author: Smith :

text:
    Raymond I. Bashford, Petitioner, v. Commissioner of Internal Revenue, Respondent.
    Docket No. 71565.
    Promulgated September 10, 1935.

      Walter G. Moyle, Esq., Stanley Swydam, Esq., and Earl B. Breeding, Esq., for the petitioner.

      W. Frank Gibbs, Esq., for the respondent.
   OPINION.

Smith :

The evidence consists of a stipulation of facts, including a number of exhibits, and the oral testimony of two witnesses.

Prior to October 7, 1930, the Peerless Explosives Co. was a Delaware corporation, engaged in the manufacture and sale of explosives. There were issued and outstanding on October 7, 1930, 17,672 shares of preferred stock of a par value of $25 per share and 14,890 shares of common stock of no par value. On the same date petitioner was the owner of 2,541 shares of common stock of the Peerless Explosives Co. and 28 shares of its preferred stock. This company will hereinafter be referred to as Peerless.

On and prior to October 7, 1930, the Union Explosives Co. was a West Virginia corporation, engaged in the manufacture and sale of explosives. It had outstanding 3,367% shares of preferred stock of a par value of $100 per share and 4,044 shares of common of no par value. This corporation will be referred to hereinafter as Union.

At the same tune the Black Diamond Powder Co. was a corporation organized and existing under the laws of Pennsylvania, with an issue of 1,584 shares of common stock of the par value of $100 per share, all of which was owned by Peerless. This company will be referred to hereinafter as Black Diamond. It was engaged in the powder business.

On and prior to October 7, 1930, the Atlas Powder Co. was a corporation organized and existing under the laws of Delaware, engaged in the business of manufacturing and selling high explosives and related products. On October 7, 1930, there were issued and outstanding 261,438% shares of common stock of no par value, including treasury stock, and 96,318 shares of preferred stock of $100 par value. Hereinafter this company will be referred to as Atlas.

On or about September 22, 1930, the Peerless-Union Explosives Corporation was organized under the laws of Delaware, and on or about October 6, 1930, its capital stock was increased from 500 shares of preferred stock of $100 par value and 500 shares of common stock without par value, to 50,000 shares of preferred stock of $100 par value and 100,000 shares of common stock of no par value. Hereinafter this company will be referred to as the new company.

Peerless, Union and Black Diamond were all engaged in the same general line of manufacture and sale of high explosive as was Atlas. Peerless, Union and Black Diamond were at the same time business competitors and customers of Atlas, since they purchased large quantities of chemicals used in the manufacture of their products from Atlas.

The situation of rivalry was not satisfactory to Atlas, which desired to remove the possible dangerous competition and to acquire for itself the business of these competitors. Early in 1930 Leland Lyon, president of Atlas, conceived the idea of reorganizing Peerless, Union and Black Diamond, and consolidating or merging them into a new company, which would be controlled by Atlas.

It was desired that the identity of Atlas in the transactions should not be known at the inception of the negotiations, so Lyon summoned to his office at Wilmington, Delaware, H. J. Seligman and W. E. Fletcher for consultation and formation of a plan of action. Both of these men were experienced in the powder business and had formerly been connected with Atlas, and were personally acquainted with many of the stockholders of Peerless and Union. It was for these reasons that they were selected by Atlas to conduct the preliminary negotiations. They were instructed that Atlas did not desire to purchase either the assets or stocks of Peerless, Union or Black Diamond, but to reorganize them into a new company by the exchange of stocks, which new company would be controlled by Atlas. It was desired that the stockholders of the old companies should go along with them into the new.

The preliminary negotiations with the majority stockholders of Peerless and Union were conducted by Atlas through its agents, H. J. Seligman and W. E. Fletcher, without disclosing the identity of Atlas until it had secured from said stockholders their oral assurances that they would exchange their stock in Peerless and Union substantially on the basis of the written contracts finally entered into conditionally on the ability of Seligman and Fletcher to secure the participation in the plan of substantially all of the remaining stockholders through option agreements. It was made plain from the beginning, however, that a strong financial interest was represented and would participate in the plan to the extent of furnishing necessary funds, and that Seligman and Fletcher and the principal stockholders of Peerless and Union would be officers in the new company.

Omitting unnecessary details, the main features of the plan were that Peerless, Union and Black Diamond were to be consolidated into the new company, Peerless-Union Explosives Corporation, that the stockholders of the old companies would receive for their stock in the old companies stock in the new company, stock in Atlas and some cash. Atlas on its part was to furnish the new company with sufficient cash and sufficient shares of its own common and preferred stock to complete the transaction. In return it was to receive sufficient common and preferred stock in the new company to assure its control.

As a preliminary step in the proceedings Atlas caused the incorporation of the new company under the laws of Delaware on September 22, 1930, for the purpose of acquiring the business and assets of Peerless, Union and Black Diamond, and subscribed to all of its original issue of common and preferred stock, being 10 shares of common and 10 shares of preferred, for which it paid $1,001, of which $1,000 was for the preferred stock and $1 for the common stock. This stock was all issued to Atlas. Subsequently, on October 6, 1930, the capital stock of the new company was increased to 100,000 shares of common of no par value, and 50,000 shares of preferred of $100 par value.

On October 2, 1930, a special meeting of the board of directors of Atlas was held and upon motions duly adopted the actions of its executive officers in causing the formation of the new company for the purpose of acquiring the assets and business of Peerless, Union and Black Diamond, and the plan of reorganization were approved. The officers of Atlas were empowered and directed to invest in the capital stock of the new company up to an aggregate of 21,732 shares of the 6 percent cumulative preferred stock of the new company and 32,198 shares of its common stock, and in consideration therefor to deliver to the new company $960,560.25 in cash, 6,318 shares of Atlas preferred stock on the basis of $100 per share, and 8,712% shares of Atlas common stock on a basis of $66.66% per share.

On October 7, 1930, the petitioner, Bashfdrd, E. Frost of Philadelphia, and Edward B. Day of White Haven, Pennsylvania, as majority stockholders of Peerless, parties of the first part, and H. K. Seligman, and W. E. Fletcher, as promoters, parties of the second part, entered into a written contract by which the stockholders warranted, among other things, that they owned or controlled 8,500 shares'of the common stock of Peerless. On their part the promoters warranted that the new company was a corporation organized under the laws of Delaware for the purpose of acquiring the assets of Peerless, Union and Black Diamond, subject to their several liabilities in accordance with the plan of reorganization. ' They further warranted that upon the acquisition of the assets of Peerless, Union and Black Diamond, the new company would have a working capital of at least $300,000, and an authorized capital of 150,000 shares represented by 50,000 shares of 6 percent cumulative preferred stock of the par value of $100 each and 100,000 shares of common stock of no par value, of which there would be outstanding 21,732 shares of preferred stock and 65,000 shares of common stock. The common stock carried voting rights, but the preferred stock could be voted only in case of default on the dividends.

