author: Black : Smith,

text:
    Morgan Manufacturing Company, Petitioner, v. Commissioner of Internal Revenue, Respondent.
    Docket No. 101444.
    Promulgated June 10, 1941.

      Junius G. Adams, Esq., for petitioner.

      Lloyd W. Oreason, Esq., for the respondent.
   OPINION.

Black :

The first issue relates to the correct amount of depreciation which should be allowed petitioner as a deduction from 1936 income. There is no dispute as to the life of the property or the rate of depreciation which is to be used. The question at issue is the cost basis of the assets upon which depreciation is to be computed.

Petitioner contends that it is entitled to use the cost basis of the Dimension Co., adjusted by the amount of depreciation which had accrued to it at the time the property was transferred to petitioner. Respondent contends that the basis which should be used is $62,500, which represents the cost of the assets to petitioner. The statutes upon which petitioner relies are printed in the margin.

Petitioner’s contention is that there was a merger of the Dimension Co. with the old Morgan Co. and that immediately upon the completion of the merger the new Morgan Co. owned all the assets of the Dimension Co. and the Morgan Co. and had assumed all of their liabilities and the stockholders of the two old companies had become stockholders in the new Morgan Co. In support of this contention, petitioner says in its brief:

So therefore on the effective date of the merger, namely, June 16, 1936, and immediately thereafter, that is to say until July 7, 1936, the former stockholders of the constituent Dimension Manufacturing Company were the owners of 829⅛ shares (or 82.9%) and the former stockholders of the constituent original Morgan Manufacturing Company were the owners'of 171 (or 17.1%) of the outstanding capital stock of the consolidated corporation.

The difficulty with petitioner’s contention in this respect, it seems to us, is that petitioner would treat as entirely separate transactions the formal merger agreement which is in evidence and an oral agreement between the stockholders of both corporations entered into prior to June 15, 1986, and within the year 1936, by which it was agreed that:

* * * if tiie Morgan Co. as it was to be constituted subsequent to June 16, 1936, should pay off the then existing notes payable of the Dimension Co. in the amount of $62,500, the stockholders of the Dimension Co. would release their rights if any in the Morgan Co. as constituted subsequent to June 16,1936.

We do not think it is permissible to treat these two steps as separate transactions but that the transaction as a whole determines its legal consequences. See Prairie Oil & Gas Co. v. Motter, 66 Fed. (2d) 309.

When the whole transaction as disclosed by the stipulated facts is viewed, we think it shows an acquisition by the Morgan Co. of all the properties of the Dimension Co. in consideration of the payment in cash by the Morgan Co. of $62,500 indebtedness which Dimension Co. owed to its stockholders. This was a sale by one corporation of its assets to another corporation for a consideration of $62,500 in cash. Neither the Dimension Co. .nor any of its stockholders ever received any stock of the Morgan Co. in consideration of the sale of the Dimension Co.’s assets. . There was, therefore, not that continuing interest remaining in the old corporation or its stockholders which is required before there is a statutory reorganization. Cf. Cortland Specialty Co. v. Commissioner, 60 Fed. (2d) 937.

We, therefore, hold that petitioner did not acquire the assets in question in a statutory reorganization in which no gain or loss was recognized, but acquired them in a purchase for $62,500, and this latter amount represents the cost of such assets to petitioner and is the correct basis for depreciation. On this issue we sustain the Commissioner.

The second issue relates to petitioner’s claim for a credit under section 26 (c) (1) of the Bevenue Act of 1936, printed in the margin. The respondent has determined that the petitioner was not under any written contract restricting the payment of dividends prior to May 1, 1936; that petitioner’s contract with the Keconstruction Finance Corporation by its expressed terms did not become effective and binding upon the parties until the funds had been paid to or made available to the petitioner, which did not occur until on or about July 6, 1936.

On the facts of record the respondent’s determination in this respect must be sustained. See Florence Cotton Mills, 44 B. T. A. 436; Bethlehem Silk Co., 43 B. T. A. 515.

Reviewed by the Board.

Decision will l>e entered for respondent.

Leech dissents on the second point.

Smith,

dissenting: I can not agree with the conclusion reached in the majority opinion that there was not a reorganization of the Morgan Manufacturing Co. and the Dimension Manufacturing Co. A reorganization is defined by the statute (section 112 (g) (1) of the Revenue Act of 1936) as “(A) a statutory merger or consolidation.” The majority opinion recognizes that there was a valid merger or consolidation of the corporations involved under the laws of the State of North Carolina, but takes the position, nevertheless, that this merger or consolidation was not a statutory reorganization; that, in effect, there was a sale by the Dimension Manufacturing Co. of all of its assets to the Morgan Manufacturing Co. for the amount of the indebtedness of the vendor company to its stockholders.

I do not think that this conclusion is justified. Obviously, the agreement of the Dimension Manufacturing Co.’s creditor stockholders to release their interest in the new corporation, if the merger should take place and if the indebtedness should be paid off by the new corporation, was not a part of the merger, or reorganization, plan. It was to take place, if at all, after the merger was completed. It was not a condition of the merger agreement. Neither the new corporation nor its stockholders were in any way bound ever to pay off the indebtedness. If they had failed to do so, could it still be said that there was no reorganization?

The North Carolina statutes provide a complete procedure for the merger or consolidation of corporations. See sec. 1224 (a) to (i). The statutes make no distinction between a merger and a consolidation, the terms being used interchangeably. Carolina Coach Co. v. Hartness, 198 N. C. 524; 152 S. E. 489. The merger or consolidation takes place “When the agreement [of merger or consolidation] is signed, acknowledged, filed and recorded,” and thereupon the separate existence of the constituent corporations ceases and all of the assets and all of the debts and liabilities of the constituent corporations become the .assets, debts, iand liabilities of the new corporation. (Sec. 1224 (b).)

Speaking for the Supreme Court of North Carolina, Judge Adams said in Carolina Coach Co. v. Hartness, supra:

* * * but the instant the agreement is signed, acknowledged, filed, and recorded the separate existence of the constituent corporations ceases and the consolidating corporations become a single corporation in accordance with the agreement. Section 1224-b. When the separate existence of the constituent corporations comes to an end, the new corporation acquires not only the property, but the powers, privileges, and franchises of the old corporations, which thereafter have neither property nor franchise. It is provided that all interests of the old corporations shall thereafter be the property of the consolidated corporations as effectually as they had previously been the property of the constituent corporations. Section 1224-b.

If, then, the assets of the Dimension Manufacturing Co. became the assets of the petitioner (new corporation) by operation of law under the North Carolina statute, how can it be said that the petitioner purchased those assets from the Dimension Manufacturing Co. for the amount of that company’s indebtedness to its stockholders? How, either, can it be said that the debt of the Dimension Manufacturing Co. to its stockholders did not, through the merger, become the debt of the petitioner?

It is my view, which I think is clearly supported by the facts and the law, that there was, first, a completed merger or consolidation of the Morgan Manufacturing Co. and the Dimension Manufacturing Co. under the laws of the State of North Carolina, and therefore a statutory reorganization; that the stockholders of both old corporations became stockholders of the new corporation and the assets and debts of the old corporation became the assets and debts of the new corporation; and that, subsequently, and as a separate transaction, the former creditor stockholders of the Dimension Manufacturing Co., who had become creditor stockholders of the new corporation, sold their interests in the stock of the new corporation in consideration for the payment by the new corporation of its indebtedness to them. I think that the former stockholders of the Dimension Manufacturing Co. continued as bona fide stockholders of the new corporation from the effective date of the merger or consolidation, June 16, 1936, to July 7, 1936, the date on which they sold or relinquished their right to the stock in the new corporátion.

Prairie Oil & Gas Co. v. Motter, 66 Fed. (2d) 309, is strongly relied upon in the majority opinion. That case, however, involves a different factual situation and is not controlling in the instant case. Cf. also Pinellas Ice & Cold Storage Co. v. Commissioner, 287 U. S. 462; West Texas Refining & Development Co. v. Commissioner, 68 Fed. (2d) 77.

There being a reorganization, it follows that under the provisions of section 113 (a) (7) the basis of the assets in question for depreciation purposes is the same in the hands of the petitioner as it was in the hands of the Dimension Manufacturing Co. See Fairbanks Court Wholesale Grocery Co. v. Commissioner, 84 Fed. (2d) 18.

       Revenue Act of 1936—
      SEC. 112. RECOGNITION OE GAIN OR LOSS.
      ***** * *
      (g) Definition of Reoroanization.—As used In this section and section 113—
      (1) The term “reorganization” means (A) a statutory merger or consolidation * * *.

