author: Smith:

text:
    Lefcourt Realty Corporation, Petitioner, v. Commissioner of Internal Revenue, Respondent.
    Docket Nos. 53368, 63126.
    Promulgated January 3, 1935.

      Joseph B. Little, Esq., for the petitioner.

      J. Arthur Adams, Esq., for the respondent.
   OPINION.

Smith:

These proceedings, consolidated for hearing, involve income tax deficiencies for the fiscal years ended November 30, 1928, and November 30, 1929, of $117,219.05 and $37,730.12, respectively. The question presented is whether the periods December 1, 1926, to October 14, 1927, and October 15, 1927, to November 30, 1927, constitute separate “ taxable years ” or a single “ taxable year.”

The facts have been stipulated as follows:

(1) The petitioner was incorporated on October 3, 1927, under the laws of the State of Delaware and began business on October 15, 1927. Its principal office is located at No. 1359 Broadway, New York City. Returns for the fiscal years ended November 30, 1928 and November 80, 1929, were filed with the Collector of Internal Revenue for the Third District of New York.
(2) On October 15, 1927 the petitioner acquired all the capital stock of the following corporations:
1412 Broadway, Incorporated,
Central Zone Corporation,
Landcourt Realty Corporation,
Haslef Realty Corporation, •
Broadway-Marlboro Realty Corporation.
On October 1, 1928 the petitioner acquired all the capital stock of 1375-83 Broadway Corporation.
(3) The petitioner kept its books of account and filed its income tax returns on the basis of a fiscal year ended November 30th.
(4) The petitioner filed a consolidated tax return for the period October 15, to November 30, 1927 in which was included income and/or loss of the petitioner and the affiliated corporation. The respondent determined the income and/or loss for each of said corporations, prior to his making adjustments for losses sustained by 1412 Broadway, Incorporated, and Central Zone Corporation for the fiscal year ended November 30, 1926, as follows:
Lefcourt Realty Corporation_(Loss) ($2,177.30)
1412 Broadway, Incorporated-Income 40,112.33
Central Zone Corporation-Income 15, 502. 04
Landcourt Realty Corporation-Income 10, 936.16
Haslef Realty Corporation-Income 11,127. 09
Broadway-Marlboro Realty Corporation-Income 45, 836. 43
(5)The petitioner filed a consolidated tax return for the fiscal year ended November 30, 1928, in which was included income and/or loss of the petitioner and the affiliated corporations shown in paragraph (2) for the entire year with the exception of 1375-83 Broadway Corporation, whose income was reported in said return for the period October 1, 1928, to November 30, 1928. The respondent determined the net taxable income and/or losses to be as follows:
Lefcourt Realty Corp., Petitioner_(12months) (Loss) ($14,972.73)
1412 Broadway, Incorporated- “ “ Income 251,136.15
Central Zone Corporation_ “ “ Income 121, 247. 60
Landcourt Realty Corporation_ “ “ Income 84, 327. 69
Haslef Realty Corporation- “ “ Income 84,209. 99
Broadway-Marlboro Realty Corpo-ration_ “ “ Income 376,106.99
1375-83 Broadway Corporation, Period Oct. 1 to Nov. 30, 1928_ Income 64, 699. 60
(6)The petitioner filed a consolidated tax return for the fiscal year ended November 30, 1929, in which was included income of the petitioner and the affiliated corporations shown in paragraph (2) for the entire year. The respondent determined the net taxable income to be as follows:
Lefcourt Realty Corporation_ $610, 388.40
1412 Broadway, Incorporated_ 271,155. 37
Central Zone Corporation_ 113, 001. 89
Landcourt Realty Corporation_ 83, 218. 37
Haslef Realty Corporation_ 82, 561. 27
Broadway-Marlboro Realty Corporation_ 365, 646. 59
1375-83 Broadway Corporation_ 331, 308. 66
Total- 1,857,280.55
(7)For the fiscal year ended November 30, 1926, the following corporations were affiliated and filed a ^consolidated return. The income and/or loss of the individual companies, as determined by the Commissioner of Internal Revenue for tlie said fiscal year, are as follows:
1412 Broadway, Incorporated- (Loss) ($607,589.48)
Central Zone Corporation- “ (234,561.24)
Landcourt Realty Corporation-Income 57,409.17
Haslef Realty Corporation- “ 83,575.56
Broadway-Marlboro Realty Corporation- “ 285,647.90
Alcourt Realty Corporation- “ 10,571.65
Alan Realty Company, Inc- “ 57,964.49
I-Iaascourt Realty Corporation- “ 7, 573.12
Courtlef Realty Corporation- “ 26,550.18
Milef Realty Corporation- “ 28,362'. 12
1375-83 Broadway Corporation_ (Loss) (43, 999.27)
Felcourt Realty Corporation- “ (159,561. 54)
Nala Realty Corporation_ “ (30,766.12)
Amia Realty Corporation_ “ (16,715.15)
(8) The respondent determined the income and/or loss of the corporations whose names appear below for the period December 1, 1926 to October 15, 1927 as follows: .
1412 Broadway, Incorporated- (Loss) ($102,180.25)
Central Zone Corporation_f-:_ “ ( 41,248. 91)
Landcourt Realty Corporation-Income 95, 871. 66
Halsef Realty Corporation-:- “ 60, 817.10
Broadway-Marlboro Realty Corporation-- “ 224,497.24
The income and/or loss for the period December 1, 1920 to October 15, 1927 of the corporations whose names appear above was included in a consolidated return which included the income and/or loss of thirteen other corporations. Said return was filed on the basis of a fiscal year ended November 30, 1927. The names, losses sustained, and/or incomes, as determined by the Commissioner of Internal Revenue, for these thirteen corporations whose names do not appear above, and the period for which the income and/or loss of each was determined, are:
Alcourt Realty Cor- Doc. poration. 1, 1926 to Nov. 30, 1927 ($5,990.63) (Loss)
1375-83 Broadway “ “ “ ' “ “ “ (615,589.11) Corp.
Alan Realty Co., Inc— “ “ “ “ “ “ ( 15,051.53)
Felcourt Realty Corp__ “ “ “ “ “ “ ( 8S, 972.67)
Haascourt Realty Corp. “ “ “ “ “ “ ( 3,939.24)
Courtlef Realty Corp__ “ “ “ “ “ “ ( 34,599.22)
Nala Realty Coip- “ “ “ “ “ “ 2,353.10 Income
Milef Realty Corpora- “ “ “ “ tion. “ " (322,115.31) (Loss)
Amia Realty Corp- “ “ “ “ “ “ ( 7,521.44)
Fobro Realty Co_June 7, 1927 to “ “ ( 6,015.54)
521 Fifth Avenue, Inc_ Oct. 24, 1927 “ “ “ “ (156,572.25)
A.E.L. Leasing & Man- Nov. 11, 1927 to agement, Inc. “ “ 6, S33.61 Income
A.B.L. Inc_Sept. 23, 1027 to “ “ “ (15,310.71) (Loss)
(9) For Hie period December 1, 1927 to September 30, 1928, the net income of 1375-S3 Broadway Corporation was $11,728.40. Said income was included in a Consolidated return filed for tlie fiscal year ended November 30, 1028, by a group of corporations with which said 1375-83 Broadway Corporation was affiliated during the period December 1, 1027 to September 30, 1928, inclusive. Said group of corporations other than 1375-83 Broadway Corporation, have no connection with the affiliated group here under consideration for the fiscal years ended November 30, 1928 and November 30, 1929.

Section 48 of the Revenue Act of 1928 provides in part as follows:

When used in this title—
(a) Taxable year. — “Taxable year” means the calendar year, or the fiscal year ending during' such calendar year, upon the basis of which the net income is computed under this Part. “ Taxable year ” includes, in the case of a return made for a fractional part of a year under the provisions of this title or under regulations prescribed by the Commissioner with the approval of the Secretary, the period for which such return is made. The first taxable year, to be called the taxable year 1928, shall be the calendar year 1928 or any fiscal year ending during the calendar year 1928.
(b) Fiscal year. — “Fiscal year” means an accounting period of twelve months ending on the last day of any month other than December.

Substantially the question presented herein was considered by the Supreme Court in Helvering v. Morgans, Inc., 298 U. S. 121. The facts in that case were that on June 1, 1925, Morgans, Inc., acquired all the voting stock of the Haines Furniture Co. Later, and in due course, in compliance with section 240 (a) of the Revenue Act of 1926, and article 684 of Regulations 69, the Haines Furniture Co. filed its separate income tax return for the five months of 1925 preceding the affiliation and the two affiliated corporations filed a consolidated return for the last seven months of the year and for the calendar years 1926 and 1927. The question there was as to whether the five-month period from January 1 to May 30, 1925, and the seven-month period from June 1 to December 31, 1925, constituted separate taxable years within the meaning of the law and the regulations. The Supreme Court stated:

* * * The revenue acts sifice the Sixteenth Amendment have consistently assessed income taxes on the basis of annual accounting periods, either the calendar year or. the different fiscal year which the taxpayer may adopt. From the beginning those periods have been known as taxable years and the provisions of the taxing statutes have been drafted and enacted with primary reference to such normal accounting periods. Burnet v. Sanford & Brooks Co., 282 U. S. 359, 363; Woolford, Realty Co., Inc. v. Rose, 286 U. S. 319, 326. The statutes since 1917, and related regulations, have uniformly required the taxpayers’ returns to be made on the basis of the twelve months’ accounting period shown by the taxpayer’s books, whether it be the calendar year or a different fiscal year. * * *

We think that the reasoning of the Supreme Court in the above cited case is equally applicable in the proceedings before us. The definitions of “ taxable year ” and of “ fiscal year ” contained in the Revenue Act of 1928 are the same as those employed in the earlier taxing statutes. From the stipulated facts it appears that the accounting period of the petitioner and of its affiliates was the fiscal year ended November 30. If the corporations had made separate returns they would all have been made upon that basis. When the petitioner, on October 15, 1927, acquired all of the shares of stock of other corporations the fiscal years of those corporations were not changed. In the filing of consolidated returns the results of operations of the petitioner’s subsidiaries up to the date their shares of stock were acquired by the petitioner were reported in the consolidated returns of other corporations with which they were then affiliated; and after the shares of stock were acquired by the petitioner the results of operation of the subsidiaries were reported in the consolidated returns of the petitioner. But the “ taxable year ” of the affiliates was not changed thereby.