Promoters further agreed that they would take such action as was necessary to liquidate Peerless, Union and Black Diamond, and transfer their assets to the new company. It was thereupon agreed that the stockholders should deliver to the promoters their 8,500 shares of common stock of Peerless in exchange for 9,000 shares of common stock of the new company, $125,000 cash, 2,225 shares of the cumulative preferred stock of Atlas, which should be accepted at the par value thereof and 3,712% shares of common stock of Atlas, which should be accepted at a price of $66.66% per share.

As additional consideration for the exchange, the promoters agreed to cause the new company to reimburse the stockholders for any Federal income tax paid by them because of the transaction.

It was further agreed that the promoters would use their best efforts to exchange the outstanding preferred stock of Peerless, viz., 17,672 shares of the par value of $25 each for the sum of $25 each and an amount of common stock in the new company not to exceed 4,000 shares, and that they would use their best efforts to exchange the 6,390 shares of outstanding minority common stock of Peerless upon the basis of a one-half share of common stock of the new company for each share of Peerless common.

It was further agreed that the promoters would cause Atlas to underwrite 21,132 shares of the preferred stock and 32,198 shares of the common stock of the new company, and that the new company would have $300,000 of working capital. The stockholders agreed that upon the exchanges of stock all officers of Peerless and Union would resign, and other provisions were made as to details to close the transaction on October 7, 1930.

On the same date, October 7, 1930, J. Edgar Long, as majority stockholder of Union, party of the first part, and H. K. Seligman and W. E. Fletcher, as promoters, parties of the second part, entered into a written contract containing practically the same warranties and agreements as contained in that relative to Peerless. By this contract it appeared that Union had issued and outstanding 3,367% shares of preferred stock of $100 par value and 4,044 shares of common stock of no par value, and that Long was the owner of 2,198 shares of the preferred stock and 2,824 shares of the common stock. It was agreed that the stockholder should deliver to the promoters his 2,824 shares of Union common in exchange for 8,500 shares of common stock of the new company, and $333,333.3314 in common stock of Atlas (par value $100 per share) at a price of $66.66% per share, and $166,258.42 in preferred stock of Atlas at par.

It was also agreed that Long should deliver to the promoters 2,198 shares of preferred stock of Union in exchange for an equal amount of Atlas, preferred stock and 802 shares of the new company common.

The promoters also agreed to use their best efforts to cause the exchange of the remaining 1,169% shares of Union preferred for $93,700 in cash, 232% shares of Atlas preferred, and 585 shares of new company common, and that they would also use their best efforts to cause the exchange of the 1,220 outstanding minority shares of Union common on a basis of one share of Union for one of the new company common.

Long agreed to enter the employ of the new company, and not to engage in competitive business for 10 years.

On the same day, October 7, 1930, the promoters, H. K. Seligman, and W. E. Fletcher, and the new company entered into a written contract in which it was recited that the promoters owned or controlled substantially all of the outstanding capital stock of Peerless and Union, and desired to exchange same with the new company pursuant to a certain plan of reorganization, and it was agreed that the promoters should exchange their holdings in Peerless and Union as follows: 16,128 shares of Peerless preferred, 14,288 shares of Peerless common, 3,367% shares of Union preferred, and 4,044 shares of Union common for $632,150 in cash, 6,318 shares of Atlas preferred at par, 8,712% shares of Atlas common at a price of $66.66% per share, and 32,145.79 shares of new company common. There were further agreements relative to the employment of stockholders in the old companies, and agreements to dissolve the old corporations, acquire their assets and assume their liabilities, and to reimburse stockholders for any income tax imposed upon them from the transaction. Also on October 7, 1930, separate agreements were entered into by petitioner, Eugene Frost and Edward R. Day with the new company and Atlas relative to the reimbursement of income tax imposed on the stockholders on account of the transfers.

Prior to October 7, 1930, the promoters had secured options on practically all of the minority stockholdings in Peerless and Union on the terms stated in the contracts above mentioned. These options were exercised through the First National Bank of Tamaqua, Pennsylvania, which delivered to Peerless minority stockholders $403,200 and 6,447.79 shares of new company common in exchange for 16,128 shares of Peerless preferred and 5,788 shares of Peerless common. Union minority stockholders received $103,950 and 2,096.50 shares of common stock of the new company for 937 shares of Union preferred and 1,128 shares of Union common.

All of the transfers and exchanges were made as indicated by the above agreements. The assets of the three old corporations, Peerless, Union and Black Diamond, were transferred to the new company and the old companies were dissolved.

Upon the completion of the stock exchanges on October 7, 1930, the shareholdings in the new company were as follows:

The question has been raised by the respondent as to the ownership of 5,000 shares of the new company common stock which were issued to Seligman and Fletcher, 2,500 shares to each. Under the agreement which had been entered into between Seligman and Fletcher as promoters and the majority stockholders of Peerless and of Union, only 27,054.54 common shares of the new company were to be issued to such majority stockholders. Atlas contemplated that approximately 65,000 common shares of the new company should be issued. At a meeting of the directors of Atlas on October 2.1930, a resolution was passed providing in part:

Ftibthee Resolved, that Atlas Powder Company, as the holder of all the slock of Peerless-Union Explosives Corporation, now outstanding, hereby consent to the issuance of Peerless-Union Explosives Corporation of said 21,732 shares oí 6% Cumulative Preferred Stock and 32,198 shares oí Common Stock, and further to the issuance by said Peerless-Union Explosives Corporation of such additional amount of its authorized Common Stock not exceeding, however, 5,500 shares to Harry IC Seligman and W. E. Fletcher, on account of such part of the purchase price payable to them in the course of the acquisition of the shares of Peerless Explosives Company, Black Diamond Power Company, and Union Explosives Company, as is payable in the stock of said Peerless-Union Explosives Corporation.

