Spratt v. Commissioner

                  United States Board of Tax Appeals

One issue relating to the disallowance of a loss of $ 1,823.60 on common stock of the General Theatre Equipment, Inc., was abandoned by the petitioner. The remaining issues are:

1. Is petitioner entitled to any deduction for an alleged loss on certificates of interest owned by him in a trust formed to acquire and hold real property, by reason of the conveyance of the real property to him, by the trustees, during 1936?

2. Is petitioner entitled to deduct as a bad debt the amount of a note alleged to have been ascertained to be worthless and charged off during the year 1935?

3. Is petitioner entitled to a deduction in 1935 for partial worth-lessness of bonds of Central Public Utility Corporation?

FINDINGS OF FACT.

Petitioner is a resident of Minneapolis, Minnesota. He is engaged in the practice of medicine and keeps a set of books showing income received and expenses paid in connection with his profession. Miscellaneous transactions entered into by petitioner were not recorded in these books.

Issue No. 1.

In 1927 petitioner paid $ 40,500 to certain individuals which was used by them to acquire land and a two-story brick building thereon, located at 1301-1309 East Franklin Avenue, Minneapolis, Minnesota. Title to the property was conveyed to a trust known as Building Number One Trust; and, for the $ 40,500 paid by petitioner, he received, on September 8, 1927, all the 405 preferred share issued by the trust, the par value of which was$ 100 per share, and 45 percent of the 2,580 common shares issued, the par value of which was $ 25 per share. The remaining 55 percent of the common shares was issued to J. W. Adams, Jr., in part payment for his services in organizing the trust and securing the sale of the property to it and for services to be rendered by him as manager of the trust property.

Under the terms of the trust agreement dated August 24, 1927, the trustees (J. W. Adams, Jr., Doris L. Adams, and E. D. Ford, Jr.) were to hold the property conveyed to them for the benefit of the owners of the beneficial interest in the trust, represented by preferred and common shares; the holder of preferred shares was to be paid 7 percent cumulative annual dividends, payable quarterly; the preferred shares were to be callable at any time at the option of J. W. Adams, Jr., at par value and accrued dividends; in the event the quarterly dividend should become in default for a period of 18 months after the date when dividends were payable, the control and ownership of the trust property was thereupon to pass to the holder or holders of the preferred shares or certificates, and the trustees were thereupon to quitclaim to said holder or holders all of their interest in said property; the common shares were to receive no dividend until all preferred shares or certificates had been retired, principal and dividend; the trustees were to have broad powers to operate and manage the trust property; the preferred and common shares were transferable only on the books of the trustees; and the trustees were to assume the existing $ 24,000 first mortgage upon the trust property dated April 28, 1924. The trust agreement also contained the following provisions:

(16) Determination of Net annual Income and Rights of Preferred Shareholders in case it does not equal $ 6,500.00. The net annual income of the trust property is defined as any sum remaining out of the gross income after paying the expenses enumerated in the preceding paragraph. In the event that in any of the first ten (10) years after the date of this agreement the net income, as so defined, does not equal the sum of Six Thousand Five Hundred Dollars ($ 6,500.00), and that such condition continues for two (2) successive years, then the holder of the preferred shares, or in case there be more than one, a majority in amount thereof shall have the right to take over the control and management of the trust property, and upon such holder or holders duly electing to do so, the trustees shall do everything necessary for them to carry out their election; provided, however, that the said J. W. Adams, Jr., shall have the right to make up whatever amount shall be necessary during any such two year period to equal the sum of Six Thousand Five Hundred Dollars ($ 6,500.00) net earnings for each of said two years, and thereby he shall retain control of said property for a further period of two (2) years thereafter, and so on until the end of the said ten (10) year period, when all rights of preferred shareholders under this paragraph to take the trust property shall cease; provided further that the said J. W. Adams, Jr., shall in no way be obligated to make up personally any such deficiency; and provided further that the net earnings as hereinafter defined shall be figured for each year separately and that any excess over Six Thousand Five Hundred Dollars ($ 6,500.00) in any one year prior to the time when all preferred shares have been retired shall be used to reimburse said J. W. Adams, Jr., for any moneys expended by him in previous years in order to bring the net earnings up to Six Thousand Five Hundred Dollars ($ 6,500.00) or if no money has been so expended then such excess shall be used to retire outstanding preferred shares, but in any subsequent year during the first ten (10) years whenever the net earnings do not equal Six Thousand Five Hundred Dollars ($ 6,500.00) said J. W. Adams, Jr., shall be entitled to credit to the extent of any excess so used before advancing any money to make up the deficiency.

