Opinion
Docket Nos. 80624 80793.
1961-07-17
GLASGOW VILLAGE DEVELOPMENT CORPORATION, PETITIONER, v. COMMISSIONER OF INTERNAL REVENUE, RESPONDENT.CLARENCE T. WILSON AND JEWEL D. WILSON, PETITIONERS, v. COMMISSIONER OF INTERNAL REVENUE, RESPONDENT.
Urban C. Bergbauer, Jr., Esq., for the petitioners. James H. Martin, Esq., for the respondent.
Urban C. Bergbauer, Jr., Esq., for the petitioners. James H. Martin, Esq., for the respondent.
1. W and C were equal owners of the stock in G corporation and were its principal officers. W acquired all of C's stock in 1952 and simultaneously G corporation entered into a 5-year employment contract with C. In 1952 and 1953 C rendered some services under the employment contract. In 1954 through 1956 C performed no services. Held, respondent erred in determining that payments by G to C in 1955 and 1956 were for W's personal benefit and taxable to him as dividends; held, further, G has failed to prove the respondent erred in disallowing deduction by G of the payments to C for the years 1954 through 1956.
2. In the taxable year 1955 G corporation acquired for $250,000 a tract of land for development purposes from its president and stockholder and certain other coowners who were not stockholders. Respondent determined in his deficiency notice that the cost of the land to the corporation was the cost to its president and his coowners who had purchased the land in 1952. He also determined that the payment made in 1955 to its president for the land was a dividend to him and that interest paid to him on the remaining part of the purchase price in 1956 and 1957 was not deductible as interest. Held, the purchase by the corporation in 1955 from its president and others who were coowners of land which they had acquired in 1952 was a bona fide purchase and the cost basis of the land to the corporation was the price which it paid for it and not what it cost its president and his coowners in 1952; held, further, the payment made to its president and stockholder in 1955 was not a dividend to him; held, further, that the amounts which the corporation paid in 1956 and 1957 as interest on the 5-percent notes executed to Wilson in 1955 are deductible as interest.
3. Held, G corporation has failed to prove that respondent erred in determining that G corporation did not incur a loss in connection with a certain business venture.
Respondent has determined deficiencies in the income taxes of petitioner Glasgow Village Development Corporation for the taxable years 1954 through 1957 in the amounts of $14,799.88, $24,558.16, $3,853.98, and $16,639.08, respectively. Respondent has also determined deficiencies in the joint individual income taxes of petitioners Clarence T. and Jewel D. Wilson for the years 1955 and 1956 in the amounts of $11,416.72 and $10,363.94, respectively.
Certain concessions on issues raised by the pleadings in the case of the individual petitioners will be given effect under Rule 50.
The issues remaining for decision are:
(1) Is petitioner Glasgow Village Development Corporation entitled to deduct as compensation to officers its payment to M. H. Carpenter of $12,499.76 in each of the taxable years 1954 to 1956, inclusive?
(2) Did petitioner Clarence T. Wilson realize a constructive dividend in the amount of $12,499.76 during each of the years 1955 and 1956 by reason of such payments to Carpenter?
(3) Is petitioner Glasgow Village Development Corporation's basis in the Conant land the amount paid by petitioner Clarence T. Wilson for an undivided interest therein, plus the amount petitioner Glasgow Village Development Corporation paid Mary Glasgow Chivvis, Ellen Glasgow Lane, and Charles M. Glasgow for their undivided interest in such land as respondent contends? In the alternative, is petitioner Glasgow Development Corporation's basis in such land limited to $1,000 per acre by reason of a certain contract, or is the basis to be used the $250,000 for which Glasgow Village Development Corporation purchased the Conant land in 1955 from Wilson and the Glasgow heirs, as petitioners contend?
(4) Is petitioner Glasgow Village Development Corporations entitled to deductions in the respective amounts of $1,711.73 and $8,528.88 for the taxable years 1956 and 1957 as interest on its indebtedness to petitioner Clarence T. Wilson?
