
    384 F. 2d 1008
    HENRY H. TOWNSHEND, JR. AND DORIS B. TOWNSHEND v. THE UNITED STATES
    [No. 244-62.
    Decided November 9, 1967]
    
      
      Joseph D. Di/Sesa, attorney of record, for plaintiff. Boris /. Bittker and John W. Kline, of counsel.
    
      Edna G. Parker, with whom was Assistant Attorney General Mitchell Bogovin, for defendant.
    Before CoweN, Chief Judge, Laramore, Dureee, Davis, ColliNS, Skelton, and Nichols, Judges.
    
   Per Curiam :

This case was referred to Trial Commissioner Lloyd Fletcher with directions to make findings of fact and recommendation for conclusions of law. The commissioner has done so in an opinion and report filed on February 2, 1967. On February 28, 1967, plaintiffs filed a notice of intention to except to the commissioner’s report but thereafter, on allowance of additional time for the filing of such exceptions, on September 7,1967, the parties filed a stipulation to resolve certain administrative matters in regard to years subsequent to this litigation and a joint motion for an additional finding of fact and for the adoption of the opinion, findings of fact, and recommended conclusion of law of the trial commissioner. Since the court agrees with the commissioner’s opinion, findings, and recommended conclusion of law, as modified by the joint motion of the parties for the addition of finding No. 23, it hereby adopts the same, as modified, as the basis for its judgment in this case, as hereinafter set forth. Plaintiffs are, therefore, not entitled to recover and their petition is dismissed.

OPINION OF COMMISSIONER

Fletcher, Commissioner:

As in Whipple v. Commissioner, 373 U.S. 193 (1963), this income tax case involves the question of whether the taxpayer’s activities in connection with several corporations in which he held controlling interests can themselves be characterized as a trade or business so as to permit a debt owed by one of the corporations to him to be treated under Section 166(a) of the 1954 Code as a business rather than a “nonbusiness” bad debt under Section 166(d). Whipple and an avalanche of cases before it have established that, unless a taxpayer can prove himself to be engaged in the independent business of loaning money, or financing businesses, or promoting corporate enterprises, any loan made by him to his closely-held corporations, upon worthlessness, will give rise only to a nonbusiness bad debt deduction subject to short-term capital loss limitations. Obviously, then, the question is essentially one of fact and involves an historical analysis of the taxpayer’s business activities. See Eedman, Bad Debts: Worthlessness, 22 N.Y.U. Inst. on Fed. Tax., 315, 323 (1964).

The taxpayer commenced his business career shortly after his release from the Army in December 1945. Almost immediately he obtained a job with the Marlin Firearms Co. as its production control manager and later was promoted to plant manager, a position he continued to hold until June of 1952.

By reason of an inheritance, Mr. Townshend was a man of considerable wealth. Commencing in 1947, he embarked upon a series of efforts to increase his wealth through buying into, or forming, small corporations for the purpose of exploiting various lines of products, some new and some old. The factual details of these transactions are set forth in the findings below and will not be repeated here. Suffice it to say that his modus operandi was essentially the same in all these activities and may be described thusly.

Typically, plaintiff would be approached by friends, relatives, or business acquaintances and asked to examine various products as to their sales potential or to put money into an existing business venture. Frequently, nothing came of these approaches. On the other hand, in several instances plaintiff was attracted by a proposal to the extent that he would invest money in it. For example, in one of his first ventures, plaintiff was approached by two men who had a patent on a doorstop device but no money with which to exploit it. Plaintiff and the patentees formed a corporation under the name of Items, Inc. to which the patentees contributed their patent and plaintiff contributed $5,000 for which he received 52 percent of the stock. The venture was a failure.

The corporation out of which the bad debts here involved arose was Toy Metal Manufacturing Company (Toy Metal). In early 1949, plaintiff and several other businessmen formed this corporation to engage in the manufacture of toys. Each man contributed $7,500 for which they received an equal amount of stock in the corporation. Although initially successful, the company began to experience collection difficulties, and its financial condition deteriorated. In an effort to salvage his original investment, plaintiff agreed to assume the debts of the corporation in exchange for the surrender of their stock by the other stockholders, and thereafter he became the sole stockholder.

