Stamler v. Commissioner

CHARLES J. STAMLER, PETITIONER, v. COMMISSIONER OF INTERNAL REVENUE, RESPONDENT. Stamler v. Commissioner Docket No. 103976. United States Board of Tax Appeals 45 B.T.A. 37; 1941 BTA LEXIS 1185; September 5, 1941, Promulgated *1185 In 1937 the petitioner, owning a one-sixth undivided interest in real estate and being unwilling to advance money for the payment of accrued interest and taxes due, and for the purpose of making a curtail upon the mortgage on the property, deeded his interest in the property to his sister-in-law, as nominee of his brother, in consideration of being relieved from making the payments demanded. Held, that the petitioner's loss from his investment in the property is not a legal deduction from gross income under section 24(a)(6) of the Revenue Act of 1936, since the transaction was between members of a family. Charles J. Stamler pro se. A. H. Monacelli, Esq., for the respondent. SMITH *37 This proceeding is for the redetermination of a deficiency in income tax for 1937 in the amount of $1,033.39. The deficiency results in part from the respondent's disallowance of a deduction taken by the petitioner in the taxable year on account of an alleged abandonment of his interest in real property. FINDINGS OF FACT. The petitioner is a resident of Elizabeth, New Jersey. He filed his income tax return for 1937 with the collector at Newark. *1186 During the year 1921 the petitioner was in partnership with his brother, John J. Stamler, in the practice of law, the petitioner having a one-third interest in the partnership. By the partnership agreement it was provided that the petitioner should have a one-third interest not only in the fees received from the law practice, but also from certain investments made by the partnership. In 1921 John J. Stamler and two other individuals purchased property at 279-281 Morris Avenue, Elizabeth, New Jersey. The property was purchased subject to certain encumbrances, including a mortgage of $25,000. Under the partnership agreement the petitioner was obligated to bear one-third of the losses which might be sustained by the partnership on investments. *38 The law partnership between the petitioner and his brother was dissolved in 1926 and upon dissolution the petitioner received a deed for a one-sixth undivided interest in the real estate referred to above. The investment in this real estate proved not to be profitable. The rents received were not sufficient to pay the full amount of the expenses of the real estate and interest on the mortgage. In 1937 the mortgagee required*1187 a payment of $5,000 upon the principal of the mortgage. The petitioner was called upon by his brother, as well as the other two persons who owned the remaining two-thirds undivided interest, to put up more money. Petitioner said that he did not want to put up any more money at that particular time and that if his brother wished to take over his interest the petitioner would be happy to let him have it by assuming any liabilities which the petitioner had with respect to the property. This proposition was accepted by the petitioner's brother and, in accordance therewith, with, the petitioner deeded all his right, title, and interest in and to the property to his sister-in-law, his brother's wife, who was the nominee for his brother. The cost to the petitioner of his undivided one-sixth interest in the property at the date of transfer in 1937 was $3,832.58. In his income tax return for 1937 the petitioner claimed the deduction as a bad debt of the $3,832.58 in question. OPINION. SMITH: The question presented by this proceeding is whether the petitioner is entitled to deduct from his gross income for 1937 the $3,832.58 which represents the petitioner's investment in the Morris*1188 Avenue property at Elizabeth, New Jersey, at the time of the transfer in 1937. The amount was deducted in the petitioner's income tax return as a bad debt. In his deficiency notice the respondent states: It is held that: (1) The amount of $3,832.58 deducted on your return as a bad debt represents a gift and accordingly is not an allowable deduction. The petitioner contends that the deed of his interest in the Morris Avenue property to his sister-in-law was not intended as a gift and that the respondent is in error in disallowing the deduction as a gift. The petitioner contends that he deeded the property under an agreement with his brother that he should be relieved from making any payments for back taxes, interest, and curtail of the mortgage, and that the consideration for the transfer was such assumption of the petitioner's liabilities by his brother. The petitioner now claims that the loss is a legal deduction from his gross income of 1937. We think it entirely immaterial whether the respondent was in error in his determination that the transfer of petitioner's interest in *39 the property in 1937 constituted a gift on the part of the petitioner. If it was*1189 a gift the deduction taken is clearly not allowable. The question for decision is whether the petitioner is entitled to the deduction of $3,832.58, or any part thereof. Section 24 of the Revenue Act of 1936 provides in part as follows: (a) GENERAL RULE. - In computing net income no deduction shall in any case be allowed in respect of - * * * (6) Loss from sales or exchanges of property, directly or indirectly, (A) between members of a family, * * * It is not material in this case whether the consideration for the transfer was an adequate consideration. We assume that it was. But clearly under the statute the petitioner is not entitled to the deduction of the loss; for it was a transfer between members of a family, the sister-in-law being merely the nominee of the brother. The respondent did not err in disallowing the deduction. Decision will be entered for the respondent.