Petition for Review from Decision of the United States Board of Tax Appeals.
Before BUFFINGTON and THOMPSON, Circuit Judges, and JOHNSON, District Judge.
This is a petition for review of a decision of the Board of Tax Appeals. In 1924, the respondent acquired all of the capital stock of Hornthal & Co., a subsidiary. In 1925, the subsidiary operated at a gain, but in 1926, 1927, and 1928, it sustained operating losses. Throughout the period of affiliation, the respondent filed consolidated income tax returns. In 1928, the respondent dissolved the subsidiary and took over its assets, applying part to repay itself for advances made to the subsidiary and the balance toward its investment in the capital stock of that company. In its 1928 income tax return, the respondent claimed a deductible loss of $105,355.07, incurred through its investment in the subsidiary. The Commissioner reduced the deductible loss to $4,995.70 and assessed a deficiency. The Board of Tax Appeals reversed the Commissioner in part, allowed a deductible loss of $48,087.67, and found that there was an overpayment for 1928. The Commissioner has taken this appeal. The following summary sets forth the methods used by the respondent, the Commissioner, and the Board of Tax Appeals, respectively, in arriving at the amount to be allowed the respondent as a deductible loss by reason of its investment in the subsidiary:
Calculation of Deductible Loss by:
Paid by respondent for capital
stock of Hornthal & Co. $163,515.29
Advanced by respondent to
Hornthal & Co. 485,551.26
Total cost to respondent $649,066.55
Assets of Hornthal & Co. 543,711.48
Investment loss claimed as de-
ductible loss by respondent $105,355.07
Investment loss of respondent $105,355.07
Operating losses of Hornthal &
Co. previously deducted ...