author: Disney:

text:
    Kathryn Lammerding, Petitioner, v. Commissioner of Internal Revenue, Respondent. Walter H. Hildick, Jr., Petitioner, v. Commissioner of Internal Revenue, Respondent. Helen A. K. Hildick, Petitioner, v. Commissioner of Internal Revenue, Respondent.
    Docket Nos. 89003, 89004, 89005.
    Promulgated September 29, 1939.

      Frederic E. Mygatt, Jr., Esq., for the petitioners.

      Frank M. Thompson, Esq., for the respondent.
   OPINION.

Disney:

These proceedings involve determinations of deficiencies in income tax of the petitioners, residents of New Jersey, for the year 1934.

The cases were consolidated for hearing.

None of the petitioners filed any Federal income tax return for the taxable year 1934. However, after Walter H. Hildick discussed with a revenue agent of the Commissioner tax liability of petitioners for 1934, and with a view to settling their tax liability, petitioners filed waivers of restrictions on assessment and collection of deficiency in tax for the taxable year ended December 31, 1934. Thereafter petitioners were assessed income tax for 1934 and paid same, as follows :

Kathryn Lammercling, Docket No. 89003- $262.40
Walter H. Hildick, Jr., Docket No. 89004_ 138. 60
Helen A. K. Hildick, Docket No. 89005_ 1, 774.04

Later, under date of February 15, 1937, the Commissioner by deficiency notices advised petitioners that they were liable for deficiencies in tax and penalties for 1934, as follows:

The petitioners deny not only their, alleged liabilities as last above set out, but claim they should have refunded to them, with interest since date of payment, the respective amounts paid by them under the original assessment as heretofore herein stated, on the theory that no tax was due from any of them.

As a basis for their appeals petitioners claim (1) that the Commissioner erred in determining as taxable ineome to them in 1934 the receipt by them of certain amounts in excess of the amounts of certain loans made by them to Walter H. Hildick and repaid to them by the transfer to them of certain stock, the excess value of the stock over the loans being claimed as a gift by petitioners, and (2) that the Commissioner erred in determining that at the time the stock involved herein was transferred to them or put in their names in May 1934, it then became theirs and had a fair market value of $26% per share.

Helen A. K. Hildick is the wife of Walter H. Hildick and Kathryn Lammerding and Walter H. Hildick, Jr., are, respectively, the daughter and son of Walter H. Hildick.

In January and February 1932, the three petitioners loaned to Walter H. Hildick cash, as follows:

Helen A. K. Hildick_$5, 471. 55
Kathryn Lammerding_ 4,000. 00
Walter H. Hildick, Jr_ 1, 500. 00

At the time the loans were made to Walter H. Hildick by his wife, daughter, and son, no definite dates for repayment of the loans were set, but there was an understanding that interest would be paid at 6 percent per annum and that each lender would participate in any profits arising from the operation or sale of the properties acquired.

In addition to loans from members of his family, about the same time, in February 1932, Walter H. Hildick borrowed $1,250 from Richard F. Roth, a business associate, under an understanding similar to that made with the members of his family.

Helen A. K. Hildick received no security for her loan, but received two demand notes of Walter H. Hildick amounting to $5,471.55. Kathryn Lammerding received no security for her loan and no note. Neither of the two received any income in 1934 through dividends or interest as such. Walter H. Hildick, Jr., received no security for his loan, but received a note of Walter H. Hildick for $1,500. At that time Walter H. Hildick, Jr., was employed on a salary of $1,800 a year, his only source of income. He was married, but had no dependents other than his wife.

The loans to Hildick from his wife, daughter, and son and Richard F. Roth were made to enable him to purchase at a receiver’s sale about February 1932 certain properties or plants of the Hildick Corporation, a bankrupt, of which he had formerly been president and principal stockholder. He bought them in for $15,025. The plants so purchased were transferred and turned over about September 1933 to a new corporation, the Distilled Liquors Corporation, in exchange for its stock. The corporation at that time had no other property.

Walter H. Hildick at the time he turned the plants over to the corporation had them appraised, but on what basis and at what figure the record does not disclose. He received 32,000 shares of stock and 35,000 warrants from the Distilled Liquors Corporation in exchange for the plants and became the president of the corporation. The warrants gave the owner the privilege of converting them into stock at $15 a share (on what basis is not further shown by the record) any time prior to November 1, 1938. The stock of the corporation was first traded in over the counter and, later, on the Produce Exchange and the Curb Exchange. After Walter H. Hildick received his. stock as much as 70,000 shares of Distilled Liquors Corporation stock were sold publicly.

A total of 105,000 shares of stock of the Distilled Liquors Corporation was ultimately issued and outstanding, of which Walter TT. Hildick owned approximately 21 percent. The cost price of the stock to Walter H. Hildick was 40 %0 cents per share. The first stock issued to the public was in October 1933. It was then readily subscribed for and was sold at $15 per share. By the end of December 1933, or early in January 1934, the stock was selling for $13 per share. Early in May 1934 the stock was selling at $31 to $32 per share, and at the end of that month at from $25 to $26 per share.

At or about the time of the transfer of his plants to the Distilled Liquors Corporation in 1933, Walter H. Hildick decided to set apart, out of the stock received by him, for his wife, daughter, and son, the following number of shares:

For Helen A. K. Hildick_ 2, 000 shares
For Kathryn Lammerding_ 1,000 shares
For Walter H. Hildick, Jr- 500 shares

About the same time, in 1933, he told petitioners that he had set stock aside for them.

When he so decided to set apart the stock, Walter H. Hildick was under a restrictive agreement not to sell, alienate, or transfer any of his stock and this restriction lasted until April 15, 1934. The certificates of stock originally decided to be so set aside as stated were not in fact separated and placed in different envelopes or receptacles for the respective parties for whom intended, nor was there then any transfer or endorsement of the stock to them. Hildick testified that he had decided the amount of stock which he was going to give his family when he was permitted to do it. The stock was not then even seen by the petitioners, nor was the amount intended for each made known to them.

On the termination of the restrictive agreement above mentioned, on April 15, 1934, the market was declining and Walter H. Hildick entered into another restrictive agreement with Richard Whitney & Go. not to transfer any of his stock in the Distilled Liquors Corporation but to continue to hold it while they were trying to make a market for it, and it was not until May 31, 1934, that he transferred 3,500 shares of stock to the petitioners and put it in their names on the records of the transfer agent of the company, in the amounts heretofore indicated. This was done pursuant to the agreement made with the family in January and February 1932, and in liquidation of the loans and the obligations arising under the agreement. Hildick’s wife knew of the transfer of stock to her at the time of transfer. Hildick retained physical possession of the certificates of stock, keeping them in his safe deposit box, and none of the petitioners, except Walter Hildick, Jr., in fact, ever saw the stock until in 1935 or 1936. Walter Hildick, Jr., saw his stock in 1935, when he endorsed the certificates.