As pointed out by the Supreme Court, it was clearly the intention of Congress to permit the net losses of a 12 months’ operation, where there was no change of the accounting period of the taxpayer, to be deducted from the net.income of the succeeding year and the excess of that net loss to be deducted from the income of the succeeding year (referred to in the statute as the “third” taxable year). The decision of the Supreme Court in Helvering v. Morgans, Inc., supra, is clearly determinative of the issue presented in so far as it relates to the fiscal year ended November 30, 1928.

The petitioner’s tax return for the fiscal year ended November 30, 1929, was made under the provisions of section 141 of the Revenue Act of 1928. That section provides in part:

SEC. 141. CONSOLIDATED RETURNS OF CORPORATIONS-1929 AND SUBSEQUENT TAXABLE TEARS.
(a) Privilege to file consolidated returns. — An affiliated group of corporations shall, subject to the provisions of this section, have the privilege of making a consolidated return for the taxable year 1929 or any subsequent taxable year, in lieu of separate returns. The making of a consolidated return shall be upon the condition that all the corporations which have been members of (he affiliated group at any time during the taxable year for which the return is made consent to all the regulations under subsection (b) prescribed prior to the making of such return; and the making of a consolidated return shall be considered as such consent. In the case of a corporation which is a member of the affiliated group for a fractional part of the year the consolidated return shall include the income of such corporation for such part of the year as it is a member of the affiliated group.
(b) Peg illations. — The Commissioner, with the approval of the Secretary, shall prescribe such regulations as he may deem necessary in order that the tax liability of an affiliated group of corporations making a consolidated return and of each corporation in the group, both during and after the period of affiliation, may be determined, computed, assessed, collected, and adjusted in such manner as clearly to reflect the income and prevent avoidance of tax liability.

Under the authority of section 141 (b), the respondent on January 3, 1929, prescribed Regulations 75. Article 14 of those regulations, entitled “Accounting Period of an Affiliated Group ”, reads as follows: '

Tlie taxable year of the parent corporation shall be considered as the taxable year of an affiliated group which makes a consolidated return and the consolidated net income must bo computed on the basis of the taxable year of the parent corporation.

Another (article (<7)) reads:

If a corporation, during its taxable year, becomes a member of an affiliated group, its income for the portion of such taxable year not included in the consolidated return of such group must be included in a separate return. * * *

And still another (article 41 (cl)) reads:

Any period of less than twelve months for which either a separate return or a consolidated return is filed * * * shall be considered as a taxable year.

In Wishnick-Tumpeer, Inc. v. Helvering (App. D. C.),-Fed. (2d) - (March 12, 1934), the facts were that the parent company of an affiliated group changed its accounting period from a calendar year to a fiscal year ended June 30, and filed a return for the period January 1 to June 30, 1929. In such return it included the income of its subsidiary from November 1, 1928, to June 30, 1929. The respondent required a return of the subsidiary for the period November 1 to December 31, 1928, and the court held that this constituted a return for a “ taxable year ” within the meaning' of the respondent’s regulations. In Helvering v. Morgans, Inc., supra, the Supreme Court called attention to the decisions of some of the Circuit Courts in which it was held that the term “ taxable year ” meant a 12hnonth period even though under certain circumstances two income tax returns were required by the respondent for such period. The Court noted:

* * * A different conclusion was reached in Wishnick-Tumpeer, Inc. v. Commissioner, decided March 12, 1934, by the Court of Appeals of the District of Columbia, under the Revenue Act of 1928, applied in circumstances and under regulations not involved in the present case.

At the conclusion of its opinion the Court stated:

It is unnecessary to consider the effect to be given to returns required for a fractional part of the year, where the taxpayer changes his taxable year from a calendar year to a different fiscal year, or vice versa, with respect to which different considerations may enter. See Wishnick-Tumpeer, Inc. v. Commissioner, supra.

In the proceedings at bar there has been no change of the accounting period. It is pertinent to consider, however, whether under Regulations 75 the two periods December 1,1926, to October 14,1927, and October 15, 1927, to November 30, 1927, constitute separate “taxable years for if they do it is apparent that net losses sustained for the period December 1,1926, to October 14,1927, inclusive, are not available to the affiliates in computing taxable incomes for the fiscal year ended November 30, 1929, since such fiscal year would constitute not the “ third ” taxable year under the statute but the “ fourth ” taxable year. The respondent has treated the two periods comprehended by the 12-month period ended November 30, 1927, as separate taxable periods and on brief contends that they were. Such a contention must be regarded as warranted by Regulations 75.

Under section 141 (b) of the Revenue Act of 1928, the respondent is given authority, with the approval of the Secretary, to prescribe such regulations for consolidated returns as he deems necessary “ to reflect the income and to prevent avoidance of tax liability.” The authority does not extend to prescribing regulations which shall deny to corporations deductions from income and have the effect of increasing the taxable income. The statute prescribes that the net loss of a taxable year ” may be deducted from the net income of the succeeding taxable year and any excess from the following taxable year. Clearly if Regulations 75 did not prescribe a different definition for “ taxable year ” from that contained in the statute the petitioner’s subsidiaries would be entitled to deduct from their net incomes of the fiscal year ended November 30, 1928, the net losses of the 12-month period ended November 30, 1927, and any excess from their net incomes of the fiscal year ended November 30, 1929. Helvering v. Morgans, Inc., supra. To the extent that Regulations 75 are in conflict with the statute and deny to corporate taxpayers deductions to which they are entitled under the taxing statute they are invalid. Morrill v. Jones, 106 U. S. 466; Utah Power & Light Co. v. United States, 243 U. S. 389; Ramsey v. Commissioner, 66 Fed. (2d) 316; certiorari denied, 290 U. S. 673.

It should be noted that Regulations 75 were promulgated prior to the decision of the Supreme Court in Helvering v. Morgans, Inc., supra. Had the respondent had the benefit of the interpretation placed upon the term “ taxable year ” contained in the above cited decision of the Supreme Court, presumably he would not have provided in his regulations that “ any period of less than 12 months for which either a separate return or a consolidated return is filed * * * shall be considered as a taxable year.”

We reach the conclusion that the two periods December 1, 1926, to October 14, 1927, inclusive, and October 15, 1927, to November 30, 1927, inclusive, constitute only one “ taxable year ” Avithin the meaning of the statute and that that definition of the term is equally applicable in the recomputation of the deficiencies for the fiscal years ended November 30, 1928, and November 30, 1929.

It does not appear from the stipulation just what the net losses of the several affiliates for the fiscal year ended November 30,1926, were. The data for their computation is, however, in evidence. The net losses should be recomputed in accordance with the principle of adjustment invoked by the Board in Walker Products Corporation, 30 B. T. A. 636. Cf. Greif Cooperage Corporation, 31 B. T. A. 374.

Reviewed by the Board.

Judgment will loe entered under Hule BO.

GooDRicn dissents.


source: Caselaw Access Project

author: Trammell :

license: Public Domain

text:
    Peavy-Byrnes Lumber Company, Petitioner, v. Commissioner of Internal Revenue, Respondent.
    Docket No. 16354.
    Promulgated January 3, 1935.

      jS. L. Herald, Esq., and John B. Files, Esq., for the petitioner.

      John E. Marshall, Esq., for the respondent.
   OPINION.

Trammell :

This case is now before us on a mandate of the United States Circuit Court of Appeals for the Fifth Circuit, in connection with which petitioner has presented a motion for leave to raise new issues by way of amendment to its pleadings, and to offer additional evidence in support thereof.

The Board’s original report was promulgated December 7, 1928 (14 B. T. A. 625), and pursuant thereto judgment was entered September 12, 1929. This proceeding, together with consolidated companion cases,- was taken on appeal to the Circuit Court, which, on J une 30,1931, affirmed the Board’s decision on the issues of affiliation and denial of deductions for dividends, but reversed it on the issues of invested capital and depletion under the Krause-Managan contract, and remanded the cause for further proceedings not inconsistent with the court’s opinion (51 Fed. (2d) 163).

Pursuant to the mandate, further proceedings were had at which petitioner offered additional evidence with respect to valuations under the Krause-Managan contract, and on January 18, 1932, the Board promulgated a supplemental report at 25 B. T. A. 223.

Subsequently, on application of the respondent, the Supreme Court granted certiorari to the Circuit Court on the issue of affiliation, and on April 18,1932, reversed the decision of the Circuit Court and of the Board on that issue, and remanded the cause for further proceedings (286 U. S. 524).

On November 10, 1932, the Board entered its decision in accordance with its interpretation of the decisions and mandates of the Circuit Court of Appeals and the Supreme Court. Petitioner again appealed, and on March 17, 1934, the Circuit Court reversed the Board’s decision and remanded the case “ with directions to redetermine petitioner’s tax liability in accordance with its finding of $065,000 as the fair value of the stock, the cost of the timber, as of July 28,1913, when the exchange was made.” (69 Fed. (2d) 712.)

On April 16, 1934, the Board of its own motion set the case doAvn for hearing on final decision in accordance with the views expressed in the opinion of the Circuit Court rendered March 17, 1934, and directed that prior to such hearing the parties file recomputations of the tax in accordance with the court’s mandate.

The recomputations were duly filed and the parties are in agreement as to the tax liability thereunder, but at the hearing petitioner lodged with the Board a motion for leave further to amend its petition so as to claim deductions for depletion in excess of the amounts allowed by the respondent on timber cut by petitioner during the years 1916, 1917, and 1918, in addition to the timber acquired under the Krause-Managan contract.

The parties filed at the hearing a written agreement which sets forth the number of feet of timber, outside of the Krause-Managan contract, cut by the petitioner during said years, and further stipulates that petitioner’s correct tax liability for the years 1916, 1917, and 1918 is as shown in the computation filed by respondent on May 15, 1934, subject to a further allowance for depletion on the timber cut outside of the Krause-Managan contract in said years, “if the Board now has the right to adjudicate the matter of a further allowance for such depletion.”

The petitioner also seeks to set up a claim and have the Board determine its right to certain credits to which petitioner asserts it is entitled in respect of payments alleged to have been made to the collector of internal revenue which respondent has not reflected in computing the unpaid balance of the tax liability.

