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Childs v. Commissioner of Internal Revenue

decided: March 18, 1969.

HENRY A. CHILDS AND CAROL M. CHILDS, APPELLANTS,
v.
COMMISSIONER OF INTERNAL REVENUE



Kalodner, Ganey and Seitz, Circuit Judges.

Author: Ganey

Opinion OF THE COURT

GANEY, Circuit Judge.

The question here involved is whether the appellant, Henry A. Childs, who purchased certain shares of stock in Yankee Productions, Inc., hereinafter referred to as "Yankee", in the years 1960 and 1961, which became worthless in the year 1963, was entitled to a deduction therefor in his return as a capital loss, or whether it was to be treated as ordinary income. The Tax Court held that the deduction should be treated as a capital loss.

Jurisdiction of this court is invoked under Section 7482 of the Internal Revenue Code of 1954, and the appeal involves deficiencies in federal income tax for the year 1960 in the amount of $5,669.83, and for the year 1961 in the amount of $4,283.00, resulting from the Commissioner's disallowance of claimed loss carrybacks from 1963.

The taxpayer purchased 15 shares of stock of "Yankee" for $15,000.00, pursuant to a resolution in the minutes adopted at a special meeting of the board of directors of "Yankee" held on October 21, 1960. The stock was paid for on the date of purchase and the minutes of that meeting, in pertinent part, recite as follows:

"Mr. Risola stated that the purpose of the meeting was to consider the issuance of fifteen shares of stock to Henry Childs for the sum of $15,000.00 to be paid in cash. After some discussion, it was unanimously agreed to consumate [sic] the sale.

"There being no further business, the meeting was adjourned."

The resolution of the stock purchase on January 4, 1961, contained almost identical language for the purchase of 100 shares.

On March 28, 1961, at a special meeting of the stockholders of "Yankee", stock was purchased by the appellant in the amount of $19,000.00, 500 shares on March 28, 1961, and 300 shares on April 12, 1961, pursuant to the following resolution contained in the corporation's minutes:

"Greg Michie pointed out that the method for raising additional capital discussed at the last special meeting on March 20, 1961, had not materialized. After much discussion, on past expenditures and possible methods of raising additional capital, it was decided to issue the additional 300 shares to Henry Childs for $3,000.00 to be paid in cash, and to obtain an additional issue of 500 shares of common stock of the par value of $100.00 and sell same to Mr. Childs for $16,000.00. A motion to do the same was duly made and carried.

"Mr. Christopher Risola tendered his resignation as president, which was accepted.

"A motion was then duly made and carried that the office of assistant treasurer be abolished. After discussion, another motion was duly made and carried that either Mr. Childs or Mr. Michie be ...


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