It is the uncontradicted testimony of Lyon, the president of the Atlas Powder Co., and of W. E. Fletcher, that the 5,000 shares of stock in question were issued to Seligman and Fletcher to be held by them subject to future directions from the officers of the Atlas Powder Co. The certificates in question were first turned over to the officers of Atlas and by such officers delivered to Seligman and Fletcher. The reason for the issuance of these shares to Seligman and Fletcher was for the purpose of making it appear, that the Atlas Powder Co. was the stockholder of record of slightly less than a majority of the voting stock of the Peerless-Union Explosives Corporation. With respect to the certificate received by Fletcher he testified:

Mr. Lyon or one of the officers gave it to me and lie told me that it was being given to me, and he said it was being given to Mr. Seligman, too, in order to reduce the amount of Atlas holdings in this company for sales reasons, and they expected us to hold it, to be used for the interest of Atlas in any way that they cared us to use it, and we were perfectly willing to do it.

Several months later Seligman and Fletcher were told by the officers of the Atlas Powder Co. that the Atlas Powder Co. released any claim which it might have to the 5,000 shares of stock in question.

From the above quoted evidence we find as a fact that the 5,000 shares of Peerless-Union Explosives Corporation standing in the name of Seligman and Fletcher were beneficially owned by the Atlas Powder C'o. until the Atlas Powder Co. waived its claim with respect to. those shares.

In exchange for his 2,534.38 shares of the common stock of Peerless the petitioner, on October 7, 1980, received $25,306.67 cash, 625 shares of preferred and 1,344 shares of common stock of Atlas and 2,720.08 shares of common stock of the new company, Peerless-Union Explosives Corporation.

It is the contention of the respondent in this proceeding that these transactions constituted a sale and not a reorganization through the exchange of stock and that there was no plan of reorganization. The evidence does not support the respondent’s contention that there was no plan of reorganization. From its inception that plan was that the corporations, Peerless, Black Diamond and Union should be consolidated into a new corporation of which Atlas should own a controlling interest; that at least the majority stockholders of the consolidating corporations should continue as stockholders of the new corporation to be formed. This plan was carried out. As said by the court in Watts v. Commissioner, 75 Fed. (2d) 981, “ The plan of reorganization was the contract made and performed.”

•Section 112 of the Revenue Act of 1928 reads in part as follows:

RECOGNITION OF GAIN OR LOSS.
(a) General rule.- — Upon the sale or exchange of property the entire amount of the gain or loss, determined under section 111, shall be recognized, except as hereinafter provided in this section.
(b) Exchanges solely in hind.—
* sfc * ❖ *
(S) Stock rob stock on beobganization. — No gain or loss shall he recognized if stock or securities in a corporation a party to a reorganization are, in pursuance of the plan of reorganization, exchanged solely for stock or securities in such corporation or in another corporation a party to the reorganization.
* * * * * * *
(c) Gam from exchanges not solely in hind.—
(1) If an exchange would be within the provisions of subsection (b) (1), (2), (3), or (5) of this section if it were not for the fact that the property received, in exchange consists not only of property permitted by such paragraph to be received without the recognition of gain, but also of other property or money, then the gain, if any, to the recipient shall be recognized, but in an amount not in excess of the sum of such money and the fair market value of such other property.
‡ ‡ ‡ ‡
(i) Definition of reorganization. — As used in this section and sections 113 and 115—
(1) The term “ reorganization ” means (A) a merger or consolidation (including the acquisition by one corporation of at least a majority of the voting stock and at least a majority of the total number of shares of all other classes of stock of another corporation, or substantially all the properties of another corporation), or (B) a transfer by a corporation of all or a part of its assets to another corporation if immediately after the transfer the transferor or its stockholders or both are in control of the corporation to'which the assets are transferred, or (0) a recapitalization, or (D) a mere change in identity, form, or place or organization, however effected.
(2) The term “ a party to a reorganization ” includes’ a corporation resulting from a reorganization and includes both corporations in the case of an acquisition by one corporation of at least a majority of the voting stock and at least a majority of the total number of shares of all other classes of stock of another corporation.

At the consummation of the plan of reorganization, the new com-' pany, the Peerless-Union Explosives Corporation, was the owner of practically all of the stock and. of all of the assets of the old corporations. This clearly establishes a reorganization and consolidation under section 112 (i) (1) (A) of the statute above quoted.

As to whether or not Atlas was a party to the reorganization, it may be said that the entire idea and plan of reorganization was conceived by Atlas; that it was in the line of Atlas’ business; and that its promotion and execution were entrusted to its agents, Selig-man and Fletcher, under general instructions. The plan was developed and formed by Atlas and its agents; cash and its own stock necessary to the accomplishment of the transaction were furnished by Atlas; and it became the owner of the majority of the voting stock and of all of the preferred stock of the new company. In short, Atlas was the mainspring of the entire proceeding and without its participation there would have been no reorganization and consolidation into the new company.

The facts in this respect are quite similar to those in Fifth, Avenue Bank of New York, Executor, 31 B. T. A. 945. We there held that 'the term “ party to a reorganization ” included other corporations than the one reorganized and that, where the corporation is so intimately connected with the reorganization of other corporations that the reorganization depends on its efforts or support, then such corporation is a party to the reorganization although it is not reorganized itself. The facts in this case are even stronger for the petitioner than those in the above cited case in support of the proposition that Atlas was a “ party to a reorganization ” for here the evidence shows that Atlas acquired all of the preferred stock of the new company and 51 percent of the common stock, which unquestionably made it a party to the reorganization. See also Tulsa Oxygen Co., 18 B. T. A. 1283; First National Bank of Champlain, New York, 21 B. T. A. 415.

In his notice of deficiency the respondent increased the amount of cash received by the petitioner by $700. At the hearing it was admitted by the respondent that this was erroneous. The error will be corrected upon settlement under Bule 50 of the Board’s rules of practice.

In the computation of the deficiency the respondent fixed the market value of Atlas preferred stock at $100 per share and of Atlas common stock at $66.66% per share, being the value fixed by the parties in contracts of October 7, 1930. Petitioner contends that the fair market value of the common stock at the date of receipt by him, October 7, 1930, was only $64 per share, as shown by a sale of 100 shares of Atlas common on the New York Stock Exchange on that date. In view of the fact that the petitioner admits a taxable profit in 1930 equal to the full amount of cash received by him in 1930 from the transaction and of our conclusion that the shares of stock of Peerless-Union Explosives Corporation and of Atlas Powder Co. were received by him in a nontaxable exchange under section 112, it is not necessary to determine the fair market value of the Atlas stock on the date in question.

