Opinion
Docket No. 26482.
1951-05-31
A. KINGSLEY FERGUSON, LOIS C. FERGUSON, PETITIONERS, v. COMMISSIONER OF INTERNAL REVENUE, RESPONDENT.
Richard R. Hollington, Esq., for the petitioners. Thomas V. Lefevre, Esq., for the respondent.
Richard R. Hollington, Esq., for the petitioners. Thomas V. Lefevre, Esq., for the respondent.
DEDUCTIONS— BAD DEBTS— BUSINESS OR NONBUSINESS.— Petitioner advanced moneys to a corporation of which he was president-general manager. He does not contend that such was his business, but that his business was promoting, organizing, and managing various enterprises in the field of low cost housing. He was salaried president, chairman, and manager of another corporation, managing very extensive construction. Held, he was not engaged in the business of promoting, organizing and managing business enterprises as claimed, and that the advances were nonbusiness debts within section 23(k)(4), Internal Revenue Code.
The respondent determined a deficiency of $7,991.48 in the income tax liability of the petitioners for the calendar year 1947 and the entire amount thereof is in controversy.
The first assignment of error raises the question of whether a debt of $32,342.91 which became worthless in 1947 is deductible in its entirety under section 23(k)(1), as claimed by petitioners, or whether it constituted a ‘nonbusiness debt‘ within the meaning of section 23(k)(4) and, therefore, is to be treated as a short term capital loss under the provisions of that subsections, as determined by respondent. A second assignment of error, namely, the respondentS partial disallowance to the extent of $879.65 of the account claimed as a medical expense deduction, arises by virtue of the adjusted increase in the petitioners' gross income resulting from the above-mentioned determination of respondent and, therefore, involves only a mathematical computation.
FINDINGS OF FACT.
The stipulated facts are so found and included herein by reference.
The petitioners are husband and wife residing at Shaker Heights, Ohio. They filed a joint income tax return, made on the cash basis, for the calendar year 1947, with the collector of internal revenue for the eighteenth district of Ohio. Hereinafter, A. Kingsley Ferguson will be referred to as the petitioner.
The petitioner was born in 1912. Immediately following graduation from college with a B.A. degree he worked as a clerk in a show store for a month or two, then as an investigator of the Chicago Better Business Bureau for several months, and then was employed for about a year by Westvaco Chlorine Products on a construction job adding to the company's industrial plant. He worked successively as laborer, timekeeper, and cost accountant. About 1935 petitioner was employed by H. K. Ferguson Company of Cleveland, Ohio, (sometimes herein called Ferguson) a corporation controlled by his father and engaged in construction engineering work, and for a period of about two years he was successively assigned to various departments to get experience in the business. He worked in the departments of purchasing, engineering, estimating, job accounting, and sales.
In 1937 petitioner left H. K. Ferguson Company and became president and general manager of a corporation organized to promote the development of a real estate and residential construction venture known as Westhill Colony. For his services he received a salary. Petitioner advanced some of the funds with which the company was organized. The corporation consisted of about 12 people who had each elected to purchase a lot, with which each purchaser was issued one share of stock in the company. Petitioner purchased a lot and received stock because he had a family and thought they would like to live there. A dozen or more houses were initially constructed in the development and subsequently more than 30. Petitioner remained with that company for one and one-half years.
In late 1938 or early 1939 petitioner was reemployed by the H. K. Ferguson Company and remained with it until about May 1942. During that time he was engaged first in sales work and then as assistant to the project manager on the design and construction of a large Government shell loading plant, the Wolf Creek Ordnance Plant, at Milan, Tennessee, which project was undertaken jointly by the H. K. Ferguson Company and the Oman Construction Company.
