Commissioner v. Stimson Mill Co.

On June 28, 1940, the Commissioner mailed to the taxpayer a notice of a deficiency of $380 in its income tax for 1938. On August 19, 1940, the taxpayer filed a petition with the Board of Tax Appeals for a redetermination of the deficiency. On January 27, 1942, the Board entered its decision, finding no deficiency in income tax for 1938. The case is brought to this court on the Commissioner’s petition for review.

All the facts were stipulated, and were found by the Board as stipulated. In 1930 the taxpayer transferred cut-over timberland to Second Holding Corporation in exchange for all the latter’s stock. Second Holding Corporation was organized solely for the purpose of liquidating the land, and transferring the proceeds to the taxpayer. Proceeds were distributed to the taxpayer in 1931, 1932, 1937, and 1938.

With the 1938 distribution, the liquidation of Second Holding Corporation came to an end and that company was abandoned. The taxpayer claimed a loss deduction of $2,000, the maximum permitted under the Revenue Act of 1938, c. 289, 52 Stat. 447 , 26 U.S.C.A. Int.Rev.Acts, page 1001 et seq. It was disallowed by the Commissioner on the theory that no loss could be recognized…