Toy Metal abandoned the toy business and obtained subcontracts to make fuse parts needed for the Korean War effort. For a couple of years the company prospered, but near the middle of 1952 it entered into a large subcontract for the manufacture of component parts of a shovel. This was the largest venture Toy Metal had ever undertaken, and it was to prove its undoing.

Bealizing that Toy Metal needed considerable financing to perform this subcontract and that it could not obtain any substantial credit on its own, plaintiff arranged for Toy Metal to borrow substantial sums from The Union & New Haven Trust Company in which plaintiff owned considerable stock and with which he maintained a large custody account. The loans so obtained by Toy Metal from the Trust Company were evidenced by promissory notes, the payment of which was personally guaranteed by plaintiff.

The prime contractor on the shovel contract experienced severe financial difficulties, and eventually the Government terminated the contract for default. The prime contractor’s difficulties reflected themselves in corresponding difficulties to Toy Metal. The end result was that plaintiff had to pay The Union & New Haven Trust Company on the Toy Metal notes which he had guaranteed. He paid a total of such notes in 1955 amounting to $50,000, a total of $100,000 in 1956, and the remaining balance of $60,000 in 1957. These are the payments which plaintiff claimed as business bad debt deductions in the respective years of payment.

Section 166 of the 1954 Code is the applicable provision. As is so often true in the Code, the section begins by stating a general rule and then places a limitation upon it. The general rule is that there “shall be allowed as a deduction any debt which becomes worthless within the taxable year.” Sec. 166(a). But Section 166(d) provides a limitation that “nonbusiness” debts owed to taxpayers other than corporations are deductible only when they become wholly worthless and then only as short-term capital losses. The section goes on to define a nonbusiness debt as any debt other than—

(A) a debt created or acquired (as the case may be) in connection with a trade or business of the taxpayer; or
(B) a debt the loss from the worthlessness of which is incurred in the taxpayer’s trade or business.

Obviously, one effect of this definition is to define, by indirection, the business debt, so that if a debt cannot meet one or the other of these two tests, it cannot qualify as a business debt but necessarily must be a nonbusiness debt. The crucial words of the definition are “trade or business.” Thus, if he is to obtain a business bad debt deduction, a taxpayer must show that he had a business with which the bad debt was connected. See Knickerbocker, Bad Debts, 23 N.Y.U. Inst. on Fed. Tax., 113, 118 (1965).

Plaintiff contends that he was in the business of promoting, organizing, financing, and developing small businesses. He says that because he was primarily interested in developing and disposing of business enterprises, he was a “promoter of the classic type,” and that, therefore, the losses incurred when he discharged his liability to The Union & New Haven Trust Co. as guarantor of Toy Metal’s notes were a direct result of his business of promoter.

Plaintiff has shown that for the period covered by his testimony (1945-1965) he had investigated numerous business possibilities and that he had organized at least five corporations either alone or in participation with others. In each instance he received stock in exchange for the money which he contributed to the capital of the new corporation. Being thus instrumental in the organizing of a number of corporations, there is little doubt that plaintiff can properly be classed as a “promoter” in the corporate or securities law sense of that term.

However, in order for such a promoter to be engaged in a trade or business for tax purposes, Whipple v. Commissioner, supra, requires that he must undertake such activity for compensation other than the normal investor’s return. In determining the business status of a taxpayer who was even more active in corporate organization than plaintiff here, the Supreme Court said at 373 U.S. 202-203:

If full-time service to one corporation does not alone amount to a trade or business, which it does not, it is difficult to understand how the same service to many corporations would suffice. To be sure, the presence of more than one corporation might lend support to a finding that the taxpayer was engaged in a regular course of promoting corporations for a fee or commission, see Ballantine, Corporations (rev. ed. 1946), 102, or for a profit on their sale, see Giblin v. Commissioner, 227 F. 2d 692 (C.A. 5th Cir.), but in such cases there is compensation other than the normal investor’s return, income received directly for his own services rather than indirectly through the corporate enterprise, and the principles of Burnet, Dalton, du Pont and Higgins are therefore not offended.

By this statement it is clear that the Supreme Court, in determining the taxpayer’s business status, places great emphasis on the nature of the income which he receives, or expects to receive, from his activities. If he promotes corporate enterprises for fees and commissions or with a view to an early and profitable sale thereof after the business has become established, then the expected income would be “received directly for his own services rather than indirectly through the corporate enterprise,” and he may properly be said to have a business of his own separate and apart from the businesses of the corporations.

