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Mitchell v. Commissioner of Internal Revenue.

November 7, 1938

MITCHELL
v.
COMMISSIONER OF INTERNAL REVENUE.



Appeal from the Board of Tax Appeals.

Author: Swan

Before MANTON, L. HAND, and SWAN, Circuit Judges.

SWAN, Circuit Judge.

The question in dispute is whether the petitioner, by virtue of section 23(e)(2) of the Revenue Act of 1932, 47 Stat. 179, 180, 26 U.S.C.A. ยง 23(e)(2), is entitled in computing his net income for the year 1932 to deduct a sum of $404 as a loss sustained during the taxable year in a transaction entered into for profit.

The Board's memorandum opinion states the facts in great detail. They may be summarized as follows: Upon the death of his father the petitioner acquired a twoninths share of the father's interest in a partnership. The petitioner agreed to lend this property to his brother to be used as part of the brother's capital investment in a firm which he formed with the surviving partners of the deceased father to continue the old business. By agreement the brother was to pay the petitioner interest on the amount of the loan and the petitioner was to have no share in the partnership profits. It was further provided that any partnership loss which should reduce the brother's capital investment in the firm should proportionately reduce the amount he owed the petitioner, that is, in the ratio that the amount of the loan bore to the amount of the brother's capital investment just prior to the loss. The amount of the petitioner's loan fluctuated from time to time by reason of additions thereto and withdrawals therefrom. To evidence his obligation the brother executed notes from time to time, each later note superseding the earlier. The last note given the petitioner was dated January 1, 1921 and was for the amount of $7,335.20. The Board found that the amount of this note was determined by the use of figures derived from various exhibits in evidence and shown in the following summation:

Debits

Total "Advances" $9,337.47

Total "Withdrawals" 10,091.34

Share of loss for six months ended 12/31/20 2,848.02

$22,276.83

Petitioner's interest Jan. 1/21 (note) 7,335.20

$29,612.03

Credits

Jan. 4, 1911 ...


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