Upon completion of the Wolf Creek job about May 1942, petitioner left H. K. Ferguson Company and became associated with Messrs. Oman of the Oman Construction Company, Nashville, Tennessee, for the purpose of obtaining contracts for the construction of flying schools and air fields in the South. Their arrangement was that the company would finance construction jobs successfully bid in by petitioner who would supervise the work and receive a division of the profits. Petitioner advanced, in part, his own funds for his travel expenses, preparing a bid, etc., in obtaining a contract for construction of an air field at Walnut Ridge, Arkansas. He advanced no other moneys. Two other construction firms joined in the venture under that contract. Petitioner became the project manager at the site, in charge of the entire operation, received a salary of $750 per month and one-fourth of the profits upon completion of the job, which involved primarily the erection of wooden structures.
Upon completion of the Walnut Ridge job, sometime in 1943, petitioner returned to Nashville and Messrs. Oman agreed to continue their association on any similar construction jobs petitioner might successfully bid in. Thereupon petitioner returned to his home in Cleveland, obtained office space in the office of his lawyer, and for a period of time advanced a part of various expenses incurred for travel and the preparation of bids, etc., incident to his efforts to obtain contracts for housing construction work. No contracts were actually obtained, though several projects were developed to the bid stage. About this time petitioner was offered an opportunity to export building materials to South America and formed a partnership with Cupps and one Ogden for that purpose, but the operation was ‘nipped in the bud‘ by his decision to devote full time to Wood Products, Inc., next hereinafter noted.
During the course of his travels petitioner contracted persons vitally in need of various types of wood products and, having had, on the Walnut Ridge job, a close relationship with vendors and manufacturers of lumber in Arkansas, he decided to engage in a wood fabricating enterprise. He obtained an order for 5,000,000 wood handles and in the latter part of 1943 and the early part of 1944 proceeded to select a site at Tinsman, Arkansas, to locate the necessary second-hand equipment and to organize a company to carry out the enterprise.
Petitioner was one of the incorporators of Wood Products, Inc., which was organized under the laws of Arkansas on February 23, 1944, and which engaged, beginning about June 1944, in the business of manufacturing and selling implement handles, crates, and wooded boxes, until it was dissolved on June 4, 1947. It engaged in no other business. Throughout that Company's existence the petitioner was its president and general manager. Its $100 par value outstanding shares of capital stock were issued, as follows:
+------------------------------+ ¦ ¦Shares ¦ +---------------------+--------¦ ¦A. Kingsley Ferguson ¦76 ¦ +---------------------+--------¦ ¦Lois C. Ferguson ¦24 ¦ +---------------------+--------¦ ¦F. Stewart Cupps ¦48 ¦ +---------------------+--------¦ ¦Leigh Garver ¦24 ¦ +---------------------+--------¦ ¦Margaret W. Garver ¦24 ¦ +------------------------------+
Prior to the incorporation of Wood Products, Inc., petitioner advanced from September 1943 to February 1944 $4,114.01, to or for the account of the corporation.
Upon the incorporation of Wood Products he transferred to it assets valued at $3,931.26.
After the incorporation, petitioner advanced to the corporation, or for its account, $24,297.64 from February 26, 1944, to September 14, 1944. No notes were taken for the advances. The books reflected the moneys advanced to petitioner's account and he presumed that eventually, with the successful operation of the company, he would be repaid. The advances were never repaid.
In the early part of 1944 petitioner left his family in Cleveland and went to live in Tinsman to devote his efforts to the affairs and operations of Wood Products, Inc. By August 1944 he realized that the company required a greater volume of work to meet its overhead expenses and permit growth of the enterprise. Petitioner's brother-in-law, F. Stewart Cupps, vice-president and salesman of the company, moved from Cleveland to Tinsman in August 1944 and after a couple of months' instruction took over active control of production so that petitioner would be free to seek additional orders. However, the company having a sales volume of $6,000 to $10,000 a month could not meet the travel expense and salary of a full-time traveling salesman, and it was decided that petitioner should seek employment as a traveling salesman with another concern and as an incidental part of such other job obtain new contracts for Wood Products, Inc.