Petitioner’s motion was taken under advisement, ruling on the amendment being' reserved, but, in order to expedite decision of the case, the parties were permitted to tender and record evidence inspecting the cost basis of the timber on which additional depletion is claimed by the petitioner, as well as the matter of additional credits claimed by petitioner, subject to our decision on the question of our power or jurisdiction at this time to adjudicate these matters.

Eespondent vigorously resists petitioner’s motion on the ground that we have no power in the present circumstances to grant the same or to take any action not clearly within the purview of the Circuit Court’s mandate, while petitioner contends that we have such jurisdiction.

Thus the. question is squarely presented whether we now have authority to take effective action on petitioner’s motion, and, if so, whether within our sound discretion it should be granted.

This proceeding is before us on the mandate of the Circuit Court, which specifically directs us to redetermine the petitioner’s tax liability in accordance with our prior finding of $665,000 as the fair value of the stock, which represents the cost of the timber when it was exchanged for the stock as of July 28, 1918. May we, then, go beyond the express directions of the mandate and permit the petitioner at this time to amend its pleadings so as to set up wholly new issues not heretofore raised and considered by us or the Court of Appeals and in respect of which it would be necessary to allow introduction of additional evidence? Solely for the convenience of the parties such additional proof has been recorded, but has not yet been received for consideration.

The rule seems to be well settled by the weight of authority that an inferior tribunal, upon remand of a cause by an appellate court, can not take any action not reasonably within the express or implied directions of the reviewing court. Upon entry of our decision on November 10, 1932, the proceeding was fully and finally disposed of so far as concerned this Board, and upon appeal to the Circuit Court our general jurisdiction over the case then and there was ended. When our decision was reversed and the case remanded our jurisdiction was restored only to the extent necessary to carry out the court’s directions. The case of In re Sanford Fork & Tool Co., 160 U. S. 247, 255, clearly states the rule as follows:

When a case has been once decided by this court on appeal, and remanded to the Circuit Court, whatever was before this court, and disposed of by its decree, is considered as finally settled. The Circuit Court is bound by the decree as the law of the case; and must carry it into execution, according to the mandate. The court can not vary it, or examine it for any other purpose than execution; or give any other or further relief; or review it, even for apparent error, upon any matter decided on appeal; or intermeddle with it, further than to settle so much as has been remanded.

To the same effect see also In re Potts, 166 U.S. 263; D'Arcy v. Jackson, etc., Co., 212 Fed. 889; Goldwyn Pictures Corporation v. Howels Sales Co., 287 Fed. 100.

It is obvious, we tliiuk, that petitioner is hero seeking for the first time “ other and further relief ” not accorded by the decision of the Circuit Court, and this, the Supreme Court plainly says, can not be given by the trial court, Avhich is bound to carry the decree of the reviewing court into execution, according to the mandate.

A trial court is vested with discretion to permit amendments to the pleadings and to admit further proof only when such proceedings are authorized by the mandate of the appellate court, as in cases where the trial court has entered a judgment of dismissal for lack of jurisdiction or insufficiency of pleading, and the judgment is reversed and the cause remanded with directions by the higher court.

So it has been held that where a decree is reversed Avith a proce-dendo or directions that further proceedings be had in conformity with, or not inconsistent with, the opinion of the appellate court, or a new trial is ordered, the court of first instance has plenary authority to allow amendments, consolidation with another case, and further proof, except in so far as the opinion or mandate specifically forbids. When there is provision for a procedendo the tria) court may then exercise its own judgment upon questions of law not considered by the appellate court, and when the mandate grants leave to both sides to adduce further evidence, leave to file supplemental pleadings may be granted by the trial court. But an amendment cannot be allowed by the trial court where further proceedings are not directed. The mandate must be interpreted according to its subject matter; and the decree of the appellate court, as well as that of the court below, may be taken into consideration in the interpretation thereof.

The instant case was not remanded by the Circuit Court Avith a procedendo or directions that further proceedings be had in conformity with or not inconsistent with its opinion, but Ave are specifically directed to redetermine the petitioner’s tax liability upon a definite basis stated both in the court’s opinion and the mandate. We have been given no discretion. In effect the case has been remanded for the sole purpose of our making a mathematical calculation according to the formula stated in the mandate, and entering judgment in accordance therewith.

Petitioner contends that, except as to the matters decided on appeal, no instructions were given by the Circuit Court, and that except as to those matters the case is now before us at large. In support of this theory, the petitioner cites a number of cases. The cited cases are not in point, since each involved remand with a-procedendo and is in harmony with the principles above referred to, when considered in the light of all the facts of each case. For example, among the decisions so cited by the petitioner is the case of In re Sanford Fork & Tool Co., supra, and from the Supreme Court’s opinion therein petitioner quotes on brief the following:

The Circuit [trial] Court may consider and decide any matters left open by the mandate of this court; and its decision of such matters can be reviewed by a now appeal only.

The Sanford case was heard by the trial court only upon the question of the sufficiency of pleading, the trial court holding the pleading insufficient. The Supreme Court on-review held the pleading sufficient, reversed the judgment of the lower court, and remanded the cause for further proceedings not inconsistent with its opinion. And following the above quoted extract from its opinion, the Supreme Court, in order to make clear the scope of its decision, took the precaution of adding:

The case is quite different in this respect from those in which the whole case, or all but a subsidiary question of accounting, had been brought to and decided by this court upon the appeal, as in the cases principally relied on by the petitioner.

In the later case of In re Potts, 166 U. S. 263, 266, the Court after briefly reviewing its decision in the Sanford case, supra, remarked:

The case now in question comes exactly within the class of cases so referred to and distinguished. It was originally heard in the Circuit Court, not merely upon a question of sufficiency of pleading, but upon the whole merits.
$ sfs í{t }Jt 5{« tj« $
When the merits of a case have been once decided by this court on appeal, the Circuit Court has no authority, without express leave of this court, to grant a new trial, a rehearing, or to permit new defenses on the merits to be introduced by amendment to the answer. Ex parte Story, 12 Pet. 339; Southard v. Russell, 16 How. 547; Ex parte Dubuque & Pacific Railroad, 1 Wall. 69; Stewart v. Salamon, 97 U. S. 361; Gaines v. Rugg, 148 U. S. 228.

On principle, we think the case of Kansas City Southern Ry. Co. v. Guardian Trust Co., 281 U. S. 1 is closely analogous to the instant proceeding. In that case the Circuit Court of Appeals remanded with directions for the entry of a specific decree, with “ costs.” After receipt of the remand, the Guardian Trust Co. attempted to have the District Court award it judgment for attorney fees, cost of printing briefs, and other disbursements. Upon a second appeal, the Circuit Court of Appeals reversed the decree of the District Court and again remanded the case with directions to the District Court to make proper allowances for costs as between solicitor and client. The Supreme Court reversed the decree of the Circuit Court of Appeals and affirmed' the decree of the District Court, saying:

For the proper construction of the decree under consideration, regard is to be had to the issues before the court on appeal, the findings applied for and the directions given. The proposed findings and additional recovery extended to matters not before the court. The costs taxable as between party and party were involved on the appeal and the court reversed the decree of the lower court which charged one-third against the Trust Company. No question of costs as between solicitor and client had been raised below.
* * * *"* * *
And the opinion makes it clear that the decree directed to be entered below was intended to be an end of the whole matter. * * *
The mandate required the execution of the decree. The District Court could not vary it or give any further relief. In re Sanford Fork & Tool Co., 160 U. S. 247, 255. Gaines v. Rugg, 148 U. S. 228, 241. In re Washington & Georgetown R. Co., 140 U. S. 91, 96. Ex parte Union Stemboat Company, 178 U. S. 317, 319.

The mandate in the present case specifically directs us to redetermine petitioner’s tax liability upon the definite basis stated, and makes it clear, we think, no less than in the above cited case, that the judgment directed to be entered is intended to be an end of the whole matter. We can not, therefore, vary it or give any further relief.

The mandate of the Circuit Court of Appeals here in question commands “ that such execution and further proceedings be had in • said cause as according to right and justice, and the laws of the United States ought to be had, the said petition for review of the decision of the U. S. Board of Tax Appeals notwithstanding.” However, this does not authorize us to depart in any respect from the judgment and mandate of the appellate court, as construed in the light of its opinion. This is made plain by the decision of the Supreme Court in the case of In re Washington & Georgetown Railroad Co., 140 U. S. 91, where the Court said :

Tbe command of the mandate of this court, that such execution and proceedings be had in said cause as, according to right and justice and the laws of the United States, ought to be had, the said writ of error notwithstanding, did not authorize the general term of the Supreme Court of the District to depart in any respect from the judgment of this court.
* * * * * # • #
The principle has been well established, in numerous cases, that, on a mandate from this court, containing a specific direction to the inferior court to enter a specific judgment, the latter court has no authority to do anything but to execute the mandate. Ex parte Dubuque & Pacific Railroad, 1 Wall. 69; Durant v. Essex Company, 101 U. S. 555, 556.

In Kansas City Southern Ry. Co. v. Guardian Trust Co., supra, (lie mandate referred to in the Supreme Court’s opinion reads in material part as follows:

On consideration whereof, it is now here ordered, adjudged and decreed by this Court, that the decree of the said Circuit Court, in this cause, be, and the same is hereby, reversed with costs; and that the Guardian Trust Company have and recover against the Kansas City Southern Railway Company, * * * the sum of One Thousand and Forty-Six and 45/100 Dollars for its eosts in this behalf expended and have execution therefor.
It is further ordered that this cause be, and the same is hereby, remanded to the said Circuit Court with directions to dismiss the supplemental bill of complaint for want of equity.
It is further ordered that a mandate be issued in this cause to the said Circuit Court in ten days from and after this date, April 2, 1909.
You therefore, are hereby commanded that such execution and further proceedings be had in said cause, in conformity with the opinion and decree of this Court, as according to right and justice, and the laws of the United States, ought to be had, the said appeal notwithstanding.

The mandate in the case of In re Potts, supra, reads in material part as follows:

On consideration whereof, It is now here ordered, adjudged and decreed by this Court that the decree of the said Circuit Court in this cause be, and the same is hereby, reversed with costs: And that the said complainant recover against the said defendants, Frank F. Creager et ah, five hundred and sixty dollars and fifty cents for its costs herein expended and have execution therefor.
And it is further ordered that this cause be, and the same is hereby, remanded to the said Circuit Court for further proceedings to be had therein in conformity with the opinion of this Court, January 7, 1895.
You, therefore, are hereby commanded that such execution and further proceedings be had in said cause, in conformity with the opinion and decree of this Court as according to right and justice, and the laws of the United States, ought to be had, the said appeal notwithstanding.

