author: Teammelli :

text:
    North Side Lumber & Timber Co., Petitioner, v. Commissioner of Internal Revenue, Respondent.
    Docket No. 34924.
    Promulgated April 14, 1933.

      Wm. /S'. Bennett, Esq., for the petitioner.

      Chester A. Gwirm, Esq., for the respondent.
   opinion.

Teammelli :

The petitioner alleges that to permit the collection of the deficiencies in controversy under the circumstances disclosed in this proceeding would constitute the taking of property of its stockholders without due process of law, in violation of the Fifth Amendment to the Constitution of the United States. In support of this contention the petitioner points to the fact that most of the additional taxes asserted by the respondent result from transactions of the John E. Burns Lumber Co., the parent corporation, which owned all of the capital stock of the petitioner during the taxable years; that said parent corporation has long since been dissolved and collection of the deficiences from it is now barred by limitation; that the petitioner had no connection with said transactions of the parent corporation, derived no- profit therefrom, and because of a lack of definite information is not in position to defend against respondent’s claims; and, lastly, that the stockholders of the petitioner have completely changed since the taxable years.

On the basis of these facts the petitioner argues that, there being no question of fraud involved, it would be a violation of the Fifth Amendment to the Constitution to permit the taking of the property of the present stockholders, to wit, their respective shares of the capital stock of the petitioner, in satisfaction of the tax liability incurred because of acts or omissions of the officers of the John E. Burns Lumber Co., a separate corporate entity, in 1920 and 1921, during which years the present stockholders owned no interest in the petitioner corporation.

The petitioner cites Lipke v. Lederer, 259 U. S. 557; Regal Drug Corp. v. Wardell, 260 U. S. 386; and Dukich v. Blair, 3 Fed. (2d) 302. The cited cases involved certain provisions of the National Prohibition Act, under which collectors of internal revenue sought to assess, on account of alleged unlawful sale of liquor, penalties designated therein as taxes, without notice or hearing to the alleged offender, and thereafter to enforce said penalties by distraint. Such procedure was held to deny due process of law and trial by jury, but those decisions in our opinion have no application here, even by analogy.

Aside from the lack of authority to support the petitioner’s contention, we are not impressed by the argument on this point. A corporation is an artificial person, a wholly separate and distinct entity from its stockholders, and a change in stock ownership does not effect the liability of the corporation to meet its obligations, whether such change of stock ownership is partial or complete. The assets of a corporation generally are subject to the payment of its debts prior to the right of the stockholders to any portion thereof, and this principal is not affected by changes in the personnel of the stockholders. Indeed, a contrary rule would work positive fraud upon the creditors of a corporation, in that by a mere change of stockholders the corporation could avoid the payment of its just debts, and the value of corporate stock would in such event rest not upon the net worth of the corporation, but upon the basis of the total value of the assets without regard to outstanding liabilities. To state such a proposition is sufficient to refute it because of the obvious inequitable result to creditors whose claims upon the corporate assets are superior to those of common stockholders.

Certainly the liability of the petitioner for income and profits taxes lawfully incurred in prior years, if any, was neither discharged nor lessened by reason of the subsequent change of stockholders. On this issue, the petitioner’s contention can not be sustained.

The petitioner has pleaded the statute of limitations in bar of assessment and collection of the proposed deficiencies, but failed to submit proof at the hearing or argument on brief in support of its bare allegation. The record discloses, however, that the consolidated returns of the petitioner and its parent corporation for the years 1920 and 1921 were filed on April 11, 1921, and June 15, 1922, respectively. Hence, the statutory periods of limitation for assessment and collection of income and profit taxes for said years expired April 11, 1926, and June 15, 1926. (Sec. 277 (a) (2) and (3), Revenue Act of 1926.) But on December 23, 1925, prior to the expiration of said periods, the petitioner and the respondent consented in writing to the later assessment and collection of any tax due under any return made by or in behalf of the petitioner for said years 1920 and 1921, and by said agreement extended the period fox-assessment and/or collection to December 31, 1926. On October 18, 1926, prior to the expiration of the period so agreed upon, a second waiver was executed extending such period to December 31, 1927. On December 22, 1927, the notice of deficiency was mailed to the petitioner. The validity of said waivers is not attacked. Petitioner’s plea of limitations is denied. (Sec. 278 (c), Revenue Act of 1926.)

The principal issue in controversy here, and which gives rise to most of the additional tax asserted for 1920, is the amount of profit, if any, realized by the John E. Burns Lumber Co. from the sale in said year of certain real estate acquired prior to March 1, 1913. In 1906 said company purchased real estate in the City of Chicago, on West Chicago Avenue, containing about 130,000 square feet, at a cost of $158,961.72. It sold the property in 1920 for $438,635.75, and in the consolidated return filed by said company for itself and the petitioner herein for said year, no gain or loss from said sale was reported. The respondent determined that the value of said property at March 1, 1913, was $275,000, or $2.12 per square foot, and asserted a taxable profit in the amount of $163,635.75.

At the hearing the respondent offered no evidence concerning the March 1, 1913, value of the property in question, apparently being content to rely upon the prima facie cox-rectness of his determination. On the other hand, the petitioner offered the testimony of an expert witness who was familiar with the development of real estate and the values thereof in the locality where said property was situated, for many years prior and subsequent to 1913. This witness, who had been an industrial real estate broker for about 25 years, fixed the fair market value of the property referred to, as of March 1, 1913, at $4.31 per square foot, which would give a total valuation at said date in excess of the sale price in 1920.

In explanation of his opinion, the witness testified as to sales of similar property, and concerning developments in the neighborhood of the property in question, and other factors which he took into consideration.

About 1906 Montgomery Ward & Company began acquiring property in the vicinity of the Burns property, and between 1908 and 1910 constructed their main building, with several sections completed afterwards. Also, Sprague-Warner constructed a building nearby, which was finished in 1910. Afterwards, the Nonast Company erected a building there, and about the same time Greason-Flacker built a new tunnel on North Branch Street about 200 feet northwest of the Burns property. These various improvements ranged from about $350,000 to $2,000,000 each. The developments mentioned brought on a “ boom ” and resulted in material increases in the value of property in that district. This appreciation continued until about 1915, when values began to drop. Montgomery Ward & Company purchased one parcel of land in 1910 at $2.50 per square foot and another in the same year at $2.63 per square foot. The Montgomery Ward purchases and subsequent developments added about 33 per cent to the prior values of property in the district, and the Burns property was worth approximately 25 per cent more because of its location and facilities consisting of a permanent railroad switch and a ramp leading into the property from the adjacent street.

Considering all the evidence in the record before us, we have reached the conclusion that the Burns property had a fair market value at March 1,1913, of not less than the price at which it was sold in 1920, and have so found. It follows that no taxable profit was realized by the John E. Burns Lumber Co., the parent corporation of petitioner, from the sale of said property in 1920.

The remaining issue relates to the failure of the respondent to allow as a credit or offset against the petitioner’s total tax liability for each taxable year the amount of tax assessed against and paid by the petitioner on each of the original consolidated returns.

The respondent has determined that the petitioner’s total tax liability for 1920 and 1921 was $10,303.88 and $5,612.93, respectively, which amounts respondent further determined to be the deficiencies due from the petitioner for said years, notwithstanding taxes were assessed against and paid by the petitioner on the consolidated x-eturns for 1920 and 1921 in the amounts of $5,318.23 and $4,409.12, respectively.

The respondent has asserted the deficiencies against the petitioner without taking into consideration “ the amount shown as the tax by the taxpayer upon his return ” for each such year, as required by the statute. The petitioner, in the determination of the amount of the deficiency, is entitled to have its total tax liability reduced by the amounts shown herein to have been assessed against and paid by it on the consolidated returns in determining the deficiencies due from it for the taxable years involved. Washburn Wire Co., 26 B. T. A. 1146; Folger & Co., 27 B. T. A. 1; Trahern Pump Co., 27 B. T. A. 363.

The deficiencies will be redetermined in accordance with the foregoing opinion.

Reviewed by the Board.

Judgment will be entered under Bule 50.


source: Caselaw Access Project

author: Marquette :

license: Public Domain

text:
    Estate of Hetty H. R. Green, Petitioner, v. Commissioner of Internal Revenue, Respondent.
    Docket No. 42618.
    Promulgated April 14, 1933.

      Campbell E. Loche, Esq., for the petitioner.

      Prew Savoy, Esq., for the respondent.
   OPINION.

Marquette :

The question here involved is whether petitioner was engaged in a trade or business regularly carried on, during the years 1923, 1924 and 1925. If so, it is entitled to the deductions claimed for the two later years. The petitioner concedes, in its brief, that it was not engaged in trade.

The business activities of the petitioner consisted of the collection of income produced by the trust property, and distributing it to the beneficiaries; in receiving amounts paid in redemption of securities, and reinvesting the same; in changing the form of investments of the trust estate from time to time in the discretion of the trustees, through sales and reinvestments. Whenever property was acquired it was taken as an investment, never for the speculative purpose of deriving profit from a sale thereof later on.

With certain exceptions not applicable here, section 219 of the Revenue Act of 1921 provides that the net income of a trust shall be computed in the same manner as that of an individual. Section 204 (a) of the same act provides that the term “ net loss ” means only net losses resulting from the operation of any trade or business regularly carried on. Section 204 (c) extends the benefit of the net loss provisions to the beneficiaries of an estate or trust, but not to the estate itself as a taxable entity. Section 206 (h) of the 1924 Revenue Act extends the benefit of the net loss provisions to estates and trusts.