(5) Did petitioner Clarence T. Wilson receive a constructive dividend in the amount of $25,000 in the taxable year 1955 as a result of the payment to him of that amount from petitioner Glasgow Village Development Corporation for the purchase of the Conant land?
(6) Did petitioner Glasgow Village Development Corporation abandon a building project on the Ballas Road property in the year 1956 within the meaning of section 165, 1954 Code, and thereby sustain a loss of $13,225.41?
FINDINGS OF FACT.
A stipulation of facts to which certain exhibits are attached was filed by the parties and is incorporated herein by this reference.
Petitioner Glasgow Village Development Corporation, incorporated under the laws of Missouri with principal place of business in St. Louis County, Missouri, filed Federal corporation income tax returns for the taxable years 1954 through 1957 with the district director of internal revenue, St. Louis. At the time of incorporation, its name was C. T. Wilson Construction, Incorporated, which name was changed in 1950 to M. H. Carpenter, Inc., and prior to February 21, 1952, changed to Glasgow Village Development Corporation. Hereinafter, the corporation will be referred to as Glasgow, regardless of time.
Petitioners Clarence T. Wilson (hereinafter referred to as Wilson) and Jewel D. Wilson, husband and wife, resident in Ladue, Missouri, filed joint Federal income tax returns for the taxable years 1955 and 1956 with the district director of internal revenue, St. Louis.
Prior to April 27, 1950, M. H. Carpenter (hereinafter referred to as Carpenter) designed and planned a subdivision real estate development in St. Louis County, Missouri, known as Glasgow Village. Carpenter and Wilson agreed to use a dormant corporation in which Wilson was then majority shareholder as the vehicle of development of the subdivision. Carpenter and Wilson each acquired a 50-percent interest in the corporation and on April 25, 1950, Carpenter became president of Glasgow and Wilson, vice president.
Shortly before January 18, 1952, Carpenter and Wilson each transferred 1 share of stock in Glasgow to John Armbruster of the Community Federal Savings and Loan Association. Subsequently, Wilson, by registered mail, demanded Carpenter's resignation as president of Glasgow and the termination of his connection with the corporation.
On January 18, 1952, Carpenter and his wife executed an agreement for sale of their stock in Glasgow which stood in their names to Wilson for $5,000 in cash, the assumption by Wilson of payments on a mortgage on Carpenter's home, and of payment of certain liabilities of Carpenter to Glasgow in the amount of $5,419.55, or a total price of approximately $20,000.
On the same date, Glasgow, by Wilson as vice president, and Carpenter executed an agreement entitled ‘Contract of Employment.’ This contract of employment reads as follows:
THIS AGREEMENT made and entered this . . . day of January, 1952, by and between M. H. Carpenter, Inc., a Missouri corporation, hereinafter referred to as ‘Employer’ and M. H. Carpenter, of the County of St. Louis, State of Missouri, hereinafter referred to as ‘Employee’.
In consideration of the sum of One Dollar ($1.00) and other good and valuable consideration, it is mutually agreed by and between the parties as follows:
1. Employer agrees to and does contract for the services of Employee for a period of five (5) years beginning January 1, 1952 and ending December 31, 1956, and agrees to pay for said services the sum of Twelve Thousand Five Hundred Dollars ($12,500.00) per year, beginning January 1, 1952, payable in monthly installments. Employer further agrees to appoint Employee as a Vice-President of Employer.
2. Employee agrees to devote his best interests and abilities during the term of this contract for the benefit of Employer, his services to be primarily of a promotional nature.
3. It is mutually agreed by and between the Employer and Employee that in the event there should be an absolute stoppage of the building of homes, directly or indirectly, by the United States Government, then during the period of said stoppage there shall be no salary due from Employer to Employee but the term of employment shall be extended in order to cover the period of the work stoppage and to provide Employer with five full years of service from Employee.
4. It is mutually agreed that in the event the present contract by and between the Glasgow heirs and M. H. Carpenter, Inc. is terminated, that shall also act as a termination of this contract.
5. Employer further agrees that in the event of the death of M. H. Carpenter it will continue the payments to his widow, Martha B. Carpenter, during the calendar year in which his death occurs.