The value of the stock transferred to his wife, daughter, and son by Walter H. Hildick was not computed by him on the basis of its fair market value, but the value of the stock transferred to his wife was figured at about $3 per share, the stock transferred to his daughter was valued at approximately $4.50 per share, and the stock transferred to his son was valued at about $3.60 per share.

At a date not shown by the record, Hildick delivered to Richard F. Roth 100 shares of stock of the Distilled Liquors Corporation in liquidation of the loan from him of $1,250 and in fulfillment of the agreement with him similar to that with Hildick’s wife, son, and daughter.

In Walter H. Hildick’s income tax return for 1934, which he signed, and with the contents of which he was familiar, under the heading “Profit or loss from sale of stocks, bonds, real estate” there was entered an item of stocks, with September 1933 as date acquired, May 1934 as date sold, and $14,301.38 as amount realized. The $14,301.38 represented the three loans from Hildick’s family, Richard F. Roth, and two other small loans from his family, with interest to May 31, 1934, and represented to Walter H. Hildick the cost of the stock to him.

During 1936 all the shares of Kathryn Lammerding and Walter H. Hildick, Jr., were sold by their father and the proceeds turned over to them. During the same year, 1936, 500 shares of Helen A. K. Hildick’s stock were sold by Walter H. Hildick at her insistence and the proceeds turned over to her. Hildick’s wife wanted him to sell more, and he would not do it, so she sold 1,500 shares short, and made actual delivery of the stock in January 1938. He turned over „to her in April 1936 the certificates for the remaining 1,500 shares belonging to her. When the stock (of all the petitioners) was sold it brought approximately $11 per share.

Petitioners contend that they did not receive and become the owners of the stock in issue in 1934, but received it and became the owners of it in 1933 or 1936 (with respect to the stock transferred to Helen A. K. Hildick) and in 1933 or 1936 or never (with respect to the stock transferred to Kathryn Lammerding and Walter H. Hildick, Jr.), and therefore had no income in 1934 arising from or growing out of the transfer of the stock to the petitioners. Petitioners further contend that the value of the stock involved was not its market price because the market was “made” and because of restrictive agreements; moreover, that any value of the stock when received, as aforesaid, above the loans was a gift from Walter H. Hildick.

The transactions with respect to the loans involved herein were between members of one family, all of whom testified and were the only persons who testified at the hearing. Their testimony touching certain phases of the transactions is in some respects rather indefinite and inconsistent and statements made in explanation thereof have not been altogether satisfactory or convincing. This, possibly, in some measure may be accounted for by the fact that the transactions were between members of the same family and, though of a business nature, probably were conducted more loosely or carelessly and impressed on their minds and memories less forcibly than would have been the case if the interested parties had not been related.

After carefully considering the entire record and giving due weight to the testimony of the witnesses, in connection with other evidence, we find that the statement made by Walter H. Hildick in a letter written by him under date of December 31, 1935, to or for the attention of Jacob Asaroff, Internal Revenue Agent, containing the statement: “At the time these loans [loans in question] were made there was an understanding that interest would be paid at 6% per annum and that each lender would participate in any profits arising from the operation or sale of the properties acquired”, correctly represents the understanding or agreement between Walter H. Hildick and the petitioners (and Richard F. Roth) with respect to the loans made by them to him and involved herein, and therefore that petitioners received the excess stock, not as a gift, but in conformity with the agreement of loan and settlement of that obligation, and that the stock was the basis of income to them. Neither Walter H. Hildick nor petitioners are shown to have reported such alleged gifts in tax returns. Moreover, the same letter shows a similar arrangement with Richard F. Roth, a business associate, a loan from him, and discharge by stock of the Distilled Liquors Corporation. Obviously, this financial transaction with a business associate, bearing 6 percent interest, should not be called a gift; yet it is, as to interest and manner of discharge, and in the language of Walter H. Hildick, similar to that with his wife and children. The transfer of stock was “Pursuant to this agreement” — the agreement in 1932 — and “in liquidation of these loans and the obligation arising under the agreement.” We decline to call this transaction one of gift. The petitioners urge that the letter to the revenue agent disclosing the above facts was written at the suggestion of the revenue agent, and Hildick testified that it was without consulting his attorney. One does not need an attorney’s advice in order to state the truth. After comparing the contents of the letter with the testimony, we conclude that the letter speaks the truth.

We think that Hildiek, his wife, daughter, and son, and Eichard F. Eoth entered into a transaction in the nature of a joint venture, which as to the Hildiek family continued until May 31, 1984, when Hildiek transferred to his family on the corporate records the corporate stock here involved. It did not end with the incorporation of a company in September 1933, when Hildiek simply incorporated the properties theretofore purchased, receiving the entire stock of the corporation in consideration of the properties. The treatment accorded by all the parties to this change in form of ownership of the properties indicates that they did not consider it a termination of the joint venture, but a mere continuation thereof. Moreover, the restrictive agreement then in effect prevented an end of the venture by distribution, Hildiek being prevented from transferring the stock. The distribution and the incidence of profit or loss occurred on May 31, 1934, when stock was transferred to the participants. We therefore further find as a fact that the petitioners on and not before May 31, 1934 — the date on which shares of the stock of the Distilled Liquors Corporation were transferred to, and put in the names of, petitioners as follows: 2,000 shares to Helen A. K. Hildiek, 1,000 shares to Kathryn Lammerding, and 500 shares to Walter H. Hil-dick, Jr. — -acquired right and title to the shares of stock in the amounts above indicated. Though possession of the certificates was retained by Walter H. Hildiek, there were no conditions attached to the transfer of the stock. The physical retention by Walter H. Hildiek of the certificates of stock until 1936 was, in our opinion, for the benefit of and as the representative of, or trustee for, the petitioners. Petitioners have not demonstrated to the contrary. Though the burden is upon them, they have failed to show any exercise of dominion over the stock by Hildiek after May 31, 1934, such as receipt of dividends or voting the stock. The sales made by him were for the wife. The son says that he sold his stock. The stock having been transferred to the wife and children upon the records of the transfer agent on May 31, 1934, under all the circumstances here involved, actual delivery of the certificates was not necessary to passage of title in the stock to the children. Thompson on Corporations, vol. 4, pp. 810, 811; Roberts’ Appeal, 85 Pa. St. 84; White v. Salisbury, 33 Mo. 150; Chester Glass Co. v. Dewey, 16 Mass. 94.

