Before LUMBARD, Chief Judge, and WATERMAN AND HAYS, Circuit Judges.
Leslie H. Jockmus and Esther N. Jockmus, who filed a joint return as husband and wife, appeal from a determination in a tax refund suit, 222 F. Supp. 781, that certain amounts paid during the taxable year 1956 were not deductible as interest on indebtedness, 26 U.S.C. § 163(a) (1958).*fn1 After a trial to the court, the district judge concluded that the case was controlled by a line of decisions holding in similar circumstances that the financial transactions lacked economic substance and did not result in any actual payment of interest. E. g. Becker v. Commissioner, 277 F.2d 146 (2d Cir. 1960); Lynch v. Commissioner, 273 F.2d 867 (2d Cir. 1959); J. George Gold, 41 T.C. 419, 427 (1963) (collecting cases).
The issues presented on appeal are (1) whether the findings of the district judge are sufficiently complete to sustain the judgment, (2) whether the taxpayer is entitled to deductions for payment of interest under Section 163 of the Internal Revenue Code of 1954, and (3) whether taxpayers are entitled in any event to deduct the actual economic loss sustained in the transactions in issue. We conclude that the findings below together with certain stipulated facts adequately support the judgment and that the district judge correctly held that the alleged loan transactions did not give rise to any indebtedness or payment of interest. We do not rule on taxpayers' third contention since it was not raised below.
The claims of the taxpayers relate to two separate transactions. The taxpayers complain that the district judge failed to make any findings concerning the second transaction, and based all his findings on the stipulated facts without reference to the testimony adduced before him.
Although the district judge did not make findings of fact with regard to the second transaction, the facts stipulated by the parties indicate that the two transactions did not differ in any essential respect. On the view we take of the applicable legal principles, the stipulated facts are adequate to support the judgment for the Commissioner. Accordingly we hold that the taxpayers have not been prejudiced by any deficiency in the findings and that it is not necessary to remand for further findings. United States v. Kaplan, 267 F.2d 114 (2d Cir. 1959); Rossiter v. Vogel, 148 F.2d 292 (2d Cir. 1945); 5 Moore, Federal Practice 52.06 (2d ed. 1951).*fn2
The loan transactions for which interest deductions are claimed were planned and promoted by M. Eli Livingstone, a Boston broker and securities dealer, whose similar schemes for tax avoidance have had an extensive history of failure in the courts. See Lynch v. Commissioner, 273 F.2d 867 (2d Cir. 1959); Becker v. Commissioner, 277 F.2d 146 (2d Cir. 1960); Goodstein v. Commissioner, 267 F.2d 127 (1st Cir. 1959); Nichols v. Commissioner, 314 F.2d 337 (5th Cir. 1963); Lewis v. Commissioner, 328 F.2d 634 (7th Cir. 1964); Broome v. United States, 145 Ct. Cl. 298, 170 F. Supp. 613 (1959).
At Livingstone's suggestion, Perl, Jockmus' attorney, negotiated with Harry N. Cushing, President and Treasurer of Corporate Finance and Loan Corporation ("Corporate") and longtime friend and former law partner of Livingstone, an agreement for the loan of $973,750 at 4 1/4% interest to finance the purchase, at a price of 97 3/8, of $1,000,000 face amount 2 7/8% United States Treasury Notes maturing March 15, 1957. The loan was to be given in exchange for Jockmus' note secured by the purchased securities.
As finally agreed upon, the note given Corporate by Jockmus differed from Corporate's usual form of note in four respects. A provision authorizing the lender to sell or hypothecate the borrower's pledged securities had been deleted, as well as a provision denying the borrower the right to prepay the loan and to receive a pro rata refund of prepaid interest. The borrower was made personally liable and the lender was given the right to call on the borrower for additional collateral. These departures are significant since it is largely to them that the taxpayers turn for their support of the proposition that the present scheme differs from those held insufficient in other cases.
On December 21 and 22, 1955, the following transactions took place. Perl, acting for Jockmus, ordered $1,000,000 in Treasury Notes from Lakeside Securities Corporation ("Lakeside"), Chicago, Illinois. Lakeside purchased the notes from Salomon Bros. & Hutzler, New York, New York, which delivered them to the Chemical Corn Exchange Bank in New York City, for Lakeside's account. Lakeside was directed by Jockmus to deliver the notes to Corporate in return for the $973,750 "loaned" by Corporate to Jockmus.
Meanwhile Corporate had directed Livingstone's brokerage firm, Livingstone & Co., to sell short $1,000,000 in Treasury Notes, delivery to be made on December 22, 1955. Such a short sale was executed, the purchaser being Salomon Bros. & Hutzler. To satisfy its delivery commitment on the short sale, Corporate instructed Lakeside to deliver to Livingstone & Co. the notes "purchased" by Jockmus, which Lakeside had been instructed to surrender to Corporate. In turn, Livingstone & Co. instructed Lakeside to deliver the notes to the order of Salomon Bros. & Hutzler at the Chemical Corn Exchange Bank.
Each "delivery" of the notes was conditioned, of course, on "payment" of the purchase price. What actually occurred, however, was that on December 22, 1955, Salomon Bros. & Hutzler, the original seller, delivered the notes at the Chemical Corn Exchange Bank, and Salomon Bros. & Hutzler, the ultimate purchaser, accepted redelivery of the same notes.*fn3 The intermediate steps in this circular transaction, other than the delivery to ...