(17) Disposition of Net Earnings. The net earnings accruing according to the provision of the preceding paragraph shall be used to pay in the order named payments on principal and interest of the mortgage, dividends on preferred stock and any balance remaining in any one year of said net earnings shall be used to retire the preferred shares or certificates while any are outstanding; and when all such have been retired the trustees shall retain from the net income such part or the whole thereof as in their discretion is reasonably required as a reserve fund to take care of payments of principal or interest on any mortgages, repairs to or replacements of buildings and any and all other probable expenses and such portion thereof as shall be required to reimburse J. W. Adams, Jr., for any money expended by him under paragraph (15) for life insurance premiums and not yet refunded and for any money expended under paragraph (16) to bring the net annual earnings up to Six Thousand Five Hundred Dollars ($ 6,500.00) and not yet refunded, in either case without interest, and the balance shall be distributed annually as dividends on the common shares.

* * *

(21) Termination of Trust and Disposition of Trust Property. At the expiration of twenty (20) years after the death of the last survivor the trustees herein named, and of Mary Hortense Ford, the daughter of Edwin D. Ford, Jr., one of the Trustees herein and of F. G. Adams, the son of J. W. Adams, Jr., and Doris Leslie Adams, Trustees herein, the Trustees shall forthwith proceed to sell and dispose of all of the trust property and account to the shareholders for the proceeds thereof. Thereupon this trust shall terminate, it being the intent hereof that the trust herein created shall be in any event terminated within twenty-one (21) years after the death of the last survivor of the persons above named. The shareholders, however, may at any time by unanimous vote of all preferred shareholders and a majority of all common shareholders terminate said trust sooner. Thereupon the Trustees shall proceed to carry said vote into effect.

On December 4, 1936, the quarterly dividend on the preferred shares provided for in the trust agreement having been in default for more than 18 months form the last precdeing dividend paying date, the trustees executed and delivered to petitioner a quitclaim deed covering the land and building at 1301-1309 East Franklin Avenue. The property thus conveyed to petitioner constituted the sole asset of the trust, and it was terminated as of December 4, 1936.

The value of the land and building transferred to petitioner as of December 4, 1936, was $ 33,250. On that date the property was encumbered by a first mortgage, the unpaid balance on which was $ 20,000. During the period from 1927 to 1936 petitioner received the sum of $ 16,492.83 in retirement of a portion of the preferred shares, and also some dividends.

In his income tax return for 1936 petitioner in computing his net income for that year deducted the amount of $ 10,757.17 as a loss sustained in connection with the termination of Building Number One Trust. In determining the deficiency for 1936 respondent disallowed the deduction as an ordinary loss, and allowed a deduction of $ 4,302.87 (40 percent of $ 10,757.17) as a capital loss under the provisions of section 117 of the Revenue Act of 1936. In his supplemental answer, respondent alleges that no loss was sustained by petitioner in 1936 with respect to the preferred stock of Building Number One Trust.

Issue No. 2.

Early in the year 1929, petitioner made a loan to M. J. Breen, cashier of a bank at Bridger, Montana. Breen gave petitioner his note for $ 1,500, payable on demand. The note was dated "Bridger, Mont. Jan. 10, 1929", and provided for the payment of interest at the rate of 8 percent per annum. In 1930 or 1931 the bank at Bridger failed, and thereafter Breen was engaged in managing farm properties owned by petitioner and others. During the years 1930 to 1935, inclusive, Breen had certain equities in oil leases and lands in Montana upon which he hoped to find oil or gas. During this period petitioner saw Breen only once or twice, but wrote him several times asking what he was going to do about his note. Breen replied to each communication, stating that he was out of a job and had a family to support, but that he had some prospects of striking oil and hoped to be able to pay the note. Breen never paid anything on the note, and petitioner never instituted any suit to collect the amount due thereon. In 1935 he consulted an attorney, who advised him not to bring suit "because most people after 1929 had very little money left to pay any notes; especially Breen."