In Marshall v. Commissioner, 57 Fed. (2d) 633, we were reversed and the court held that there was delivery where shares of stock were transferred to the name of petitioner’s wife upon the books of the corporation, the court saying:

* * * Transfer upon the books of the corporation in itself constitutes a delivery. Roberts’ Appeal, 85 Pa. 84. The transferee then becomes the legal owner. Mrs. Marshall had executed no broad power of attorney authorizing her husband to indorse her certificates of stock, as in White, Collector v. Bingham, supra. Dividends were paid by check drawn to her order. What she did with these cheeks after receipt is a matter of complete indifference. The stock was not indorsed and redelivered to her husband, and could not thereafter be transferred, or the dominion and ownership of the petitioner thereafter be regained, except through the independent and voluntary act of his wife. * * *

We relied upon that decision in D. B. Malernee, 31 B. T. A. 662, in holding that there was completed gift where stock was transferred on the books of the corporation from petitioner to his wife. We stated: “This constituted a sufficient delivery, and vested legal title in the donee.” The petitioner retained the certificates issued to his wife in his safe in an envelope containing other papers belonging to her. We likewise relied upon Marshall v. Commissioner, supra, in J. M. Kessler, 31 B. T. A. 849, in holding that there was completed gift without actual manual delivery where the petitioner endorsed in blank a certificate of beneficial interest in a trust, delivered same to a trustee with instructions to transfer to his wife, and the transfer was made upon the records of the trustee. We stated:

* * * The certificate of beneficial interest having been transferred to the donees upon the records of the trustee prior to the sale, it could not thereafter be again transferred, or the dominion and control of the petitioner regained for his personal benefit, except through the independent and voluntary action of the donees. Such transfer constituted delivery of possession and surrender of dominion. The gift was then complete * * *.

In Essie Irene Gaffney, Executrix, 36 B. T. A. 610, 614, petitioner’s decedent in April 1922 and April 1923 caused corporate stock to be transferred as a gift to his wife on the books of a trust and of a corporation, but the stock certificates were kept in the decedent’s safe deposit box, to which the wife did not have access until April 7, 1931. The decedent died in August 1932. Although after the transfer the decedent continued to participate in the direction of both companies, we held that there was completed gift, saying:

A gift is none the less valid and complete because the donee does not retain possession of the property after delivery. “The donor may retain possession if he does so as agent of the donee for safekeeping.” Brady’s Estate, 239 N. T. S. 5. “After a gift is once complete and the title has passed to the donee, the fact that the donor subsequently has possession of the property given does not affect the validity of the gift.” Edson v. Lucas, 40 Fed. (2d) 398.
Transfer of stock on the books of the corporation in itself constitutes a delivery, in the absence of evidence establishing lack of donative intent. Marshall v. Commissioner, 57 Fed. (2d) 633, citing Roberts’ Appeal, 85 Pa. 84. It is only where it is affirmatively shown that the donor did not intend thereby to make a gift that transfer of stock on the books of the corporation is held to be insufficient. * * *

In Dulin v. Commissioner, 70 Fed. (2d) 828, corporate stock was delivered to the transfer officer of the corporation, with directions to transfer to the wife of the former owner. The officer did not actually secure the former owner’s endorsement, or transfer the stock on the books until a later date, but delivery to the officer was held delivery to the corporation as trustee for the wife, although there was no showing of the delivery of the certificates to the wife.

Phillips v. Plastridge, 179 Atl. 157, holds that intentional, voluntary, and unconditional transfer of title to corporate stock by the donor to his daughter, in whose name corporation issued certificates at donor’s direction, is equivalent to actual delivery of the certificates, and that the donee’s ignorance of the transaction is immaterial.

In Lunsford Richardson, 39 B. T. A. 927, we held that a gift of stock was effectuated upon May 27, 1932, prior to the effective date of the gift tas provisions of the Revenue Act of 1932 upon June 6, 1932. Therein petitioner had told the secretary and other officers of a corporate bailee that he had given the stock to his wife and to prepare necessary papers to transfer it to her. The secretary informed him that no transfer of record ownership was required, since the stock was registered in nominees’ names, and that as officer of the corporate bailee he, the secretary, could have the stock placed in the wife’s account; and thereupon the secretary made an entry upon the corporate bailee’s cards containing a record of taxpayer’s stock, to the effect that he had made a gift of the stock to his wife on May 27, 1932. The corporate bailee not being the corporation in which the stock was held, it is plain that no transfer whatever was made upon the books of the issuing corporation, as there was herein, and, as herein there was no actual delivery of the stock. The above citation requires a holding here that transfer of title was effected by the transfer on the corporate books on May 31, 1934. Petitioners themselves cite and quote from Hoffman v. Commissioner, 71 Fed. (2d) 929, in part as follows: “But the law is well settled that nondelivery of possession would not preclude title to the stock passing forthwith to Dorman if such was the intention of the parties.”, citing Hatch v. Oil Co., 100 U. S. 124; Hammer v. United States, 249 Fed. 336, and many other cases, and relying upon the statements and conduct of the parties as consistent with passage of title. It seems beyond argument that Walter H. Hildick’s statements and conduct are consistent only with passage of title on May 31, 1934, for in his income tax return for that year he accounted for profit or loss from this stock as acquired in September 1933 (the date when the company was incorporated) and sold in May 1934, and $14,301.38 as the amount realized or cost of the stock to him; but $14,301.38 is the amount stated in his letter to the revenue agent, where he says that “The total amount of the loans, with accrued interest, was $14,301.38”, and he testified that this was computed to May 31, 1934. Plainly, Hildick considered, when he filed his income tax return for 1934, that on May 31, 1934, he transferred and disposed of his ownership of this stock to such extent that he must account for any profit or loss. He computed interest to the very day he transferred the stock to the family. We can conceive of no stronger indication that that date was the termination of his title. Moreover, he plainly recognized the stock as belonging to his wife and children. He says that on May 31, 1934, “I transferred some of my certificates to the members of my family, actually transferred them at the transfer agent’s”; he says that in 1936 “I sold the stock of my son and daughter * * * and I sold five hundred shares of stock belonging to my wife.” (Emphasis supplied.) A little later he refers to the other “1500 shares that belonged to my wife, and I turned those over to her in April 1936, she insisted upon selling them and I did not want her to do it, so she made her own arrangements and sold them.” Her insistence indicates her view that the stock belonged to her before manual delivery. There is no proof that he had delivered to her before she sold, and her use of the word “short” as to her sale indicates otherwise. In addition, Walter Hildick, Jr., testified that some time before the sale he saw and endorsed the 500 shares of stock, he thinks in the fall of 1935, and that, though he knew that stock had been set aside for him, the first time he knew how much was in looking through some forms that were filed for the company, Distilled Liquors Corporation, in which all shareholders were listed and the amount of shares each one held, which was possibly in 1934 or 1935. The children were plainly leaving the matter largely to their father, and his conduct is in effect their own. Yet the endorsement by Walter Hildick, Jr., probably in 1935, indicates his recognition of ownership in himself. We think the whole line of conduct of the parties demonstrates passage of title to stock long before manual delivery, by transfer on the books May 31, 1934.