        *******

      SEC. 113. ADJUSTED BASIS EOR DETERMINING GAIN OR LOSS.
      (a) Basis (unadjusted) of Property.—The basis of property shall be the cost of such property; except that—
      *******
      (7) Transfers to corporation.—If the property was acquired after December 31, 1917, by a corporation in connection with a reorganization, then the basis shall be the same as it would be in the hands of the transferor, increased in the amount of gain or decreased in the amount of loss recognized to the transferor upon such transfer under the law applicable to the year in which the transfer was made. This paragraph shall not apply if the property acquired consists of stock or securities in a corporation a party to the reorganization, unless acquired by the issuance of stock or securities of the transferee as the consideration in whole or in part for the transfer.
      * * * * # * #
      (b) Adjusted Basis.—The adjusted basis for determining the gain or loss from the sale or other disposition of property, whenever acquired, shall be the basis determined under subsection (a) * * *.
      ⅜ *****,-
      SBC. 114. BASIS FOR DEPRECIATION AND DEPLETION.
      (a) Basis foe Depreciation.—The basis upon which exhaustion, wear and tear, and obsolescence are to be allowed in respect of any property shall be the adjusted basis provided in section 113 (b) for the purpose of determining the gain upon the sale or other disposition of such property.
      * ******
      North Carolina statutes—
      Sec. 1224 (a). Merger, proceedings for.—Any two or more corporations organized under the provisions of this chapter, or existing under the laws of this State, for the purpose of carrying on any kind of business, may consolidate into a single corporation which may be either one of said consolidated corporations or a new corporation to be formed by means of such consolidation; the directors, or a majority of them, of such corporations as desire to consolidate, may enter into an agreement signed by them and under the corporate seals of the respective corporations, prescribing the terms and conditions of consolidation, the mode of carrying the same into effect, and stating such other facts as are necessary to be set out in the certificate of incorporation, as provided in this chapter, as well as the manner and basis of converting the shares of each of the old corporations into stock of the new corporation, with such other details and provisions as are deemed necessary or desirable. * * * and the agreement so certified and acknowledged shall be filed in the office of the Secretary of State, and shall thence be taken and deemed to be the agreement and act of consolidation of the said corporation ; * * *
      Sec. 1224 (b). Merger, status of old and new corporations.—When the agreement is signed, acknowledged, filed and recorded, as in the preceding section is required, the separate existence of the constituent corporations shall cease, and the consolidating corporations shall become a single corporation in accordance with the said agreement, possessing all the rights, privileges, powers and franchises, as well of a public as of a private nature and all and singular the rights, privileges, powers and franchises of each of said corporations, and all property, real, personal and mixed and all debts due on whatever account, and all other things in action or belonging to each of such corporations, shall be vested in the consolidated corporation; and all property, rights, privileges, powers and franchises, and all and every other interest shall be thereafter as effectually the property of the consolidated corporation as they were of the several and respective former corporations, and the title to any real estate, whether by deed or otherwise, under the laws of this State, vested in either of such corporations, shall not revert or be in any way impaired by reason of this article; * * *

       SEC. 26. CREDITS OF CORPORATIONS.
      In the case of a corporation the following credits shall be allowed to the exte.Tt provided In the various sections imposing tax—
      * ⅜ * * ⅜ * *
      (e) Contracts Restricting Payment of Dividends.—
      (1) Prohibition on payment of dividends.—An amount equal to the excess of the adjusted net income over the aggregate of the amounts which can be distributed within the taxable year as dividends without violating a provision of a written contract executed by the corporation prior to May 1, 1936, which provision expressly deals with the payment of dividends. * * *


source: Caselaw Access Project

author: Steenhagen :

license: Public Domain

text:
    Meta Biddle Robinette, Petitioner, v. Commissioner of Internal Revenue, Respondent. Elise Biddle Paumgarten, Petitioner, v. Commissioner of Internal Revenue, Respondent.
    Docket Nos. 103009, 103010.
    Promulgated June 10, 1941.

      Henry A. Mulcahy, Esq., for tHe petitioners.

      Eugene G. Smith, Esq., for the respondent.
   OPINION.

Steenhagen :

As to each petitioner, the Commissioner has determined a gift tax measured by the computed’ value of the remainder interest after the several life estates. The life estates succeeding that of the settlor have been treated and taxed as. gifts, and that is not in issue. The remainder was to go to Elise’s children upon their attaining the age of twenty-one, respectively; and, if no children, then to the appointee by will of the survivor of the three, the daughter, her mother, and her stepfather. Thus, as to each grantor, there was a possible power of testamentary disposition of the remainder—a power as substantial as a reversion would be. If,, for example, Elise, being thirty and unmarried when her trust was created, should fail to have children and should survive her mother and stepfather, both of whom were substantially older, she would have a power of testamentary appointment. Because of this retained interest, whether vested or contingent, the trust property would be included in her gross estate subject to estate tax. She had not so completely disposed, of the property by means of the trust as to avoid the estate tax. Helvering v. Hallock, 309 U. S. 106. Until children were born, as they were, the settlor still had a possible power of disposition of the- remainder, which is one of the most important attributes of ownership. Upon her death, if there were no issue, her testamentary power of appointment would be exercised if she were the last survivor, or that power would be freed in the hands of her surviving mother or stepfather. So, when she created the trust she retained an interest in the property sufficient to warrant the expectation that it would be included in her gross estate upon her death.

According to Sanford’s Estate v. Commissioner, 308 U. S. 39, the gift tax is a supplement to the estate tax. A transfer is to be taxed as a gift when it becomes complete and not while the transferor retains substantial control of the property. Burnet v. Guggenheim, 288 U. S. 280; William J. McCormack, 43 B. T. A. 924; Carl J. Schmidlapp, 43 B. T. A. 829; Lorraine Manville Gould Dresselhuys, 40 B. T. A. 30. Since in the event of death of the settlor the trust property would be included within her gross estate and subjected to the estate tax, this is strong reason for denying a gift tax at the time of the transfer in trust. The creation of the life interests, it must be remembered, has been recognized as the occasion for the imposition of the gift tax upon the value of the secondary life interests; and it is only as to the remainder after the extinction of all the life interests that the present question is raised. Certainly if it could have been known that there would be no children and that the grantor would be the ultimate survivor of the three, she could not have been taxed upon the creation of the remainder, which was entirely subject to her testamentary power of disposition. The determination of the Commissioner is reversed.

The petitioners argue also that they may not be taxed upon the value of the remainders because there were no donees in existence, and that they may not be taxed as upon gifts because the creation of the trusts was a reciprocal arrangement each in consideration of the other. These questions do not require decision.

Decision will ~be entered under Rule 50.


author: Meulott :

text:
    D. S. Jackman, Petitioner, v. Commissioner of Internal Revenue, Respondent.
    Docket No. 101891.
    Promulgated June 11, 1941.

      Ellis D. Bever, Esq., for the petitioner.

      G. W. Reardon, Esq., for the respondent.
   OPINION.

Meulott :

In the statement attached to the deficiency notice , it is stated:

The value of the securities, which are the subject of these-gifts, is their fair marhet value at date of gift, subject however- to such discount as is reasonable on account of the hypothecated use of which they were subjected at date of gift. This discount is determined to be, not the full $120,000 indebtedness of the donor * * * for which * * * [the securities] were pledged as security, but in a reasonable discount amount of $24,000 based on donor’s ability to pay, considering all the circumstances.

Finding has been made that the net gift was $9,270 rather than the amount determined by respondent. In making such finding we have not ignored the argument and authorities relied upon by respondent. Briefly summarized, his argument is: (1) When the pledgee released the stock for the purpose of securing new certificates in the name of petitioner’s wife its right in the pledged property ceased to exist; (2) if the wife had not carried out her promise to pledge the stock for her husband’s debt, the creditor’s only recourse would have been on the promise and it would not have had the right of sale belonging to a pledgee; (8) since the tax is an excise upon the act of the donor in making the transfer, measured by the value of the property passing from him, and since the entire title- to the securities passed from him relieved of the pledge, he then made a gift of the securities themselves, which had, a stipulated value of $129,270; and, (4) inasmuch as. the only thing of value retained by petitioner was the right to have the stock applied to his debt in case he was unable to pay and defaulted on his indebtedness, such value is to be measured by his probable ability to pay off the indebtedness in the future.

Respondent relies upon the general rule that a pledgee, in order to preserve his pledge, must retain possession. 49 C. J. 896. This rule seems to be applicable in Kansas, where the transaction in question occurred. Raper v. Harrison, 15 Pac. 219; Atkinson v. Bush, 139 Pac. 393. Nevertheless, it does not seem to be determinative of the present issue. As to the stock of the creditor corporation, which it had in its possession as security for its debt and which constituted the major portion of the pledged property, it is clear that possession was retained at all times. True, new certificates were issued in the name of petitioner’s wife; but she endorsed them in blank and they remained continuously in the possession of the pledgee and never left its possession for one instant. The certificates for the other shares were transmitted by the pledgee to the issuing companies with instructions to mail the new certificates to it and this was done. Neither the old nor, the new certificates were ever turned over to petitioner or his wife, the wife merely endorsing the new certificates in. blank after they were returned to the pledgee. Under these circumstances it can not be held that the pledgee’s right in the pledged property ever ceased to exist or that it ever placed itself in the situation where its only recourse would have béen on the wife’s promise to hypothecate- the stock after she acquired it.

We are of the opinion that petitioner endeavored to give, and actually did give, his wife only such interest as he had in the pledged property. “The general rule applicable to property other than negotiable securities is that the vendor or pledgor can convey no greater right or title than he has.” Capital National Bank v. Fourth National Bank (Ala.), 101 So. 424.- A pledgee has a right in the pledged property superior to any that can thereafter be given by the pledgor, Citizens’ National Bank of Ft. Scott v. Bank of Commerce, 80 Kans. 205; 101 Pac. 1005; and, if the pledgor takes possession of the property with the intent to deprive the pledgee of his rights, such act may constitute, larceny. State v. Hubbard, 126 Kans. 129; 266 Pac. 939. It is obvious that petitioner intended to make a gift to his wife of only his interest or equity in the stock and that she accepted the gift knowing that she could not be given the stock itself until and unless her husband’s indebtedness to the pledgee was paid. Eespondent admits as much. In paragraph 5 (a) of his answer it is stated: “Admits that on January 25,1936 petitioner made a gift to his wife, Nora E. Jackman, of his interest or equity in certain securities owned by him which were pledged to The Kansas Milling Company as collateral security.” We have accordingly found that he made a gift of only such interest or equity and that it had a value of $9,270.