Petitioner did not enter the Breen note in the set of books kept in connection with his medical profession, and claimed no deduction on account of this note in his income tax return for 1935. He first claimed the right to deduct the amount of this note in a supplemental protest filed with the Commissioner of Internal Revenue on July 2, 1938. In the petition filed with this Board on April 1, 1939, petitioner alleges that the deduction of a bad debt in the amount of $ 1,500 should be allowed in computing his income for 1935.

Issue No. 3.

Sometime prior to 1932 petitioner acquired five bonds of the Central Public Service Corporation, paying therefor $ 4,850. In 1932, pursuant to a plan for readjustment of the affairs of the Central Public Service Corporation and its subsidiaries, petitioner exchanged the five bonds of that corporation for five 5 1/2 percent income bonds of the Central Public Utility Corporation (Delaware), due August 1, 1952. No interest payments have been made on these bonds.

In computing his net income for 1935 petitioner deducted $ 4,693.75 as a bad debt, claiming that the bonds of the Central Public Utility Corporation owned by him became worthless to this extent during that year. This deduction was disallowed by the respondent.

OPINION.

MELLOTT: The issues as set out at the beginning will be considered in the order stated.

Issue No. 1.

Petitioner contends that the preferred shares or trust certificates of Building Number One Trust were legally and in effect a mortgage, and that, following well recognized principles, upon foreclosure (or in lieu thereof a deed from the mortgagor to the mortgagee) he is entitled to deduct the loss sustained ($ 10,757.17) in computing his net income for 1936; that Minnesota law clearly holds such a trust to be a mortgage; that the law as enunciated by the courts of Minnesota is controlling in this proceeding; and that the initial acquisition of the preferred shares can not be said to constitute a capital investment because all that petitioner did was to lend money and receive security therefor which he subsequently had to foreclose and ripen into title in himself.

Respondent contends that no loss whatsoever is allowable for the reason that at all times after 1927 petitioner was the owner of a beneficial interest in the trust property and no identifiable event occurred with respect thereto in 1936 which could serve as the foundation for a loss; that the record fails to show the necessary facts with respect to computation of the alleged loss; that the proof with respect to value of the property conveyed to petitioner in 1936 was inadequate; and, in the alternative, if petitioner suffered any loss in 1936, it must be treated as a capital loss on the ground: (1) That the so-called trust was in reality an association to be treated under the revenue acts as a corporation and the property received by petitioner was a distribution in complete liquidation; or (2) the transaction whereby petitioner acquired the property in 1936 constituted a sale or exchange within the meaning of section 117 of the Revenue Act of 1936.

In support of his contention that the preferred shares or trust certificates were legally and in effect a mortgage, petitioner points to the definition of that term contained in Buse v. Page, 32 Minn. 111; 19 N.W. 736. In that case the Supreme Court of Minnesota defined a mortgage to be a "conveyance of real estate, or some interest therein, defeasible upon the payment of money or the performance of some other condition." The court also stated, however, that, in considering whether or not a transaction is a mortgage, the important question is, What was the intention of the parties?; and the intention is to be ascertained by looking at the written memorials of the transaction and its attendant facts and circumstances.

For the $ 40,500 which petitioner invested in Building Number One Trust, he received all of its preferred shares and 45 percent of its common shares. These shares were in the usual form of certificates of interest in a land trust. One of the certificates for preferred shares introduced in evidence is headed "Land Trust Certificate of Equitable Ownership in Real Estate - The Building Number One Trust." It certifies that the petitioner is the owner of preferred shares of beneficial interest of the par value of $ 100 each, transferable only on the books of the trustees upon surrender of the certificate properly endorsed. It also contains a statement to the effect that the preferences and rights of the various classes of shares are set forth in the trust agreement, the material portions of which are printed on the back of the certificate.

The trust agreement provided that the holders of the preferred shares should receive 7 percent cumulative annual dividends; that these dividends should be paid from net earnings after payment of expenses and principal and interest on the first mortgage; and that any net earnings remaining should be used to retire the preferred shares outstanding. The preferred shares contained no fixed obligation or agreement on the part of the trust to retire them or return to the owner or owners, at a specified time, his or their capital investment.