The difficulty with plaintiff’s case is that he can meet none of the Supreme Court’s criteria. There can be no dispute that he received no fees and commissions for his promotional activities. To be sure, he received shares of stock in the several corporations, but, again, there is no suggestion that such stock was received for promotional services. Bather, the stock was received for money paid by plaintiff to the issuing corporation.

It is true that, following its statement quoted above, the Supreme Court went on to note that Whipple had “no intention * * * of developing the corporations as going businesses for sale to customers in the ordinary course * * *” It is that fact, says plaintiff, which constitutes a critical distinction between his case and Whipple. He asserts that, unlike Mr. Whipple, he always entertained the intention to develop his several corporations as going businesses for sale to others. However, whatever plaintiff’s subjective intention may have been, the objective facts of record fall far short of establishing his assertion.

During the entire twenty years covered by his testimony, plaintiff never once sold any corporation in which he had an interest, nor, indeed, does the record show that he ever made any particular effort to sell any of his corporations as such. What he did do on several occasions was to cause his corporations to sell part of their assets in the form of product lines. For example, the J. T. Henry Manufacturing Corporation had developed, in addition to its line of hand garden tools, an entire line of power tools. Plaintiff and his co-stockholder caused the corporation to sell the power tool line to another unrelated company, the purchase price and royalty payments being made to J. T. Henry Manufacturing Corporation and not to its stockholders.

In pointing to this transaction as a typical instance of his engagement in the business of selling product lines, plaintiff betrays a common lay misconception, i.e., that of the major stockholder in a closely held corporation confusing the corporate business with his own. It was not plaintiff who sold the power tool line. It was the J. T. Henry Manufacturing Corporation. Thus, if anyone can be said to be engaged in the business of selling product lines, it was the corporation which was so engaged, not plaintiff. And the business of a corporation is not the business of its stockholders or officers. Whipple v. Commissioner, supra; Burnet v. Clark, 287 U.S. 410 (1932).

All the objective evidence of record, including large portions of plaintiff’s own testimony, points unerringly to the ultimate conclusion that plaintiff’s many activities were those “peculiar to an investor concerned with, and participating in, the conduct of the corporate business.” Whipple v. Commissioner, supra, at p. 202. He has failed to establish that he was engaged in some separate “trade or business” of his own. Accordingly, the Whipple decision instructs us that the debts in question must be classified as nonbusiness debts. To the same effect, see the recent applications of the Whipple doctrine in United States v. Clark, 358 F. 2d 892 (1st Cir., 1966), cert. denied, 385 U.S. 817 (1966), and Millsap v. Commissioner, 46 T.C. 751 (1966).

For all of the above reasons, plaintiffs’ petition should be dismissed.

FINDINGS of Fact

1. Plaintiffs, Henry H. Townshend, Jr. and Doris B. Townshend, are husband and wife, residing in New Haven, Connecticut. They filed joint Federal income tax returns for the calendar years 1955,1956, and 1957 with the District Director of Internal Revenue, Hartford, Connecticut.

2. The taxable income and tax liability reported and paid on the aforesaid joint returns were as follows:

Year Taxable Tax Income Liability
1955 $55,731.68 $22,821.23
1956 30,048.27 9,482.69
1957 44,597.99 16,841.81

In computing taxable income and tax liability plaintiff deducted the following amounts as business bad debts:

Tear Amount
1955 $50,000
1956 100,000
1957 60,000

The Internal Revenue Service disallowed those deductions for the reason that “it has not been established that such amounts are business bad debts within the meaning of section 166(a) of the Internal Revenue Code of 1954” and “for the additional reason that you have failed to establish that the debts, if they existed, became worthless during such taxable years.” Tax deficiencies resulting from said disallowance were asserted, and on April 14, 1960, plaintiff paid the deficiencies, together with interest thereon, in the following amounts:

Tear Tax Assessed Deficiency Interest
1955 $30,459.78 $7,278.22
1956 56,514.80 10,113.05
1957 34,160. 76 4,063.26
Total 121,135.34 21,454.53

Claims for the refund of those payments were disallowed by the District Director of Internal Revenue, Hartford, Connecticut, by letter dated May 5, 1961. This suit was timely filed thereafter.