Judgment will he entered under Rule 50.


source: Caselaw Access Project

author: Aeundell:

license: Public Domain

text:
    Community Mausoleum Company, Petitioner, v. Commissioner of Internal Revenue, Respondent.
    Docket No. 70384.
    Promulgated September 10, 1935.

      Chester Bemiett, Esq., for the petitioner.

      Arthur Carndujf, Esq., for the respondent.
   OPINION.

Aeundell:

Petitioner contends that, being on the accrual basis and reporting its income on the installment basis allowed by section 44 of the Revenue Act of 1928, it is entitled to have 10 percent of the total amount of cash received in the year on crypt sales, whether made in that or previous years, either deducted as an expense in the year in which the sale is made, or included as part of the cost of the crypts sold, or excluded from its gross income altogether. Petitioner contends that it derives no advantage from this 10 percent, except possibly what might result from readier sales because of the existence of a permanent endowment fund, and has no interest in or control of this fund, which, under its agreement with the trustee bank, is impressed with a trust in favor of the crypt owners. It complains that respondent treated this 10 percent as part of the contract price, but did not add it to petitioner’s cost. Respondent relies on the paragraph of the petitioner’s trust agreement with the bank that was trustee and depositary of the endowment fund which provided expressly that the last installment of 10 percent paid by a purchaser on his crypt should go to the endowment fund, the earlier payments being subject to petitioner’s demands. The respondent therefore allowed only the actual amounts paid in to the endowment fund in 1930 in respect to sales in that and preceding years. In doing so much, however, he has conceded in effect petitioner’s contention on the point of law.

It is now settled law that a trust created to provide means for permanent care of cemetery lots or crypts in accordance with the cemetery association’s contracts with lot purchasers will impress the agreed portion of the purchase price of such lots with its character and thus remove so much of the association’s gross receipts from taxable income. Los Angeles Cemetery Association, 2 B. T. A. 495; Greenwood Cemetery Association, 2 B. T. A. 910; Springdale Cemetery Association, 3 B. T. A. 223; Metairie Cemetery Association, 4 B. T. A. 903; Troost Avenue Cemetery Association, 4 B. T. A. 1169; Inglewood Park Cemetery Association, 6 B. T. A. 386; Evergreen Cemetery Association of Chicago, 21 B. T. A. 1194; Acacia Park Cemetery Association, 27 B. T. A. 233; affd. 67 Fed. (2d) 700; Portland Cremation Association v. Commissioner, 31 Fed. (2d) 843; Woodlawn, Cemetery Association, 28 B. T. A. 882. It was held in the Portland case, supra, that a covenant in the cemetery association’s deed to the purchaser of space that a portion of the purchase price would be placed in a maintenance fund, without indicating any specific portion to be so used, was enough to impress the fund set aside by the cemetery association with a trust. Here the trust was express, and the trust agreement was incorporated by reference in the petitioner’s contract of sale with crypt purchasers. We are of the ojfinion that 10 percent of the total .sale price should be excluded from petitioner’s gross income.

But in deciding that the 10 percent trust fund should be excluded from petitioner’s gross income, we have merely cleared the way for the real question. What petitioner is seeking to know is how, in its peculiar circumstances, its income should be reported and the exclusion of the trust fund portion given effect. As stated, petitioner keeps its books on the accrual basis and reports its income on the installment basis under section 44 of the Revenue Act of 1928, set out in the margin. Is it properly entitled to report its income so ? Petitioner states that it would prefer to continue this installment method, but queries its application. Respondent insists that petitioner must continue the method. It must do so, of course, only if it is allowable under the statute and no distortion of income will result from the method.

Petitioner’s doubt of the method arises from its conviction that burial crypts are “realty” within the meaning of section 44(b). If they are, obviously, the installment method is open to petitioner only within the limitation imposed by that section, that “ the initial payments do not exceed 40 per centum of the selling price.” Before we go further, therefore, this question must be answered.

The respondent urges that burial crypts are personalty under the laws of Missouri, citing Mullins v. Mt. St. Mary’s Cemetery Association, 259 Mo. 142; 168 S. W. 685. Petitioner urges that a conveyance in fee was made by the petitioner to the burial crypt purchasers and that the Mullins case is not decisive of the issue. It appears that after completion of the mausoleum the petitioner gave a warranty deed to crypt purchasers, purporting to convey a real property interest. Before that it had given a “ certificate of ownership.” The warranty deed was in the following terms:

* * * Community Mausoleum Company. * * * hereby grants and conveys to-, * * * the following described space, * * *
To Have and to Hold the above described space unto the said-:-, and - heirs and assigns, forever, as a place for the interment of the remains of the human dead of the white race only, subject to the provisions and restrictions now existing or hereafter lawfully and constitutionally enacted respecting or applicable to said Community Mausoleum Company; and, subject to all the conditions and limitations, and the privileges and restrictions, specified in the rules and regulations of said Community Mausoleum Company and of the Mount Hope Realty Company, now in force or that may hereafter be adopted, not in conflict with the law; and, with the benefits and advantages arising under the Endowment Agreement for perpetual care for the said Mausoleum made between Community Mausoleum Company and Lafayette-South Side Bank & Trust Company, as Trustee; which said rules and regulations shall be reasonable and are hereby, together with said Endowment Agreement, specifically made a part of this conveyance.
All transfers and assignments of space covered by this deed may be made only with the written consent of the Grantor, and in conformity with the rules and regulations of the said grantor, now or hereafter existing with reference to said Mausoleum.

This is a question of local law. In the Mullins case, tbe Supreme Court of Missouri bad before it the precise question whether it was proper to issue special tax bills against the cemetery as one tract, instead of against the separate lots, and held that it was. The cemetery association had purported to convey a 'fee simple estate to its several lot holders under a deed of bargain and sale, in which tbe habendum clause was very similar to that used here. The court reviewed the authorities and came to the conclusion that, notwithstanding the words of the conveyance, all that was conveyed was an easement of the right of burial. The case was later affirmed by the Supreme Court, Mt. St. Mary's Cemetery Association v. Mullins, 248 U. S. 501. Cf. Hollywood Cemetery Association v. Powell, 210 Calif. 121; 291 Pac. 397.