6. This contract shall be binding upon all of the parties hereto, their heirs, successors and assigns.
IN WITNESS WHEREOF, the parties hereto have hereunto set their hands the day and year first above written.
M. H. CARPENTER, INC. By /s/ C. T. Wilson V.P. /s/ M. H. Carpenter
Witness
/s/ Anna R. Martin
Subsequent to January 18, 1952, and until sometime in 1953, Carpenter wrote some scripts for radio announcements and operated a newspaper clipping service for Glasgow. He devoted no more than 25 percent of his time to Glasgow. Thereafter, Carpenter performed no services for Glasgow because Wilson told him his services were no longer required. On May 15, 1952, Wilson sent a registered letter to Carpenter reminding him of the terms of his contract, and admonishing him that ‘Any action or statement detrimental to the Company or its officers will be deemed a violation of your contract.’
Minutes of a special meeting of stockholders of Glasgow dated January 19, 1952, recite that Carpenter resigned as president because of ‘his age and the condition of his health’; and that ‘it was decided that Mr. Carpenter should be given an employment contract as compensation for his past and future services to the Company.’ At the time of trial herein Carpenter was suffering from a heart condition, including hypertension and high blood pressure.
The contract dated January 18, 1952, in which Wilson purchased 99 shares of stock in Glasgow from Carpenter and his wife, Martha, constituted the entire agreement between them for the sale and purchase of this stock.
‘Employees earnings record’ maintained by Glasgow reveals payments to Carpenter during the years 1950 through 1956, as follows:
+-----------------------------------------------------------------------------+ ¦Year¦Total ¦Summary of payments ¦ +----+---------+--------------------------------------------------------------¦ ¦1950¦$2,899.98¦Lump-sum payments of $800 and $300 in 3d quarter; $138.46 per ¦ ¦ ¦ ¦week in 4th quarter. ¦ +----+---------+--------------------------------------------------------------¦ ¦1951¦10,799.88¦$207.69 per week. ¦ +----+---------+--------------------------------------------------------------¦ ¦1952¦13,967.65¦$240.38 per week for 53 weeks; $1,227.51 after which entry ¦ ¦ ¦ ¦appear the words, “Ford J—25.” ¦ +----+---------+--------------------------------------------------------------¦ ¦1953¦12,499.76¦$240.38 per week. ¦ +----+---------+--------------------------------------------------------------¦ ¦1954¦12,499.76¦$240.38 per week. ¦ +----+---------+--------------------------------------------------------------¦ ¦1955¦12,499.76¦$240.38 per week. ¦ +----+---------+--------------------------------------------------------------¦ ¦1956¦12,499.76¦$240.38 per week. ¦ +-----------------------------------------------------------------------------+
Payments by Glasgow to Carpenter in 1950 were inadequate compensation for his services rendered in that year.
In 1951, Glasgow had gross income in the amount of $1,438,722.45 and net income in the amount of $504.83.
Payments made to Carpenter in 1952 and 1953 were in excess of reasonable compensation to him for personal services rendered by him to Glasgow in those years and the excess was sufficient to compensate him for his underpaid services in 1950. Carpenter rendered no services to Glasgow in 1954, 1955, and 1956.
Conant Land Transaction.
Carpenter's original plan for the Glasgow subdivision was designed to encompass lands owned by individuals named Glasgow and a ‘Massachusetts trust’ entitled ‘Glasgow Bienvenue Estate’ (collectively hereinafter referred to as the heirs), as well as lands owned by certain other individuals named Conant. The Conant land was adjacent to the lands owned by the heirs, and contained 99.6 acres. Carpenter was able to convince the heirs to sell their land to Glasgow, receiving payment therefor at the rate of $1,000 per acre, as the lots were sold by Glasgow. The Conants, however, declined to agree to such arrangement.
Wilson individually and on behalf of Mary Glasgow Chivvis, Ellen Glasgow Lane, and Charles M. Glasgow, on November 5, 1952, entered into a contract to purchase approximately 99 acres of property as an investment, herein referred to as the Conant land.