3. The taxpayer commenced his business career shortly after his release from the Army in December of 1945. Almost immediately he obtained a job with the Marlin Firearms Company as its production control manager and later was promoted to plant manager, a position he continued to hold until June of 1952. By reason of an inheritance, Mr. Townshend was a man of considerable wealth. Commencing in 1947, be embarked upon a series of efforts to increase bis wealth through buying into, or forming, small corporations for the purpose of exploiting various lines of products, some new and some old. Typically, he would be approached by friends, relatives, or business acquaintances and asked to examine various products as to their sales potential or to put money into an existing business venture. Frequently, nothing came of these approaches. On the other hand, in several instances described below, plaintiff was attracted by a proposal to the extent that he would invest money in it.

4. In one of his first ventures during 1947, plaintiff was approached by two men who had a patent on a doorstop device but no money with which to exploit it. Plaintiff and the patentees formed a corporation under the name of Items, Inc., to which the patentees contributed their patent, some materials and inventory, and plaintiff contributed $5,000 in cash for which he received 52 percent of the stock of the corporation. Later the corporation purchased a line of silver home barware, and sometime thereafter it sold that entire line. The doorstop device was not successful, and the corporation became inactive in 1950. The purpose of plaintiff’s investment in Items, Inc. was to build the corporation into one which had a proprietary line of products so that eventually he could either sell the corporation or his stock therein at a capital gain.

5. In 1947 or 1948, plaintiff was consulted by a chemist who had developed a promising product to oxidize the surface of cast iron. Plaintiff suggested that the chemist form a corporation for the purpose of exploiting his product. The chemist followed his advice and formed the Swift Industrial Chemical Corporation. Later he asked plaintiff to invest some money in the venture. Plaintiff did invest $750 in the corporation for which he received about five percent of its stock. Plaintiff eventually sold his shares of stock back to the corporation at a profit. Other than participating in a few consultations with the chemist on the promotion of the product, plaintiff’s relationship to the corporation was solely that of a passive minority stockholder.

6. In early 1949, plaintiff and several other businessmen formed a corporation under the name of Toy Metal Mfg. Company. Each man contributed $7,500 and received therefor an equal amount of stock in the corporation. Toy Metal engaged in the manufacture of toy sinks, stoves, and washing machines, and the business was profitable at first. Not long after its successful beginning in the toy business, Toy Metal ran into difficulty collecting from its distributors, and the corporation’s financial condition thereupon deteriorated rapidly. In an effort to salvage his original investment, plaintiff agreed to assume the debts and obligations of the corporation in exchange for the other shareholders surrendering their stock for cancellation. The other stockholders agreed, and thus plaintiff became the sole stockholder of Toy Metal in 1950 or 1951.

After plaintiff became the sole stockholder of Toy Metal, the corporation did not continue its unprofitable toy business, but went into subcontract work for other companies. Some unsuccessful attempts were made to sell the toy line, but ultimately the tools, dies, fixtures, and other assets comprising the toy line were disposed of as scrap metal. Meanwhile, Toy Metal had obtained subcontracts to make fuse parts needed for the Korean War effort, and the corporation enjoyed profitable years in 1951 and 1952.

About the middle of 1952, Toy Metal was awarded a subcontract in the amount of approximately $750,000, by the Harvey Whipple Company, a Government prime contractor, for the manufacture of component parts of a shovel. This was the largest venture Toy Metal had ever undertaken, and plaintiff terminated his employment at Marlin Firearms Co. in order to give his personal supervision to the undertaking.

7. Shortly after the shovel subcontract was obtained, plaintiff realized that extensive financing would be required in order for Toy Metal to perform the contract. Toy Metal did not have the necessary cash resources even to complete the required tooling program for the subcontract, which cost about $80,000, and it also needed money to place the necessary orders for the specialized steel required to make the shovel parts. Toy Metal was able to borrow the necessary money from The Union & New Haven Trust Company but only on the strength of plaintiff’s personal guarantees. At this time plaintiff owned negotiable securities of an approximate value of $1,000,000, which securities he normally kept in a custody account with The Union & New Haven Trust Company, plus other money from various trusts over which he had no direct control. Plaintiff was a valued customer of, and had a considerable stock ownership in, The Union & New Haven Trust Company, and for the repayment of any loans to Toy Metal, it relied solely on plaintiff’s personal guarantees.