Petitioners agree, and cite cases to the effect that “the trend of the decision is towards nontaxability of stock where it is not available to the taxpayer because of restrictive arrangements, until the restrictions end”, but they contend that the restrictions on transfer of the stock did not end until 1936. The evidence indicates, however, that the restrictions ended before May 31, 1934, the date when transfer was made to petitioners, for Walter H. Hildick testified:

* * * I could not transfer tlie stock because I was under a written contract with tbe underwriters not to sell or alienate or transfer any of my stock for a period of six months. That expired on the 15th of April. At that time, the market was declining and I entered into another agreement with Richard Whitney and Company to continue to hold my stock and not to transfer any while they were trying to make a market for it and it was not until May the 31st, 1934, that I transferred these 3500 shares of stock to the members of my family, but I retained physical possession of them, they did not even see it, none of them, until 1936. * * *

The fair conclusion from this language is that Hildick kept his agreement, not to transfer, that it terminated before May 31, 1934, and permitted him to transfer on that day, as he did. Indeed, upon brief petitioners state that “* * * Hildick did have their stock transferred to the petitioners’ names when the first restrictive agreement * * * expired.” We think it plain that the restriction had expired when the transfer was made on May 31, 1934. As above stated, Hildick stated that he had decided the amount he was going to give them, his family, “when I was permitted to do it.” Obviously, on May 31, 1934, he considered himself permitted to do it. Proof of any later restriction is vague and unsatisfactory. There is, in fact, no proof of restriction existing upon that date. It is obvious, of course, that a mere declaration of intent to transfer in 1933 did not effect a transfer in that year.

We, therefore, find and determine that upon the acquisition of the title to the stock in 1934, as aforesaid, each petitioner realized taxable income to the extent that the then fair market value of the stock acquired exceeded the amount of the loan made to Walter H. Hildick by said petitioner. Rodrigues v. Edwards (C. C. A., 2d Cir.), 40 Fed. (2d) 408.

The record shows that stock of the Distilled Liquors Corporation had been sold to the public on different dates at varying prices and that in the early part of the month of May 1934 the stock was selling around $31 or $32 a share and at the end of that month, as Hildick testified, around $25 or $26 a share. While the record does not show how many sales of the stock were made in May 1934, it does indicate that the original issue was readily subscribed for, that there were sales and the prices at which sold, thus indicating that the stock did have a market value. The respondent determined that the stock had in May 1934 an average fair market value of $26% per share, on that basis determined that the stock transferred to the petitioners in May 1934 was worth $26% per share, and on that valuation determined the income to the petitioners. It is true that the book value was $11.93 per share, and that such value was used by a revenue agent in connection with a tentative arrangement as to petitioners’ income taxes for 1934, wherein they paid some tax, as above stated. However, valuation of the stock by the respondent is presumed to be correct, the evidence of market value in May 1934 is plain, and in our opinion there has been no evidence introduced by petitioners sufficient to overcome the presumption of the correctness of the respondent’s determination as to fair market value of the stock.

The valuations put upon petitioners’ stock by Walter H. Hildick— $3 per share, $4.50 per share, and $3.60 per share, as heretofore set out — were arbitrary and without, in our opinion, any sound basis for such valuations, since no good reason was given and none can be assigned why stock of the same kind and transferred at the same date should be of different values and not of the value of other shares of the same stock selling on the open market. We therefore affirm respondent’s valuation of the stock as $26% per share on May 81, 1934.

All of the petitioners admitted that they did not file income tax returns for the year 1934. Assuming that there may have been reasonable cause for failure of the petitioners to file timely returns for the taxable year (1934) in question, no returns ever were filed at any time by any of the petitioners and the imposition of the 25 per centum penalty addition to the tax as to each petitioner is, therefore, mandatory and the action of the respondent in so determining is approved. Douglas L. Edmonds, Administrator, 31 B. T. A. 962; affd. (9th Cir.), 90 Fed. (2d) 14; certiorari denied, 302 U. S. 713; Sarah A. W. Coursey, 33 B. T. A. 1068.

Reviewed by the Board;

Decision in each of the dockets will be in famor of the respondent.


source: Caselaw Access Project

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text:
    Augustus S. Loyless, Petitioner, v. Commissioner of Internal Revenue, Respondent.
    Docket No. 91724.
    Promulgated September 29, 1939.

      M. E. Kilpgtrick, Esq., for the petitioner.

      S. B. Anderson, Esq., for the respondent.
   OPINION.

Disney:

The petitioner is an individual, residing in Atlanta, Georgia. The tax in controversy is income tax for the calendar year 1934. The asserted deficiency is $361.28, of which only that part is in dispute which, arises from the refusal of the respondent to recognize the petitioner as the head of a family, and in computing his taxable income to allow him as such an exemption of $2,500, and a credit of $400 for one dependent, his mother.

Petitioner’s father died on November 11, 1931, leaving assets appraised at approximately $13,118.09, exclusive of certain real estate which was mortgaged and the mortgagees as to which were paid $1,115 not to seek deficiency judgments, after such real estate had been sold, subject to mortgages, for $400, which was all absorbed by costs of sale, and exclusive of a bond which had been sold and the proceeds applied upon indebtedness to petitioner, as hereinafter stated. The above appraisement included bonds appraised at $3,000, which were, however, in petitioner’s income tax return valued at $11,250, in connection with a claim of loss, which was disallowed, and as to which disallowance no error is claimed. Petitioner’s father had been engaged at the time of his death in the publishing business and owed in connection therewith approximately $15,000, in addition to taxes. Funeral expenses were incurred in the amount of about $1,250. The taxes were paid for approximately $786.90, and of the remaining debts an item of $6,762.48 was settled for $3,000.

Petitioner’s mother, Flora S. Loyless, was separated from his father, Donald A. Loyless, against whom she held an alimony judgment dated March 25, 1928, of $200 per month.

Petitioner was, under said will, the sole legatee of his father’s estate and was familiar with its condition. He was nominated as an executor of the will, but refused to qualify as such and the Fulton National Bank of Atlanta, Georgia, was the sole executor of the said decedent’s estate. The executor paid the alimony to decedent’s wife at least until about May 1933.

The petitioner desired to get control of his father’s publishing business and, for the purpose of paying off some of the debts of the publishing business and keeping the business in operation, advanced to the executor of his father’s estate the sum of $6,572.50, but was repaid $4,012.50 from sale of assets, to wit, a bond, not included in the appraisement of $13,118.09, above referred to. The petitioner took over the business of his father’s estate and managed it, subject to the approval of the trust department of the Fulton National Bank of Atlanta, Georgia.

During the taxable year, the petitioner and his mother, then about 62 or 63 years of age, lived together in northeast Atlanta, Georgia, in a residence which was owned by his mother. The value thereof is not shown. The mother was not capable of working and was highly nervous. She had no children other than petitioner, and he in 1934 contributed to her support by paying taxes, insurance, living expenses — food, clothing, and maintenance of the home, to the extent of approximately $325 per month. Petitioner’s mother’s yearly income from all sources was not exceeding $350, which was applied towards payment of her taxes, insurance, and upkeep of her real property, but was not sufficient to meet the entire expense, the difference being supplied by the petitioner in the amount heretofore stated.

In addition to the house above referred to in which petitioner and his mother lived, she also owned an undivided interest in the homestead of her father and a parking lot which adjoined it. The value of her real estate interests is not shown, nor the extent to which any of it is encumbered by mortgages shown to rest thereon.

