c33:Nos. 15, 16, Dockets 31903, 31904

IRVING R. KAUFMAN, Circuit Judge
(dissenting in part):
I dissent from that portion of the majority opinion affirming the Tax Court’s denial to Danica of deductions for business losses in excess of $50,000 under §§ 269 and 270.
I do not dispute the correctness of the Tax Court’s findings that Borge, as the sole proprietor of the ViBo business, had sustained losses in excess of $50,000 in each of the years 1954-1957, and that he incorporated the business for the purpose of avoiding a recomputation of his income disallowing loss deduction in excess of $50,000, which § 270 would have called into play had he sustained another such loss in 1958. Nevertheless, I believe the application of § 270 to Danica through § 269 is improper in this case.
The purpose of § 270 is to limit the extent to which the government will participate in the losses sustained by an individual in the conduct of his trade or business — participation which may be greater than in the case of corporate losses because individual tax rates are higher than corporate rates. It is perfectly clear that § 270, of its own force, has no application to corporate loss deductions and places no limit on the amount of such deductions which a corporation may claim. Thus if the ViBo business had been incorporated from its inception, § 270 would have been of no relevance to it. A problem midway between initial incorporation and the instant case would arise if, for instance, ViBo, while operated as an individual proprietorship, had sustained losses in excess of $50,000 for at least five consecutive years, and after Borge had been disallowed deductions in excess of $50,-000 for those years, he had then incorporated the enterprise, which continued to suffer such losses. In such an instance, even if the incorporation was for the purpose of avoiding further disallowance of loss deductions under § 270, the corporation thenceforth should be permitted to deduct the full amount of its losses otherwise allowable. Since the enterprise. has already been disallowed any benefit it might have obtained from its prior operation as an individual proprietorship (i. e., the deduction of losses at the higher individual tax rate), there appears no good reason why it should not now be afforded the same treatment as an enterprise incorporated ab initio. From this it follows that where, as here, the business is incorporated just before § 270 would be called into play for the purpose of avoiding its application, the proper remedy under § 269 is to disallow the benefit actually obtained by the enterprise while operated as an individual proprietorship. And that benefit was the deduction of business losses from individual income. Thus, the Commissioner should have recomputed the loss deductions for the years ViBo was unincorporated; the remedy which he chose instead, and of which the majority approves, bears no necessary correlation to the deduction benefit which Borge obtained by incorporating ViBo in avoidance of § 270.
Since the Commissioner did not thus seek to recompute Borge’s income, but only that of Danica, I would reverse on this issue.

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