Chalmers Liquor Co. v. Commissioner

1 B.T.A. 49, 1924 BTA LEXIS 262

• Court: United States Board of Tax Appeals
• Decided: November 8, 1924
• Docket: Docket No. 148.
• Status: Published

Opinion

OPINION.

Graupner:

The taxpayer alleges that the Commissioner erred in not allowing as deductions from gross sales of the corporation that which it declares to be the actual cost of merchandise or the actual cost of sales. In other words, it is contended that the $15,000 paid.by Lippman for the 82 outstanding shares of stock of the corporation and the obligation which he assumed as a part of the transaction of acquiring the stock, viz, to pay whatever income and excess profits, taxes might be assessed to the corporation for the period January 1 to September 9, 1918, should be properly charged against merchandise cost or cost of sales of the corporation. We can not agree with this contention.

On September 7, 1918, Lippman bought from the corporation merchandise of an inventoried value of $26,966.99 and paid that amount therefor. On September 9, 1918, he bought 82 shares or all of the outstanding certificates of stock of the corporation. Presumably, he immediately returned the liquors which constituted the merchandise to the corporation. There was no increase in the value of the liquors between the 7th and the 9th of September, 1918, and in the opening of the new books of the corporation Merchandise purchases were debited at $26,966.99, the exact amount which Mr. Lippman had paid to the corporation for them.

On the other hand, on September 9, 1918, Lippman personally owned all of the issued shares of the corporation. This gave him the privilege of doing business, of selling the liquors he had, and of purchasing and selling other liquors. The shares of stock were his, but they could not be a.part of the merchandise or property of the corporation. Therefore, the $15,000 paid for the shares of stock was chargeable against Lippman personally and not against the merchandise of the corporation. The same is true regarding the liability assumed by Lippman as a part of the consideration assumed by him for the payment of taxes. Had the corporation continued in business and Lippman paid the tax of $4,156.76, the payment would have been for the balance due on his shares of stock and not Merchandise purchases or Cost of sales.

Lippman, as owner of the shares of stock of the corporation, stood to recover his personal expenditures for those shares from the profits of the corporation or deduct his individual losses if the stock became worthless. He can not be permitted to claim as deductions for the corporation those expenditures which were properly individual.