We conclude, therefore, that under Missouri law a cemetery association’s conveyance of a burial lot does not create a fee simple estate in. realty, and, a fortiori, its conveyance of the right of burial in a crypt does not create such an estate. However, the right of burial being an easement, Mt. St. Mary’s Cemetery Association v. Mullins, supra, Roamoke Cemetery Co. v. Goodwin, 101 Va. 605; 44 S. E. 769, it is an estate in land, 1 Thompson on Real Property, § 295; 19 C. J., p. 863. As such it is subject to the provisions of section 44 (b) with respect to the sales of realty.

We are now in a position to determine the proper method the petitioner should use for the reporting of its income. It appears from the evidence that a substantial part of petitioner’s sales in 1929 and 1930 were made either for cash or on an installment basis, the “ initial payments ” under which were in excess of 40 percent within the taxable period, as is used in section 44 (b). It seems clear, therefore, that such sales, whether in prior years or in 1930, should be reported on the accrual basis and not the installment basis, to which method the petitioner in such circumstances has no claim. Where the accrual method is employed the full amount of the contract price, less the 10 percent set aside for the perpetual care trust fund, should be reported in the year of sale.

Where the sales were made, however, on the installment plan within the 40 percent limitation of subsection (b), the installment basis of reporting may be used by the petitioner, which requires that a taxpayer using it must return as income “ that proportion of the installment payments actually received in that year which the gross profit realized when payment is completed, bears to the total contract price.” In ascertaining the two terms of this ratio, the gross profit and contract price, the 10 percent paid by each purchaser to the trustee for the perpetual care fund should be excluded both from the gross profit and from the contract price. While the petitioner under its contract with a crypt buyer created in the buyer a nonseparable right to the crypt and to its perpetual care, and a correlative obligation on the buyer’s part to pay the full price of both rights of property, it was made clear, in the contract by reference to the trust and endowment agreements that 10 percent of this total price would not go to the petitioner but to the trustee bank which held it for the crypt buyer’s benefit. It does no violence to the words of the statute, “ total contract price,” therefore, to treat that term as including no more than 90 percent of the price which the buj^er paid, by excluding the trust fund part; and it is equally obvious that the gross profit ” to petitioner could not properly include the 10 percent over which it had no actual control or ownership.

We hold, therefore, that the petitioner’s income should be recomputed in accordance with the principles stated.

Judgment will he entered wider Rule 50.

       SEC. 44. INSTALLMENT BASIS.
      (а) Dealers in personal property. — Under regulations prescribed by tile Commissioner with the approval oí the Secretary, a person who regularly sells or otherwise disposes oí personal property on the installment basis may return as income therefrom in any taxable year that proportion of the installment payments actually received in that year which the gross profit realized or to be realized when payment is completed, bears to the total contract price.
      (б) Sales of realty and- casual sales of personalty. — In the ease (1) of a casual sale or other casual disposition of personal property (other than property of a kind which would properly be included in the inventory of the taxpayer if on hand at the close of the taxable year), for a price exceeding $1,000, or (2) of a sale or other disposition of real property, if in either case the initial payments do not exceed 40 per centum of the selling price, the income may, under regulations prescribed by the Commissioner with the approval of the Secretary, be returned on the basis and in the manner, above prescribed in this section. As used in this section the term “ initial payments ” means tile payments received in cash or property other than evidences of indebtedness of the purchaser during the taxable period in which the sale or other disposition is made.


text:
    Title & Trust Company, Petitioner, v. Commissioner of Internal Revenue, Respondent.
    Docket No. 73785.
    Promulgated September 10, 1935.

      J. 3. Amidk, Esq., for the petitioner.

      W. B. Lansford, Esq., for the) respondent.
   OPINION.

Aeundell:

Petitioner claimed the deduction of $152,773.89 as a loss in 1931 resulting from the cancellation of certain land contracts in that year, the loss being measured by the difference between the unrecovered cost of the contracts and the depreciated value of the houses and lots which it acquired by reason of the cancellations. Petitioner’s business is the acquisition of land contracts at a discount and the collection of the balance owing on them from the purchasers. It acquired by assignment from a construction company a large number of such contracts, 144 of which it found it necessary to cancel in 1931 because of nonperformance, but only 45 of these are here in question.

Petitioner now contends that it did not step into the shoes of the original vendor of the houses and lots, the Frischkorn Construction Co., and is therefore not governed by the provisions of the Treasury regulations respecting losses allowable to a vendor who repossesses land on forfeiture or cancellation of its installment contract, but that the exchange of petitioner’s interest in the land contracts on cancellation for the realty was in itself a completed transaction, and as such the occasion of realizing gain or loss, the loss in the present instance to be measured by the excess of the cost of the land contracts to petitioner still unrecovered at the date of cancellation over the fair market value ,of the land at the time of the cancellation and consequent exchange. If we sustain petitioner’s method, we must determine as a fact what the fair market value of the land was in 1931. As, according to the statement of petitioner’s counsel, petitioner has reported its income in prior years as a proportionate amount of all collections made on the contracts, the amount of the discount allowed to petitioner on its purchase by the vendor and now earned by collection being treated as income and the remainder as a return of cost, petitioner would now determine the unrecovered cost of any contract as the balance still outstanding as unrecovered cost under this method. In other words, instead of taking the cost of the contract to petitioner and deducting from it the total amount of collections to ascertain unrecovered cost, it is suggested that we take the cost, and deduct therefrom that percentage of the collections remaining after subtracting the discount. To illustrate, if the discount were 30 percent, the petitioner would have to recover 70 percent of the total contract price as its own cost. Petitioner therefore deducts 70 percent of the collections as recovered cost, to arrive at unrecovered cost at the date of the exchange.

As petitioner kept its books on the cash basis and made its return on the installment basis, we can find no objection to this method, if petitioner’s major contention is sound.

Respondent contends that petitioner by its purchase of the land contracts merely replaced the Frischkorn Construction Co. as vendor and that, consequently, on cancellation of the contracts petitioner “ repossessed ” itself of the property and so, far from sustaining a loss, is liable for additional income in the amount of unreported installment collections less depreciation, under Treasury Regulations 74, article 353 (as amended by T. D. 4360).