In support of its contention that it comes within the purview of the net loss section petitioner cites many decisions of this Board. In one, O. A. Refling, Executor, 17 B. T. A. 327; affd., 47 Fed. (2d) 859, it was definitely held that holding the assets of an estate, converting some of them into cash, reinvesting the proceeds, receiving rents and interest, paying taxes, interest, expenses, etc., did not constitute the operation of a trade or business regularly carried on ” within the meaning of the net loss section of the statute. All the other decisions cited involved the question of allowing deductions, as ordinary and necessary expenses, of amounts paid in managing an estate over a prolonged period of administration, in conserving an estate through litigation, and the like. Only in the case of O. A. Refling, supra, were the facts analogous to those now before us.

The term “ business ” is defined in Bouvier’s Law Dictionary as: “ That which occupies the time, attention and labor of men for the purpose of a livelihood or profit.” That definition has been accepted by the Federal courts. See Flint v. Stone Tracy Co., 220 U. S. 107; Hughes v. Commissioner, 38 Fed. (2d) 755. And in J. J. Harrington, 1 B. T. A. 11, we held that under the net loss provisions of the statute a trade or business regularly carried on means a vocation, not occasional transactions.

In the present proceeding the petitioner was not engaged in buying and selling real estate and securities with a view to profit on the transaction. During 1923, when the loss in question occurred, out of seventy-five capital transactions, seventy-one consisted merely in receiving money paid to redeem bonds at maturity. In only four instances did petitioner sell property — one block of corporate stock, two mortgages, and one parcel of land. While those sales were business transactions, they were occasional, isolated transactions, not a business regularly carried on. J. J. Harrington, supra.

The language employed by the testatrix to safeguard the trusteed property clearly indicates that the purpose of the trusts was to conserve the estate corpus for ten years, and protect it from the hazards of active business enterprise. The whole tenor of the instrument distinctly negatives any idea that the estate should regularly carry on a business for profit, and the evidence shows, we think, that none was carried on.

Considering the facts before us, and the cases above cited, we are of opinion that the respondent committed no error in disallowing the net loss deductions for 1924 and 1925.

Decision will be entered for the respondent.


author: Lansdon:

text:
    Bernard Pearl, Petitioner, v. Commissioner of Internal Revenue, Respondent.
    Docket No. 52281.
    Promulgated April 20, 1933.

      Brice Glagett, Esq., for the petitioner.

      E. B. Hwnt, Esq., for the respondent.
   OPINION.

Lansdon:

The primary contention of the petitioner is that the determination of liability under section 280 of the Revenue Act of 1926 was not timely made because the statute of limitations ran against any liability of the estate of Ben Pearl for unpaid taxes for the year 1918 not later than March 20, 1927. If this contention is sound the petitioner must prevail, since the notice of liability upon which the proceeding is based was not mailed until December 4, 1930, which is more than one year after the date at which it is alleged that the original taxpayer’s liability was tolled by the statute of limitations.

In support of his position the petitioner argues that the unlimited waivers filed as set out in our findings of fact and received and approved by the Commissioner could not extend the time for determination, assessment and collection since they were not signed by any one having authority to act for the estate of Ben Pearl. He further argues that if such waivers were void as alleged, then the appeal taken at Docket No. 16433 and all the proceedings in relation thereto were negatory and -without effect to stay the running of the statute of limitations as provided at section 274 (a) of the Revenue Act of 1926.

This identical question was submitted to the Board in the proceedings at Docket No. 16433, 18 B. T. A. 249, and we decided contrary to the contentions of the petitioner on the authority of Estate of John F. Dodge, 13 B. T. A. 201; Cf. Philip C. K. Bartlett et al., Executors, 16 B. T. A. 510. Since neither of these decisions has been overruled, modified or reversed by the Board or the courts, we are unable to agree with the petitioner that the proceedings at Docket No. 16433 should be regarded as a nullity.

The deficiency here involved was asserted against the original taxpayer on March 30, 1926, which was within the statutory period as extended by valid waivers. Estate of Ben Pearl, supra. On May 27,1926, the appeal at Docket No. 16433 was filed and the running of the statute of limitations was thereby extended to the date on which the decision of the Board became final, which under section 1001 (a) of the Revenue Act of 1926 was six months after such decision on November 19, 1929, or May 19, 1930. This proceeding under section 280 was begun on December 4, 1930, which was well within one year after May 19,1930, and so was in time under the provisions of section 274 (a) of the Revenue Act of 1926. It is stipulated that the petitioner here is the sole distributee of the original taxpayer’s assets of a value in excess of the deficiency. He is liable for any unpaid Federal taxes against the estate of Ben Pearl for the year 1918. Jere B. Downing, 26 B. T. A. 1115.

Decision will be entered for the respondent.


author: Akundell :

text:
    General Utilities & Operating Company, Petitioner, v. Commissioner of Internal Revenue, Respondent.
    Docket No. 52770.
    Promulgated April 24, 1933.

      B. Kemp Slaughter, Esq., Hugh O. Bickford, Esq., and Joseph A. Slattery, Esq., for the petitioner.

      William E. Davis, Esq., and Paul E. Waring, Esq., for the respondent.
   OPINION.

Akundell :

The respondent has determined that income was realized from the transactions detailed in the findings of fact and has asserted a tax thereon. His theory is that upon the declaration of the dividend on March 22, 1928, petitioner became indebted to its stockholders in the amount of $1,071,426.25, and that the discharge of that liability by the delivery of property costing less than the amount of the debt constituted income, citing Kirby Lumber Co. v. United States, 284 U. S. 1.

There are a number of decided cases somewhat similar to this, in some of which it has been held that the distributions resulted in gain or loss to the distributing corporation. See Callanan Road Improvement Co., 12 B. T. A. 1109; Bacon-McMillan Veneer Co., 20 B. T. A. 556. In those cases the dividend resolutions were construed as declaring dividends in definite amounts “ before the property was distributed in kind.” Bacon-McMillan Veneer Co., supra, p. 559. In this last cited case it was further said:

If, on the other hand, instead of providing for a definite percentage in the way of a dividend, if the resolution had merely provided that the Liberty bonds should be distributed by way of dividends, a different situation would have been presented which is clearly distinguishable from the case we have before us.

A situation like that mentioned in the quotation just given was present in First Utah Savings Bank, 17 B. T. A. 804; affd., 53 Fed. (2d) 919. There the banking corporation owned the stock of another company, which stock was held by trustees, and the bank’s directors by resolution directed the trustees “ to deliver as a dividend ” a designated number of shares of the stock. “ No cash dividend had been declared by the bank as a part of this transaction.” 53 Fed. (2d) 920. The stock at the time of distribution was worth less than cost. We held:

The petitioner, by resolution of its board of directors, of October 17, 1922, only incurred an obligation to distribute the 9,000 shares of Amalgamated Sugar Co. stock to its stockholders, which obligation it fully discharged without loss to it, by making the distribution of the stock as directed.
The facts in this ease are somewhat analogous to those in Hollenhera Music Go., 6 B. T. A. 421, 425, wherein we said — referring to a dividend declared by the petitioner:
* * * If, as the resolution of February 6, 1017, indicates, the petitioner merely distributed the property interest along with other dividends, we are unable to see that loss, contingent or otherwise, resulted from the distribution. * * *

The Court of Appeals of the District of Columbia in affirming our decision said:

It is true that the rule hereby adopted leads to an anomalous result, inasmuch as appellant at the time of transferring the stock had suffered an actual loss of value measured by the difference between the cost of the transferred stock and its then market price, for which no deduction is allowed. But, on the other hand, according to the same rule if the transferred stock had enhanced in value between its purchase and transfer no taxable gain would have been charged against the corporation because of that fact.

From the above cases the rule is deducible that, where the dividend resolution imposes only the obligation to distribute in kind and it is discharged in that way, no gain or loss results to the corporation. Counsel for respondent in his brief concedes this to be the correct view.

Our question then is to determine whether the resolution of March 22, 1928, was one declaring ■ a dividend of an amount of money, or whether it declared a dividend payable in stock of the Islands Edison Company. The second paragraph of the resolution opens with the statement: “ That a dividend in the amount of $1,011,426.25 be and it is hereby declared on the common stock of this Company * * The respondent would have us stop reading here. This, however, is only part of the resolution, and the part that immediately follows is of equal importance. The next clause limits as clearly as words can the medium of discharge of the dividend liability. Without separation by as much as a punctuation mark from the part of the resolution just quoted, the words are: “ payable in common stock of the Islands Edison Company * * Where the method of payment is prescribed a stockholder is not entitled to payment in some other form. In State v. B. & O. R. R., 6 Gill (Md.) 363, the railroad company had declared a dividend, payable in cash to holders of less than 50 shares, and payable part in cash and part in its own bonds to holders of 50 shares or more. The State of Maryland, being the owner of more than 50 shares, sued for a cash payment of the entire amount. The court denied recovery, saying in part:

It is immaterial in our view of the subject, whether the declaration of a dividend constitutes a contract, or is to be considered in the light of a performance of a duty. In either case, it is to he taken as it emanates from the hoard. A part of it earniot he taken and the rest discarded. It cannot be said you have declared three per cent, and we will have the money, although in the very declaration, they say they can only pay you in liabilities of the company, p. 386.

The intent of the directors of petitioner was to declare a dividend payable in Islands Edison stock; their intent was expressed in that way in the resolution formally adopted; and the dividend was paid in the way intended and declared. We so construe the transaction, and on authority of First Utah Savings Bank, supra, we hold that the declaration and payment of the dividend resulted in no taxable income.