In October 1944 petitioner went to Nashville and discussed his situation with Messrs. Oman who agreed that he could accomplish his aims while employed by them on certain housing projects they had under way and under consideration. From October 1944 until May 1945 petitioner traveled about the country for Messrs. Oman, partly at his own expense. His income tax return for 1945 reports $2,100 received from Oman Construction Company as employer. During the period October 1, 1944 to May 1945 he obtained about five substantial orders on behalf of Wood Products, Inc., for the fabrication of box shooks and pallets used in shipping certain war materials, and also certain non-war orders for handles and box shooks. During that time petitioner continued to be president and general manager of Wood Products, Inc., and to direct its activities by regularly keeping in touch with Cupps by telephone and otherwise. At the plant there was an accountant-bookkeeper, and a general foreman who supervised the labor.
When petitioner's father died in 1943 the control of H. K. Ferguson Company passed to certain persons who in May 1945 offered to sell out. John Oman and Stirton Oman purchased a controlling interest in that company and the remainder of its stock was purchased by several friends and petitioner, the latter acquiring about 8 per cent of the outstanding stock for $50,000. The Omans installed petitioner as chief executive, president and chairman of the board of H. K. Ferguson Company and he remained such until he left in 1947. While petitioner was president of Ferguson he became interested in a product which appeared to have possibilities as a low cost panel. It was a research project primarily of another company, continued by it and Ferguson. That project, and the investigation of the possibility of developing an industrial city, in southern Ohio, were discussed by the board of directors of Ferguson, and ultimately dropped, over petitioner's protest. The results of both were assigned to the petitioner, and he advanced money personally to finance them when Ferguson decided not to do so. In September 1945 with the end of war that Company's war contracts were cancelled and petitioner's job became primarily a sales job. Thereafter he spent 80 per cent of his time traveling in quest of new construction contracts to replace those cancelled as a result of the close of war. Petitioner's efforts resulted in increased volume of construction work which amounted to about $6,000,000 in 1945, $50,000,000 in 1946, and $75,000,000 in 1947 and when he left the company in 1947 it had $135,000,000 worth of work under contract. During those years Ferguson Company had an average of 50 jobs in process at all times. These were scattered from Texas to Boston, some of the more important being in Louisiana, Texas, Illinois, Ohio, New Jersey, and Tennessee.
During this period the Omans and two of the directors of Ferguson Company knew that petitioner was president and general manager of Wood Products, Inc., and of its operations. Ferguson's secretary-treasurer and executive vice-president in charge of production were aware, but not in detail, of petitioner's activities on behalf of Wood Products. Petitioner, ‘as a pure matter of practical psychology‘ was not inclined to discuss with them his vital interests in Wood Products, for, in trying to make a success of Ferguson Company, he did not impress his employees and associates with this vital interests elsewhere, but endeavored to impress them that his sole interest was in Ferguson. In addition to his duties as administrative head and sales manager of H. K. Ferguson Company, petitioner also maintained contact with projects under construction. For his services to that company from May 1945 to 1947, he received a salary of $12,000 per annum plus a bonus based on performance of the company. He received compensation, including bonuses, from H. K. Ferguson Company as follows: 1945— $5,737.23; 1946— $13,791.69; 1947— $24,500. During the same period he received no compensation from Wood Products, Inc. Petitioner left H. K. Ferguson Company in December 1947. About April 1, 1948, he ordered machinery to establish a wood fabrication enterprise designed for development and production of a wood panel for use in low cost housing. It was delivered in September 1948. He operated as a proprietorship in his name until February 1949 when the business was incorporated. He is still engaged in that enterprise, principally with his own funds.