The mandate in the ease of In re Washington & Georgetown Railroad Co., supra, reads in material part as follows:

On consideration whereof it is now here ordered and adjudged by this Court that the judgment of the said supreme court in this cause be, and the same is hereby, affirmed with costs, and that the said plaintiff * * * recover against the said defendant for his costs herein expended and have execution therefor. May 19, 1890.
You, therefore, are hereby commanded that such execution- and proceedings be had in said cause as according to right and justice and the laws of the United States ought to be had, the said writ of error notwithstanding.

The mandate in the case at bar reads in material part as follows:

On consideration whereof, it is now here ordered adjudged and decreed by this Court, that the order of the said United States Board of Tax Appeals be, and the same is hereby, reversed; and that this cause be, and it is hereby remanded to the said United States Board of Tax Appeals with directions to re-determine petitioner’s tax liability in accordance with its finding of $665,000 as the fair value of the stock, the cost of the timber, as of July 28, 1913, when the exchange was made.
* * * * * * *
You, therefore, are hereby commanded that such execution and further proceedings be had in said cause as according to right and .-justice, and the laws of the United States ought to bo had, the said petition for review of the decision of the U. S. Board of Tax Appeals notwithstanding.

It will bo observed that in the cases of Kansas City Southern Ry. Co., supra, and In re Potts, supra, the decrees or judgments of the trial courts were reversed, and in the Washington & Georgetown Railroad Co. case the judgment was affirmed, but the mandate in each case contained substantially the same command as the mandate in the present case. In respect of the mandates, and without regard to whether the judgment below was affirmed or reversed and the cause remanded for further proceedings, the Supreme Court definitely laid down the following principles: (1) That when a case has been once decided by the appellate court on the merits, the trial court has no authority without express leave of the appellate court to permit amendments to the pleadings to raise new issues, or to give any other or further relief, or to take any action further than to settle so much as has been remanded; and (2) that the command of the mandate that such execution and further proceedings be had as according to right and justice and the laws of the United States ought to be had ” does not authorize the trial court to depart in any respect from the judgment or decree of the appellate court, and that the trial court “ had no authority to do anything except to execute the mandate ” in conformity with the opinion and decree of the appellate court. Clearly the command of the mandate in and of itself does not constitute a procedendo, but directs such further proceedings only as are required by the opinion and decree of the appellate court.

In the present case the mandate of the Court of Appeals, considered in the light of its opinion and decree, does not expressly or by implication authorize this Board to permit amendments to the pleadings to raise new issues, nor to admit new evidence or grant other and further relief, except such as may result from a redeter-mination of the petitioner’s tax liability on the basis stated in the opinion and mandate of the court. The mandate must be executed in conformity with the opinion and decree of the court, and beyond that we may not go.

The conclusions here reached are plainly not in conflict with our decision in H. H. Champlin, 31 B. T. A. 587, where we held that an alternative issue raised before trial, which was not decided by the Board but expressly reserved because the primary issue upon which the alternative depended was decided in favor of the pleader, was within the Board’s power to decide after the decision on the primary issue had been reversed by the Circuit Court of Appeals and the case remanded for further proceedings consistent with the court’s opinion.

On authority of the cases above cited we hold that we now have no power to grant the relief sought by the petitioner, but if the exercise of such power were within our discretion, we are of the opinion that its motion for leave to amend and set up new issues at this time comes too late and should be denied.

The original petition was filed more than eight years ago, and prior to the first appeal petitioner had opportunity to and did in fact amend its pleadings a number of times. The original hearing was held more than six years ago, and the case has been twice reviewed by the Circuit Court; of Appeals on the merits, and once by the Supreme Court of the United States on the issue of affiliation. Admittedly, all the facts upon which petitioner predicates its present claims to additional depletion and credits were in its possession prior to the first appeal, but no such issues were raised either in the original or amended pleadings. It is not the policy of the law to encourage or unduly prolong litigation, nor to permit a party to present his case piecemeal. New trials, rehearings, and the like are not granted except upon good cause shown, such as newly discovered evidence, subsequent court decisions which establish controlling legal principles, or other matters of which the parties could not by the exercise of reasonable diligence have availed themselves at the original trial. No such matter is presented in the instant case.

■Reviewed by the Board.

Judgment will he entered in accordance with the recomputation fled by the respondent on May IS, 1931.

        Brown v. Walker, 84 Fed. 532.

         Marino Ins. Co. v. Hodgson, 6 Cranch, 206; Hawkins v. Ry. Co., 99 Fed. 322; Potts v. Creager, 71 Fed. 574; Pennsylvania Steel Co. v. Ry. Co., 198 Fed. 731, 755.

        Booth v. United States, 154 Fed. 836.

        Potts v. Creager, 71 Fed. 574.

        Schneider Granite Co. v. Cast Realty, etc., Co., 245 U. S. 288 ; Arkadelphia Co. v Ry. Co., 249 U. S. 134.

         Rio Grande, etc., Co. v. United States, 215 U. S. 266.

        Martin v. Peoples Bank, 115 Fed. 226.

        Mitchell v. United States, 15 Pet. 52; Mackall v. Richards, 116 U. S. 545.


author: Seaavell :

text:
    May Rogers, Petitioner, v. Commissioner of Internal Revenue, Respondent. Horace S. Tuthill, Jr., Petitioner, v. Commissioner of Internal Revenue, Respondent. Edna May Thrall, Petitioner, v. Commissioner of Internal Revenue, Respondent.
    Docket Nos. 45051, 52448, 52449, 55546.
    Promulgated January 9, 1935.

      Hugh Satterlee,iEsq., and I. Herman Slier, Esq., for the petitioners

      Mason B. Leming, Esq., for the respondent.
   OPINION.

Seaavell :

Petitioners Tuthill and Thrall insist that the stock they acquired from their mother under the provisions of the contract of July 29, 1921, was by way of gift, and the respondent adheres to the conclusion he reached at the time of determining the deficiencies, that the transaction was an outright sale of. securities for an annuity. On this theory the respondent limited the cost basis of each kind of stock so acquired to a proportionate part of $5,333.36, the amount paid to Sarah E. Tuthill under the contract prior to her death on December 1, 1921, based upon the values placed on the stocks for estate tax purposes.

If we were bound to look no further than the bare words of the contract there would be reason to find for the respondent, for the instrument contains many earmarks of an outright sale. But we may consider both the form and substance of the transaction in reaching a solution of the problem. Phelps v. Commissioner, 54 Fed. (2d) 289, affirming 20 B. T. A. 866; certiorari denied, 285 U. S. 558.

In Albert Russel Erskine, 26 B. T. A. 147, a written instrument provided that the petitioner should have the “ right and option to buy and receive ” certain stock at a specified price less than its true market value, but from all the facts we concluded that the agreement was essentially a contract of employment. In the case of G. Wildy Gibbs, 28 B. T. A. 18, there was a transfer of property of a value of $412,131.60 encumbered by mortgages in the amount of $215,652.50 in trust, for the sole benefit of the petitioners, with the proviso that the beneficiaries assume the mortgages and pay their mother, the grantor, $100 per month for her life. The grantor died one year after the transfer. We held that the difference between the actual consideration paid and the fair market value of the property at the time of transfer must be regarded as a gift, and that the basis for computing gain realized on sale of the property by the beneficiaries in 1920 was the fair market value of the property when transferred to the trustee. In so holding we rejected claims of the Commissioner- that the transaction was an outright sale and that the basis for' determining gain on the sale by the petitioners was the amount of the mortgages, plus the amount actually paid.

Other cases, involving varying facts, are to the same effect. Harry F. Robertson, 5 B. T. A. 748; E. D. Knight, 28 B. T. A. 188; Phelps v. Commissioner, supra; Robinson v. Commissioner, 59 Fed. (2d) 1008.

In the instant case we think there is an abundance of proof that the transaction was improperly classified in the contract. On several occasions during the spring and summer of 1921 Sarah F. Tuthill indicated a desire to give the securities bequeathed to her by her husband, together with the 1,280 shares of common stock of the Sheffield Co, which she had received under the 200 percent stock dividend declared December 31,1920, to her son and daughter, with the understanding that they pay to her from time to time what she might need for living expenses. Her attorney suggested an annuity of $30,000 per year, but she considered such an amount excessive. After some deliberation she fixed the annuity at $16,000 per year and consented, on the advice of counsel, to execute a written agreement providing, among other things, for the deposit of collateral as security for the pajunent of the amount in monthly installments.

There is no indication in the record that any of the parties to the transaction considered the fair market value of the stock involved when determining upon the annual payment of $16,000. The trans-feror was then living at the home of petitioner Thrall and did not need a large sum for living expenses. Apparently in the absence of suggestions of her attorney she would have transferred the stock to her son and daughter without the formality of an agreement. Had the transaction been carried on at arm’s length, each party striving for the best possible bargain, the value of the stock would have been inquired into, for it is agreed that an annuity of $16,000 per year could have been purchased by the transferor on July 29, 1921, for $144,634. The stock of the Sheffield Co., Milk Co., and By-Products Co. actually had a fair market value at that time considerably in excess of what the annuity agreed upon would have cost.

We are of tbe opinion, and so hold, that the difference between the cost to the petitioners and the fair market value of the stock was a gift.

Petitioners Tuthill and Thrall each received by transfer from their mother 960 shares of common stock of the Sheffield Co., 87 shares of common stock of the Milk Co., and 63 and 64 shares, respectively, of common stock of the By-Products Co. and 103 and 104 shares of preferred stock of the Sheffield Co. Of the 1,920 shares of common stock of the Sheffield Co. included in the gift, the trans-feror acquired 640 shares on September 1, 1919, under the will of her husband, and 1,280 by reason of the stock dividend declared December 31, 1920. She acquired all of the stock of the Milk Co. and By-Products Co. under her husband’s will.

