The opinion
McMahon,
concurring: While I concur in the result, I cannot agree with the grounds therefor stated in the majority opinion.
The petitioner was the selling agent of its two wholly owned subsidiaries and this constituted its sole business. It acquired from them certain securities, having a market value of $420,051, for the sum of $666,967.37, which amount represented the cost thereof to them.
Situations may arise which would induce a purchaser to pay more than the market price to acquire property. Such a purchase may be and often is, as a matter of common knowledge, a normal transaction. Where the statute provides that “ cost ” shall be the basis for the computation of loss or gain, it means cost, whether the cost happens to be above or below the market value, provided an actual purchase was intended.
While the respondent disallowed the claimed loss upon the ground that it was not incurred in a “ transaction entered into for profit ”, and while this is not a ground for disallowing the deduction of a loss by a corporate taxpayer, nevertheless the burden was upon the petitioner to show that it was entitled to the deduction. No explanation of the circumstances surrounding the alleged purchase of the securities from its subsidiaries was advanced by the petitioner and no reason was given for the payment of substantially more than the market; price, except that counsel for the petitioner upon oral argument stated as follows:
It is quite true that the petitioner did not need to do that. [Pay book value instead of market value.] It did not need to sustain that loss, hut it had to realize that it was in an insurance business as a whole, taking the three companies as one business entity, or one business group. It was in the insurance business and they had to protect policyholders.
Now, obviously the petitioner, by keeping these insurance companies in a healthy condition would obviously be able to sell more insurance. Or, rather, it would not sell less insurance because the insurance companies could show that they were sound.
As pointed out, not only were the subsidiaries wholly owned by the petitioner, but it was also their agent and this constituted its sole business. These facts, viewed in the light of the statement of counsel, *417 support the inference that the petitioner not only intended to protect its investment in its subsidiaries, but also its own business. Obviously, unless its subsidiaries could show that “they were sound”, the petitioner would not be able to sell their policies of insurance, and by putting its subsidiaries in a sound financial position it enabled them to continue in business and also enabled itself to continue as agent and to sell at least as much insurance as it had theretofore sold. This was not a transaction comparable to a transaction between members of a family; it constituted a business transaction and must be viewed in that light. In reference to a somewhat analogous situation in B. Estes Vaughan, 17 B.T.A. 620 , the Board stated as follows:
There appears to have been no legal obligation upon petitioner to make this payment, but the practical situation was compelling. Petitioner was president, director and a substantial stockholder in four banks. The defalcations had taken place while he was active manager of the bank. If the impaired capital had not been made whole on the date the defalcation was discovered, the bank would have been compelled to close its doors. The effect upon the reputation of the petitioner as a banker, upon the other banks of which he was president, and upon his investments in those banks, might have proven disastrous. It is urged that a payment under such circumstances is such a loss as is deductible. The Commissioner urges that it was made to protect the investment of petitioner ; that it must be treated as additional cost of that investment; and that until the stock is disposed of it can not be said that petitioner has sustained a loss. We believe this to be the better view. Petitioner might have taken his loss by permitting the bank to be liquidated. In that case he would have been permitted his deduction. He chose instead to put more funds into the venture, giving it new life. * * * While these funds left the hands of the petitioner, they went to enrich a corporation in which he was a substantial stockholder.
In other words, the amount paid in by that taxpayer was held to be a capital contribution and hence a part of the cost of his stock. The cause of the impairment of the capital is immaterial, whether through defalcations as in the above situation or through decrease in market value of assets as in the instant proceeding. In this view the difference between the cost of the securities to petitioner’s subsidiaries and the market value at the date of purchase of such securities, by the petitioner, constituted a capital contribution on the part of petitioner and therefore is not deductible as a loss. See Washington State Bank, 20 B.T.A. 33 ; and W. R. Ranney, 16 B.T.A. 1399 ; affirmed in First Nat. Bank in Wichita v. Commissioner, 46 Fed. (2d) 283.