On April 27, 1950, the heirs and Glasgow executed an agreement for the sale of the land owned by the heirs to Glasgow at a price of $1,000 per acre, payable as homes were constructed or lots sold. The Conants were not parties to this agreement. The agreement provided, inter alia, as follows:
22. If any of the parties to this contract acquire any additional property within one mile radius of the property herein described, said additionally acquired property shall be subject to this same agreement upon payment of the cost price to the person who purchased it, or $1,000.00 an acre, whichever is the greater.
25. It is mutually agreed by and between the parties that if the Conants, owners of a tract of land of approximately 100 acres adjacent to the land covered by this contract, shall decide to become a party to this agreement and receive for their acreage the same terms and conditions as are set out for the property covered by this contract, then both present Owners and Developers consent to their becoming such a party, and agree that they shall share in the benefits and liabilities of this contract on an acreage basis.
On the same day Wilson and Carpenter executed an addendum to the contract between the heirs and Glasgow which reads in material part, as follows:
we, the undersigned, as the principal owners of the common stock of (Glasgow), agree, that in consideration of the execution of said contract and other good and valuable considerations, to be bound individually by Section 22 of said agreement, to-wit:
We agree that if either one of us, or if we should jointly purchase any property within a one mile radius of the property set out in the aforesaid agreement, that the purchased property will become a part of said agreement and subject to the terms and conditions set out therein.
On November 5, 1952, Wilson executed an agreement to purchase the Conant land from the Conants for a price of $55,500. By general warranty deed dated February 7, 1953, Wilson and his wife took title to the Conant land.
For purposes of convenience the Conant land was transferred into the names of Wilson and wife and did not include the heirs. Wilson individually paid a part of the purchase price of the Conant land. Mary Glasgow Chivvis, Ellen Glasgow Lane, and Charles M. Glasgow contributed $10,000 toward the purchase price of the Conant land from the Conants.
Wilson and his wife individually borrowed additional funds from the Community Federal Savings and Loan Association to finance the purchase of the Conant land. Wilson paid the real estate taxes on the Conant land during the time that it was owned by him and the heirs and he attempted to make some use of it by farming it and leasing it for farming purposes.
At the time Wilson and the heirs were negotiating for the purchase of the Conant land in 1952, Glasgow was not in financial condition to purchase the property.
On May 6, 1954, Wilson and some of the heirs executed an agreement reciting that Wilson and these heirs had purchased undivided interests in the Conant land, with those heirs providing $10,000 of the purchase price and Wilson the remainder. The agreement provided that Wilson was to pay all charges incurred in connection with the property prior to its sale, and was to receive any rents and earnings from the property. Proceeds of the sale of the property were to be applied first against the principal amount borrowed by Wilson to purchase the property, next to the payment of $20,000 to those heirs who were party to the agreement, and any remaining proceeds were to be Wilson's.
On October 3, 1955, Glasgow, those heirs who had been parties to the purchase of the Conant land, and Wilson executed a contract which provided that Glasgow should purchase the Conant land from Wilson and those heirs for a total purchase price of $250,000. The heirs who were party to the agreement were to be paid $20,000 cash on closing. Payment to Wilson was to be made as follows:
Assumption by Glasgow Village Development Corporation of a mortgage in the amount of $40,672.61, payment of cash in the amount of $25,000.00 upon closing, payment of $25,000.00 on October 1, 1956, payment of $25,000.00 on October 1, 1957, payment of $57,163.69 on October 1, 1958 and payment of $57,163.70 on October 1, 1959, together with 5% interest on the unpaid balance.
By deed dated October 19, 1955, Wilson and his wife conveyed the Conant land to Glasgow.
Glasgow mortgaged the Conant land on October 19, 1955, to the Community Federal Savings and Loan Association for the amount of $150,000. The fair market value of the Conant land as of its transfer to Glasgow was approximately $250,000.
In 1955, Glasgow assumed the mortgage which Wilson had placed upon the Conant land and paid him $25,000.
Wilson did not hold the Conant land primarily for sale to customers in the ordinary course of his business.