Decision will he entered for the petitioner.


author: Teammell:

text:
    S. Silberman & Sons, Petitioner, v. Commissioner of Internal Revenue, Respondent. Wm. E. Voelkel & Son Co., Inc., Petitioner, v. Commissioner of Internal Revenue, Respondent.
    Docket Nos. 40820, 40821.
    Promulgated April 24, 1933.

      Paysoff Tinkoff, Esq., for the petitioners.

      Állin H. Pierce, Esq-, for the respondent.
   OPINION.

Teammell:

These proceedings, consolidated for hearing, are for the redetermination of deficiencies in income tax as follows:

The sole issue in this case is whether or not the petitioners are entitled to deduct from consolidated gross income for 1925 a loss alleged to have been sustained in that year by S. Silberman & Sons upon the sale of its subsidiary’s capital stock.

S. Silberman & Sons is an Illinois corporation, with its principal office at Chicago. Wm. E. Voelkel & Son Co., Inc., is a Louisiana corporation, with its principal office at New Orleans.

In December, 1922, S. Silberman & Sons acquired 746 shares of the total of 750 shares of the issued and outstanding capital stock of the Voelkel Corporation, and sold the stock on December 28, 1925, at an alleged loss. The two petitioner corporations filed a consolidated income tax return for 1925, and deducted from consolidated income the amount of $349,419.24 as a loss sustained on the sale of the subsidiary’s stock.

The respondent determined that any loss sustained by S. Silber-man & Sons upon the disposal of the capital stock of its subsidiary was not allowable as a deduction from consolidated income for the period of affiliation, but could be taken as a deduction only from the separate income of S. Silberman & Sons for the period subsequent to the termination of the affiliation. This action of the respondent resulted in the determination of the deficiencies in controversy.

In addition to the reasons just stated, upon which the respondent predicated his determination of the deficiency, respondent contends that the evidence is insufficient to establish the amount of the loss sustained on the disposition of the stock in question, if any, and, further, that such loss, in any event, should be reduced by the amount of a dividend declared and paid on the Voelkel stock shortly after it was acquired by S. Silberman & Sons.

We think it is unnecessary here to discuss the respondent’s contention on the last two points mentioned, for the reason that the sole issue presented in this case is whether or not a loss on the sale by a parent corporation of its subsidiary’s stock, which thereby terminated the affiliated status, is deductible from consolidated income for the period of affiliation, and we have held that such a deduction is not allowable. The issue is concisely stated in the petitioners’ brief as follows:

The question in this case is whether the loss of $349,419.24 of S. Silberman & Sons on the sale of stock of the'Wm. E. Voelkel & Son Oo. Inc., December 28, 1925, to a third party, can be taken as a deduction from the consolidated return of the two companies.

In Remington Rand, Inc. v. Commissioner, 33 Fed. (2d) 77; certiorari denied, 280 U. S. 591, involving gain or loss by a parent corporation on the sale of stock of its subsidiary, the court in its opinion said:

Such a sale terminates the affiliation which had resulted from its purchase. Both the purchase and sale took place outside the period of affiliation and were made by the seller for its own account, not for the account of the affiliated group * * *.

In Riggs National Bank, 17 B. T. A. 615, 619; a affd., 57 Fed. (2d) 980, where the same question was presented, we applied the principles announced in the Remington Rand, Ine., case, saying:

It must be concluded from the opinion in that case that the gain was to be included as income of the Baker-Vawter Go. for that portion of the year 1920 which followed the disolution of the affiliation. Following the authority of that decision, we are of the opinion that petitioner is entitled to deduct the loss from its income for that portion of its taxable year which falls outside the period of affiliation.

The recent decision of the Supreme Court in Burnet v. Aluminum Goods Mfg. Co., 287 U. S. 544, we think does not conflict with the decisions above cited. In that case the Aluminum Company purchased the capital stock of the Sales Company in 1914. From that time until its liquidation, carried on in 1911, the Sales Company was engaged principally in selling the goods manufactured by the Aluminum Company. The Sales Company was dissolved in February 1918. Its operation reflected net losses for the years 1914, 1915, 1916 and 1917. As a result of the operating losses and the liquidation of the Sales Company, the Aluminum Company suffered the loss of certain sums advanced to the Sales Company, as well as the total investment in its stock. The court in its opinion said:

In the present ease, even though the affiliation continued, it does not follow as a matter law that the loss was not rightly deducted in the consolidated return. * * * It is conceded that the loss of the respondent’s advances to the Sales Company and the investment in its stock was sustained in 1917, and was deductible therefore, if at all, in that year, and might properly have been deducted by the respondent in a separate return, if a separate return had been permissible.
$ ‡ ^ ‡ ‡ ‡ $
The loss was a real one, suffered by respondent as a separate corporate entity and it was equally a loss suffered by the single business carried on by the two corporations during the period of their affiliation, ultimately reflected in the 1917 loss of capital invested in that business.

In that case the subsidiary remained in existence during the taxable year and the loss was incurred while the affiliation existed.

In the case at bar a wholly different situation is presented. The loss claimed did not result from the inability of the Voelkel Corporation to repay advances made to it by the Silberman Company, nor did the alleged loss result from the Voelkel stock becoming worthless in the taxable year. The loss here in question resulted solely from the sale of the Voelkel stock by S. Silberman & Sons in December 1925, which sale terminated the affiliation of the two corporations. The loss was not suffered by the single business carried on by the two corporations during the period of their affiliation and in no wise pertains to the consolidated income of the two corporations derived during the period of affiliation. Certainly it can not be said that the sale of its stock resulted in a loss to the Voelkel Corporation, or to the business theretofore carried on by the affiliated group. The loss was suffered by S. Silberman & Sons from a sale made for its own account, not for the account of the affiliated group. The sale of the stock terminated the affiliation and the loss occurred outside the affiliation. Therefore, whatever loss was sustained by S. Silberman & Sons is not deductible from the consolidated income for the period of affiliation, but, as we held in Riggs Nationod Bank, supra, petitioner is entitled to deduct such loss, if any, from its income for that portion of its taxable year which falls outside the period of affiliation, and if the amount of the loss exceeds its income for such subsequent period, it may be entitled under the net loss provisions to carry forward the balance of the loss to the following year or years. However, those years are not before us here, and the respondent’s action in disallowing any deduction for the alleged loss from the consolidated income of the affiliated period is approved.

Judgment will be entered for the respondent.


author: TRammell:

text:
    Mrs. J. F. Alexander, Executrix of the Estate of J. F. Alexander, Deceased, Petitioner, v. Commissioner of Internal Revenue, Respondent. H. W. Trout, Petitioner, v. Commissioner of Internal Revenue, Respondent.
    Docket Nos. 39019, 39020.
    Promulgated April 26, 1933.

      John B. MeOallum, Esq., for the petitioners.

      O. W. Sweoker, Esq., for the respondent.
   OPINION.

TRammell:

These proceedings, consolidated for hearing, are for the redetermination of the liability of the petitioners as transferees of the Saluda Lumber Company, under section 280 of the Revenue Act of 1926, in respect of deficiencies in income tax of said company for 1922 and 1923, in the amounts of $835.75, and $2,654.71, respectively.

The principal question involved is whether the petitioners are liable as transferees. The petitioners did not raise any question as to the amount of the tax due by the transferor; nor as to the statute of limitations; nor deny the authority of the respondent to proceed against petitioners to collect the tax therefrom if they are transferees.

The petition raises the question as to the proper amount of depletion allowable to the transferor, but this question is not urged in this proceeding and no testimony or stipulation relating thereto was introduced. All of the facts were stipulated as follows:

The Saluda Lumber Company was incorporated in 1916 under the laws of the State of North Carolina. H. W. Trout and J. F. Alexander (now deceased) were the sole stockholders of this Company.

On May 1, 1924, Saluda Lumber Company of North Carolina was succeeded by the Saluda Lumber Company, a corporation organized under the laws of the State of South Carolina. H. W. Trout and J. F. Alexander (now deceased) were likewise the sole stockholders of this corporation.

The Saluda Lumber Company of South Carolina took over all the business, assets, and property of the Saluda Lumber Company of North Carolina without material change either in its business affairs, stockholders or management; in truth and in fact it was a continuation of the business formerly conducted by the Saluda Lumber Company of North Carolina.

The net assets transferred by the Saluda Lumber Company of North Carolina to the Saluda Lumber Company of South Carolina were in excess of $18,000 as at May 1, 1924, the date the assets were transferred.

The Saluda Lumber Company of North Carolina filed income tax returns for the years 1922 and 1928 under dates of April 9, 1928, and March 15,1924, respectively. The return for 1922 was signed by H. W. Trout, Treasurer. The return for 1923 was signed by J. F. Alexander, president, and H. W. Trout, as secretary and treasurer.

On November 22, 1926, H. W. Trout, as secretary and treasurer, signed a waiver for the Saluda Lumber Company for the year 1922, extending the statute of limitations for that year to December 31, 1927.

On August 6, 1927, and within the time required by law, the Commissioner of Internal Revenue duly ajnd regularly assessed against the Saluda Lumber Company of North Carolina additional income and profits taxes for the calendar years 1922 and 1923 in the amounts of $835.75 and $2,654.71, respectively, these assessments appearing on the August 1927, Supplemental List No. 1 of the collector for the District of North Carolina on page 1, line 9, and page 2, line 0, respectively, of said list. The Saluda Lumber Company of North Carolina was duly notified thereof and payment demanded. On September 19, 1927, the collector^ of internal revenue for the District of North Carolina transferred these additional assessments to the collector for the District of South Carolina, at which time the Saluda Lumber Company of South Carolina was duly notified and payment demanded. The additional income and profits taxes remained wholly unpaid at this date.