The Fulton National Bank, executor of the estate of Donald A. Loyless, in 1933 filed a petition in the Superior Court of Fulton County, Georgia, making petitioner and his mother and other creditors of the estate defendants, which petition asked for a construction of the will of Donald A. Loyless, a determination of the proper assets of the estate, and a settlement by petitioner as executor, and asked that the court establish priority of claims, etc. A copy of the petition aforesaid and a copy of the decree of the court entered thereon upon September 30, 1933, are in evidence, in which decree it is, in part, stated:

It further appearing to the court that the parties hereto have agreed upon settlement of the foregoing claims and priorities, It Is Ordered, Adjudged and Decreed [in part] as follows:
11. It appearing that certain personal property and real estate is left in the hands of the executor, It Is Further Ordered that all of said property shall be turned over to A. S. Loyless in full satisfaction of any and all claims that he may have against said executor, the Fulton National Bank, said A. S. Loyless receiving full and complete title to said property and upon further consideration of his agreement to reasonably maintain and support Mrs. Flora S. Loyless so long as she shall live, provided, however, that the said A. S. Loyless shall not be required to pay to Mrs. Flora S. Loyless more than $200.00 in any one month. It is further mutually agreed that Mrs. Flora S. Loyless shall renounce any claim against the executor, the Fulton National Bank, and to any and all property transferred by the executor to A. S. Loyless and hereby relieves the executor from any claim that the said Mrs. Flora S. Loyless may have against the estate of Donald A. Loyless and the executor, the Fulton National Bank, and said property transferred and sold to A. S. Loyless.

The fact that the petitioner expended in the taxable year about $325 per month for, or on account of, his mother and her property was commendable action on his part, but does not, in our opinion, justify his contention that his mother in 1934 was “dependent” upon him and. that he was then the “head of a family.” The fact that her several pieces of property produced income not exceeding $850 yearly, does not indicate that her interest in such property — though encumbered — was of little or no value, as petitioner contends. Very valuable property, temporarily and under unfavorable circumstances or management, may produce little or no income. So far as shown by the record, petitioner’s mother still owns all the real estate heretofore mentioned as belonging to her, and the agreed decree is clearly a recognition of her claim against the estate of the deceased father of petitioner, to acquire which estate absolutely the petitioner agreed reasonably to maintain and support his mother to the extent of paying her $200 per month so long as she should live, upon the condition and consideration of his mother’s renouncing any and all claim against said estate, its executors, etc., which she did. Thus, it appears that in the taxable year petitioner’s contribution to the support of his mother in her own home was, to the extent of $2,400, pursuant to contract, merged into judgment, and for a valuable consideration, and not “based upon some moral or legal obligation”, in the sense of article 25-4 of Regulations 86. For such contribution, he had received a very real and valid consideration, to wit, release of his father’s estate, and the property he received as legatee thereof, free from his mother’s lien. We think that a “legal obligation” within the meaning of the regulation is one qua head of the family, not one assumed by agreement for valuable consideration, as herein. The legal obligation referred to by the regulation is, in our opinion, of the nature of that in M. A. Willem, 89 B. T. A. 898, where the obligation was that of a court decree ordering a husband to provide for the support of a wife and minor children. Otherwise, one could at will set up dependents and a family, by contract with those otherwise not coming within either category. In Louise D. Morrell, 38 B. T. A. 239, we held that the petitioner was not entitled to credit for 64 boys whom she supported in an industrial school pursuant to agreement so to do and claimed as dependents, and said that the boys were not dependents within the meaning of section 25 (d) of the Revenue Act of 1932.

So far as concerns the claim of dependency above the contractual support of $2,400, it is clear that the petitioner’s mother does not satisfy the regulation — article 25-6 of Regulations 86. She does not receive “her chief support” from her son (except under the contract which we have just said we consider insufficient basis for the claim) since the amount above $2,400, approximately $1,500, is not her “chief” support, or more than half thereof. Moreover, under the regulations, “The credit is based upon actual financial dependency, and not mere legal dependency.” But petitioner’s mother had property. True, in 1934 it produced only $350 income, but in our opinion that is not the criterion. The value of the property is not shown. It may have been ample to support the mother, had she devoted the corpus -thereof to her support by sale thereof. We think one with unknown wealth can not be claimed as a dependent, merely because the current income of such claimed dependent is insufficient for his support. In John H. Watson, Jr., 38 B. T. A. 1026, petitioner spent $5,000 per year maintaining his mother in his own home. She having an income of approximately $3,000 per year, the $5,000 obviously was her “chief support” so far as current income is concerned. Yet, we held that the son was not entitled to the status of head of a family, the mother having an estate of $100,000, stating: “Obviously, petitioner’s mother was not financially dependent upon him within the meaning of the regulation.”

In United States v. McHugh, 253 Fed. 224, it was held- that under the Selective Service Act and regulations, providing for exemption to registrants having dependent parents, the exemption did not extend to a parent “able to maintain himself, either from property which he owns or from his labor.”

In Schedzick v. Volney Paper Co., 184 N. Y. S. 424, the court held that, under the Workmen’s Compensation Law in order to show dependency necessity must be established “and therefore a father owning a farm, who is supporting his family and increasing his capital without the assistance of a son, contributing some of his earnings, is not a ‘dependent.’ ” The father had a 170-acre farm, costing $4,200, with $2,800 encumbrance thereon and a considerable income therefrom; also, personal property.

McDonald v. Atlantic & Pacific Tea Co., 111 Atl. 65, holds that no one is a dependent under the Workmen’s Compensation Law “who has sufficient means at hand to supply present necessaries, rating them according to the alleged dependent’s class and position in life.”

In Gherardi v. Connecticut Co., 103 Atl. 668, it was held that under the Workmen’s Compensation Act of Connecticut one “whose financial resources, at his command or within his power to command by the exercise of such efforts as he reasonably ought to exert in view of the existing conditions, are sufficient to sustain himself and family in a manner befitting his class and position in life without being supplemented by the outside assistance which has been received” was not a dependent. Practically the same language was used in Rock Island Bridge & Iron Works v. Indiana Commission, 122 N. E. 830, and was quoted in Serrano v. Cudahy Packing Co., 190 N. W. 132, holding that under the Workmen’s Compensation Act of Iowa, “Parents, who have sufficient means to supply present necessities according to their class and position in life, are not ‘dependents’ ■within Workmen’s Compensation Law, ‘dependent’ being one who is not self-sustaining, and the mere fact that parents used certain earnings of deceased does not establish dependency.” The court quotes Webster’s definition of “dependent” as “not able to exist or sustain self; not self-sustaining.”

In the light of the entire record and particularly the decree from which we have quoted briefly herein, we are of the opinion, find, and determine that in the taxable year 1934 the petitioner’s mother was not, in the sense of the applicable statute, section 25 (b) (2) of the Revenue Act of 1934, a “dependent” of petitioner and that the petitioner was not entitled to be classed as the “head of a family” within the meaning of section 25 (b) (1) of said revenue act, nor the same sections as defined and construed in articles 25-4 and 25-6 of Regulations 86.

We therefore are of the opinion and hold that the respondent did not err in his determination of the deficiency herein, and his action is approved.