The applicable statute (sec. 501 (a), Eevenue Act of 1932) imposes a tax upon “the transfer * * * of property by gift.” We do not understand that respondent is contending there should be added, to the value of the property transferred, a separate value computed upon the probable ability of the donor to pay off his indebtedness. At any rate he points to no statute or regulation justifying or authorizing that any such addition to the property transferred should be made and we know of none. He assumes that the stock, having a value of $129,270, had been given to the wife, but that, because it of necessity must be left as collateral security for her husband’s debt, the value of the gift should be ascertained by “discounting” the value of the stock “in a reasonable amount based on the donor’s ability to pay.” Since respondent has admitted and we have found that petitioner gave his wife only his interest or equity in the stock, it is perhaps unnecessary to discuss respondent’s “discount” theory at any length. It may be pointed out, however, that it would be impossible to value with any degree of accuracy such a nebulous interest or right. Through the use of mortality tables, a fairly reliable prognostication of the donor’s length of life may be made; yet even that is dependent upon his present state of health, family history, and many other factors not in evidence in the instant proceeding. But how may it be foretold that the donor’s employer would remain in existence, that his services would be continued, and that his present income would continue at approximately its present rate? Even if all available evidence touching these factors were before us, still our attempt to find the right answer would be, at best, mere speculation. Taxation is a practical matter and should not rest upon guesswork. In addition, it may be pointed out that it seems to be incredible that a person having a net worth of $20,000 could possibly make a gift of $105,000.

Eeviewed by the Board.

Decision will be entered for the petitioner.


author: Black: DisNey,

text:
    Moses Cohen, Petitioner, v. Commissioner of Internal Revenue, Respondent.
    Docket No. 98164.
    Promulgated June 12, 1941.

      Thomas 0. lavery, Esq., for the petitioner.

      Paul A. Sebastian, Esq., for the respondent.
   OPINION.

Black:

This proceeding involves the determination by the respondent of a deficiency in income tax for the calendar year 1986 in the amount of $308.86, all of which is in controversy. The petitioner alleges that the determination of the Commissioner is based upon the following error:

The action of the respondent in disallowing a deduction claimed by the petitioner in his return for the calendar year 1936, representing the loss sustained by the petitioner upon the discharge of liens upon insurance policies.

The facts were stipulated, except certain documents offered in evidence at the hearing. We adopt such stipulation and find the facts to be as stipulated, including the joint exhibits. Such facts may be summarized as follows: ■

Petitioner is an individual, with an office in Cincinnati, Ohio. Within the time prescribed by law, he filed an income tax return for the calendar year 1936 with the collector of internal revenue for the first district of Ohio.

On June 28, 1922, the Missouri State Life Insurance Co., sometimes referred to as the Missouri Co., issued to petitioner two 20-payment life annual dividend plan insurance policies in the amount of $25,000 each. The policy numbers, were 398289 and 398724. The annual premium on'each policy was $1,383.75. Beginning on June 28, 1924, petitioner was credited with annual dividends on each policy which were applied toward the reduction of premiums. Each policy had a cash surrender value and provided for loan privileges. Early m 1932, due to rumors as to the financial condition of the Missouri Co., petitioner borrowed $8,446 upon each policy.

On August 28, 1933, pursuant to a decree of court, the Superintendent of the Insurance Department of the State of Missouri acquired title to the assets of the Missouri Co. and on September 7, 1933, made a contract with the General American Life Insurance Co., sometimes referred to as the American,' under which the American purchased the assets and assumed the outstanding policies of the Missouri Co. The appraised value of the assets was less than the reserves required by the law of Missouri, and a lien was placed against all policies, including those of the petitioner, equal to 50 percent of the terminal reserve of each policy as established in the accounts of the Missouri Co. as of September 1, 1933. The lien bore interest to be paid on each policy anniversary date, and could be paid at any time, but until discharged, was to be deducted from any payment made by American under the provisions of the policy. The lien on each of the petitioner’s policies was $1,778.43. From September 1, 1933, the annual cost of each policy to the petitioner was $1,979.43, of which $1,383.75 was premium; $88.92 was 5 percent interest on the lien; and $506.76 was 6 percent interest on the loan.

Effective September 28, 1936, petitioner and the American entered into two new contracts of insurance, The details of the changes which took place in the policies and the settlement which occurred between petitioner and American at the time the two old policies were surrendered and new ones issued in lieu thereof, are contained in a letter in the record from American, and are as follows:

Effective September 28, 1986, Policy 398289 was continued as $25,000 extended insurance for a period of 10 years to expire September 28, 1946. The premiums paid, dividends credited and the adjustments made in placing this policy on the extended insurance basis were as follows:
PóUoy 398889
14 Annual Premiums at $1,383.75 (for the period from June 28, 1932 to June 28,1936.;___$19, 372. 50
1 Quarterly premium to cover period from June 28, 1936 to September 28, 1936_'___ 366. 75
$19,739. 25
Annual dividends credited to policy from June 28, 1924 to June 28 1935, both dates inclusive. (Applied toward reduction of premiums)-- $2, 887. 00
Net outlay for premiums (from June 28,1922 to September 28,1936)_ $16,852.25
***
Cash Value of policy on September 28, 1936_$11,843.75
Policy lien and interest to September 28,1986-$1,800.26
Policy loan (adjusted for unearned interest) on September 28, 1936___ 8,065.93
Total indebtedness on September 28, 1936-.$9, 866.19
Paid in cash by insured to reduce indebtedness as of September 28, 1936--- 5,350.43
$4, 515.76
Annual dividend credited to policy on June 28,1936 (used to reduce indebtedness)-- 133.50
$4,382.26
Credit from Policy 398724 used to further reduce indebtedness -- 234.76
Net indebtedness deducted from cash value- $4,147.50
Net value used to purchase $25,000 extended insurance from September 28,1936, to expire September 28, 1946_— $7,696.25
(No dividends have been credited to this policy since it was placed’ on the extended insurance basis.)
* * * # * * *
Effective September 28, 1936, Policy 398724 was changed to $10,000 insurance on the Ordinary Life Non-participating plan, with register date June 28, 1930. The premiums, dividends and the adjustments made in changing the policy to $10,000 on the Ordinary Life Non-participating plan were as follows:
Policy SS81U
14 Annual premiums at $1,383.75 for the period from June 28,1922 to June 28, 1936-^-$19, 372. 50
1 Quarterly premium for the period from June 28,1936, to September 28, 1936_ 366.75
' $19,739. 25
Annual dividends credited to policy from June 28, 1924 to June 28, 1935, both dates inclusive (applied toward reduction of premiums;) _■__ 2,887. 00
Net outlay for premiums (from June 28,1922 to September 28, 1936)— $16,852. 25
***
Gash Value of original policy on September 28,1936- 11, 843.75
Cash Value as of September 28,1936, of new policy charged in changing policy to $10,000 insurance on the Ordinary Life Non-participating plan, with register date June 28, 1930-.- 1,452. 50
Credit from difference in cash values, released by the change_$10,391.25
Policy lien with interest to September 28, 1936_$1, 800. 26
Policy loan (adjusted for unearned interest) on September 28, 1936_ 8,065.93
Indebtedness deducted from credit_ $9, 866.19
Semi-annual premium due September 28, 1936 on new $525.06
$10,000 Ordinary Life Non-participating policy_$280.70
Quarterly premium due March 28, 1937 on new policy_ 143.10
Portion of credit used to pay premiums to June 28, 1937 on new policy-$423.80
$101.26
Annual dividend credited to original policy on June 28, 1936_ 133. 50
Credit transferred to reduce the indebtedness on Policy 398289 before that policy was placed on extended insurance_ $234.76
In addition to the $423.80 credit applied as above to pay premiums on the new Ordinary Life policy from September 28, 1936, to June 28, 1937, an annual premium of $550.40 was paid as of June 28, 1937, to carry the new policy in force to June 28, 1938, to which date premiums are now paid. The present policy is non-participating.
* * * * * * *
The policy liens ($1,800.26- for each policy) repaid as shown in the above schedules, represented the original policies’ proportional shares in the deficit in the assets of the Missouri State Life Insurance Company, which became insolvent. Under the terms of our Purchase Agreement dated September 7, 1933, if the original policies had been kept in force on premium paying bases, they would have shared in distributions of profits to be applied from time to time to reduce policy liens. However, Policy 398289 was placed on the extended insurance basis and will not share in any lien reductions distributed after September 28, 1936, nor will the new Ordinary Life Non-participating policy issued in the change of policy number 398724 share in any lien reductions distributed after September 28, 1936.

Following the changes petitioner deducted in his income tax return for 1936 as “Losses on Insurance Policies” $3,600.52, being the portion of cash surrender values used to discharge the two liens of $1,778.43 each and interest on each lien of $21.83. The respondent disallowed the deduction claimed, as not being an allowaole deduction under section 23 (e) of the Revenue Act of 1936, but increased petitioner’s deduction for interest paid during the year by the amount of $43.66.

Section 23 (e) of the Revenue Act of 1936 ¡provides as follows:

SEO. 23. DEDUCTIONS FROM GROSS INCOME.
In computing net income there shall be allowed as deductions:
****** *
(e) Losses by Individuals.—In the case of an individual, losses sustained during the taxable year and not compensated for by insurance or otherwise—
(1) if incurred in trade or business; or
(2) if incurred in any transaction entered into for profit, though not connected with the trade or business; * * *

Although no brief has been filed on behalf of the respondent, he apparently concedes that petitioner sustained a loss of $8,556.86 in 1936. At the hearing counsel for the respondent, after briefly stating the facts of the case, said:

It is Respondent’s position that that loss was nothing more than a personal loss. It was not a loss incurred in business, casualty, or from a transaction entered into for profit.