On their joint return for 1955, the individual petitioners reported the sale of the Conant land for a total consideration of $230,000, for which their basis was $41,042.35 and a gain of $188,957.65. They used the the installment method of reporting the transaction, showing collections of $65,672.61 during the year, of which 82.1555 percent, or $53,953.66, constituted taxable gain.
Ballas Property Transaction
Early in 1956, Wilson Homes, Inc. (hereinafter referred to as Homes), a corporation in which Wilson was interested, entered into a venture with Foster-Manchester Co., a company in which Wilson owned no interest, to erect one of Homes' prefabricated houses on Foster-Manchester's ground, known as the Ballas property. After Homes had erected a house on the Ballas property, and constructed several foundations for further houses, Foster-Manchester was indebted to Homes for the amount of approximately $20,000. In satisfaction of the account receivable from Foster-Manchester, Homes acquired the Ballas property. Subsequent to acquiring the Ballas property by Homes, it was determined that inasmuch as the project was one of developing property, Homes should not carry the project on its books for the reason that it was not in the business of subdividing and developing property. In September 1956, entries were made on the books of Homes and Glasgow reflecting the transfer of the Ballas property from Homes to Glasgow. On its income tax return for 1956, Glasgow claimed deduction of a ‘Loss on Ballas property’ in the amount of $13,225.41. Respondent disallowed the deduction, explaining the adjustment in the statutory notice, as follows:
(b) The loss on Ballas property, in the amount of $13,225.41, claimed in other deductions, is disallowed as no evidence has been submitted to substantiate the Ballas Road Venture as a venture of the taxpayer corporation.
OPINION.
BLACK, Judge:
The first issue is whether Glasgow may deduct as ordinary and necessary business expenses under section 162 of the 1954 Code
payments made to Carpenter in each of the years 1954, 1955, and 1956 in the annual amount of $12,499.76. As a corollary to this issue is the question whether such payments by Glasgow constitute distributions taxable as dividends to the individual petitioners in the years 1955 and 1956. The only 2 years which we have before us insofar as the individual petitioners are concerned are 1955 and 1956; we do not have the year 1954 before us as to the individual petitioners. Respondent has determined that the payments were made by Glasgow for the personal benefit of Wilson and that they were not reasonable compensation for any services rendered by Carpenter to Glasgow. He contends that the payments were made as part of the purchase by Wilson of Carpenter's stock in Glasgow in 1952. That is issue 2 and we shall consider the two issues together.
SEC. 162. TRADE OR BUSINESS EXPENSES.(a) IN GENERAL.— There shall be allowed as a deduction all the ordinary and necessary expenses paid or incurred during the taxable year in carrying an any trade or business, including—(1) a reasonable allowance for salaries or other compensation for personal services actually rendered;
We do not agree that the payments were part of the purchase price for Carpenter's stock. We think the facts, when all are considered, are to the contrary. Apparently, Wilson and Carpenter were at odds about the management of Glasgow. Each owned an equal interest in Glasgow and 2 shares were held by a representative of the financial institution which was backing the subdivision project. Glasgow's earnings record for 1951 was not good. In fact it was poor considering the volume of business which was done. Early in 1952, Wilson demanded Carpenter's resignation as president of Glasgow. Carpenter agreed to sell his stock to Wilson for approximately $20,000, a sum which was between three and seven times as much as he had paid for his interest in Glasgow in 1950.
Simultaneously with the sale of his stock to Wilson, Carpenter received an agreement, called an employment contract, from Glasgow providing for the payment of $12,500 for 5 years. This contract is set out in full in our Findings of Fact. It seems clear from the record that Carpenter was inadequately compensated for his services in 1950; that he was expected to and did render services under the contract; and that under the contract he was required to devote his best interests to the benefit of Glasgow. Although executed in connection with the solution of a corporate problem, one phase of which involved the sale of Carpenter's stock, the employment contract was given, not as part of the purchase of the stock, but to effectuate the removal of Carpenter as chief executive of Glasgow, to compensate him for past services, and to secure such future relations, by way of active performance of services and/or passive forbearance from competition, as might benefit Glasgow. There seems to us to be no doubt that Glasgow was under a legal obligation to pay Carpenter the $12,499.76 which was paid him in each of the taxable years 1954, 1955, and 1956.