On May 1, 1927, the Saluda Lumber Company of South Carolina discontinued its business and surrendered its charter, having prior to April 1927, distributed to its stockholders, the petitioners herein, substantially all of its undivided profits and having on hand at the time of dissolution on May 1, 1927, assets of the value of $20,562.17, which assets passed into and remained in the hands of H. W. Trout, who was the largest stockholder, the secretary and treasurer and active manager of the corporation.

These petitioners were the principal and controlling stockholders of the Saluda Lumber Company of South Carolina at the time it was dissolved and received prior to its dissolution and between January 1 and March 26, 1927, the following dividends in cash paid from the corporation’s undivided profits:

Estate of J. P. Alexander___$5,400.00
H. W. Trout_ 10,800.00

This corporation was organized for the purpose of manufacturing lumber. During the year 1926 all merchantable timber owned by this corporation had been cut and sawed into rough lumber. During the period January 1, 1927, to May 1, 1927, the date of dissolution, the only operations of this corporation consisted in the sale of certain manufactured lumber on hand as of January 1, 1927, together with the sale of a small amount of lumber purchased subsequent to January 1, 1927.

Under date of April 6, 1928, the Commissioner of Internal Revenue mailed a sixty-day deficiency letter to each of the above-named petitioners, asserting a deficiency of $3,490.46 against each of them, representing their liability as transferees of the Saluda Lumber Company of North Carolina, under the provisions of section 280 of the Revenue Act of 1926, for taxes due and unpaid from said company for the years 1922 and 1923.

The real controversy in this proceeding is whether the assets of the transferor corporation were distributed to the petitioners in liquidation. It is stipulated that after distributing, all of the undivided profits there were left on hand at the time of the dissolution of the.corporation on May 1, 1927, assets of the value of $20,562.17 and that these assets passed into and remained in the hands of H. W. Trout, who was the largest stockholder, secretary and treasurer and active manager of the corporation.

After the distribution there remained in the hands of the corporation more than sufficient assets to pay its tax liability here involved. It is well established that if a corporation has on hand sufficient assets to pay its tax liability the respondent must first resort to the corporation for the collection of its tax. There is no liability as transferee until the corporation has transferred its capital assets to its stockholders without paying its obligations. In other words, so long as the transferor is solvent and able to pay all of its obligations, including taxes, there is no transferee liability. Samuel Keller, 21 B. T. A. 84; affd., 59 Fed. (2d) 499; Charles Harvard, 25 B. T. A. 1161; M. H. Graham, 26 B. T. A. 301.

It is clear from the testimony that no part of the capital of the corporation was distributed to the estate of J. F. Alexander. What that estate received from the dissolved corporation was dividends. It received a portion of the earnings and profits of the corporation. The estate, represented here by the executrix, is, therefore, not liable as transferee.

The question is whether the petitioner, Trout, is liable as transferee. He received, on the dissolution of the corporation on May 1, 1927, assets of the value of $20,562.17. He was the largest stockholder, the secretary and treasurer, and active manager of the corporation. It is true that under the South Carolina law the directors of a corporation on dissolution are the trustees for the purpose of winding up the corporation’s affairs, and any assets in their hands as trustees are held by them as trustees for the corporation. ■

In the case of American Cotton Oil Co. v. Saluda Oil Mill Co., 107 S. C. 422; 73 S. E. 14, the facts were that at a sheriff’s sale all the property of the Saluda Company was sold by the sheriff to satisfy an execution against it, and the sheriff, after satisfying the execution, paid in the proceeds of the sale to the directors of the corporation and its treasurer, who distributed them among the stockholders. The court held that all of the directors were liable to an unpaid corporation creditor even if the execution sale dissolved the corporation since (under the Civil Code of 1912, secs. 2814-2816) the directors of the dissolved corporation became trustees to collect its assets and pay its debts.

It does not appear of record in this case, by stipulation or otherwise, that Trout was a director of the transferor corporation. If he had been it might well be that as director he received and held the assets for and in behalf of the directors as trustees. The South Carolina statutes do not provide that an official of the dissolved corporation or a stockholder thereof becomes a trustee, but merely that the directors become trustees for a dissolved corporation. The assets in this case, consisting of the capital of the corporation, were distributed to Trout, who was the largest stockholder. The stipulation also states that he was secretary and treasurer and active manager of the corporation. We think that these facts are immaterial if he was not a director. If he was a director, the record should have disclosed that fact. The argument made by counsel for the petitioner in briefs is that he was a trustee; that the corporation continued in existence for the purpose of paying debts, and that the above amount of assets in the hands of Trout as trustee, because he was a director, constituted assets in the hands of the corporation amply sufficient to pay the taxes here involvd; and that since the corporation held, through its trustees, assets sufficient to pay the tax, Trout was not a transferee.

Even if this contention were sound, based upon facts assumed, it would be immaterial here because the assumed facts are not in the record. All we know is that the $20,562.17 in assets passed into and remained in the hands of H. W. Trout, the largest stockholder. Where a corporation dissolves and turns over its capital assets to a stockholder or stockholders without paying the taxes due to the Government, such stockholder receiving those assets is a transferee. If the fact is that Trout was a director and that the assets were turned over to him as director and trustee, under the laws of South Carolina, the record does not disclose it. In any event, upon a showing that a stockholder or stockholders have received assets of a corporation and that the taxes due the Government have not been paid, the burden of going forward shifts to the petitioner to show that he received them in some capacity other than as a stockholder and that he did not receive them by virtue of his stock ownership.

For the foregoing reasons, it is our opinion that Trout is liable as transferee for the amount of taxes asserted against the transferor corporation. Grand Rapids National Bank, 15 B. T. A. 1166; Edward F. Gehringer, 16 B. T. A. 214; Lottie Essex, 19 B. T. A. 275; A. R. McLennan, 25 B. T. A. 1052.

Reviewed by the Board.

Judgment will be entered under Rule 50.


author: Smith :

text:
    Produce Exchange Stock Clearing Association, Inc., Petitioner, v. Commissioner of Internal Revenue, Respondent.
    Docket No. 62105.
    Promulgated April 26, 1933.

      Allen H. Gardner, Esg., for the petitioner.

      I. Graff, Esg., for the respondent.
   OPINION.

Smith :

The petitioner claims to be exempt from income tax for the year 1929 under section 103 of the Eevenue Act of 1928, which provides in part as folows:

SEC. 103 EXEMPTIONS PROM TAX ON CORPORATIONS.
The following organizations shall be exempt from taxation under this title—
***•*••
(7) Business leagues, chambers of commerce, real estate boards, or boards of trade, not organized for profit and no part of the net earnings of which inures to the benefit of any private shareholder or individual.

Article 528 of Regulations 74, promulgated under the Revenue Act of 1928, provides as follows:

Art. 528. Business leagues, chambers of commerce, real estate boards, and boards of trade. — A business league is an association of persons having some common business interest, the purpose of which is to promote such common interest and not to engage in a regular business of a kind ordinarily carried on for profit. It is an organization of the same general class as a chamber of commerce, or board of trade. Thus its activities should be directed to the improvement of business conditions or to the promotion of the general objects of one or more lines of business as distinguished from the performance of particular-services for individual persons. An organization whose purpose is to engage in a regular business of a kind ordinarily carried on for profit, even though the business is conducted on a cooperative basis or produces only sufficient income to be self-sustaining, is not a business league. An association engaged in furnishing information to prospective investors, to enable them to make sound investments, is not a business league, since its activities do not further any common business interest, even though all its income is devoted to the purpose stated. A stock exchange is not a business league, a chamber of commerce, or a board of trade within the meaning of the law and is not exempt from tax.

It is apparent that to be exempt from income tax the petitioner must be (1) a business league, chamber of commerce, real estate board, or a board of trade; (2) not organized for profit; and (3) an organization no part of the net earnings of which inures to the benefit of any private stockholder or individual.

Manifestly the petitioner is not a chamber of commerce, real estate board, or board of trade, as those terms are ordinarily understood. We are also of opinion that it is not a business league within the contemplation of the statute. It is to be noted that the term “ business league ” is used in connection with the words “ chamber of commerce, real estate board, or board of trade.” By the familiar doctrine of noscitur a sociis a business league must have the general characteristics of a chamber of commerce, real estate board, or board of trade to be exempt from tax. We commented upon this fact in Uniform Printing & Supply Co., 9 B. T. A. 251, and held that since that organization did not have the general characteristics of a chamber of commerce, etc., it was not exempt from tax. Our decision in that case was affirmed by the Circuit Court of Appeals for the Seventh Circuit, 33 Fed. (2d) 445, and certiorari was denied, 280 U. S. 591. We further stated our conception of a “business league” in Waynesboro Manufacturers Assn., 1 B. T. A. 911, which we held exempt from income tax. Generally speaking, our conception of a business league exempt from income tax is an association of business men or of business enterprises, incorporated or unincorporated, which has for its purpose the furtherance of the interest of its members by way of the furnishing of information to its members, or the performance of services which are not ordinarily carried on by businesses for profit, and which is not organized for profit and no part of the net earnings of which inures to the benefit of any private shareholder or individual.

It is furthermore to be noted that the statute provides for the exemption of business leagues, etc., “ not organized for profit.” The ■petitioner was incorporated under the Stock Corporation Law of the State of New York, Article II, section 5 of which provides that “three or more persons may become a stock corporation for any lawful business purpose or purposes.” (Cahill’s Consolidated Laws of New York, 1930, p. 2257.) Article I, section 3, of the General Corporation Law of the State of New York defines a “business corporation ” as a “ corporation formed under or subject to the stock corporation law.” (Cahill’s Consolidated Laws of New York, 1930, p. 972.) Article VI, section 58, of the Stock Corporation Law authorizes the “ payment of dividends by corporations organized pursuant to the provisions of said law.”. (Cahill’s Consolidated Laws of New York, 1930, p. 2287.)