Petitioner does not contend that the loss was incurred in any trade or business, or from casualty, but contends that it was incurred in a transaction entered into for profit and is, therefore, deductible under section 23 (e) (2), supra.

The word “transaction” in the term “any transaction entered into for profit” comprehends all phases of the taxpayer’s relation to the subject matter through which the loss was incurred, Terry v. United States, 10 Fed. Supp. 183; and the word “profit” comprehends all income flowing from the tenure of property such, as rent, interest, etc., as well as gains realized from its sale or other disposition, Weir v. Commissioner, 109 Fed. (2d) 996; certiorari denied, 310 U. S. 637. The profit motive must be the prime thing. Lihme v. Anderson, 18 Fed. Supp. 566; Paine v. Commissioner, 102 Fed. (2d) 110; Cf. Evans v. Rothensies, 114 Fed. (2d) 958. The determination of each case, however, must depend upon its particular facts. Hines v. . Commissioner, 58 Fed. (2d) 29. Cf. Heiner v. Tindle, 276 U. S. 582.

It seems to be well settled that a participating life insurance policy, other than perhaps term insurance which involves insurance only, combines investment with insurance protection; and that the investment feature is represented in the capital asset built up in the form of the cash surrender value of the policy. E. A. Armstrong, 1 B. T. A. 296; Standard Brewing Co., 6 B. T. A. 980; Lucas v. Alexander, 279 U. S. 573; Gustave Anderson, 26 B. T. A. 1208; Keystone Consolidated Publishing Co., 26 B. T. A. 1210; Century Wood Preserving Co. v. Commissioner, 69 Fed. (2d) 967; London Shoe Co. v. Commissioner, 80 Fed. (2d) 230; certiorari denied, 298 U. S. 663; Paul, Studies in Federal Taxation, 3d Series, pp. 403-409; Vance on Insurance, 2d Ed., p. 26.

In Standard Brewing Co., supra, the taxpayer took out a policy of insurance on the lives of certain of its officers. In the years 1916 to 1919, inclusive, it paid premiums on the policy in the amount of $11,178.50, which it capitalized on its books and in the year 1920 it surrendered the policy for $6,647, the amount of its cash surrender value. In its income and excess profits tax return for the year 1920, the petitioner deducted as a loss the difference between the total" amount of premiums paid and the cash surrender value of the policy. We denied the claimed loss, saying in oür report:

* * * To the extent that the premiums paid by the petitioner created in it a right to a surrender value, they constituted a capital investment. To the extent they exceeded the surrender value, they constituted payment for earned insurance and were current expenses. * * * The surrender value of the policy was the measure of the investment and upon the surrender there was no capital lost.

To the same effect was Keystone Consolidated Publishing Co., supra, and London Shoe Co. v. Commissioner, supra.

If, in the instant case, when petitioner surrendered the two policies in question, he had been paid their full cash surrender value of $11,-843.75 each, he would have had no loss. He would have been receiving back the full amount of his capital investment and the remainder of the premiums which he had paid had gone to pay the cost of carrying his life insurance. However, as we have already pointed out, he did not receive back the full cash surrender values of his policies but had $1,778.43 deducted from each to pay the liens which had been fixed against the policies by reason of the insolvency of Missouri Life Insurance Co. This, we think, represented a realized loss of that much of his capital investment, and, as we view it, the only, question for us to decide is whether or not that loss resulted from a transaction which was entered into for profit.

The cash surrender value of a life insurance policy in some ways, we think, resembles an ordinary savings account. It is improved by interest—that is to say, the reserve on the policy which is the source of the cash surrender and loan value of the policy is improvéd by interest from year to year. If one deposited money in a bank at interest, we do not think it could be contended successfully that he did not enter into a transaction for profit. Cf. Weir v. Commissioner, supra; George M. Cohan, 11 B. T. A. 743 (issue 5); modified, remanded and affirmed on other issues, 39 Fed. (2d) 540.

So, in dealing with the question we have here to decide, it should be remembered that reserves on policies such as we have in the instant case are earning interest and tlie policyholder participates in the benefit of this interest. Also such policies provide that the policy shall participate annually in the divisible surplus of the company and usually the policyholder may elect to have these dividends used in one of several ways, such as to have them (1) paid to himself in cash, (2) used to reduce his policy premiums, (3) used to purchase additional life insurance, and (4) used to accumulate with the insurance company at interest. However used, these dividends are a real benefit to the policyholder and, together with the other benefits we have mentioned above, we think qualify the transaction, in respect to its investment features, as one entered into for profit within the meaning of the statute.

Therefore, in the instant proceeding we do not think we should overlook or fail to take into account the dual factors of investment and insurance protection which are inherent in the policies here involved. That portion of the premiums paid for mere insurance protection is of course a personal expense and as such is not deductible. Sec. 24 (a) (1), Revenue Act of 1936. That portion of the premiums paid by reason of the investment feature of the contract is a capital expenditure and as such is not deductible. Sec. 24 (a) (2). Petitioner is not contending for the deduction of any of the premiums paid. He contends that he lost a part of his capital investment, namely, $3,556.86 of the cash surrender value of the policies, and that such loss is deductible under section 23 (e) (2), supra.

For reasons above stated, we sustain this contention.

Reviewed by the Board.

Decision wiU Toe entered, for the petitioner.

DisNey,

dissenting: I can not agree with the conclusion of the majority opinion that the petitioner has shown a loss in a transaction entered into for profit. The petitioner in seeking a deduction must not only point to a statute authorizing it, but affirmatively show that he comes within its terms. New Colonial Ice Co. v. Helvering, 292 U. S. 435, 440. “A transaction entered into or completed on a basis other than that of an ordinary business transaction does not qualify as one entered into for profit within the meaning of the revenue law”, Evans v. Rothensies, 114 Fed. (2d) 958, denying loss on transfer of stock for an annuity because the transfer was made on favorable terms as a member of the transferor’s family. In my opinion the petitioner has failed to ,show that the insurance contracts herein constituted such ordinary business transactions, or that considerations of family did not control. On brief the petitioner states his motive thus:

When the petitioner insured his life in 1922 he undoubtedly had a dual motive: (1) to make provision for his family or dependents in the event of his untimely death; and (2) to accumulate an estate by the investment of his savings in insurance, a form of investment which would yield income and at the same time make the cash value of his policies readily available to him at any time. * * *

Tacitly, he admits that the' primary purpose was provision for his family. The profit motive must be primary as the majority opinion concedes, citing cases, to which I add Donald McDonald, Jr., Administrator, 28 B. T. A. 64. I am unable to see how it can be said that profit was the prime motive here.

Industrial Trust Co. v. Broderick, 94 Fed. (2d) 927; certiorari denied, 304 U. S. 572, involved the question whether deductible loss was sustained by a decedent in the last taxable period prior to his death by reason of the fact that payments received by him upon annuities were less than the cost thereof. The petitioner contended that the purchases of annuities were transactions entered into for profit. The court said:

Neither do we think Mr. Parks at the time he entered into the contracts in question did so with the view of making a profit. As above said, what he was seeking was security during the term of his life, not profit, and received what he contracted for.

I think there is, so far as here pertinent, no distinction between the annuities in the cited case and the insurance policies in this. The cash surrender provisions in the insurance policies herein seem to me to be matters of security during life, equally with the payments under the annuities in the Broderick case; they do not render the life insurance policies profit transactions, and are clearly subordinate to the prime purpose of protection.

The provision of section 23 (e) as to transactions entered into for profit seems to have had its inception in section 5 of the Eevenue Act of 1916, which, provides for a deduction under subsection (a) Fifth, as follows:

In transactions entered into for profit but not connected with his business or trade, the losses actually sustained therein during the year to an amount not exceeding the profits arising therefrom.

The language as to “an amount not exceeding the profits arising therefrom” was added by the Senate. It is apparent from this language that the profits entering into the transaction must be,financial profits, capable of comparison with, and of being subtracted from, financial losses sustained in similar transactions. The fact that this limitation is not continued in later acts is no indication that the word “profits” does not continue to connote financial profit as distinguished from any satisfaction or economic security which the purchaser of the life insurance policy may obtain for himself or his beneficiaries.

It is not sufficient, in my opinion, to compare the cash surrender feature of .petitioners insurance contracts with a savings account, even if we assume that a mere savings account is a transaction entered into for profit; for that is not the primary feature of the contracts. Under the particular situation here, it appears that profit upon amounts invested was impossible; certainly the contrary is not shown, for cash surrender values presuppose fully paid premiums, and here the dividends were applied upon premiums and reduced the amount paid, leaving no showing of possibility of profit thereon, in cash surrender values. When actual cost of insurance is deducted from payments, premiums already reduced by dividends, the possibility of profit seems, to say the least, so remote as to be no basis for application of section 23 (e). A realistic approach to the question of investment and profit also seems to raise the query as to whether any low rates of interest added by the insurance company to payments made should not be compared with ordinary interest rates paid for use of money. Such a comparison demonstrates, it seems to me, that the object of the insurance policy is not profit, but protection, and at the most merely safety. The prime motive here, as I see it, was not “acquisition of money beyond the amount expended” or “pecuniary gain” under the definition of profit transaction laid down in Goldsborough v. Burnet, 46 Fed. (2d) 432. I respectfully dissent.


author: Turner :

text:
    Amsco-Wire Products Corporation, Transferee, v. Commissioner of Internal Revenue, Respondent.
    Docket No. 100098.
    Promulgated June 13, 1941.

