Opinion
This case having been heard by the Court of Claims, the court, upon the stipulation of the parties, makes the following special findings of fact:
1. Plaintiffs are the executors of the will of Leopold Newborg, who was a citizen of the United States prior to the date of his death on March 22, 1938.
2. Plaintiff, Central Hanover Bank & Trust Co., is a domestic corporation, the address of which is 70 Broadway, New York City, New York. Plaintiffs, Herbert J. Marx and William L. Hernstadt, are citizens of the United States, whose addresses, respectively, are 30 Broad Street and 42 Broadway, New York City, New York.
3. Prior to Leopold Newborg's death on March 22, 1938, he was sole owner of the claim involved, and the claim constituted a part of his estate. The claim has never been assigned. Plaintiffs and Leopold Newborg have at all times borne true allegiance to the Government of the United States and have not voluntarily aided, abetted, or given encouragement to rebellion against the Government.
4. On March 15, 1934, Leopold Newborg, hereinafter referred to as taxpayer, filed an income tax return for the calendar year 1933 with the Collector of Internal Revenue for the Second New York District, showing no tax due.
5. During the year 1933 taxpayer was curities. He was a member of the New engaged in the business of trading se-York Stock Exchange. He was also a member of the partnership of Newborg & Co., which likewise traded in securities. As a partner in this firm, taxpayer shared in the profits and losses of the business to the extent of 75 per cent.
6. Taxpayer individually maintained four accounts on the books of the partnership, three of which represented classes of securities held for him, and the fourth represented free funds left with the firm by him. The firm charged taxpayer interest on the debit balances and paid him interest on the credit balances of these accounts at the rate of 3 per cent per annum. During the first six months of 1933 there was an excess debit balance in respect of these four accounts.
7. During the year 1933 taxpayer's share of profits of the partnership was $97,880.31, of which amount $19,260.16 represented taxpayer's share of the profits realized by the partnership from trading in securities owned by the partnership and held by it less than two years. On taxpayer's 1933 return the sum of $19,260.16 was offset by losses incurred by the taxpayer in the course of his individual business on the sale of securities owned by him individually and held less than two years.
8. During the year 1933 taxpayer realized a profit of $1,887.44 on the sale of United States Government bonds owned by him individually and held for less than two years. On his return taxpayer offset this sum of $1,887.44 by losses incurred by him on the sale of other stocks and bonds owned by him individually and held for less than two years. The transactions referred to in this paragraph were made in the course of taxpayer's individual business of trading in securities.
9. The Commissioner of Internal Revenue added the aforesaid sums of $19,260.16 and $1,887.44 to taxpayer's income upon the authority of Sections 23(r) and 23(t) of the revenue Act of 1932, 26 U.S.C.A.Int.Rev.Acts, pages 493, 494.
10. During the year 1933 taxpayer paid to the partnership of Newborg & Co. interest in the net amount of $1,837.03 on debit balances arising out of the purchase and carrying for taxpayer's account of Government bonds. This amount of $1,837.03 was deducted by the taxpayer on his 1933 return as interest paid, and was included in the net income shown on the 1933 partnership return of Newborg & Co. The Commissioner of Internal Revenue denied taxpayer the deduction claimed for the aforesaid sum of $1,837.03, upon the authority of Section 23(b) of the Revenue Act of 1932, 26 U.S.C.A.Int.Rev.Acts, page 489.
11. During the year 1933 taxpayer paid brokerage commissions to the partnership in the amount of $279.25 on the sale of securities held individually by him for less than two years and on which he incurred a loss. These commissions were not separately deducted on taxpayer's return but were included in the net income shown in the 1933 partnership return of Newborg & Co.
12. During the year 1933 taxpayer paid brokerage commissions to the partnership in the amount of $197.50 on the purchase of securities individually held by him and which he sold during 1933 at a loss. These commissions were not separately deducted on taxpayer's return but were included in the net income shown in the 1933 partnership return of Newborg & Co.
13. Because of adjustments to income occasioned by the foregoing transactions and because of other adjustments not here in controversy, taxpayer was assessed an additional tax for the year 1933 in the amount of $3,423.36, which amount, plus interest of $389.51, was paid on February 24, 1936.
14. On February 8, 1938, taxpayer filed a claim for refund a copy of which is attached to the petition marked Exhibit A and by reference is made a part hereof.
15. Except to the extent of $1,303.17 with respect to items not here in controversy, the claim for refund was rejected by registered letter from the Commissioner of Internal Revenue under date of September 8, 1938. Wilbur H. Friedman, of Washington, D. C., for plaintiffs.
J. W. Hussey, of Washington, D. C., and Samuel O. Clark, Jr., Asst. Atty. Gen. (Robert N. Anderson, Fred K. Dyar, and John A. Rees, all of Washington, D. C., on the brief), for defendant.
Before WHALEY, Chief Justice, and LITTLETON, WHITAKER, BOOTH, and GREEN, Judges.
PER CURIAM.
This case involves the question of whether under section 23(r) of the Revenue Act of 1932, a loss sustained by the taxpayer (who was engaged in the business of securities) on his individual transactions in stocks and bonds held for two years or less may be offset against his share of partnership profits realized from similar transactions during the same taxable period. Some other questions were also presented which are not necessary to be considered if the answer to the question above stated is in the affirmative.
In the case of Neuberger v. Commissioner, 61 S.Ct. 97, 85 L.Ed.--decided November 12, 1940, the Supreme Court held that such an offset can be made against partnership security profits under the section above referred to.
In Klingenstein v. United States, 85 Ct.Cl. 164, 18 F.Supp. 1015, this court followed the decision of the Circuit Court of Appeals of the Second Circuit, in Johnston v. Commissioner, 86 F.2d 732, where it was held by a divided court that a partner could not offset his noncapital net loss against his share of partnership net gain. The decision of the Supreme Court in the Neuberger case, supra, overrules the decisions made in the two cases last cited and in effect holds that the plaintiff is entitled to recover herein.
There is no dispute as to the facts in the case and under the law as laid down by the Supreme Court the plaintiff is entitled to recover $2,120.19, with interest as provided by law. Judgment will be rendered accordingly.