Conflicting testimony on how much Carpenter paid Wilson for stock in Glasgow varies between $3,657.84 and $6,724.08.
We conclude, contrary to the contention of respondent, that the contract between Glasgow and Carpenter, and the payments made thereunder, were not part of the price for Wilson's purchase of Carpenter's stock in Glasgow. It follows, then, that the respondent erred in determining that the payments to Carpenter were made for Wilson's benefit, includible in his income for the years 1955 and 1956 as constructive dividends for those years, and we so hold.
Respondent contends that, regardless of whether the payments were made as part of the purchase price of Carpenter's stock, Glasgow has failed to show that the payments were ordinary and necessary business expenses of Glasgow. It is clear that Carpenter performed no services of any kind in either 1954, 1955, or 1956. While the record shows to our satisfaction that Carpenter was not adequately compensated for the services he rendered in 1950, the amount of additional compensation for past services, referred to in the corporate minutes, is not specified. Certainly, Carpenter was paid during 1952 and 1953 amounts substantially in excess of the value of the services he rendered in those years. In our opinion the overpayments made to him in those years adequately compensated him for his underpayment in 1950. In order for the payments to be deductible to Glasgow under section 162(a)(1), 1954 Code, in 1954, 1955, and 1956, they must have been made for ‘personal services actually rendered’ either in the taxable years or prior years. In view of our findings of fact that the payments of $12,499.76 to Carpenter by Glasgow in 1952 and 1953 overpaid him for services actually rendered in those years and amply paid him for services rendered in 1950, when he was underpaid, we do not think that Glasgow is entitled to a deduction of the $12,499.76 paid to him in 1954, 1955, and 1956. The testimony is that he rendered no personal service to Glasgow in those years as an officer or employee of Glasgow. We sustain the Commissioner on this issue.
The next issue presented is the determination of Glasgow's basis in the Conant land, issue 3. Both parties are agreed that issue 4, involving respondent's disallowance of interest deductions claimed by Glasgow in 1956 and 1957, is controlled by resolution of this issue. The related issue in the case of the individual petitioners is issue 5, whether Wilson received from Glasgow a distribution taxable as a dividend upon the payment to him of $25,000 in 1955. The record does not show that any such payment was made in 1956, nor does respondent's statutory notice put any such payment in issue in that year.
For 1955, respondent has added to the net income reported by petitioners, the Wilsons, on their return, a dividend of $25,000. He explains this adjustment in his deficiency notice, as follows:
(2) The Conant land transaction reported as a sale is not recognized as an arms length or bona fide transaction. Therefore the payment of $25,000.00 received from the Glasgow Village Development Corporation, in connection with said transaction, during the year 1955, represents a distribution of income taxable as a dividend.
Glasgow contends that the purchase of the Conant land was a bona fide purchase of property for adequate consideration from parties not obligated to sell the property at any lesser price. Respondent, on the other hand, contends, first, that Wilson was acting for Glasgow when he purchased the property in 1952; second, that the sale was not bona fide; and third, that Wilson and those of the Glasgow heirs who had purchased the property were under an obligation to sell the property to Glasgow for cost, or $1,000 per acre, whichever was greater.
We do not agree with respondent that Wilson acted for Glasgow when he and some of the heirs purchased the property in 1952. While, of course, Wilson, as president of Glasgow, was under a duty not to divert business opportunities from the corporation, the record is clear that Glasgow at that time was financially unable to take advantage of the opportunity. In such circumstances, we think the corporate officer may avail himself of an opportunity which would otherwise be the corporation's. We know of no law to the contrary.
The record shows that Wilson did in fact deal for himself and some of the Glasgow heirs. The purchase money was provided in part by those heirs and in much more major part by Wilson. Subsequent to acquiring the property, Wilson agreed to, and did, pay expenses in connection with the property, including taxes for several years, and tried unsuccessfully to derive income from renting the property for farming purposes. We conclude, therefore, that Wilson acted for himself and some of the Glasgow heirs, and not for Glasgow, in the purchase of the Conant land.