In contradistinction to these provisions the New York laws also provide for the incorporation of organizations known as “membership corporations.” Article I, section 2, of the Membership Corporation Law defines the term “ membership corporation ” as a “ corporation not organized for pecuniary profit ” and provides for the incorporation thereunder of such organizations as cemetery associations, corporations for prevention of cruelty, medical societies, historical associations, and agricultural and horticultural associations. (Cahill’s Consolidated Laws of New York, 1930, pp. 1418-1436.)

Although up to the present time the petitioner has not paid any dividends to its sole stockholder, the New York Produce Exchange, there appears to be no reason under the law why it could not amend its by-laws and pay dividends to its sole stockholder.

Upon the facts of record we are of the opinion that the petitioner does not qualify as a corporation exempt from income tax for 1929. Cf. Northwestern Jobbers' Credit Bureau, 14 B. T. A. 362; affd., Northwestern Jobbers' Credit Bureau v. Commissioner, 37 Fed. (2d) 880; A—1 Cleaners & Dyers Co., 14 B. T. A. 1314; Growers Cold Storage Co., 17 B. T. A. 1279; Adjustment Bureau of St. Lords Association of Credit Men, 21 B. T. A. 232; Ft. Worth Grain & Cotton Exchange, 27 B. T. A. 983.

Reviewed by the Board.

Judgment will be entered for the respondent.

Murdock and Goodeich concur in the result.


author: McMahon:

text:
    Eugene W. Small, Petitioner, v. Commissioner of Internal Revenue, Respondent.
    Docket No. 49551.
    Promulgated April 26, 1933.

      George J. Mintzer, Esq., and Ewgene W. Small, Esq., for the petitioner.

      Frederick K. Slanker, Esq., for the respondent.
   OPINION.

McMahon:

The question here presented is whether petitioner, a married man who filed a separate return of income in 1927, is entitled to deduct an amount of $1,120.80 which he paid in that year out of his own moneys as taxes upon property which he had in a previous year transferred to his wife, with the verbal understanding that it would be continued as the family residence and that he would, while living, continue to pay all the expenses thereof, and which was owned by her during the year in question.

Section 214 (a) of the Revenue Act of 1926 provides that there shall be allowed as deductions, “ Taxes paid * * * within the taxable year * *

In WilUam Ainslie Oolston, 21 B. T. A. 396, we stated:

* * * He also paid $776.85 representing taxes on the home of petitioner and his wife which he had given her at the time of their marriage, title to which stood in her name and which she in fact owned. There is no doubt that if a joint return had been filed the payment of these taxes would have been a deduction on such joint return. But, as separate returns were filed and the taxes were upon property of the wife, they are deductible only when and if paid by her and not by him. Porter v. United States, 27 Fed. (2d) 882; Charles P. Dean, 1 B. T. A. 27; Bank of Commerce, 3 B. T. A. 950; A. Eisenberg, 11 B. T. A. 574; Fidelity Trust Co., 13 B. T. A. 109.

The above case was affirmed by the Court of Appeals of the District of Columbia in Colston v. Burnet, 59 Fed. (2d) 1080.

It is true that in the instant proceeding the petitioner, by a personal bond and a mortgage which he executed, and which was in default, had obligated himself to the mortgagee to pay the taxes upon the property, and that he also stated to his wife at the time he transferred the property toi her that he would continue to maintain the property as a family residence and pay all the expenses. These circumstances were not present in William Ainslie Oolston, supra, but the difference is immaterial. Whatever obligations devolved upon the petitioner in the instant proceeding were contract liabilities with third persons.

In order to be entitled to a deduction for taxes paid, a petitioner before us must show not only that he paid the taxes, but that the taxes were imposed upon him by the taxing authority. A. Eisenberg, 11 B. T. A. 574; Samuel Riker, Jr., 15 B. T. A. 1160; Caroline T. Kissel, 15 B. T. A. 1270; George L. Shearer, 18 B. T. A. 465; affd., in Shearer v. Commissioner, 48 Fed. (2d) 552; Falk Corp., 23 B. T. A. 883; affd., 60 Fed. (2d) 204; and Borg & Beck Co., 24 B. T. A. 995. The petitioner has not shown that the taxes in question were imposed upon him.

We find nothing in the law of New York, particularly sections 9 and 55 (a), chapter 62, of the New York Laws of 1909 and subdivision (6) of section 254 of chapter 52 of the New York Laws of 1909, cited by the petitioner, to indicate that the realty taxes in question were imposed upon the petitioner. It does appear, however, from section 71 of chapter 62 of the New York Laws of 1909, cited by the respondent, that petitioner’s wife, being the owner of the property, is personally liable for such taxes if her name was correctly entered on the assessment roll. We do not know that the petitioner’s wife was not personally liable for the taxes in question, since the petitioner, upon whom is placed the burden of proof, has not shown that his wife’s name was not correctly entered on the assessment roll. Cf. F. C. Nicodemus, Jr., 26 B.T.A. 125. The sections of the New York Laws referred to above are set forth in the margin.

Petitioner contends that there was virtually a trust estate reserved to the petitioner and his family by the verbal reservation respecting the continuance of the property as a family home and that it was the duty and interest of the petitioner to maintain this estate and pay the taxes necessary to maintain it. However, petitioner cited us no authority in support of this contention, and we see no merit in it. In view of this contention of the petitioner, the following portion of the court’s opinion in Colston v. Burnet, supra, is pertinent:

* * * Petitioner, on the other hand, insists that he is entitled to a deduction from his income by reason of his duty as husband to support his family and also because under the Ohio law he has certain rights of dower (in most States called curtesy) in his wife’s real estate. Added to this, if we correctly understand petitioner’s contention before the Board, as shown in his evidence, he claims to hold an equitable title to the property growing out of the initial payment by him of $8,000, and out of this he deduces an obligation on him to pay the taxes and the interest.
We are unable to find any substance in any of these contentions, or to perceive either a legal or equitable title to the property. * * * Taken together, we are unable to reach any other decision than that he intended a gift to his wife of the full and absolute title to the property, though doubtless with the purpose, as between them, of discharging the encumbrance so that the dwelling house should eventually be hers discharged of debt, and, if that be true, it is not necessary to cite authority to the effect that the voluntary payment by him of her taxes or of interest primarily due by her should not entitle him to a deduction therefor under the revenue laws.

We hold that the respondent did not err in disallowing the claimed deduction.

Decision will he entered for the respondent.

       §9. Place of taxation of real property. Real property shall he assessed as of July first in the tax district in which it is situated. In all cases the assessment shall he deemed as against the real property itself, and the property itself shall be holden and liable to sale for any tax levied upon it.
      §55-a. Errors in assessment-rolls. An error in the description of a parcel or portion of real property shall not invalidate the assessment against such parcel or portion, if such description is sufficiently accurate to identify the parcel or portion. The entry of the name of the owner, last known owner or reputed owner of a separate parcel or portion of real property shall not be regarded as part of such assessment, but merely as an aid to identify such parcel upon the roll.
      §71. Collection of taxes; sale of personal property. * * * If the owner of a parcel or portion of real property is a resident of the tax district in which such parcel or portion of real property is assessed, and his name is correctly entered on the assessment-roll, he shall be personally liable for the tax assessed againt such parcel or portion of real property. * * *
      §254. Construction of clauses and covenants im mortgages and honds. * * *
      *******
      6. Mortgagor to pay all taxes, assessments or water rates. A covenant “ that the mortgagor will pay all taxes, assessment or water rates and in default thereof, the mortgagee may pay the same ” must be construed as meaning that until the amount hereby secured is paid, the mortgagor will pay all taxes, assessments and water rates which may be assessed or become liens on said premises, and in default thereof the holder of this mortgage may pay the same, and the mortgagor will repay the same with interest, and the same shall be liens on said premises and secured by the mortgage.


text:
    Luis James Phelps and Thomas B. Scott, Jr., as Executors of the Last Will and Testament of Thomas B. Scott, Petitioners, v. Commissioner of Internal Revenue, Respondent.
    Docket No. 50336.
    Promulgated April 26, 1933.

      'William G. Murphy, Esq., for the petitioners.

      Frank B. Horner, Esq., for the respondent.
   OPINION.

Smith :

The stipulated facts show that none of the several transfers was made in contemplation of death. On brief the respondent states that:

In view of the decision of the Supreme Court in Donnan v. Heiner, 52 Sup. Ct. 358, respondent concedes that the value of the property transferred by the decedent to his son on October 6, 1927, by absolute gift, as set forth in the stipulation of facts, paragraph numbered (7), is not subject to the estate tas and should, therefore, be excluded from the value of the gross estate.

This leaves in issue the taxability of the corpus of the three trusts created by the decedent for the benefit of his son, daughter, and wife. No contention is made, and the trust deeds would not support such contention if made, that the trusts were revocable. Our question then is to determine whether there was a transfer “ intended to take effect in possession or enjoyment at or after ” decedent’s death within the purview of section 802 (c) of the Revenue Act of 1926.

The respondent dwells much on the reversionary and remainder interests involved in the several trusts; and we have recently had occasion to consider exhaustively such possibilities under the New York law (applicable in this proceeding), and call attention to our decision in Elizabeth B. Wallace, Executrix, 27 B. T. A. 902.

