Albert J. Bernard and Janice C. Bernard v. Commissioner of Internal Revenue

From 1936 through the period involved in this litigation, appellant Albert J. Bernard was employed as a sales manager for a firm in Minnesota, a job which involved between 30 and 50 hours of his time weekly. At some time after i960, Bernard decided to buy 3,010 shares of Bohemian Surf Equipment Mfg. Co. (Bohemian) for $30,100. During 1961 and 1962, he served as president and a director of Bohemian, but received no compensation for either position. On his 1964 tax return, Bernard deducted the price of his Bohemian stock as an ordinary loss on the ground it was worthless. In 1965, he sought to deduct as business bad debts a loan of $15,000 made to Bohemian and a loan of $2,500 made to an individual named Wesley Deas. His argument for treating these sums as ordinary losses is that they were expended in the course of his trade or business of being a promoter. The Tax Court disagreed, holding that these items were to be treated as capital losses, 42 P-H Tax Ct. Mem. 73-295 (1973), and we affirm.

Under Int. Rev. Code of 1954 § 165(g), the loss from the worthlessness of the Bohemian shares is to be treated as a capital loss if the shares were capital assets in Bernard’s hands.…