Hastings, Senior Circuit Judge, and Kiley and Kerner, Circuit Judges.
HASTINGS, Senior Circuit Judge:
These appeals concern two consolidated suits for refund of federal income taxes for the taxable calendar years 1962 and 1963, based on the carryover of losses from 1961. Findings of fact and conclusions of law were filed by the district court September 29, 1969.*fn1
In No. 18316, taxpayer Lorenzo A. Beltran recovered judgment for $2,473.88, principal and interest, for the years 1962 and 1963. In No. 18317, taxpayers Enrique A. and Olga P. Onetti, husband and wife, recovered judgment for $2,245.66, principal and interest, for the years 1962 and 1963. The Government has appealed from these adverse judgments.
The pertinent facts found by the district court are not complicated and for the most part were stipulated or are not in dispute.
Beltran is a citizen of the Republic of Cuba residing in Chicago, Illinois. He entered the United States at Miami, Florida on October 23, 1960 from Cuba, on a nonimmigrant visa issued at Havana, Cuba. He became a resident alien of the United States for federal income tax purposes on October 23, 1960 and has remained as such to the present time. In 1954, he purchased land in Havana at a cost of $20,337.53. The same year he constructed a building containing nine apartments on this land at a cost of not less than $130,000. The estimated useful life of his apartment house was 50 years. His cost of acquiring the land and building, less depreciation on the building through December 5, 1961, was $131,781.33. This property was held by him exclusively for rental purposes and he was engaged in the trade or business of operating rental real estate.
The Onettis are now United States citizens residing in Chicago, Illinois. They entered the United States on September 9, 1961, at Miami, Florida from Kingston, Jamaica pursuant to nonimmigrant visas. They became resident aliens of the United States for federal income tax purposes on September 9, 1961 and have remained United States residents to the present time. On July 4, 1958, they purchased land and a building thereon containing one apartment at a cost of $13,000, the house having an estimated useful life of 40 years. Their property was subject to a $5,000 mortgage, which was not paid off prior to October 14, 1960. Their cost of acquiring the land and building, less depreciation on the building through December 5, 1961, was $12,020. This property was held by them exclusively for rental purposes and they were engaged in the trade or business of operating rental real estate.
On October 14, 1960, the Cuban Government promulgated the Urban Realty Reform Law pursuant to which it intervened the rental properties owned by both taxpayers. Taxpayers transferred their rental properties located in Havana, as required, to the Cuban Government in return for compensation to be determined by a formula which took into account the age and rental value of the property. Tenants were given the right to purchase the properties for the same amount, payable in installments over a period of not less than five nor more than twenty years. The Council of Urban Reform was created to manage and maintain such rental properties and to carry out the compensation and purchase provisions of this law. Following the enactment of the law, taxpayers ceased to exercise the normal attributes of ownership and control over their rental real estate, such as the right to collect the rents directly from the tenants and the obligation to repair and maintain the premises.
Beltran became entitled to receive compensation payments of 600 pesos per month for 14 years and 4 months. The Onettis became entitled to receive compensation payments of between 58 and 60 pesos per month for 8 years and 6 months. In addition, Onettis were relieved of their obligation to pay the mortgage on their real estate. Taxpayers caused the necessary papers to be filed to receive their indemnification at an office of the National Bank of Cuba in Havana where their monthly compensation checks would be delivered and held for them. Six or seven monthly compensation checks in the above amount were issued to Enrique Onetti in Havana for the period October 14, 1960 through May, 1961. Prior to leaving Cuba in August, 1961, he returned to Havana in May, 1961 and received and cashed these checks at the National Bank of Cuba. He received and cashed similar checks at the same office for the months of May through August, 1961. Onetti did not call for, receive or cash any further monthly payments. Several monthly compensation payments of 600 pesos were issued in Beltran's name at the National Bank of Cuba, but he never claimed, received or cashed any of them.
After Beltran entered the United States on October 23, 1960, and after the Onettis entered the United States on September 9, 1961, checks continued to be issued in their names as above set out until December 5, 1961. Neither taxpayer received any of these checks after they departed from Cuba to take up permanent residence in the United States, nor did either of them return to Cuba after becoming a resident alien here. There is no evidence to show that either taxpayer could have received his compensation unless he returned to Cuba to claim it. Beltran testified he had no intention of returning to Cuba to collect his checks because he "didn't like the system." Enrique Onetti had a similar lack of intention, and testified: "When I left Cuba, I had made up my mind not to live in Cuba again as long as Castro was in power. Therefore, if they did not allow me to take any money from Cuba I was not interested in any money I could have there." Both taxpayers indicated they intended to return to Cuba if and only when the Castro government was overthrown.
On December 5, 1961, the Cuban Government promulgated "Law No. 989" which in effect confiscated and forfeited all property rights of Cubans who left Cuba and failed to return within a designated time, unless they received permission from that government to be absent. It is agreed that Law 989 extinguished the right to compensation which each of the subject taxpayers held pursuant to the Urban Realty Reform Law.
The district court made certain key findings of fact*fn2 and conclusions of law.*fn3 These give rise to the issues raised on this appeal.
The first issue presented is whether taxpayers lost property in Cuba for United States tax purposes on December 5, 1961, after they became residents of the United States, for which a deductible loss is ...