      Budolph Welti, O. P. A., for the petitioner.

      Dean P. Kimball, Esq., for the respondent.
   opinion.

Turner :

The respondent determined a deficiency of $628 in income tax and a deficiency of $325.96 in excess profits tax for the year 1936 against the American Musical Supply Co. He also determined that the petitioner in this proceeding was the transferee of the American Musical Supply Co. The parties have stipulated that the petitioner is liable as transferee for such deficiencies as the Board may finally determine, and the only question for decision is whether the cancellation by the vice president of the American Musical Supply Co. of unpaid salary and accrued interest thereon, in the amount of $3,078.68, resulted in the realization of taxable income by the corporation.

The facts were stipulated and as stipulated constitute our findings herein.

The petitioner is a corporation, with its principal office in Ridge-field, New Jersey. The American Musical Supply Co. was organized and began operations on July 9, 1928. It took over the business of the American Musical Supply Co. of New Jersey, which on that date ceased operations and became a holding company under the name of “Hessmer Company, Inc.” As of December 31, 1935, the Hessmer Co. was merged with the American Musical Supply Co. The foregoing corporations were family corporations and Paul Hessmer was vice president and a stockholder of each. They kept their books and filed their income tax returns on the accrual basis. Since the American Musical Supply Co. was the successor to the Hessmer Co., formerly the American Musical Supply Co. of New Jersey, the name American Musical Supply Co. will hereinafter be used for reference to either corporation.

During the years 1920 through 1935, certain salaries, together with interest thereon, were credited to Hessmer on the books of the American Musical Supply Co., of which $7,078.68 was unpaid at the end of 1935. The following is a statement showing the amounts of accrued salary and interest for each year and the unpaid portion of the total credit for each year:

In its income tax returns for the years 1920 through 1935 the American Musical Supply Co. deducted the full amounts of salary and interest credited to Hessmer in the respective years as shown above, including the amounts shown as unpaid credit. For the year 1920 the corporation had a net profit of $17,952.85 and in computing net income for that year received a deduction benefit in the amount of $585 in respect of salary which was credited to Hessmer but remained unpaid. Owing to the following indicated losses sustained by the corporation during the years 1921 through 1935, it received no tax reduction benefits in the respective years by reason of the deduction from gross income of the amounts representing salary and interest which were credited to Hessmer but were unpaid.

Loss Loss Loss

1921_ $56,838.38 1926_$19,939.95 1931_ $6,161.20

1922_ 46,531.03 1927_ 29,136.09 1932_ 5,464.93

1923_ 5,063.07 1928_ 29,223.21 1933_ 6,492.91

1924_ 6,088.87 1929_ 7,997.27 1934_ 5,511.44

1925_ 13,069.94 1930_ 3,600.92 1935_ 4,746.82

In his individual income tax returns for the years 1920 through 1935 Hessmer reported as taxable income the total salary and interest credited to him on the books of the corporation as heretofore shown.

On December 11, 1936, Hessmer forgave and canceled $3,078.68 of the unpaid salary and interest of $7,078.68 which had been credited to him on the books of the American Musical Supply Co. and received from the corporation a note for $4,000 as evidence of the balance of the indebtedness. So far the note has never been paid.

In determining the deficiencies the respondent determined that the American Musical Supply Co. realized taxable income in the amount of $3,078.68 as a result of Hessmer’s cancellation of the indebtedness in that amount.

The petitioner claims that the cancellation by Hessmer of salary and interest owing by the American Musical Supply Co. to Hessmer did not result in the realization of taxable income by the corporation but constituted a contribution to corporate capital. It relies particularly on AutoStrop Safety Razor Co., 28 B. T. A. 621; affd., 74 Fed. (2d) 226. The respondent claims that under authority of the decisions in Helvering v. Jane Holding Corporation, 109 Fed. (2d) 933; certiorari denied, 310 U. S. 653; and Beacon Auto Stores, Inc., 42 B. T. A. 703, the amount of the indebtedness canceled constituted taxable income to the corporation in the year of cancellation and that in any event the amount of $585 must be determined to be taxable income, since it represented the amount of the benefit actually enjoyed through the deduction of unpaid salary and interest accrued and credited to Hessmer during the years 1920 through 1935. We think it clear that Helvering v. Jane Holding Corporation, supra; Beacon Auto Stores, Inc., supra; and Howard Paper Co., 43 B. T. A. 545, recently decided, lay down the rule that the cancellation of indebtedness of the character and under the circumstances here results in the realization of taxable income by the party benefiting by such cancellation. The facts show, however, that the American Musical Supply Co. received a tax benefit through the deduction of only $585 of the unpaid amounts credited to Hessmer during the years 1920 through 1985, and, under authority of National Bank of Commerce of Seattle, 40 B. T. A. 72; affd., 115 Fed. (2d) 875; and Central Loan & Investment Co., 39 B. T. A. 981, the amount of the indebtedness canceled by Hessmer which is to be included in petitioner’s income in the year of cancellation is limited to $585.

Decision will he entered irnder Bule 50.


author: Muedook:

text:
    Ella U. Seipp, Petitioner, v. Commissioner of Internal Revenue, Respondent.
    Docket No. 101873.
    Promulgated June 13, 1941.

      Harry Thom, Esq., and Benjamin A. Ragir, Esq., for the petitioner.

      E. G. Sievers, Esq., for the respondent.
   OPINION.

Muedook:

The petitioner created the trust here in question on December 24, 1924. The net income from the trust estate was to be added to the principal of the trust until the first child reached the age of 25, at which time the corpus was to be divided into equal parts, one for each child. Children of a deceased child were to take their parent’s share. Then, as the beneficiaries became 25 years of age, they were to receive the income from their share. The trust was to continue for 20 years after the death of the survivor of the two children and the corpus was then to be divided among the income beneficiaries. The settlor reserved the right to revoke the trust at any time after January 1, 1950, by an instrument in writing signed by her and her husband and delivered to the trustee. The trust estate, in case of revocation, was1 to be returned to the settlor.

This case comes squarely within section 167(a)(1) as interpreted by the Board and the courts. The court in Altmaier v. Commissioner, 116 Fed. (2d) 162, quoted with approval the following from Kaplan v. Commissioner, 66 Fed. (2d) 401:

* * * We think the statute means that if under any circumstances or contingencies any part of the accumulated income might inure to the benefit of the grantor, such portion of the income is taxable to him.

The following cases involved facts which are not distinguishable from those in the present case. Edna B. Elias, 41 B. T. A. 1109; William Lea Taylor, 37 B. T. A. 875; Estate of A. C. O'Laughlin, 38 B. T. A. 1120; affirmed sub nom. First National Bank of Chicago v. Commissioner, 110 Fed. (2d) 448. Capital gains in the Elias case were to be accumulated and added to corpus and the grantor could revoke the trust and recapture that income at any time after the trust had been in existence for six and one-half years. The grantor in the Taylor case provided that the income should be accumulated during his lifetime and he could revoke the trust and recapture that income at any time after two years following the death of his mother. The grantor in the CLaughlin case created a trust in 1931, which was revocable by him beginning January 1, 1935. The income was accumulated by direction of trustees who had no adverse interest. We held in each of those cases that the income w;as taxable to the grantor under section 167. They are authorities for reaching the same result in this case.

It is unnecessary to decide at this time whether the Board will follow Helvering v. Dunning, 118 Fed. (2d) 341, reversing 41 B. T. A. 1101, and Reuter v. Commissioner, 118 Fed. (2d) 698 under which it might be held that the power to revoke reserved by this petitioner was vested in her from the very creation of the trust, so that section 166 of the Revenue Act of 1934 would apply. Compare Altmaier v. Commissioner, supra, where the court held that its prior decision in Corning v. Commissioner, 104 Fed. (2d) 329, was no.longer authority. That was the case principally relied upon by the Board in holding that section 166 did not apply to the facts in the Dumning case and to the facts in the case of Edna B. Elias, supra.

Reviewed by the Board.

Decision will Toe entered for the respondent.


author: Aknold :

text:
    Jas. J. Gravley, Petitioner, v. Commissioner of Internal Revenue, Respondent.
    Docket No. 100445.
    Promulgated June 17, 1941.

      Robert T. Jacob, Esq., and Ashley Greene, Esq., for the petitioner.

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

Aknold :

The respondent in computing the deficiency involved herein treated the amount of $63,279.33 representing the total amount of excess withdrawals by petitioner from the funds of the corporation during the years 1927 to 1936, inclusive,- as an ordinary dividend received in 1936. This is predicated on the theory, that the excess withdrawals were loans on an indebtedness owing by petitioner to the corporation and that in 1936 by the action of the corporation the petitioner was released from his obligation to repay such excess withdrawals. The petitioner contends that the excess withdrawals constituted dividends taxable in the year received.