Reviewed by the Board.

Decision will be entered for the respondent.


author: Black:

text:
    O. L. Burnett, Petitioner, v. Commissioner of Internal Revenue, Respondent.
    Docket No. 90248.
    Promulgated September 29, 1939.

      Paul McMahon, Esq., for the petitioner.

      Carroll Walker, Esq., and Elizabeth B. Fegan, Esq., for the respondent.
   OPINION.

Black:

This proceeding is to contest a deficiency of $4,901.40 in petitioner’s income tax liability for the year 1934. The deficiency results from several adjustments made by the Commissioner in the income tax return filed by petitioner for that year. Petitioner contests only three of these adjustments by appropriate assignment of error, as follows:

(1) That the Commissioner erred in disallowing as a deduction a loss of $18,964.21 which petitioner incurred in a business regularly carried on by her and in holding that petitioner was not engaged in any trade or business and that the loss in question was a capital loss and limited to $2,000 by the provisions of section 117 (d) of the Revenue Act of 1934.
(2) That the Commissioner erred in disallowing as a deduction $9,600 paid out as attorneys’ fees during the taxable year for securing a refund of income taxes erroneously paid.
(3) That the Commissioner erred in disallowing a deduction of $15,420 claimed by petitioner as a loss resulting from her investment in 60 shares of stock in the First National Bank of Burkburnett, Texas, becoming worthless during the year 1934.

The facts have all been stipulated and we adopt the stipulation as our findings of fact and shall state herein only such facts as we deem necessary to an understanding of the issues to be decided.

We shall first take up issue (1). It has been stipulated that during the taxable year 1934, the petitioner sustained a loss of $18,964.21 in the purchase and sale of stocks and commodities. Petitioner claimed this loss on her income tax return for 1934 as an ordinary loss, deductible in full from her income in that year. In his deficiency notice the Commissioner limited this loss to $2,000 and gave the following reason therefor:

The amount claimed as a business loss from trading in stocks and commodities has been disallowed as a loss from business, and the limited amount of $2,000 allowable under section 117 (d) of the Revenue Act of 1934 has been allowed as a capital net loss. The agent’s investigations covering 1934 and prior years have indicated that, your method of conducting your trading transactions is not such as would entitle you to he classed as carrying on a business.

The facts with reference to petitioner’s trading on margin through brokers in corporate stocks and in wheat and cotton, during the year 1934, have been stipulated in great detail. It is not necessary to incorporate these details in this report. Suffice it to say that the stipulation shows that during the taxable year 1934 the activities of the petitioner in the purchase and sale of stocks and commodities on margin compares with the annual average of her like activities during the 10-year period ended December 31,1936, as follows:

It seems manifest from the facts which have been stipulated that during the taxable year and several years prior thereto petitioner w¡as engaged in the business of trader in securities and commodities on her own account and we so find. Her business consisted of buying and selling stocks and commodities on her own account, primarily for the profit to be derived from selling for a price in excess of the cost of the stocks and commodities to her. Therefore, if deciding that petitioner was a trader in stocks and commodities on her own account during 1934 and that the stocks and commodities held in her margin accounts were held primarily for sale in her business were all that is necessary, we would decide issue (1) for petitioner. Such would have been sufficient under the Revenue Act of 1932 and the loss which petitioner incurred in these trading accounts would have been an ordinary loss and deductible in full. Cf. Charles Wesley Purdy, 36 B. T. A. 572; affd., 102 Fed. (2d) 331, decided under the 1932 Act. Petitioner cites the Purdy case and several “G. C. M’s” and “I. T’s” in support of her contention. These were all under revenue acts prior to the Revenue Act of 1934 and seem to be of no particular value here in view of the changes made by the 1934 Act, to which we shall refer in more detail presently.

In the 1934 Act the definition of “capital assets” was changed so as to drop the requirement that the property should have been held for more than two years and to narrow the provision that capital assets should not include “property held by the taxpayer primarily for sale in the course of his business” to a provision that capital assets shall not include “property held by the taxpayer primarily for sale to customers in the ordinary cowrse of his trade or business.” (Italics ours.) The words in italics are those which were added in the Revenue Act of 1934.

Section 117 (b) of the Revenue Act of 1934 reads as follows:

(b) Definition of Capital Assets. — For tbe purposes o£ this title, “capital assets” means property held by the taxpayer (whether or not connected with his trade or business), but does not include stock in trade of the taxpayer or other property of a kind which would properly be included in the inventory of the taxpayer if on hand at the close of the taxable year, or property held by the taxpayer primarily for sale to customers in the ordinary course of his trade or business.

Under the above definition any property is a “capital asset” unless it may properly be included in an inventory or is held for sale to customers. Petitioner being a trader in securities and commodities for her own account, as distinguished from a “dealer” in securities and commodities, was not entitled to use inventories in determining her net income. Cf. Edward J. White, 37 B. T. A. 1106; C. E. Wilson, 29 B. T. A. 1022; affd., 76 Fed. (2d) 476; Adirondack Securities Corporation, 23 B. T. A. 61.

It being clear that petitioner is not one who is entitled to use inventories in determining her net income, we next inquire whether the stocks and commodities purchased and sold by petitioner through brokers for her own account in 1934 constituted property held by the taxpayer primarily for sale to customers in the ordinary course of her trade or business.

The Board has held that a taxpayer who trades for his own account does not sell to “customers.” Oil Shares, Inc., 29 B. T. A. 664. It seems plain that the very purpose of the change in the Revenue Act of 1934 defining “capital assets” to which we have just referred was to see to' it that the limitation on deductible capital losses provided by section 117 (d) should apply to speculative traders who purchase and sell securities and commodities for their own account and not for resale to customers.

Under the Revenue Act of 1932 the definition of “capital assets” was as follows:

Sec. 101 (c) (8). “Capital assets” means property held by the taxpayer for more than two years * * * but doesi not include * * * property held by the taxpayer primarily for sale in the course of his trade or business.

In the Revenue Act of 1934 this definition was changed in the manner we have already indicated. The reason for the changes made is shown in the report of the Senate Finance Committee and in the conference report of the two houses. The remarks of the Senate Finance Committee regarding the matter are found at page 12 of the report, and in part are as follows:

Second, the definition of capital assets has been slightly revised to prevent tax avoidance by excluding from the category of a capital asset “property held by the taxpayer primarily for sale to customers in the ordinary course of his trade or business”, instead of merely “property held by the taxpayer primarily for sale in the course of his trade or business.”

The observations by tbe committee on conference are found in its report at page 22, being in part as follows:

Amendment no. 66: The house bill excluded from the definition of “capital assets” property held primarily for sale in the course of taxpayer’s trade or business. The Senate amendment confines the exclusion to property held primarily for sale to customers in the ordinary course of the taxpayer’s trade or business, thus making it impossible to contend that a stock speculator trading on his own account is not subject to the provisions of section 117. The House recedes.