The preliminary question, then, is whether petitioner in acquiring the land contracts got something substantially the same as the vendor had originally, of which on forfeiture of the contract, it could “ repossess ” itself. The vendor owned the land in law and equity. Under the contracts of sale the Construction Co., the vendor, retains legal title until payment of the final installment of the purchase price, when it executes and delivers to the purchaser a warranty deed. The petitioner, therefore, when it bought the contracts, received the legal title, but this was a bare legal title withheld from the individual purchaser only as a means of securing performance of the contract. The equitable title had passed to the purchaser, and the vendor, as to the land, became a trustee for the purchaser. This was settled doctrine at common law. It is also the rule in Michigan, where the vendor’s interest has been said to be merely “ an ordinary money debt, secured by the contract.” Walker v. Casgrain, 101 Mich. 604; 60 N. W. 291. See also Bower v. Lansing, 129 Mich. 117; 88 N. W. 384, and cases there cited. In the latter case the Supreme Court of Michigan held that the vendor’s interest in land held by the purchaser under a contract of purchase on the death of the vendor goes to his administrator as personalty, and is not subject to sale on execution against the heir. See also Commissioner v. Hart, 76 Fed. (2d) 864. Since the doctrine is general, no occasion arises, as respondent contends, to set it aside as a peculiarity of local law not binding in a Federal tax case by invoking the principle of Burk-Waggoner Oil Association v. Hopkins, 269 U. S. 110; and Burnet v. Harmel, 287 U. S. 103.

We think it clear, therefore, that petitioner in acquiring equitable title to and possession of the land by cancellation of the contracts got property essentially different in nature from what it had before as a mere assignee of the vendor’s bare legal title. Petitioner would not, therefore, be governed by article 353 of the Treasury Regulations.

We come now to the essential question, whether petitioner’s exchange of a secured chose in action for land resulted in a completed transaction by which gain or loss was realized. The original installment obligation under section 44 (d) of the Revenue Act of 1928, set out in the margin, had been closed as respects the vendor when the Construction Co. sold the contracts to the petitioner. Gain or loss had then been realized by the vendor. The petitioner was not a seller under the installment plan, as contemplated by the statute and the regulations, but the purchaser of property of one kind which it was forced later on to exchange for property of another kind. The fact that it reported the collections on the contracts on the installment plan, treating only a proportionate part of them as income, does not alter the fundamental fact that it was not a seller of property on the installment plan “ repossessing ” itself at a later period of the same property sold.

We are of the opinion that the exchange by petitioner of its interest in the land contracts for the land itself constituted a transaction entirely separate from the vendor’s original sale of the land and as such was the occasion of realizing gain or loss. In Home State Bank, 15 B. T. A. 121, we had occasion to consider a situation analogous to that here. In that case the petitioner sold real property in 1915 which it repossessed in 1920 because of default on the part of the purchaser in payment of promissory notes secured by mortgages given to the vendor-taxpayer. The petitioner had parted with legal title, bnt retained mortgages as security for the payment of the balance of the sale price. We treated the original sale and the re-' possession as “ two separate and distinct transactions ” and held that a loss was actually sustained upon the repossession. Similarly, in Henry Heldt, 16 B. T. A. 1035, where the vendor had sold land for cash and mortgages and later repossessed himself of the land in exchange for the mortgages, we held that gain had been realized. See also Nat Webb, Jr., 22 B. T. A. 1249.

In the Home State Bank case, supra, the petitioner was not reporting income on the installment basis. In Jacob M. Dickinson, Jr., et al., Executors, 18 B. T. A. 790, however, the petitioner sold a cotton plantation, taking a mortgage for the unpaid purchase price, and later found it necessary to foreclose the mortgage, exchanging the purchaser’s notes, equal in face value to the then fair market value of the land. The petitioner reported its income on the installment basis. We held that the petitioner by its reacquisition of the land realized a profit in the amount of the proportion of notes utilized which the total profit bore to the total contract price. We there said:

The reacquisition, or repurchase of the plantation on December 18, 1923, was effected by an exchange of notes having a face value of $125,000 for the plantation which then had a fair market value of $125,000. The utilization of the purchase money notes in reacquiring the plantation constitutes a realization of profit, under the installment method of reporting income. The total contract price, when the plantation was sold, was $233,025; the profit was $167,637.67. The profit is 7.1398 per cent of the total contract price and under the installment method of returning income that part of each payment constitutes profit realized. It follows that 7.1398 per cent of $125,000, or $8,924.75, constitutes profit in 1923.

Our judgment in the Dickinson case was predicated on the fact that the original sale by the vendor was complete because title had passed.

If, as we have held in these cases, the surrender of legal title to the land by the vendor constitutes a proper criterion of separability of the original sale from the subsequent repossession and retransfer of title to the land, we think it logically follows that the substitution of a second taxpayer for the original vendor clearly results in the separation of the original sale from the act of repossession, so that the latter act results in gain or loss to the seeond taxpayer. We have already indicated that what the petitioner here acquired by purchase of the vendor’s interest in the contracts was substantially different from what the vendor had originally held, and that consequently petitioner by repossession of the land acquired something which he had never before held and essentially different from the chose in action which he held against the purchaser for the purchase price. We are of the opinion, therefore, that petitioner realized a loss on acquiring the land covered by the contracts and that this loss 'should be measured by the difference between petitioner’s unrecov-ered cost of the contracts and the fair market value of the real estate in 1931 when acquired by it. The unrecovered cost should be determined, as already suggested, in accordance with petitioner’s method of computation, in order to give due effect to income reported by it in prior years on the installment basis.

The only question remaining is one of fact, namely, the fair market value of the 45 houses and lots in 1931 when acquired by the petitioner. We have determined that value to be $124,100, based on the testimony of a witness who was thoroughly familiar with each parcel of land and the condition and value of each one.

Decision will be entered wnder Rule 50.

       Sec. 44. (d) Gain or loss upon disposition of installment obligations. — If an installment obligation is satisfied at other than its face value or distributed, transmitted, sold or otherwise disposed of, gain or loss shall result to the extent of the difference between the basis of the obligation and (1) in the case of satisfaction at other than face value or a sale or exchange — the amount realized, or (2) in case of a distribution, transmission, or disposition otherwise than by sale or exchange — the fair market value of the obligation at the time of such distribution, transmission, or disposition. The basis of the obligation shall be the excess of the face value of the obligation over an amount equal to the income which would be returnable were the obligation satisfied in full.


text:
    Von’s Investment Company, Limited, Petitioner, v. Commissioner of Internal Revenue, Respondent.
    Docket No. 74643.
    Promulgated September 13, 1935.

      A. Colder Machay, Esq., for the petitioner.

      Ralph E. Smith, Esq., for the respondent.
   OPINION.