Whether the withdrawals were loans or dividends is a question of fact. That no interest was charged or paid and no notes executed and delivered to the corporation by the petitioner do not conclusively establish that such withdrawals were dividends in the years received and not loans. Harry E. Wiese, 35 B. T. A. 701; affd., 93 Fed. (2d) 921; certiorari denied, 304 U. S. 562. The petitioner testified that he had no intention of repaying the withdrawals. The “Board is no more bound than is a jury to believe the statements of the most interested witness, even though there be no direct or affirmative evidence to the contrary.” Domestic Management Bureau, Inc., 38 B. T. A. 640, 646. Herein we have evidence to the contrary. The evidence shows that the petitioner controlled the corporation, that his account on the books of the corporation, as was well known to him, was treated by the corporation as an account receivable and an asset on its books of account, its balance sheets, and income tax returns during all the years 1927 to 1936, inclusive, and also in the transfer of the assets and liabilities of the corporation to the partnership, and that he never reported the excess withdrawals in his income tax returns as dividends in the year charged to his account. With respect to the occasion of his withdrawals, the petitioner also testified that “whatever my personal expenses were, or whatever I was investing in, I just borrowed money from the company and it was debited to my account the same as my salary was credited to my account.” The account of petitioner shows that the total credits in many years were substantially in excess of his salary. In 1929 the total credits amounted to $78,680.73, of which only $15,600 represented salary. In that year his withdrawals of about $78,000, exclusive of salary, were offset by credits, exclusive of salary, of about $63,000, of which approximately $57,000 apparently represented cash credits. The account of petitioner shows substantial cash credits in other years during the period involved. The petitioner did, therefore, repay some of his withdrawals. The respondent determined that the excess withdrawals constituted loans. The evidence supports that determination. In the light of such evidence the testimony of the petitioner is not very convincing. We, therefore, conclude that the excess withdrawals in the amount of $63,279.38, represented loans and not dividends in the years received. This conclusion eliminates the question of estoppel raised by respondent.

The respondent affirmatively alleged in his amended answer that the amount of excess withdrawals was $66,807.79 instead of $63,279.33. It is true that the excess withdrawals of all the years 1927 to 1936, excepting 1931 and 1933, aggregated $66,807.79. However, in 1931 and 1933 there were credit balances of $2,467.86 and $1,060.60. The respondent has failed to adduce any evidence showing that petitioner is not entitled to such credits against his withdrawals. The burden of proof in this respect rested upon respondent. The amount of the excess withdrawals as of December 31,1936, is $63,279.33.

The next question to consider is whether the excess withdrawals represented ordinary dividends in the taxable year, as determined by the respondent, or liquidating dividends, as contended by the petitioner.

It is well settled that forgiveness or cancellation by a corporation of the debt owing to it by a stockholder, the corporation having-sufficient surplus and the debtor being solvent, constitutes a distribution of a taxable dividend to the stockholder. Allen v. Commissioner, 117 Fed. (2d) 364; Wiese v. Commissioner, 93 Fed. (2d) 921; Hugh H. Miller, 25 B. T. A. 418. In the Allen and Miller cases the withdrawals were charged off against surplus. In the Wiese case the withdrawals were set up in a new account, entitled “Withdrawals of Profits not Formally Authorized in the Minutes of the Company,” and the Board held that this account was in effect merely a subdivision of the surplus account and that the true surplus could not be determined except by transferring the debit balance of that account into the surplus account. Herein the excess withdrawals were not written off the books by a charge to surplus, but the petitioner’s account was transferred as an account receivable from the corporation to the partnership as a part of the complete liquidation of the corporation. The petitioner’s account was treated as an asset and disposed of by the corporation with and as a part of its assets. Since the evidence fails to show that the corporation forgave or canceled the indebtedness and since the evidence shows that petitioner’s account was transferred to the partnership as an asset in the course of liquidation, it is our conclusion that it represented á liquidating dividend. Sam Weisberger, 29 B. T. A. 83; see Fred T. Wood, 27 B. T. A. 162. The amount of $63,279.33 should, therefore, be added to the liquidating profits as determined by respondent.

The petitioner contends that the value of his account in 1936 was only $5,936.39, representing the value of assets owned by him other than his stock in the Alemite Co. We see no reason why that stock should be disregarded in determining the value of his account with the corporation. A similar contention was made in Hugh H. Miller, supra, and therein rejected. Furthermore, the partnership, in taking over the account, entered it on their books at its full amount of $63,279.33, and petitioner’s interest in the corporation was reflected in the partnership assets. In our opinion the evidence does not warrant a finding that the value of the account was less than $63,279.33.

The petitioner concedes that the amount of $407.17 paid by the partnership for additional income taxes of the Jas. J. Gravley Co. is not an item to be considered in computing the profits realized by bim upon the liquidation of the Alemite Co.

It appears from the evidence that in determining the value of $114,868.61 of the assets of the corporation as of December 31, 1936, the respondent allowed the additional income and excess profits taxes for 1934, 1935, and 1936 in the aggregate amount of $298.19 as a deduction, thus reducing the net worth as shown by the books of the corporation. The respondent did not allow the amount of $18.94 paid for interest on such taxes. It is conceded by respondent that the amount of $298.19, being the additional tax liability of the corporation as of December 31, 1936, represented a proper accrual on the books of the corporation, but not the interest except that portion of the interest attributed to the 1934 and 1935 deficiences up to December 31,1936, since the interest on such taxes after December 31, 1936, and the interest on the 1936 deficiency had not accrued as at December 31, 1936; However, we are not here determining the net income of the corporation for 1936, but the amount received by the petitioner and his wife on liquidation. The amount received by them was reduced by the amount of the interest paid and the amount received should therefore be reduced by the interest paid in the amount of $18.94.

As to the claimed loss of $550.15, we are unable from the evidence to determine the nature of this loss. The accountant of the partnership testified that “in closing the books of the corporation, the final analysis shows a liquidation loss in that amount which had to be deducted from undivided profits * * * and it was necessary, then, to make that additional entry to completely close the books.” It was stated by counsel for petitioner that he believed that the amount represented “an additional loss which resulted from some real estate adjustments” made on the books of the corporation. From the evidence this may have been nothing but a book adjustment. , A taxpayer “seeking a deduction must be able to point to an applicable statute and show that he comes within its terms” New Colonial Ice Co. v. Helvering, 292 U. S. 435. From-the evidence we are unable to determine the nature of the loss, if any. It may not therefore be considered in determining the profit realized by petitioner on liquidation of the corporation.

Decision will be entered under Bule 50.


author: Aenold :

text:
    Paulyn E. Tomfohr, Petitioner, v. Commissioner of Internal Revenue, Respondent.
    Docket No. 98037.
    Promulgated June 17, 1941.

      Will G. Bea/rdslee, Esq., and Jacob Lighter, G. P. A., for the petitioner.

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

Aenold :

The deficiencies and penalties herein were asserted against petitioner under the provisions of section 311 of the Eevenue Acts of 1934 and 1936. That section imposed no new obligation upon a transferee. It merely permitted the Government to collect by summary proceeding against the transferee the liabilities that existed in law or equity. Phillips v. Commissioner, 283 U. S. 589. The nature and extent of a transferee’s liability must be determined by the settled principles of the common law or the Federal or local statutes. Commissioner v. Southern Bell Telephone & Telegraph Co., 102 Fed. (2d) 397, 401; A. H. Graves, 12 B. T. A. 124, 130.

The Board has refused in a number of cases to impose a transferee liability where property has been transferred for a limited purpose, such as representing another stockholder at meetings of stockholders and directors of the taxpayer corporation and receiving assets on dissolution, Kizzie Gordon, 27 B. T. A. 377, 384; John Robert Brewer, 17 B. T. A. 713, 717; or voting stock where naked legal title was in one party but the equitable owner had the right and did direct how stock should be voted, Commissioner v. Southern Bell Telephone & Telegraph Co., supra; or taking title as trustee but not for own benefit, Nathan Rolnick, 20 B. T. A. 989; or petitioner acted merely as agent in liquidation of taxpayer, Ezra Gould, 21 B. T. A. 824; or where valuable consideration was given, Mrs. U. H. Butler, 24 B. T. A. 506; or where property is transferred in name only and the transferee acquires no property interest therein, R. E. Burdick, 24 B. T. A. 1297, 1303.

Furthermore, the Board and the courts have refused to enforce transferee liability where the obligation discharged constituted valid prior liens, Union Guardian Trust Co., 41 B. T. A. 1306; Commissioner v. Southern Bell Telephone & Telegraph Co., supra. In the latter case the court stated, p. 401: “The following prerequisites must be present before a transferee liability becomes fixed. The transfer of assets must be made after the liability accrues and the transferor must have been liable for the debt and the transferee must have obtained the property under such circumstances as would make him liable either in law or equity.”

Here the petitioner received title to Rosser’s interest in name only, and this interest was converted by the sale into a purchase money note secured by mortgages. Although the latter instruments were executed in petitioner’s name, the evidence is positive that she derived no benefit whatsoever, either from the original assignment, or from the sale. Neither has she derived any benefit from payments on the secured note, as the mortgagor testified that all payments on the note were made directly to George F. Vanderveer. The evidence shows that all transactions, the original assignment, the sale, and the subsequent assignments, have been for the sole benefit of Albert E. Rosser. Petitioner has been merely a conduit and has never acquired a beneficial ownership of the property involved. At the hearing petitioner specifically disclaimed any interest, legal or equitable, at any time in the property or the proceeds from the sale. Certainly the things done subsequent to Rosser’s assignment to her reveal no actions on her part contradictory to her testimony.

Moreover, we are not convinced that any personal liability could be asserted against the petitioner on the theory that she held the property as a fiduciary. All of the foregoing events, except the payments on the purchase money note, transpired before the respondent determined and assessed the additional taxes. The Government’s lien for taxes “arises only if there has been an assessment plus notice and demand. It relates back from the time of notice and demand to the time when the assessment list was received by the collector, and it attaches upon such property as the taxpayer has at the time the lien arises, that is at the time of notice and demand, United States v. Pacific Railroad, 1 Fed. 97, and, of course, to all the property that the tax debtor subsequently acquires.” A. H. Graves, supra, p. 133.