In creating the trusts for the benefit of his son and daughter, the decedent divested himself of all interest in the trust res, reserving to himself neither the reversion nor the right to dispose of the remainders after the termination of the precedent life estates. May v. Heiner, 281 U. S. 238, is authority for holding that the corpus of these trusts is not to be included in the decedent’s gross estate.

In creating the trust for the benefit of his wife, the decedent reserved to himself the right to dispose of the remainder upon the .termination of the wife’s life estate, and in the event of his failure to exercise that right of appointment, the remainder went to his descendants as provided in the trust deed. These provisions left the transfer incomplete and subject to tax. Saltonstall v. Saltonstall, 276 U. S. 260; Chase National Bank v. United States, 278 U. S. 327. The petitioners concede as much, but argue that:

* * * The retention of this power of appointment undoubtedly makes taxable the value of that remainder interest, that is to say, the value of the full trust fund less the value at decedent’s death of the widow’s life interest.
However, the widow’s life interest is not taxable and for two reasons:
A. The widow’s life interest was not created by a transfer “ intended to take effect in possession or enjoyment at or after (decedent’s) death” (Act, Section 302c). It was created by the trust deed executed on 3 May, 1927, a year prior to death, and taking effect forthwith in possession and enjoyment.
B. The creation of this life interest in the widow’s favor was a “ bona fide sale for an adequate and full consideration in money or money’s worth ” (Act, Section 302c). The consideration was the agreement made between Mr. Scott and his widow prior to their marriage that if she would marry him, he would create a trust for her benefit, an agreement faithfully carried out by both parties (Stipulation, Par. 6.) Under cases such as Ferguson vs. Dickson, 300 Fed. Rep. 961, and McCaughn vs. Carver, 16 Fed. Rep. (2nd) 126, agreements such as this are held to satisfy the above quoted portion of the Act.

The cited cases lend color to the petitioners’ argument, which, however, is amply substantiated by the facts. The decedent retained only the power to dispose of the remainder after the wife’s life estate, and failing the exercise of that power, his descendants would receive the remainder upon the termination of the life estate. The wife’s interest, that is her life estate, was irrevocably created in accordance with the antenuptial agreement, and vested in her at the time of the creation of the trust. The decedent’s death did not in any way alter her interest. In these circumstances we hold that the stipulated value as of the date of the decedent’s death of the corpus of the trust for the benefit of the wife, less the present value of her life estate on that date, should be included in the decedent’s gross estate.

Pursuant to the stipulation and in accordance with the provisions of section 301 (b) of the Revenue Act of 1926, as amended by section 802 of the Revenue Act of 1932, there should be credited against the estate tax redetermined in accordance with this opinion, the amount of the inheritance taxes paid to the several states.

Judgment will be entered under Bule 50.


author: Matthews:

text:
    E. A. Holmes, Trustee, Holmes Bakery & Confectionery, Petitioner, v. Commissioner of Internal Revenue, Respondent.
    Docket Nos. 44943, 52861.
    Promulgated April 26, 1933.

      Frank J. Albus, Esq., for the petitioner.

      R. M. McMillan, Esq., and W. II. Payne, Esq., for the respondent.
   OPINION.

Matthews:

The only question to be determined is whether the trust was taxable as an association.

We do not think petitioner was an association for taxing purposes under section 2 (a) (2) of the Eevenue Acts.of 1924 and 1926, and section 701 (a) (2) of the Eevenue Act of 1928. The trust instrument bore some resemblance, it is true, to that of a “Massachusetts Trust.” It had a business purpose and carried on business activities. But the evidence shows that no certificates of beneficial interest were ever issued either to Holmes himself, to his wife and sons, or to outsiders. In view of the language of the provision in Article VI, section one, that certificates “ may ” be issued as evidence of beneficial interest, but not absolutely requiring their issuance, it is conceivable that the interests of the named beneficiaries, Holmes’s wife and sons, vested immediately, although the extent of their interests is not determined by the instrument. We think petitioner should be allowed the benefit of the doubt. The powers which he might have exercised lay dormant. The new money which he might have brought into the business by the sale of interests to others never came in. It may well be doubted whether strangers would wish to risk their money in an enterprise dominated wholly by one man. At any rate none ever did. Some lingering hope of such investment may still have been in Holmes’s mind in 1927, five years after the trust’s creation, when he provided by amendment for an increase in the number of beneficial certificates which might be issued; but if there was such a hope, it was never realized. Holmes went on doing business in the same way as he had done hitherto. True, he had taken care that the trust instrument be recorded so that persons dealing with the bakery should be put on notice that the business was run as a trust; and, of course, the limitation of liability to the trust property, which was apparently the main thing sought by Holmes in changing the form of the business, put the business in fact in a different position to third persons from what it had hitherto occupied. But we do not think this should be the criterion of whether the business was an “ association.” It had been a one-man business, it became a one-man trust, with beneficiaries in Holmes’s own family designated but never holding beneficial certificates, but the business went on in the same way, as far as ownership, control, and management Avent. The trust instrument shoAvs that Holmes himself contemplated being a beneficiary, and in view of the evidence that no beneficial certificates were issued, and that no dividends were paid by the trust, we may well conclude that he was in fact the sole beneficiary, notwithstanding the possible view that the interests of his wife and sons vested by execution of the instrument.

The “ trust ” did not have a quasi-corporate form. The trust instrument did not provide for officers or directors, nor for a fixed capital stock. This “ trust ” certainly does not come Avithin the definition of “ association ” laid down by the Supreme Court in Burk-Waggoner Oil Assn. v. Hopkins, 269 U. S. 110. Cf. Guitar Trust Estate, 25 B. T. A. 1213. The principal quasi-corporate feature was the beneficial certificates, which as we have said, were never issued. The mere existence of powers in the trust instrument is not enough to bring a trust Avithin the statute, if those powers are allowed to remain dormant. Lansdowne Realty Trust v. Commissioner, 50 Fed (2d) 56. The Guitar case, supra, was a “ family trust,” for the benefit, as here, of a man, his wife and their children: Beneficial certificates were not issued and the trustees (including the father and two sons) were given very complete powers. We held it a trust. Cf. Blair v. Wilson Syndicate Trust, 39 Fed. (2d) 43.

But we do not think this point need be labored. The Holmes Bakery & Confectionery was not taxable as an association.

The petitioner in his brief contends for the first time that under section 219 (g) of the Revenue Acts of 1924 and 1926, and section 166 of the Revenue Act of 1928, the income from the trust was taxable to Holmes, the individual, because of the powers reserved by him in the trust instrument to control the trust, revest the corpus in himself and terminate the trust. On this theory he contends that not only is there no deficiency, but that there has been an overpayment for each year and asks judgment for such overpayments. Assuming without deciding that this is not an untimely attempt to raise a new issue, it does not require serious consideration, since the record does not show what payments in taxes have been made by the trust.

Reviewed by the Board.

Judgment will be entered wider Bule SO.

Smith, Van Fossan, and Goodeioh concur in the result.


author: Arundell:

text:
    Oscar T. Crosby, Petitioner, v. Commissioner of Internal Revenue, Respondent.
    Docket Nos. 51317, 60916.
    Promulgated April 26, 1933.

      Osear T. Crosby, pro se.

      T. M. Mather, Esq., and B. H. Transue, Esq., for the respondent.
   OPINION.

Arundell:

The respondent determined deficiencies in income tax for the years 1927, 1928 and 1929, in the respective amounts of $2,938.52, $4,407.89 and $1,066.08. Docket No. 51317 relates to the years 1927 and 1928, and No. 60916 to the year 1929. The two cases were tried separately, but as the principal issue is the same in each, one report will suffice for both cases.

The issue common to both cases is whether income may be divided between petitioner and his wife on a community property basis. Respondent proposes to tax it all to petitioner. In Docket No. 60916 petitioner claims a bad debt deduction consisting of interest on defaulted notes, and a loss on the sale of a house.

The evidence in both cases consists entirely of the testimony of the petitioner. Much of the time devoted' to the hearings was taken up by petitioner’s statement of his views on the law, and the stenographic transcripts of. the proceedings, running something over sixty pages, contain but few facts. From a careful study of the transcripts we are able to piece out the facts set forth in the following three paragraphs.

Petitioner and bis wife were married in the State of Louisiana in 1885. At that time neither of them had any separate property. Petitioner left Louisiana in 1886 and went to New York. He returned to Louisiana in 1890 and remained about a year and a half. Between 1885 and the taxable years petitioner spent considerable time abroad in various countries, including Europe, Asia, Africa, and South America. He returned at intervals to the United States. During some of his periods of absence his family resided in France. He was in Africa nearly all of 1927 and in that year and in 1928 his domicile was either in the District of Columbia or Virginia. During those years his family resided in those two jurisdictions. For many, years prior to 1929 petitioner owned real estate in Virginia and in 1929 his domicile was in that Commonwealth. The income which is the subject of these proceedings was from dividends and interest on stocks, bonds, and other securities, and profits from trading in securities. The property upon which the income was realized was acquired between 1885 and the taxable years. Petitioner and his wife filed separate returns for each of the taxable years with the collector at Richmond, Virginia, dividing the income equally between them.

In 1928 there was deeded to petitioner a house and lot in Florida in satisfaction of a note for $1,000. Petitioner sold the property in 1929 for a stated consideration of $500, out of which he was required to pay expenses of $330.73, leaving a net amount received of $169.27. Petitioner claimed a loss of $800 which was disallowed by respondent with the explanation that the property had no greater value when acquired by petitioner that when sold in 1929.

