Hodgson v. Commissioner

WILLIAM A. HODGSON, PETITIONER, v. COMMISSIONER OF INTERNAL REVENUE, RESPONDENT. Hodgson v. Commissioner Docket No. 44280. United States Board of Tax Appeals 24 B.T.A. 256; 1931 BTA LEXIS 1671; October 1, 1931, Promulgated *1671 Loss sustained by petitioner upon sales of stocks and securities held to be a loss sustained in a trade or business regularly carried on and hence is deductible as a net loss. J. R. Little, Esq., for the petitioner. S. B. Pierson, Esq., for the respondent. MATTHEWS *256 This is a proceeding for the redetermination of a deficiency in income taxes for the calendar year 1925 in the amount of $2,113.77. The only error alleged is the failure of the respondent to allow as a deduction from gross income for the year 1925 as a net loss the amount of $23,473.08, resulting from a loss sustained in the year 1924 by the petitioner upon the sales of certain stocks and securities. *257 FINDINGS OF FACT. The petitioner is an individual, a resident of Houghton, Mich. The petitioner is a graduate engineer, but has never practiced that profession. Prior to 1900 he worked in the store of Hodgson & Hoar, in Houghton. From 1900 to 1926 he was a member of the partnership of Close & Hodgson, Hancock, Mich., which operated a dock and warehouse business, but did not take any active part in the business of the partnership. From the year 1900 on*1672 petitioner's only business activity has consisted of buying and selling stocks and other securities for his own profit. He started out with about $50,000 invested in securities in 1900 which had increased to about $200,000 in 1924. About one-fourth of this was in investment securities. The balance was in speculative stocks. He spent a great deal of time at his brokers' offices, Paine, Weber & Company. When the market was active he often spent practically the entire day there, watching the market and giving orders for buying and selling stocks. The number of transactions carried on through his brokers was about twenty-two in 1923, about ninety-eight in 1924, and about eighty in 1925. In 1924 he sold, among others, 2,015 shares of Calumet & Hecla stock, and 750 shares of Chino Copper Company stock at losses of $28,996.31 and $12,112.12, respectively. Some of these stocks he had purchased or acquired by bequest in 1910 or 1911 and some in 1918. The March 1, 1913, value of the 2,015 shares of Calumet & Hecla stock was less than their cost. The petitioner in 1924 owned 6,050 shares of Calumet & Hecla stock. His purpose in selling the copper stocks was to diversify his holdings. *1673 He began at that time to purchase more industrial and railroad stocks and not so many copper stocks. The petitioner's return for 1924 shows a loss from the partnership of Close & Hodgson in the amount of $1,021.32; dividends from domestic corporations in the amount of $16,221.65; income from foreign corporations, $159.24; interest, $503.16; deductible expenses, $982.77; and a loss from the sale of stocks and securities in the amount of $38,353.04, leaving a total loss of $23,473.08. The petitioner's return for 1925 shows gross income, after deducting $1,243.67, his share of the loss of the partnership of Close & Hodgson, of $38,048.67, of which amount $20,769.51 was profit from the sale of stocks and bonds. OPINION. MATTHEWS: The petitioner in this proceeding is claiming the right to deduct from his gross income for 1925 as a net loss the amount of $23,473.08, which loss resulted from the sale of stocks and securities in 1924. Section 206(a) of the Revenue Act of 1924 provides: As used in this section the term "net loss" means the excess of the deductions allowed by section 214 or 234 over the gross income, with the following exceptions and limitations: *258 *1674 (1) Deductions otherwise allowed by law not attributable to the operation of a trade or business regularly carried on by the taxpayer shall be allowed only to the extent of the amount of the gross income not derived from such trade or business; And section 206 of the Revenue Act of 1926 provides: (b) If, for any taxable year, it appears upon the production of evidence satisfactory to the Commissioner that any taxpayer has sustained a net loss, the amount thereof shall be allowed as a deduction in computing the net income of the taxpayer for the succeeding taxable year (hereinafter in this section called "second year"), * * * * * * (e) * * * or if for the taxable year 1924 a taxpayer sustained a net loss within the provisions of the Revenue Act of 1924, the amount of such net loss shall be allowed as a deduction in computing net income for the two succeeding taxable years to the same extent and in the same manner as a net loss sustained for one taxable year is, under this Act, allowed as a deduction for the two succeeding taxable years. Since the petitioner sustained a loss in the year 1924 as the result sult of sales of securities in the amount of $38,353.04, which is in*1675 excess of the amount of gross income not derived from such transactions, it is necessary to decide whether the petitioner's activities in buying and selling stocks and securities constituted a "trade or business regularly carried on." Upon consideration of all the evidence, we are of the opinion, and so hold, that such activites did constitute a trade or business regularly carried on. The petitioner never practiced his chosen profession, engineering. After 1900 he devoted all his time and energies, in so far as business activities were concerned, to trading in stocks and other securities. From a small investment of about $50,000 in 1900 he had increased his holdings until they were worth about $200,000 in 1924. Only a small part of this was in investment securities. During most of this time and during 1925 he was not actively interested in any other occupation. He was a member of a partnership, but took no active part therein and derived no income in 1924 and 1925 from this partnership. He spent a considerable part of his time at his brokers - sometimes nearly all day, depending upon the activity of the market. He derived the greater part of his income in 1925 from sales of*1676 securities. See ; ; and . In accordance, therefore, with the provisions of section 206(b) and (e) of the Revenue Act of 1926 the petitioner is entitled to deduct the net loss in the amount of $23,473.08, sustained in 1924, from his gross income for 1925. Judgment will be entered under Rule 50.