Under the facts herein the Federal Government’s lien did not attach prior to the time the assessments were made on December 21, 1938. By that time petitioner had already assigned whatever interest she had in the note and mortgages to George F. Vanderveer. It does not appear from the respondent’s evidence that any assignment was made to or by petitioner with knowledge of any claim by the Federal Government for additional taxes. In the absence of such knowledge it can not be said that petitioner took property, or assigned property impressed with a trust for the benefit of creditors. No interest in the property remained in petitioner after the assignment to Vanderveer, who may or may not have taken it with knowledge of the Government’s claims. No reason appears why this petitioner should be held personally liable for the taxpayer’s debts under the circumstances herein, or under the provisions of sections 3466 or 3467, Revised Statutes, Livingston v. Becker, 40 Fed. (2d) 673; Irving Trust Co., 36 B. T. A. 146. Cf. Phipps v. Sedgwick, 95 U. S. 3; Trust Co. v. Sedgwick, 97 U. S. 304. In view of the foregoing it is our opinion that petitioner is not liable as a transferee within the meaning of section 311 of the Revenue Acts of 1934 and 1936.

Decision will be entered for the petitioner.


author: Van Fossan: Oppee,

text:
    Martin D. Thomas, Petitioner, v. Commissioner of Internal Revenue, Respondent.
    Docket No. 100874.
    Promulgated June 17, 1941.

      John M. Hudson, Esq., and Samuel E. Gawne, Esq., for the petitioner.

      Philip M. Clark, Esq., for the respondent.
   OPINION.

Van Fossan:

Respondent held that petitioner received taxable income in the year 1937 to the extent of the value of 776 shares of the capital stock of the Ironwood Amusement Corporation. It is agreed that the shares were not actually issued or received in 1937. On brief respondent contends that petitioner constructively received the 776 shares in the taxable year. Petitioner contends that neither the shares nor the value of the shares was actually or constructively received in 1937. We sustain the petitioner.

That this is not a case for the application of the doctrine of constructive receipt seems clear. The Board said in John A. Brandar, 3 B. T. A. 231, that the doctrine of constructive receipt should not be applied lightly. We adhere to that view and believe that to apply the doctrine here as to the receipt of the shares would do violence to a proper interpretation of the law and the present facts. By reason of the injunction the shares could not have been issued to petitioner in the taxable year. They were not issued until 1939. In 1937 they were not in any sense subject to his command and disposition.

We hold the same opinion as to the respondent’s finding that petitioner received the value of the shares in the taxable year. This holding was predicated on the resolution of the company recognizing that petitioner had qualified to receive the stock due him as compensation and granting him the right to “participate in the affairs and share in the profits and losses of [the company] as though he were the owner of 15 %” of the issued capital stock, and on the further fact that petitioner received proportionate distributions of profits which he returned as dividends.

That the distributions received by petitioner were not dividends on stock is clear. No stock had been issued to him and he was not a stockholder in the company. The fact that they were erroneously called dividends in petitioner’s return is not controlling.

It will be recalled that the compensation to petitioner was to be 15 percent of the issued capital stock of the company at the time of completion of performance of the contract. The resolution on which respondent chiefly relies recited that, by reason of the pendency of the injunction suit questioning the legality of the issue of certain of its shares, the number of shares to which petitioner was entitled under the agreement could not be determined at that time and that in any event the certificates could not be issued because of the restraining order.

The further part of the resolution, while nominally granting petitioner the right to participate in the affairs and share in the profits and losses “as though he were the owner of 15% in number and amount of the issued capital stock” amounted only to granting of compensation for services rendered in the amount of 15 percent of the company’s profits. Had there been no net profits in 1937 there would have been no payment to petitioner.

The right to participate in the affairs of the company, without the right to enforce his views by voting in corporate meetings, was an empty gesture. It was not an asset which could be sold or transferred. Moreover, the record is that petitioner had attended most of the meetings all during the term of his contract. To hold that petitioner in 1937 received the equivalent in value of the 776 shares of stock, i. e., that the rights conferred by the resolution were tantamount to ownership of such stock, would be unjustified and not warranted by the facts. In none of the cases cited by respondent were the' facts sufficiently parallel to those here present to constitute them contrary authority or to require their discussion.

Reviewed by the Board.

Decision will be entered for the petitioner.

Oppee,

dissenting: For the reason that it seems to me we are forsaking a rule that is by now firmly established, I with deference dissent. What petitioner was entitled to receive was a proprietary interest in his employer. This being a corporation, such an interest would commonly be spoken of as stock. What is comprehended, however, is the right to share in profits and losses, in management, and in assets upon liquidation. Frank J. and Hubert Kelly Trust, 38 B. T. A. 1014, 1016. All this the petitioner received in the taxable year.

The certificates of stock would have been nothing but evidences of an ownership which it thus appears he already possessed. 11 Fletcher on Corporations, Permanent Ed., 55; Kansas, Oklahoma & Gulf Railway Co., 42 B. T. A. 1128; Kathryn Lammerding, 40 B. T. A. 589; affd., 121 Fed. (2d) 80. A failure to receive such evidence is not the equivalent of a failure to receive the property which it represents. Com mssioner v. Scatena (C. C. A., 9th Cir.), 85 Fed. (2d) 729. See also Schneider v. Duffy (U. S. Dist. Ct., Dist. N. J.), 43 Fed. (2d) 642.

This is not an instance of constructive receipt, for if petitioner received anything in 1937 he actually received the proprietary interest which is the subject of the tax. Commissioner v. Scatena, supra. If he did not receive that interest it is difficult to see how he could participate in the “affairs”, in the profits, and particularly in the losses, of the corporation, as he and the corporation agreed that he should. The parties have stipulated that if he was in receipt of income in the taxable year the amount was 776 times $17.50. I believe he should be held to have received income in that amount.

Smith agrees with this dissent.


author: HaRron :

text:
    Walter S. Halliwell, Petitioner, v. Commissioner of Internal Revenue, Respondent.
    Docket No. 102470.
    Promulgated June 18, 1941.

      Charles M. Trammell, Jr., Esq., for the petitioner.

      Henry O. Clark, Esq., for the respondent.
   OPINION.

HaRron :

The first question is whether petitioner is taxable on the income from the 1918 and 1919 trusts which was distributed to his former wife, Anna Bush, in the taxable years. Such income was reported by Anna Bush on her returns for the taxable years and not by petitioner on his returns for those years. Respondent determined that petitioner is taxable on such income “under the provisions of sections 167 and 22 (a) of the existing Revenue Act and in accordance with the principles set forth in the decision of the United States Supreme Court in Douglas v. Willcuts, 296 U. S. 1.”

In his brief respondent contends that petitioner is taxable on the income from the two trusts which was distributed to Anna Bush in the taxable years solely on the ground that in those years petitioner had a continuing obligation to support her. Petitioner contends, on the other hand, that the local law (New Jersey) and the two trusts had given petitioner in the taxable years a full discharge and had left no continuing obligation to support Anna Bush.

As we view the situation, petitioner has shown by clear and convincing proof that in the taxable years he had no continuing obligation to support Anna Bush. At the time of the creation of the 1919 trust, Anna Bush executed and delivered to petitioner a general release in which she released him from “all rights to alimony, dower, thirds and all other rights to which” she might be entitled by reason of the marriage. Petitioner did not “underwrite the principal or income” from the 1918 and 1919 trusts “or make any commitments, contingent or otherwise, respecting them.” Compare Helvering v. Fuller, 310 U. S. 69, with Douglas v. Willcuts, 296 U. S. 1; Helvering v. Leonard, 310 U. S. 80; Alsop v. Commissioner, 92 Fed. (2d) 148; certiorari denied, 302 U. S. 767; Glendinning v. Commissioner, 97 Fed. (2d) 51. . The decree of divorce of the Court of Chancery of New Jersey contained no provision for alimony; and the record does not show that after the decree of divorce any order was made by that court providing for alimony. See New Jersey Stat., Ann., Title 2:50-37; Ingraham v. Commissioner, 119 Fed. (2d) 223. Under New .Jersey ■ law the court of . chancery could not make any order providing for alimony after the remarriage of Anna Bush, which took place prior to the taxable years. See New Jersey Stat., Ann., Title 2: 50-38; Alsop v. Commissioner, supra, at p. 149; see also Estate of William J. Garland, 43 B. T. A. 731; Murray Brookman, 41 B. T. A. 557; Harry S. Blumenthal, 34 B. T. A. 994; affd., 91 Fed. (2d) 1009,; 53 Harv. L. Rev., pp. 1, 17, 18. The conclusion is inescapable that the New Jersey law and the two trusts had given petitioner a full discharge in the taxable years and had left no continuing obligation to support Anna Bush. Helvering v. Fuller, supra; Ingraham v. Commissioner, supra; William H. Stanley, 41 B. T. A. 1233; Arthur Letts, Jr., 41 B. T. A. 1172; Estate of William J. Garland, supra.

In his brief respondent does not contend that petitioner is taxable under the doctrine of Helvering v. Clifford, 309 U. S. 331, on the income from the two trusts which was distributed to Anna Bush in the taxable years. It is clear that the doctrine of the Clifford case is not applicable in the present case. The trusts were for the joint lives of Anna Bush and petitioner and were not short term trusts. The trustee of each trust was a bank. While Anna Bush and petitioner had a joint power to substitute a new trustee of each trust, they could only substitute another bank and not petitioner. Cf. George H. Deuble, 42 B. T. A. 277; Herbert W. Hoover, 42 B. T. A. 289. The trustee of each trust had full power of investment except that under the 1918 trust the consent of Anna Bush and under the 1919 trust the joint consent of Anna Bush and petitioner was necessary to investment in nonlegal securities. The trusts were irrevocable. Petitioner had no power to withdraw, any of the corpora of the trusts. It is true that he did have the power to appoint the corpora of the trusts by will. However the retention of such a power is clearly not sufficient to bring about the application of the doctrine of the Clifford case. See Lady Marian Bateman, 43 B. T. A. 69.