Much of petitioner’s brief is devoted to argument to show that during 1934 she was engaged in the business of buying and selling securities and commodities for her own account and that all her purchases were primarily for sale in the course of her business. We think these contentions are borne out by the stipulated facts, and, as we have already said, if the 1934 Act on this point were the same as the 1932 Act, petitioner would prevail, but the acts are not the same. Petitioner’s stocks and commodities held in her margin accounts with brokers were not held primarily for sale “to customers in the ordinary course” of the taxpayer’s trade or business within the meaning of the Revenue Act of 1934. We, therefore, hold against petitioner on this point and sustain the Commissioner in his application of the $2,000 limitation on capital losses provided by section 117 (d) of the Revenue Act of 1934.

Issuei (£). — This issue relates to a claimed deduction of $9,600 for attorney fees paid out by petitioner during the taxable year. The petitioner claimed it as the deduction of an ordinary and necessary business expense. The Commissioner disallowed it and explained his reasons for such disallowance in his deficiency notice, as follows:

Attorneys’ fees paid in connection with obtaining a refund of income taxes due to tbe adjustment of distributable income from tbe Estate of S. B. Burfiett, do not constitute an allowable deduction since tbe fees paid were not connected with any trade or business.

The distinction of what are purely personal expenses from those which are made in carrying on a trade or business is not always easy to draw. As was said in Monell v. Helvering, 70 Fed. (2d) 631:

The point where the one class of expenses (business) merges into the other (personal) is often hard to determine. But however blurred it may be, it is necessary to keep the distinction which Congress has made.

As we have already stated in our discussion under issue (1), petitioner was clearly carrying on the business of the purchase and sale, for her own account, of securities and commodities. But the expenditure of $9,600 for attorney fees was not in connection with this business of trading in securities and commodities. However, trading in securities and commodities was not petitioner’s only business activity. She was a woman of considerable wealth. She was one of the beneficiaries of the estate of S. B. Burnett and, while she was not one of the trustees of that estate, it was stipulated that:

The petitioner has, since its beginning in 1922, acted as consultant and adviser to the trustees [S. B. Burnett Estate] in the adoption of policies, purchase and sale of cattle, handling of the oil interests, and general oversight of the properties, having at June 30, 1925 a hook value of $3,416,467.51.

It was also stipulated that:

Since the establishment of the Mary Oouts Burnett Trust in 1923, the petitioner has continuously since its beginning, served as trustee. The properties of this trust had at June 30, 1925, a boob value of $3,557,530.27.

The facts above referred to, taken together with other stipulated facts, convince us that the expenditure for attorney fees in question falls within the ambit of Kales v. Commissioner, 101 Fed. (2d) 85, and Louise C. Slack et al., Executors, 85 B. T. A. 271, and not within the ambit of Elmon C. Gillette, 29 B. T. A. 561, and Monell v. Helvering, supra, cited and urged by the Commissioner.

It should be remembered that the $9,600 attorney fees paid out by petitioner were not paid out in securing a refund of estate tax or income tax for the S. B. Burnett estate or the Mary Couts Burnett trust. If that had been true, the case would fall within the ambit of the Gillette case and the MoneTl case cited by the Commissioner. The fees were paid out in securing a refund of petitioner’s own income taxes and the refund was due to an adjustment of petitioner’s distributable income from the estate of S. B. Burnett, for which it has been stipulated that petitioner was acting “as consultant and adviser to the trustees in the adoption of policies, purchase and sale of cattle, handling of the oil interests and general oversight of the properties.”

Under these circumstances we think issue (2) is ruled by Kales v. Commissioner, supra, and Louise C. Slack et al., Executors, supra, and we decide it in favor of the petitioner.

Issue. (3). — This issue relates to $15,420 which petitioner claims as a deduction because of shares of stock which she owned in the First National Bank of Burkburnett becoming worthless in the taxable year. In his disallowance of this claimed loss, the Commissioner stated in his deficiency notice:

The loss on stock of the First National Bank of Burkburnett has been disallowed since the report states that the stock had a market value in 1936 and that dividends will likely be paid on liquidation.

It requires no citation of authority to support the view that the Commissioner’s determination is presumed to be correct and that the burden is on petitioner to show that this determination was error. Petitioner has not made any such showing. In addition to facts showing the amount of petitioner’s investment in the stock, the only other facts stipulated are that “The doors of this bank were closed on March 18, 1933. No distribution in liquidation has ever been made to stockholders.”

The year we have before us is 1934, the year following the closing of the bank in 1933. No facts are shown as to the assets and liabilities of the bank at the time of its closing in 1933, or at the end of the taxable year 1934, or at any other time. Apparently the affairs of the bank are still in liquidation, and on the meager facts which have been stipulated there is no way by which we can find that this stock became worthless in 1934. On this issue, petitioner must fail, for lack of evidence, to overcome the correctness of the determination of the Commissioner. Cf. Northwest Bancorporation, 32 B. T. A. 1218; affd., 88 Fed. (2d) 293.

Decision will be entered wnder Bule SO.


author: Aeundell :

text:
    Georgia Stevedoring Company, Petitioner, v. Commissioner of Internal Revenue, Respondent.
    Docket No. 95667.
    Promulgated September 29, 1939.

      T. J. O'Brien, O. P. A., for the petitioner.

      E. M. Woolf, Esq., for the respondent.
   opinion.

Aeundell :

The respondent has moved to dismiss for lack of jurisdiction. It appears from the pleadings that the petitioner, a Georgia corporation, was dissolved in 1936. The deficiency notice was mailed June 30, 1938, and petition was filed with the Board on September 28, 1938.

Seemingly at one time the dissolution of a Georgia corporation had the effect of wholly extinguishing the corporation, there being no provision for its continued corporate existence for any purpose. Venable Brothers v. Southern Granite Co., 135 Ga. 508; 69 S. E. 822, decided in 1910. Were that the situation today, the petition filed in this proceeding would be a nullity and would not invoke the jurisdiction of the Board. Estate of S. S. Hunter, Inc., 26 B. T. A. 259; Stcmdifer Construction Corporation v. Commissioner, 78 Fed. (2d) 285. But in 1918 the following provision was added to the Georgia corporation statutes:

Effect of dissolution as to causes of action and pending suits. — The dissolution of a corporation either as a result of the expiration of its charter, or for any other cause, shall not bring about its total extinction nor operate to extinguish any demand or cause of action against it in favor of any person whomsoever, whether arising from contract or tort, nor shall such dissolution work the abatement of any suit pending against it at the time of such dissolution, but all such pending suits may be prosecuted and enforced to a conclusion as though such corporation were still undissolved. [Acts 1918, p. 136; §2246 (a), Park’s Annotated Code, 1922 Supp.; Oode, § 22-1210.]

