
    Appeal of FRED D. COCK.
    Docket No. 2663.
    Submitted July 10, 1925.
    Decided October 28, 1925.
    
      Robert J. Walker, G. P. A., for the taxpayer.
    
      Ellis W. Manning, Esg., for the Commissioner.
    Before Green, Lansdon, and Love.
   This is an appeal from the determination of a deficiency in income tax for the calendar year 1921, in the amount of $1,031.70, all of which is in controversy. The only issue involved is the deductibility of $9,750 as a business loss not covered by insurance sustained during the year in question.

FINDINGS OF FACT.

The taxpayer resides in Elizabeth City County, Ya. Some time prior to the year involved in this appeal he acquired common stock of the par value of $13,000 and preferred stock of the par value of $5,000 of the Sanitary Milk Co., Inc., of Newport News, Va.

The Sanitary Milk Co., Inc., was unsuccessful in its operations. During the latter part of 1920 it became financially embarrassed to such an extent that bankruptcy seemed .certain. After consideration of several plans for saving their investments and the business, all the stockholders entered into an agreement providing for the surrender of 75 per cent of their common stock and the transfer of the same to parties to be designated by one of the stockholders, conditioned on the success of some plan to prevent the bankruptcy of the company.

One Nelson undertook to refinance the company. With the assistance of some of the stockholders he compromised with creditors by paying some of them 50 per cent of the face value of their claims in cash and others 25 per cent in cash and 75 per cent in preferred stock. He also sold the bonds of tbe company in sufficient quantity to provide funds for operations. The charter of the company was amended by changing the name to Nelson Creamery Co. All the common stock owned by the signers of the agreement referred to above was turned in to the company and transferred by issuing 25 per cent of its par value to the signers of the agreement, including the taxpayer, and 75 per cent to parties designated by the stockholders who made the agreement with Nelson.

In his income-tax return for 1921 the taxpayer deducted $9,750, the difference in par value between the stock of the Sanitary Milk Co., Inc., which he surrendered, and the par value of the stock of the Nelson Creamery Co., which he received in exchange therefor, as a business loss sustained during the year and not covered by insurance.

DECISION.

The determination of the Commissioner is approved.  