From May 1945 when petitioner became president and chairman of H. K. Ferguson Company until Wood Products, Inc., was dissolved on June 4, 1947, he continued in the capacity of president and general manager of Wood Products. Its activities were carried on by Cupps under petitioner's directions. Accounts receivable were collected by Cupps. Petitioner's contact with Cupps was mostly by telephone but Cupps made regular trips to Cleveland, at which times they had discussions about the affairs of the company. Petitioner was traveling regularly to and from Texas on behalf of Ferguson Company and frequently stopped at Little Rock, Arkansas, to discuss with Cupps the affairs of Wood Products, Inc. On one or two occasions petitioner was able to visit the plant. During that period he exerted efforts for Wood Products, Inc., in the course of travels for H. K. Ferguson Company. Opportunities in behalf of Wood Products became easier. During 1946 Wood Products, Inc., lost that portion of its business consisting of production of box shooks and pallets for shipment of war materials. Orders for crates and boxes were cancelled to the zero point by the end of 1946. The remainder of its business became highly competitive, resulting in such a drop in the price of handles that profit could not be made without new equipment to reduce costs. Dissolution was therefore decided upon. Petitioner during 1945 and 1946 had paid some bills on several occasions for Wood Products to avoid litigation. Upon liquidation of Wood Products, Inc., in June 1947 its assets were sufficient to pay only creditors other than petitioner who received nothing on account of his advances to or on account of the company in 1943 and 1944 and received nothing on his investment in the stock of that company.
The petitioner has since 1937 worked more or less continuously with his attorney, from his attorney's office, which he used as an address when away from Cleveland, and where in 1943 he occupied a room. He claimed a deduction for office expense in his income tax return for 1943, but not for 1945, 1946, or 1947. In the returns for all said years income from salaries, wages, and compensation was reported, as follows: 1943— from F. F. O. C.
$1,085; 1945— from Oman Construction Company $2,100, H. K. Ferguson Company $5,737.23; 1946— from H. K. Ferguson Company $13,791.69; 1947— from H. K. Ferguson Company $24,500. Only in 1943 was any income reported from ‘Profit (or loss) from business or profession‘— Schedule C. The amount was $16,000. For 1947 the $32,342.91 was listed as loss under Schedule E— ‘Income from partnerships, estates and trusts, and other sources.‘
F.F.O.C. was the joint venture between the Omans, the petitioner, and two other companies on the Walnut Ridge project.
The petitioner's loss of $32,342.91 in 1947, on account of advances to Wood Products, Inc,, was deducted in full as a business bad debt on his tax return for 1947. Respondent allowed the loss, but determined that it was a nonbusiness bad debt and treated it as a loss from the sale or exchange of a capital asset held for less than 6 months.
On May 18, 1949, the petitioners under oath filed their protest reciting in pertinent part as follows:
After the date of incorporation, Mr. Ferguson devoted all of his time and efforts for three years to the corporation's affairs. He was President and General Manager of the corporation. It became necessary from time to time for Mr. Ferguson to make substantial advances and loans to the corporation. Over the period of three years Mr. Ferguson loaned to Wood Products, Inc, the total sum of $32,342.91.
In December 1946, Mr. Ferguson, finding that he was unable to support his family upon the income he was receiving from Wood Products, Inc., became employed by the H. K. Ferguson Company. However, he continued as President and General Manager and devoted a large amount of his time to the business and affairs of Wood Products, Inc. and considered his position with said company as his trade and business. This he did until 1947, when Wood Products, Inc. was liquidated in an insolvent condition, paying back to Mr. Ferguson nothing on the advances he had made to the corporation and making no return to any of the stockholders.
* * * Wood Products, Inc. was Mr. Ferguson's trade and business from 1944 to 1947, though he devoted part of his time and efforts during part of this period to another corporation. It was not a mere source of investment for Mr. Ferguson; he was the principal officer and manager of the corporation. Mr. Ferguson was in the business of making wood products. * * *
Petitioner was not in 1947 in the business of promoting, organizing, developing, financing, and operating businesses in the allied fields of wood construction and wood fabrication.
The petitioner's advances totaling $32,242.91 to or for the account of Wood Products, Inc., did not constitute a debt the loss from the worthlessness of which, in 1947, was incurred in the petitioner's business of promoting, organizing, financing, and actively managing that company.
OPINION.