The Eevenue Act of 1926, which governs the sales made in 1925, provides in section 204 (a) (2) that if property is acquired by gift after December 31, 1920, “ * * * the basis shall be the same as it would be in the hands of the donor * * The donor’s basis was the fair market value of the property on September 1, 1919, the date of her husband’s death. Section 204 (a) (5), Revenue Act of 1926; Brewster v. Gage, 280 U. S. 327; Gertrude B. May et al., Trustees, 26 B. T. A. 1413. The stock dividend did1 not change the amount of the donor’s basis, merely the basis per share of stock. The basis per share for common stock of the Sheffield Co. acquired by petitioners Tuthill and Thrall by gift from their mother is one third of its fair market value on September 1, 1919. Theodore W. Case et al., Trustees, 26 B. T. A. 1044; Gertrude B. May et al., Trustees, supra; Frances Elliott Clark, 28 B. T. A. 1225. The basis for the common stock of the Milk Co. and By-Products Co. is its fair market value on September 1, 1919.

The petitioners alleged in their petitions, maintained at the hearing, and claimed on brief that most of the stocks in question had a fair market value on the basic dates in excess of the amounts used in the returns they filed as coexecutors for estate tax purposes. The value claimed for common stock of the Sheffield Co. as of September 1, 1919, is six times the value reported and determined for estate tax purposes. The respondent contends, inter alia, that the petitioners are estopped to deny the correctness of the values used by them in the returns they filed as executors for estate tax purposes, without pointing to any particular kind of estoppel as controlling. We lcnoAV of none that would deny the petitioners the right to prove by competent evidence that the securities had fair market values on September 1, 1919, and June 22, 1922, different from the values they used as coexecutors for estate tax purposes.

The value of property as of a particular date is a matter of opinion and evidence. Mere expressions of opinion can not be regarded as misrepresentations of fact to work estoppel. Hurt v. Riffle, 11 Fed. 790; United States Press Associations v. National Newspapers Association, 254 Fed. 284; Quirk v. United States, 45 Fed. (2d) 631. No right of election is involved, as in W. R. Ramsey, 26 B. T. A. 277; alfd., 66 Fed. (2d) 316; certiorari denied, 290 U. S. 673, cited by the respondent. The respondent does not claim to have relied, and did not rely, upon the values reported in the estate tax returns. The liability of the respective estates for estate tax was not determined by the respondent until after his agents had investigated the value of the securities. In the case of the estate of Horace S. Tut-hill, Sr., he increased the value of the stock of the By-Products Co., and in determining the net estate of Willis E. Rogers he increased the value of the common stock of the Sheffield Co. Obviously, if these petitioners derived any benefit from such course of action it was due, in the final analysis, to errors of judgment on the part of the respondent rather than the executors of the respective estates. The courts have held that an act done in a representative capacity will not estop one in his individual capacity, and vice versa. Rohn v. Rohn, 204 Ill. 184; 68 N. E. 369; Simpson v. People’s Ice Mfg. Co., 44 La. Ann. 612; 10 So. 814; Chapman v. Gates, 54 N. Y. 132; Micon v. Lamar, 1 Fed. 14; Morton v. Preston, 18 Mich. 60; White v. Roper, 167 S. E. (Ga.) 177.

Aside from these considerations the answers of the respondent allege no facts on the question, as required by Rule 14 of the Board’s rules of practice. Beyond statements made by his counsel at the hearing, he has not raised the issue. As to the necessity of pleading-estoppel as a defense, see Philadelphia, Wilmington & Baltimore Railroad Co. v. Howard, 54 U. S. 307; In re Stoddard Bros. Lumber Co., 169 Fed. 190; Grouf v. State National Bank of St. Louis, 40 Fed. (2d) 2; Bamberg Cotton Mills Co., 8 B. T. A. 1236; Package Machinery Co., 28 B. T. A. 980; Duesenberg, Inc. of Delaware, 31 B. T. A. 922.

The petitioners contend that the fair market value of the common stock of the Sheffield Co. on September 1, 1919, and June 22, 1922, was not less than $914.61 and $304.87 per share, respectively. They ask us to give no weight to the values currently made by them as coexecutors for estate tax purposes and sales of the stock at or near the basic dates. The sales, they urge, were insignificant in volume and insufficient to establish fair market value. They argue further that, under the circumstances, it is both proper and essential that the stock be valued by a resort to the assets behind it.

It is claimed that fair market value of the net tangible property of the corporation attributable to each share of common stock was $595.74 on September 1, 1919, and $226.17 on June 22, 1922. Proof of tlxe value of tlie tangible assets of the corporation on the various dates is limited to an appraisal made in 1919 by the Keystone Appraisal Co. By reason of this appraisal, the assets were written up on the books in December 1920 in the amount of $2,549,250. The appraisal seems to have been made primarily for insurance purposes. The property was valued on the basis of reproduction costs, less depreciation and obsolescence. Appraisals made on such a basis are entitled to little weight in the determination of fair market value. American Steel Wool Manufacturing Co., 14 B. T. A. 762; A. M. Byers Co., 19 B. T. A. 660; National Packing Corporation, 24 B. T. A. 952; Clinton Cotton Mills, Inc., 28 B. T. A. 1312.

Two methods are employed by the petitioners to value good will. Their first method, which they seem to regard as the more accurate, is based upon the number of quarts of milk sold daily during several periods. Using $20 as the value for each quart of milk sold, the petitioners claim good will values on September 1, 1919, of from $5,313,820 to $5,632,580, depending upon whether sales on the basic date, average daily sales during the first or last six months of the year preceding the basic date, or the average daily sales during the year preceding the basic date, are used. By the same computation they reach good will values on June 22, 1922, of from $7,129,720 to $7,403,420. On the basis of the valuations so found most favorable to them, the petitioners contend that the corporation’s good will had a value, per share, of $423.56 on September 1, 1919, and $185.08 on June 22, 1922. Their other method of valuing good will consists of allowing 6 percent as a reasonable return on tangible assets and capitalizing the excess at 10 percent. In computing a valuation as of September 1, 1919, they use earnings over four periods ranging from 20 months to six years immediately preceding the basic date. They regard the 20-month period as being in accordance with the formula approved in A. B. M. 34, 2 C. B. 31. Using the 20-month period as a basis, a good will value on September 1, 1919, of $467.97 per share, or $44.41 in excess of the valuation reached by the first method, is obtained, this valuation being in excess of amounts arrived at on the basis of the other periods. To obtain a value as of June 22, 1922, they use earnings over a period of four and one half years. Such calculations produce a good will value on June 22, 1922, of $83.38 per share, an amount considerably less than the values determined by the first method.

The petitioners contend that the values fixed for the stock by the methods just described are fully supported by expert testimony. The opinions of the expert witnesses, are based almost entirely upon the assumption that the tangible assets had a fair market value equal to book value. “ The capital stock of a corporation, its net assets, and its share of stock are entirely different things. * * * The value of one bears no fixed or necessary relation to the other.” Ray Consolidated Copper Co. v. United States, 268 U. S. 373. Expert testimony must be viewed in the light of other facts established by the evidence. Balaban & Katz Corporation v. Commissioner, 30 Fed. (2d) 807; Anchor Co. v. Commissioner, 42 Fed. (2d) 99; Uncasville Manufacturing Co. v. Commissioner, 55 Fed. (2d) 893; Tracy v. Commissioner, 53 Fed. (2d) 575; James Couzens, 11 B. T. A. 1040; Tex-Penn Oil Co., 28 B. T. A. 917.

The petitioners attempt to analyze the sale made in 1925 to the National Dairy Products Corporation to show the amounts paid respectively for tangible assets and good will, with the view of showing the reasonableness of their computations of value as of prior dates. There is nothing of record to show the manner by which the attorneys in fact, representing the stockholders of the Sheffield Co., and the buyer determined the selling price of $500 per share. The vendors made certain representations to the buyer respecting the net worth of the corporation at the close of the years 1922, 1923, and 1924, and its net profits during the first six months of 1925. These representations the buyer verified by an audit of the books of the Sheffield Co. It does not appear that the buyer ever made an appraisal of the tangible or intangible assets of the Sheffield Co.

The values at which the stock was returned for estate tax purposes are not controlling. Kate I. Nixon, 2 B. T. A. 524; R. B. Cook, 3 B. T. A. 668; Elizabeth J. Bray, Administratrix, 4 B. T. A. 42; David Williams, 15 B. T. A. 227; Edgar M. Carnrick, 21 B. T. A. 12; Lillian G. McEwan, 26 B. T. A. 726. See Sterling Newell et al., Executors, 25 B. T. A. 773; reversed, 66 Fed. (2d) 102. They represent, however, values currently arrived at and are entitled to weight in determining the fair market value of the securities in the light of all of the facts present here.

The record contains evidence of sales of the stock on or about September 1, 1919, at prices from $140 to $235 per share. The volume of the sales was not sufficient to establish a fair market value. The New York State transfer tax return filed for the estate of Willis E. Rogers shows four sales of the stock from May to October 1921, one of 100 shares, at from $100 to $105 per share.

The reasonableness of the rule that fair market value of stock may not be determined by any prescribed standard of measurement, but must result from due consideration to all the facts and relevant evidence, is well illustrated by the facts and claims being made here. They point to values ranging from $140 to in excess of $1,000 per share as of September 1, 1919, the higher amount being based alone on corporate assets of the value claimed by the petitioners.

From a careful consideration of the history of the Sheffield Co., its earning power, sales made of its stock, and all other facts of record, giving to each factor the weight we think it is entitled to, we have determined that the common stock of the Sheffield Co. had a fair market value of $344 per share on September 1, 1919, and $120 per share on June 22, 1922.

The petitioners are claiming that the common stock of the Milk Co. had a fair market value of $100 per share on September 1, 1919, and June 22, 1922. The respondent determined - fair market values on such dates of $30 and $50 per share, respectively. These figures agree with values determined by the executors of the estates of Horace S. Tuthill, Sr., and Willis E. Rogers, and the respondent for estate tax purposes. No evidence was offered on the value of the assets behind the stock. Except in 1919 and 1921 the corporation had no net income available for the payment of dividends on common stock. Evidence in the record of sales of, and quotations on, the stock at or about the basic dates supports the determination of the respondent. The valuations placed on the stock by the respondent will not be disturbed.

The common stock of the By-Products Co. was returned by petitioners Tuthill and Thrall as coexecutors of their father’s estate at no value. The respondent determined that it had a value of $30 per share as of September 1,1919. Petitioners Tuthill and Thrall claimed in their income tax returns for 1925 and contend here that the stock had a fair market value on March 1,1913, and September 1,1919, of $100 per share for the purpose of computing gain or loss on the sale of the securities to the National Dairy Products Corporation. The respondent determined a fair market value of $30 per share on each date.