Petitioner devotes much argument on brief to the proposition that Federal courts are bound by state rules of law in determining whether or not a trust is a mortgage and that in Minnesota a mortgage may be in the form of a trust deed. We do not question the soundness of this argument, but it seems to have no application here. Before the rule petitioner seeks to apply can be applicable, the intention to create a mortgage must be proved by clear and convincing evidence. Bernard Long, 1 B.T.A. 792, 794; Federal Land Bank of St. Paul v. Smaagaard, 192 Minn. 21; 256 N.W. 102. The evidence introduced by petitioner fails to disclose any such intention here. On the contrary, it discloses an intention to create a relationship analogous to that which exists between a corporation and its preferred shareholders. The interest petitioner acquired was called a "share", and the return which he was to receive a "dividend." While these appellations are not decisive, they can not be lightly ignored in determining the nature of the transaction.Kentucky River Coal Corporation, 3 B.T.A. 644, 649; Greensboro News Co., 31 B.T.A. 812. Other indications that a shareholder relationship rather than that of debtor -creditor was intended are the provisions for payment of dividends out of net earnings, and the absence of a fixed maturity date for the retirement or repayment of the principal sum. United States v. South Georgia Railway Co., 107 Fed.(2d) 3; Haffenreffer Brewing Co., 41 B.T.A. 443 (C.C.A., 1st Cir.); William Cluff Co., 7 B.T.A. A. 662, 669. It is apparent petitioner made a capital investment and acquired an ownership-beneficiary interest in Building Number One Trust, and we so hold. Any loss sustained by him in 1936 is not, therefore, deductible as a bad debt.

There remain for consideration the contentions of respondent (1) that petitioner is entitled to no deduction whatsoever with respect to the building trust and (2) that, if he suffered a loss in 1936, it was subject to the limitations of section 117 of the Revenue Act of 1936. These contentions will be considered together.

Respondent's argument in support of his contention that no deduction should be allowed may be briefiy summarized. He says: Building Number One Trust owned one specific property; petitioner as the owner of all the preferred shares was the sole beneficiary thereof until these shares were fully retired, which never happened; and the mere conversion of his equitable interest in the property into a legal interest in 1936, when the legal title was conveyed to him, did not consitute such an event as to result in a deductible loss of any kind to petitioner. In this connection he relies upon certain obiter dictum contained in a decision rendered by the Circuit Court of Appeals for the Second Circuit in Allen v. Commissioner, 49 Fed.(2d) 716.

In the Allen case, the court held that one of several beneficiaries of a trust, the purpose of which was to secure a new bank against unknown debts of a merged institution, was taxable on the gain resulting from a distribution to him by the trust of his pro rata share of certain securities. The court stated that the question whether gain or loss should or should not be recognized on such a transaction depended upon whether the distribution effected a substantial change in the beneficiaries' interest, and, if the change was enough to justify saying that they received new property for their former rights, then there was taxable profit, even though strictly the transaction were not an exchange under section 202(c) of the Revenue Act of 1921. While holding that there was a sufficient change in that case, the court said:

It does not follow that the same would be true generally, as for example in the ordinary case of a trust of land, of one or of several parcels, for the benefit of a single cestui que trust or of voting trusts of corporate shares, where the res is a mass of fungibles to be returned in kind upon dissolution, or of similar transactions. The result may well vary with the relation of the beneficiaries to the fund while the trust is being administered. In any event we have to decide no more than the case before us.

In our opinion the quoted language is not authority for holding that the distribution to the petitioner of the corpus of Building Number One Trust did not effect such a substantial change in his interest as to warrant the recognition of gain or loss for tax purposes Petitioner made an investment of $ 40,500 in preferred and common shares of the trust, which entitled him to receive all of the dividends on preferred shares until they had been retired at par and thereafter to receive his proportionate share of any dividend distributions on common shares. His right to receive the trust corpus as the owner of all the preferred shares was dependent upon the happening of a condition subsequent, viz., the failure of the trust to pay dividends on its preferred shares over a period of 18 months. This event occurred in 1936 and the trust property was transferred to him in that year, free of all claims of the holder of a majority of the common shares to share in its earnings and in the proceeds of the sale of the property upon the termination of the trust. Then for the first time he was free to exercise the complete dominion and control over the property which until then could be exercised only by the trustees. There was, therefore, a substantial change in his interest in the property and any gain or loss resulting from this change should be recognized for tax purposes.