8. Prom time to time in the period from January 1953 through March 7,1955, Toy Metal obtained loans from The Union & New Haven Trust Company, all of which were evidenced by promissory notes which plaintiff personally guaranteed by indorsement. As of March 1955, the total amount of such notes outstanding was $210,000.

When Toy Metal began performing the shovel subcontract, it first ran into difficulties with defective contract specifications. Thereafter its difficulties were compounded by Harvey Whipple’s inability to pay for parts delivered to it by Toy Metal. The specification problem was finally resolved, but Harvey Whipple’s financial difficulties and lack of funds to pay for parts delivered to it were never remedied. Accordingly, Toy Metal had to impose credit restrictions on the Harvey Whipple Company and would not deliver any more parts unless payment was made within a specified period. Finally, Toy Metal and the other subcontractors were notified that the Government had terminated the remaining part of the prime contract, and Harvey Whipple thereupon advised Toy Metal that it could not pay for any more shipments. The last shipment had been made in the latter part of July 1955. Toy Metal never received payment for that shipment or for any other claims which it had against the Harvey Whipple Company. Because of this, Toy Metal became insolvent.

9. Since Toy Metal was unable to discharge its indebtedness to The Union & New Haven Trust Company, plaintiff had to honor his indorsements. He personally paid Toy Metal’s notes as shown by the following schedule:

Date of Note Face Amount of Note Date of Payment Amount of Payment
10-1-53 $90,300 2-23-58 $30,300
2-8-57 8, 000
4-12-57 24,000
10-24-57 23, 000
12-23-57 5,000
10-26-53 40,000 2-23-56 40, 000
12-1-53 5,000 4-22-55 5, 000
12-21-53 17, 000 2-23-56 17, 000
2-2-54 7,700 4-22-55 7,700
6-14-54 2,400 4-22-55 2,400
7-22-54 5, 500 4r-22-55 5,500
8-6-54 5, 500 4-22-55 5, 500
9-2-54 10, 300 4-22-55 10,300
9-8-54 1,300 4-22-55 1,300
9-30-54 15, 000 4-22-55 2, 300
2-23-56 12,700
3-7-55 10, 000 4-22-55 10,000

The total payments of $50,000 in 1955, $100,000 in 1956, and $60,000 in 1957 were claimed by plaintiff as business bad debt deductions in his tax returns for the respective years of payment.

In April of 1957, all of the production equipment of Toy Metal was sold at auction for $9,403.50, and its corporate existence was terminated as of October 31, 1957. All its assets were distributed to its creditors, and plaintiff as its sole stockholder received nothing.

10. In the fall of 1953, plaintiff had organized the J. T. Henry Manufacturing Corporation (Henry Manufacturing) to which he contributed paid-in capital of approximately $40,000 in exchange for all the stock of the corporation, except for qualifying shares to directors. Henry Manufacturing then purchased the assets of the J. T. Henry Company which had been manufacturing a line of hand garden tools for about 100 years. Among the assets acquired from that company, in addition to the hand garden tool line, was a power pruner which was in the developmental stage. Henry Manufacturing continued to manufacture and sell the hand garden tool line, and although the volume of sales rose from $66,000 in 1954 to about $178,000 in 1956, the hand garden tool line never showed a year-end profit.

In 1957, the board of directors of Henry Manufacturing decided to sell the hand garden tool line and have the corporation concentrate on power tools. The power pruner had been finally developed, and from this embryo an entire line of power tools with broad application was to be developed. In late 1957, a Mr. Loeser contributed additional capital to Henry Manufacturing and, as a result, became an equal shareholder with plaintiff. The potential in the power tool line had become evident, and the power pruner was developed into an extensive line of power tools. Plaintiff took a direct part in supervising much of this development work. He obtained several patents on items so developed and assigned them to the corporation. The expenses of developing the power tool line were borne by Henry Manufacturing.

In the meantime, plaintiff, acting for Henry Manufacturing, made numerous attempts to sell the hand garden tool line. These efforts were largely unsuccessful, and except for a few items, Henry Manufacturing still has most of the hand garden tool line for sale. The corporation normally reimbursed plaintiff for his expenses in trying to sell the hand garden tool line.

