The opinion
CITY AND SUBURBAN MORTGAGE COMPANY, PETITIONER, v. COMMISSIONER OF INTERNAL REVENUE, RESPONDENT.
City & Suburban Mortg. Co. v. Commissioner
Docket No. 45658.
United States Board of Tax Appeals
26 B.T.A. 179 ; 1932 BTA LEXIS 1356 ;
May 25, 1932 , Promulgated
*1356 Organization expenses which were capitalized upon incorporation in 1925 held not deductible in 1927, the year in which the corporation determined to liquidate, where the corporation is still in existence, owning and managing substantial property and assets.
Henry Ravenel, Esq., for the petitioner.
W. R. Lansford, Esq., for the respondent.
LANSDON
*179 The respondent has asserted a deficiency for 1927 in the amount of $491.39, which is based upon his disallowance of a deduction of $3,639.91 as a loss sustained in the taxable year. The amount disallowed represents petitioner's organization expenses capitalized upon incorporation, which it alleges became a loss in the taxable year when it determined to liquidate.
FINDINGS OF FACT.
The petitioner is a Delaware corporation organized on October 28, 1925. From such date until the latter part of 1927, it was engaged in buying and selling second mortgages on real estate in the District of Columbia, Maryland and Virginia.
In the process of corporate organization and for the sale of stock, the petitioner expended the amounts of $654.25 and $2,985.66, respectively, which it capitalized on *1357 its books.
At a regular meeting of the board of directors on September 14, 1927, it was voted that the corporation should be liquidated. From that time until early in 1929, negotiations for the sale of all corporate assets were conducted with the Title Investment Company of Maryland. Some time in 1929 such negotiations ceased without *180 consummating a sale and petitioner has since been unable to liquidate its business. On March 3, 1932, the date of hearing before the Board, it owned several buildings which it rented and managed and certain real estate mortgage notes on which it collected principal and interest payments. For a period of about two years, from 1929 to 1931, petitioner's charter was in default, but it was renewed in 1931 in order that petitioner could give marketable title to real estate which it hoped to sell.
OPINION.
LANSDON: The petitioner contends that the capital investment in its corporate organization became a loss in 1927, when it was determined to liquidate. It argues that the corporation was organized to buy and sell second mortgages and that in 1927 it ceased to do business and put forth every effort to liquidate; that thereafter it merely *1358 held the property until liquidation could be effected. The respondent contends that no part of the amount was a loss in the taxable year, since petitioner has not dissolved and has not abandoned its corporate franchise. He also contends that the commissions paid for the sale of capital stock, in the amount of $2,985.66, could not be a loss in any event, inasmuch as such expenditures were not properly capitalized, but were in the nature of discount on the stock sold.
We have repeatedly held that organization expenses are capital expenditures. ; ; , and others. We have also held that such capital expenditures may not be recovered by deductions for exhaustion over the life of the corporation. . In , we held tht organization expenses theretofore capitalized constitute a deductible loss upon dissolution of the corporation and abandonment of the corporate franchise. The facts of the instant case, however, do not *1359 come within the rule of the Malta Temple Association case. Here the petitioner is still using the corporate structure acquired in return for its organization expenditures. The franchise is still in use, the corporation owns property and is active in its management. We think the petitioner sustained no loss in 1927 as a result of its determination to liquidate.
Our conclusion above makes it unnecessary for us to discuss the respondent's contention that commissions paid for the sale of stock were in the nature of discount on the stock sold and were therefore improperly capitalized.
Decision will be entered for the respondent.