law in 1922 for the losses she sustained in that year. William LeRoy All, Esq., for the petitioner. A. H. Murray, Esq., for the respondent. GREEN *182 In this proceeding the petitioner seeks a redetermination of his income tax for the calendar year 1922, for which year the respondent has determined a deficiency in the amount of $944.09. The only issue is whether the petitioner is entitled to a deduction of $5,757.25 as a loss under section 214(a)(4), (5) or (6) of the Revenue Act of 1921. The facts were stipulated. FINDINGS OF FACT. The petitioner is an individual residing at 839 University Parkway, Baltimore, Md. For ten years prior to the year 1925, Mrs. N. M. Showell, the mother-in-law of the petitioner, resided continuously in his home and was*2103 considered a member of his household. During this period of residence, she had no income or revenue of any kind other than the amount of approximately $311 a year which was derived from investments valued at or about $6,000. This amount was used as far as it would go towards her maintenance and support, the balance being supplied by the petitioner, who never claimed any deduction for income-tax purposes because of such maintenance and support. During the year 1922 Mrs. Showell, solely at the instance of the petitioner, purchased certain corporate securities, at which time the petitioner stated to her that should she sustain a loss by reason of such purchase he would reimburse her for the amount of the loss. During the year 1922 Mrs. Showell sustained a loss as a result of the purchase of the securities and the petitioner, in accordance with his promise, paid to her the sum of $5,757.25. The petitioner deducted from his income as a loss during the year 1922 the sum of $5,757.25, which deduction has been disallowed by the respondent. OPINION. GREEN: The sole issue in controversy is whether the $5,757.25 paid by the petitioner to his mother-in-law represents an allowable*2104 deduction. The points relied upon by the petitioner, as stated in his brief, are as follows: 1. That the payment of said amount to Mrs. Showell was in fulfillment of a legal and enforceable obligation. 2. That the said payment was in fulfillment of a moral obligation and was made under circumstances which render the amount thereof deductible. 3. That the said payment represents a loss to the taxpayer on a transaction entered into for profit. The statute does not permit the deduction from gross income of all losses which a taxpayer may suffer. Section 214(a) of the *183 Revenue Act of 1921 specifically designates the kind of losses which may be deducted as follows: SEC. 214. (a) That in computing net income there shall be allowed as deductions: * * * (4) Losses sustained during the taxable year and not compensated for by insurance or otherwise, if incurred in trade or business; (5) Losses sustained during the taxable year and not compensated for by insurance or otherwise, if incurred in any transaction entered into for profit, though not connected with the trade or business; * * * (6) Losses sustained during the taxable year of property not connected*2105 with the trade or business * * * if arising from fires, storms, shipwreck, or other casualty, or from theft, and if not compensated for by insurance or otherwise. * * * It is clear that unless the amount of $5,757.25 which the petitioner paid his mother-in-law in 1922, as a result of his promise to reimburse her in case of loss, can be brought within one of the three above paragraphs of section 214(a), it should not be allowed as a deduction from gross income on account of losses sustained during the taxable year and not compensated for by insurance or otherwise. It was not a loss "incurred in trade or business" and the petitioner does not so contend. Neither do we think it was "incurred in any transaction entered into for profit." The petitioner argues in his brief that "the amount of the profit which could be realized by her, either through appreciation of the value of the securities or increased income therefrom, was also the exact measure of profit to be realized by the taxpayer." As we look at the situation, if there had been a profit from the transaction, that profit would have belonged to Mrs. Showell and not to the petitioner. The petitioner was in no position to gain*2106 anything over and above that which he already had. The only benefit which it was possible for him to derive in case the investment by Mrs. Showell proved successful was to be relieved from his promise to make good any loss that she might sustain as the result of the investment. We do not think that such a benefit is a "profit" within the meaning of the statute allowing as deductions losses "incurred in any transaction entered into for profit." As was said in , "the mere diminution of loss is not gain, profit, or income." Finally, we do not think the amount is deductible under section 214(a)(6) quoted above. The loss did not arise from fires, storms, shipwreck, or from theft. Nor does it come within the term "or other casualty" for, as we said in : In order that a loss sustained by an individual may be deductible from gross income as a casualty under this provision of law it must be made to appear that the casualty was of a similar character to a fire, storm, or a shipwreck. *184 We are, therefore, of the opinion that the respondent was correct in refusing*2107 to allow the amount in question of $5,757.25 as a deduction from gross income. Judgment will be entered for the respondent.