The book figures in evidence do not cover any period prior to 1914 or after the close of 1918, and no evidence was offered as to the value of the assets behind the stock in and prior to 1918. Affidavits of appraisers of the stock for New York State transfer tax purposes show that at about September 1, 1919, the current assets were only about $9,000 in excess of liabilities, with $260,700 par value of preferred stock outstanding. There was a sale of an undisclosed number of shares of the stock shortly before September 1,1919, at $30 per share. The respondent’s valuations of $30 per share for this stock on March 1,1913, and September 1,1919, will not be disturbed.

Petitioner Thrall sold her holdings of preferred stock of the Sheffield Co. in 1928 and the amount of gain or loss sustained on the sale is governed by the Revenue Act of 1928. Of the 166 shares of stock she sold, she acquired 5, 5, and 10 shares on December 21, 1914, December 20, 1915, and January 26, 1917, respectively, by way of gift from her father. These shares having been acquired by gift prior to December 31, 1920, their basis is a fair market value at the time of acquisition. Section 113 (a)(4). She acquired 42 shares under the will of her father. The basis for these shares is the fair market value on November 20, 1920, the date of distribution to her, having acquired the stock not by specific bequest, but as a residuary legatee. Section 113 (a) (5); First National Bank of Birmingham, 31 B. T. A. 847. Petitioner Thrall acquired the remaining 104 shares on July 29, 1921, by gift from her mother. Of the 207 shares the donor transferred to petitioners Tuthill and Thrall, she acquired 120 shares prior to March 1, 1913, and 82 shares on November 20, 1920, as a residuary legatee of her husband’s will. Section 113 (a) (2) of the Eevenue Act of 1928 provides that if property was acquired by gift after December 31, 1920, the basis “ shall be the samo as it would be in the hands of the donor * * The donor’s basis for the 120 shares she acquired prior to March 1, 1913, was cost or fair market value on March 1, 1913, whichever is greater. Section 113 (b). Her basis for the 82 shares she acquired under the will of her husband was their fair market value on November 20, 1920. Sec. 113 (a) (5).

Petitioner Thrall claims that the fair market value of the XDre-ferred stock on the various basic dates was “ close to $100 ” per share. In his computation of the gain realized in the transaction, the respondent determined that the stock acquired by gift on December 21,1914, December 20,1915, and January 26, 1917, had a fair market value on such dates of $95, $100, and $94, respectively, per share. Such determinations are approved in the absence of proof of higher fair market values. For the 42 shares she acquired from her father’s estate, the respondent determined a fair market value of $85 per share, the value used by him and the executors of the estate of Horace S. Tuthill, Sr., for estate tax purposes. Such evidence as there is in the record respecting the fair market value of the stock on September 1,1919, supports, rather than overcomes, the presumptive correctness of the respondent’s finding of value. Accordingly, it will not be disturbed.

The record does not disclose the source of the specific 104 shares of stock Sarah E. Tuthill gave to petitioner Thrall on July 29, 1921.-The respondent did not determine the fair market value of the stock as of March 1, 1913, or November 20, 1920. The proof is that the stock had a fair market value on November 20,1920, of $80 per share, and from the evidence we can not see that the stock was worth a greater amount on March 1, 1913. The gain realized on the sale of the 104 shares will be computed on the basis of a fair market value of $80 per share.

Reviewed by the Board.

Decision will he entered wider Rule 50.


author: Murdock :

text:
    Waldorf Astor, Petitioner, v. Commissioner of Internal Revenue, Respondent.
    Docket No. 64269.
    Promulgated January 9, 1935.

      Russell L. Bradford, Esq., and George H. Graven, Esq., for the petitioner.

      F. R. Shearer, Esq., for the respondent.
   OPINION.

Murdock :

The Commissioner determined a deficiency of $76,114.63 for the calendar year 1929. Two issues are presented for decision by the Roard. The facts have been stipulated. The first issue is whether or not the interest which the petitioner received from the city of New York upon a condemnation award is income from sources within the United States to a nonresident alien. The two principal arguments advanced by the petitioner relating to the meaning of the words “ obligations ” and “ resident ” as used in section 119(a) (1) were fully answered by the Supreme Court in two recent cases. Helvering v. Stockholms Enskilda Bank, 293 U. S. 84; British-American Tobacco Co., Ltd. v. Helvering, 293 U. S. 95.

Counsel for the petitioner has made one argument, however, which is not affected by those two cases. He argues that the interest on the condemnation award was not in truth interest, but a part of the award of just compensation for the taking of the property and, therefore, it would not be taxable as interest under section 119(a) (1) of the Revenue Act of 1928. The Commissioner has made a similar argument in prior cases in an effort to resist taxpayers’ contentions that interest on a condemnation award was tax-free interest since it was interest upon the obligations of a state, territory, or political subdivision thereof. The Board, in deciding some of those cases, referred to the reasoning and authorities which the present petitioner now advances. See Mendol Bandes, 28 B. T. A. 99; Mary Lincoln Isham, 26 B. T. A. 1040. However, the Board did not rely upon this reasoning in those cases and based its decision upon its conclusion that the word obligations ” in the act did not include the liability of a sovereign for just compensation for property taken by condemnation. Those cases and the authorities cited for the proposition that interest upon the sum to which an owner is entitled at the date upon which title to the condemned property vests in the sovereign, to the date of the final award, is a part of the just compensation to which the owner is entitled, are not necessarily in point here. Cf. Helvering v. Stockholms Enskildoa Bank, supra. The authorities do not hold that the amount of the just compensation does not include interest or that a part is not interest for Federal income tax purposes. The amount here in controversy was awarded as interest. The condemned property had been held in trust for the benefit of the petitioner, a life tenant, and both the fiduciary and the petitioner reported the amount as interest. The parties to this proceeding have stipulated in part as follows in regard to this item:

In a condemnation proceeding which was instituted by the City of New York, a political subdivision of the State of New York, the said The Farmers’ Loan and Trust Company, as trustee under said two deeds of trust, was awarded against and received from the City of New York the principal sum of $1,509,875.00, together with interest thereon of $415,622.85, for the interest of the said trusts in certain lands held therein which were situated in the City of New York and which were condemned and taken for public park purposes by the City of New York under the exercise of its sovereign right of eminent domain. The said principal sum and interest were paid to the trustee of said trusts by the City of New York in the year 1929. Of the said respective amounts paid and received for principal and interest, one-half thereof belonged to and was received by the said trust for the benefit of the petitioner, and the other one-haif belonged to and was received by the said trust for the benefit of John Jacob Astor.

However, the result will be the same whether the item in controversy is treated as interest or whether it is treated as something else. The record does not contain evidence of the applicable basis for gain or loss on the condemned property or of the gain or loss resulting from the condemnation. But the record does show that the amount in question was distributable to the petitioner. It was claimed as a deduction on the fiduciary return. Counsel for the petitioner seems to conceed that, if the item is taxable to any one, it is taxable to the petitioner. It was not tax-free income, and, without information in addition to that contained in tbe stipulation, we can not say that it was not properly included in the petitioner’s income even though it was not interest. Cf. Mendol Bandes, supra; affd., 69 Fed. (2d) 812; certiorari denied, 293 U. S. 568. It is not necessary to discuss further arguments advanced by the respondent to sustain his action. Decision on this point is for the respondent.

The second issue is the determination of the correct amount of a deduction to be allowed for British taxes paid on income from sources within the United States. The petitioner had some income consisting of interest on bonds of the United States Government and municipal bonds of municipalities in the United States. This interest was exempt from Federal income tax. The petitioner paid taxes in 1929 to the Kingdom of Great Britain on income received by him in the United States in years prior to 1929. This income upon which he was taxed in Great Britain consisted not only of income which was taxable as income in the United States but also of interest which was tax-exempt in the United States. The Commissioner does not denj that the petitioner is entitled to a deduction on account of the tax paid to the Kingdom of Great Britain in so far as that tax related to income taxable in the United States, but he will not allow a deduction for taxes paid on interest which was tax-free in the United States. The petitioner contends that he is entitled to deduct all of the taxes which he paid in 1929 to the Kingdom of Great Britain on income received in the United States, regardless of whether it was taxable income or tax-free interest under the revenue acts of the United States.

The petitioner is a nonresident alien individual and his income tax liability must be determined under Supplement H of the Beve-nue Act of 1928. Section 212 of that supplement provides that gross income of a nonresident alien individual “ includes only the gross income from sources within the United States.” The definition of gross income from sources in the United States is found in section 119 (a), which provides that “The following items of gross income shall be treated as income from sources within the United States ”, listing thereunder various items which would be included in-the general definition of gross income contained in section 22 (a) of the act. It is obvious, from the use of the words “ gross income ” in section 119 (a), that the gross income of a nonresident alien individual from sources within the United States is defined by reference to the general definition of gross income in section 22 (a) and contains no items which would not be included in the latter definition. Section 22 (b) provides that certain items, including tax-free interest, such as is involved in the present case, shall not be included in gross income and shall be exempt from taxation under Title I of the Revenue Act of 1928. Thus, tax-free interest is not a part of gross income for any purpose material hereto and is not a part of the petitioner’s gross income from sources within the United States.

The petitioner’s net income from sources in the United States must be determined under section 119 (b), which provides:

(b) Net income from sources in. United States. — From the items of gross income specified in subsection (a) of this section there shall be deducted the expenses, losses, and other deductions properly apportioned or allocated thereto and a ratable part of any expenses, losses, or other deductions which can not definitely be allocated to some item or class- of gross income. The remainder, if any, shall be included in full as net income from sources within the United States.

In speaking of “ other deductions ” this provision must refer to items deductible under section 23. That section allows as a deduction taxes paid or accrued within the taxable year, with certain exceptions not material here. But a nonresident alien individual is not permitted to deduct, under section 119 (b), all of his taxes paid or accrued within the taxable year, but only such part of those taxes as may be “ properly apportioned or allocated ” to the items of gross income specified in section 119 (a) or a ratable part thereof in case no such allocation is possible. See section 213 (a). The petitioner is asking for a deduction not allowed by section 119 (b), since his gross income does not include tax-free interest. It seems to be agreed by the parties in this case that a definite allocation or apportionment of the British taxes to taxable income is possible. They have stipulated the portion of the taxes paid in 1929 to the Kingdom of Great Britain which related to the petitioner’s taxable income from sources within the United States under the Federal income tax statutes of the United States. This part and this part only of the taxes which he paid to the Kingdom of Great Britain in 1929 is allowed to him as a deduction under section 119 (b).