DISNEY, Judge:
The petitioner advanced to Wood Products, Inc., $4,114.01 before incorporation and $24,297.64 after incorporation, and upon incorporation transferred to it assets valued at $3,931.26. The total, $32,342.91, the parties both treat as a bad debt which became worthless in 1947 and are in agreement that the question presented is whether it was an ordinary bad debt under section 23(k)(1) of the Internal Revenue Code or a ‘nonbusiness debt‘ within the definition of section 23(k)(4), and therefore the resulting loss should be treated as a short-term capital loss as therein provided. Section 23(k)(1) and (4) of the Internal Revenue Code.
SEC. 23. DEDUCTIONS FROM GROSS INCOME.In computing net income there shall be allowed as deductions:(k) BAD DEBTS.—(1) GENERAL RULE.— Debts which become worthless within the taxable year; or (in the discretion of the Commissioner) a reasonable addition to a reserve for bad debts; and when satisfied that a debt is recoverable only in part, the Commissioner may allow such debt, in an amount not in excess of the part charged off within the taxable year, as a deduction. This paragraph shall not apply in the case of a taxpayer, other than a bank, as defined in section 104, with respect to a debt evidenced by a security as defined in paragraph (3) of this subsection. This paragraph shall not apply in the case of a taxpayer, other than a corporation, with respect to a non-business debt, as defined in paragraph (4) of this subsection.(4) NON-BUSINESS DEBTS.— In the case of a taxpayer, other than a corporation, if a non-business debt becomes worthless within the taxable year, the loss resulting therefrom shall be considered a loss from the sale or exchange, during the taxable year, of a capital asset held for not more than 6months. The term ‘non-business debt‘ means a debt other than a debt evidenced by a security as defined in paragraph (3) and other than a debt the loss from the worthlessness of which is incurred in the taxpayer's trade or business.
The parties are in agreement also that the issue, as defined by the statute and regulations, is as to petitioner's trade or business in the year when the debt became worthless; and that consideration of earlier years is proper merely to determine the nature of such trade or business in 1947.
The petitioner's theory is, as repeatedly though variously expressed upon brief, that his primary trade or business since 1935 has been the promotion, organizing, financing, and operation of businesses in allied fields of wood construction and wood fabrication with the overall purpose of developing an organization for mass production of low-cost wooden housing. On brief he says that ‘throughout his career runs the single identifying thread— 'mass production of low cost housing’.‘ He makes no contention on brief that his business was that of Wood Products, Inc., or that of being president and general manager of that corporation, or of organizing, operating or financing the one corporation, Wood Products, Inc. On the contrary, he particularly contends he has ‘never asserted that Ferguson's business was acting as President and General Manager of Wood Products.‘ This is a change of theory on the petitioner's part for, both in the sworn protest filed in this matter in 1949 and in the petition itself, petitioner's theory and contention was that he considered his position with Wood Products as his trade and business. We find both in protest and in petition the following language:
In December 1946, Mr. Ferguson, finding that he was unable to support his family upon the income he was receiving from Wood Products, Inc., became employed by the H. K. Ferguson Company. However, he continued as President and General Manager and devoted a large amount of his time to the business and affairs of Wood Products, Inc. and considered his position with said company as his trade and business. This he did until 1947, when Wood Products, Inc. was liquidated * * * .
In addition the protest recites that ‘Wood Products, Inc. was Mr. Ferguson's trade and business from 1944 to 1947 * * * .‘ Nevertheless, since the petitioner now relies upon no business of being an officer of Wood Products, Inc., or that its business was his,
but takes a broader view, we proceed to examine the latter. The change of theory is significant.