11. Commencing in 1958, Henry Manufacturing had also produced lobster shears which were developed into a gift package of a lobster shear and a lobster pick. The corporation paid the expenses of developing the items, and manufactured them from 1953 through 1959. It then sold the product line to a local concern and made a profit on the sale.

12. In 1961 or 1962, Henry Manufacturing sold its entire power tool line to another company which paid the corporation lump sums for its inventory, tools, dies, fixtures, and other assets. Henry Manufacturing received, and continues to receive, royalties on sales of the patented items.

13. At one point Henry Manufacturing received an order to produce safety fence brackets for a customer. The corporation obtained the necessary equipment, tools, dies, and fixtures and actually manufactured the device for a period of time. Later, Henry Manufacturing sold the product line to another corporation.

14. As of the time of trial herein, Henry Manufacturing Corporation was still in existence, still had the hand garden tool line available for sale, and was still receiving royalties from the purchaser of the power tool line. In the aforesaid instances of sales of a product line — the lobster shear, the power tool line, and the safety fence bracket — the purchase price was paid to the corporation.

15. At the time plaintiff organized the Henry Manufacturing Corporation, he also organized the J. T. Henry Eealty Corporation (Henry Eealty) as a land holding company, and transferred the land of the old J. T. Henry Company to that corporation. Again, except for qualifying shares, plaintiff was and apparently still is the sole stockholder of the land holding corporation. Plaintiff, acting for Henry Eealty, has occasionally investigated prospects for land acquisition and development, and Henry Eealty has from time to time acquired additional parcels of land.

16. Plaintiff has organized two corporations in which, at least initially, he was the sole stockholder, namely, the J. T. Henry Manufacturing Corporation and the J. T. Henry Eealty Corporation. Plaintiff has participated with others in the organization of three other corporations, namely, Items, Inc., Toy Metal Manufacturing Company, and Mashamoquet Farms, Inc. The last named corporation was formed 'by plaintiff and five other individuals in September of 1956. It is a land holding company and has purchased about 1,500 acres of land in northeastern Connecticut. The corporation derives some income from timber sales and soil bank payments, and has a Christmas tree crop growing on its land, which, crop should mature and be available for marketing soon.

17. In 1962, plaintiff invested $10,000 in another company, National Waste Conversion Corporation. The corporation purchased a machine which converts waste materials into organic fertilizer, and this machine was being operated experimentally at the time of the trial in a room provided by Manhattan College. The record does not show how many other individuals have invested in this corporation.

18. Plaintiff has never organized a corporation for a fee or commission, nor has he ever received any fees or compensation for investigating business opportunities. In the five instances where plaintiff has organized a corporation, or participated with others in organizing a corporation, he has received stock for the money which he contributed to the capital of the corporation. Plaintiff is not in the business of making loans to corporations or to individuals. He has purchased stock in corporations and has made loans to corporations but only to those in which he held shares of stock.

Plaintiff has never sold a corporation, and the record does not indicate that he has ever made any serious efforts to sell a corporation as distinguished from selling a part of its assets, such as a product line. In those instances where, as a corporate official, he negotiated the sale of a product line owned by one of his corporations, the selling corporation received the sales proceeds. Plaintiff received no compensation for those sales efforts as such.

19. In his tax returns for 1955, 1956, and 1957, plaintiff did not report any net income from a trade or business or any liability for self-employment taxes.

Ultimate FINDINGS of Fact

20. The return which plaintiff expected to realize from his activities was only that which any investor normally receives, and any return to plaintiff, even though substantially the fruits of his own labors, arose out of the business of the corporation.

21. Plaintiff was not engaged in any trade or business separate and apart from the businesses of the corporations in which he was a stockholder.

22. The bad debt losses in this case did not arise from any separate trade or business carried on by plaintiff, but arose from activities peculiar to an investor concerned with, and participating in, the conduct of a corporate business.

23. The nonbusiness bad debts in the amount of $210,000 became wholly worthless in the year 1957.

CONCLUSION op Law

Upon the foregoing findings of fact, which are made a part of the judgment herein, the court concludes as a matter of law that plaintiffs are not entitled to recover, and their petition is dismissed. 
      