Since the enactment of the quoted statute the Georgia courts have refused to dismiss suits against dissolved corporations on the ground of non-existence of the defendant. Dixie Manufacturing Co. v. Ricks, 153 Ga. 364; 112 S. E. 370; Huey v. National Bank of Fitzgerald, 177 Ga. 64; 169 S. E. 491; Manufacturing Lumbermen's Underwriters v. South Georgia Railway Co., 196 S. E. 244. In the Dixie Manufaotwring Co. case, that company was sued in a tort action. It sought to introduce evidence that it had been dissolved prior to the institution of the suit. The trial court refused to receive the proffered evidence and was sustained on this point by the Supreme Court of the state in this language:

The act of 1918 (Acts 1918, p. 136) provides that the dissolution of a corporation, either as the result of the expiration of its charter or for any other cause, shall not bring about its total extinction, nor operate to extinguish any demand or cause of action against it in favor of any person whomsoever, whether arising from contract or tort, nor shall such dissolution work the abatement of any suit pending against it at the time of such dissolution, but all such pending suits may be prosecuted and enforced to a conclusion as though such corporation were still undissolved. The act further provides that suits for the enforcement of any demand or cause of action due by such corporation may to a like extent be instituted and enforced against it in any court having jurisdiction thereof at the time of its dissolution, etc. Therefore the trial court did not err in declining to allow movants to introduce in evidence the original order of the superior court, granted April 16, 1919, dissolving the Dixie Paper & Box Company as a corporation, more than four months before the filing of plaintiff’s suit; * * *

Under the quoted statute, as construed by the Georgia courts, this petitioner did not become wholly defunct upon its dissolution in 1936, but its corporate existence continued for the purpose of defending demands against it. We accordingly hold that the petition filed in this proceeding is a petition of the corporate taxpayer to whom the notice of deficiency was sent, and that we have jurisdiction. Cf. George Wiedemann Brewing Co., 4 B. T. A. 664.

Both parties have made some argument as to the effect of a statute enacted in 1938 (Code, § 22-1874) on corporations dissolved in prior years. In view of the decision we have reached it is unnecessary in this proceeding to attempt a construction of the 1938 statute.

Order denying the resfondenfs motion will be entered.


author: Arundell:

text:
    Estate of Bliss Stebbins, Deceased, Grace Cole Stebbins, Executrix, Petitioner, v. Commissioner of Internal Revenue, Respondent.
    Docket No. 98097.
    Promulgated October 3, 1939.

      Raymond M. Hudson, Esq., for the petitioner.

      E. M. Woolf, Esq., for the respondent.
   OPINION.

Arundell:

The respondent has moved to dismiss this proceeding for lack of jurisdiction on the ground that the petition was not filed within 90 days after the mailing of the notice of deficiency as required by section 272 (a) of the Revenue Act of 1934. The motion is resisted by the petitioner.

The notice of deficiency was mailed by the respondent on January 18, 1939. On April 17, 1939, counsel for the petitioner sent, and the Board received, a telegram reading as follows:

PETITION REQUESTING DETERMINATION OP STATUS OP TRANSPER OP CERTAIN STOCK BY DECEASED IN MATTER OF ESTATE OP BUSS STEBBINS GRACE COLE STEBBINS EXECUTRIX AGAINST COMMISSIONER FORWARDED THIS DATE

This telegram was stamped with the number 98097 and entries were made on the Board’s docket indicating that the telegram was entered as a petition bearing that docket number. On the same date, April 17, the Clerk of the Board issued a receipt stating that the Board liad received and filed “Petition for redetermination” and acknowledging remittance to cover filing fee.

On April 17, 1939, counsel for petitioner mailed by air mail from Miami, Florida, a formal petition in the usual form. This was mailed at such time that under usual mail schedules it should have arrived in Washington, D. C., at 4 a. m. on April 18. It was received by the Board on April 19, marked “Amended Petition” by the Clerk’s office and numbered docket 98097. April 19, 1939, was the ninety-first day after the date of the mailing of the deficiency notice.

The first question is whether the telegram, received within the 90-day period, was a petition so as to invoke the jurisdiction of the Board. It will be noted that it does not request a redetermination of a deficiency in taxes; it does not refer to a deficiency notice, or to any kind of taxes. Moreover, its wording indicates that, rather than intended to be an informal petition, it was intended simply as notice that a petition was on its way. It says: “Petition requesting redetermination * * * forwarded this date.” Thus, on its face the telegram does not purport to be a petition.

But even if the petitioner intended to have the telegram considered as a petition, we think it was insufficient to invoke our jurisdiction. In I. J. Rosenberg, 32 B. T. A. 618, the petitioner sent a telegram to the Board saying “File this as tentative petition”, and quoting the symbols of the deficiency notice. Thereafter, and outside the 90-day period, he filed a formal petition. The Commissioner moved to dismiss on the ground that the telegram was not a notice of deficiency. We sustained the motion, saying:

By no fair interpretation can the document be treated as “a petition for a redetermination of a deficiency.” To allow it to be so treated would be to invite the mere statement of an intention to file a petition at some subsequent time to be accepted as a present filing of a petition. This would be in plain annulment of the letter and intention of the statute. The Commissioner is required, before proceeding by distraint or otherwise to collect a deficiency in tax, to give to the taxpayer the notice such as he gave in this ease. And thereafter he is prohibited from proceeding for 90 days; and, if a petition for a redetermination of the deficiency has been filed, then until the decision of the Board has become final. These provisions of the law were intended for the benefit of the taxpayer. If he will enjoy that benefit he must do so in the way the law provides. As said in the case of Percy N. Poivers, supra [20 B. T. A. 753], “Certainly it was not intended in bestowing a concession of this magnitude that its benefits could be secured by any means other than strict compliance with the letter of the law.”

Following the reasoning of the Rosenberg case, we are of tbe opinion that the telegram in this case can not be considered a petition for redetermination as required by the statute. The acts of the Clerk of the Board in entering the telegram as a petition and issuing a receipt therefor as a petition could not cure its deficiencies. The Clerk’s duties are ministerial and he has nothing to do with the character or purpose of papers tendered for filing. United States v. Bell, 127 Fed. 1008.

Our reports contain cases wherein jurisdiction has been held conferred by telegraphic petitions. F. O. Statler, 27 B. T. A. 342, is representative of these cases. There the telegram gave the date and symbols of the deficiency notice, the amounts of the deficiencies and penalties, and stated the grounds for appeal. It was obvious in that case that the petitioner intended the telegram itself to be a petition. In this case, as pointed out above, it does not so appear.

The mailing of a formal petition on April 17, 1939, was not a filing thereof with the Board either on that date or on the following day on which it should have arrived in Washington under usual postal schedules. In the very similar case of Poynor v. Commissioner, 81 Fed. (2d) 521, it is said:

It seems that the petitioners made no allowance for a failure of mail to move strictly according to schedule. A paper is filed when it is delivered to the proper official and by him received to be kept on file. Depositing a paper in the post office in time for it to reach the Board of Tax Appeals in the usual course of mail within the time allowed is not a filing of the paper with the Board.

As the petition herein was not received by the Board until April 19, 1939, which was the ninety-first day after the mailing of the notice of deficiency, it was not timely and does not give the Board jurisdiction to redetermine the deficiency.

The respondent’s motion is granted.

Order of dismissed will loe entered.

       Tlie entry on the docket hook is dated April 11, which is obviously a clerical error.