Samuel J. Grauman and Aurora G. Grauman v. Commissioner of Internal Revenue

Petitioners, husband and wife, residents of Tucson, Arizona, here seek review of a Tax Court decision upholding income tax deficiencies asserted by the Commissioner for the years 1950, 1951 and 1952.

The husband, the primary taxpayer, is a physician practicing in Tucson. Ele also engages in the business of subdivision and sale of real estate.

1. Loan to the Pet Shop

Prior to 1951 petitioners acquired an interest in a pet shop which subsequently was incorporated. By 1951 they were the sole owners. In that year taxpayer loaned this corporation $4,328.75 to enable it to pay certain creditors. In 1953 he filed a claim for refund for the year 1951, claiming that the loan constituted a business bad debt under section 23 (k) (1) of the Internal Revenue Code of 1939. The Commissioner disallowed this claim and was upheld by the Tax Court.

The “business” asserted by the taxpayer was that of lending money. In support of this assertion taxpayer argues that the substantial amount of income reported from mortgages in previous years proves that taxpayer was in the business of lending money. The Tax Court rejected this argument, stating:

We agree. While taxpayer occasionally did provide…