claimed as a deduction. The Court held that before a loss is deductible under the statute it must be an actual loss occurring during the taxable year and that the mere determination to write off the debt or failure to employ existing means of enforcement does not suffice to establish a deductible loss in accordance with the foregoing criterion.
Section 23(e) of the statute here relied upon by the plaintiffs and the Treasury regulations interpretive thereof have been construed by the Supreme Court of the United States in Boehm v. Commissioner, 326 U.S. 287, 66 S. Ct. 120, 90 L. Ed. 78. In that case the question related to the deductibility, as a loss for the year 1937, of corporate stock which had become worthless. The Supreme Court affirmed the Tax Court in concluding that the evidence clearly showed that the stock was worthless prior to the tax year, and therefore could not have become worthless during that year. Respecting the section under which the loss was claimed, Mr. Justice Murphy, speaking for the Court, said 326 U.S. at page 292, 66 S. Ct. at page 123:
'Section 23(e) itself speaks of losses 'sustained during the taxable year.' The regulations in turn refer to losses 'actually sustained during the taxable period,' as fixed by 'identifiable events.' Such unmistakable phraseology compels the conclusion that a loss, to be deductible under 23(e), must have been sustained in fact during the taxable year. And a determination of whether a loss was in fact sustained in a particular year cannot fairly be made by confining the trier of facts to an examination of the taxpayer's beliefs and actions. Such an issue of necessity requires a practical approach, all pertinent facts and circumstances being open to inspection and consideration regardless of their objective or subjective nature. * * * The taxpayer's attitude and conduct are not to be ignored, but to codify them as the decisive factor in every case is to surround the clear language of 23(e) and the Treasury interpretations with an atmosphere of unreality and to impose grave obstacles to efficient tax administration.'
See Callan v. Westover, D.C.Cal.1953, 116 F.Supp. 191, 198.
When we apply the foregoing rules to the case at bar it is so clear as to afford no basis of inference to the contrary that, if the so-called 'subjective' approach were to be adopted in appraising the evidence, the taxpayer not only did not treat the chose in action substituted for the consideration which it paid under the contract as worthless during the 1952 tax year, but as late as October in the year 1956 still viewed the matter as open to realization of the consummation of the transaction by the completion and shipment of the merchandise purchased. Nor does the suggestion during the course of the correspondence that Mueller endeavor to use the machinery for its own purposes or sell it elsewhere or substitute different machinery as the subject of its shipment to G & R evidence any subjective attitude on the part of G & R indicative of its recognition of a loss during the year 1952. Indeed, the evidence clearly negatives the fact of a loss to the taxpayer during the year for which it was claimed. The practical test for determination of the time of accrual of a deductible loss was expressed by the Supreme Court in Lucas v. American Code Co., 280 U.S. 445, 50 S. Ct. 202, 74 L. Ed. 538, in which it was pointed out that the income tax law is concerned only with realized losses as with realized gains, subject to the exception of cases in which losses were so reasonably certain in fact and ascertainable in amount as to justify their deduction before they are absolutely realized. See also Burnet v. Logan, 283 U.S. 404, 413, 51 S. Ct. 550, 75 L. Ed. 1143. However, as the same Court said in Lewellyn, supra, 275 U.S. at page 246, 48 S. Ct. 63, 72 L. Ed. 262, a loss resulting from a buyer's prepayment to a seller who proves to be unreliable is not necessarily sustained, within the meaning of the statute, as soon as the money is paid.
I conclude, therefore, that throughout the year 1952 each of the parties to the contract held out to the other the expectation and intention that the contract would be performed by the seller, and there is no evidence in the stipulation presented that in actuality the purchaser sustained any loss during that year. Because, therefore, the plaintiffs have failed to sustain the burden of proving their right to the deduction claimed for the tax year 1952, the deduction was properly disallowed and the right to refund must be denied. Defendant is therefore entitled to judgment against the plaintiffs for its costs. This opinion shall serve in lieu of the findings of fact and conclusions of law required by Rule 52(a), 28 U.S.C.A. An order may be presented in accordance with the views hereinabove expressed
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