Although the respondent urges on brief that petitioner has not proved the amount of the loss sustained by him in 1936, we are satisfied that he has done so. Petitioner paid $ 40,500 for all of the preferred shares and a minority interest in the common shares of Building Number One Trust. It is true, as respondent points out, that a portion of petitioner's cost was allocable to the common shares (Cyrus S. Eaton, 37 B.T.A. 715, 718; Collin v. Commissioner, 32 Fed.(2d) 753), and that petitioner did not prove the amount allocable to them. This failure of proof is not fatal, however, since it is apparent from the evidence that the common shares did not become worthless until the trust had been in default in the payment of dividends on its preferred shares for a period of 18 months. This occurred in 1936, and the loss sustained by petitioner in that year on his investment in both preferred and common shares is the difference between the value of the property transferred to him (liss the amount of the outstanding first mortgage) and his investment of $ 40,500 reduced by payments of $ 16,492.83 theretofore received in retirement of a portion of the preferred shares. When computed in this manner, the loss sustained is $ 10,757.17, the amount used by the respondent in determining the deficiency.

The remaining question is whether the loss sustained by petitioner is deductible in its entirety as an ordinary loss, or whether the deduction is limited by the provisions of section 117 of the Revenue Act of 1936, relating to losses sustained in connection with the sale or exchange of capital assets.

Both parties agree that Building Number One Trust was an association. We see no reason for holding to the contrary. Morrissey v. Commissioner, 296 U.S. 344; Swanson v. Commissioner, 296 U.S. 362 (in which a trust to operate a single building was involved); Helvering v. Coleman-Gilbert Associates, 296 U.S. 369; Helvering v. Combs, 296 U.S. 365; Solomon v. Commissioner, 89 Fed(2d) 569. Section 1001(a) (2) of the Revenue Act of 1936 provides that such associations shall be treated for tax purposes as though they were corporations. On December 4, 1936, petitioner, as holder of all of the preferred shares of the trust, received all of its property in accordance with the provision in the preferred share certificates that such a distribution should be made if there was a failure to pay dividends on such shares for a period of 18 months. Had such a distribution been made by a corporation it would be treated as a distribution in complete liquidation. When made by an association it must be accorded similar treatment. Tyrrell v. Commissioner, 91 Fed.(2d) 500. Section 115(c) of the Revenue Act of 1936 provides that gain or loss is to be recognized with respect to amounts received in complete liquidation of corporations, and that such amounts are to be treated as in full payment "in exchange for the stock." Section 117(a) of the Revenue Act of 1936 provides that "upon the sale or exchange of a capital asset" held by a taxpayer for more than 5 years but not for more than 10 years only 40 percent of any loss sustained shall be taken into consideration in computing net income. The shares of Building Number One Trust were a capital asset held by petitioner for approximately 9 years. He is therefore entitled to deduct 40 percent of the loss sustained by him in 1936, in computing his net income for that year, as the respondent originally determined, and we so hold.

Issue No. 2.

Section 23(j) of the Revenue Act of 1934 provides that in computing net income there shall be allowed as deductions "Debts ascertained to be worthless and charged off within the taxable year."

In support of his contention that the $ 1,500 due on the Breen note should be allowed as a bad debt deduction in computing his net income for 1935, petitioner urges that he kept no regular set of books; that he mentally charged off the debt when it became outlawed in 1935; that he failed to deduct it in his return for that year because he was showing no tax due anyway; and that under certain decisions of the courts and this Board he is entitled to the claimed deduction.

The statute gives him no right to make a mere "mental" charge -off. In some cases it has been held that the second portion of the statute has been sufficiently complied with where it is shown that a taxpayer, keeping no books of account, deducted the amount of his alleged bad debt in a return, timely filed. William H. Redfield 34 B.T.A. 967; Estate of C. T. Grant, 36 B.T.A. 1233. In another line of cases it had been hild that, where a "charge -off" was made during the taxable year, the petitioner's right to take the deduction may be litigated in a proceeding involving the year the chargr-off was made, even though no deduction was claimed in the return. Estate of Henry N. Brawner, Ju., 36 B.T.A. 884; Peters v. United States, 10 Fed.Supp. 145. This petitioner would have us extend the doctrine of the cited cases to hold that a deduction may be allowed if a taxpayer ascertains a debt to be worthless, though he makes no attempt to make a charge-off within the taxable year or when he files his return and postpones making any attempt to deduct it until the Commissioner, three years later, determines a deficiency against him; but we do not believe that the doctrine should be so extended.