The General Counsel of the Bureau of Internal Revenue promulgated a memorandum, G. C. M. 3119, C. B. YII-1, p. 240, describing the method which he approved for determining a deduction for British income taxes paid by a nonresident alien individual in connection with income from sources within the United States. That memorandum need not be fully reviewed here. It is unfavorable to the contention which the present petitioner makes. The petitioner argues that that ruling must be disregarded because it is in conflict with the law. He argues that tax-free income may not be taxed indirectly by means of imposing upon taxable income additional burdens by reason of the fact that the taxpayer has tax-free income. Congress had the constitutional power to impose an income tax on all of the petitioner’s taxable income from sources within the United States without allowing any deductions. The deductions allowed were a matter of grace on tbe part of Congress. The deduction allowed for taxes was limited by Congress to that portion of the income taxes paid by the petitioner to the Kingdom of Great Britain which related to the petitioner’s gross income as specified in subsection (a) of section 119 of the-Revenue Act of 1928. This gross income did not include the tax-free interest. This is not an indirect methodi of taxing tax-free interest. Cf. Victor G. Marquissee, 11 B. T. A. 334; affd., 41 Fed. (2d) 32. It is a recognition through a deduction of one of the items which will reduce his income taxable in the United States. There was no need for Congress to allow a deduction on account of British taxes on his tax-free interest from the United States. If Congress had allowed such a deduction, it would have permitted payment of his British tax on interest tax-free in the United States at the expense of the United States Government.

Decision mil be entered wider Rule 50.


author: Leech:

text:
    Northport Shores, Inc., Petitioner, v. Commissioner of Internal Revenue, Respondent. Martha M. Hall, Petitioner, v. Commissioner of Internal Revenue, Respondent.
    Docket Nos. 64500, 64501.
    Promulgated January 15, 1935.

      R. M. O'Hara, Esq., for the petitioners.

      R. W. Wilson, Esq., for the respondent.
   OPINION.

Leech:

These consolidated proceedings involve deficiencies in income tax, and alleged overpayment of such taxes for the calendar year 1929, as follows:

The issues framed by the pleadings have been limited by petitioners’ withdrawal of assignments of error to (1) the amount received by petitioner, Martha M. Hall, in 1929 on retirement of certain shares of the capital stock of petitioner, Northport Shores, Inc., and (2) -the cost basis to petitioners of certain property, hereinafter sometimes called the Hall property, exchanged by petitioner, Martha M. Hall, in 1927 for all the stock of petitioner, Northport Shores, Inc.

Petitioners offered no evidence on the first issue, and respondent is, therefore, sustained thereon.

In January 1910, Martha M. Hall, William Henry Hall, and Agnes Hall, brother and sister, respectively, of petitioner, Martha M. Hall, purchased certain unimproved real estate situate at North-port, Long Island, comprising 174.319 acres, and hereinafter called the Hall property, for $250,000. In this transaction petitioner, Martha M. Hall, and her sister, Agnes Hall, each acquired an undivided one-fourth interest, and their brother, William Henry Hall, acquired an undivided one-half interest. The cost to petitioner, Martha M. Hall, and the fair market value on March 1, 1913, of such one-fourth interest was $62,500. The property was continuously occupied as a residence by this petitioner until May 1927, when it was conveyed to Northport Shores, Inc., petitioner herein.

William Henry Hall died September 7, 1914, and his undivided one-half interest in the Hall property was purchased in April 1915 by petitioner, Martha M. Hall, and her sister, Agnes Hall, in equal proportions, for a total consideration of $90,500. The cost to this petitioner of this undivided one-fourth interest in the property was $45,250.

Agnes Hall died, testate, on January 5, 1925, and devised to petitioner, Martha M. Hall, all of her property, including her undivided one-half interest in the Hall property. This petitioner and James J. Morgan were appointed and qualified as coexecutors of the will of Agnes Hall.

For many years prior to January 5, 1925, this petitioner and the said James J. Morgan were cognizant of the fact that the Hall property had sand and gravel deposits of commercial value. This knowledge was the result of various factors. The previous owner of the property, one John Arthur, prior to 1910 had actually been engaged in the business of removing sand and gravel from the property and selling it for commercial purposes. The rails of the narrow gauge railroad used by Arthur in that work remained on the property at the time of its sale in 1927. Other sand and gravel properties in close proximity were in actual operation prior to 1925. Existence of sand and gravel was apparent from a surface examination of the property. This was particularly true in various places ■thereon where the ground was rolling and where, after any severe storm had caused the washing away of ground on the hillside, the gravel deposits were exposed.

On May 5, 1926, this petitioner and James J. Morgan duly executed under oath and filed with the collector of internal revenue, for the decedent, the Federal estate tax return (Form 706). In this return the undivided one-half interest in the Hall property owned by Agnes Hall at her death was listed as having an assessed value for 1925, the year of decedent’s death, of $124,000, and a fair market value at the time of decedent’s death, January 5, 1925, of $112,500. which were to serve as a basis for the determination of the Federal estate tax due. These values were predicated wholly upon a certain written appraisement of one Henry Brady, filed simultaneously with the Federal estate tax return, appraising decedent’s undivided one-half interest at $112,500, and the entire property at $250,000. Henry Brady was a reputable appraiser of properties in New York City. His appraisement in this instance was based largely on hearsay. His services were secured by one Eathheim, attorney for this petitioner, who was directing the settlement of the estate, and in whom she trusted. The Commissioner determined the fair market value of the undivided one-half interest in the Hall property so devised to petitioner, Martha M. Hall, as $125,000.

In May 1927, this petitioner caused the organization of the other petitioner herein, Northport Shores, Inc., and thereupon exchanged the Hall property for the entire capital stock thereof, consisting of 5,000 shares of preferred with a par value of $100 each, and 1,000 shares of common stock without par value. Within a few days after the issuance of this stock, petitioner, Hall, transferred 500 shares of the common stock to James J. Morgan, her business manager and coexecutor above named.

In October 1927, the petitioner, Northport Shores, Inc., agreed to sell the Hall property to the Goodwin-Gallagher Sand & Gravel Corporation for $1,000,000, for production of sand and gravel, at which time the purchaser made an initial payment of $10,000. When title passed, in March 1928, the Metropolitan Sand & Gravel Co., affiliate of Goodwin-Gallagher Sand & Gravel Corporation, became the purchaser. Because of a slight adjustment due to a survey of the acreage involved, the final consideration agreed upon was $984,-853.11. Under the terms of the sale, petitioner, Northport Shores, Inc., received during the year 1928 the sum of $309,853.11, and the balance of the consideration was split over subsequent years in annual payments of $50,000 each. Petitioner, Northport Shores, Inc., elected to report the profit on the sale of the property on the installment basis, as is provided in section 44 (b) of the Bevenue Act of 1928.

During the taxable year 1929 petitioner, Northport Shores, Inc.,received certain payments on account of the consideration for the property, and retired 500 shares of its capital stock in the hands of petitioner, Martha M. Hall.

In the individual income tax returns of petitioner, Martha M. Hall, for the calendar years 1928 and 1929, taxable gain upon the retirement of 3'50 shares and 500 shares, respectively, of the capital stock of petitioner, Northport Shores, Inc., was returned in the respective amounts of $76,844.50 and $60,760. The basis of cost for the property, used in the computation thereof, is not disclosed.

In the corporate income tax returns of petitioner, Northport Shores, Inc., for the years 1928 and 1929, taxable gain was included thereon representing profits on sale of the Hall property, in the computation of which a cost basis of $237,285.41 was used.

In determining the pending deficiencies upon income charged as received from these transactions, respondent used as the cost basis of the Hall property to the petitioner, Northport Shores, Inc., and its capital stock issued therefor, 500 shares of which were so retired, the amount of $232,750, representing the sum of $107,750, the cost to petitioner, Martha M. Hall, of the two one-fourth interests in the property purchased by her in 1910 and 1914 respectively, and $125,000, the alleged cost to her of the undivided one-half interest acquired by bequest from her sister, Agnes Hall, in 1925.

In the original petitions initiating the present proceedings, filed April 14, 1932, no error was assigned to the respondent’s valuation of the undivided one-half interest in the Hall property acquired by petitioner, Martha M. Hall, by devise from her sister, Agnes Hall, in 1925. This assignment of error first appears in the amended petitions properly filed September 17, 1932, but in which no claim for overpayment of taxes appears. By permission of the Board second amended petitions by both petitioners were filed at the hearing February 26, 1934, in which both petitioners assign error in the determination by the Commissioner of a fair market value for the above mentioned undivided one-half interest in the property received by the petitioner, Martha M. Hall, by devise from her sister, Agnes Hall, in 1925, alleging therein the same had a fair market value on the date of death of Agnes Hall, January 5, 1925, of at least $500,000, and asking determination of overpayments in accordance therewith.

We find the respondent erred in failing to include as an item of cost of the two undivided one-fourth interests of the Hall property purchased, the sum of $3,914.35, the depreciated cost to petitioner, Martha M. Hall, of buildings erected on the property.

The single remaining inquiry is the fair market value of the undivided one-half interest in the Hall property at January 5, 1925, when acquired by petitioner, Martha M. Hall, by devise. Revenue Act of 1928, sec. 113 (a) (5).

Although respondent does not admit either the competency, weight, or soundness of petitioners’ evidence of the disputed value of the property, received at the hearing, the burden of his argument is that petitioner, Martha M. Hall, is estopped from now claiming a higher value for the entire property than $250,000, and, a fortiori, $125,000 for the undivided one-half interest here directly involved, and that “ the estoppel here asserted * * * against Martha M.

Hall and James J. Morgan applies with equal force and effect ” against Northport Shores, Inc., since its sole stockholders and officers were the two individuals named.

The pleaded estoppel is that petitioner, Martha M. Hall, and her coexecutor, James J. Morgan, knowing the fair market value of the property and the presently involved undivided one-half interest therein, at January 5, 1925, misrepresented these values to respondent in the estate tax return, to secure the benefit of lower estate taxes, and, that respondent relied upon that misrepresentation in fixing such value for estate tax purposes to his damage. Respondent cites only Tide Water Oil Co., 29 B. T. A. 1208, and Rock Island, Arkansas & Louisiana Railroad Co. v. United States, 254 U. S. 141, neither of which, we think, helps his present position.