      See finding No. 23 pertaining to an undisputed fact which neither party requested the commissioner to find out which both parties have requested the court to find by the joint motion filed September 7, 1967.
     
      
      The opinion, findings of fact, and recommended conclusion of law are submitted under the order of reference and Rule 57(a).
     
      
       The term refers to Henry H. Townshend, Jr. His wife, Doris B. Townshend, is a party hereto solely because she filed Joint Income tax returns with her husband for the taxable years here involved.
     
      
       Tills contract was the subject matter of Harvey-Whipple, Inc. v. United States, 169 Ct. Cl. 689, 342 F. 2d 48 (1965). In the court’s decision there, Toy Metal is referred to by its trade name of “Meriden Industries.”
     
      
       For example, the Securities and Exchange Commission, in Rule 405 under the Securities Act of 1933, 15 U.S.C. secs. 77a et seq., has defined promotor as follows :
      Promotor. The term “promotor” includes: (1) Any person who, acting alone or in conjunction with one or more other persons, directly or indirectly takes initiative in founding and organizing the business or enterprise of an issuer;
      (2) Any person who, in connection with the foundling and) organizing of the business or enterprise of an issuer, directly or indirectly receives in consideration of services or property, or both services and property, 10 percent or more of any class of securities of the issuer or 10 percent or more of the proceeds from the sale of any class of securities. However, a, person who receives such securities or proceeds either solely as underwriting commissions or solely in consideration of property shall not be deemed a promoter within the meaning of this paragraph if such person does not otherwise take part in founding and organizing the enterprise. 17 C.F.R. 230.405(g).
     
      
       Plaintiff malees ro contention that he was in the business of lending money to corporations. Cf. Ferguson v. Commissioner, 253 F. 2d 403 (4th Cir., 1958). Nor is there any evidence to suggest that plaintiff may have guaranteed Toy Metal’s notes for the purpose of protecting his relatively small salary as an officer of Toy Metal. Cf. Trent v. Commissioner, 291 F. 2d 669 (2nd Cir., 1961).
     
      
       As principal executive officer of the corporation, plaintiff no doubt was active in negotiating the sale on behalf of the company. It appears to be fairly easy for the layman to overlook the fact that such business activities are carried on in an agency capacity only. In thus serving his corporation, a taxpayer does not create a “trade or business” of his own. Whipple v. Commissioner, supra.
      
     
      
       It will perhaps suffice to mention one typical example. When asked to state the objective of his efforts to sell the J. T. Henry power tool line, Mr. Townshend candidly replied: “My objective here was to create a profit in the corporations so that we would come out with more money than we put in.”
     
      
      
        Cf. Giblin v. Commissioner, 227 F. 2d 692 (5th Cir., 1955) where “on the undisputed facts” (p. 698) the court concluded that the taxpayer was a dealer in enterprises. See the comment on this case in Knickerbocker, Bad Debts, supra, at pp. 123-124.
     
      
       Doris B. Townshend is a party hereto only because she filed joint tax returns with her husband. Hereafter the word “plaintiff” or ‘“taxpayer” will refer to Henry H. Townshend, Jr.
     
      
       Toy Metal did business under tbe name of Meriden Industries Company, a corporation engaged in metal stamping work which Toy Metal had acquired as a wholly owned subsidiary.
     
      
       The subcontract was actually issued in the name of Meriden Industries Company, Toy Metal having elected to do its subcontract work under that name as previously indicated in footnote 2. Meriden Industries was well known to other businesses, including the Harvey Whipple Company. Meriden Industries Company’s corporate existence was terminated on March 15, 1953, and on March 25, 1953, Toy Metal filed a trade name certificate certifying that it was doing business as Meriden Industries Company.
     
      
       Following the default by Harvey Whipple, the employees of that company, sometime after July of 1955, made a last-minute attempt to salvage the shovel prime contract. Plaintiff and representatives of some of the other subcontractors met and considered setting up a corporation, the Nutmeg Shovel Company, to try to obtain the shovel prime contract and continue the worlr. Nothing materialized from either of these efforts.
     
      
       In addition to these payments, plaintiff made loans directly to Toy Metal during its corporate existence, the unpaid balance of which amounts to $J 13,780.67. These loans are not involved in this litigation.
     