Smith :

This proceeding is for the redetermination of a deficiency in income tax for 1930, in the amount of $49,711.35. The petitioner alleges that the respondent erred in determining that petitioner realized a taxable profit of $439,360.39 on account of its receipt of cash and shares of stock in the MacMarr Stores, Inc.

The facts have all been stipulated, and, briefly, they are as follows:

Charles Von Der Ahe and Linda Von Der Ahe were husband and wife during the period with which we are here concerned.

Von’s Inc. was organized under the laws of the State of Delaware on May 11, 1926. Its principal activities consisted of the operation of a chain of grocery stores in California. There were 40,000 shares of stock issued, of which Charles Von Der Ahe owned 23,015, and Linda Von Der Ahe, his wife, owned 7,426. The balance, 9,559, was owned by minority stockholders. Charles Von Der Ahe was president of Von’s Inc., and he and his wife were members of a directorate of four.

On January 9,1929, an agreement was entered into between Charles Von Der Ahe and Merrill, Lynch & Co., whereby it was agreed that Charles Von Der Ahe would cause all the assets of Von’s Inc. to be transferred to the MacMarr Stores, Inc., a Maryland corporation organized in 1928 for the purpose of taking over a chain of grocery stores in Oregon and Washington. The consideration named in the contract was cash in the amount of $880,000. Under date of March 27, 1929, this agreement was amended to provide that the consideration for the assets to be acquired would be 5,000 shares of no par value stock of the MacMarr Stores, Ltd., a California corporation, which stock was to be immediately transferred to the MacMarr Corporation, a Delaware corporation, in exchange for 500 shares of $1 par value stock of that corporation. Immediately upon receipt of the 500 shares they were to be transferred to the MacMarr Stores, Inc., the Maryland corporation, in exchange for 11,000 shares of stock of the latter corporation and $715,000 cash, subject to certain minor deductions due to dividends, etc.

On April 15,1929, Charles Von Der Ahe caused the Grocers Securities Co. to be organized, with a capital of 2,500 shares of no par common stock.

On April 18,1929, Charles Von Der Ahe made an offer to transfer to the Grocers Securities Co. his 23,015 shares of capital stock of Von’s Inc. in exchange for 2,303 shares of the capital stock of the Grocers Securities Co. Such offer was accepted by the Grocers Securities Co. and the exchange was made on May 3, 1929.

The 23,015 shares of stock of Von’s Inc. had been acquired by Charles Von Der Ahe prior to the year 1927, at a total cost of $86,723.18. The exchange mentioned above was treated by the respondent as a transaction in which neither gain nor loss was recognized under the provisions of the Revenue Act of 1928.

On March 4, 1929, Linda Von Der Ahe caused Von’s Investment Co., Ltd., the petitioner herein, to be organized under the laws of California, with an authorized capital of 2,500 shares of no par value common stock.

On May 6, 1929, Linda Von Der Ahe made a written offer to transfer to petitioner her 7,426 shares of Von’s Inc. in exchange for the issuance to her of 743 shares of the capital stock of petitioner. The offer was accepted by petitioner and the exchange made on May 31, 1929.

The 7,426 shares of Von’s Inc. had been acquired by Linda Von Der Ahe prior to 1927, at a total cost to her of $27,412. The exchange mentioned above was treated by the respondent as a transaction in which neither gain nor loss was recognized under the provisions of the Revenue Act of 1928.

On June 18, 1929, the petitioner and the Grocers Securities Co. entered into a written agreement under which the Grocers Securities Co. was to transfer to petitioner all its assets in exchange for 2,303 shares of the capital stock of petitioner.

On July 3, 1929, the petitioner caused its articles of incorporation to be amended, increasing its authorized capital stock to a total of 7,500 shares of no par value.

Pursuant to the contract of June 18, 1929, the petitioner, on July 5, 1929, acquired from the Grocers Securities Co. all of its assets, consisting of 23,015 shares of capital stock of Yon’s Inc., on which date its shares of stock had a fair market value of $506,330.

Immediately after the acquisition by the Grocers Securities Co. of the 2,303 shares of stock of the petitioner, the Grocers Securities Co. owned 75.6 percent of the total issued and outstanding stock of petitioner, and the balance of the issued and outstanding stock, 24.4 percent, was then owned by Linda Yon Der Ahe. The Grocers Securities Co. then distributed all its assets (2,303 shares of capital stock of petitioner) to Charles Yon Der Ahe. The Grocers Securities Co. was then dissolved, its decree of dissolution being granted by the Superior Court of the State of California on August 23, 1929.

The exchange between the petitioner and the Grocers Securities Co., like the other exchanges mentioned above, was treated by the respondent as a transaction in which neither gain nor loss was recognized under the provisions of the Revenue Act of 1928.

The MacMarr Stores, Ltd., took over the grocery business and assets connected therewith of Yon’s Inc. on April 15, 1929. The entire transaction was not completed until October 15,1929, at which time the MacMarr Stores, Inc., in exchange for 11,000 shares of its capital stock and $577,317.92 in cash, acquired all of the assets of Von’s Inc., which then consisted of 500 shares of the capital stock of the MacMarr Corporation, a Delaware corporation, acquired by petitioner as aforesaid. Immediately upon receipt of the consideration by Von’s Inc. it distributed its assets in liquidation to the stockholders and was then dissolved. Pursuant to such liquidation and distribution the petitioner, as owner of 30,441 shares of stock of Von’s Inc., received its proportion thereof in cash in the amount of $439,360.29, and 8,371,275 shares of MacMarr Stores, Inc., stock. Other stockholders of record received cash and stock in the proportion that their stockholdings were to the total stock outstanding.

The respondent’s deficiency is based upon the theory that petitioner’s cost basis of the stock of Yon’s Inc. for the determination of its gain is the cost of the stock of Charles Von Der Ahe and his wife, to wit, $114,135.18, whereas petitioner contends that its cost basis of 23,015 shares of stock of Von’s Inc. is the fair market value of that stock at the date of petitioner’s acquisition of it from the Grocers Securities Go., namely, $506,330, and that petitioner’s cost basis of the 7,426 shares of stock of Von’s Inc. is the cost thereof to Linda Von Der Ahe, namely, $27,412. The parties have stipulated that, in case the Board determines that petitioner is not entitled to use as its cost basis the fair market value of the 23,015 shares of stock of Von’s Inc. at the date acquired by petitioner, the deficiency shall be approved. They have further stipulated that, in the event the Board holds that petitioner is entitled to use as its basis the fair market value of the 23,015 shares of said stock at the date received, the Board may enter a deficiency in the amount of $2,155.94.

