Hague v. Commissioner

ROBERT LYONS HAGUE, PETITIONER, v. COMMISSIONER OF INTERNAL REVENUE, RESPONDENT. Hague v. Commissioner Docket Nos. 39195, 50110. United States Board of Tax Appeals 24 B.T.A. 288; 1931 BTA LEXIS 1669; October 6, 1931, Promulgated *1669 1. Deduction of loss claimed to have been sustained in joint venture entered into for profit denied for lack of proof as to agreement under which money was advanced or that such advances could not be recovered. 2. Deduction of fees paid for services in investigating advisability of investment propositions denied, since such payments were not made in connection with petitioner's trade or business and were not losses sustained in transactions entered into for profit. 3. Deduction of amount claimed to be erroneously included in income as profit on stock received under stock bonus plan denied for lack of proof. Walter E. Godfrey, Esq., for the petitioner. T. M. Mather, Esq., for the respondent. GOODRICH *288 These proceedings, which were, upon motion, consolidated, involve the redetermination of petitioner's tax liability for the years 1926 and 1927, wherein deficiencies are asserted in the amounts of $3,772.58 and $676.60, respectively, all of which amounts are in controversy. For the year 1926, petitioner alleges that respondent erred (1) in failing to deduct from income the sum of $12,000 as a loss sustained on a joint venture in the*1670 purchase and sale of certain real estate; (2) in failing to deduct from income the sum of $4,400 as legal fees expended in connection with financial transactions; and (3) in adding to income the sum of $22,741.85 as income under a stock acquisition plan. At the hearing, petitioner abandoned his claim for the deduction of $3,400 of the amount paid as legal fees in 1926. For the year 1927 *289 but one error is alleged, namely, respondent's failure to deduct from income the sum of $5,000 as legal fees expended in connection with financial transactions. FINDINGS OF FACT. Petitioner is a resident of New York City and is employed as vice president of the Standard Shipping Company, a subsidiary of the Standard Oil Company of New Jersey. He was formerly employed as marine superintendent of said oil company. In 1922 Edith Bobe occupied the premises at 158 East 63rd Street, New York City, under a lease containing an option to purchase the property for $50,000. In May, 1925, the 158 East 63rd Street Corporation was organized for the purpose of exercising this option and reselling the property at a profit. Miss Bobe assigned her lease to the corporation, which proceeded to*1671 purchase the property thereunder and immediately listed the same with real estate brokers for resale. On May 22, 1925, the corporation issued one hundred shares of stock (its entire authorized capital) to Walter E. Godfrey and on June 5, 1926, this stock was transferred to Edith Bobe Hague. Petitioner was never a stockholder or officer of the corporation. In September, 1925, Miss Bobe and petitioner were married. Thereafter, beginning in November or December, 1925, acting upon the advice of real estate brokers and for the purpose of making the property more salable, the corporation made extensive improvements to the house located on the premises and added to the furnishings. The money for this purpose was advanced by Mr. and Mrs. Hague, the former advancing $12,000. There was no written agreement evidencing the terms and conditions upon which this advance was made by petitioner and no record thereof was kept on the books of the corporation. After the alterations were completed, Mr. and Mrs. Hague occupied the house for a short time, paying rent to the corporation. On October 1, 1926, the corporation sold the property for $76,500. The proceeds of this sale were turned over*1672 to Mrs. Hague. Petitioner was never repaid any part of the $12,000 so advanced by him. In 1926 petitioner retained Walter E. Godfrey, Esq., to investigate a proposition submitted to him for the purchase of property at 41 East 50th Street, New York City. After looking into the matter counsel advised against the proposition and charged a fee of $1,000 for his services therein, which charge petitioner paid in 1926. In 1927 petitioner retained Godfrey to investigate two propositions. One was the proposed purchase of a tract of land in White Plains; the other related to the development of an invention. After investigation, counsel advised petitioner against investment in either *290 venture and for his services in these matters made a charge of $5,000, which petitioner paid in 1927. OPINION. GOODRICH: We sustain respondent in denying to petitioner the deduction claimed in the amount of $12,000. Petitioner claims this amount was lost in a joint venture entered into for profit, but we are unable to find from the record before us the terms and conditions of the agreement, if any, under which petitioner advanced this money. There was no written agreement and the testimony*1673 as to any oral agreement in indefinite and contradictory. Petitioner could not say whether he made an agreement with the corporation or with Godfrey, nor to which of the two he advanced the money. He testified that he advanced money to improve and furnish the house and went "in your joint venture on a fifty-fifty basis," yet Godfrey testified, in explaining why none of the proceeds of the sale of the premises were turned over to petitioner in repayment of the money advanced by him, that when "Miss Bobe decided to put more money into the proposition, to redecorate and rebuild the house and refurnish it, it was then decided to take that money out first before any money was taken out for the purchase of the premises and the outlay of the alterations and so forth, that money was paid out first." The record shows that petitioner put no money into this proposition until after his marriage to Miss Bobe. Whether the money later advanced by him was a gift to his wife, or a loan to her or the corporation we can not say, but certainly, in view of the vagueness and uncertainty of the testimony, we can not find the existence of any agreement of joint venture under which these advances were made. *1674 If the advances be regarded as loans, there is no showing that the debt was ascertained to be worthless and charged off within the taxable year, as required by section 214(a)(1) of the Revenue Act of 1926. While petitioner admits that the legal fees of $1,000 and $5,000 claimed as deductions were not paid as expenses in carrying on his trade or business, he claims them to be deductible under paragraph 5 of section 214(a) of the Revenue Act of 1926 as "losses sustained during the taxable year * * * incurred in any transaction entered into for profit." The simple answer to this contention is that petitioner did not enter into these transactions but, on the contrary, stayed out of them. For the assistance rendered him in deciding whether or not to enter into these transactions he paid his attorney the fees here involved. There is no provision of section 214 permitting expenditures made under such circumstances to be deducted from income and therefore we sustain respondent's action with respect to these items. *291 In considering petitioner's third allegation of error we are met with a failure of proof so complete that we can not make even a finding of fact. In his petition*1675 - petitioner assents to the change in income caused by the Commissioner's handling of the Standard Oil Co. of New Jersey stock bonus under the stock bonus acquisition plan of that company. At the hearing, by motion, the petition was amended to - include the contention by the petitioner that the issue or charge made by the Government which includes the sum of $22,741.85 as income under a stock acquisition plan be disallowed to the Government and that petitioner be given credit on his return for the sum of this $22,741.85 as not income for that year. To this amendment respondent entered a general denial. In his opening statement petitioner's counsel outlined the facts which he proposed to prove with respect to this issue, but the record contains not one word of testimony concerning it. In his brief, counsel makes a statement of facts concerning a stock acquisition plan of the Standard Oil Company of New Jersey, but even there does not tell us whether this petitioner was a participant under that plan and, if so, the amount and value of the stock, if any, received by him thereunder. He assumes that all facts relative to this issue are conceded. In this he is in error for, *1676 as stated, respondent has denied generally the amendment by which this issue is raised. We are referred to the cases of , and . Having no facts as to any acquisition by petitioner of corporate stock under any stock bonus plan, we can not say whether this issue in the case at bar is controlled by these decisions. For lack of proof, we must deny petitioner's contention. Judgment will be entered for the respondent.