Nor does respondent contend in his brief that petitioner is taxable on the trust income in question under section 166 or 167 of the applicable revenue acts. Section 166 is not applicable. Petitioner’s re-versionary interest in the corpora of the trusts in the event of his failure to appoint such corpora by will was riot a power to revest title to the corpora in the grantor under section 166. Helvering v. Wood, 309 U. S. 344. It follows that his power to appoint the corpora of the trusts by will was not a power to revest title to- the corpora in the grantor under section 166. Lady Marian Bateman, supra. Section 167 is also not applicable. The trust income in question was required to be paid and wa,s paid to Anna Bush.

Accordingly, it is held that petitioner is not taxable on the income from the two trusts which was distributed to his former wife, Anna Bush,, in the taxable years.

The second question is whether petitioner realized taxable gain on the transfer of certain specified securities to his former wife, Lillian de Melinowska, in the taxable year 1938, pursuant to their property settlement in contemplation of divorce and to the divorce judgment of the Superior Court of Connecticut. On his income tax return for the taxable year 1938 petitioner did not report any taxable gain on such transfer of securities. Respondent determined that petitioner realized taxable gain on such transfer of securities in the amount of the difference ($301,848.65) between the cost of such securities to petitioner ($160,038.97) and the value thereof at the time of the transfer ($461,887.62) and that 50 percent of the gain realized, or $150,924.33, was includable in petitioner’s gross income, since the securities had been held for over two years.

Respondent contends in his brief that the property settlement and the divorce judgment created a money obligation, in the amount of $462,561, from petitioner to Lillian de Melinowska; that this money obligation was discharged by petitioner’s transferring to her securities having a value of $461,887.62 and cash in the amount of $673.38; and that thus petitioner realized taxable gain on the transfer of the securities in the amount of the difference between the cost of the securities to him and the value thereof at the time of transfer. In support of this contention respondent cites, among other cases, United States v. Kirby Lumber Co., 284 U. S. 1; William R. Kenan, Jr., Trustee, 40 B. T. A. 824; affd., 114 Fed. (2d) 217; Suisman v. Eaton, 15 Fed. Supp. 113; affd., per curiam, 83 Fed. (2d) 1019; certiorari denied, 299 U. S. 573; Twin Ports Bridge Co., 27 B. T. A. 346. Petitioner contends in his brief that the property settlement and the divorce judgment did not create a money obligation in the amount of $462,561 from him to Lillian de Melinowska and that the Board’s decision in L. W. Mesta, 42 B. T. A. 933, is controlling on the second question.

Our decision on the second question is controlled by L. W. Mesta, supra, which differs in no material respect from the case presently before us. In the Mesta case the taxpayer’s wife commenced an action for divorce against him in Pennsylvania. During the pendency of the action the taxpayer and his wife entered into an agreement under which the taxpayer agreed, inter alia, to transfer to his wife 5,200 shares of stock of the Mesta Machine Co. and certain other personal property and his wife agreed to surrender all of her rights to support and maintenance and to share in his property at his death. In the taxable year he transferred the 5,200 shares of stock and the other personal property to his wife, and she released, him from all of her rights to support and maintenance and to share in his property at his death. The 5,200 shares of stock had a cost to the taxpayer of $7,574.56 and a fair market value of $156,975 at the time of transfer. The decree of divorce did not award any alimony and did not mention the agreement entered into between taxpayer and his wife. Respondent contended that the taxpayer realized taxable gain on the transfer of the 5,200 shares of stock to his wife in the amount of the difference between their cost to the taxpayer and their fair market value at the time of transfer. The Board held that the taxpayer did not realize taxable gain on the transfer of the 5,200 shares of stock. Its decision was based on two grounds. The first ground was that it waa impossible to determine the fair market value of the rights received by the taxpayer on the transfer of the 5,200 shares of stock, i. e., the wife’s rights to support and maintenance and to share in his property at his death; and that thus it was impossible to compute the amount realized by the taxpayer on the transfer of the 5,200 shares of stock under section 111 (b) of the Revenue Act of 1934. The second ground was that the transaction was merely a “division of property” between the taxpayer and his wife and that it was unreasonable and unjustifiable under general law or under the revenue act to hold that a taxpayer had realized taxable gain by thus giving up a substantial portion of his property.

In the present case, petitioner’s former wife, Lillian de Meli-nowska, in the taxable year 1938 commenced an action against him for divorce and alimony in the Superior Court of Connecticut. Under Connecticut law the Superior Court may provide for alimony by assigning to the wife'“a part of the estate of her husband.” The Superior Court thus may assign to the wife for alimony a specific part of her husband’s property. See Lyon v. Lyon, 21 Conn. 185. Such an assignment “operates as a division or partition, between the husband and wife, of his property.” See Lyon v. Lyon, supra, at p. 198. During the pendency of the action, petitioner and Lillian de Melinowska entered into an agreement providing in effect that, subject to the approval of the Superior Court, a part of his estate, consisting of certain specified securities and a small amount of cash, was to be assigned to her as alimony and for the support of their minor child and was to be received by her in full satisfaction of all her claims for her own support and for the support of their minor child. The parties also provided in the agreement that, if any of the specified securities were sold or exchanged between the date of the execution of the agreement and the date of the entry of the judgment of divorce, the proceeds from such sales or exchanges were to take the place of the securities sold or exchanged. At the time when the agreement was entered into, Lillian de Melinowska also executed a release in which she released petitioner from all her rights to share in his estate at his death. In its judgment of divorce the superior court approved the agreement. The court ordered that petitioner was to transfer to Lillian de Melinowska as alimony and for the support of their minor child the specified securities (or the proceeds from the sale or exchange thereof) and the cash agreed upon by the parties and that upon such transfer “of the foregoing securities and cash” he was to be discharged of all obligations to support Lillian de Melinowska or their minor child. It is true that in the agreement the parties referred to the specified securities and cash as having a then value of $462,561 and that in the judgment the Superior Court referred to the specified securities and cash as having an approximate value of $462,561. These references to the value of the specified securities and cash did not convert petitioner’s obligation into a money obligation or indebtedness in the amount of $462,561. His obligation was to transfer specified securities (or the proceeds thereof in the event of sale or exchange) and a small amount of cash ($673.88). See Lyon v. Lyon, supra. That in the present case the agreement was approved and incorporated by the Connecticut court in its judgment while in the Mesta case the agreement was not mentioned by the Pennsylvania court in its decree, does not present, in our opinion, any material difference between the factual situations in the two cases.

Both grounds for' the decision in the Mesta case apply with equal force in the present case. In the present case, it is also impossible to evaluate the rights received by petitioner, i. e., the rights of Lillian de Melinowska to her own support and to the support of their minor child and to share in petitioner’s property at his death, and thus to compute the amount realized by him on the transfer of the' specified securities and the small amount of cash under section 111 (b) of the Revenue Act of 1938. See L. W. Mesta, supra, at p. 940. And in the present case the assignment of a part of petitioner’s estate to Lillian de Melinowska also operated as a “division or partition, between the husband and wife, of his property.” See L. W. Mesta, supra, at p. 941; Lyon v. Lyon, supra, at p. 198.

United States v. Kirby Lumber Co., supra; William R. Kenan, Jr., Trustee, supra; Suisman v. Eaton, supra; Twin Ports Bridge Co., supra, which are relied on by respondent in his brief, are distinguishable. In each of those cases the transfer of property discharged a money obligation or indebtedness, and not an obligation in kind. See L. W. Mesta, supra, at p. 938. Cf. General Utilities & Operating Co. v. Helvering, 296 U. S. 200. Helvering v. Horst, 311 U. S. 112, and other cases cited by respondent are not in point.

Accordingly it is held that petitioner did not realize taxable gain on the transfer of the specified securities to his former wife, Lillian de Melinowska, in the taxable year 1938, pursuant to the property settlement and to the judgment of the Superior Court of Connecticut. L. W. Mesta, supra.

Reviewed by the Board.

Decision will be entered for the petitioner.

Opker dissents.

       2 : 50-38 Remarriage of former wife; no order touching alimony; vacation of prior order.

      If after tie decree of divorce the wife shall remarry, the court of chancery shall not make any order touching the alimony of such wife except that the court of chancery, upon application of the former husband, on notice and upon proof of the marriage after the decree of divorce, must modify any order or decree touching the alimony of the former wife by vacating and annulling any and all provisions in an.y such order or decree, or both, directing the payment of money for the support of the former wife.

         General Statutes of Connecticut, 1930 Revision—
      “Sec. 5182. Alimony and change of name. The superior court may assign to any woman divorced by such court a part of the estate of her husband and, in addition thereto or in lieu thereof, may order alimony to be paid from the husband’s income, may change her name and may order alimony pendente lite to be paid to the wife in any complaint or cross-bill for divorce pending in said court. * * *’*

       SEC. 111. DETERMINATION OP AMOUNT OP, AND RECOGNITION OP, GAIN OR LOSS.
      * * * * * * *
      (b) Amount Realized.—The amount realizes from the sale or other disposition of property shall be the sum of any money received plus the fair market value of the property (other than money) received.