Gheen v. Commissioner of Internal Revenue (331 F.2d 470, 1964)

PHILLIPS, Circuit Judge.

Petitioners seek a review of the decision of the Tax Court of the United States holding that claimed interest payments deducted by petitioners on their federal income tax returns for 1957 and 1958 did not qualify as “interest * * * on indebtedness” within the meaning of Section 163(a) of the Internal Revenue Code of 1954, 26 U.S.C.A. § 163(a).

Petitioners filed joint income tax returns as husband and wife for 1957 and 1958 with the District Director of Internal Revenue at Cleveland, Ohio. For the years involved in this case they kept their books and filed their income tax returns for calendar years on the cash receipts and disbursements basis.

Since the wife is a petitioner herein only because she filed joint returns with her husband, Bruce I. Gheen will be referred to hereinafter as the petitioner.

We adopt and incorporate herein the statement of facts as found by the Tax Court, which is based upon the stipulation of the parties:

During 1957 and 1958 petitioner was a life insurance agent specializing in estate planning and business insurance matters and was president of Retirement Plans, Inc. In 1956, an associate of petitioner introduced him to M. Eli Livingstone (hereinafter referred to as “Livingstone”) of Boston, Massachusetts. Livingstone and petitioner collaborated on a business arrangement involving one of petitioner’s clients whereby Livingstone made a profit. As a result of this business association, Livingstone proposed that petitioner enter into a transaction involving United States Treasury notes. Petitioner, who is not a dealer in securities, had never purchased United States Treasury notes prior to 1957.

By letter dated December 20, 1957, petitioner ordered from C. F. Childs and Company (hereinafter sometimes referred to as “Childs”) $500,000 of 1% percent United States Treasury notes of October 1, 1962, and requested delivery thereof to Corporate Finance Corporation (hereinafter sometimes referred to as “CFC”) against payment of $474,-271.98. The actual order was placed by Livingstone & Company.

By letter of the same date CFC directed Childs to deliver the Treasury notes to R. W. Pressprich & Co. (hereinafter sometimes referred to as “Pressprich”), in New York City. Childs’ confirmation