Stern v. Commissioner

21 T.C. 155, 1953 U.S. Tax Ct. LEXIS 36

• Court: United States Tax Court
• Decided: October 30, 1953
• Docket: Docket No. 34887
• Status: Published

Opinions

OPINION.

Opper, Judge:

The question is whether there was a “sale” of petitioner’s property to a member of his family, that is his daughter, so as to forbid the deduction of any loss under section 24 (b), Internal Revenue Code.¹ It is not sufficient that the property may also have been purchased by petitioner’s son-in-law. Walter Simister, Jr., 4 T. C. 470. A tenancy by the entirety confers on each grantee ownership per tout et non per my.² Gallagher’s Estate, 352 Pa. 476, 43 A. 2d 132; Wakefield v. Wakefield, 149 Pa. Super. 9, 25 A. 2d 841. When the transfer was completed petitioner’s daughter accordingly owned it all. In addition she supplied the purchase price equally with her husband by use of the joint bank account, see Gallagher's Estate, supra, and by becoming jointly and severally liable on the mortgage which it was necessary to obtain in order to supply the cash payment to petitioner. Under such circumstances we cannot say that the property was not sold to petitioner’s daughter within the meaning of the statute. Walter Simister, Jr., supra. And since here the entire property was sold to the daughter the entire loss, rather than a half as in the Simister case, must be disallowed.

Such cases as Nordling v. Commissioner, (C. A. 9) 166 F. 2d 703, and Charles J. Stamler, 45 B. T. A. 37, are in no respect an impediment to this result. In both, sales to an excluded individual were held to be purely “nominal” with the reality requiring treatment as an actual sale to a family member so as to cause disallowance of the loss. Such a construction is necessary in order to prevent evasion of the section. It doés not necessitate the allowance of the present loss where to do so would likewise frustrate the legislative purpose. Cf. Prentiss D. Moore, 17 T. C. 1030, affd. (C. A. 5) 202 F. 2d 45, with W. A. Drake, Inc., 3 T. C. 33, affd. (C. A. 10) 145 F. 2d 365.

Whether there was in fact a loss we accordingly find it unnecessary to determine. It seems highly improbable that the value of the prop-érty would have decreased by 50 per cent in the single year between the time of its conversion to business use and its sale. If the unfurnished value in 1947 is indicated by the only offer received, it was worth no more when converted to business use than petitioner ultimately received. If on the other hand it was as valuable on the earlier date as contended by petitioner we regard it as highly probable that it was sold for less than fair market value and that any “loss” was the result of petitioner’s own choice and rather illusory than real. See Higgins v. Smith, 308 U. S. 473. This was precisely the sort of situation to which section 24 (b) was directed, H. Kept. No. 704, 73d Cong., 2d Sess., p. 23; although the very difficulty of ascertaining whether a sale at a loss is bona fide is one of the reasons for the automatic nature of the disallowance.³

It follows that both the language and purpose of the section require that respondent’s action in disallowing any supposed loss on the transaction be approved. See McWilliams v. Commissioner, 331 U. S. 694.

Beviewed by the Court.

Decision will he entered for the respondent.

Kaum, J., concurs in the result. Van Fossan, J., dissents.

1 SEC. 24. ITEMS NOT DEDUCTIBLE.

(b) Losses prom Sales oe Exchanges op Property.—

(1) Losses disallowed. — In computing net income no deduction shall In any case be allowed in respect of losses from sales or exchanges of property, directly or Indirectly—

(A) Between members of a family, as defined in paragraph (2) (D) ;

(2) Stock ownership, family, and partnership rule. — For the purposes of determining, in. applying paragraph (1), the ownership of stock—

(D)' The family of an individual shall include only his brothers and sisters (whether by the whole or half blood), spouse, ancestors, and lineal descendants ; * * *

2 “An estate by the entirety is a form of co-ownership in real and personal property held by a husband and wife with right of survivorship. Its essential characteristic is that each spouse is seized per tout et non per my, i. e., of the whole or the entirety and not of a share, moiety, or divisible part. Gasner v. Pierce, 286 Pa. 529, 134 A. 494; Porobenaki v. American Alliance Ins. Co., 319 Pa. 410, 176 A. 205; Madden v. Gosztonyi S. & T. Co., supra; C. I. T. Corporation v. Flint, 333 Pa. 350, 5 A. 2d 126, 121 A. L. R. 1022.” [Gallagher’s Estate, supra, p. 133.]

3 Hon. Samuel B. Hill (Chairman, Subcommittee of Committee on Ways and Means) stated In discussion of the bill which introduced this section into the tax laws: “Also, since we have provided in this bill against transactions between members of the same families, whereby a man may transfer to his wife, to his daughter, his son, or father, or any member of his family in direct line of ascent or descent, we have removed the temptation from tax dodgers who transfer securities or other property from one member of a family to another in order to deduct a capital loss against ordinary income.” [78 Cong. Rec., 73d Cong., 2d Sess., p. 2662.]