Section 112 (b) (4) of the Revenue Act of 1928 provides:

(b) Exchanges solely in hind.—
% % # H* ❖ H*
(4) Same — Gain or corporation. — No gain or loss shall be recognized if a corporation a party to a reorganization exchanges property, in pursuance of the plan of reorganization, solely for stock or securities in another corporation a party to the reorganization.

Section 112 (b) (5) provides:

(b) Exchanges solely in hind,.—
* % * ❖ ❖ & *
(5) TRANSFER TO COEPOEATION CONTROLLED BY TRANSFEROR.-No gain Or lOSS
shall be recognized if property is transferred to a corporation by one or more persons solely in exchange for stock or securities in such corporation, and immediately after the exchange such person or persons are in control of the corporation; but in the case of an exchange by two or more persons this paragraph shall apply only if the amount of the stock and securities received by each is substantially in proportion to his interest in the property prior to the exchange.

Section 112 (i) provides:

(i) Definition of reorganization. — As used in this section and sections 113 and 115—
(1) The term “reorganization” means (A) a merger or consolidation (including the acquisition by one corporation of at least a majority of the voting stock and at least a majority of the total number of shares of all -other classes of stock of another corporation, or substantially all the properties of another corporation) * * *.

Sections 113 (a) (7) and (8) provide:

(a) Property acquired after February 28, 1913. — The basis for determining the gain or loss from the sale or other disposition of property acquired after February 28, 1913, shall be the cost of such property; except that—
***!}:* íjí ^
(7) Transfers to coepoeation where control of peopeety remains in same persons. — If the property was acquired after December 31, 1917, by a corporation in connection with a reorganization, and immediately after the transfer an interest or control in such property of SO per centum or more remained in the same persons or any of them, then the basis shall be the same as it would be in the hands of the transferor, increased in the amount of gain or decreased in the amount of loss recognized to the transferor upon such transfer under the law applicable to the year in which the transfer was made. This paragraph shall not apply if the property acquired consists of stock or securities in a corporation a party to the reorganization, unless acquired by the issuance of stock or securities of the transferee as the consideration in whole or in part for the transfer; * * *
(8) Same — Corporation controlled by transferor.- — If the property was acquired after December 31, 1920, by a corporation by the issuance of its stock or its securities in connection with a transaction described in section 112 (b) (5) (including, also, cases where part of the consideration for the transfer of such property to the corporation was property or money, in addition to such stock or securities), then the basis shall be the same as it would be in the hands of the transferor, increased in the amount o-f gain or decreased in the amount of loss recognized to the transferor upon such transfer under the law applicable to the year in which the transfer was made.

It will be noted from the facts set forth above that Charles Von Der Ahe and his wife, owning in the aggregate, 30,441 out of 40,000 shares of stock of Von’s Inc., had an opportunity to sell the same in 1929, and the husband entered into a contract with Merrill, Lynch & Co., bankers, for the sale of the stock. For reasons best known to themselves, the petitioner was organized to acquire these shares before they were actually transferred to the vendee. The wife first transferred her shares to the petitioner; the husband did not transfer his directly to the petitioner, but first transferred them to the Grocers Securities Co., an ephemeral corporation organized for the purpose of receiving them. This corporation apparently had no reason for existence except to receive the title to the shares prior to their transfer to the petitioner. It was merely a conduit for the passing of title from the husband to the petitioner. That it had no other business purpose is shown by the fact that it was dissolved on August 23, 1929.

If Charles Von Der Ahe and his wife had transferred their shares in Von’s Inc. directly to the petitioner in exchange for the shares of stock of the petitioner, and the petitioner had then sold their shares, the basis for the computation of gain upon the sale would, under section 113 (a) (8) of the Revenue Act of 1928, have been the basis of the transferor. The petitioner contends, however, that by reason of the difference in time of the transfer by the husband and the wife, and by reason of the fact that title to the shares of stock owned by the husband was first transferred to the Grocers Security Co., and then by that company transferred to the petitioner, the basis for the computation of the profit upon the sale of the 23,015 shares of stock of Von’s Inc. originally owned by Charles Von Der Ahe is the fair market value of the shares at the time that they were transferred by the Grocers Security Co. to the petitioner.

The facts in this case are similar to those in Ared Corporation, 30 B. T. A. 1080. There, a man and his wife, who knew that certain shares of stock owned by them could be sold at a substantial profit, formulated a plan to place the shares of stock in a new corporation (the Ared Corporation) and, through the medium of another corporation organized solely for such purpose, to try and minimize the anticipated profits by claiming a stepped-up basis for the shares of the stock in hands of the corporation. We held that the basis for computing gain upon the sale was the same as it would have been had the transferors sold the shares directly.

In the administration of the taxing statutes courts look at substance and not form. A case of this character is MacQueen Co. v. Commissioner, 67 Fed. (2d) 857. There, all of the stock was held by three individuals, who purported to sell real estate to S. A. Mac-Queen, who was president, director and majority stockholder of the company, for a price which would reflect a small amount of gain. On the following day MacQueen purported to resell the property to one Hatfield for a higher price under an agreement that he would receive the proceeds in trust and distribute them to the stockholders of the corporation. After the plan had been effected exactly as contemplated at the outset, the corporation contended that it was a party only to the first transfer and that it should be taxed only on the limited property involved in the first sale price. The court rejected this contention and held the corporation liable for the profit realized on the sale.

See also United States v. Klausner, 25 Fed. (2d) 608, and Hellebush v. Commissioner, 65 Fed. (2d) 902.

If, through the device of the organization of the Grocers Securities Co. and the transfer to it of the 23,015 shares of the stock of Von’s Inc., merely for the purpose of acting as a conduit and the holding of legal title to those shares for only a brief period of time, the petitioner is enabled to obtain a stepped-up basis for the computation of gain upon the sale of the shares, the result would be to “ exalt artifice above reality and to deprive the statutory provisions in question of all serious purpose ”, which practice was condemned in Gregory v. Helvering, 293 U. S. 465.

We are of the opinion that the respondent correctly held that the basis for the computation of gain on the sale of the 23,015 shares of Von’s Inc. obtained by it from the Grocers Securities Co., was the cost of those shares to Charles Von Der Ahe, namely, $86,123.18, the real transferor in the case.

Judgment 'will be entered for the respondent.