On brief he states that he ‘has made no claim that he personally was making broom handles which was the corporate business.‘
The question here presented is one of fact in each particular case, as Regulations 111, section 29.23(k)-6 states and the parties agree. We have found and set forth the facts in detail above, and they need not be repeated here. Upon study thereof, we come to the conclusion that the petitioner was not in the business for which he contends. The fact is that from May 1945 he was a salaried officer of Ferguson, a construction firm doing very large amounts of business under his management. His salary was $12,000 plus bonus, amounting altogether in 1947 to $24,500, and under his management the business increased from $6,000,000 to $75,000,000 and when he left there was on hand $135,000,000 in work. Fifty projects were under way on the average at all times. Though he did remain as president and general manager of Wood Products his activities in that regard were clearly incidental. Though a person may have more than one business, it is not petitioner's theory that he had, in Wood Products, another business but only that his promotion and management of Wood Products was a part of his over-all business of promoting and management in the low-cost housing field. The manufacture of implement handles, wooden crates and boxes— a business as above seen described by petitioner as ‘making broom handles‘— is not seen as any real part of the promotion and organization ‘for mass production of low cost housing‘ which the petitioner argues is the single identifying thread, throughout his career. From the business of Wood Products, the protest recites, petitioner was unable to support his family; he reported no income therefrom in 1945, 1946, or 1947. We are unable to believe that in addition to his services to Ferguson Company he devoted to Wood Products such efforts as reasonably to permit inclusion thereof in his business. Although Omaha National Bank v. Commissioner 183 F.2d 899, involved loans made to protect previous investment the court points out in the discussion of Washburn v. Commissioner, 51 F.2d 949, and Snyder v. Commissioner, 295 U.S. 134, the concept of the amount of time necessary to constitute a business. In the Washburn case it is noted the party gave his entire time, and in the Snyder case ‘the Supreme Court approved the rule that one who devotes the major portion of his time to speculating on the stock exchange may treat losses thus incurred as having been sustained in the course of a trade or business. In the present case the taxpayer neither alleged nor proved that he devoted a major portion of his time to the management of Charles Rosso, Inc.‘ The court in the Omaha National Bank case goes on to say that it is unable to distinguish that case from Burnet v. Clark, 187 U.S. 410; Dalton v. Bowers, 287 U.S. 404; and other cases named. Yet the latter case, like this one, involved contentions of a broad view that the petitioner's business was a ‘complete, comprehensive enterprise of which the corporation was part. It was an instrumentality of the taxpayer's business‘— Dalton was president and treasurer of the corporation involved and controlled its affairs—much as is here contended; and in the Clark case the petitioner was a majority stockholder and active head of the corporation involved and devoted himself largely to its affairs. He was also a member of three partnerships and owner of stock in a number of corporations. The court declined nevertheless to consider that loans by him to one of the corporations was a part of this business.
The Dalton and Clark cases, of course, do not involve section 23(k)(4) but the parties appear to be in agreement that the test here is the same as under section 23(e)(1), and Regulations 111, section 29.23(k)-6 so provides.
Before passing from the Omaha National Bank case, we should not that this case, like that one, involves in part the protection of a loan made prior to incorporation; for of the $32,342.91 the petitioner had advanced $4,114.01 before incorporation.
In pursuance of the theory that petitioner's business was in the low cost housing field and promotion and organization therein, he calls attention to such cases as Vincent C. Campbell, 11 T.C. 510, which he says is the one which comes closest to the facts here involved; and Henry E. Sage, 15 T.C. 299, to the general import that one can have a business of organizing, promoting and financing so many corporations or ventures as to constitute a business. We can not find on all of the facts here that this is such a case. Petitioner, contrary as above seen to his view in protest and petition that his business was his position with Wood Products, endeavors strenuously, with mass production of low cost housing as the ‘single identifying thread‘ throughout his career, to show his interest in that subject and that it constitutes a business with him. We are not convinced, and think that the idea— contrary to and not suggested in protest or petition— is greatly overworked; but assuming an interest by him in that subject it can not in the light of the facts be considered a business consuming such time, attention, and financing as under the cases permits debts to be considered as incurred in business. The criterion is obviously whether the occupation