In his return for 1929 petitioner claimed bad debt deductions amounting to $9,330. The respondent allowed as a deduction the face amount of the debts in the sum of $5,750, and disallowed the balance, consisting of accrued interest.

Petitioner does not claim to have been domiciled in Louisiana during the taxable years. His contention is that by reason of his marriage in Louisiana — a community property state — all property thereafter acquired during the existence of the marriage became community property, regardless of the place of domicile.

Upon the record made we are unable to find any facts as to petitioner’s domicile when he acquired the property from which he received income in 1927, 1928, and 1929. Assuming that the matrimonial domicile was in Louisiana for a year or so following the marriage, petitioner does not claim that the property was acquired then. The respondent has found “that practically all of the property * * * was acquired while you and your wife were domiciled in other jurisdictions than Louisiana.” (Deficiency notice in Docket No. 51317.) As petitioner’s evidence' is insufficient to overcome this finding it must be taken to be a fact. While it may be, as claimed by petitioner, that some of the foreign countries in which he spent some time have community property laws, he did not establish his claim sufficiently to help his case. We do not take judicial notice of foreign laws and petitioner did not prove them. Nor did he establish residence or domicile in any foreign country so as to make its laws operative either as to him or his property.

One of the fundamental rules respecting personal property is that the rights of husband and wife in the property are determinéd by the law of domicile at the time of acquisition. See Norman De Vaux, 14 B. T. A. 205, 207. In case of change of domicile, “ acquisitions subsequent to the change are governed by the law of the new domicile.” Wharton, Conflict of Laws, §196, citing numerous cases. This author, Wharton, quotes the rule as stated in Burge’s Colonial and Foreign Laws, pt. 1, ch. 7, §8, as follows:

If the law of community be a real law, its power as to personal property cannot be more extensive than as to real property. As it affects only such real property as is actually situated in the country where it is established, so it affects personal property only when its owner is actually domiciled in the country where such law is established, because the place of his domicil is the ■situs in flotione juris of his movable property. The real law as to personal property is that which prevails in the place of the owner’s actual domicil. He acquires and holds it according to the disposition of that law, and it depends on that law whether he and his wife acquire it for their joint benefit, or for his sole benefit.

This appears to be the rule adopted by the courts of Louisiana, and applied not only to property physically beyond the borders of the state, but even to property therein if the domicile of the spouses, at the time of acquisition, was in a foreign jurisdiction. Saul v. His Creditors, 5 Mart. N. S. 569; 16 Am. Dec. 212; Succession of Packwood, 9 Rob. (La.) 438; 41 Am. Dec. 341.

Under these rules it would seem clear that the community property laws of Louisiana did not attach to property acquired by1 petitioner after he abandoned his domicile in that jurisdiction, and, upon his failure to establish that the law of the domicile at the time of acquisition bestowed any rights in the property on his wife, we are bound to affirm the respondent’s finding that the property here involved was petitioner’s separate, and not community, property. We accordingly sustain the respondent’s taxation of income to the petitioner.

When petitioner took a deed to the Florida real estate in 1928 in satisfaction of a note, he realized a gain or sustained a loss at that time, dependent on the then value of the real estate. The respondent disallowed the loss in 1929 on the ground that the property was worth no more in 1928, when acquired, than in 1929 when sold. The 1929 sale established the value in that year and this, under the respondent’s finding, may be taken as the value in 1928. Accordingly, the petitioner is entitled to a loss deduction for 1928 of the difference between the amount of the note, $1,000, and the amount of $169.27.

The remaining question is whether petitioner may deduct the accrued interest on debts that became worthless in 1929. The respondent allowed a deduction for the principal of the notes but disallowed the interest. It appears that petitioner kept his accounts on the cash basis; at least he concedes in his brief that he was not on the accrual basis. In this situation, it has been the established rule ever since the decision in Charles A. Collin, 1 B. T. A. 305, that the accrued interest may not be deducted.- ‘

Decision will he entered under Bule 50.


author: Goodeich:

text:
    Thomas F. Gurry, Petitioner, v. Commissioner of Internal Revenue, Respondent.
    Docket No. 55294.
    Promulgated April 26, 1933.

      Osear Wagner, Esq., for the petitioner.

      Prew Savoy, Esq., for the respondent.
   OPINION.

Goodeich:

Petitioner seeks a redetermination of a deficiency of $592.29 in income taxes for the year 1928. There is but one issue, namely, whether petitioner may deduct from his income $900 paid by him to his attorney for services rendered in recovering an award compensating him for seizure of his automobile. The stipulation submitted by the parties we adopt as our findings of fact, making but a brief statement thereof for the purposes of this report.

During the summer of 1914 petitioner, accompanied by his family, was on tour with his automobile in Germany. Immediately upon the outbreak of the war the car was seized by the German Government. After making various unsuccessful efforts toward redress during the ensuing 13 years, in 1928 petitioner was paid $3,393.81, the net amount of an award made him by the Mixed Claims Commission, United States and Germany. Of this payment, $2,000 represented the value of the automobile and $1,393.81 was interest thereon. Shortly thereafter petitioner paid his attorney $900 as a fee for his services in the matter.

At trial, counsel for the respondent conceded that the item of $2,000 should be eliminated from petitioner’s income as he had determined it, and counsel for petitioner conceded that the item of interest, $1,393.81 should be included in income; thus leaving for our determination only the issue as to the deductibility of the $900 fee paid by petitioner to his attorney. Respondent maintains that this fee is not deductible or, in the alternative, that there may be deducted only a part of it, based on the ratio between the amount of capital recovered and the amount of interest awarded thereon. Petitioner contends that the whole of the fee is deductible, either as an expense incurred in connection with a casualty under section 23 (e), Revenue Act of 1928, or as a necessary cost of acquiring income, and, further, that no allocation of it should be made for the reason that the taking of any part of it from the principal of the award would create a capital loss to that extent.

In our opinion, the fee is not deductible from petitioner’s income. The statute — section 23, Revenue Act of 1928 — specifically enumerates the deductions from gross income allowable in computing net income for the purposes of the tax, and must be strictly construed. Cornell v. Coyne, 192 U. S. 418.

Petitioner concedes that the fee paid was not an expense of carrying on his trade or business; therefore it is not deductible under paragraph (a) of that section, nor under paragraph (e) (1) covering losses incurred in business. Nor do we think it deductible under paragraph (e) (3) as a loss arising from a casualty. The seizure by the German Government by which petitioner was deprived of his car was not a casualty of the sort contemplated by the statute. As the term is used, and as it is defined, it would seem to include only those incidents similar to fire, storm, or wreck. Alice P. Bachoffen von Echt, 21 B. T. A. 702. Consequently, even assuming that an attorney’s fee could be part of a loss resulting from a casualty, we can not so classify it in the case at bar. No other statutory provision under which the fee might be held to be deductible has been suggested, nor do we find any. It need not be argued that an expense is not necessarily deductible because incurred in acquiring income.

We conclude that this fee was no more than a personal expense to petitioner, for the deduction of which the statute makes no provision. His property had been taken from him; it was to his interest to recover it or compensation, for it. In taking the action he did he was only protecting and conserving his property — a burden which falls upon every property owner — and the expense of doing so falls upon him. Mary W. Leach, 16 B. T. A. 781; affd., 50 Fed. (2d) 871; A. C. Barnes, 21 B. T. A. 690; Clara Hill Bindley, 26 B. T. A. 741; affd., 63 Fed. (2d) 807; Grace McBride Crile, 26 B. T. A. 1020; R. E. Nail et al., Executors, 27 B. T. A. 33.

In this view of the case it is unnecessary to discuss the matter of allocation of the fee between the principal of the award and the interest thereon, since no issue is raised concerning a capital loss.

Judgment will be entered wider Rule 50.


author: Sea well:

text:
    Marcus Frieder, Petitioner, v. Commissioner of Internal Revenue, Respondent. Leonard P. Frieder, Petitioner, v. Commissioner of Internal Revenue, Respondent.
    Docket Nos. 46685, 46738.
    Promulgated April 26, 1933.

      Marcus Frieder and Leonard P. Frieder pro sese.

      John H. Pigg, Esq., for the respondent.
   OPINION.

Sea well:

The record shows the petitioners purchased certain shares of corporate stock shortly prior to the declaration of a dividend, which dividend they expected to be declared and which influenced them in the price which they paid for the stock, and that the Commissioner included in the taxable income of the petitioners for the year 1926 the full amount of the dividends received by them during that year. Did the Commissioner err in his action as indicated, is the question for our determination.

In the circumstances of the case as detailed in our findings of fact, the petitioners insist that the dividend or dividends declared- and received by them in 1926 should not be treated as income, but as merely a return of capital, because they had paid far in excess of the market price of the stock at the time the purchase was made.

The question, however, is purely one of law and has heretofore been decided by us and, as we think, properly, against the contention of the petitioners and there is therefore no necessity for a further discussion of the subject. In Edward H. Moore, 22 B. T. A. 366, a similar question was presented for our determination and we there (p. 368) stated:

Undoubtedly tlie price paid for the stock was based upon the known or anticipated amount of earnings available or soon to be available for the payment of dividends, but this by no means establishes the contention of the petitioner. On this issue the determination of the respondent is affirmed. Julius S. Rippel, 12 B. T. A. 438.

The only case cited by the petitioners in support of their contention is C. H. White, 15 B. T. A. 1375, which is so obviously distinguishable from the instant case, both on the issues and the facts involved, that a discussion thereof is unnecessary.

