Weiss v. Commissioner (221 F.2d 152, 1955)

SANBORN, Circuit Judge.

This is a petition to review a decision of the Tax Court redetermining a deficiency in the petitioner’s income tax for the year 1947. The deficiency (except for a small amount not in controversy) resulted from the disallowance by the Commissioner of Internal Revenue of a deduction of $15,633.71 taken by the petitioner in his tax return for that year as a loss resulting from the failure of a housing project or joint venture known as the “Norlan Project” (also referred to in the record and briefs as “Norland Project”), with which the petitioner claimed to have terminated his connection in 1947.

The disallowance of this deduction by the Commissioner was based upon his conclusion that the petitioner had not withdrawn from the project in 1947, but had continued his connection with it until December, 1948, and had sustained no loss deductible from gross income in 1947 under Section 23(e) (2) of the Internal Revenue Code, 26 U.S.C.A. § 23 (e) (2) and the applicable regulations.

It was the position of the petitioner before the Tax Court that in 1947 he sustained a deductible loss of $15,633.71 as the result of the failure of one joint venture, and that in 1948 he sustained a loss of $5,742.98 in another unsuccessful joint venture, and that the two losses and the two joint ventures were separate and distinct. The position of the Commissioner was that the losses which the petitioner regarded as separate losses from two distinct joint ventures constituted together a loss from one joint venture only and that the loss was sustained in 1948 and no part of it was deductible from gross income in 1947.

What the Tax Court was called upon to decide was whether the petitioner had sustained deductible losses in each of the years 1947 and 1948, as he claimed, rather than a single loss deductible only in 1948, as the Commissioner had determined.

The case was submitted to the Tax. Court upon a stipulation of facts and the testimony of the petitioner and of witnesses produced by him. The parties stipulated that the Tax Court might find, as facts that:

“3. Petitioner, Gilbert Weiss, :< sjs * * ❖ *

“(e) Losses by individ/uals. In the case of an individual, losses sustained during the taxable year and not compensated for by insurance or otherwise—

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“(2) if incurred in any transaction entered into for profit, though not connected with the trade or business; * * *

. Treasury Regulations 111, promulgated under the Internal Revenue Code:

“Sec. 29.23 (e)-l. Losses by individu-ais. ' Losses sustained by individual citizens or residents of the United States, and not compensated for by insurance- or otherwise are fully deductible if (a) incurred in the taxpayer’s trade or business, or (b) incurred in any transaction entered into for profit, or * * *.

“In general losses for which an amount may be deducted from gross income must be evidenced by closed and completed transactions, fixed by identifiable events, bona fide and actually sustained during the taxable period for which allowed. Substance and not mere form will govern in determining deductible losses. * * * ”■