Unless petitioners are estopped, the determination of the questioned value at the basic date by the respondent for estate tax purposes is not conclusive but raises only a prima facie presumption of fact, and therefore is rebuttable by convincing evidence. David Williams, 15 B. T. A. 227; affd., 44 Fed. (2d) 467; Anson Evans et al., Trustees, 29 B. T. A. 710; Stella H. McConnell, 29 B. T. A. 32; T. I. Hare Powel, Executor, 10 B. T. A. 166.

Among the other elements essential to sustain the estoppel here pleaded is the fact that the respondent relied upon the representation of the petitioner, Martha M. Hall, and her coexecutor, James J. Morgan, in the estate tax return, and the appraisement of Henry Brady accompanying that return, upon which such representation was based. Corpus Juris, vol. 21, cases cited on pages 1126, 1127, and 1128.

Mere lapse of time or acceptance of benefits will not sustain the plea. Sugar Creek Coal & Mining Co., 31 B. T. A. 344; Tide Water Oil Co., supra. Since estoppel is an affirmative defense, respondent must prove that all of its essential elements are present. Helvering v. Brooklyn City R. Co., 72 Fed. (2d) 275; James H. Torrens, 31 B. T. A. 787; Tide Water Oil Co., supra; Ohio Brass Co., 17 B. T. A. 1199; Standard Sanitary Manufacturing Co. v. Arrott, 135 Fed. 750; Southwestern Investment Co., 19 B. T. A. 30; Central Market Street Co., 25 B. T. A. 499; Summerfield Co., 29 B. T. A. 77.

Bespondent offers no evidence except the estate tax return and accompanying appraisement above mentioned. He argues that the factual elements necessary to sustain his plea appear from the pleadings of record and a statement by counsel for the petitioner made at the hearing. This statement was:

I merely want the record to show now the fact that we concede that they (petitioners) had knowledge of all the facts and circumstances with respect to the property which they now have, except what further knowledge they may have gained from making subsequent inquiries; but X want the record also to show that we deny that the petitioner or her business manager, one James J. Morgan, were qualified, either through experience or otherwise, to make an accurate estimate of the fair market value, based on facts within their knowledge.

Petitioners’ replies to the answers to the second amended petitions, which first pleaded estoppel, both deny that the Commissioner’s determination of the fair market value of the Hall property at January 5, 1925, as $250,000 and that of the decedent’s undivided one-half interest therein as $125,000 was based upon his acceptance of the statements of petitioner and James J. Morgan in their capacity as coexecutors.

Obviously neither the pleadings nor quoted statement constitute an admission that respondent relied to any extent upon either the estate tax return or the Henry Brady appraisement in determining the value of the Hall property, or the undivided interest therein of the decedent, Agnes Hall, for the purpose of determining that estate tax. Petitioners’ replies above-mentioned very definitely joined issue with the respondent upon the existence of that fact.

Since the Revenue Act of 1918, respondent’s regulations have required an investigation by the Internal Revenue Bureau of every estate tax return, and the determination of the estate tax liability upon the basis of that investigation — not upon the net amount of the estate as returned. Regulations 37, articles 79, 95; Regulations 63, articles 72, 79; Regulations 68 and 70, articles 67, 78. These regulations were in accordance with the statutes, which fix the basis of the tax as the “ value of the net estate.” Revenue Acts of 1918 and 1921, sec. 401; Revenue Acts of 1924 and 1926, sec. 301. To sustain respondent’s apparent contention, upon this record, would necessitate the repugnant presumption (cf. The President, Directors and Company of the Bank of the United States v. Dandridge, 25 U. S. 64) that respondent was derelict in his duty, prescribed by the cited statute and regulations, and determined the estate tax liability of the Agnes Hall estate, not upon the basis prescribed by the statute and regulations as applicable to all, but upon the declarations of petitioner, Martha M. Hall, and her coexecutor, James J. Morgan, and a mere appraisement submitted by them,. Cf. James Couzens, 11 B. T. A. 1040; Tide Water Oil Co., supra.

Thus, without evidence, absent from the present record, the conclusion is warranted that the value of the Hall property, as determined by respondent as of the death of Agnes Hall, in fixing her estate tax, was the result of respondent’s own judgment and not the result of any representation or misrepresentation, by act or otherwise, of the petitioner, Martha M. Hall, or her coexecutor, J ames J. Morgan. This would defeat the pleaded estoppel. Mutual Life Insurance Co. v. Norris, 31 N. J. Equity, 583; West v. City of Houston (Texas), 163 S. W. 679; Mace v. Duffy, 39 Wash. 597; 81 Pac. 1053.

At all events, respondent has not affirmatively established the fact, essential to his pleaded estoppel, that he relied upon any representation or misrepresentation of petitioner, Martha M. Hall, or her coexecutor, James J. Morgan, in determining the value of the Hall property or the presently involved undivided one-half interest therein, in the computation of the estate tax liability of the Agnes Hall estate.

Another requisite of estoppel is that the representation or misrepresentation to support it must be one of fact. This record apparently discloses nothing more than a mere expression of opinion of value which does not support the plea. May Rogers, et al., 31 B. T. A. 994.

Consequently, without considering other possible defects, upon tne present record, we find no estoppel.

Respondent suggests that failure of the record to disclose an offer by petitioners to pay the additional Agnes Hall estate taxes which would result from the present determination of any higher value for the Hall property at January 5, 1925, implies a fatal lack of bona fides by petitioners. It may be noted that the petitioners did not ask for the higher value, now asserted, and a consequent finding of overpayment, in their original petitions herein, filed some time after the statute of limitations on the estate tax had expired. Cf. Revenue Act of 1924, sec. 310 (a). But, in any event, we do not have that estate before us, nor do we have general equitable jurisdiction. Our only present pertinent inquiry is the correct income tax liability of these petitioners for 1929. Tide Water Oil Co., supra; Ernest M. Bull, Executor, 7 B. T. A. 993. The determination of the fact of the fair market value of the undivided one-half interest in the Hall property devised to petitioner, Martha M. Hall, at January 5, 1925, is material to that inquiry. Since we find no estoppel preventing petitioners from proving that fact, we pass to a consideration of the evidence upon that disputed question.

The Hall property was situated on the North Shore of Long Island at the base of a neck of land extending into Long Island Sound and almost completely bounded by that Sound, Huntington Bay, and Northport Bay. It had a water frontage of approximately 5,000 feet, of which about 60 percent was on the Sound, and 40 percent on Northport Bay. This fact increased its value as a sand and gravel property, as well as a residence property, on account of the feasibility of water transportation, which was cheaper than by land, and it could be operated more effectively by hydraulic means than similar properties inland. The desirable water front properties in the vicinity of the Hall property were held by wealthy people. Such ownership of similar properties in the neighborhood made the market therefor less than normally active until 1929 because prior thereto the owners infrequently offered their properties for sale. No comparable sand and gravel property was nearer the New York market than the Hall property. There was no change in the character of the neighborhood and no material difference in demand for, cost of producing, and selling prices in New York for sand and gravel, between January 1925 and 192Y, in which latter year the Hall property was sold to the Goodwin-Gallagher Sand & Gravel Corporation.

The petitioners introduced the testimony of three witnesses. James J. Gallagher, associated with the Goodwin-Gallagher Sand & Gravel Corporation since its organization in 1913, was vice president of it when the Hall property was purchased, and participated in the negotiations preceding that purchase. He was familiar with that property when purchased and with the considerations entering into the price the company paid for it. He had bought some sand and gravel properties for the company before that time, and as vice president it was his duty to fix the prices which the company would pay for sand and gravel properties. The Goodwin-Gallagher Sand & Gravel Corporation was one of the four largest sand and gravel companies serving greater New York, and furnished more than one half the sand and gravel used in the metropolitan area of New York. That company was in the market for sand and gravel properties similar to and situated as the property in question, in 1925, and would 'have paid $1,000,000 then for it. Gallagher testified that the Hall property in January 1925 had a fair market value as a sand and gravel property of about $1,000,000.

Edwin E. Thorp, engaged continuously in the real estate business as a broker since 1901, dealing in property in New York and vicinity, and as adviser in the sale of North Shore Long Island properties, gave the same opinion of value. He was a director of the Goodwin-Gallagher Sand & Gravel Corporation from about July 1925 until March 1933.

Louis DeLancey Ward, engaged as a real estate broker on Long Island since 1902, specializing in Shore properties and those similar to the Hall property for residential purposes, 90 percent of his business for the past 10 years having been Long Island properties, had sold, since 1924, 15,000 acres of Shore properties in Long Island similar to the Hall property. He valued the Hall property for residential purposes on January 5,1925, at $5,000 per acre, or a total of $811,595. His opinion was based, to some extent at least, upon actual sales of smaller but otherwise comparable residential tracts in the vicinity. The market was higher in 1925 than in 1926 and 1927. He had tried to secure the right to sell the Hall property in 1925, and before, since he had several prospective purchasers for the Hall property during 1925 for the production of sand and gravel, but petitioner, Martha M. Hall, would not sell.

The testimony of none of these witnesses was weakened or discredited upon cross-examination. Gallagher and Ward, at least, were qualified in their respective fields.

In our opinion, petitioners have overcome any prima facie presumption of fair market value of the Hall property or the undivided one-half interest therein at January 5, 1925, and, on this record, have sustained their burden of proof in clearly and convincingly establishing those values at that date to have been $500,000 for the entire property and $250,000 for the undivided one-half interest therein. Cf. David Williams, supra; Anson Evans et al., Trustees, supra; Stella H. McDonnell, supra; T. I. Hare Powel, Executor, supra. It follows that there is no deficiency against either petitioner, and their respective overpayments will be recomputed in accordance with this opinion.

Reviewed by the Board.

Decision will be entered under Rule 50.

Smith dissents.

       SEC. 113. BASIS FOR DETERMINING GAIN OR LOSS.
      (a) Property acquired after February 28, ISIS'. — The basis for determining the gain or loss from the sale or other disposition of property acquired after February 28, 1913, shall be the cost of such property; except that — •
      *******
      (5) Property transmitted at death.- — If personal property was acquired by specific bequest, or if real property was acquired by general or specific devise or by intestacy, the basis shall be the fair market value of the property at the time of the death of the decedent. * * *