Judgment will be entered for the respondent.


author: Seawell:

text:
    First Seattle Dexter Horton National Bank and Helen King Boole, Executors of the Estate of George Boole, Deceased, Petitioners, v. Commissioner of Internal Revenue, Respondent.
    Docket No. 47814.
    Promulgated April 26, 1933.

      James H. Kane, Esq., for the petitioners.

      F. B. SoJilosser, Esq., for the respondent.
   OPINION.

Seawell:

The petitioners contend, in the first place, that the contract of February 15,1926, is a divisible one and that the exchange of preferred stock of the Seattle corporation for preferred stock of the Chicago corporation is a distinct and separable transaction from the sale of 500 shares of the Chicago corporation for $50,000; and that under subsection (b) (2) of section 203 of the Eevenue Act of 1926, no gain should be recognized in the exchange of stock for stock, for the exchange was made in pursuance of a plan of reorganization and as contemplated in that section. This contention, however, overlooks the fact that this section of the law provides that no gain shall be recognized “if stock or securities * * * are * * * exchanged solely for stock or securities,” and that in this case in addition to stock the Chicago corporation also paid to petitioners cash of $70 at the least, which is sufficient to take the transaction out of the statute relied on. In any event, therefore, it appears that the transaction is governed by section 203 (d) (1) of said act. But we are not persuaded that the contract is divisible. Not only was the purchase of the 500 shares to be made “ simultaneous with the sale and exchange ” of the stock, but “ As one of the conditions precedent to the sale and exchange of stock.” (Paragraph 5 of the contract.) According to the evidence of petitioners’ witnesses, the chief moving cause and consideration for the whole transaction on the part of the petitioners was the cash to be received, of which the petitioners stood in need for the purpose of settling the estate.

The provisions of the contract are so interlocked and so interdependent that a separation or division, such as is suggested, would annul some of its provisions and defeat its main purpose. If then the contract is not separable, it follows that what the petitioners did was to exchange 2,913 shares of preferred stock of the Seattle corporation for 2,121 shares of the preferred stock of the Chicago corporation and $50,070 in cash. (Arctic Ice Machine Co., 23 B. T. A. 1223.) In this situation petitioners’ counsel concedes that the Board should be governed by subsection (d) (1) of section 203 of the Revenue Act of 1926. This statute, under the described circumstances, provides: “ the gain, if any, to the recipient shall be recognized, but in an amount not in excess of the sum of money and the fair market value of such other property.” There was no “ other property ” in the sense of the statute here involved, and, accordingly, the limitation refers simply to the “ money ” received. In order to ascertain whether there was gain (to be limited by the money received) or loss, and the amount thereof, it is necessary to know the value of the properties entering into the transaction. Petitioners say that while the value of the Seattle corporation’s preferred stock, for the purpose of this proceeding, was $70 per share, and the amount of cash is not in dispute, the preferred stock of the Chicago corporation was without any “fair market value” and for this reason no gain or loss can be recognized. Respondent, on the other hand, contends that the fair market value of the Chicago corporation’s preferred stock was not less than $100 per share. Thus is the principal issue in the case made up.

Fair market value, as defined by the courts, is that price at which a seller willing to sell at a fair price and a buyer willing to buy at a fair price, both having reasonable knowledge of the facts, will trade. In a sense, every commodity of commerce has this fair market value if the elements combine and can be ascertained. Fair market value is not synonymous with intrinsic value nor with market price. It is not necessarily nonexistent because reasonable knowledge of the facts is known to only a few people, or because willing buyers or willing sellers are few. It is determined when the facts become known to the described buyer and to the described seller. There may be such buyers and such sellers who, because of lack of such knowledge, never meet or trade; and also there may be buyers and sellers with knowledge of their own requirements who would trade if they met and knew the existing situation.

As said in Andrew B. C. Dohrmann, 19 B. T. A. 507, 513:

We think it well settled that whether property at a given date has a fair market value or not is a question of fact to be determined from all of the evidence introduced and admitted in each individual case; that no set rule or formula can be employed. * * *

On a somewhat similar issue which the Commissioner was to decide, the Supreme Court in Ray Consolidated Coffer Co. v. United States, 268 U. S. 373, said:

* * * As the method to be pursued in ascertaining the value is not prescribed, we think that it was left to the sound judgment and discretion of the Commissioner, subject only to the obligation to talce into consideration every relevant fact. [Italics supplied.]

The relevant facts in this case appear from the opinion evidence of petitioners’ witnesses and the attendant circumstances connected with, and included in, the contract or agreement between the petitioners and the Chicago corporation. The burden of the proof is upon petitioners (Williams v. Commissioner, 45 Fed. (2d) 61), which they maintain they have successfully carried by the testimony of several witnesses offered at the hearing. Only one expert witness, present at the hearing, testified explicitly that the stock, in his opinion, had no fair market value in 1926; but, it was stipulated that another witness, if present, would testify to the same effect, and this was received and considered as if the witness had been present and so testified. This testimony included the statement that only the officers and directors of the corporation owned the stock of the company and that the stock could be sold or bought only through them; and that the corporation at that time showed earnings.

Only one instance of trading in stock of the Chicago corporation, other than those mentioned in the agreement of February 15, 1926, was given in evidence and that was the exchange of preferred stock for common stock; but incidentally counsel for petitioners, who was also a witness, stated on the hearing (not as a witness) that about $680,000 of the million dollars of preferred stock of the Chicago corporation was issued after the reorganization. As the agreement provided that this stock could not be sold for less than par, it should be presumed that it was sold for as much as par. It was also in evidence from these witnesses for the petitioners that the balance sheets of the Chicago corporation showed in 1926 no intangible assets, and that the corporation was then making a “ fair profit ” and was paying regularly the dividends on the preferred stock. All the circumstances detailed in evidence indicated that the intrinsic value was not inconsistent with the claimed fair market value. Treating all the witnesses offered as experts by petitioners to be such, and considering fully and carefully all that was testified to by them, it seems the evidence amounts to but little, if any, more than that the Chicago corporation’s preferred stock was closely held and not listed on any exchange or otherwise offered for sale, and that financial or other reports of the corporation’s affairs were not made public so that prospective buyers could have sufficient and readily available knowledge of prevailing conditions to appraise intelligently the values or bid for the stock if it had been offered for sale. There was, too, some apparent confusion with some of the witnesses as to whether it was the stock of the Chicago corporation before or after its reorganization about which they were called on to testify.

Expert testimony, useful and helpful as it often is, does not, of course, compel a decision contrary to other evidence which engages our best judgment. Tracy v. Commissioner, 53 Fed. (2d) 575.

The Commissioner’s determination that this stock had a fair market value of $100 per share is prima facie correct and the burden is on the petitioners to overcome the correctness of this determination. Williams v. Commissioner, supra. This does not mean, of course, that in sustaining the presumption favoring the Commissioner we can ignore facts and circumstances present in the case which disclose a situation making untenable that presumption. “ There must be a limit beyond which the presumptive correctness of the Commissioner’s determination may not be stretched in order to defeat a taxpayer.” Mount v. Commissioner, 48 Fed. (2d) 550. The facts and circumstances here appear not to weaken, but to strengthen materially, the Commissioner’s position. In the contract of February 15, 1926, set out in the findings of fact, the Chicago corporation, which knew better than any other the value that might properly be placed on the stock, agreed to purchase 500 shares thereof as soon as it was issued at $100 per share, or to procure a purchaser at that price, and to purchase as much as five-sixteenths of the rest of the stock transferred to petitioners at the same price, after paying all accumulated dividends. In addition, the Chicago corporation agreed to safeguard the stock by limiting the amount of it to one million dollars and to sell none of it for less than par. There was no evidence offered as to the amount of this million-dollar stock issued. The witnesses offered, except the attorney for petitioners, appeared to have no knowledge, or only very limited knowledge, on the subject. The attorney, when he testified, made no mention as to this point, but in the course of the trial he volunteered the statement that about $680,000 of it had been issued. We are not required to ignore a statement made under these circumstances, as the law presumes good faith in the conduct of attorneys appearing in court, and we have no reason to alter this presumption in this case. Admissions made by an attorney at the hearing are binding on the client. Wilson v. Spring, 64 Ill. 14; Oliver v. Bennett, 65 N. Y. 559; and Heywood v. Doernbecher, 48 Ore. 359. The attorney appeared to be in sincerity and in the utmost good faith in what he said, and his statement was in aid of, and to clarify, the evidence of one of the petitioners’ witnesses.

In petitioners’ brief it is said that, “ We are concerned not with 500 shares of stock, but 2,121 shares of stock, and the market value, if any, of the 2,121 shares of stock would probably be substantially different from the market value of 500 shares of stock.” We have more than the 500 shares to deal with here, even if we should ignore the remark of counsel in the trial. The five-sixteenths of the remaining 2,121 shares which might be allotted to the widow amounted to 662+ shares and these the Chicago corporation agreed to purchase at par. Thus we have 1,162 shares contracted for before the stock was issued, and if the corporation issued, as counsel stated, about 6,800— shares, and at as much as par, as contracted, we have for consideration more than three-fourths of the whole authorized issue of $1,000,000, sold at a price as great as par. Sales and offers to buy made in good faith have ever been recognized as evidence of fair market value, and no authority is needed to support the proposition. Without reference to the remark of counsel during the trial, we are of the opinion, and so hold, that, considering all the evidence, including the contract and attendant circumstances, petitioners have failed to overcome the presumption favoring the determination of the Commissioner; and that the preferred stock of the Chicago corporation, including the 2,121 shares in controversy, had a fair market value at the time of the exchange of at least $100 per share. It follows that the Commissioner should be sustained.

Judgment will be entered for the respondent.