of the party involved so consists of expenditure of time, money, and effort as to constitute his business life. Though the expenditure of vast amounts of money is no doubt not necessary, the amount and custom of investing are obviously factors. We can not reasonably consider as such investment of money, his advance of ‘some of the funds‘—amount not shown— with which Westhill Colony was organized, his advance of his own personal expenses in obtaining the contract for the airfield at Walnut Ridge, or in unsuccessful efforts to obtain some contracts for Messrs. Oman in 1943; or his travel for the Omans ‘partly at his own expense‘ late in 1944 and early in 1945; likewise, the advance of money, in amounts not shown, to finance the industrial city proposition and a research project on a product having possibilities as a low cost panel after Ferguson had dropped them. Not only are such expenditures so insufficiently proven as not to bear the weight of the large amounts definitely shown expended in the Campbell and Sage cases, but they are not shown to be in furtherance of any overall project of developing low cost housing, within the petitioner's theory. There is little similarity, in our view, between the history of the petitioner in his employment by others, particularly by Ferguson Company from May 1945 through the taxable year, to which employment it is clear that he devoted almost all of his time, and the devotion of time, effort and money by the petitioners in the Sage and Campbell cases and in Foss v. Commissioner, 75 F.2d 326, also relied on by petitioner. They were engaged not in employment by others but in managing their resources as applied to various business efforts. The crucial fact in the Campbell case is that: ‘It was their petitioners') practice as a part of their business to advance to, or leave with, those corporations (12 in number) on open accounts money belonging to them in many different instances. ‘ The advancement here of petitioner's own expenses, at times only in part, is not comparable to the devotion of funds in the cases relied on by petitioner. The petitioner after 1943 never claimed deduction of any office expenses. Though maintenance of an office is not mentioned in the Cambell case it is, contrary to the petitioner's statement, shown in the Sage case; and clearly, we think, an office and the expense thereof are a logically important factor in examination of this question. Foss v. Commissioner, supra.
Westhill Colony had an office about 1937-1938 and about 1943 petitioner operated from his attorney's office in endeavoring, unsuccessfully, to obtain construction work for the Omans, and was advancing office expense; and since 1937 petitioner has worked ‘more or less continuously‘ with his attorney, from his office. We find no proof of payment of office rent by the petitioner at any time. The nearest approach is that he thought he was doing so in 1943. Taken with the various employments of petitioner by others, such lack of office and expense thereof is in marked contrast to those cases upholding the contention of the business of managing various corporate or other business enterprises, and tends to indicate to us that petitioner had no such broad business in addition to his employment.
On all of the evidence, we conclude and hold that petitioner was not engaged in the business claimed, the promotion, organizing, financing and operation of businesses in the fields of wood construction and fabrication with the purpose of mass production of low cost housing.
Since he disavows any contention that his business was that of president or general manager of Wood Products— with which we agree— there is no reason for any holding that the advances were deductible as expense of such a business, under cases such as Commissioner v. People's-Pittsburgh Trust Co., 60 F.2d 187, or Ralph C. Holmes, 37 B.T.A. 865. Petitioner, consistent with his position, does not cite or rely on them. It is to be noted also that neither case involved advances to the corporation involved.
We conclude and hold that the bad debt resulting from his advances to Wood Products was a nonbusiness debt within section 23(k)(4) of the Internal Revenue Code.
Reviewed by the Court.
Decision will be entered under Rule 50.
TIETJENS, J., dissenting:
Contrary to the majority opinion, I think the finding should be that petitioner's advances, when made, were proximately related to his business of promoting, organizing, and financing Wood Products, Inc., and that he was still engaged in that business when the debt became worthless. Accordingly, the debt was a business bad debt.
I agree with the majority that the facts do not bear out the theory which petitioner stressed on brief, that his primary business was the promotion, etc. of businesses in the allied fields of wood construction and fabrication. Had that theory been substantiated, I have no doubt but that petitioner would have been entitled to deduct his loss. Vincent C. Campbell, 11 T.C. 510. I think a taxpayer can be engaged in the business of organizing, operating, and financing a single corporation as well as a number of corporations and that a taxpayer so engaged, as petitioner was here, should be entitled to the same bad debt treatment as the taxpayer who finances and promotes several corporations.
I respectfully dissent.