Carsello v. Commissioner
This text of 1976 T.C. Memo. 193 (Carsello v. Commissioner) is published on Counsel Stack Legal Research, covering United States Tax Court primary law. Counsel Stack provides free access to over 12 million legal documents including statutes, case law, regulations, and constitutions.
Opinion
MEMORANDUM FINDINGS OF FACT AND OPINION
WILES,
FINDINGS OF FACT
Some facts were stipulated and are found accordingly.
Petitioner and his wife, Cecile, lived in Chicago, Illinois, when they filed their 1970 income tax return with the Internal Revenue Service Center, Midwest Region, Kansas City, Missouri, and when they filed their petition in this case. Petitioner was a stock broker.
On May 16, 1968, petitioner purchased 440 preferred shares of stock of his employer, Hayden, Stone, Incorporated (hereinafter Hayden, stone) for $13,928.20. On January 21, 1969, he received an additional 16 shares as a dividend. In September of 1970, Hayden, Stone was reorganized; petitioner received 456 preferred shares of*214 HS Equities, Inc., successor to Hayden, Stone, for his Hayden, Stone stock. This stock became worthless thereafter, in 1970.On his 1970 return, petitioner reported that he had sold the stock on December 31, 1970, for $1.00, taking an ordinary loss. Petitioner did not actually sell the stock but reported that he had done so to secure the loss.
By 1968, when petitioner purchased the Hayden, Stone stock, the firm was financially troubled and in need of capital. Petitioner had profited handsomely from the firm, and his superiors expected him to purchase stock in return. Petitioner purchased no Hayden, Stone stock except in this one instance. His personal investments show a strong preference for highly speculative gold stock. Petitioner knew when he purchased the Hayden, Stone stock that it was a bad investment; he purchased it to protect his income. Petitioner's superiors never specifically threatened to discharge him if he did not purchase the stock. They could, however, control his level of income. That income was based, in part, upon commissions generated when petitioner sold "new issue" stock to third parties. The amount of "new issue" stock which petitioner received to sell*215 to third parties was discretionary with his superiors. Thus by controlling the amount of "new issue" stock which petitioner received for sale to third parties, petitioner's superiors ultimately controlled the amount of his commissions.
During 1970 petitioner placed an advertisement in the Chicago Tribune urging state aid to non-public schools. He paid for this advertisement himself, deducting its cost as a charitable contribution to the Roman Catholic Church. Church officials were not aware of petitioner's action until the advertisement was published nor did they authorize or consent to it.
ULTIMATE FINDINGS OF FACT
Petitioner had a business, not an investment, motive when he purchased the Hayden, Stone stock. At no time thereafter did this motive change.
OPINION
The first issue is whether petitioner may deduct, as an ordinary loss, $13,927.20 for certain stock which became worthless in 1970.
The law involving the issue herein is well-established.
Section 165(g)(1) 1 provides that if any security which is a capital asset becomes worthless during the taxable year, the resulting loss shall be treated as a loss from the sale or exchange of a capital asset; section*216 165(g)(2) provides that the term "security" includes a share of stock in a corporation. Section 165(f) provides that losses from sales or exchanges of capital assets shall be allowed only to the extent allowed in sections 1211 and 1212. Section 1211(b) provides the limits on capital losses for individuals and section 1212(b) provides the rules for carryovers. Section 1221 defines "capital asset."
Technically, petitioner's stock would come within the definition of capital asset; therefore his loss would be a capital rather than an ordinary loss and subject to capital loss treatment under sections 1211 and 1212. However, there are numerous cases 2 which recognize that stock which is technically within the statutory definition of "capital asset" had been acquired by the taxpayer for a purpose so directly connected with his trade or business that the gain or loss from its sale was ordinary gain or loss deductible under section 165(a) or an ordinary and necessary business expense deductible under section 162(a). Purchasing stock to protect one's source of income can be such a case. .*217 Cf. . Stock originally purchased for a business purpose can become a capital asset when the business motive disappears, leaving pure investment intent for continued retention. . Where a substantial investment motive exists in a predominantly business motivated acquisition of corporate stock, such stock is a capital asset. .
Petitioner was a stock broker with Hayden, Stone, Incorporated. In essence, he contends that he purchased the Hayden, Stone stock to protect his income.He alleges that Hayden, Stone had fallen on hard times, that it was necessary for the corporation to raise capital, that he had profited handsomely from the firm, and that his superiors expected him to purchase stock in return.
After careful consideration of the record in this case, we are convinced that petitioner purchased the Hayden, Stone stock with a business, not an investment, motive, that he retained*218 this motive until the stock became worthless, and that he should therefore be entitled to an ordinary loss. Accordingly, we hold for him on this issue.
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1976 T.C. Memo. 193, 35 T.C.M. 832, 1976 Tax Ct. Memo LEXIS 211, Counsel Stack Legal Research, https://law.counselstack.com/opinion/carsello-v-commissioner-tax-1976.