Clement L. Hirsch v. Commissioner of Internal Revenue

This is another tax case involving the question of whether the Tax Court correctly held that the petitioner-appellant (taxpayer) was not entitled to deduct, from his federal income taxes certain expenses paid and a worthless debt, suffered by him, as not having been incurred in the taxpayer’s trade or business.

Such facts as found by the Tax Court which we deem here pertinent may be summarized as follows:

The Las Vegas Thoroughbred Racing Association, organized to build a racetrack in Las Vegas, Nevada, was finan- daily unsuccessful and became the subject of a bankruptcy proceeding. As part of a plan of reorganization, the Las Vegas Jockey Club was incorporated in March 1953. Under the plan, the Jockey Club issued $2,000,000 of 6 per cent mortgage bonds and $42,500 liar value Class A stock. Holdings of bonds and Class A stock were proportionate, with one thousand shares of $0.02 par value stock held for each $1,000 in bonds. In addition, Class B stock was issued to a minority group, consisting of preferred stockholders and bondholders of Jockey Club’s predecessor, the Las Vegas Thoroughbred Association. Taxpayer invested about $90,000 in par value Jockey Club mortgage bonds and…