Appeal from Board of Tax Appeals.
Before L. HAND, SWAN, and CHASE, Circuit Judges.
The issue presented by this petition is whether a capital loss was sustained by the taxpayer in the year 1932, as the Board ruled, or in 1934, as the Commissioner contends. The loss resulted from the liquidation of Lackawanna Securities Company, a Delaware corporation, of whose capital stock the taxpayer owned 4,500 shares. This corporation had been organized to acquire and hold an issue of bonds of Glen Alden Coal Company; and said bonds and the interest received thereon were the only assets it ever owned. In 1932 the directors and stockholders of he Securities Company passed resolutions providing for its liquidation and dissolution and for the distribution of its assets to stockholders of record on July 25, 1932. On that date there were 841,500 shares of capital stock outstanding and the company's assets consisted of $51,000,000 of Glen Alden bonds and $362,958.79 in cash. Pursuant to the plan of liquidation the taxpayer, on August 18, 1932, surrendered his 4,500 shares of stock and received in exchange Glen Alden bonds having a definite market value that was several thousand dollars less than the cost basis to him of the stock surrendered, and a "liquidation certificate" which stated that the taxpayer had surrendered his shares and was "entitled to receive proportionate interest in final liquidation distribution, if any, to the company's stockholders, as of record at the close of business July 25th 1932." The liquidation certificate had an estimated value of $900, that is, 20 cents on each share of stock surrendered; it represented an interest in cash retained by the Securities Company in excess of the amount estimated by its officers to be required for payment of taxes, expenses and costs of dissolution. The Board has found that at the time the taxpayer received the liquidation certificate he and the officers of the company knew that he would receive thereon an additional distribution of approximately 20 cents per share, and this is the amount he actually did receive in 1934.A certificate of dissolution of the Securities Company was issued by the Secretary of State of Delaware on January 7, 1933. Shortly thereafter the Commissioner ruled that any loss sustained by stockholders on the company's liquidation should be taken in 1932, since the fair market value of the bonds and liquidation certificates "was susceptible of determination at the time of their receipt"; but subsequently he reversed this ruling and now contends that the loss must be deducted in 1934 since the liquidation distribution was not complete until then.
The applicable provisions of the Revenue Act of 1932 (47 Stat. 169) read as follows:
" § 23. Deductions from gross income
"In computing net income there shall be allowed as deductions: * * *
"(e) * * * losses sustained during the taxable year and not compensated for by insurance or otherwise -
"(1) if incurred in trade or business; or
"(2) if incurred in any transaction entered into for profit, though not connected with the trade or business * * * ." 26 U.S.C.A. § 23(e).
" § 111. Determination of amount of gain or loss
"(a) Computation of gain or loss. Except as hereinafter provided in this section, the gain from the sale or other disposition of property shall be the excess of the amount realized therefrom over the adjusted basis provided in section 113(b), and the loss shall be the excess of such basis over the amount realized.
"(b) Amount realized. The amount realized from the sale or other disposition of property shall be the sum of any money received plus the fair market value of the property ...