Even if petitioner's belated claim should, under the rationale of William H. Redfield, supra, be held to be a sufficient charge -off, petitioner has not proved to our satisfaction that there was an ascertainment of worthlessness within the purview of the statute. After stating that Breen had severed his connection with the Bridger bank in 1930 or 1931, and thereafter was engaged in managing farm properties, petitioner testified on cross-examination as follows:

     Q During that period after he severed his connection with the

A taxpayer must exhaust all the usual and reasonable means of collecting a debt before there can be an ascertainment of worthlessness. Petitioner took no action to collect the debt other than an occasional letter asking Breen what he was going to do about the note. While legal action is not always necessary to prove that a debt is worthless, in the absence of such action it must appear from the surrounding circumstances that a debt is worthless and uncollectible and that legal action to enforce payment would in all probability not result in the satisfaction of execution on a judgment. Petitioner admits that he knew very little about the financial condition of Breen, other than the statements contained in his letters. These statements do not convince us that the debt became worthless or uncollectible in 1935. According to petitioner's testimony the conditions and prospects for payment were no poorer in that year than they had been for several years prior thereto. Breen always indicated his willingness to pay the debt as soon as he was in a position to do so. The only change in the situation in 1935 appears to have been the running of the statute of limitations. This Board has repeatedly held that the availability of such a defense to a debtor is not a sufficient ascertainment of worthlessness to justify a charge -off of a note or other debt. Leo Stein, 4 B.T.A. 1016; Ralph H. Cross, 20 B.T.A. 929; affd., 54 Fed.(2d) 781. In our opinion there was no ascertainment by the petitioner of the worthlessness of the Breen note in 1935. It follows that the claimed deduction may not be allowed.

Issue No. 3.

At the hearing petitioner was permitted to introduce in evidence, over the objection of the respondent, two pages from "Moody's Manual of Investments" for the year 1936. One of these sheets contained the following statement of the assets and liabilities of the Central Public Utility Corporation as of December 31, 1935:

                         Assets

                      Liabilities

Section 23(k) of the Revenue Act of 1934 provides that "when satisfied that a debt is recoverable only in part, the Commissioner may allow such debt, in an amount not in excess of the part charged off within the taxable year, as a deduction." The Commissioner was not satisfied that the bonds owned by petitioner were worthless to the extent claimed in his return for 1935, and the question presented for our determination is "whether the evidence is sufficiently strong to require a holding that he reasonably should have been so satisfied." Bing & Bing, Inc., 35 B.T.A. 1170, 1177. We do not think it is. There is no evidence as to the market value of the bonds of the Central Public Utility Corporation as of December 31, 1935. In support of his contention that the bonds had little value on that date, petitioner attempted to prove that the principal asset of the corporation, the stock of the Consolidated Electric & Gas Co., was practically worthless. One witness for petitioner, a broker, testified that the stock was practically worthless on December 31, 1935, and based his opinion upon a statement to that effect in one of the investment services of which he was a subscriber. The only other evidence on this point is the statement in Moody's Manual, heretofore mentioned, that the class A and preferred stock of the Consolidated Electric & Gas Co. was carried on the balance sheet of the Central Public Utility Corporation at a figure of $ 40,268,201.49 in excess of the par or stated values on the books of Consolidated Electric & Gas Co.

The value of the assets of the Central Public Utility Corporation can not be determined from the testimony of petitioner's witness or from the statement contained in Moody's Manual. For aught that may be gleaned from the evidence, the stock of the Consolidated Electric & Gas Co. as of December 31, 1935, had a value greatly in excess of the par or stated values at which it was carried on the books of the issuing corporation. We are not convinced, therefore, that petitioner ascertained in 1935 that the financial condition of the Central Public Utility Corporation was such that he would recover on the maturity of its bonds only a part of the debt evidenced by them. It is our conclusion that the respondent's action in disallowing a deduction based upon the partial worthlessness of the bonds was not unreasonable, and this issue must be decided against the petitioner. Cf. Ruth Wight Bill, 38 B.T.A. 796; Securities Allied Corporation v. Commissioner, 95 Fed.(2d) 384, 386; certiorari denied, 305 U.S. 617.

Finding no error in the deficiencies originally determined by the respondent, we decline to increase or decrease them.

Judgment that there is a deficiency in the amount of $ 668.16 for 1935 and $ 506.99 for 1936 will be entered.