Although respondent, by his determination, has questioned the value at which the property was transferred to Glasgow in 1955, it seems clear from the record that the property had a fair market value of as much as $250,000 at that time. It was appraised at transfer by two reputable real estate experts as having approximately that value; a financial institution lent $150,000 against the property at that time; and the records of the financial institution show an appraised value substantially in excess of $250,000. So far as the record shows the price of $250,000 was a fair price at the time it was purchased in 1955 by Glasgow from Wilson and the Glasgow heirs. Therefore, we think respondent erred when in his deficiency notice for 1956 and 1957 he determined that
The cost of the Conant land to the corporation is determined to be the cost to C. T. Wilson, who is held to have acted for the taxpayer corporation in the purchase of said land cost $61,042.34— * * *
Respondent fixed the basis of the lots which Glasgow sold from the Conant land in 1956 and 1957 by using a purchase price of $61,042.34, instead of $250,000, the price which Glasgow paid and agreed to pay for the land in 1955.
Respondent contends, however, in the alternative that if he was in error in determining that the cost of the Conant land to Glasgow was $61,042.34, nevertheless Glasgow's basis should not exceed $99,600 because of a contract which the Glasgow heirs entered into on April 27, 1950, with M. H. Carpenter, Inc., and in which, on the same day, Carpenter and Wilson concurred and agreed to be bound. We have given careful consideration to this contract and all the facts surrounding it and we do not believe that it has any bearing upon Glasgow's purchase in 1955 of the Conant land from Wilson and the Glasgow heirs, and we so hold.
The testimony convinces us that this contract of 1950 was entered into for the protection of the Glasgow heirs, owners, and not for the benefit of the development corporation. The purpose of section 22 of the contract, which section is included in our Findings of Fact and is the one upon which respondent relies for his contention, was to insure the Glasgow heirs that they would receive at least $1,000 per acre for any land which they might acquire within the distance prescribed, for the development. That is the interpretation that we give to the contract, considering all the evidence in the record. We sustain petitioners on this issue 3.
Inasmuch as we have sustained petitioners on issue 3, and have held that the $250,000 purchase price which Glasgow paid for the Conant land shall be recognized as its basis for apportioning the cost of the purchase price to the various lots which existed when the Conant land was subdivided into lots, it naturally follows that issue 4, as to interest paid by Glasgow in 1956 and 1957, shall be decided in Glasgow's favor. Both parties agree that this issue shall be determined in accordance with the way we determine the purchase price of the Conant land.
It also follows that issue 5, which contests the determination made by the Commissioner that the $25,000 part payment to Wilson in 1955 was the distribution of a dividend, must be decided in petitioners' favor. We hold that the $25,000 payment to Wilson in 1955 was not the distribution of a dividend but was payment of part of the purchase price for the Conant land. Wilson so treated it in his 1955 return and paid taxes in accordance therewith. It seems to us that his treatment was correct.
The final issue, issue 6, is whether Glasgow is entitled to deduct in 1956 a loss on the Ballas property. Respondent has disallowed the deduction on the ground that Glasgow has failed to prove that the loss was suffered by Glasgow. It is axiomatic that the loss, deduction of which is sought, must be sustained by the taxpayer who seeks to deduct it. New Colonial Co. v. Helvering, 292 U.S. 435 (1934). Here, the only evidence of a connection between Glasgow and the Ballas property is testimony that book entries were made transferring the property to Glasgow. No showing is made of any consideration which would support the transfer, nor is transfer of title to the property shown. In short, the only evidence to overcome the presumed correctness of respondent's determination in this regard is oral testimony that some book entries were made. What the book entries were, we are not told; what economic realities they reflected, we are not shown. The presence of entries upon the books of a taxpayer are not conclusive of the occurrence of the transaction which they purport to reflect. Cf. Doyle v. Mitchell Bros. Co., 247 U.S. 179 (1918). We hold, therefore, that Glasgow has failed to prove that respondent erred in disallowing the claimed loss on the Ballas property.
Decisions will be entered under Rule 50.